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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
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                                   FORM 10-K/A

<TABLE>
<S>               <C>
   (MARK ONE)
      [X]         ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                  SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] FOR THE
                  FISCAL YEAR ENDED DECEMBER 31, 1999.
      [ ]         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                  SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] FOR THE
                  TRANSITION PERIOD FROM      TO
                               COMMISSION FILE NUMBER: 000-2903-7
</TABLE>

                            eMerge Interactive, Inc.

             (Exact name of registrant as specified in its charter)

<TABLE>
<S>                                           <C>
                  DELAWARE                                65-0534535
      (State or other jurisdiction of           (I.R.S. Employer Identification
       incorporation or organization)                        No.)

            10315 102ND TERRACE                              32958
             SEBASTIAN, FLORIDA                           (Zip Code)
  (Address of principal executive offices)
</TABLE>

              Registrant's telephone number, including area code:
                                 (561) 589-7331

          SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

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<S>                                           <C>
                                                     NAME OF EACH EXCHANGE
            TITLE OF EACH CLASS:                     ON WHICH REGISTERED:
       ------------------------------           ------------------------------
                    None                                     None.
</TABLE>

          SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
                         Common Stock, par value $.008

     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 [ ]     No [X]

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

     The approximate aggregate market value of the voting stock held by
non-affiliates of the registrant was approximately $746.1 million as of March
17, 2000, based upon the closing sale price per share of the common stock, as
quoted on the Nasdaq National Market, excluding 17,959,515 shares of common
stock held by directors, officers and stockholders with representatives on the
board of directors whose ownership exceeds five percent of the common stock
outstanding at March 17, 2000. Exclusion of shares held by any person should not
be construed to indicate that such person possesses the power, direct or
indirect, to direct or cause the direction of the management or policies of the
registrant, or that such person is controlled by or under common control with
the registrant.

     The number of shares of the registrant's common stock outstanding as of
March 17, 2000 was 33,031,395.

     DOCUMENTS INCORPORATED BY REFERENCE:  Portions of eMerge Interactive, Inc.
proxy statement for its 2000 Annual Meeting of Stockholders to be filed within
120 days after the end of the year covered by this Form 10-K Report are
incorporated by reference into Part III of this Form 10-K.

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                            EMERGE INTERACTIVE, INC.

                            FORM 10-K ANNUAL REPORT
                   (FOR FISCAL YEAR ENDED DECEMBER 31, 1999)

                               TABLE OF CONTENTS

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<S>         <C>                                                           <C>
                                    PART I
Item 1.     Business....................................................    1
Item 2.     Properties..................................................   13
Item 3.     Legal Proceedings...........................................   13
Item 4.     Submission of Matters to a Vote of Security Holders.........   13

                                   PART II
            Market for Registrant's Common Equity and Related
Item 5.     Stockholder Matters.........................................   14
Item 6.     Selected Financial Data.....................................   15
            Management's Discussion and Analysis of Financial Condition
Item 7.     and Results of Operations...................................   16
Item 7A     Quantitative and Qualitative Disclosure About Market Risk...   30
Item 8.     Financial Statements and Supplementary Data.................   30
            Changes in and Disagreements with Accountants on Accounting
Item 9.     and Financial
            Disclosure..................................................   30

                                   PART III
Item 10.    Directors and Executive Officers of the Registrant..........   31
Item 11.    Executive Compensation......................................   34
            Security Ownership of Certain Beneficial Owners and
Item 12.    Management..................................................   37
Item 13.    Certain Relationships and Related Transactions..............   39

                                   PART IV
            Exhibits, Financial Statement Schedules and Reports on Form
Item 14.    8-K.........................................................   42
</TABLE>

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     This Report contains, in addition to historical information,
forward-looking statements that involve risks and uncertainties. These
forward-looking statements include statements regarding, among other things,
electronic commerce strategy, acquisition and expansion strategy, development of
services, use of proceeds, projected capital expenditures, the sufficiency of
our liquidity and capital, development of additional revenue sources, market
acceptance of the Internet, expansion into new market segments, technological
advancement, ability to develop "brand" awareness and global expansion. Such
statements are based on management's current expectations and are subject to a
number of uncertainties and risks that could cause actual results to differ
significantly from those described in the forward-looking statements. Factors
that may cause such a difference include, but are not limited to, those
discussed in "Management's Discussion and Analysis of Financial Condition and
Results of Operations," as well as those discussed elsewhere in this Report.

     Our subsidiaries include STS Agriventures, Ltd. ("STS"), a Canadian
corporation and Cyberstockyard, Inc. ("Cyberstockyard").

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                                     PART I

ITEM 1.  BUSINESS

ITEM 1(A).  GENERAL DEVELOPMENT OF THE BUSINESS

COMPANY OVERVIEW

     We are a business-to-business electronic commerce company combining
content, community and transaction services to create an online marketplace for
the cattle industry. We offer our products and services to cattle industry
participants through our family of integrated Web sites, our proprietary
information management application and our direct sales force. Our products and
services are designed to create an efficient market for the purchase and sale of
cattle and to improve quality and productivity in the cattle industry. Our
current products and services include:

     - Livestock procurement services consisting of cattle sales and auctions;

     - Daily performance analyses of a customer's feedlot operations;

     - Comparative cattle industry analysis and feedlot operations benchmarking
       studies;

     - Cattle inventory management tools; and

     - Livestock health management and quality enhancement products.

THE ONLINE LIVESTOCK OPPORTUNITY

     We believe that the production chain of the cattle industry, which includes
cattle producers, feedlots, packers and suppliers, contains inefficiencies that
reduce animal health and value. These inefficiencies, which include excessive
animal transportation and handling, result in additional transaction costs and
reduced beef quality. Further, we believe that inadequate access to current and
accurate data and a lack of integrated information management tools have limited
the ability of industry participants to optimize their operating results and
performance.

     Due to its functionality, scalability and accessibility, the Internet is
emerging as a single destination for commerce and information related to the
livestock industry. Many of the variables that affect beef quality and cattle
performance can be addressed by using the Internet's open architecture,
universal accessibility and ability to provide more timely and comprehensive
information. We believe the Internet can create a more efficient marketplace for
the exchange of cattle by directly connecting buyers and sellers and providing
information related to the cattle for sale. A report by the National Association
of Farm Broadcasters showed that as of February 1999, 45.5% of producers and
53.4% of feedlots used a personal computer for farm business, and 19.7% of
producers and 29.1% of feedlots accessed Web sites for farm-related topics.
According to a Gallup and Agricultural Publisher's Survey, it is estimated that
by 2001 over 55% of large producers in the beef industry will use the Internet
for primary information in the conduct of their daily business. According to
Forrester Research, business-to-business electronic commerce in the United
States is expected to grow from $43.0 billion in 1998 to $1.3 trillion in 2003.

THE EMERGE INTERACTIVE SOLUTION

     We offer commerce, information and technology to cattle industry
participants. Our complementary products and services are designed to reduce
inefficiencies throughout the cattle production chain, improve cattle quality
and improve overall productivity in the cattle industry. Our current products
and services include the following:

     - Cyberstockyard.com, our online cattle sales and auction services Web
       site, allows our customers to participate in our live cattle sales and
       auctions, thereby providing efficient and effective access to an
       inventory of cattle by directly connecting buyers and sellers of cattle.
       We believe a less fragmented market for cattle sales may reduce the
       excessive handling of cattle that results from transportation and
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       commingling during transactions, thereby reducing animal stress, which
       can lead to improved cattle quality. In addition, by reducing the need
       for multiple transactions, we seek to lower overall transaction costs
       associated with cattle sales.

     - The Feedlot Information System, our cattle information management
       product, is designed to assist in the effective daily management of our
       customers' cattle operations. Using our proprietary information
       management application, subscribing feedlot customers transmit raw
       operating data to us on a daily basis over the Internet. We then use each
       subscribing customer's raw data to compile customer-specific information
       and performance data and analyses, such as feed consumption data,
       feed-to-gain ratios and a comprehensive summary of health results, which
       we disseminate daily to that customer over the Internet.

     - PCC-online.com, our Professional Cattle Consultants service, is designed
       to provide our customers with national, regional and customer-specific
       industry analysis services that are derived from our proprietary
       centralized database of cattle industry information. This information has
       been compiled from over 90 different feedlots over the last 26 years.
       These services include feed performance benchmarking services and monthly
       market analysis that we provide to subscribing customers on a periodic
       basis. PCC-online.com enables our feedlot customers to compare the
       performance of their feedlot to the average performance of other feedlots
       in our database.

     - NutriCharge, our therapeutic product for livestock, is a restorative feed
       supplement designed to reduce the effects of stress on the animals caused
       by transportation, handling and commingling. We sell our NutriCharge
       product over our Web sites and through our direct sales force.

     Our customers can access our family of integrated Web sites through our
platform site, CattleInfoNet.com. This industry-specific Web site features
general industry information, such as current industry news, links to
commodities pricing and weather updates, as well as personalized information
based upon customers' individual preferences and geographic location.
CattleInfoNet.com also provides customers with an online community to facilitate
the exchange of information among livestock producers, feedlots and packers and
to provide access to our in-house cattle industry experts.

     We were incorporated in 1994 as a subsidiary of XL Vision, Inc. to develop
and commercialize infrared technology applications. XL Vision is a private
company that provides strategic, technical and business support to create
technology companies. Our initial focus was on the transportation market in
which we sold our navigational infrared imaging system, the AMIRIS system. The
AMIRIS system uses infrared technology to create an image based on small
differences in the temperatures of the objects being viewed, such as an iceberg
in water. In 1997, we expanded our infrared applications to the animal sciences
industry with the development of an equine imaging system to detect health
problems. The equine imaging system enables veterinarians to visualize small
differences in the surface temperature of horses, and therefore identify heat, a
common sign of inflammation associated with injury at early stages.

     To expand our product base, in July 1998, we licensed a portfolio of
patents from a division of the Canadian government relating to the application
of infrared technology to the animal science field and a restorative feed
supplement called NutriCharge. Under this agreement, we will begin paying
royalties based on a percentage of sales beginning on July 29, 2000.

     In order to focus on the cattle industry, we discontinued production of the
AMIRIS system. In January 1999, we entered into a license agreement with Sperry
Marine, Inc., a subsidiary of Litton Industries, Inc., which granted them the
right to become the sole producer of the AMIRIS system. In connection with this
license, we will receive a royalty of 8% of sales of the AMIRIS system up to a
maximum royalty of $4.3 million over a four-year period or up to a maximum
royalty of $5.0 million if $4.3 million is not received within four years. Upon
receipt of the maximum amount, we will transfer all rights, title and interest
to the licensed intellectual property to Sperry. To date, we have not received
any royalties from this license. Results from this line of business and the
related loss on disposal have been segregated from continuing operations and
included in discontinued operations in our financial statements.

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     In February 1999, we purchased substantially all of the assets of CIN, LLC,
a company which collected, analyzed and distributed information for use in
animal food sciences markets, for an aggregate purchase price of approximately
$2.3 million. The purchase price consisted of 750,000 shares of our class A
common stock valued at $720,000, the assumption of $812,000 of liabilities, a
cash payment of $358,000, an agreement to pay the first $350,000 from Internet
sales of third-party products over the Web site and transaction costs of
$57,000.

     In March 1999, we purchased all of the outstanding stock of Cyberstockyard,
Inc., a company selling cattle and other products through auction software over
the Internet for approximately $542,000. The purchase price consisted of 250,000
shares of our class A common stock valued at $450,000, the assumption of $90,000
of liabilities and transaction costs of $2,000.

     In May 1999, we purchased substantially all of the assets of Professional
Cattle Consultants, L.L.C. for an aggregate purchase price of approximately $1.8
million. The purchase price consisted of $1.8 million of cash, the assumption of
$3,000 of liabilities and transaction costs of $25,000. The primary asset of
Professional Cattle Consultants, L.L.C. was a proprietary database of cattle and
market information and analysis. For the past 26 years, Professional Cattle
Consultants, L.L.C. has collected a variety of performance and other data from
its subscribers' feedlot operations and provided subscribers with periodic
analyses of certain performance characteristics of their feedlot operations and
comparative analysis related to the performance of feedlots within their
regions.

     In August 1999, we entered into an agreement to acquire 19% of the common
stock of Turnkey Computer Systems, Inc., a provider of administrative/accounting
legacy systems to feedlots, for an aggregate purchase price of $1.8 million. The
purchase price consisted of 62,500 shares of our class A common stock, which is
subject to redemption, $1.4 million of cash and $23,000 of transaction costs. In
connection with this investment, we obtained the exclusive right to provide
cattle sales and auction services and feed sales services to customers of
Turnkey through Turnkey's system. This right will expire in August 2019. If we
reach a specified level of revenue per feedlot and that feedlot is a customer of
Turnkey, we will pay a fee to Turnkey.

ITEM 1(B).  FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS

     Information for the Company's two operating segments for the three year
period ended December 31, 1999, is contained in Note 11 to the Consolidated
Financial Statements on page F-23.

ITEM 1(C).  NARRATIVE DESCRIPTION OF BUSINESS

INDUSTRY BACKGROUND

  Beef Industry

     According to the National Cattlemen's Beef Association, or NCBA, the cattle
industry is the largest single segment of the American agricultural economy. The
U.S. Department of Agriculture reports that sales of cattle accounted for
approximately $34 billion in 1998. On an annual basis, the U.S. beef production
industry spends over $6 billion for feed and, based on our estimates,
approximately $600 million for medication. At the retail level, the cattle
industry generates over $51 billion in sales of beef. Furthermore, the NCBA
estimates that worldwide cattle production is three times greater than U.S.
production.

  Industry Participants

     The U.S. beef production chain can be classified into three primary
segments: producers, feedlots, and packers.

  Producers

     According to the NCBA, there are approximately one million producers
comprised of ranchers and small farm owners who breed and raise cattle. Most of
the producers are independently owned and are dispersed throughout the United
States. Each year these producers market approximately 35 million head of cattle
that are eventually harvested for food, of which approximately 27 million are
processed through feedlots. These
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cattle, raised for 12-18 months in an average herd size of approximately 35
head, are often located in different geographic regions, aggregated into larger
herds and then sold to centralized feedlots to increase their weight and value.

  Feedlots

     Feedlots typically purchase cattle weighing 300 to 900 pounds and manage
the health and growth of the cattle for a period of 110 to 250 days. We estimate
that during this time, each animal is fed on average 20-30 lbs. of grain per
day. There are approximately 700 major feedlot operations concentrated in 10
Midwestern states. These feedlots can manage from 4,000 to 115,000 head of
cattle at any given time. After reaching a weight of approximately 900 to 1,400
pounds, the animal is typically sold to a packer for harvesting.

  Packers

     Packers usually hold the cattle for 2 to 24 hours before harvesting and
fabricating them for sale and eventual consumption. In addition to processing
beef, packers inspect beef for cleanliness in preparation for quality grading.
There are currently 64 major beef packing operations in the United States, which
in total process approximately 35 million head of cattle into roughly 25 billion
pounds of beef annually. Approximately 82% of the beef processed in the United
States is processed by beef packing operations owned by IBP, Inc., Cargill,
ConAgra, Inc., and Farmland Industries, Inc

LIMITATIONS OF THE CURRENT SYSTEM

     The current cattle production chain contains a number of inefficiencies
that reduce livestock quality and increase cost. These inefficiencies include
multiple transaction costs, exposure to stress and disease, and the loss of
important feeding and medication information.

INEFFICIENCIES IN THE CATTLE SALES PROCESS CREATE TRANSACTION COSTS

     As cattle move through the beef production chain, from an individual
producer's ranch to a feedlot to a meat packing facility, the cattle may be
bought, sold and transported three or four times. Due to the highly fragmented
nature of the cattle producer segment, the majority of cattle are sold through
traditional livestock sales and auctions, which bring together regional buyers
and sellers. The cattle are then sold either directly to feedlots or sold once
again to larger buyers and then onto feedlots. Typically, cattle sales and
auctions are hosted at sale barns, where livestock brokers act as agents in the
buying and selling of animals. The livestock broker is paid a fee or commission
each time an individual lot of cattle is bought or sold. As a result of the
geographic dispersion of producers and sale barns, buyers often purchase cattle
from livestock brokers without having the opportunity to visually survey the
cattle. In addition, this current method of exchange does not facilitate easy
access to real-time price information or a geographically broad marketplace for
the product.

REPETITIVE TRANSPORTATION CREATES ANIMAL STRESS, REDUCING BEEF QUALITY AND
PROFITABILITY

     The combination of the method of exchange used in traditional cattle sales
and auctions and the fragmentation of the producer segment of the industry
results in the repetitive transportation and handling of cattle. As cattle are
moved from one environment to another throughout the production chain, they are
commingled multiple times and can be exposed to contagious diseases. In
addition, the transportation, handling and commingling of cattle often results
in a predictable stress response, which may cause significant health
deterioration. However, because there is currently no convenient or
cost-effective method available to measure an animal's stress level, stress is
not assessed today as a meaningful measure of health. Stress and exposure to
disease often result in sub-optimal performance at the feedlot and reduced beef
quality. A study conducted by researchers at Texas A&M University estimated that
sick animals yield approximately $80 per head less than comparable healthy
animals, which represents a significant loss based on the average value cited by
the U.S. Department of Agriculture of $600 per head.

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THE LACK OF CURRENT AND ACCURATE INFORMATION IMPACTS ANIMAL PERFORMANCE

     We believe that industry participants generally collect and analyze
information on cattle that go through the beef production process inconsistently
and in a manual and time-consuming manner. Due to the nature of data collection
and dissemination, cattle industry participants are unable to exchange critical
information in an efficient and timely manner to optimize performance and beef
quality. We believe that businesses in the cattle industry have not maximized
the use of information to effectively address health, quality and performance
issues.

  Producers

     Cattle producers typically do not receive data related to the weight of
their animals upon arrival to and departure from feedlots or the quality grades
of their animals, making herd management difficult. Animal-specific health and
medication information is generally not passed on to subsequent buyers at or
prior to the feedlot, which may result in unnecessary additional medication.

  Feedlots

     Feedlots are the primary source of information currently used in livestock
management. As a general practice, information is collected manually on a daily
basis and subsequently entered into multiple information systems that are
typically not integrated. Given the time-intensive nature of aggregating data
under the current process, it is difficult to collect, analyze and interpret
this data in a meaningful way. Historically, feedlots collect and share
industry-wide information for benchmarking and performance purposes by
submitting reports to data warehouse services that aggregate and disseminate the
combined results in monthly reports. Although these data warehouse services are
valuable as general strategic and analytical tools, because of the delay in
disseminating the information, they are less effective for daily cattle
management decisions, such as decisions relating to feed and medication.

  Packers

     Packers, at the end of the cattle production chain, collect critical
carcass and quality information such as weight, dimension, yield and meat
quality grade after the animal is harvested. However, in 1997, only 47.5% of
cattle harvested were purchased based on these measures. Therefore, feedlots
receive carcass and quality data on less than half of harvested cattle. The
remaining harvested cattle are sold to packers based strictly on live weight,
and consequently very little health and quality data is provided to feedlots or
producers on these cattle.

     We believe improved information flow between and within the three main
groups of industry participants can significantly enhance product quality. There
is currently no network or method for compiling and communicating information
rapidly throughout all stages of the cattle production chain. Product
performance information gathered by packers and feedlots will help refine and
improve handling practices earlier in the production chain. Information relating
to an animal's medical history will minimize redundant medication. In addition,
we believe that information about an animal's genealogy disseminated by
producers and feedlots will enable more accurate differentiation among breeds of
cattle at the packer level and a more easily implemented quality branding
strategy at the retail level. Finally, information linking handling, feeding and
medication techniques and the ensuing performance results, gathered and
disseminated on a daily basis by feedlots, can help the entire segment rapidly
adopt best practices.

OUR PRODUCTS AND SERVICES

     Our products and services can be accessed through our integrated Web sites.
These sites include:

     - CattleInfoNet.com, the platform from which our customers can access our
       comprehensive product and services offerings;

     - Cyberstockyard.com, our online cattle sales and auction site; and

     - PCC-online.com, our cattle industry-specific information Web site.

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     In addition, through our Feedlot Information System, we provide our feedlot
customers with daily analyses of their feedlot operations as well as information
management products and services.

                                          THE EMERGE MARKETPLACE

                                          CATTLEINFONET.COM
                                          - Industry news
                                          - Regional weather
                                          - Links to commodity pricing
                                          - Expert corner
                                          - Reports online
                                          - Links to industry information

ONLINE MARKETPLACE                        MANAGEMENT INFORMATION
Cyberstockyard.com                        SOLUTIONS
- Cattle sales                            Feedlot Information System
- Cattle auctions                         - Feedlot specific content
- Order fulfillment                       - Daily performance data
                                          - Web-enabled with graphical user
                                            interface
                                          - Analytical services

eMerge Online Store                       Professional Cattle Consultants
- eMerge branded products                 - Regional feedlot benchmarking data
                                            Specialized Database Services

CATTLEINFONET.COM

     CattleInfoNet.com is our industry-specific Web site that serves as the
platform from which participants in the cattle industry can access our
comprehensive product and service offerings. This site features content to
facilitate cattle management, including industry news, weather and links to
commodities pricing. Also, through this site, our customers can access
Cyberstockyard.com to purchase or sell cattle, and PCC-online.com, our
information resource and database. In addition, our customers can use this Web
site to purchase our NutriCharge product.

ONLINE MARKETPLACE

     Cyberstockyard.com is our cattle sales and auction service Web site.
Through Cyberstockyard.com, our customers utilize our online listing of cattle
to obtain access to inventory and market pricing from various buyers and sellers
located throughout the United States in an efficient and effective manner. In
addition, our customers can access scheduled online video cattle auctions. We
transmit inventory lists with detailed product descriptions to our customers by
both e-mail and facsimile and periodically post schedules for live video
auctions on the Web site.

  Cattle Sales

     We have developed a detailed posting and transaction process to ensure that
adequate information is provided to the purchaser prior to the transaction. We
verify the identity of a purchaser through use of a secure password system and
verify credit-worthiness of each participant prior to enabling access to our
system. Our expert livestock brokers in the field certify all cattle offered for
sale through Cyberstockyard.com. We provide a detailed description of each lot
of cattle, which can be accessed by a purchaser online. We update our inventory
of cattle for sale daily and customers can review our full inventory listings.
In addition, customers can post descriptions, quantity and pricing criteria for
cattle they would like to purchase and our system will automatically search for
a match. If a match is found, the customer is notified immediately online. If no
match is found, the customer can choose to have our system perform a daily
search for a match as new

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inventory is added to our system. Notification of a match is sent to the
customer by email or facsimile. Our livestock brokers and online producers also
have access to these postings and may respond with potential matches. After
identifying particular cattle to purchase, our customers complete the
transaction through e-mail or the telephone. Once cattle have been purchased, we
manage the shipment logistics through our sales and customer service
organization.

  Cattle Auctions

     In addition to our online cattle sales, we offer cattle for sale through
our online video auctions. Although not necessary to facilitate cattle sales
transactions, video is available to customers who have installed our satellite
dish system. We offer a mock auction to help our customers get acquainted with
the auction process. We have developed a system that allows participants to
automatically bid in set increments up to a predetermined limit. Once a bid is
accepted, the purchaser is notified online. Our customer service team then
follows-up by telephone and e-mail with specific shipment logistics regarding
the cattle.

     We believe that because online procurement results in fewer cattle
shipments and less handling, transaction costs are reduced and animals arrive at
their destination healthier and less stressed, thereby increasing the value of
the animals. We also believe that online cattle procurement creates a medium for
obtaining access to market pricing from various buyers and sellers located
throughout the United States. We believe that this may eventually reduce the
amount of commission fees paid by the cattle industry as a whole, and thereby
reduce the cost to produce cattle. Through this comprehensive online
marketplace, we also have the ability to sell products and services that are
designed to improve productivity within the livestock industry. We currently
offer NutriCharge through our online marketplace to help our customers reduce
the effects of pre-harvest stress in their cattle.

MANAGEMENT INFORMATION SOLUTIONS

  The Feedlot Information System

     The Feedlot Information System provides feedlot customers daily information
services. This secure proprietary information management application resides on
our customers' operating systems and interfaces with our centralized database
over the Internet. Our system integrates information contained in their
disparate legacy systems into our database daily to create relevant
customer-specific analyses and graphical presentations. Customers' information
is automatically integrated into our database, analyzed and available for use on
the following day. The analyses created include information and performance data
designed to assist in the effective daily management of a feedlot business.
These analyses include:

     - Feed consumption data;

     - Feed-to-gain ratios; and

     - A comprehensive summary of health results.

     The Feedlot Information System also enables our customers to compare their
performance against other regional and national feedlot data and provides useful
proprietary content for business management decisions. Our customers can use our
system to manage their feedlot operations on a real-time basis using numerous
performance variables and individual parameters. Customers can also access data
and product performance results posted by practicing veterinarians to further
refine their business practices. All of our Internet applications are easily
accessible from our Feedlot Information System. In addition, our staff provides
valuable analysis and interpretation of the information contained in the
database.

  Professional Cattle Consultants

     Through PCC-online.com, our Professional Cattle Consultants service, we
provide our customers access to services that are based on our confidential and
proprietary database of cattle industry information. This database has been
compiled over the last 26 years from over 90 different feedlots representing
over 20% of the total cattle processed annually through U.S. feedlots. As part
of their subscription, our customers submit

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information to our analysts twice per month to update our database. Each month
these customers receive our Cattle Gram, a marketing report that analyzes and
reports cattle market related information, and our newsletter, a feed
performance report containing compiled data relating to over 100 different feed
performance parameters. In our newsletter, we provide national, regional and
customer-specific analyses. Customers may use a password to view these reports
online or receive them via e-mail or mail.

  Specialized Database Services

     We offer specialized database management and Internet-based networking
services that target specific customer requirements, including individual animal
tracking through the entire production chain. We can also provide customized
data management and formatting services designed to enable suppliers to better
understand product performance in the field. Our analysts are available to
assist customers in understanding how to derive the most value from the
information being acquired.

STRESS MANAGEMENT PRODUCTS AND SERVICES

     As part of our comprehensive solution, we offer our proprietary NutriCharge
restorative feed supplement for sale to our customers through our Web sites and
direct sales force. NutriCharge is designed to reduce the effects of stress on
the animals caused by transportation, handling and commingling, which can result
in a loss of product quality. In addition, we offer educational materials and
services to assist our customers to reduce handling of animals and therefore
reduce stress.

EQUINE IMAGING SYSTEMS

     We have developed our infrared imaging thermography system and image
management software for use in the equine industry. Infrared thermography is a
non-invasive diagnostic imaging technique that is used to detect surface
temperature differences. The camera is lightweight, portable and has a high
degree of resolution and sensitivity. Our infrared camera and software allow a
user to download thermal images to the user's computer to be viewed, catalogued,
annotated and measured. Our system is used by veterinarians to detect heat, one
of the first indicators of inflammation or injury, in horses and exotic animals.

RESEARCH AND DEVELOPMENT

     We intend to continue to devote significant time and resources to enhance
our current core technology to improve our existing products, expand our product
line and enter into other market segments. Approximately $1.1 million during the
year ended December 31, 1998 and approximately $4.3 million for the year ended
December 31, 1999 were related to research and development. As of December 31,
1999 we had 36 employees dedicated to product development. We intend to continue
to invest in research and development and focus on the recruitment of
experienced scientists and engineers. Our current research and development
activities are primarily focused on the development of information technologies
to complement our products and services for the animal sciences industry.

     We have entered into agreements for the development of technology with a
division of the Canadian government as represented by the Minister of
Agriculture and Agri-Food Canada. We license patents and technology related to
NutriCharge and our Animal Science Tracker infrared camera, which is currently
under development. This agreement also gives us and the Canadian government,
through the Lacombe Research Centre, the right to collaborate with the other on
any project which relates to the license. Any improvements will be owned by the
Canadian government and licensed to us on an exclusive basis. Please see the
section entitled Intellectual Property for a description of the license.

     We have entered into a Research Support Agreement with the Canadian
government, under which we provide the Lethbridge Research Centre with one of
our infrared imaging systems, analytical software, and technical support in
exchange for a right of first refusal to license any resulting technology. The
Canadian government may terminate this agreement at any time.

                                        8
<PAGE>   12

     We have entered into a cooperative research and development agreement with
the USDA Agricultural Research Service and Iowa State University of Science and
Technology, in which we have been granted exclusive rights and responsibilities
for product development and commercialization of technology developed and
patented by them for the detection of small, diluted quantities of mammalian
fecal matter on animal carcasses. We will provide design and engineering
expertise. When commercialized, we believe that this technology may reduce
safety inspection and processing costs at packing plants while reducing e-coli
contamination risks. The parties to the agreement may only terminate in the
event of a breach by another party. In connection with this agreement, we have
also entered into an exclusive license agreement with Iowa State University for
patent rights relating to the research and development agreement. Under the
license agreement, we have the right to make or have made, use, sell, offer to
sell and import products using technical data and information owned by the Iowa
State University Research Foundation, or ISURF. The license agreement applies to
all present and future patents, patent applications and inventions relating to
meat and carcass inspection technology. In exchange for the license, we paid a
license fee in the amount of $10,000. We will also pay a royalty of six percent
of the net sales of any licensed products. If we sublicense the technology, we
will also pay ISURF 50% of any fees paid to us by the sublicensees. Currently,
there are no licensed products and we have not made any royalty payments to
date. The license will expire when the last of the patents covered by the
license expire, unless we terminate earlier.

SALES AND MARKETING

  Sales

     Our sales organization is structured around a direct sales team and an
electronic commerce sales team. We have a staff of account managers who are
responsible for sales of products and services through our electronic commerce
platform to feedlot and packer customers in given geographic territories. We
have a staff of cattle buying representatives who, along with independent buyer
representatives with whom we have entered into relationships, are responsible
for obtaining inventory for livestock sales from producers. We are assembling a
dedicated team to increase advertising revenue and to add third party products
to our electronic commerce offering.

  Marketing

     We seek to establish broad customer awareness of our technologies, products
and services within the industries we serve. Our marketing efforts include
direct advertising through trade journals and press releases coordinated by our
communications and public relations firm. We also participate in professional
societies and university programs and have developed strategic marketing
relationships with industry professionals and academic institutions. Much of the
initial interest in our products and services has been created through the
extensive network of relationships we have in the cattle industry as well as
through our sales organization. We are developing an international marketing
effort to promote our products and services worldwide.

OUR CUSTOMERS

     Our initial customer focus is the 300 largest feedlots in the United
States. These feedlots manage 20.1 million head of cattle annually, accounting
for 74% of cattle processed through feedlots in the United States. Currently, we
sell our products and services to approximately 130 of those feedlots, which
account for approximately 30% of the total cattle harvested in the U.S. We also
offer our products and services to participants throughout the cattle production
chain.

CUSTOMER SERVICE

     Currently our order entry, e-commerce transactions and hardware and
software support functions are conducted at our Sebastian, Florida facility. Our
current field support organization is based in Meade, Kansas. We have a
dedicated toll free number for customer calls, which is staffed from 8:00 a.m.
to 8:00 p.m. EST.

                                        9
<PAGE>   13

INFRASTRUCTURE AND TECHNOLOGY INFORMATION SYSTEMS

  System Architecture

     Our Web sites use multiple front-end servers and a master database located
at our Sebastian, Florida facility. We have implemented scalable Web site
management, search, customer interaction, transaction processing and fulfillment
services and systems. Our Web site and extranet provide customization,
interactivity and performance required for business-to-business electronic
commerce. We utilize applications for:

     - Accepting and validating customer orders;

     - Placing and managing orders with suppliers and manufacturers;

     - Notifying and updating customer order status; and

     - Management of shipment of products.

     All data communication between remotely located computers uses secure
socket layer, or SSL, encryption technology. This allows the transfer of a local
database from a feedlot to our main database which uses a Sun Enterprise 4500
server.

  Data Collection

     The data collection system for our Feedlot Information System gathers
information from the accounting, feedbunk and hospital systems at the feedlot.
This information is compared to a local database, and the changes and additions
are encrypted and transmitted securely to our main database storage along with
any orders that are being processed in the off-line batch mode. Once received,
we add the data to our master database for statistical analysis and generate
reports for individual site locations. The results are encrypted and sent back
to the individual feedlots. All confirmations of placed orders are sent back to
the feedlot that generated the order. Professional Cattle Consultants data is
collected on a monthly basis using a variety of interfaces with feedlot software
vendors. Data is transmitted electronically or by hard copy. This information is
then imported into the Professional Cattle Consultants architecture where it is
stored and utilized as necessary.

  Data Dissemination

     The data that is sent back to the feedlots includes video data for
Cyberstockyard and daily content and statistical data for our information
management products and services. This information is then stored in our local
databases, which function as a backup for off-line operation. Professional
Cattle Consultants provides information back to feedlots on a monthly basis
either through electronic mail, a password-protected Internet site, or in hard
copy form. Surveys are available only in hard copy form.

  Data Display at the Feedlot

     Our system uses a standard browser to connect to the CattleInfoNet.com Web
site. A secure login is required for full access to Cyberstockyard.com,
PCC-online.com and the Feedlot Information System. When logged on, the system
downloads display applets, written in Java, to the user's system to display
relevant information. The user can view auction videos and bid on cattle in
real-time.

INTELLECTUAL PROPERTY

     Our ability to protect and utilize our intellectual property rights is
important to our continued success. We have filed applications to register
Cyberstockyard and NutriCharge as trademarks of eMerge Interactive with the U.S.
Patent and Trademark Office. We currently have three patent applications that
are pending before the U.S. Patent and Trademark Office relating to:

     - Early detection of inflammation using our infrared imaging camera;

     - Feedlot information systems and methods; and

     - The cattle transaction process.

                                       10
<PAGE>   14

     The intellectual property rights to use several patents that are critical
to our products and services are licensed to us by third parties. The U.S.
patents and corresponding international patent applications related to our
NutriCharge products and infrared animal screening methods are licensed to us by
the Canadian government under a master license agreement dated July 29, 1998.
The master license provides us with an exclusive worldwide license to develop
and sell products and services that utilize the inventions contained in the
patents. The license continues until July 2018 and may be renewed after that
time unless the license is terminated by the Canadian government upon our breach
of and failure to cure a fundamental term of the license agreement, our
commencement of bankruptcy or insolvency proceedings, or the assignment of the
license agreement without Canada's prior written consent. In exchange for the
license, we must pay the Canadian government a royalty on a semi-annual basis
that is calculated as a percentage of the revenues we receive from the sale of
products and services related to the license. Our obligation to pay this royalty
begins July 29, 2000. Under the master license, we must achieve milestones in
order to maintain the master license. To date we are achieving all required
milestones.

     The U.S. patents relating to technology for detecting fecal contamination
on meat carcasses during and after slaughter are licensed to us by the Iowa
State University Research Foundation and the USDA under a license agreement
entered into August 1999. The license provides us with an exclusive worldwide
license until the patents expire on a country by country basis to develop and
sell products and services that utilize the inventions contained in the patents.
In exchange for the license, we are obligated to pay Iowa State University a
royalty on revenues we receive from the sale of products and services related to
the license.

     We believe our commercial success depends on our ability to protect our
proprietary technology and enforce our rights in the technology we license to
other parties. We currently rely on a combination of patents, copyrights and
trade secrets to protect our proprietary technology. We are not aware of any
patents held by others that would prevent us from manufacturing and
commercializing our technology in the United States and abroad.

     We have filed an application to register eMerge Interactive and related
service marks with the U.S. Patent and Trademark Office. We have received notice
from a third party claiming superior rights to these marks and indicating an
intent to oppose our registration of the marks in Patent and Trademark Office
proceedings as well as oppose our commercial use of the marks. We believe that
we will be able to ultimately overcome any such challenge. If we are
unsuccessful, however, we may be required to cease using the eMerge marks at a
future date.

  Purchase and License Agreement

     In January 1999, we granted a license to Sperry Marine, Inc., a subsidiary
of Litton Industries, Inc., to design, manufacture and assemble infrared marine
systems for worldwide sale. The license is exclusive and nontransferable and
applies to infrared technology that is unrelated to our products and markets.
Although we have not received any royalties to date, under the agreement, we
will receive a royalty of 8% of system sales up to a maximum royalty of $4.3
million over a four year period or up to a maximum royalty of $5.0 million if
$4.3 million is not received within four years. Upon receipt of the maximum
amount, we will transfer all rights, title and interests to the licensed
intellectual property. In connection with this license agreement, we also
entered into an asset purchase agreement with Sperry for the sale of assets
relating to the infrared systems for approximately $1.9 million.

COMPETITION

     In the cattle sales and auction services market, we compete against
traditional cattle auction services, as well as video cattle auction providers
and other online cattle auction services. Currently, the majority of cattle and
calf sales transactions occur through auctions held at traditional sale barns.
These sale barn operations are

                                       11
<PAGE>   15

highly fragmented and vary in size. We believe that the primary competitive
factors in the cattle sales and auction services market include:

     - Availability and quality of inventory;

     - Pricing;

     - Reliability of service;

     - Efficiency;

     - Brand awareness;

     - Customer service; and

     - Convenience and ease of use.

     We believe that we compete based on these factors, particularly due to our
access to inventory, our focus on ensuring quality and reliability, the brand
awareness developed through our comprehensive solution and the convenience and
ease of use of our Web site.

     We compete against other companies in the information services segment,
including established cattle and livestock information services. We also face
competition from cattle industry product manufacturers who use information
technology to promote the effectiveness of their products. These services are
often provided in connection with the sale of products to industry participants.
In addition, providers of software to feedlots also offer information services
to their feedlot customers. We believe that the primary competitive factors in
the information services market include:

     - Breadth of available data;

     - Quality of analyses;

     - Timeliness of information;

     - Brand recognition;

     - Value-added consulting services; and

     - Convenience and ease of use.

     We believe that we compete based on these factors particularly due to the
size and quality of our proprietary database, the timeliness of our service
offerings, the expertise of our professionals and the convenience and ease of
use of our Web sites.

     Our current competitors may include large companies that have substantially
greater market presence, brand-name recognition and financial resources than we
do. Some of our smaller competitors may also enjoy greater recognition and close
relationships within a particular community.

EMPLOYEES

     As of December 31, 1999, we employed a total of 99 persons, including 36
persons in product development and engineering, 35 persons in marketing and
sales, 18 persons in production and 10 persons in administration. We are not
subject to any collective bargaining agreements and we believe that our
relationship with our employees is good.

ITEM 1(D). FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND
           EXPORT SALES

     The Company does not have foreign sales and does not believe geographic
sales are significant to obtain an understanding of its business operations
during the three year period ended December 31, 1999.

                                       12
<PAGE>   16

ITEM 2.  PROPERTIES

     Our corporate facilities located in Sebastian, Florida, occupy
approximately 17,000 square feet. We sublease our facilities from XL Vision,
which leases the entire facility from XL Realty, Inc., a subsidiary of
Safeguard. We believe that the rent that we pay pursuant to our lease is
consistent with the market rent for similar space in the area. Our lease
terminates on January 1, 2001, at which time we have the option to renew the
lease for an additional one year term. We believe that this space is adequate to
support our needs for the foreseeable future.

     We also maintain offices in Meade, Kansas; Denver, Colorado; Austin, Texas;
and Weatherford, Oklahoma.

ITEM 3.  LEGAL PROCEEDINGS

     We have been named as a defendant in a lawsuit filed by Central Biotech,
Inc. on January 12, 2000 in the Queen's Bench Judicial Centre of Regina,
Province of Saskatchewan, Canada. The complaint alleges that eMerge and E-Y
Laboratories Inc. were each subject to confidentiality agreements with the
plaintiff, and subsequently engaged in discussions concerning a potential
business arrangement allegedly in violation of these agreements. The complaint
asserts damages, including punitive damages, from the defendants in the
aggregate amount of $18 million (Canadian dollars), as well as injunctive
relief. Although we have not yet completed our assessment of these claims, we
believe that there are a number of substantive and procedural defenses that
exist and intend to defend these claims vigorously.

ITEM 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 fourth quarter of 1999.

                                       13
<PAGE>   17

                                    PART II

ITEM 5. MARKET FOR REREGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

RECENT SALES OF UNREGISTERED SECURITIES

     In February of 1999, eMerge Interactive issued 750,000 shares of class A
common stock in connection with the acquisition of assets of CIN, LLC, at a
price of $.96 per share. eMerge Interactive issued 250,000 shares of class A
common stock in connection with the acquisition of 100% of the issued and
outstanding stock of Cyberstockyard, Inc. on March 29, 1999, at a price of $1.80
per share. In August of 1999, eMerge Interactive issued 62,500 shares of class A
common stock at $6.40 per share, for 19% of the common stock of Turnkey Computer
Systems, Inc. All of such sales were made under the exemption from registration
provided under Section 4(2) of the Act. The issuance to the stockholders of
Cyberstockyard, Inc. was also made pursuant to Rule 504 under the Act.

     In May of 1999, we issued 1,000,000 shares of series C preferred stock to
Safeguard 99 Capital L.P. and 100,000 shares to purchasers associated with
Applewood Associates, L.P., now Wheatley Partners II, L.P., at a price of $5.00
per share. In November 1999, we issued 4,555,556 shares of series D preferred
stock to Internet Capital Group, Inc. at a purchase price of $7.20 per share,
payable in cash and a promissory note. In connection with the sale of preferred
stock, we also issued to Internet Capital Group a warrant to purchase up to
1,138,889 shares of class B common stock. All of such sales were made under the
exemption from registration provided under Section 4(2) of the Act. II-2 131

     Pursuant to eMerge Interactive's 1996 and 1999 Equity Compensation Plans,
eMerge Interactive granted options to purchase a total of 1,415,250 shares of
common stock to its employees and certain other individuals in the year ended
December 31, 1999 at a weighted average exercise price of $4.96 per share. In
the year ended December 31, 1999, 200,819 shares were purchased pursuant to
options at an average exercise price of $.93. In granting the options and
selling the underlying securities upon exercise of the options, eMerge
Interactive is relying upon exemptions from registration set forth in Rule 701
and Section 4(2) of the Act

     Our common stock trades on the Nasdaq National Market under the symbol
"EMRG." Prior to February 4, 2000, there was no established public trading
market for any of our securities.

     The following table sets forth, for the periods indicated, the range of
high and low closing sales prices for our common stock as reported on the Nasdaq
National Market.

<TABLE>
<CAPTION>
                        FISCAL 2000                            HIGH     LOW
                        -----------                           ------   ------
<S>                                                           <C>      <C>
First Quarter (from February 4, 2000 through March 17,
  2000).....................................................  $70.50   $39.00
</TABLE>

     On March 17, 2000, the last reported sale price of our common stock as
reported on the Nasdaq National Market was $49.50 per share and we had 622
holders of record of our common stock.

     We have never declared or paid any dividends on our common stock. We do not
anticipate paying any cash dividends in the foreseeable future. We currently
intend to retain future earnings, if any, to finance operations and the
expansion of our business. Any future determination to pay cash dividends will
be at the discretion of the board of directors and will be dependent upon our
financial condition, operating results, capital requirements and such other
factors as the board of directors deems relevant.

CHANGES IN SECURITIES AND USE OF PROCEEDS

     On February 4, 2000, we commenced an initial public offering of our common
stock. The registration statement relating to this offering (File No. 333-89815)
was declared effective on February 3, 2000. Adams, Harkness & Hill, Inc., First
Union Securities, Inc., and FAC Equities were the managing underwriters of the
offering. As part of the offering, we offered 2,806,000 shares of our class A
common stock at the public offering price to shareholders of Safeguard
Scientifics, Inc., one of our principal stockholders, that owned at least 100
shares of common stock of Safeguard as of October 20, 1999 and Safeguard offered
694,000 shares to its shareholders.

                                       14
<PAGE>   18

     The number of shares registered, the aggregate price of the offering amount
registered, the amount of shares sold and the aggregate offering price of the
shares sold were as follows:

<TABLE>
<CAPTION>
 SHARES OF
  COMMON     AGGREGATE PRICE OF   AMOUNT OF SHARES   AGGREGATE PRICE
REGISTERED   SHARES REGISTERED          SOLD         OF SHARES SOLD
----------   ------------------   ----------------   ---------------
<S>          <C>                  <C>                <C>
7,175,000       $107,625,000         7,175,000        $107,625,000
</TABLE>

     We incurred the following expenses with respect to the offering during the
period from July 1998 through February 2000:

<TABLE>
<CAPTION>
UNDERWRITING
 DISCOUNTS
    AND
COMMISSIONS   MANAGEMENT                   UNDERWRITERS'
  EXPENSES       FEE       FINDERS' FEES     EXPENSES      OTHER EXPENSES   TOTAL EXPENSES
------------  ----------   -------------   -------------   --------------   --------------
<S>           <C>          <C>             <C>             <C>              <C>
$4,587,750..  $1,178,520       $  0            $  0          $2,000,000       $7,765,970
</TABLE>

     In addition, we issued 500,000 shares of class A common stock at $15.00 per
share in a private placement that was completed concurrently with the offering.

     The net proceeds from the offering and the private placement after
deducting the foregoing discounts, commissions, management fees, finders fees
and expenses were $107.4 million. We have used the proceeds for payments to
related parties and Turnkey Computer Systems, Inc. and for general working
capital.

     None of the foregoing expenses constituted direct or indirect payments to
our directors, officers, general partners or their associates or to persons
owning 10% or more of any class of our equity securities or to our affiliates.

ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA

     All business activities from inception through 1996 related to the
transportation segment which was disposed of in January 1999. As a result, we
have not included operations data for the years ended December 31, 1994, 1995
and 1996.

     Selected consolidated financial data for the Company is set forth below for
the periods indicated:

<TABLE>
<CAPTION>
                                                               YEAR ENDED DECEMBER 31,
                                                           -------------------------------
                                                             1997       1998       1999
                                                           --------   --------   ---------
                                                           (IN THOUSANDS, EXCEPT PER SHARE
                                                                        DATA)
<S>                                                        <C>        <C>        <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenue..................................................  $    --    $ 1,792    $ 43,783
Cost of revenue..........................................       --      2,623      43,517
Operating expenses:
  Selling, general and administrative....................      628      3,660      11,240
  Research and development...............................      728      1,109       4,343
                                                           -------    -------    --------
          Total operating expenses.......................    1,356      4,769      15,583
Interest expense/other income, net.......................     (141)      (332)       (288)
                                                           -------    -------    --------
Loss from continuing operations..........................  $(1,497)   $(5,932)   $(15,605)
                                                           =======    =======    ========
Loss from continuing operations per common share basic
  and diluted............................................  $ (3.91)   $ (1.36)   $  (3.11)
                                                           =======    =======    ========
Weighted average number of common shares
  outstanding -- basic and diluted.......................      382      4,357       6,795
                                                           =======    =======    ========
</TABLE>

                                       15
<PAGE>   19

     The following table summarizes our balance sheet data for the periods
indicated:

<TABLE>
<CAPTION>
                                                                 DECEMBER 31,
                                         ------------------------------------------------------------
                                          1995      1996      1997      1998     1999        1999
                                         -------   -------   -------   ------   -------   -----------
                                                         (IN THOUSANDS)                    PRO FORMA
                                                                                          (UNAUDITED)
<S>                                      <C>       <C>       <C>       <C>      <C>       <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash...................................  $    --   $     2   $    --   $   --   $12,316    $107,673
          Total assets.................        6       260     2,165    6,602    25,762     120,671
          Total indebtedness...........    1,747     3,636     8,040    5,572    13,260         460
          Total stockholders' equity
            (deficit)..................   (1,742)   (3,457)   (6,875)       3     8,891     117,006
</TABLE>

     The unaudited pro forma consolidated balance sheet data give effect to:

     - The sale of 7,175,000 shares of class A common stock in our initial
       public offering;

     - The issuance of 500,000 shares of class A common stock in a concurrent
       private placement;

     - The automatic conversion of all outstanding shares of series A, series B,
       series C and series D preferred stock into shares of our common stock
       concurrent with the offering;

     - The termination of the redemption right relating to 62,500 shares of
       class A common stock, which occurs immediately prior to the consummation
       of the offering;

     - The repayment of $1.6 million of principal and interest owed to XL Vision
       as of December 31, 1999

     - The repayment of $10.3 million of principal and interest owed to
       Safeguard as of December 31, 1999.

     - The repayment of a $900,000 note payable to Turnkey Computer Systems,
       Inc., as of December 31, 1999.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

FORWARD LOOKING STATEMENTS

     The following discussion of our financial condition and results of
operations should be read together with the consolidated financial statements
and the related notes included elsewhere in this document and which are deemed
to be incorporated into this section. This discussion contains forward-looking
statements that involve risks and uncertainties. Our actual results may differ
materially from those anticipated in those forward-looking statements as a
result of certain factors, including but not limited to, those set forth under
and included in other portions of this document.

REVENUE RECOGNITION

     We recognize revenue in accordance with the terms of the sale or contract,
generally as products are shipped or services are provided. In cattle sales
transactions we act as principal when purchasing cattle from suppliers and
reselling them to customers. We take title when the supplier delivers the cattle
to us, arrange for shipment to our customer, and own as inventory until
delivered to and accepted by the buyer, typically a 24 to 48 hour period. We are
responsible for the resale of the cattle, bear all risk associated with the
cattle until resold, and bear the credit risk until full payment is received
from our customers. We recognize revenue when cattle are shipped to the customer
equal to the purchase price paid by the customer. Gross profit on cattle sale
transactions is determined by the mark-up that we add to the price that we pay
to purchase the cattle. Revenue from the sale of livestock health management and
quality enhancement products, equine imaging cameras and NutriCharge, is
recognized on shipment to the customer. Revenue from our information management
products is recognized in the period in which the information or analysis is
delivered to the customer, normally on a monthly basis.

                                       16
<PAGE>   20

ACQUISITIONS

     In February 1999, we purchased substantially all of the tangible and
intangible assets of CIN, LLC for an aggregate purchase price of approximately
$2.3 million. These assets included the Feedlot Information System, a
proprietary, patent pending, information system for cattle feedlots. In
addition, we acquired tangible assets including computers and office equipment
and furnishings, which we are currently utilizing. The purchase price for the
assets consisted of 750,000 shares of our class A common stock valued at
$720,000, the assumption of $812,000 of liabilities, a cash payment due in
October 1999 of $358,000, and an agreement to pay the first $350,000 from
Internet sales of third-party products over the Web site and transaction costs
of $57,000.

     In March 1999, we acquired 100% of the common stock of Cyberstockyard, Inc.
for approximately $542,000. The purchase price consisted of 200,000 shares of
our class A common stock valued at $450,000, the assumption of $90,000 of
liabilities and transaction costs of $2,000. Through this acquisition, we
obtained Cyberstockyard.com, our online cattle sales and auction services, and
related software applications. Cyberstockyard.com has been integrated into our
suite of products and services. During the three months ended June 30, 1999, we
began executing cattle sales utilizing Cyberstockyard.com.

     In May 1999, we purchased substantially all of the tangible and intangible
assets of Professional Cattle Consultants, L.L.C., a leading cattle industry
information resource and database for approximately $1.8 million. The purchase
price consisted of $1.8 million in cash, the assumption of approximately $3,000
in liabilities and transaction costs of $25,000. In June 1999, we began selling
comparative analysis and market information for the feedlot industry with the
assets acquired from Professional Cattle Consultants, L.L.C.

     Because of the significance of these acquisitions and the resulting
additions to our products and services, the historical financial results are not
indicative of future performance.

     We have incurred significant net losses since our inception. At December
31, 1999, we had an accumulated deficit of $32.4 million. The net losses and
accumulated deficit resulted from our lack of substantial revenues, the costs of
the significant personnel infrastructure and other costs incurred for the
development and marketing of our initial products. We may never achieve
significant revenue or profitability, or if we achieve significant revenue or
profitability they may not be sustained.

RESULTS OF OPERATIONS

  Year Ended December 31, 1998 Compared to Year Ended December 31, 1999

     Revenue increased from $1.8 million for the year ended December 31, 1998 to
$43.8 million for the year ended December 31, 1999. Revenue from cattle sales
increased to $42.3 million for the year ended December 31,1999. There was no
revenue from cattle sales in 1998. Revenue from animal science products
decreased by 17% from $1.8 million for the year ended December 31, 1998 to $1.5
million for the year ended December 31, 1999. This decrease is due primarily to
lower revenue from sales of our equine imaging system due primarily to a decline
in units sold. Increased sales of NutriCharge and the sale of subscriptions to
our comparative feedlot analysis and market information service partially offset
the decline in revenue from equine camera sales.

     Cost of revenue consists primarily of the direct cost to acquire cattle,
NutriCharge and equine imaging systems components and indirect manufacturing
overhead costs such as support personnel, facilities costs, supplies and
depreciation, which were primarily associated with the production of the equine
imaging system. Direct costs attributed to cattle sales were $41.7 million for
the year ended December 31, 1999. There were no direct costs from cattle sales
in 1998. Direct costs attributed to animal science products decreased by 38%
from $901,000 for the year ended December 31, 1998 to $558,000 for the year
ended December 31, 1999. This decrease is due principally to the decline in unit
sales of equine imaging systems. We generated a gross loss of $831,000 for the
year ended December 31, 1998 and a gross profit of $266,000 for the year ended
December 31, 1999. The change from a gross loss to a gross profit is due
primarily to the increase in revenue, while cost of goods, principally
manufacturing overhead, did not increase in proportion to the increase in
revenue.

                                       17
<PAGE>   21

     Selling, general and administrative expenses increased 202% from $3.7
million for the year ended December 31, 1998 to $11.2 million for the year ended
December 31, 1999.

     Sales and marketing expenses consist primarily of salaries and related
costs, commissions for sales and marketing personnel, consulting fees, travel
and entertainment, advertising and trade shows. Sales and marketing expenses
increased 214% from $2.2 million for the year ended December 31, 1998 to $6.9
million for the year ended December 31, 1999. The increase is due primarily to
expenses associated with expanding the number of personnel from 11 people at
December 31, 1998 to 35 people at December 31, 1999 and consulting, travel and
advertising costs to effect our business strategy. We expect these costs to
continue to increase significantly as we continue to pursue additional sales and
marketing opportunities.

     Our general and administrative expenses consist primarily of salaries,
bonuses and related costs for executives, amortization of intangibles and
administrative and professional service fees, including administrative support
fees to XL Vision and Safeguard. We have contractual service agreements with XL
Vision and Safeguard Scientifics. Under an administrative services agreement
dated December 15, 1997, as amended on August 17, 1999, XL Vision and Safeguard
provide us with management consultation, investor relations, financial
management, human resource management, legal services, insurance programs, and
administrative services. We pay a fee calculated pursuant to a formula that is
based on a percentage of our revenue, not to exceed $300,000 annually. The fee
is not due until we achieve positive cash flow from operations. The agreement
extends through December 31, 2002 and continues unless terminated by either
party. As of December 31, 1999, we have not paid any amounts due to XL Vision
and Safeguard under these agreements. As of December 31, 1999 we owed XL Vision
and Safeguard approximately $45,000 and $56,000, respectively, under these
agreements. In addition, under a direct charge administrative services agreement
dated April 14, 1997, XL Vision also provides us with management services on a
time and materials basis. This agreement continues on a month-to-month basis,
and may be terminated at any time by either party. As of December 31, 1999, we
owed XL Vision $1,635,000 under this agreement. The amounts due under these
agreements will continue to accrue as we use the services.

     General and administrative expenses increased 187% from $1.5 million for
the year ended December 31, 1998 to $4.3 million for the year ended December
31,1999. The increase was primarily due to increased amortization of
intangibles, increased expenses associated with expanding the number of
personnel from 4 people at December 31, 1998 to 10 people at December 31, 1999
and increased legal and travel expenses required to support and grow our
business. We expect these expenses to continue to increase as additional
personnel are hired and additional expenses are incurred to support future
growth.

     Our research and development expenses consist of salaries and related
costs, payments to outside consultants, material costs for prototype imaging
systems and, to a lesser extent, depreciation on equipment used for development.
Our expenses increased 292% from $1.1 million for the year ended December 31,
1998 to $4.3 million for the year ended December 31, 1999. This increase in
expenses was primarily due to increased consulting costs, an increase in
personnel, and increased spending for materials and supplies. The increase in
expenses was required to integrate and expand our product lines such as our
online cattle sales and auction software, Feedlot Information System software,
and continued development efforts on imaging systems. We expect these costs to
increase significantly as we plan to invest heavily to develop and commercialize
new products, expand our offerings and adapt our technologies to new markets.

     Interest expense/other income, net decreased 13% from $332,000 for the year
ended December 31, 1998 to $288,000 for the year ended December 31, 1999. This
decrease was primarily due to a lower average level of borrowing accompanied by
an increase in interest income.

     Due to the losses incurred, we did not have any income tax expense for the
year ended December 31, 1998 or the year ended December 31, 1999. As of December
31, 1999 we had approximately $28.0 million of federal income tax loss carry
forwards that can be used to offset future taxable income. Our tax loss carry
forwards begin to expire in 2012 and we are not currently aware of any
limitation on our ability to offset future taxable income.

                                       18
<PAGE>   22

  Year Ended December 31, 1997 Compared with Year Ended December 31, 1998

     Substantially all of our 1998 revenue of $1.8 million was from the sale of
equine imaging systems that we began selling in March of 1998. There was no
revenue from equine imaging systems sales in 1997.

     Our gross loss of $831,000 in 1998 was due primarily to a substantial
increase in manufacturing overhead as we built our manufacturing infrastructure.
There was no manufacturing activity related to the production of equine imaging
systems in 1997.

     Selling, general and administrative expenses increased 483% from $628,000
in 1997 to $3.7 million in 1998.

     Our sales and marketing expenses increased 527% from $344,000 in 1997 to
$2.2 million in 1998. The increase in these expenses was due primarily to
increased staffing and related costs, advertising, travel, trade shows and
consulting fees in these areas to effect our business strategy.

     Our general and administrative expenses increased 430% from $284,000 in
1997 to $1.5 million in 1998. The increase in these expenses from 1997 to 1998
was primarily due to increases in the number of personnel and related support
costs to expand and grow our business and increased administrative support fees
to XL Vision and Safeguard.

     Our research and development expenses increased 52% from $728,000 in 1997
to $1.1 million in 1998. This increase was driven primarily by increased
staffing of research and development personnel, related costs, and depreciation
of development equipment costs necessary to further develop our products.

     Interest expense/other income, net increased 135% from $141,000 in 1997 to
$332,000 in 1998. This increase was primarily due to a higher average level of
borrowing.

     Due to the losses incurred, we did not have any income tax expense in 1997
or 1998.

QUARTERLY RESULTS OF OPERATIONS

     The following table sets forth certain consolidated statements of
operations data for the quarters ended March 31, June 30, September 30, and
December 31, 1998, and March 31, June 30, September 30, and December 31, 1999.
The information for each quarter has been prepared on substantially the same
basis as the audited statements included in other parts of this annual report
and, in the opinion of management, include all adjustments, consisting of only
normal recurring adjustments necessary for a fair presentation of the results of
operations for such periods. Historical results are not necessarily indicative
of the results to be expected in the future, and the results of the interim
periods are not indicative of results of any future period.

<TABLE>
<CAPTION>
                                                                             THREE MONTHS ENDED
                                            -------------------------------------------------------------------------------------
                                            MAR. 31,   JUNE 30,   SEP. 30,   DEC. 31,   MAR. 31,   JUNE 30,   SEP. 30,   DEC. 31,
                                              1998       1998       1998       1998       1999       1999       1999       1999
                                            --------   --------   --------   --------   --------   --------   --------   --------
                                                                  (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                         <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA
Revenue...................................  $   323    $   342    $   442    $   685    $   605    $ 1,973    $15,761    $25,444
Cost of revenue...........................      459        578        649        937        540      2,228     15,514     25,235
Operating expenses........................      930        948      1,237      1,654      1,962      3,557      4,777      5,287
Interest expense/other income, net........      (77)       (85)       (85)       (85)      (127)      (162)      (155)       155
                                            -------    -------    -------    -------    -------    -------    -------    -------
(Loss) from continuing operations.........  $(1,143)   $(1,269)   $(1,529)   $(1,991)   $(2,024)   $(3,974)   $(4,685)   $(4,923)
                                            =======    =======    =======    =======    =======    =======    =======    =======
(Loss) from continuing operations per
 common share -- basic and diluted........  $ (0.35)   $ (0.39)   $ (0.30)   $ (0.34)   $ (0.33)   $ (0.58)   $ (0.67)   $ (1.48)
                                            =======    =======    =======    =======    =======    =======    =======    =======
</TABLE>

LIQUIDITY AND CAPITAL RESOURCES

     Historically, we have funded our operating and investing cash requirements
principally through private equity financings and through borrowings from XL
Vision and Safeguard Scientifics. As of December 31, 1999, we have raised
approximately $45.6 million from the sale of our common stock and preferred
stock. On November 16, 1999, we issued 4,555,556 shares of series D preferred
stock and a warrant to purchase 1,138,889 shares of class B common stock to
Internet Capital Group for aggregate consideration of $38.8

                                       19
<PAGE>   23

million. We received $18.0 million of this amount in cash on November 16, 1999
and $20.8 million in the form of a non-interest bearing note, which is due on
November 16, 2000. Interest on the promissory note was imputed at 9.5%, or $2.2
million over the life of the note. At December 31, 1999, we had approximately
$12.3 million in cash and indebtedness to XL Vision and its affiliates of $12.4
million. We repaid all of this outstanding debt balance in February 2000 with a
portion of the cash proceeds from our Initial Public Offering.

     We have had significant negative cash flows from operating activities for
each fiscal and quarterly period to date. Net cash used in operating activities
was $1.7 million in 1996, $6.0 million in 1997, $8.9 million in 1998 and $15.6
million in 1999. Cash used in operating activities from inception through
December 31, 1999 consisted mostly of net operating losses offset in part by
increases in accrued liabilities.

     Net cash used in investing activities was $157,000 in 1996, $507,000 in
1997, $892,000 in 1998, and $1.60 million for the year ended December 31, 1999.
Net cash used in investing activities in these periods consisted mostly of
business acquisitions and capital expenditures.

     Net cash provided by financing activities was $1.9 million in 1996, $6.5
million in 1997, $9.8 million in 1998 and $29.5 million for the year ended
December 31, 1999. Cash provided by financing activities consisted primarily of
the sale of our stock and borrowings from Internet Capital Group, XL Vision and
Safeguard.

     In August 1999, we entered into an agreement to acquire a 19% interest in
the common stock of Turnkey Computer Systems, Inc. for a purchase price of
62,500 shares of our common stock valued at $400,000 and additional cash
payments totaling $1.4 million, of which $900,000 was outstanding at December
31, 1999. We repaid all of this outstanding debt balance in February 2000 with a
portion of the cash proceeds from our Initial Public Offering.

  Our Recent Initial Public Offering

     On February 17, 2000, we closed on our initial public offering, which
generated net proceeds of $107.4 million, and a private placement of $7.5
million. Subsequent to the offering, approximately $12.8 million of the proceeds
were used to pay amounts due to related parties and Turnkey Computer Systems.
The Company's cash balances as of February 29, 2000, approximated $100.0
million. We believe that the net proceeds from the offering, together with our
existing cash and cash equivalents, will be sufficient to meet our working
capital and capital expenditure requirements for at least the next 24 months
under our current business plan, which may change. To the extent we are required
to raise additional capital, we may need to issue additional equity securities
or incur additional debt. If additional funds are raised through the issuance of
equity securities, our existing shareholders may experience significant
dilution. Furthermore, additional financing may not be available when needed or,
if available, such financing may not be on terms favorable to us. If such
financing is not available when required or is not available on acceptable
terms, we may be unable to develop or enhance our products and services. In
addition, we may be unable to take advantage of business opportunities or to
respond to competitive pressures. Any of these events could have a material
adverse effect on our business, financial condition or results of operations.

RECENT ACCOUNTING PRONOUNCEMENTS

     In June 1998, the Financial Accounting Standards Board, or FASB, issued
SFAS No. 133, Accounting for Derivatives and Hedging Activities, which
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives), and for hedging activities. The
adoption of SFAS No. 133 is not expected to have a material impact on our
results of operations, financial position or cash flows.

     In June 1999, the FASB issued SFAS No. 137, which amended the
implementation date for SFAS No. 133 to be effective for all fiscal quarters of
all fiscal years beginning after June 15, 2000.

                                       20
<PAGE>   24

FACTORS AFFECTING OUR BUSINESS, FINANCIAL CONDITION, AND RESULTS OF OPERATIONS

     In addition to the other information included in this report, the following
factors should be considered while evaluating the Company and its future
prospects: our business, financial condition and results of operations.

     We commenced operations in 1994 and commercially released our initial
product in November 1997. Accordingly, we have only a limited operating history
upon which to evaluate our business. In addition, our business strategy and
revenue model have changed significantly during the past year. Prior to this
change, we generated revenue primarily from the sale and licensing of our AMIRIS
product, a maritime navigational thermal imaging system, which we no longer
sell, and our equine imaging system, an infrared product used to detect injuries
in horses, which we continue to sell. We have sold the AMIRIS product line and
have changed our business strategy to focus on business-to-business Internet
commerce for the livestock industry. We only recently launched our commercial
Web site for our initial target market, the cattle industry, in August 1999. Our
limited operating history, combined with our recent shift in business strategy,
makes predicting our future results of operations difficult. Our new business
model has not been tested and, accordingly, we cannot be certain that our
business strategy will be successful.

     Specific uncertainties relating to our new business model include our
ability to:

     - Achieve acceptance of our Web site as a marketplace for electronic
       commerce;

     - Expand the number of cattle producers, feedlots and packers that utilize
       our services;

     - Develop and upgrade our products and technologies more effectively and
       rapidly than our competitors; and

     - Successfully implement our sales and marketing strategy.

     We have a history of net losses and expect to continue to incur losses for
the foreseeable future. If we continue to incur losses, our business may not
ultimately be financially viable.

     We have incurred significant net losses since inception. We reported a net
loss of approximately $7.8 million for the year ended December 31, 1998, or 437%
of total revenue, and approximately $15.6 million for the year ended December
31, 1999, or 36% of total revenue. As of December 31, 1999, we had accumulated
net losses totaling approximately $32.4 million. Our operating expenses have
increased significantly in each year of our operation, and we anticipate that
such expenses will continue to increase over the next several years as we expand
our operations. Our revenue may not grow or may not even continue at its current
level and, as a result, our financial condition and results of our operations
may be harmed and our business may not be financially viable in the future. To
achieve profitability, we must successfully address the following risks:

     - Lack of commercial acceptance of our online cattle sales and auction
       services;

     - Failure to expand the number of livestock industry participants using our
       network;

     - Failure to obtain access to data from feedlots to adequately address the
       information needs of our customers;

     - Inability to respond to competitive developments;

     - Failure to achieve brand recognition;

     - Failure to introduce new products and services; and

     - Failure to upgrade and enhance our technologies to accommodate expanded
       product and service offerings and increased customer traffic.

     If we are unable to successfully address any of these risks, our business
may be harmed.

     The Internet livestock products and services market, including, in
particular, the online cattle sales and auction market, is new and uncertain and
our business may not develop as we anticipate.

                                       21
<PAGE>   25

     The Internet market for livestock products and services, including, in
particular, the online cattle sales and auction market, has only recently
developed, and its continued development is subject to substantial uncertainty.
To date, we have not realized adequate revenues from this market to achieve
profitability. We cannot be assured that this market will continue to develop as
we expect, if at all. Our revenue model depends on the commercial acceptance of
our Internet-based products and services. We do not know if our target customers
will use the Internet as a means of purchasing products and services. Even if
potential customers choose to purchase livestock products and services over the
Internet, they may not choose our online services to do so. If the market for
livestock products and services over the Internet does not develop as we
anticipate, our business and the results of our operations will be harmed. To
date, we have not achieved revenues from cattle sales and auction services over
the Internet that are sufficient for us to determine whether these services will
achieve commercial acceptance. Any failure to successfully gain commercial
acceptance of these services would harm our business and the results of our
operations.

     We recently completed significant acquisitions of businesses and
technologies and we may make other business acquisitions in the future, which
may be difficult to integrate into our business and may disrupt or negatively
impact our business.

     We recently made, and will continue to make, investments in and
acquisitions of complementary companies, technologies and assets that constitute
critical aspects of our current and future business operations. If we fail to
successfully integrate the operations of these companies, technologies or assets
into our business, we may not be able to successfully execute our business
strategy. We acquired substantially all of the assets of CIN, LLC in February
1999, and Professional Cattle Consultants, L.L.C. in May 1999. In connection
with our acquisition of CIN, we hired Scott Crain, one of our key employees. We
also acquired all of the issued and outstanding stock of Cyberstockyard, Inc. in
March 1999. Each of these acquired businesses is critical to our current
business operations and growth strategy.

     These and any future acquisitions may result in:

     - Difficulties in assimilating technologies, products, personnel and
       operations;

     - Diversion of our management's attention;

     - Entering markets in which we have no or limited prior experience;

     - Loss of key employees of acquired organizations; and

     - Capital requirements in excess of what we anticipate.

     In the future, acquiring companies, assets or technologies may also require
us to make cash payments, assume debt, incur large write-offs related to
intangible assets and issue equity, which will dilute ownership interest.

     If we fail to generate sufficient cash flows in the future, we may be
unable to recover the carrying amount of our intangible assets, which would harm
our results of operations and financial condition.

     As a result of our recent acquisitions of companies, technologies and
assets, we have recorded $6.0 million of intangible assets on our balance sheet
as of December 31, 1999. If we are unable to generate sufficient cash flows that
are attributable to these intangible assets, we may be unable to recover all or
a portion of the carrying amount of such assets. Therefore, we may be required
to reduce the value of these assets as recorded on our balance sheet. This would
require us to record an expense in our statement of operations. This would also
reduce our net assets and increase our losses, or reduce our profits, as the
case may be. Any negative impact on our results of operations or balance sheet
could reduce the price of our common stock.

     For the year ended December 31, 1999, we derived over 96% of our revenue
from products and services relating to the sale of cattle. If the demand for
beef declines, the demand for our products and services would likely decline,
and our results of operations would be harmed.

     If we are unable to manage our growth effectively, our business may be
harmed.

                                       22
<PAGE>   26

     We cannot assure that we will be able to effectively or successfully manage
our growth. If we are unable to manage our growth effectively, our business
operations would suffer. We seek to grow by increasing transaction and
subscription volume, adding new products and services and by hiring additional
employees. In particular, we are currently seeking to hire a Vice President of
Human Relations and additional order buyers for our cattle auction and sales
services. Our growth is likely to place a significant strain on our resources
and systems. As we continue to increase the scope of our operations, we will
need an effective planning and management process to implement our business
strategy successfully and we will need to implement new and improve existing
systems, procedures and controls. We will also need to expand, train and manage
our workforce.

     We currently do not have an adequate corporate infrastructure to support
our operations and we depend upon XL Vision and Safeguard to provide such
services.

     We depend upon XL Vision and Safeguard for accounting, management and
administrative resources. We are currently in the process of establishing our
own corporate infrastructure. If our management team fails to manage this growth
effectively, successfully establish our corporate infrastructure or if there are
unanticipated costs or delays in the improvement and implementation of new and
existing systems, procedures and controls, our business and financial condition
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 currently have three pending U.S. patent applications, which
relate to (i) the early detection of inflammation using our infrared imaging
camera, (ii) feedlot information systems and methods and (iii) the cattle
transaction process. We also have 31 pending U.S. trademark applications
relating to our corporate identity, products and services. We cannot guarantee
that any of our pending patent or trademark applications will be approved. Even
if they are approved, the patents or trademarks may be challenged by other
parties or invalidated. Because brand recognition is an important component of
our business strategy, the protection of our trademarks is critical to our
success. We also depend upon patents licensed to us by the Canadian government
and trade secret law to protect the proprietary nature of our NutriCharge
products. In addition, we depend upon our proprietary database of industry and
client information to provide our clients with our information services. Despite
our efforts to protect our proprietary rights, unauthorized parties may copy
aspects of our products and technology or obtain access to our confidential
proprietary database. Other parties may also breach confidentiality agreements
and other protective contracts. We may not become aware of these breaches or
have adequate remedies available. In addition, effective copyright, patent and
trademark protection may be unavailable in certain countries to which we might
expand our operations.

     In technology markets, there is generally frequent and substantial
intellectual property litigation. We may be subject to legal proceedings and
claims, including claims that we infringe third-party proprietary rights. While
we are not aware of any patents, copyrights or other rights that would prevent
us from manufacturing and commercializing our products or services in the United
States and abroad, there can be no assurance that other parties will not assert
infringement claims against us. There also can be no assurance that former
employers of our present and future employees will not claim that our employees
have improperly disclosed confidential or proprietary information to us. Any of
these claims, with or without merit, could subject us to costly litigation and
divert the attention of our personnel.

     We have filed an application to register eMerge Interactive and related
service marks with the U.S. Patent and Trademark Office. We have received notice
from a third party claiming superior rights to these marks and indicating an
intent to oppose our registration of the marks in Patent and Trademark Office
proceedings as well as oppose our commercial use of the marks. If we are
unsuccessful in defending any such opposition, we may be required to cease using
the eMerge marks at a future date, which may cause us to change our name. A
change in our name may be costly and may result in customer confusion, which
could harm our business.
                                       23
<PAGE>   27

     We typically assume the ownership of cattle sold through our Internet
cattle marketplace and are subject to the risk of loss while we hold title and
market risk.

     In the sales transactions conducted through our Internet cattle sales and
auction services network, we typically contract to purchase cattle from a
seller, identify a buyer for the cattle, take title to the cattle from the
seller and then resell the cattle to the buyer. In this process, we enter into a
contract to purchase cattle in advance of entering into a contract to sell the
cattle. Therefore, until we actually complete a sale transaction, we are subject
to the risk that we may be unable to sell cattle that we are contractually
obligated to purchase. In addition, once we purchase the cattle, we assume title
to the cattle for generally up to 48 hours. As a result, we assume the risk of
liability, loss and deterioration in value of the cattle during that period.
Although we review the background and credit history of our customers, we cannot
assure that we will receive full and timely payment in each instance. If the
buyer does not accept the cattle, we may not be able to sell the cattle to other
buyers on the same terms, and our profitability may be harmed. If the cattle
suffer from health deterioration or weight loss while in our ownership, the
purchasers may assert claims against us. Our business and financial condition
may be harmed if we have to defend any claims or pay any refunds. If the cattle
are destroyed while we have ownership, we may be held responsible for the loss
or may be obligated to purchase additional cattle to fulfill our delivery
commitments. As a result, our business may be harmed.

     We depend on our key employees for our success. The loss of any of these
persons could harm our ability to compete.

     Our success depends on the continued services of the following executive
officers and key employees:

     - Charles L. Abraham;
     - T. Michael Janney;
     - Scott L. Mathews;
     - Marvin L. Slosman;
     - Arvind Subramanian;
     - J. Tom Brink;
     - Scott Crain, D.V.M.; and
     - Jim Gibb, Ph.D.

     The loss of the services of any of these persons could harm our business,
including our ability to compete effectively. Our performance also depends on
our ability to attract, retain and motivate additional key officers and
employees. We may be unable to retain our employees or to attract, assimilate
and retain other qualified employees with relevant livestock and electronic
commerce industry skills in the future. If we fail to attract, retain and
motivate qualified employees, our business will be harmed.

     We may face costly product liability claims that could result in
significant awards against us or impair our ability to market and sell our
products and services.

     A successful product liability claim brought against us could harm our
financial condition and reputation in the industry. We may face product
liability claims in connection with our cattle sales and auction services,
feedlot operations analysis, comparative cattle industry analysis and
benchmarking studies, cattle inventory management tools and NutriCharge, as well
as future products and services. Even if unsuccessful, a product liability claim
could result in costly litigation and divert management's attention and
resources. We do not maintain product liability insurance.

     We expect our quarterly operating results to fluctuate. If we fail to meet
the expectations of public market analysts and investors, the market price of
our common stock could decline.

     We expect that our revenue and operating results will vary in the future as
a result of a number of factors. Our quarterly results of operations may not
meet the expectations of securities analysts and investors, which could cause
the price of our common stock to decline. Our operating results in the future
may not follow any

                                       24
<PAGE>   28

prior trends and should not be relied as an indication of future results. The
factors that affect our quarterly operating results include:

     - Our ability to retain existing customers and attract new customers;

     - Our ability to develop and market new and enhanced products and services
       on a timely basis;

     - The introduction of new or enhanced Web sites, products and services by
       us;

     - Continued purchases by our existing customers; and

     - Future revenues from our equine imaging system, a decline in which may
       result in disproportionate fluctuations in our results of operations,
       since related manufacturing costs to a large extent remain fixed
       regardless of the number of units sold.

     In addition, a number of factors that are beyond our control will also
affect our quarterly operating results, such as:

     - Demand for our products and services;

     - Product and price competition;

     - The introduction of new or enhanced Web sites, products and services by
       our competitors; and

     - Significant downturns in our targeted markets.

     Our quarterly results could fluctuate as a result of seasonal fluctuations
in the cattle industry.

     The cattle industry has historically experienced, and may continue to
experience, seasonal fluctuations. These seasonal patterns may cause quarterly
fluctuations in our operating results. In particular, a disproportionate number
of cattle are sold to feedlots during the third and fourth quarters of each
calendar year. Therefore, a greater number of sales transactions occur during
these two calendar quarters. Due to our limited operating history and the recent
changes in our business as a result of acquisitions, it is difficult to predict
the effect that this seasonal pattern will have on our revenue and quarterly
operating results.

     Our back-up mechanisms are unproven, and therefore are vulnerable to damage
or interruption which would harm our ability to reliably service our customers.

     Our network server, satellites, computers and facilities are vulnerable to
damage or interruption from a number of sources, including fire, flood, power
loss, earthquakes, telecommunications failures, system failures, Internet
brownouts, computer viruses, electronic break-ins and similar disruptions. We
depend on these systems to provide our customers with online cattle sales and
auction services, feedlot and cattle industry analyses, cattle inventory
management tools and the sale of NutriCharge. During the past year, we
experienced a system interruption caused by adverse weather conditions, which
resulted in our system shutting down for approximately 24 hours. We may
experience such an interruption in the future. Any substantial interruptions
could result in the loss of data and could impair our ability to provide our
products and services to customers and to generate revenues. Presently, we do
not have a formal disaster recovery plan in effect. Moreover, our business
interruption insurance may not be sufficient to compensate us for losses that
may occur if any of our Internet-based services are interrupted.

     We intend to expand our business to international markets. The additional
expenses and risks relating to our international expansion may harm our
business, financial condition and results of operations.

     As part of our business strategy, we intend to expand internationally by
offering our products and services in markets within North and South America,
Asia/Pacific and Europe, although we have not yet completed the development of
our plan for international expansion. International expansion may require
significant management attention, which could negatively impact our business. We
may also incur significant costs in

                                       25
<PAGE>   29

order to enter new international markets, which could harm our results of
operations. Our business would be harmed if:

     - We experience difficulty expanding as a result of foreign laws and
       regulations, including export and import regulations applicable to
       commerce conducted across borders within regions;

     - We experience difficulty in tailoring our products and services to
       international markets; and

     - We experience difficulty in enforcing contractual obligations and
       intellectual property rights in foreign countries.

     If we successfully expand into foreign markets, our international business
and our results of operations could be harmed as the result of:

     - Fluctuations in foreign exchange rates or rates of inflation;

     - Recessions in foreign countries;

     - Adverse U.S. and foreign tax laws; and

     - Political and economic instability.

     If electronic commerce does not continue to grow as expected, our business,
financial condition and results of operations will be harmed.

     Our long-term success depends on widespread market acceptance of the
Internet and online commercial services as a medium for commerce. If the
Internet commerce market does not grow or grows more slowly than anticipated,
our business, financial condition and results of operations will be harmed. A
number of factors could prevent such acceptance, including:

     - The early stage of the Internet;

     - The lack of continued development of the Internet's technological
       infrastructure; and

     - Consumer concern about the security of electronic commerce transactions.

     If the Internet or our Web sites and systems cannot support the growth in
electronic commerce, our business, financial condition and results of operations
will be harmed.

     If the Internet fails to evolve to support growth in electronic commerce,
our business, financial condition and results of operations will be harmed.
Specifically, we would be harmed if:

     - The infrastructure of the Internet does not evolve to sufficiently
       support the substantial growth in usage of the Internet and therefore
       cannot process a growing number of transactions; and

     - The availability of telecommunication services is insufficient or
       telecommunication services do not evolve promptly to support real-time
       interactions with customers.

     If we do not continue to develop our Web sites and systems to sufficiently
support growth in the demand for our services, our business will also be harmed.
Specifically, we would be harmed if:

     - We fail to expand our infrastructure, including our Web sites, internet
       software and servers to accommodate an increased number of users; and

     - We fail to adapt our products and services to be compatible with new
       technology, and are therefore unable to provide our services to users of
       the new technology.

     We may also need to devote substantial resources to updating our Web sites
and online services to support the growth of online commerce.

     Risks associated with the security of transactions and transmitting
confidential information over the Internet may negatively impact our electronic
commerce business.

                                       26
<PAGE>   30

     We believe that concern regarding the security of confidential information
transmitted over the Internet, such as credit card numbers and proprietary data,
may prevent many potential customers from engaging in online transactions and
may harm our business. We intend to use authentication technology, which
requires passwords and other information to prevent unauthorized persons from
accessing a customer's information, or encryption, which transforms information
into a code designed to be unreadable by third parties, to protect confidential
information. In addition, despite the measures we intend to take, our
infrastructure is potentially vulnerable to physical or electronic break-ins,
viruses or similar problems. If our security measures are circumvented,
proprietary information could be misappropriated or our operations could be
interrupted. Security breaches that result in access to confidential information
could expose us to a risk of loss or liability. If we do not adequately address
these concerns or face any claims in connection with a breach of security, our
business, financial condition and operating results could be harmed.

     We could face liability for information retrieved from or transmitted
through our Web sites, which could result in high litigation or insurance costs.

     As a publisher and distributor of online content, we face potential
liability for defamation, negligence, copyright, patent or trademark
infringement and other claims based on the nature and content of the materials
that we publish or distribute on our Web sites. Any imposition of liability
could negatively impact our reputation and result in increased insurance costs.
Claims have been successfully brought against online services. Although we carry
general liability insurance, our insurance may not cover claims of these types
or may not be adequate to cover us for all liability that may be imposed.

     Government regulation and legal uncertainties could result in additional
burdens to doing business on the Internet.

     The laws governing the Internet remain largely unsettled, even in areas
where there has been some legislative action. It may take years to determine
whether and how existing laws including those governing intellectual property,
privacy, libel and taxation apply to the Internet. Our business, results of
operations and financial condition could be harmed by the adoption or
modification of laws or regulations relating to the Internet that result in the
imposition of additional cost on conducting business over the Internet or impose
additional restrictions on our ability to conduct our business operations.

     In 1998, the Internet Tax Freedom Act placed a three-year moratorium on
state and local taxes on Internet access, except for taxes imposed prior to
October 1, 1998, and on taxes that discriminate against online commerce.
However, Congress may not renew this legislation in 2001 and state and local
governments would be able to impose Internet-specific taxes on goods purchased
electronically, in addition to taxes that are otherwise imposed on sales
transactions.

     Laws and regulations that apply to Internet communications, commerce and
advertising could increase the costs of communicating on the Web and adversely
affect the demand for our products and services and thereby harm our business,
results of operations and financial conditions. In addition, as a general
matter, laws and regulations may also be adopted in the future covering
e-commerce issues such as user privacy, pricing, content, copyrights,
distribution, antitrust matters, taxation and quality of products and services
that may increase the cost of e-commerce. Several telecommunications carriers
have asked the Federal Communications Commission to regulate telecommunications
connections to the Internet, which could result in higher costs of doing
business over the Internet. Legislation of these kinds could hinder growth in
the use of the Internet and decrease the acceptance of the Internet as a
communications and commercial medium.

     Due to the global nature of the Internet, it is possible that governments
of foreign countries might attempt to regulate our transmissions or levy sales
or other taxes relating to our activities and we may incur significant costs to
comply with foreign laws. Furthermore, the European Union recently adopted a
directive addressing data privacy that may result in limits on the collection
and use of user information. In addition, the growth and development of the
market for Internet commerce may prompt calls for more stringent consumer
protection laws, both in the United States and abroad, that may impose
additional burdens on companies conducting business over the Internet.

                                       27
<PAGE>   31

     There is intense competition for Internet products and services, which
could reduce our market share and harm our financial performance.

     Competition for Internet products and services and electronic commerce is
intense. We expect that competition will continue to intensify. Barriers to
entry are minimal, and competitors can launch new Web sites at a relatively low
cost. Our competitors, such as traditional cattle auction services, video cattle
auction providers, online cattle auction services, cattle and livestock
information services and cattle industry product manufacturers, may develop
Internet products or services that are superior to, or have greater market
acceptance, than our products and services. If we are unable to compete
successfully against our competitors, our business, financial condition and
operating results will be harmed.

     Internet Capital Group, Safeguard and XL Vision will be able to control
matters requiring stockholder approval.

     The concentration of ownership of our common stock may delay, deter or
prevent acts that would result in a change of control, which could reduce the
market price of our common stock. Internet Capital Group and Safeguard are
affiliated entities and Safeguard and XL Vision are affiliated entities.
Internet Capital Group, Safeguard and XL Vision together have the power to vote
approximately 66.4% (as of March 17, 2000) of the aggregate number of votes to
which the holders of our common stock are entitled. In addition, Safeguard and
Internet Capital Group are parties to a joint venture agreement under which they
have agreed to use their best efforts to vote together on matters submitted to
stockholders for approval. As a result, these stockholders will be able to
control all matters requiring stockholder approval. Matters that typically
require stockholder approval include:

     - Election of directors;

     - Approval of a merger or consolidation; and

     - Approval of a sale of all or substantially all of our assets.

     Of the seven members of our board of directors, the following four
directors also serve as directors and/or officers of Internet Capital Group,
Safeguard or XL Vision:

     - John S. Scott, Chairman of our board of directors, is the Chief Executive
       Officer and the Chairman of the board of directors of XL Vision;

     - Douglas A. Alexander, a member of our board of directors, is the Managing
       Director of Internet Capital Group;

     - Anthony A. Ibarguen, a member of our board of directors, is a Managing
       Director of Internet Capital Group; and

     - John W. Poduska, Sr., Ph.D., a member of our board of directors, is a
       member of the board of directors of Safeguard and a member of the board
       of directors of XL Vision.

     In addition, Internet Capital Group has the right to elect two directors to
our board, one of which has not yet been designated. Under the joint venture
agreement, Safeguard and Internet Capital Group have agreed to vote for two
designees of Safeguard and two designees of Internet Capital Group in all future
elections of directors. Safeguard, XL Vision and Internet Capital Group will
therefore have the ability to significantly influence our management.

     The sale of outstanding shares in the market by our existing stockholders
in the future may adversely affect our stock price.

                                       28
<PAGE>   32

     If our stockholders sell substantial amounts of our common stock, including
shares issued upon the exercise of outstanding options and warrants, then the
market price of our common stock could fall. Based upon the 33,031,395 shares
outstanding as of March 17, 2000:

     - 8,675,000 shares are freely tradeable in the public market;

     - 24,007,080 shares may be sold subject to compliance with Rule 144, of
       which 11,312,633 shares may be sold without restriction under Rule 144(k)
       if they are not held by our affiliates; and

     - 349,315 shares may be sold 90 days after February 4, 2000, subject to
       compliance with Rule 701.

     Although 23,131,956 of the shares described above are subject to lock-up
agreements, such shares may become tradeable, subject to compliance with Rule
144 or Rule 701, beginning 180 days after February 4, 2000. In addition, as of
December 31, 1999 there are options to purchase 2,769,116 shares of class A
common stock outstanding that were granted under our equity compensation plans.
We intend to file a registration statement on Form S-8 to register the shares
issued pursuant to the exercise of options granted under our equity compensation
plans. There is also a warrant to purchase 1,138,889 shares of class B common
stock outstanding.

     Our common stock price is likely to be highly volatile.

     The market price of our common stock, like the market for Internet-related
and technology companies in general, has been and will likely continue to be
highly volatile. Any significant fluctuations in the future might result in a
material decline in the market price of our common stock.

     The price at which our common stock trades is likely to be highly volatile
and may fluctuate substantially due to factors such as:

     - Actual or anticipated variations in quarterly operating results;

     - Announcements of technological innovations;

     - Conditions or trends in the cattle industry;

     - New sales formats of new products or services;

     - Changes in or failure by us to meet financial estimates of securities
       analysts;

     - Conditions or trends in the Internet industry;

     - Announcements by us or our competitors of significant acquisitions,
       strategic partnerships or joint ventures;

     - Capital commitments;

     - Additions or departures of key personnel; and

     - Sales of common stock.

     In addition, the U.S. stock markets have from time to time experienced
significant price and volume fluctuations that have affected the market prices
for the common stock of technology companies, particularly Internet companies.
In the past, these broad market fluctuations have been unrelated or
disproportionate to the operating performance of these companies. In the past,
following periods of volatility in the market price of a particular company's
securities, securities class action litigation has often been brought against
that company. We may become involved in this type of litigation in the future.
Litigation is often expensive and diverts the attention and resources of
management, which could harm our business and operating results.

     Our undesignated preferred stock may deter potential acquisition bids for
our business.

     Our board of directors may issue up to 15,000,000 shares of preferred stock
in one or more series. The board of directors can fix the number of shares of
each class and the voting rights, preferences, limitations and special rights,
if any, without any further vote or action by our stockholders. The issuance of
shares of preferred stock without further action by our stockholders may delay
or prevent a change in control
                                       29
<PAGE>   33

transaction. The issuance of shares of preferred stock may adversely affect your
relative voting and other rights relating to your shares of common stock.

     Delaware law may deter potential bids for our business. We are subject to
the anti-takeover provisions of the Delaware General Corporation Law, which
regulates corporate acquisitions. Delaware law prevents us from engaging in a
business combination with any interested stockholder for three years following
the date that the stockholder became an interested stockholder. For purposes of
Delaware law, a business combination includes a merger or consolidation
involving us and the interested stockholder and the sale of more than 10% of our
assets. In general, Delaware law defines an interested stockholder as any entity
or person beneficially owning 15% or more of the outstanding voting stock of a
corporation and any entity or person affiliated with or controlling or
controlled by such entity or person. Under Delaware law, a Delaware corporation
may opt out of the anti-takeover provisions. We do not intend to opt out of
these anti-takeover provisions.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

     We held no derivative securities as of December 31, 1999. We are exposed to
changes in interest rates as a result of our borrowings from XL Vision and
Safeguard, which are based on the prime lending rate. A 10% increase in interest
rates related to our borrowings would not have a material effect on our result
of operations over the next fiscal year or the fair value of our borrowings.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The consolidated financial statements of the Company are submitted as a
separate section of this report beginning on page F-1.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

     None.

                                       30
<PAGE>   34

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.

     This table sets forth information with respect to our executive officers,
directors and key employees with significant industry expertise as of March 31,
1999.

<TABLE>
<CAPTION>
NAME                                   AGE   POSITION
----                                   ---   --------
<S>                                    <C>   <C>
EXECUTIVE OFFICERS AND DIRECTORS
Charles L. Abraham...................  44    Chief Executive Officer and Director
T. Michael Janney....................  51    Chief Financial Officer and Treasurer
Scott L. Mathews.....................  42    President and Chief Operating Officer
Marvin L. Slosman....................  36    Executive Vice President, Sales
Arvind Subramanian...................  38    Executive Vice President, Marketing and E-Business
John S. Scott, Ph.D..................  48    Chairman of the Board
Douglas A. Alexander.................  38    Director
E. Michael Forgash...................  41    Director*
Thomas C. Lynch......................  57    Director
Christopher Moller, Ph.D.............  46    Director
John W. Poduska, Sr., Ph.D...........  62    Director
Anthony A. Ibarguen..................  40    Director*
KEY EMPLOYEES WITH SIGNIFICANT
  INDUSTRY EXPERTISE
J. Tom Brink.........................  38    Director, Analytical Services
Scott Crain, D.V.M...................  41    Executive Vice President, Professional Services
Jim Gibb, Ph.D.......................  48    Director, Advanced Technologies
</TABLE>

---------------

* Mr. Forgash resigned from the Board of Directors in March, 2000 and Mr.
  Ibarguen was appointed to the Board of Directors in March, 2000.

EXECUTIVE OFFICERS AND DIRECTORS

     CHARLES L. ABRAHAM has served as Chief Executive Officer and as a member of
the board of directors of eMerge Interactive since July 1998. From July 1997
until July 1998, Mr. Abraham was Vice President and General Manager with the
Home Care Division of Nellcor Puritan Bennett Incorporated. From 1994 until July
1997, Mr. Abraham was Manager of the Global Vascular Business of General
Electric Medical Systems, located in Paris, France.

     T. MICHAEL JANNEY has served as Chief Financial Officer and Treasurer of
eMerge Interactive since November 1998. From March 1993 until October 1998, Mr.
Janney was Senior Vice President and Chief Financial Officer of Datamax
Corporation, a privately held company that designs, develops, manufactures and
sells bar code printers worldwide.

     SCOTT L. MATHEWS has served as President of eMerge Interactive since
November 1999, and as Chief Operating Officer of eMerge Interactive since April
1999. From May 1996 until April 1999, Mr. Mathews was Vice President and General
Manager for Key Technology, Inc., a manufacturer of machine vision and material
handling products for the food processing and pharmaceutical industries. From
January 1994 until May 1996, Mr. Mathews was Manager of the Global Positron
Emission Tomography business of General Electric Medical Systems, located in
Waukesha, Wisconsin and Uppsala, Sweden.

                                       31
<PAGE>   35

     MARVIN L. SLOSMAN has served as the Executive Vice President, Sales of
eMerge Interactive since August 1998. From May 1996 until July 1998, Mr. Slosman
was a Division Manager for Cordis, Johnson and Johnson. From April 1995 until
May 1996, Mr. Slosman was a Vice President at GE Capital Corporation. From 1993
until April 1995, he served as a Programs Manager at General Electric Medical
Systems. Mr. Slosman currently serves on the board of directors of ReMar, Inc.

     ARVIND SUBRAMANIAN has served as Executive Vice President, Marketing and
E-business of eMerge Interactive since December 1999. From January 1997 until
December 1999, Mr. Subramanian was a General Manager for General Electric
Information Services. From September 1994 until December 1996, Mr. Subramanian
was a Global Product Line Manager for General Electric Medical Systems.

     JOHN S. SCOTT, PH.D. has served as Chairman of the Board of eMerge
Interactive since September 1994 and has served as Chief Executive Officer and
Chairman of the Board of XL Vision, Inc. since its inception in May 1993. From
August 1991 until July 1993, Dr. Scott was President of Lenzar Electro-Optics,
Inc., a manufacturer of imaging devices. Dr. Scott also currently serves as
Chairman of the Board of ChromaVision Medical Systems, Inc., a public company,
and Who?Vision Systems, Inc., both of which are affiliated with Safeguard.

     DOUGLAS A. ALEXANDER has served as a member of the board of directors of
eMerge Interactive since April 1999. Mr. Alexander is a managing director of
Internet Capital Group, Inc., an affiliate of Safeguard and is Chairman of the
Board of VerticalNet, Inc., a public company, and serves as a director of
Arbinet Communications, Inc., Blackboard Inc., ComputerJob.com, Inc., Deja.com,
Inc., LinkShare Corporation, SageMaker, Inc. and Star-Cite! Solutions, Inc., all
of which are privately held companies that are affiliated with Internet Capital
Group. Mr. Alexander co-founded Reality Online, Inc., a company that developed
financial planning tools and online services aimed at the individual investor,
and continued to serve as its President and Chief Executive Officer after its
acquisition by Reuters Group PLC until September 1997.

     E. MICHAEL FORGASH served as a member of the board of directors of eMerge
Interactive from March 1999 until his resignation in March 2000. Mr. Forgash
held the position of Vice President, Operations at Safeguard Scientifics, Inc.
from January 1998 until his resignation in March 2000. From August 1996 until
October 1997, Mr. Forgash was President and Chief Executive Officer of Creative
Multimedia, an interactive marketing agency that consulted, designed and
delivered Web solutions for businesses. From November 1994 until July 1996, Mr.
Forgash served as President of Continental Healthcare Systems, Inc., a leading
supplier of departmental healthcare information systems and consulting in the
United States and England. Mr. Forgash served as a director of Internet Capital
Group, Inc. and US Interactive, Inc., both public companies, 4anything.com,
Inc., Who?Vision Systems, Inc. and XL Vision, Inc., all of which are affiliated
with Safeguard. Mr. Forgash was the Safeguard designee on our board of directors
under a stockholders' agreement dated July 17, 1997.

     THOMAS C. LYNCH has served as a member of the board of directors of eMerge
Interactive since June 1997 and currently serves as the President, Chief
Operating Officer and a member of the board of directors of CompuCom, Inc., a
public company, which is affiliated with Safeguard. From November 1995 until
October 1998, Mr. Lynch held the position of Senior Vice President at Safeguard
Scientifics, Inc. From September 1994 until October 1995, Mr. Lynch was Director
of the Navy Staff, where he was responsible for coordinating Navy defense
issues. Prior to August 1994, Mr. Lynch held several positions in the United
States Navy, including Superintendent of the U.S. Naval Academy.

     CHRISTOPHER MOLLER, PH.D. has served as a member of the board of directors
of eMerge Interactive since June 1997. Since 1990, he has served as Vice
President of TL Ventures, a company which manages a series of private equity
funds and is affiliated with Safeguard. Since 1994, Dr. Moller has served as a
Managing Director of the following funds managed by TL Ventures: Radnor Venture
Partners, Technology Leaders, Technology Leaders II, TL Ventures III and TL
Ventures IV. He is also a Managing Director of TL Leaders Management II L.P. Dr.
Moller is a director of Who?Vision Systems, Inc., an affiliate of Safeguard,
Adolor Corporation and OraPharma, Inc. Dr. Moller serves on the medical advisory
board of Lankenau Research Institute. Dr. Moller is the TL Ventures designated
director on our board of directors, under a stockholder agreement dated July 17,
1997.
                                       32
<PAGE>   36

     JOHN W. PODUSKA, SR., PH.D. has served as a member of the board of
directors of eMerge Interactive since January 1997. Since 1992, Dr. Poduska, Sr.
has served as the Chairman of Advanced Visual Systems Inc., a provider of
visualization software. From December 1989 until December 1991, Dr. Poduska was
President and Chief Executive Officer of Stardent Computer Inc., a computer
manufacturer. Dr. Poduska is also a member of the board of directors of
Safeguard Scientifics, Inc., Cambridge Technology Partners, Inc., an affiliate
of Safeguard, and Union Pacific Resources Group Inc., all public companies, and
XL Vision, Inc., an affiliate of Safeguard.

     ANTHONY A. IBARGUEN has served as a member of the board of directors of
eMerge Interactive since March 2000 and is the President of Professional
Services and managing director of operations of Internet Capital Group, Inc., an
affiliate of Safeguard Scientifics, Inc. Mr. Ibarguen joined Internet Capital
Group, Inc. in 1999. From 1996 to 1999, he was President, Chief Operating
Officer and Board Director of Tech Data Corporation, a Fortune 150 global
technology products and services provider offering pre- and post-sale training
and technical support, financing options, configuration and assembly services as
well as a range of electronic commerce solutions. Prior to joining Tech Data,
Mr. Ibarguen served as Executive Vice President of ENTEX Information Services
Inc., a $2 billion PC Systems Integrator. He co-founded ENTEX in 1993 through
the management-led buyout of JWP's Information Services Division. Mr. Ibarguen
joined JWP Inc. in 1990 as VP of Business Development and previously worked as a
Development Associate with Trammell Crow Company. He began his career at IBM
Corporation where he held a variety of sales and marketing line and staff
positions spanning a seven-year period. Mr. Ibarguen also serves on the board of
directors of Smartdisk Corporation, Inc., a public company, and CommerceQuest,
Inc.

KEY EMPLOYEES WITH SIGNIFICANT INDUSTRY EXPERTISE

     J. TOM BRINK has served as the Director, Analytical Services of eMerge
Interactive since April 1999. Mr. Brink focuses on marketing methods, feedlot
and grid value, and cow production costs, and has conducted extensive research
on cattle markets and price cycles. His articles have been featured in many key
industry publications. From December 1996 to April 1999, Mr. Brink served as the
Executive Director of the American Gelbvieh Association, a leading breed
value-based marketer of feed cattle and the largest breed-coordinated alliance
in the United States. From July 1992 until December 1996, Mr. Brink was the
Director of Market Research of Cattle-Fax.

     SCOTT CRAIN, D.V.M. has served as the Executive Vice President,
Professional Services of eMerge Interactive since March 1999. Since 1990, Dr.
Crain has also maintained a veterinary feedlot practice. In 1995, Dr. Crain
founded CIN, LLC, a company that established an information system for the beef
industry, and served as its President and Chief Executive Officer until that
company was acquired by eMerge Interactive in 1999.

     JIM GIBB, PH.D. has served as the Director, Advanced Technologies for
eMerge Interactive since June 1999. Dr. Gibb identifies opportunities to
implement and integrate new technology into eMerge Interactive's informations
system. From May 1996 until June 1999, he served as the Vice President at the
Center for Quality of the National Cattlemen's Beef Association. From 1991 until
May 1996, Dr. Gibb served as the Executive Director of the American Gelbvieh
Association.

BOARD OF DIRECTORS

     Our board of directors is composed of seven members. All of our directors
are elected to serve for one-year terms and are elected at each annual meeting
of our stockholders.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     The Company had no securities registered pursuant to Section 12 of the
Securities Exchange Act of 1934 during 1999 and, therefore, no Section 16(a)
filings were required by the Company's officers, directors, or 10% or greater
owners of the Company's securities during 1999.

                                       33
<PAGE>   37

ITEM 11.  EXECUTIVE COMPENSATION.

EXECUTIVE COMPENSATION

     The table below sets forth information concerning the compensation we paid
to our chief executive officer and each executive officer who was paid
compensation greater than $100,000 in 1999. In 1999, we did not pay any of our
other executive officers salary and bonus exceeding $100,000. The amount
appearing in the All Other Compensation column for Mr. Abraham for 1999 consists
of $13,714 for reimbursement of relocation expenses, $11,050 for car allowance
and $5,484 for 401(k) employer contributions and term life insurance and for
1998 consists of $34,663 for reimbursement of relocation expenses, $5,525 for
car allowance and $1,690 for 401(k) employer contributions. The $3,771 for Mr.
Janney consists of 401(k) employer contributions and term life insurance. For
Mr. Mathews, the $65,935 consists of $63,435 for relocation expenses and $2,500
for 401(k) employer contributions and term life insurance. For Mr. Slosman the
$48,309 consists of $46,586 for relocation expenses and $1,723 for 401(k)
employer contributions and term life insurance. Mr. Abraham joined eMerge
Interactive in April 1998.

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                           LONG-TERM
                                                                          COMPENSATION
                                                                          ------------
                                                 ANNUAL COMPENSATION       SECURITIES
                                              -------------------------    UNDERLYING     ALL OTHER
        NAME AND PRINCIPAL POSITION           YEAR    SALARY     BONUS    OPTIONS/SARs   COMPENSATION
        ---------------------------           ----   --------   -------   ------------   ------------
<S>                                           <C>    <C>        <C>       <C>            <C>
Charles L. Abraham..........................  1999   $175,791   $35,000          --        $30,248
  Chief Executive Officer                     1998     84,469        --     750,000         41,878
T. Michael Janney...........................  1999    136,744     5,625      31,250          3,771
  Chief Financial Officer and Treasurer
Scott L. Mathews............................  1999    113,136    50,000     225,000         65,935
  President and Chief Operating Officer
Marvin L. Slosman...........................  1999    144,517    18,670      31,250         48,309
  Executive Vice President, Sales
</TABLE>

     The following table sets forth information regarding options granted in
1999 to the executive officers named in the Summary Compensation Table above.
Charles L. Abraham was not granted any options during fiscal 1999. Amounts
represent the hypothetical gains that could be achieved from the respective
options if exercised at the end of the option term. These gains are based on
assumed rates of stock appreciation of 5% and 10% compounded annually from the
date the respective options were granted to their expiration date based upon the
grant price.

                     OPTION GRANTS DURING LAST FISCAL YEAR

<TABLE>
<CAPTION>
                                                                                                               POTENTIAL REALIZABLE
                                                                                                                 VALUE AT ASSUMED
                                                                                                                   ANNUAL RATES
                                                              INDIVIDUAL GRANTS                                   OF STOCK PRICE
                                 ---------------------------------------------------------------------------     APPRECIATED FOR
                                  NUMBER OF SHARES                                                                 OPTION TERM
                                 UNDERLYING OPTIONS   PERCENTAGE OF TOTAL   EXERCISE PRICE                     --------------------
             NAME                     GRANTED           OPTIONS GRANTED       ($/SHARE)      EXPIRATION DATE      5%         10%
             ----                ------------------   -------------------   --------------   ---------------   --------   ---------
<S>                              <C>                  <C>                   <C>              <C>               <C>        <C>
Charles L. Abraham.............            --                  --                  --                 --            --          --
T. Michael Janney..............        31,250                 2.2%              $2.40            4/21/09       $47,167    $119,531
                                      166,665                11.8                2.40            4/21/09
Scott L. Mathews...............        58,335                 4.1                2.40            4/21/09        88,048     223,130
Marvin L. Slosman..............        31,250                 2.2                2.40            4/21/09        47,167     119,531
</TABLE>

                                       34
<PAGE>   38

     The following table sets forth information concerning year end option
values for fiscal 1999 for the executive officers named in the Summary
Compensation Table above. The value of unexercised in-the-money options is
calculated based on an assumed value equal to the initial public offering price
of $15.00 per share.

   AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
                                     VALUES

<TABLE>
<CAPTION>
                                                                       NUMBER OF SECURITIES          VALUE OF UNEXERCISED
                                                                      UNDERLYING UNEXERCISED        IN-THE-MONEY OPTIONS AT
                                                                    OPTIONS AT FISCAL YEAR END          FISCAL YEAR END
                                 SHARES ACQUIRED                    ---------------------------   ---------------------------
NAME                               ON EXERCISE     VALUE REALIZED   EXERCISABLE   UNEXERCISABLE   EXERCISABLE   UNEXERCISABLE
----                             ---------------   --------------   -----------   -------------   -----------   -------------
<S>                              <C>               <C>              <C>           <C>             <C>           <C>
Charles L. Abraham.............      37,500           $60,000         150,000        562,500      $2,130,000     $7,987,500
T. Michael Janney..............       3,313            33,788          82,625        101,563       1,160,775      1,404,690
Scott L. Mathews...............          --                --          56,250        168,750         708,750      2,126,250
Marvin L. Slosman..............          --                --          85,938        101,563       1,207,815      1,404,690
</TABLE>

EMPLOYMENT, CHANGE OF CONTROL AND TERMINATION OF EMPLOYMENT ARRANGEMENTS

     CHARLES L. ABRAHAM holds the position of Chief Executive Officer and
receives an annual salary of $175,000 per year, and a bonus of up to $70,000 per
year based on performance objectives established by the board of directors. In
addition, Mr. Abraham received a one time bonus of $189,355 during April 2000 in
connection with the Company's successful completion of its initial public
offering. Mr. Abraham will receive continued salary and benefits for a period of
six months if we terminate his employment without cause. Mr. Abraham also holds
options to purchase 750,000 shares of common stock at $0.80 per share, of which
25% or 187,500 shares, vest at the grant date with the remaining options vesting
in three annual installments of 25% each. If we experience a change of control,
100% of the options will automatically vest.

     MARVIN L. SLOSMAN holds the position of Executive Vice President, Sales and
receives an annual salary of $150,000 and a bonus of up to $60,000 based on the
achievement of annual objectives. Mr. Slosman will receive continued salary and
benefits for a period of six months if we terminate his employment without
cause. Mr. Slosman also holds options to purchase 156,250 shares of common stock
at $0.80 per share and 31,250 shares of common stock at $2.40 per share. These
options vested 25% on the day of grant with the remaining options vesting in
three annual installments of 25% each. If we experience a change of control,
100% of the options will automatically vest.

     T. MICHAEL JANNEY holds the position of Chief Financial Officer and
receives an annual salary of $150,000 and a bonus of up to $45,000 based on the
achievement of annual objectives. Mr. Janney will receive continued salary and
benefits for a period of six months if we terminate his employment without
cause. Mr. Janney also holds options to purchase 156,250 shares of common stock
at $0.80 per share and 31,250 shares of common stock at $2.40 per share. These
options vested 25% on the day of grant with the remaining options vesting in
three annual installments of 25% each. If we experience a change of control,
100% of the options will automatically vest.

     SCOTT L. MATHEWS holds the position of President and Chief Operating
Officer and receives an annual salary of $160,000 and a bonus of up to $64,000
based on the achievement of annual objectives. Mr. Mathews will receive
continued salary and benefits for a period of six months if we terminate his
employment without cause. Mr. Mathews also holds options to purchase 225,000
shares of our common stock at $2.40 per share. These options vested 25% on the
day of grant with the remaining options vesting in three annual installments of
25% each. If we experience a change of control, 100% of the options will
automatically vest.

     ARVIND SUBRAMANIAN holds the position of Executive Vice President, Sales
and E-Business and receives an annual salary of $150,000 and a bonus of up to
$52,500 based on the achievement of annual objectives. Mr. Subramanian will
receive continued salary and benefits for a period of twelve months if we
terminate his employment without cause. Mr. Subramanian also holds options to
purchase 187,500 shares of our common stock at $11.20 per share. These options
vested 25% on the day of grant with the remaining options vesting in three
annual installments of 25% each. If we experience a change of control, 100% of
the options will automatically vest.

                                       35
<PAGE>   39

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

     The compensation committee is responsible for determining salaries,
incentives and other forms of compensation for directors, officers and other
employees of eMerge Interactive and administering various incentive compensation
and benefit plans. During fiscal year 1999, our compensation committee consisted
of Dr. Scott and Messrs. Forgash and Lynch. Dr. Scott is the Chief Executive
Officer and Chairman of the Board of XL Vision and Mr. Forgash was an officer at
Safeguard Scientifics, Inc. until his resignation in March 2000. At the end of
fiscal year 1999, we owed XL Vision and Safeguard $1.7 million and $10.3
million, respectively.

BOARD COMMITTEES

     We have established an audit committee and a compensation committee. Our
audit committee consists of three independent directors. During 1999, our audit
committee consists of Douglas A. Alexander, Christopher Moller, Ph.D. and John
W. Poduska, Sr., Ph.D. The audit committee reviews the scope and result of the
audit and other services provided by our independent auditors and reviews and
evaluates our internal control functions. Our compensation committee consists of
at least three disinterested directors who are non-employee directors. During
1999, our compensation committee consists of John S. Scott, Ph.D., E. Michael
Forgash and Thomas C. Lynch. The compensation committee evaluates and approves
the compensation and benefits for our executive officers and administers our
equity compensation plans and makes recommendations to the board of directors
regarding such matters.

DIRECTOR COMPENSATION

     We reimburse each member of our board of directors for out-of-pocket
expenses incurred in connection with attending board meetings. We do not pay our
directors cash compensation for attending meetings of the board of directors and
committee meetings. Directors are eligible to receive options to purchase common
stock under our equity compensation plan. All options granted to directors have
been approved by unanimous vote of the board of directors. In each of October
1997 and March 1999, we granted Dr. Poduska options to purchase 31,250 shares of
our common stock under our 1996 Equity Compensation Plan at an exercise price of
$0.80 and $1.60 per share, respectively. In April 1999, we granted Mr. Alexander
options to purchase 100,000 shares of our common stock under our 1996 Equity
Compensation Plan at an exercise price of $2.40 per share.

EQUITY COMPENSATION

  Amended and Restated 1996 Equity Compensation Plan

     Our Amended and Restated 1996 Equity Compensation Plan was approved by our
stockholders on January 26, 1996. The aggregate number of shares of common stock
available for awards under the 1996 plan was 2,168,750 shares. No more than
625,000 shares in the aggregate may be granted to any individual in any calendar
year. As of December 31, 1999, there were 1,866,991 shares issuable upon the
exercise of outstanding options granted under the 1996 plan.

  1999 Equity Compensation Plan

     Our 1999 Equity Compensation Plan was approved by our stockholders on May
10, 1999. The aggregate number of shares of common stock available for awards
under the 1999 plan is 2,500,000 shares. No more than 625,000 shares in the
aggregate may be granted to any individual in any calendar year. As of December
31, 1999, there were 902,125 shares issuable upon the exercise of outstanding
options granted under the 1999 plan.

  General

     The 1996 and 1999 equity compensation plans provide for grants of incentive
stock options, nonqualified stock options, stock appreciation rights, restricted
stock and performance units to our designated employees, advisors and
consultants, and to non-employee directors. The compensation committee of the
board of

                                       36
<PAGE>   40

directors administers and interprets the plans. The compensation committee
consists of two or more persons appointed by the board of directors from among
its members, each of whom must be a non-employee director as defined by Rule
16b-3 under the Securities Exchange Act of 1934, and an outside director as
defined by section 162(m) of the Internal Revenue Code of 1986 and related
Treasury Regulations.

  Eligibility for Participation

     Grants may be made to any of our employees or to employees of any of our
subsidiaries, to any non-employee member of the board of directors or, under the
1999 plan, to individuals to whom an offer of employment has been extended. Key
consultants and advisers who perform services for us or any of our subsidiaries
are eligible if they render bona fide services, not as part of the offer or sale
of securities in a capital-raising transaction.

401(K) PLAN

     We have adopted a tax qualified employee savings and retirement plan, the
401(k) plan, for eligible employees. We make matching contributions on behalf of
all participants who have elected to make deferrals to the 401(k) plan. Any
contributions to the 401(k) plan by us or by the participants are paid to a
trustee. The 401(k) plan, and the accompanying trust, is intended to qualify
under Section 401(k) of the Internal Revenue Code, so that contributions and
income earned, if any, are not taxable to employees until withdrawn. The
contributions made by us vest in increments according to a vesting schedule. At
the direction of each participant, the trustee invests the contributions made to
the 401(k) plan in any number of investment options.

ITEM 12.  SECURITY OWNERSHIP AND CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

     The following table sets forth information regarding the beneficial
ownership of eMerge Interactive's common stock as of April 13, 2000 by:

     - Each person or entity who is known by us to beneficially own more than 5%
       of eMerge Interactive's outstanding common stock;
     - Each of the executive officers set forth on the summary compensation
       table;
     - Each director of eMerge Interactive; and
     - All directors and executive officers as a group.

     A person has beneficial ownership of shares if the individual has the power
to vote or dispose of shares. This power can be exclusive or shared, direct or
indirect. In addition, a person beneficially owns shares underlying options that
are presently exercisable or will become exercisable within 60 days of April 13,
2000 and shares acquirable upon conversion of our preferred stock. Applicable
percentage ownership in the following table is based on 33,050,644 shares of
common stock outstanding as of April 13, 2000.

                           SHARES BENEFICIALLY OWNED

<TABLE>
<CAPTION>
                                              OUTSTANDING                     SHARES BENEFICIALLY
                                                 SHARES         OPTIONS         OWNED ASSUMING
                                              BENEFICIALLY    EXERCISABLE         EXERCISE OF       PERCENT OF
          NAME OF BENEFICIAL OWNER               OWNED       WITHIN 60 DAYS         OPTIONS           SHARES
          ------------------------            ------------   --------------   -------------------   ----------
<S>                                           <C>            <C>              <C>                   <C>
Safeguard Scientifics, Inc.
  800 The Safeguard Building
  435 Devon Park Drive
  Wayne, PA 19087(1)(3).....................   12,221,281      1,478,889          13,700,170           40.1%
Internet Capital Group, Inc.
  800 The Safeguard Building
  435 Devon Park Drive
  Wayne, PA 19087(2)(3).....................   12,221,281      1,478,889          13,700,170           40.1%
</TABLE>

                                       37
<PAGE>   41

<TABLE>
<CAPTION>
                                              OUTSTANDING                     SHARES BENEFICIALLY
                                                 SHARES         OPTIONS         OWNED ASSUMING
                                              BENEFICIALLY    EXERCISABLE         EXERCISE OF       PERCENT OF
          NAME OF BENEFICIAL OWNER               OWNED       WITHIN 60 DAYS         OPTIONS           SHARES
          ------------------------            ------------   --------------   -------------------   ----------
<S>                                           <C>            <C>              <C>                   <C>
XL Vision, Inc.
  10315 102(nd) Terrace
  Sebastian, FL 32958(4)....................    5,533,125              0           5,533,125           16.7%
Technology Leaders I
  435 Devon Park Drive
  Building 700
  Wayne, PA 19087(5)(7).....................      854,062              0             854,062            2.6%
Technology Leaders II
  435 Devon Park Drive
  Building 700
  Wayne, PA 19087(6)(7).....................      920,000              0             920,000            2.8%
Charles L. Abraham..........................       67,500        307,500             375,000            1.1%
Douglas A. Alexander........................            0         25,000              25,000              *
Anthony A. Ibarguen.........................            0              0                   0              *
Thomas Michael Janney.......................        3,313         90,435              93,748              *
Thomas C. Lynch.............................       36,795              0              36,795              *
Scott L. Mathews............................            0        112,500             112,500              *
Christopher Moller, Ph.D....................        1,175              0               1,175              *
John W. Poduska, Ph.D.......................       85,450              0              85,450              *
John S. Scott, Ph.D.(8).....................       25,000              0              25,000              *
Marvin L. Slosman...........................            0         93,750              93,750              *
All directors and executive officers as a
  group (11 persons)........................      219,233        679,810             899,043            2.7%
</TABLE>

---------------

  * Applicable percentage ownership in the table is based on an aggregate of
    33,050,644 shares of class A and class B common stock outstanding as of
    April 13, 2000. The symbol * means that the percentage is less than 1%.
(1) Includes 1,122,915 shares owned by Safeguard Delaware, Inc., 4,153,921
    shares owned by Safeguard Scientifics (Delaware), Inc., options held by
    Safeguard 98 Capital L.P. to acquire 340,000 shares of our stock that are
    currently owned by XL Vision, Inc., and the shares owned by Internet Capital
    Group, Inc. as outlined in footnote 2 below. Safeguard disclaims beneficial
    ownership of the shares owned by Internet Capital Group. Safeguard Delaware,
    Inc. and Safeguard Scientifics (Delaware), Inc. are wholly owned
    subsidiaries of Safeguard. Safeguard Delaware, Inc. is the sole general
    partner of Safeguard 98 Capital L.P. This number does not include 854,062
    shares beneficially owned by Technology Leaders I and 920,000 shares
    beneficially owned by Technology Leaders II, private equity funds in which
    Safeguard has indirect general partnership and limited partnership
    interests. Safeguard disclaims beneficial ownership of the shares
    beneficially owned by each of Technology Leaders I and Technology Leaders
    II.
(2) Includes 1,250,000 shares of class A common stock, 5,694,445 shares of class
    B common stock, a warrant to purchase 1,138,889 shares of class B common
    stock, and the shares owned by Safeguard as outlined in footnote 1 above.
    Internet Capital Group disclaims beneficial ownership of the shares owned by
    Safeguard. There are no other shares of class B common stock outstanding.
    The class B common stock is entitled to two and one-half votes per share.
(3) Safeguard Scientifics and Internet Capital Group are parties to a joint
    venture agreement under which they have agreed to use best efforts to agree
    to vote together on matters submitted to the stockholders for approval and
    for two designees of Safeguard Scientifics and two designees of Internet
    Capital Group in any elections of directors.
(4) Includes 2,475,000 shares owned by XL Vision, Inc. and 3,058,125 shares
    owned by XL Partners, L.P. XL Vision, Inc. is the sole general partner of XL
    Partners, L.P. Included in the shares owned by XL

                                       38
<PAGE>   42

    Vision, Inc. are 500,000 shares that are subject to an option to holders
    of its 6% convertible subordinated notes, and 75,000 shares that are subject
    to an option to certain XL Vision employees.
(5) Technology Leaders I consists of Technology Leaders L.P. and Technology
    Leaders Offshore C.V. Technology Leaders Management L.P., the sole general
    partner of Technology Leaders L.P. and a co-general partner of Technology
    Leaders Offshore C.V. exercises, through its executive committee, sole
    investment, voting and dispositive power with respect to the Shares owned by
    such entities. Of the 854,062 Shares beneficially owned by Technology
    Leaders I, 398,761 Shares are owned by Technology Leaders L.P. and 455,301
    Shares are owned by Technology Leaders MI Corp., a wholly owned subsidiary
    of Technology Leaders Offshore C.V.
(6) Technology Leaders II consists of Technology Leaders II L.P. and Technology
    Leaders II Offshore C.V. Technology Leaders II Management L.P., the sole
    general partner of Technology Leaders L.P. and a co-general partner of
    Technology Leaders Offshore C.V. exercises, through its executive committee,
    sole investment, voting and dispositive power with respect to the Shares
    owned by such entities. Of the 920,000 Shares beneficially owned by
    Technology Leaders II, 512,716 Shares are owned by Technology Leaders II
    L.P. and 407,284 Shares are owned by Technology Leaders II Offshore C.V.
(7) Technology Leaders L.P., Technology Leaders Offshore C.V., Technology
    Leaders Management L.P., Technology Leaders MI Corp., Technology Leaders II
    L.P., Technology Leaders II Offshore C.V., and Technology Leaders II
    Management L.P. may be deemed to be members of a group for purposes of
    Sections 13(d) and 13(g) of the Securities Exchange Act of 1934. Technology
    Leaders I disclaims beneficial ownership of the securities owned by
    Technology Leaders II and Technology Leaders II disclaims beneficial
    ownership of the securities owned by Technology Leaders I.
(8) John S. Scott, Ph.D. is Chief Executive Officer and Chairman of the Board of
    XL Vision, and disclaims beneficial ownership of the 5,533,125 shares held
    by XL Vision.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

EQUITY AND DEBT FINANCING AGREEMENTS WITH XL VISION

     We were incorporated in September 1994 as a subsidiary of XL Vision, Inc.,
a private company that provides strategic, technical and business support to
create imaging-related technology companies. From our inception through June
1999, we have funded our operating and investing cash requirements principally
through private placements of common stock and preferred stock and from
borrowings from XL Vision. As of March 31, 2000, XL Vision owns 16.7% of our
capital stock.

     In July 1997, we signed a subordinated purchase money note with XL Vision
for $4.4 million related to the transfer of infrared technology to eMerge.
Approximately $1.4 million was outstanding under the notes as of December 31,
1999. This balance was paid in full with the proceeds received from our February
4, 2000 initial public offering.

     In December 1998, we issued 2,400,000 shares of series B junior preferred
stock to XLVision, one of our significant stockholders, at a purchase price of
$2.00 per share. As payment for the shares, XL Vision cancelled our debt of $4.8
million owed to XL Vision related to working capital expenditures, which were
incurred on our behalf by XL Vision. As a result of that transaction, XL
Vision's ownership of our capital stock increased from 22.0% to 35.8% as of
December 1998. XL Vision also canceled $7.5 million of debt related to working
capital expenditures, which were incurred on our behalf by XL Vision as a
contribution of debt to equity. The shares of series B junior preferred stock
are also subject to the registration rights agreement executed in connection
with the series A preferred stock. The shares of series A and series B preferred
stock converted into shares of class A common stock concurrent with our February
4, 2000 initial public offering.

     In January 1999, we signed a revolving promissory note with XL Vision for
up to $3.0 million, of which approximately $232,000 was outstanding as of
December 31, 1999. The revolving promissory note bears interest at the prime
lending rate plus 1% and was paid in full with the proceeds received from our
February 4, 2000 initial public offering.

                                       39
<PAGE>   43

EQUITY AND DEBT FINANCING AGREEMENTS WITH AFFILIATES OF SAFEGUARD SCIENTIFICS,
INC.

     In April 1999, we signed two promissory notes, totaling $1.1 million with
Safeguard Delaware, Inc., a wholly-owned subsidiary of Safeguard Scientifics,
Inc. and the sole general partner of Safeguard XL Capital and Safeguard 99
Capital L.P., two of our significant stockholders. Safeguard Scientifics, Inc.
beneficially owns approximately 55% of the outstanding shares of capital stock
of XL Vision. These promissory notes were paid in full with the proceeds of the
sale of our series C preferred stock.

     In May 1999, we issued 1,000,000 shares of series C preferred stock to
Safeguard 99 Capital L.P., an affiliate of Safeguard Scientifics, Inc., at a
price of $5.00 per share. The shares of series C preferred stock are also
subject to the registration rights agreement executed in connection with the
series A preferred stock. The shares of C preferred stock converted into shares
of class A common stock concurrent with our February 4, 2000 initial public
offering.

     In July 1999, we signed a revolving promissory note with Safeguard
Delaware, Inc. for up to $3.0 million. At September 30, 1999, $3.0 million had
been advanced by Safeguard. The revolving promissory note bears interest at the
prime lending rate plus 1%. The note was paid in full with the proceeds received
from our February 4, 2000 initial public offering.

     In August 1999, we signed a demand note with Safeguard Delaware, Inc. in
the principal amount of $2.5 million. The note bears interest at the prime rate
plus 1% and is payable on demand. In September 1999, we signed a demand note
with Safeguard Delaware, Inc. in the principal amount of $2.0 million. The note
bears interest at the prime rate plus 1% and is payable on demand. In October
1999, we signed a demand note with Safeguard Delaware, Inc. in the principal
amount of $2.5 million. The note bears interest at the prime rate plus 1% and is
payable on demand. In October 1999, we cancelled these outstanding notes in
exchange for a note in the amount of $7.1 million. As of December 31, 1999, we
owed a total of approximately $10.3 million to Safeguard. This balance was paid
in full with the proceeds received from our February 4, 2000 initial public
offering.

ISSUANCE OF PREFERRED STOCK AND A WARRANT TO INTERNET CAPITAL GROUP, INC.

     On November 16, 1999, we issued 4,555,556 shares of series D preferred
stock and a warrant to purchase 1,138,889 shares of class B common stock for the
aggregate consideration of $38.8 million to Internet Capital Group, Inc.

     We received $18.0 million of the total purchase price in cash and $23.0
million in the form of a promissory note. The note will be due and payable one
year after its issue and does not bear interest. The note is secured by
2,555,556 shares of series D preferred stock (converted to 3,194,445 shares of
class B common stock with completion of initial public offering). Interest on
the promissory note was imputed at 9.5% and amounts to $2.2 million over the
life of the note. In connection with the issuance of the stock and the warrant,
we granted Internet Capital Group registration rights that are substantially the
same as those that apply to our series A preferred stock.

     The series D preferred stock automatically converted into shares of class B
common stock concurrent with our February 4, 2000 initial public offering. Class
B common stock is entitled to two and one-half votes per share. The warrant
expires three years from the date of issuance, and is exercisable at $15 per
share. The class B common stock automatically converts into class A common stock
upon transfer by Internet Capital Group to a non-affiliated party.

     Douglas A. Alexander, one of our directors, is an executive officer of
Internet Capital Group. Anthony A. Ibarguen, one of our directors, is a managing
director of Internet Capital Group. Additionally, Safeguard Scientifics, Inc.
beneficially owns approximately 13.8% of the outstanding shares of common stock
of Internet Capital Group as of April 17, 2000.

                                       40
<PAGE>   44

     Internet Capital Group and Safeguard are parties to a joint venture
agreement under which each has agreed to:

     - Use best efforts to agree and vote on a course of action that is in the
       best interest of both parties in all matters submitted to the
       stockholders for approval;

     - Vote its shares for the election of two designees of Safeguard and two
       designees of Internet Capital Group in any election of directors of
       eMerge Interactive;

     - Offer shares of eMerge Interactive stock to the other party at the fair
       market price of the shares before offering the shares to any unaffiliated
       party, other than in a sale of all of its shares; and

     - Discuss its intentions with the other party before selling all of its
       shares to an unaffiliated party and use its best efforts to provide the
       other party with the opportunity to purchase or participate in the
       purchase of the shares.

     Together, Internet Capital Group and Safeguard beneficially own
approximately 40.1% of our capital stock and as a result control approximately
48.6% of the voting power of our capital stock as of March 31, 2000.

SERVICE AGREEMENTS WITH XL VISION AND SAFEGUARD SCIENTIFICS

     We have contractual service agreements with XL Vision and Safeguard
Scientifics. Under an administrative services agreement dated December 15, 1997,
as amended on August 17, 1999, XL Vision and Safeguard provide us with
management consultation, investor relations, financial management, human
resource management, legal services, insurance programs, and administrative
services. We pay a fee pursuant to a formula that is based on a percentage of
our revenue, not to exceed $300,000 annually. The fee is not due until we
achieve positive cash flow from operations. We owe XL Vision and Safeguard each
$18,600 under this agreement for fiscal 1998, and $26,600 for fiscal 1999. The
agreement extends through December 31, 2002 and continues unless terminated by
either party.

     Under a direct charge administrative services agreement dated April 14,
1997, XL Vision also provides us with management services on a time and
materials basis. We owe XL Vision $460,000 under this agreement for fiscal 1998,
and $455,000 for fiscal 1999. This agreement continues on a month-to-month
basis, and may be terminated at any time by either party.

REAL ESTATE LEASE WITH XL VISION

     We currently lease our facilities in Sebastian, Florida from XL Vision,
Inc., which leases the entire facility from XL Realty, Inc., a subsidiary of
Safeguard Scientifics, Inc. We believe that the rent that we pay pursuant to our
lease is consistent with the market rent for similar space in the area. Our
lease terminates on January 1, 2001 and we will have the option to renew the
lease for an additional one year term.

LOAN AGREEMENT WITH MR. ABRAHAM

     On January 28, 2000, we entered into a term note with Charles L. Abraham,
our Chief Executive Officer, under which Mr. Abraham borrowed $100,000. The note
bears interest at the prime lending rate plus one percent, which as of February
1, 2000 equaled 9.5%. The note matures on the earlier of the second anniversary
of the date of the note or the date on which Mr. Abraham receives a bonus from
us relating to the successful completion of an initial public offering. The
proceeds of the loan were used to finance the exercise of options to purchase
30,000 shares of our common stock and to pay taxes in connection therewith. The
note is secured by shares of our common stock owned by Mr. Abraham pursuant to a
pledge agreement. On April 18, 2000, the note was paid in full when Mr. Abraham
received a bonus from us relating to the successful completion of our initial
public offering on February 4, 2000.

                                       41
<PAGE>   45

                                    PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(A) DOCUMENTS FILED WITH REPORT

     1. The Consolidated Financial Statements and Schedules listed below are
located after the signature page beginning on page F-1:

<TABLE>
<CAPTION>
                        DESCRIPTION                           PAGE NO.
                        -----------                           --------
<S>                                                           <C>
Independent Auditors' Reports...............................    F-1
Consolidated Balance Sheets -- December 31, 1998 and
  1999......................................................    F-2
Consolidated Statements of Operations -- December 31, 1997,
  1998 and 1999.............................................    F-3
Consolidated Statements of Stockholders' Equity -- December
  31, 1998 and 1999.........................................    F-4
Consolidated Statements of Cash Flows.......................    F-5
Notes to Consolidated Financial Statements..................    F-7
</TABLE>

     2. Financial Statement Schedules: Not required or the information required
to be included therein is reflected in the Financial Statements.

     3. Exhibits

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                           DESCRIPTION                           REFERENCE
-------                          -----------                           ---------
<S>      <C>                                                           <C>
1.1      Form of Underwriting Agreement..............................      *
1.2      Form of Standby Stock Purchase Agreement....................      *
3.1      Second Amended and Restated Certificate of Incorporation of
         eMerge Interactive..........................................      *
3.2      Amended and Restated Bylaws of eMerge Interactive...........      *
10.1     Amended and Restated 1996 Equity Compensation Plan..........      *
10.2     1999 Equity Compensation....................................      *
10.3     Master License Agreement dated July 29, 1998 between eMerge
         Interactive and Her Majesty the Queen of Canada, as
         represented by the Minister of Agriculture and Agri-Food
         Canada......................................................     **
10.4     Administrative Services Agreement dated December 15, 1997
         between eMerge Interactive, Safeguard Scientifics, Inc. and
         XL Vision, Inc., as amended on August 17, 1999..............      *
10.5     Direct Charge Administrative Services Agreement dated April
         15, 1997 between eMerge Interactive and XL Vision, Inc......      *
10.6     Asset Purchase Agreement dated February 24, 1999 between
         eMerge Interactive, CIN, LLC and Dr. Scott Crain............      *
10.7     Stock Purchase Agreement dated March 22, 1999 between eMerge
         Interactive, Cyberstockyard, Inc. and J. Scott Sanders,
         David Sanders, Scott Calhoun and Dr. Duane Pankratz.........      *
10.8     Stockholders Agreement dated July 29, 1998 among eMerge
         Interactive, and individuals designated as the former
         shareholders of STS Agriventures, Ltd.......................      *
10.9     Purchase Agreement dated July 29, 1998 among eMerge
         Interactive, NutriCharge, J Technologies, LLC, and the
         Biegert Family Irrevocable Trust............................      *
10.10    Asset Purchase Agreement dated January 15, 1999 between
         eMerge Interactive and Sperry Marine, Inc...................      *
10.11    Purchase and License Agreement dated January 15, 1999
         between eMerge Interactive and Sperry Marine, Inc...........      *
</TABLE>

                                       42
<PAGE>   46

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                           DESCRIPTION                           REFERENCE
-------                          -----------                           ---------
<S>      <C>                                                           <C>
10.12    Asset Purchase Agreement dated May 19, 1999 between eMerge
         Interactive and Professional Cattle Consultants, L.L.C......      *
10.13    Letter of Agreement dated January 12, 2000 between eMerge
         Interactive and Southern States, Cooperative, Inc...........      *
10.14    Subscription Agreement letter for purchase of Series B
         Junior Preferred Stock......................................      *
10.15    Preferred Stock Purchase Agreement dated April 1, 1999
         (Series C Preferred Stock)..................................      *
10.16    Common Stock Purchase Agreement dated August 16, 1999
         between eMerge Interactive and Turnkey Computer Systems,
         Inc.........................................................      *
10.17    Registration Rights Agreement dated July 18, 1997...........      *
10.18    Real Property Sublease between XL Vision and eMerge
         Interactive, dated December 1999............................      *
10.19    Stockholders' and Registration Rights Agreement dated
         February 24, 1999...........................................      *
10.20    Joinder and Correction to Stockholders and Registration
         Rights Agreement dated March 29, 1000.......................      *
10.21    (a) Revolving Note dated July 21, 1999 from eMerge
         Interactive to Safeguard Delaware, Inc., Amended Revolving
         Note dated August 3, 1999,..................................      *
         (b) Second Amended Revolving Note dated October 25, 1999,...      *
         (c) Third Amended Revolving Note dated December 6, 1999
         and.........................................................      *
         (d) Fourth Amended Revolving Note dated January 31, 2000....      *
10.22    Revolving Note dated January 1, 1999 from XL Vision to
         eMerge Interactive..........................................      *
10.23    Promissory Note dated August 31, 1999 from eMerge
         Interactive to Safeguard Delaware, Inc. (cancelled).........      *
10.24    Term note dated October 25, 1999 from eMerge Interactive to
         Safeguard...................................................      *
10.25    Promissory Note dated October 6, 1999 from eMerge
         Interactive to Safeguard Delaware, Inc. (cancelled).........      *
10.26    Stockholders Agreement dated July 17, 1997 and Joinder to
         Stockholder's Agreement.....................................      *
10.27    Subordinated Purchase Money Note from eMerge Interactive to
         XL Vision dated July 15, 1997...............................      *
10.28    Toll Processing Agreement dated August 16, 1999 between
         eMerge Interactive and ADM Animal Health & Nutrition, a
         division of Archer-Daniels-Midland Company..................      *
10.29    Term Note dated October 25, 1999 from eMerge Interactive to
         Safeguard Delaware, Inc.....................................      *
10.30    Securities Purchase Agreement dated October 27, 1999 between
         eMerge Interactive Technologies, LLC and Internet Capital
         Group, Inc..................................................      *
10.31    Registration Rights Agreement dated October 27, 1999 between
         eMerge Interactive and Internet Capital Group, Inc..........      *
10.32    Cooperative Research and development Agreement between
         USDA's Agricultural Research Service, eMerge and Iowa State
         University of Science and Technology concerning Methods for
         Detecting Fecal and Ingesta Contamination on Meat dated on
         Meat dated August 4, 1999...................................      *
10.33    Exclusive License Agreement between Iowa State University
         Research Foundation, Inc., and eMerge dated August 3,
         1999........................................................      *
10.34    Term Note and Pledge Agreement dated January 28, 2000
         between eMerge and Charles Abraham..........................      *
</TABLE>

                                       43
<PAGE>   47

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                           DESCRIPTION                           REFERENCE
-------                          -----------                           ---------
<S>      <C>                                                           <C>
21.1     Subsidiaries of the Registrant..............................      *
27.1     Financial Data Schedule.....................................     **
99.1     Form letter from eMerge Interactive, Inc. to holders of more
         than 100 shares of Safeguard Scientifics, Inc. describing
         the Safeguard Subscription Program..........................      *
99.2...  Form of letter from Adams, Harkness & Hill, Inc. to
         Safeguard Scientific Inc. shareholders......................      *
99.3...  Form of letter from eMerge Interactive, Inc. to Brokers
         describing the Safeguard Subscription Program...............      *
99.4...  Form of Subscription Form for Safeguard Subscription
         Program.....................................................      *
</TABLE>

---------------

 * Exhibit and exhibit number incorporated by reference to Registration
   Statement No. 333-89815, dated February 4, 2000.
** Filed herewith.

                                       44
<PAGE>   48

                                   SIGNATURES

     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 1, 2000

                                          eMerge Interactive, Inc.

<TABLE>
<S>                                                    <C>

             By: /s/ CHARLES L. ABRAHAM                President Chief Executive Officer and Director
  -------------------------------------------------    (Principal Executive Officer)
                 Charles L. Abraham

                /s/ T. MICHAEL JANNEY                  Vice President and Chief Financial Officer
  -------------------------------------------------    (principal financial and accounting officer)
                  T. Michael Janney
</TABLE>

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant in
the capacities and on the date indicated.

<TABLE>
                        NAME                                      CAPACITY                   DATE
-----------------------------------------------------  -------------------------------  --------------
<S>                                                    <C>                              <C>

               /s/ CHARLES L. ABRAHAM                  President, Chief Executive        May 1, 2000
-----------------------------------------------------  Officer and Director (principal
                 Charles L. Abraham                    executive officer)

                 /s/ MICHAEL JANNEY                    Vice Chairman and Chief           May 1, 2000
-----------------------------------------------------  Financial Officer (principal
                   Michael Janney                      financial and accounting
                                                       officer)

                  /s/ JOHN S. SCOTT                    Chairman of the Board             May 1, 2000
-----------------------------------------------------
                    John S. Scott

              /s/ DOUGLAS A. ALEXANDER                 Director                          May 1, 2000
-----------------------------------------------------
                Douglas A. Alexander

                 /s/ THOMAS C. LYNCH                   Director                          May 1, 2000
-----------------------------------------------------
                   Thomas C. Lynch

               /s/ CHRISTOPHER MOLLER                  Director                          May 1, 2000
-----------------------------------------------------
                 Christopher Moller

                 /s/ JOHN W. PODUSKA                   Director                          May 1, 2000
-----------------------------------------------------
                   John W. Poduska

               /s/ ANTHONY A. IBARGUEN                 Director                          May 1, 2000
-----------------------------------------------------
                 Anthony A. Ibarguen
</TABLE>

                                       45
<PAGE>   49

                          INDEPENDENT AUDITORS' REPORT

To the Board of Directors of
  eMerge Interactive, Inc.:

     We have audited the accompanying consolidated balance sheets of eMerge
Interactive, Inc. as of December 31, 1998 and 1999 and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
years in the three-year period ended December 31, 1999. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

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

     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of eMerge
Interactive, Inc. at December 31, 1998 and 1999 and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1999 in conformity with generally accepted accounting
principles.

                                                     /s/ KPMG LLP

Orlando, Florida
February 7, 2000, except for Note 14 which
  is as of February 17, 2000

                                       F-1
<PAGE>   50

                            EMERGE INTERACTIVE, INC.

                          CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 1998 AND 1999

<TABLE>
<CAPTION>
                                                                                            PROFORMA
                                                                  1998          1999          1999
                                                              ------------   -----------   -----------
                                                                                           (UNAUDITED)
<S>                                                           <C>            <C>           <C>
                                                ASSETS
Current assets:
  Cash......................................................  $        268   $12,316,497   $12,316,497
  Trade accounts receivable, less allowance for doubtful
    accounts of $0 in 1998 and $75,000 in 1999..............        68,421     1,144,133     1,144,133
  Inventories (note 3)......................................       706,557     1,201,203     1,201,203
  Cattle deposits...........................................            --       473,859       473,859
  Prepaid expenses..........................................        27,837        71,078        71,078
  Net assets of discontinued operations (note 12)...........     2,285,341       297,003       297,003
  Other current assets......................................            --       136,349       136,349
                                                              ------------   -----------   -----------
        Total current assets................................     3,388,424    15,640,122    15,640,122
Property and equipment, net (note 4)........................       513,837     1,895,754     1,895,754
Capitalized offering costs..................................            --       447,644       447,644
Investment in Turnkey Computer Systems, Inc. (note 5).......            --     1,822,833     1,822,833
Intangibles, net (note 6)...................................     2,699,828     5,955,360     5,955,360
                                                              ------------   -----------   -----------
        Total assets........................................  $  6,602,089   $25,761,713    25,761,713
                                                              ============   ===========   ===========
                          LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Current installments of capital lease obligation with
    related party (note 10).................................  $     79,852   $    82,320   $    82,320
  Note payable (note 5).....................................            --       500,000       500,000
  Accounts payable..........................................       423,946     1,187,900     1,187,900
  Accrued liabilities:
    Salaries and benefits...................................       283,103       967,749       967,749
    Other...................................................       319,989       818,041       818,041
  Advance payments from customers...........................            --       222,750       222,750
  Due to related parties (note 10)..........................     5,187,334    12,053,715    12,053,715
                                                              ------------   -----------   -----------
        Total current liabilities...........................     6,294,224    15,832,475    15,832,475
Capital lease obligation with related party, excluding
  current installments (note 10)............................       305,018       224,068       224,068
Note payable (note 5).......................................            --       400,000       400,000
                                                              ------------   -----------   -----------
        Total liabilities...................................     6,599,242    16,456,543    16,456,543
                                                              ------------   -----------   -----------
Commitments and contingencies (notes 10 and 13)
Subsequent event (note 14)
Redeemable Class A common stock, no shares issued and
  outstanding in 1998, 62,500 shares issued and outstanding
  in 1999, no shares issued and outstanding pro forma (note
  5)........................................................            --       414,339            --
                                                              ------------   -----------   -----------
Stockholders' equity (notes 7, 9, 10 and 14):
  Preferred stock, $.01 par value, authorized 15,000,000
    shares:
    Series A preferred stock, (aggregate involuntary
      liquidation preference of $7,386,314 in 1998 and
      $8,030,675 in 1999), designated 6,500,000 shares,
      issued and outstanding 6,443,606 shares in 1998 and
      1999; no shares issued and outstanding proforma.......        64,436        64,436            --
    Series B junior preferred stock, (aggregate involuntary
      liquidation preference of $4,801,315 in 1998 and
      $5,281,316 in 1999), designated 2,400,000 shares,
      issued and outstanding 2,400,000 shares in 1998 and
      1999; no shares issued and outstanding proforma.......        24,000        24,000            --
    Series C preferred stock, (aggregate liquidation
      preference of $0 in 1998 and $5,891,781 in 1999),
      designated 1,300,000 shares; issued outstanding -0-
      shares in 1998 and 1,100,000 shares in 1999; no shares
      issued and outstanding proforma.......................            --        11,000            --
    Series D preferred stock, (aggregate liquidation
      preference of $0 in 1998 and $41,823,749 in 1999),
      designated 4,555,556 shares, issued and outstanding no
      shares in 1998 and 4,555,556 in 1999; no shares issued
      and outstanding proforma..............................            --        45,556            --
  Common stock, $.008 par value, authorized 100,000,000
    shares:
    Class A common stock, designated 92,711,110 shares,
      issued and outstanding 5,845,625 shares in 1998 and
      7,046,444 shares in 1999 and 19,538,452 shares
      proforma..............................................        46,765        56,372       156,308
    Class B common stock, designated 7,288,890 shares; no
      shares issued and outstanding in 1998 and 1999;
      5,694,445 shares outstanding proforma.................            --            --        45,556
  Additional paid-in capital................................    16,648,286    62,312,315    62,726,154
  Accumulated deficit.......................................   (16,780,640)  (32,375,926)  (32,375,926)
  Subscription receivable from Internet Capital Group,
    Inc.....................................................            --   (21,188,320)  (21,188,320)
  Unearned compensation.....................................            --       (58,602)      (58,602)
                                                              ------------   -----------   -----------
        Total stockholders' equity..........................         2,847     8,890,831     9,305,170
                                                              ------------   -----------   -----------
        Total liabilities and stockholders' equity..........  $  6,602,089   $25,761,713   $25,761,713
                                                              ============   ===========   ===========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       F-2
<PAGE>   51

                            EMERGE INTERACTIVE, INC.

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                  YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999

<TABLE>
<CAPTION>
                                                           1997           1998           1999
                                                       ------------   ------------   ------------
<S>                                                    <C>            <C>            <C>
Revenue (note 11)....................................  $         --   $  1,792,471   $ 43,783,124
Cost of revenue (including $-0-, $511,000 and
  $343,000 to related parties -- notes 10 and 11)....            --      2,623,447     43,517,459
                                                       ------------   ------------   ------------
       Gross profit (loss)...........................            --       (830,976)       265,665
                                                       ------------   ------------   ------------
Operating expenses:
  Selling, general and administrative (note 10)......       627,606      3,659,810     11,239,188
  Research and development (including $51,000,
     $119,000 and $233,000 to related parties -- note
     10).............................................       727,753      1,109,382      4,343,783
                                                       ------------   ------------   ------------
          Total operating expenses...................     1,355,359      4,769,192     15,582,971
                                                       ------------   ------------   ------------
       Profit (loss) from continuing operations......    (1,355,359)    (5,600,168)   (15,317,306)
Related party interest expense (note 10).............      (141,167)      (331,594)      (764,042)
Interest and other income............................            --             --        475,642
                                                       ------------   ------------   ------------
       Profit (loss) from continuing operations
          before income taxes........................    (1,496,526)    (5,931,762)   (15,605,706)
Income tax expense (benefit) (note 8)................            --             --             --
                                                       ------------   ------------   ------------
       Profit (loss) from continuing operations......    (1,496,526)    (5,931,762)   (15,605,706)
Discontinued operations (note 12):
  Income (loss) from operations of discontinued
     transportation segment (including $814,000,
     $370,000 and $171,000 to related parties -- note
     10).............................................    (3,987,097)    (1,808,951)        10,420
  Loss on disposal of transportation segment.........            --        (91,415)            --
                                                       ------------   ------------   ------------
       Net profit (loss).............................  $ (5,483,623)  $ (7,832,128)  $(15,595,286)
                                                       ============   ============   ============
Net profit (loss) attributable to common
  shareholders.......................................  $ (5,483,623)  $ (7,832,128)  $(21,133,237)
                                                       ============   ============   ============
Net profit (loss) from continuing operations per
  common share -- basic and diluted..................  $      (3.91)  $      (1.36)  $      (3.11)
                                                       ============   ============   ============
Net profit (loss) per common share -- basic and
  diluted............................................  $     (14.34)  $      (1.80)  $      (3.11)
                                                       ============   ============   ============
Weighted average number of common shares
  outstanding -- basic and diluted...................       382,273      4,356,926      6,794,755
                                                       ============   ============   ============
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       F-3
<PAGE>   52

                            eMERGE INTERACTIVE, INC.

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                           DECEMBER 31, 1998 AND 1999
<TABLE>
<CAPTION>

                                                              PREFERRED STOCK       PREFERRED STOCK       PREFERRED STOCK
                                                                 SERIES A              SERIES B              SERIES C
                                                            -------------------   -------------------   -------------------
                                                             SHARES     AMOUNT     SHARES     AMOUNT     SHARES     AMOUNT
                                                            ---------   -------   ---------   -------   ---------   -------
<S>                                                         <C>         <C>       <C>         <C>       <C>         <C>
Balances at December 31, 1996.............................         --   $    --          --   $    --          --   $    --
Issuance of common stock to XL Vision, Inc., for cash at
 $.008 per share (note 10)................................         --        --          --        --          --        --
Sale of Series A preferred stock for cash at $1.00 per
 share (note 6)...........................................  6,443,606    64,436          --        --          --        --
Transfer of technology by XL Vision, Inc.
 (note 10)................................................         --        --          --        --          --        --
Net profit (loss).........................................         --        --          --        --          --        --
                                                            ---------   -------   ---------   -------   ---------   -------
Balances at December 31, 1997.............................  6,443,606    64,436          --        --          --        --
Contribution of debt to equity by XL Vision, Inc. (note
 10)......................................................         --        --          --        --          --        --
Issuance of Series B preferred stock in exchange for
 contribution of debt to equity by XL Vision,
 Inc. at $2.00 per share (note 10)........................         --        --   2,400,000    24,000          --        --
Issuance of common stock in connection with Nutri-Charge
 transaction at $0.80 per share (note 6)..................         --        --          --        --          --        --
Contribution of put rights by XL Vision, Inc. (note 6)....         --        --          --        --          --        --
Net profit (loss).........................................         --        --          --        --          --        --
                                                            ---------   -------   ---------   -------   ---------   -------
Balances at December 31, 1998.............................  6,443,606    64,436   2,400,000    24,000          --        --
Exercise of stock options for cash at $.80 per share......         --        --          --        --          --        --
Issuance of common stock in connection with CIN
 transaction at $0.96 per share (note 6)..................         --        --          --        --          --        --
Issuance of common stock in connection with Cyberstockyard
 transaction at $1.80 per share (note 6)..................         --        --          --        --          --        --
Issuance of Series C preferred stock at $5.00 per share
 (note 7).................................................         --        --          --        --   1,100,000    11,000
Issuance of Series D preferred stock at $9.00 per share,
 including beneficial conversion feature of $5,523,612
 (note 10)................................................         --        --          --        --          --        --
Beneficial conversion feature (note 10)...................         --        --          --        --          --        --
Issuance of warrant (note 10).............................         --        --          --        --          --        --
Accretion to redemption value of Class A common stock
 issued in connection with the Turnkey Computer Systems,
 Inc. transaction (note 5)................................         --        --          --        --          --        --
Accretion of imputed interest on note receivable from
 Internet Capital Group, Inc. (note 10)...................         --        --          --        --          --        --
Net profit (loss).........................................         --        --          --        --          --        --
Unearned compensation (note 9)............................         --        --          --        --          --        --
Amortization of unearned compensation (note 9)............         --        --          --        --          --        --
                                                            ---------   -------   ---------   -------   ---------   -------
Balances at December 31, 1999.............................  6,443,606   $64,436   2,400,000   $24,000   1,100,000   $11,000
                                                            =========   =======   =========   =======   =========   =======

<CAPTION>

                                                              PREFERRED STOCK        COMMON STOCK        COMMON STOCK
                                                                 SERIES D               CLASS A             CLASS B
                                                            -------------------   -------------------   ---------------
                                                             SHARES     AMOUNT     SHARES     AMOUNT    SHARES   AMOUNT
                                                            ---------   -------   ---------   -------   ------   ------
<S>                                                         <C>         <C>       <C>         <C>       <C>      <C>
Balances at December 31, 1996.............................         --   $    --     450,000   $ 3,600      --     $ --
Issuance of common stock to XL Vision, Inc., for cash at
 $.008 per share (note 10)................................         --        --   2,808,125    22,465      --       --
Sale of Series A preferred stock for cash at $1.00 per
 share (note 6)...........................................         --        --          --        --      --       --
Transfer of technology by XL Vision, Inc.
 (note 10)................................................         --        --          --        --      --       --
Net profit (loss).........................................         --        --          --        --      --       --
                                                            ---------   -------   ---------   -------    ----     ----
Balances at December 31, 1997.............................         --        --   3,258,125    26,065      --       --
Contribution of debt to equity by XL Vision, Inc. (note
 10)......................................................         --        --          --        --      --       --
Issuance of Series B preferred stock in exchange for
 contribution of debt to equity by XL Vision,
 Inc. at $2.00 per share (note 10)........................         --        --          --        --      --       --
Issuance of common stock in connection with Nutri-Charge
 transaction at $0.80 per share (note 6)..................         --        --   2,587,500    20,700      --       --
Contribution of put rights by XL Vision, Inc. (note 6)....         --        --          --        --      --       --
Net profit (loss).........................................         --        --          --        --      --       --
                                                            ---------   -------   ---------   -------    ----     ----
Balances at December 31, 1998.............................         --        --   5,845,625    46,765      --       --
Exercise of stock options for cash at $.80 per share......         --        --     200,819     1,607      --       --
Issuance of common stock in connection with CIN
 transaction at $0.96 per share (note 6)..................         --        --     750,000     6,000      --       --
Issuance of common stock in connection with Cyberstockyard
 transaction at $1.80 per share (note 6)..................         --        --     250,000     2,000      --       --
Issuance of Series C preferred stock at $5.00 per share
 (note 7).................................................         --        --          --        --      --       --
Issuance of Series D preferred stock at $9.00 per share,
 including beneficial conversion feature of $5,523,612
 (note 10)................................................  4,555,556    45,556          --        --      --       --
Beneficial conversion feature (note 10)...................         --        --          --        --      --       --
Issuance of warrant (note 10).............................         --        --          --        --      --       --
Accretion to redemption value of Class A common stock
 issued in connection with the Turnkey Computer Systems,
 Inc. transaction (note 5)................................         --        --          --        --      --       --
Accretion of imputed interest on note receivable from
 Internet Capital Group, Inc. (note 10)...................         --        --          --        --      --       --
Net profit (loss).........................................         --        --          --        --      --       --
Unearned compensation (note 9)............................         --        --          --        --      --       --
Amortization of unearned compensation (note 9)............         --        --          --        --      --       --
                                                            ---------   -------   ---------   -------    ----     ----
Balances at December 31, 1999.............................  4,555,556   $45,556   7,046,444   $56,372      --     $ --
                                                            =========   =======   =========   =======    ====     ====

<CAPTION>
                                                                                             NOTE
                                                                                          RECEIVABLE
                                                                                             FROM
                                                            ADDITIONAL                     INTERNET
                                                              PAID-IN     ACCUMULATED      CAPITAL        UNEARNED
                                                              CAPITAL       DEFICIT      GROUP, INC.    COMPENSATION      TOTAL
                                                            -----------   ------------   ------------   ------------   -----------
<S>                                                         <C>           <C>            <C>            <C>            <C>
Balances at December 31, 1996.............................  $     3,816   $ (3,464,889)  $         --           --     $(3,457,473)
Issuance of common stock to XL Vision, Inc., for cash at
 $.008 per share (note 10)................................           --             --             --           --          22,465
Sale of Series A preferred stock for cash at $1.00 per
 share (note 6)...........................................    6,379,170             --             --           --       6,443,606
Transfer of technology by XL Vision, Inc.
 (note 10)................................................   (4,400,000)            --             --           --      (4,400,000)
Net profit (loss).........................................           --     (5,483,623)            --           --       5,483,623)
                                                            -----------   ------------   ------------     --------     -----------
Balances at December 31, 1997.............................    1,982,986     (8,948,512)            --           --      (6,875,025)
Contribution of debt to equity by XL Vision, Inc. (note
 10)......................................................    7,500,000             --             --           --       7,500,000
Issuance of Series B preferred stock in exchange for
 contribution of debt to equity by XL Vision,
 Inc. at $2.00 per share (note 10)........................    4,776,000             --             --           --       4,800,000
Issuance of common stock in connection with Nutri-Charge
 transaction at $0.80 per share (note 6)..................    2,049,300             --             --           --       2,070,000
Contribution of put rights by XL Vision, Inc. (note 6)....      340,000             --             --           --         340,000
Net profit (loss).........................................           --     (7,832,128)            --           --      (7,832,128)
                                                            -----------   ------------   ------------     --------     -----------
Balances at December 31, 1998.............................   16,648,286    (16,780,640)            --           --           2,847
Exercise of stock options for cash at $.80 per share......      185,798             --             --           --         187,405
Issuance of common stock in connection with CIN
 transaction at $0.96 per share (note 6)..................      714,000             --             --           --         720,000
Issuance of common stock in connection with Cyberstockyard
 transaction at $1.80 per share (note 6)..................      448,000             --             --           --         450,000
Issuance of Series C preferred stock at $5.00 per share
 (note 7).................................................    5,489,000             --             --           --       5,500,000
Issuance of Series D preferred stock at $9.00 per share,
 including beneficial conversion feature of $5,523,612
 (note 10)................................................   40,967,503             --    (20,815,000)          --      20,198,059
Beneficial conversion feature (note 10)...................   (5,523,612)            --             --           --      (5,523,612)
Issuance of warrant (note 10).............................    3,325,553             --             --           --       3,325,553)
Accretion to redemption value of Class A common stock
 issued in connection with the Turnkey Computer Systems,
 Inc. transaction (note 5)................................      (14,339)            --             --           --         (14,339)
Accretion of imputed interest on note receivable from
 Internet Capital Group, Inc. (note 10)...................           --             --       (373,320)          --        (373,320)
Net profit (loss).........................................           --    (15,595,286)            --           --     (15,595,286)
Unearned compensation (note 9)............................       72,176             --             --      (72,126)             --
Amortization of unearned compensation (note 9)............           --             --             --       13,524          13,524
                                                            -----------   ------------   ------------     --------     -----------
Balances at December 31, 1999.............................   62,312,315   $(32,375,926)  $(21,188,320)     (58,602)    $ 8,890,831
                                                            ===========   ============   ============     ========     ===========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       F-4
<PAGE>   53

                            EMERGE INTERACTIVE, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                  YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999

<TABLE>
<CAPTION>
                                                            1997          1998           1999
                                                         -----------   -----------   ------------
<S>                                                      <C>           <C>           <C>
Cash flows from operating activities:
  Net profit (loss)....................................  $(5,483,623)  $(7,832,128)  $(15,595,286)
  Adjustments to reconcile net profit (loss) to net
     cash used in operating activities:
       Depreciation and amortization...................      122,486       438,576      1,770,571
       Accretion of imputed interest on note
          receivable...................................           --            --       (373,320)
       Amortization of unearned compensation...........           --            --         13,524
       Changes in operating assets and liabilities:
          Trade accounts receivable, net...............           --      (368,421)      (759,162)
          Inventories..................................     (635,963)      (70,594)      (494,646)
          Cattle deposits..............................           --            --       (473,859)
          Prepaid expenses and other assets............      (32,338)        5,805       (179,590)
          Net assets of discontinued operations........     (853,501)   (1,140,425)            --
          Accounts payable.............................      719,694      (301,423)       593,645
          Accrued liabilities..........................      198,759       328,791       (343,729)
          Advance payments from customers..............           --            --        222,750
                                                         -----------   -----------   ------------
          Net cash used by operating activities........   (5,964,486)   (8,939,819)   (15,619,102)
                                                         -----------   -----------   ------------
Cash flows from investing activities:
  Proceeds from sale of discontinued operations........           --            --      1,927,230
  Purchases of property and equipment..................     (506,540)     (460,290)    (1,672,461)
  Purchases of intangibles.............................           --      (431,923)       (25,002)
  Business combinations, net of cash acquired of
     $737..............................................           --            --     (1,799,263)
  Investment in Turnkey Computer Systems, Inc..........           --            --        (22,833)
                                                         -----------   -----------   ------------
          Net cash used by investing activities........     (506,540)     (892,213)    (1,592,329)
                                                         -----------   -----------   ------------
Cash flows from financing activities:
  Net borrowings from related parties..................        3,810     9,447,030      6,866,381
  Proceeds from capital lease financing with related
     party.............................................           --       440,832             --
  Payment on note payable..............................           --            --       (500,000)
  Payments on capital lease obligations................           --       (55,962)       (78,482)
  Capitalized Offering costs...........................           --            --       (447,644)
  Sale of preferred stock..............................    6,443,606            --     23,500,000
  Sale of common stock.................................       22,465            --        187,405
                                                         -----------   -----------   ------------
          Net cash provided by financing activities....    6,469,881     9,831,900     29,527,660
                                                         -----------   -----------   ------------
          Net increase (decrease) in cash..............       (1,145)         (132)    12,316,229
Cash -- beginning of period............................        1,545           400            268
                                                         -----------   -----------   ------------
Cash -- end of period..................................  $       400   $       268   $ 12,316,497
</TABLE>

                                       F-5
<PAGE>   54
                            EMERGE INTERACTIVE, INC.

              CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
                  YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999

<TABLE>
<CAPTION>
                                                            1997          1998           1999
                                                         -----------   -----------   ------------
<S>                                                      <C>           <C>           <C>
Supplemental disclosures:
  Cash paid for interest...............................  $        --   $    23,594   $
  Non-cash investing and financing activities:
     Transfer of technology by XL Vision, Inc. (note
       10).............................................    4,400,000            --             --
     Contribution of debt to equity by XL Vision, Inc.
       (note 10).......................................           --     7,500,000             --
     Issuance of preferred stock in exchange for
       contribution of debt to equity by XL Vision,
       Inc. (note 10)..................................           --     4,800,000             --
     Non-cash issuance of Class A common stock in
       connection with Nutri-Charge transaction (note
       6)..............................................           --     2,070,000             --
     Contribution of put rights by XL Vision, Inc.
       (note 6)........................................           --       340,000             --
     Issuance of Class A common stock in connection
       with CIN transaction (note 6)...................           --            --        720,000
     Issuance of Class A common stock with
       Cyberstockyard transaction (note 6).............           --            --        450,000
     Issuance of redeemable Class A common stock with
       Turnkey Computer Systems, Inc. transaction (note
       5)..............................................           --            --        400,000
     Issuance of note payable to Turnkey Computer
       Systems, Inc. (note 5)..........................           --            --      1,400,000
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       F-6
<PAGE>   55

                            EMERGE INTERACTIVE, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 1998 AND 1999

(1) ORGANIZATION

(a) OVERVIEW

     eMerge Interactive, Inc. (the "Company") is a Delaware corporation that was
incorporated on September 12, 1994 as Enhanced Vision Systems, a wholly owned
subsidiary of XL Vision, Inc. ("XL Vision"). The Company's name was changed to
eMerge Vision Systems, Inc. on July 16, 1997 and to eMerge Interactive, Inc. on
June 11, 1999.

     The Company was incorporated to develop and commercialize infrared
technology focused on the transportation segment. In 1997, the Company entered a
new business segment, animal sciences, by developing an infrared camera system
for use primarily by veterinarians. The Company further expanded its operations
in 1998 by licensing NutriCharge and infrared technology (see note 6) for
commercialization. In December 1998, the Company's Board of Directors decided to
dispose of the transportation segment. The Company's AMIRIS thermal imaging
system, which was the sole product sold by the transportation segment, was sold
on January 15, 1999.

(b) BASIS OF PRESENTATION

     The consolidated financial statements include the accounts of eMerge
Interactive, Inc. and its wholly-owned subsidiaries, STS Agriventures, Ltd.
("STS"), a Canadian corporation and Cyberstockyard, Inc. ("Cyberstockyard").

     All significant intercompany balances and transactions have been eliminated
upon consolidation.

     The proforma balance sheet as of December 31, 1999 assumes the conversion
of all redeemable common stock and preferred stock into common stock upon an
initial public offering ("IPO").

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) REVENUE RECOGNITION

     The Company recognizes revenue in accordance with the terms of the sale or
contract, generally as products are shipped or services are provided. The
Company bears both the inventory and credit risk with respect to sales all of
its products. In cattle sales transactions, the Company purchases cattle from
the seller, takes title at shipment and records the cattle as inventory until
delivered to and accepted buyer, typically a 24 to 48 hour period. In both
cattle auction and resale transactions, the Company acts as a principal in
purchasing cattle from suppliers and sales to customers so that the Company
recognizes revenue equal to the amount paid by customers for the cattle.

(b) INVENTORIES

     Inventories are stated at standard cost which approximates the lower of
first-in, first-out cost or market.

(c) PROPERTY AND EQUIPMENT

     Property and equipment are stated at cost. Depreciation of property and
equipment is computed using the straight-line method over the estimated useful
lives of the assets. Amortization of equipment under capital lease is computed
over the shorter of the lease term or the estimated useful life of the related
assets.

(d) INTANGIBLES

     Intangibles are stated at amortized cost. Amortization is computed using
the straight-line method over the estimated useful lives of the assets.

(e) IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF

     The Company accounts for long-lived assets in accordance with the
provisions of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed of ". This Statement requires that
long-lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If such assets
are considered to be

                                       F-7
<PAGE>   56
                            EMERGE INTERACTIVE, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceed the fair value of the assets. Assets to be
disposed of are reported at the lower of their carrying amount or fair value
less costs to sell.

(f) INCOME TAXES

     The Company accounts for income taxes using the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.

(g) STOCK-BASED COMPENSATION

     Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting
for Stock-Based Compensation," permits entities to recognize as expense over the
vesting period the fair value of all stock-based awards on the date of grant.
Alternatively, SFAS No. 123 also allows entities to continue to apply the
provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" ("APB Opinion No. 25") and provide pro forma net income and
pro forma earnings per share disclosures for employee stock option grants as if
the fair-value-based method defined in SFAS No. 123 had been applied. The
Company has elected to apply the provisions of APB Opinion No. 25 and provide
the pro forma disclosure provisions of SFAS No. 123.

(h) USE OF ESTIMATES

     The preparation of the Company's consolidated financial statements, in
conformity with generally accepted accounting principles, requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities and the reported
amounts of revenues and expenses. Actual results could differ from those
estimates.

(i) NET PROFIT (LOSS) PER SHARE

     Net profit (loss) per share is computed in accordance with SFAS No. 128,
"Earnings Per Share," by dividing the net profit (loss) allocable to common
stockholders (net profit (loss) less accretion related to redeemable Class A
common stock and beneficial conversion feature related to Series D preferred
stock) by the weighted average number of shares of common stock outstanding less
the shares of redeemable Class A common stock. The Company's stock options
(338,125 at December 31, 1997, 1,632,500 at December 31, 1998 and 2,769,116 at
December 31, 1999) and convertible preferred stock (6,443,606 at December 31,
1997, 8,843,606 at December 31, 1998 and 14,499,162 at December 31, 1999), have
not been used in the calculation of diluted net profit (loss) per share because
to do so would be anti-dilutive. As such, the numerator and the denominator used
in computing both basic and diluted net profit (loss) per share allocable to
common stockholders are equal.

     Pursuant to Securities and Exchange Commission ("SEC") Staff Accounting
Bulletin No. 98 and SEC staff policy, all common stock and common stock
equivalents issued for nominal consideration during the periods presented herein
and through the filing of the registration statement for the IPO are to be
reflected in a manner similar to a stock split or stock dividend for which
retroactive treatment is required in the calculation of net profit (loss) per
share; the Company did not have any such issuances.

(j) ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS

     The carrying value of cash, trade accounts receivable, note payable,
accounts payable, accrued liabilities and amounts due to related parties
reflected in the consolidated financial statements approximates fair value due
to the short-term maturity of these instruments.

                                       F-8
<PAGE>   57
                            EMERGE INTERACTIVE, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(3) INVENTORIES

     Inventories consist of:

<TABLE>
<CAPTION>
                                                                1998        1999
                                                              --------   ----------
<S>                                                           <C>        <C>
  Raw materials.............................................  $424,130   $  658,454
  Work-in-process...........................................   282,427      139,187
  Cattle....................................................        --      403,562
                                                              --------   ----------
                                                              $706,557   $1,201,203
                                                              ========   ==========
</TABLE>

(4) PROPERTY AND EQUIPMENT

     Property and equipment consists of:

<TABLE>
<CAPTION>
                                                            DECEMBER 31,        ESTIMATED
                                                        ---------------------    USEFUL
                                                          1998        1999        LIVES
                                                        --------   ----------   ---------
<S>                                                     <C>        <C>          <C>
Engineering and manufacturing equipment...............  $366,150   $  673,782    5 years
  Office and computer equipment.......................   259,462    1,896,741    3 years
  Furniture and fixtures..............................   104,706      112,122    7 years
  Leasehold improvements..............................    46,865       80,430    7 years
  Automobiles.........................................        --       54,717    5 years
                                                        --------   ----------
                                                         777,183    2,817,792
  Less accumulated depreciation and amortization......   263,346      922,038
                                                        --------   ----------
  Property and equipment, net.........................  $513,837   $1,895,754
                                                        ========   ==========
</TABLE>

     Assets under capital lease amounted to $440,832 as of December 31, 1998 and
1999. Accumulated amortization for assets under capital lease totaled
approximately $152,300 and $239,200 as of December 31, 1998 and 1999,
respectively.

(5) INVESTMENT IN TURNKEY COMPUTER SYSTEMS, INC.

     On August 16, 1999, the Company acquired 19% of the common stock of Turnkey
Computer Systems, Inc. ("Turnkey") for $1,822,833. The purchase price consisted
of 62,500 shares of the Company's redeemable Class A common stock valued at
$400,000, $1,400,000 in cash and $22,833 of transaction costs. The $1,400,000 is
payable upon the earlier of the completion of the Company's IPO or $500,000 at
December 31, 1999 (which was paid in December 1999,) $500,000 at December 31,
2000 and $400,000 at December 31, 2001. This investment is carried on the cost
method since the Company does not have significant influence over Turnkey. The
common stock purchase agreement with Turnkey contains a put right which allows
Turnkey to have a one time right to put to the Company its 62,500 redeemable
Class A common shares with a fixed purchase price of $500,000. The put right can
only be exercised upon a change in control or after December 31, 2001, if the
company has not completed an IPO. This redeemable Class A common stock is
classified outside of stockholders' equity as of December 31, 1999. The
difference between the carrying amount and the redemption amount of $500,000 is
being accreted to redeemable Class A common stock as a charge to additional
paid-in capital from issuance to December 31, 2001 using the effective interest
method.

                                       F-9
<PAGE>   58
                            EMERGE INTERACTIVE, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(6) INTANGIBLES

     Intangible assets consist of:

<TABLE>
<CAPTION>
                                                            DECEMBER 31,         ESTIMATED
                                                       -----------------------    USEFUL
                                                          1998         1999        LIVES
                                                       ----------   ----------   ---------
<S>                                                    <C>          <C>          <C>
  NutriCharge license................................  $2,273,538   $2,273,538   10 years
  Infrared technology license........................     568,385      568,385    5 years
  Goodwill -- CIN....................................          --    2,076,368    5 years
  Non-compete agreement -- CIN.......................          --      100,000    5 years
  Goodwill -- Cyberstockyard.........................          --      427,274    3 years
  Non-compete agreement -- Cyberstockyard............          --      100,000    3 years
  Goodwill -- PCC....................................          --    1,487,791    5 years
  Non-compete agreement -- PCC.......................          --      100,000    4 years
                                                       ----------   ----------
                                                        2,841,923    7,133,356
  Less accumulated amortization......................     142,095    1,177,996
                                                       ----------   ----------
  Intangibles, net...................................  $2,699,828   $5,955,360
                                                       ==========   ==========
</TABLE>

     On July 29, 1998, the Company acquired licenses for NutriCharge and
infrared technology. The purchase price of $2,841,923 (consisting of $300,000 in
cash, 2,587,500 of the Company's Class A common shares valued at $0.80 per
share, $131,923 in acquisition costs and the estimated fair value of put rights
granted by XL Vision) was allocated to the acquired NutriCharge and infrared
technology licenses based on estimated fair values determined by estimated cash
flows from the underlying licensed product. In connection with the transaction,
XL Vision granted a put right that allows the sellers to require XL Vision to
purchase up to 1,250,000 shares of the Company's Class A common stock at $3.00
per share. The fair value of the put was estimated to be $340,000 and was
credited to additional paid-in capital. The put right may only be exercised
thirty days prior to or after the fourth anniversary of the agreement. The
ultimate amount payable under the put agreement is reduced by the amount, if
any, of indemnification obligations related to the transaction. The estimated
fair value of the put was determined with the assistance of an independent third
party valuation expert by calculating the net present value (at 10% interest) of
the product of the $2,000,000 intrinsic value of the put adjusted for the 25%
probability that the put would be exercised.

     On February 24, 1999, the Company acquired substantially all of the
tangible and intangible assets of CIN, LLC d/b/a Cattle's Information Network
("CIN") for $2,296,610. The purchase price for the assets consisted of 750,000
shares of the Company's Class A common stock valued at $720,000, the assumption
of $812,021 of liabilities, a cash payment of $357,816, and an agreement to pay
the first $350,000 from Internet sales of third party products over the
Company's Web site and transaction costs of $56,773. CIN is in the business of
selling access to its cattle feedlot performance measurements database.

     On March 29, 1999, the Company acquired 100% of the stock of
Cyberstockyard, Inc. for $542,265. The purchase price consisted of 250,000
shares of the Company's Class A common stock valued at $450,000, the assumption
of $89,972 of liabilities and transaction costs of $2,293. Cyberstockyard, Inc.
is in the business of selling cattle through its proprietary auction software
over the Internet.

     On May 19, 1999, the Company acquired substantially all of the tangible and
intangible assets of PCC, LLC d/b/a/ Professional Cattle Consultants, L.L.C.
("PCC") for $1,827,861. The purchase price consists of a cash payment of
$1,800,000 and an assumption of $2,861 of liabilities and transaction costs of
$25,000. PCC is in the business of providing comparative analysis and market
information for the feedlot industry.

     Each acquisition was accounted for as a purchase and the results of
operations of the acquired companies is included in the statement of operations
since the respective date of acquisition.

                                      F-10
<PAGE>   59
                            EMERGE INTERACTIVE, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The aggregate purchase price of the above acquisitions was approximately
$4,666,736, which included related acquisition costs of approximately $84,000
and was allocated as follows:

<TABLE>
<S>                                                           <C>
  Goodwill..................................................  $3,991,433
  Non-compete agreements....................................     300,000
  Equipment.................................................     358,016
  Current assets, including cash acquired of $737...........      17,287
                                                              ----------
                                                              $4,666,736
                                                              ==========
</TABLE>

     Unaudited pro forma information for the Company as if the acquisition above
had been consummated as of January 1, 1998 and 1999 follows:

<TABLE>
<CAPTION>
                                                                1998           1999
                                                             -----------   ------------
<S>                                                          <C>           <C>
  Revenue..................................................  $ 2,282,893   $ 44,005,044
                                                             ===========   ============
  Net profit (loss)........................................  $(7,161,345)  $(16,074,834)
                                                             ===========   ============
  Net profit (loss) attributable to common shareholders....  $(7,161,345)  $(21,612,785)
                                                             ===========   ============
  Net profit (loss) per common share.......................  $     (1.34)  $      (3.10)
                                                             ===========   ============
</TABLE>

(7) EQUITY

COMMON STOCK

     As of December 31, 1999, the Company had authorized the issuance of
100,000,000 shares of common stock.

     Class A -- In 1999, the Company designated 92,711,110 as Class A common
stock.

     Class B -- In 1999, the Company designated 7,288,890 shares as Class B
common stock. Holders of Class B common stock are entitled to two and one-half
votes for each share. The shares of Class A and Class B are identical in all
other respects.

PREFERRED STOCK

     As of December 31, 1999, the Company had authorized the issuance of
15,000,000 shares of preferred stock and had designated 6,500,000 as Series A
shares, and 2,400,000 as Series B shares, 1,300,000 as Series C shares and
4,555,556 as Series D shares. Each share of preferred stock is convertible into
1.25 shares of Class A common stock at the option of the holder or upon the vote
of holders of two-thirds of the respective preferred stock class outstanding
except for Series D shares which are convertible at the offering price into 1.25
shares of class B common stock. Preferred stock is automatically converted into
common stock upon a qualified IPO of at least $10 million with a Company
valuation of at least $30 million or upon a public rights offering of the
Company to shareholders of Safeguard Scientifics, Inc.

     Series A -- The Series A shares are entitled to a liquidation preference
before any distribution to common stockholders equal to the greater of (a) $1.00
per share plus an additional $.10 per year (pro rated for partial years) from
July 16, 1997 or (b) the amount which would be distributed if all of the
preferred stock of the Company were converted to Class A common stock prior to
liquidation. The holders of Series A preferred stock are entitled to vote as a
separate class to elect two directors to the Board of Directors of the Company.

     Series B -- Series B shares are entitled to a liquidation preference before
any distribution to common stockholders equal to the greater of (a) $2.00 per
share plus an additional $.20 for each year (pro rated for partial years) from
December 31, 1998 or until the date of distribution of available assets or (b)
the amount which would be distributed if all of the preferred stock of the
Company were converted to Class A common stock prior to liquidation. Series B
shares are junior to Series A, C and D shares.

     Series C -- On April 15, 1999, the Company designated 1,100,000 as Series C
shares. Series C shares are entitled to a liquidation preference before any
distribution to common stockholders equal to the greater of (a) $5.00 per share
plus an additional $.50 for each year (pro rated for partial years) from April
15, 1999 or until

                                      F-11
<PAGE>   60
                            EMERGE INTERACTIVE, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

the date of distribution of available assets or (b) the amount which would be
distributed if all of the preferred stock of the Company were converted to Class
A common stock prior to liquidation. Series C shares are on parity with Series A
and D shares except as to voting rights.

     Series D -- Series D shares are entitled to a liquidation preference before
any distribution to common stockholders equal to the greater of (a) $9.00 per
share plus an additional $1.00 for each year (pro rated for partial years) from
October 27, 1999 or until the date of distribution of available assets or (b)
the amount which would be distributed if all the preferred stock of the Company
were converted to Class B common stock prior to liquidation. Series D shares are
on parity with Series A and C shares except as to voting rights. Series D
stockholders are entitled to two and one-half votes per share.

(8) INCOME TAXES

     Deferred income taxes reflect the net tax effects of temporary difference
between the carrying amounts of assets and liabilities for financial reporting
purposes and amounts used for income tax purposes. Significant components of the
Company's deferred income tax assets and liability are as follows:

<TABLE>
<CAPTION>
                                                                 1998         1999
                                                              ----------   -----------
<S>                                                           <C>          <C>
Deferred tax assets:
  Net operating loss carryforwards..........................  $5,967,000   $10,903,000
  Amortization of acquired technology from XL Vision (note
     10)....................................................   1,704,000     1,500,000
  Research and experimentation tax credits..................     448,000       740,000
  Other.....................................................     596,000       853,000
                                                              ----------   -----------
                                                               8,715,000    13,996,000
  Less valuation allowance..................................   8,715,000    13,996,000
                                                              ----------   -----------
          Net deferred tax assets...........................          --            --
                                                              ==========   ===========
</TABLE>

     The Company has available at December 31, 1999 for federal income tax
purposes, unused net operating loss carryforwards of approximately $28,000,000
which may be applied against future taxable income and expires in years
beginning in 2012. The Company also has approximately $740,000 in research and
experimentation credits carryforwards. The research and experimentation credits,
which begin to expire in 2012, can also be used to offset future regular tax
liabilities. A valuation allowance for deferred tax assets is provided when it
is more likely than not that some portion or all of the deferred tax assets will
not be realized.

     The difference between the "expected" tax benefit (computed by applying the
federal corporate income tax rate of 34% to the loss before income taxes) and
the actual tax benefit is primarily due to the effect of the valuation
allowance.

(9) STOCK PLAN

     In January 1996, the Company adopted an equity compensation plan (the "1996
Plan") pursuant to which the Company's Board of Directors may grant shares of
common stock or options to acquire common stock to certain directors, advisors
and employees. The Plan authorizes grants of shares or options to purchase up to
2,168,750 shares of authorized but unissued common stock. Stock options granted
have a maximum term of ten years and have vesting schedules which are at the
discretion of the Compensation Committee of the Board of Directors and
determined on the effective date of the grant.

     In May 1999, the Company's stockholders approved the 1999 Equity
Compensation Plan (the "1999 Plan"). Under the 1999 Plan, an additional
1,250,000 shares of authorized, unissued shares of common stock of the Company
are reversed for issuance to employees, advisors and for non-exempt members of
the Board of Directors. Option terms under the 1999 Plan may not exceed 10
years.

                                      F-12
<PAGE>   61
                            EMERGE INTERACTIVE, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     A summary of option transactions follows:

<TABLE>
<CAPTION>
                                                                                       WEIGHTED
                                                                                        AVERAGE
                                                     RANGE OF         WEIGHTED         REMAINING
                                                  EXERCISE PRICE      AVERAGE         CONTRACTUAL
                                       SHARES       PER SHARE      EXERCISE PRICE   LIFE (IN YEARS)
                                      ---------   --------------   --------------   ---------------
<S>                                   <C>         <C>              <C>              <C>
Balance outstanding, December 31,
  1996..............................      3,125   $        0.80        $0.80             4.85
                                      =========   =============                          ====
       Granted......................    335,000            0.80         0.80
                                      ---------   -------------
  Balance outstanding, December 31,
     1997...........................    338,125            0.80         0.80             9.64
                                      =========   =============                          ====
       Granted......................  1,692,500     0.80 - 1.60         0.84
       Canceled.....................   (398,125)           0.80         0.80
                                      ---------   -------------
  Balance outstanding, December 31,
     1998...........................  1,632,500     0.80 - 1.60         0.84             9.48
                                      =========   =============                          ====
       Granted......................  1,415,250    1.60 - 11.20         4.96
       Exercised....................   (200,819)           0.80         0.93
       Cancelled....................    (77,815)    0.80 - 1.60         1.35
                                      ---------   -------------        -----
  Balance outstanding, December 31,
     1999...........................  2,769,116   $0.80 - 11.20        $2.93             9.01
                                      =========   =============        =====             ====
</TABLE>

     At December 31, 1997, 1998 and 1999, there were 76,719, 414,375 and 761,045
shares exercisable, respectively, at weighted average exercise prices of $0.80.
$0.82 and $1.68, respectively.

     At December 31, 1997, 1998 and 1999, 99,375, 511,250 and 1,597,875 shares
were available for grant, respectively.

     The per share weighted-average fair value of stock options granted was $-0-
in 1997, $0.08 in 1998 and $1.47 in 1999 on the date of grant using the Black
Scholes option-pricing model with the following weighted-average assumptions:

<TABLE>
<CAPTION>
                                                      1997    1998    1999
                                                      ----    ----    ----
<S>                                                   <C>     <C>     <C>
Volatility..........................................    0%      0%      0%
Dividend paid.......................................    0%      0%      0%
Risk-free interest rate.............................  6.11%   4.73%   4.99%
Expected life in years..............................  6.75    5.57    6.75
</TABLE>

     No volatility was assumed due to the use of the Minimum Value Method of
computation for options issued by the Company as a private entity through
December 31, 1999 as prescribed by SFAS No. 123.

     All stock options granted, except as noted in the paragraph below, have
been granted to directors or employees with an exercise price equal to the fair
value of the common stock at the date of grant. The Company applies APB Opinion
No. 25 for issuances to directors and employees in accounting for its Plan and,
accordingly, no compensation cost has been recognized in the consolidated
financial statements through December 31, 1998.

     On March 19, 1999, the Company granted 360,625 stock options with an
exercise price of $1.60 and a fair value of $1.80. The Company recorded $72,126
of unearned compensation at the date of grant and is amortizing the unearned
compensation over the vesting period. Compensation expense amounted to $13,524
for the year ended December 31, 1999.

                                      F-13
<PAGE>   62
                            EMERGE INTERACTIVE, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Had the Company determined compensation cost based on the fair value at the
grant date for its stock options under SFAS No. 123, the Company's net loss
would have increased to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
                                                    1997          1998           1999
                                                 -----------   -----------   ------------
<S>                                              <C>           <C>           <C>
Net loss as reported...........................  $(5,483,623)  $(7,832,128)  $(15,595,286)
                                                 ===========   ===========   ============
  Pro forma net loss...........................  $ 5,483,623)  $ 7,865,031)  $(16,049,980)
                                                 ===========   ===========   ============
  Net loss per share, as reported:
     Basic and diluted.........................  $    (14.34)  $     (1.80)  $      (2.30)
                                                 ===========   ===========   ============
  Pro forma net loss per share:
     Basic and diluted.........................  $    (14.34)  $     (1.81)  $      (3.17)
                                                 ===========   ===========   ============
</TABLE>

(10) RELATED PARTY TRANSACTIONS

DUE TO RELATED PARTIES

     Due to related parties consist of:

<TABLE>
<CAPTION>
                                                                 1998         1999
                                                              ----------   -----------
<S>                                                           <C>          <C>
XL Vision...................................................  $5,158,436   $ 1,668,317
  Safeguard Scientifics, Inc. and Safeguard Delaware,
     Inc....................................................      28,898    10,385,398
                                                              ----------   -----------
                                                              $5,187,334   $12,053,715
                                                              ==========   ===========
</TABLE>

<TABLE>
<S>                                                           <C>
AMOUNTS DUE TO XL VISION
  Amounts due to XL Vision consist of:
  Balance as of December 31, 1996...........................  $3,636,494
     Allocation of costs and funding of working capital to
       the Company..........................................   6,318,405
     Technology transfer fee................................   4,400,000
     Interest charges on technology transferred.............     141,167
     Proceeds from Series A Preferred Stock.................  (6,443,606)
     Issuance of Class A common stock.......................     (22,465)
                                                              ----------
  Balance as of December 31, 1997...........................   8,029,995
     Allocation of costs and funding of working capital to
       the Company..........................................   9,120,441
     Interest charges on technology transferred.............     308,000
     Contribution of debt to equity.........................  (7,500,000)
     Contribution of debt to equity in exchange for Series B
       Preferred stock......................................  (4,800,000)
                                                              ----------
  Balance as of December 31, 1998...........................   5,158,436
     Allocation of costs and funding of working capital to
       the Company..........................................  (3,771,964)
     Interest charges on technology transferred.............     281,845
                                                              ----------
  Balance as of December 31, 1999...........................  $1,668,317
                                                              ==========
</TABLE>

     The average outstanding balance due to XL Vision was approximately
$6,239,600 in 1997, $12,782,400 in 1998 and $6,266,800 in 1999.

     On January 1, 1999, the Company signed a revolving promissory note with XL
Vision for up to $3,000,000. The revolving promissory note bears interest at the
prime rate plus 1% (9.5% at December 31, 1999) and is due in full when the
Company completes an IPO or sells all of its assets of stock.

                                      F-14
<PAGE>   63
                            EMERGE INTERACTIVE, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTES PAYABLE TO SAFEGUARD DELAWARE, INC.

     On July 21, 1999, the Company obtained a $3,000,000 revolving note payable
from Safeguard Delaware, Inc. ("Safeguard"). The revolving note payable, as
amended, bears interest payable monthly at the prime rate plus 1% (9.5% at
December 31, 1999) and is due February 29, 2000.

     In August, September and October 1999, the Company signed demand notes with
interest payable monthly at the prime rate plus 1% (9.5% at December 31, 1999)
with Safeguard for $2,500,000, $2,000,000 and $2,500,000, respectively. These
notes were cancelled in October 1999, in exchange for a $7,050,000 note due in
full on October 25, 2000, the repayment of a promissory note issued concurrently
with the sale of Series D preferred stock or an IPO, whichever is earlier.

     Interest expense was approximately $0 in 1997, $0 in 1998 and $454,800 in
1999.

TECHNOLOGY FEE

     On July 15, 1997, the Company entered into an agreement with XL Vision for
the transfer of certain technology that is sued by the Company in the sale of
its products for a $4,400,000 note payable. The transfer was accounted for as a
distribution to XL Vision as it represented amounts paid for an asset to en
entity under common control in excess of the cost of such asset. The note
payable (included in amounts due to XL Vision above) bears interest at 7% per
annum. Interest expense was approximately $141,200 in 1997, $308,000 in 1998 and
$281,800 in 1999.

DIRECT CHARGE FEE

     Prior to April 1, 1997 personnel, and other services were provided by XL
Vision and the costs were allocated to the Company. The Company believes that
the allocation method used by XL Vision was reasonable. Effective April 1, 1997,
the Company entered into a direct charge fee agreement with XL Vision which
allows for cost-based charges based upon actual hours incurred. Costs allocated
to or service fees charged by XL Vision were approximately $720,000 in 1997,
$460,000 in 1998 and $455,000 in 1999. A portion of the fees in 1998 and all of
the fees in 1997 were allocated to the discontinued transportation segment.

ADMINISTRATIVE SERVICES FEE

     Effective December 15, 1997, the Company entered into an agreement which
requires accrual of an administrative services fee based upon a percentage of
gross revenues. The fee for administrative support services, including
management consultation, investor relations, legal services and tax planning, is
payable monthly to XL Vision and Safeguard Scientifics, Inc., the largest
shareholder of XL Vision, based upon an aggregate of 1.5% of gross revenues with
such service fees to be not more than $300,000 annually. Effective August 17,
1999, the agreement was amended such that the administrative services fee is
applied to net contribution margin on cattle sales and gross revenue for all
other sales. The fee is accrued monthly but is only payable in months during
which the Company has achieved positive cash flow from operations. The agreement
extends through December 31, 2002 and continues thereafter unless terminated by
any party. Administrative service fees were approximately $10,300 in 1997,
$37,200 in 1998 and $53,200 in 1999.

LEASES

     The Company leases equipment under a capital lease, effective April 20,
1998, with an affiliated entity, XL Realty, Inc. Future minimum lease payments,
including imputed interest at 7.53%, are $85,765 in 2000, $92,684 in 2001,
$100,154 in 2002 and $26,415 in 2003. Interest expense was approximately $23,600
in 1998 and $27,400 in 1999.

     The Company rents its facilities from XL Vision. Rent expense varies based
on space occupied by the Company and includes charges for base rent, repairs and
maintenance, telephone and networking expenses, real estate taxes and insurance.
Rent expense was approximately $354,000 in 1997, $1,129,000 in 1998 and $985,000
in 1999.

                                      F-15
<PAGE>   64
                            EMERGE INTERACTIVE, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

SALE OF SERIES D PREFERRED STOCK

     On October 27, 1999, the Company agreed to issue 4,555,556 shares of Series
D preferred stock and a warrant to acquire 1,138,889 shares of Class B common
stock to Internet Capital Group, Inc., an affiliate of Safeguard. Each share of
Series D preferred stock is convertible into 1.25 shares of Class B common stock
at any time at the option of the holder or immediately upon an IPO. The warrant
is exercisable at the Company's IPO price. In the event the Company does not
complete an IPO, the warrant is exercisable at $9.00 after November 16, 2000 or
earlier if the Company has an equity financing of not less than $20,000,000 from
private investors. The warrant expires on November 16, 2002. In return for these
instruments, the Company received $18,000,000 of cash in November 1999 and a
$23,000,000 non-interest, bearing note receivable due on October 27, 2000.
Imputed interest at 9.5% amounts to $2,185,000 over the life of the note.

     The net consideration of $38,815,000 was allocated to the warrant and
preferred stock as follows. The warrant was valued at $3,325,553 using the
Black-Scholes method and assuming a strike price of $11.20, expiration of three
years, 90% volatility, and 5.8% interest. The remaining proceeds were allocated
to preferred stock and amounted to $7.79 per preferred share ($6.23 per common
share). The beneficial conversion feature was calculated as the difference
between the conversion price ($6.23) and the fair value of the common stock
($7.20) multiplied by the number of Class B common shares into which the
preferred stock is convertible (5,694,445) and amounts to $5,523,612.

     The note receivable is shown as a reduction of stockholders' equity, net of
imputed interest. Interest income is accreted over the life of the note using
the effective interest method. The value of the warrant was credited to
additional paid-in capital. The beneficial conversion feature was credited to
preferred stock with a corresponding charge to additional paid-in capital at
issuance. The beneficial conversion feature reduces net income available to
common shareholders.

(11) SEGMENT INFORMATION

     In 1998, the Company adopted SFAS No. 131, which requires the reporting of
segment information using the "management approach" versus the "industry
approach" previously required. The management approach requires the Company to
report certain financial information related to continuing operations that is
provided to the Company's chief operating decision-maker. The Company's chief
operating decision-maker receives revenue and contribution margin (revenue less
direct costs and excluding overhead) by source, and all other statement of
operations data and balance sheet data on a consolidated basis. The Company's
reportable segments consist of cattle sales and animal sciences products and
services. While the Company operates entirely in the animal science marketplace,
the contribution margin associated with cattle sales and the related prospects
for this portion of the Company's business differ from the rest of the Company's
product offerings.

                                      F-16
<PAGE>   65
                            EMERGE INTERACTIVE, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The following summarizes revenue and contribution margin information
related to the Company's two operating segments:

<TABLE>
<CAPTION>
                                                                   DECEMBER 31,
                                                             -------------------------
                                                                1998          1999
                                                             ----------    -----------
<S>                                                          <C>           <C>
Revenue:
       Cattle..............................................  $       --    $42,191,884
       Animal sciences.....................................   1,792,471      1,591,240
                                                             ----------    -----------
          Total............................................  $1,792,471    $43,783,124
                                                             ==========    ===========
  Cost of revenue:
     Direct costs:
          Cattle...........................................  $       --    $41,746,723
          Animal sciences..................................     900,824        558,243
                                                             ----------    -----------
          Total direct costs...............................     900,824     42,304,966
       Unallocated overhead................................   1,722,623      1,212,493
                                                             ----------    -----------
          Total............................................  $2,623,447    $43,517,459
                                                             ==========    ===========
  Gross profit (loss):
     Contribution margin:
          Cattle...........................................  $       --    $   445,161
          Animal sciences..................................     891,647      1,032,997
                                                             ----------    -----------
          Total............................................     891,647      1,478,158
     Unallocated overhead..................................  (1,722,623)    (1,212,493)
                                                             ----------    -----------
          Gross profit (loss)..............................  $ (830,976)   $   265,665
                                                             ==========    ===========
</TABLE>

     The Company's assets and other statement of operations data are not
allocated to a segment.

(12) DISCONTINUED OPERATIONS

     In December 1998, the Company's Board of Directors decided to dispose of
its transportation segment. The Company's AMIRIS thermal imaging system, which
was the sole product sold in the transportation segment, was sold on January 15,
1999 to Sperry Marine, Inc. for approximately $1,900,000. The Company received
$200,000 of cash at closing and collected an additional $1,388,000 through
December 31, 1999. The remaining balance of approximately $294,142 is expected
to be collected by April 30, 2000. The Company is entitled to a royalty of 8% of
net AMIRIS system sales, up to a maximum royalty of $4.3 million over a four
year period or up to a maximum royalty of $5.0 million, if $4.3 million is not
received within four years.

     Net assets of the discontinued transportation segment consist of:

<TABLE>
<CAPTION>
                                                                 1998        1999
                                                              ----------   ---------
<S>                                                           <C>          <C>
  Accounts receivable.......................................  $  381,435   $  10,353
  Inventory, net............................................   2,020,625     123,093
  Note receivable...........................................          --     294,142
  Property and equipment, net...............................     134,098          --
  Intangibles, net..........................................      61,108          --
  Accounts payable..........................................     (80,510)    (28,185)
  Accrued liabilities including provision for operating loss
     during phase out period of $72,667 in 1998 and $0 in
     1999...................................................    (231,415)   (102,400)
                                                              ----------   ---------
       Net assets...........................................  $2,285,341   $ 297,003
                                                              ==========   =========
</TABLE>

                                      F-17
<PAGE>   66
                            EMERGE INTERACTIVE, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(13) COMMITMENTS AND CONTINGENCIES

VOLUNTARY EMPLOYEE SAVINGS 401(k) PLAN

     The Company established a voluntary employee savings 401(k) plan in 1997
which is available to all full time employees 21 years or older. The plan
provides for a matching by the Company of the employee's contribution to the
plan for 50% of the first 6% of the employee's annual compensation. The
Company's matching contributions were approximately $38,200 in 1997, $62,100 in
1998 and $81,700 in 1999.

ROYALTIES

     In connection with the NutriCharge license, the Company is obligated to a
royalty of 5% of gross revenues from the sale of NutriCharge products and
infrared technology related to the Company's Canadian license agreement. Royalty
expense in connection with this agreement was nominal through the period ended
December 31, 1999.

     The Company is also obligated to a royalty of 6% of net revenues from
product or services related to technology patented by Iowa State University. No
such royalties have been paid as of December 31, 1999.

LEGAL PROCEEDING

     The Company has been named as a defendant in a lawsuit filed by Central
Biotech, Inc. on January 12, 2000 in the Queen's Bench Judicial Centre of
Regina, Providence of Saskatchewan, Canada. The complaint alleges that eMerge
and E-Y laboratories, Inc. were each subject to confidentiality agreements with
the plaintiff, and subsequently engaged in discussions concerning a potential
business arrangement in violation of such agreements. The complaint asserts
damages, including punitive damages, from the defendants in the aggregate amount
of $18,000,000 (Canadian dollars), as well as injunctive relief. Although the
Company has not yet completed its assessment of these claims, the Company
believes that there are a number of substantive and procedural defenses that
exist and intends to defend these claims vigorously.

(14) SUBSEQUENT EVENTS

     On February 17, 2000, the Company closed on its IPO and a concurrent
private placement of common stock and raised net proceeds of approximately
$107,400,000. Approximately $12,800,000 of the proceeds were used to pay amounts
due to related parties (see note 10) and $900,000 was paid to Turnkey (see note
5).

                                      F-18