1. Strategic Analysis Hilary Dorr Michelle Mullins

2. Overview zSummary of Key Industry and Firm Characteristics zSummary of SWOT Analysis zStrategic Alternatives Considered zFinal Recommendation

3. Background on eMERGE z1994 —eMERGE Interactive incorporated as eMERGE Vision yDeveloped image and infrared thermography systems for maritime use z1999 —IPO, high stock price, initial offering 8 M shares zFall 2001— Sold many non-profitable company operations zAugust 2001—New mngmt. team, significant exp. in cattle industry. z2002 – New product launch z2004 – Sold PCC z2005—Two business units z2005— Company has been operating in the red since IPO yHuge stock price fluctuations.

4. Case Study Objectives zHow does eMERGE stay afloat until the market is ready? zWhat can eMERGE do to increase the adoption rate of their new technologies?

5. Industry Overview zeMERGE Interactive operates in two distinct industries: yAnimal Information Management Industry xCattleLog: Animal Information Management System Provides a management system for the livestock as well as traceability if there were a food safety issue. yVisual Diagnostic Technology Industry xVerifEYE: Detects organic contamination on several surfaces VerifEYE has many other applications, not just in the realm of food safety.

6. Firm Financial Analysis COGS = Approx 32% of Net Sales Combined SGA and R&D = Approx 760% of Net Sales Implies eMERGE Cost Structure = High Fixed Costs, Low Variable Costs

7. SWOT Analysis: CattleLog Pro Strengths zGood reputation among customer base zUSDA PVP Certification zLeast expensive data service in AIM Industry zProducts give information, not just data zCattleLog Pro is easy to use zAlready meets the NAIS program specifications zAlready have strategic alliance with ADM Alliance Nutrition zLarge number of producer organizations already utilizing the system Weaknesses zFuture operational capacity (database and financial) zPotential to lose PVP Certification (must be renewed yearly) zPoor financial health z100% Equity Financing Opportunities zPossible NAIS mandate (Traceability) zTraceability is already mandated in Canada zApplication of system to other animals (zoos/pets) zGrowing health and quality trend among consumers zIncreased food safety movement (Bioterrorism) zCOOL zGlobal market expansion zFragmented Organizational Environment of Primary Customer Base Threats zStricter regulatory requirements and practices zRemoval of International Trade Barriers (CAFTA Beef Imports) zEmergence of Substitute Products (Microsoft) zFragmented Organizational Environment of Primary Customer Base zCustomer base hesitant to adopt innovative technology

8. SWOT Analysis: VerifEYE Strengths zPatented Technology zProducts give information, not just data zMany potential applications zAlready have established relationship with Excel zAlliances with Major Global Distributors Weaknesses zLack of Brand Recognition zFuture R&D is necessary and cost intensive zHigh cost of product to potential buyers Opportunities zUnfulfilled customer need zWide variety of buyers zNew modifications of current technology zChanging Education Curriculum (Health Classes) zSocial Changes: Shift toward healthier society zGlobal Market Expansion Threats zNew Entrants/New Patented Technology zIncreased Regulatory Procedures (Testing/R&D) zCost of R & D

9. General Strategies to Increase Net Income Objective: Positive Net Profit Increase Volume of Product Sold Animal Info System Food Safety Technology Increase Product Price Reduce Operational Business Costs Selling, General and Administrative Research and Development

10. CattleLog Target CattleLog Pro to the Top Four Feedlots 1. Cactus Feeders Inc 2. ContiBeef LLC 3. ConAgra 4. Caprock Market to Global Producers 1. Canadian Prod. 2. Producers Exporting Replacement Heifers Niche Markets Purebred Assoc. Relying on Quality COOL Markets Increase Volume of CattleLog Sold

11. Increase Volume of VerifEYE Sold VerifEYE Carcass Inspection System Market to other top five meat packers and Possible modifications to ID other contaminants Handheld Solo Continue to market Solo to packing facilities Market to other industries Hand Hygiene System Licensing Agreement with Hand Sanitation Distributor

12. Final Recommendations zQUESTION: How does eMERGE stay afloat until the market is ready? zANSWER: Limit operational expenditures to net sales yBest achieved by increasing net sales zQUESTION: What can eMERGE do to increase the adoption rate of their new technologies? zANSWER: yReposition investment among products yIncrease volume of VerifyEYE Solo and Hand Hygiene System yLicensing Agreement with Unilever

13. At high prices, volume is low Lower the price and increase volume sold Move along AFC curve providing lower company fixed costs Economics Behind the Unilever Strategy

14. Final Strategy Recommendation zIncrease volume of VerifEYE products sold through a licensing agreement with Unilever

15. SWOT: eMERGE Strengths Utilized zGood reputation among consumer base zPatented Technology – possible marketing monopoly zMany Potential Applications zAlliances with major global distributors

16. SWOT: eMERGE Weaknesses Addressed zPoor financial health zConsumer’s purchase price can be large – high cost of product (CIS, possible hand wash system) zLack of Brand Recognition

17. SWOT: eMERGE Capitalized Opportunities zIncreased food safety movement (Bioterrorism) zUnfulfilled customer need zWide variety of buyers zGlobal market expansion

18. SWOT: eMERGE Threats Addressed zGap in the Technology Adoption Curve zCost of R&D

19. Plan of Action zShort term: 1 year yForm licensing agreement with Unilever xMarket Hand Hygiene System and Solo to food service industry zMedium term: 2-5 years yBranch into other industries such as medical, education and child care

20. Conclusions zThe products that will see eMERGE to a future of net profit are predominantly the VerifEYE products. zeMERGE should maintain the current quality of the CattleLog Pro and work closely with the industry and government on the NAIS mandate

21. Sources zCopeland, Tom et al. Valuation: Measuring and Managing the Value of Companies, 3 rd ed. Wiley Publishing, 2000. zeMerge Interactive, http://www.emergeinteractive.com/. Accessed July 20, 2005.http://www.emergeinteractive.com/ zGolan, Elise, et al. Food Safety Innovation in the United States: Evidence from the Meat Industry. Agricultural Economic Report Number 831. April 2004. zGremaud, Michael. Personal Interview. July 18 2005. zMays, Don. Personal Interview. July 14, 2005. z Oster, Sharon. Modern Competitive Analysis, 3 rd ed. Oxford University Press, 1999.

22. Thank you from Mizzou!