EMERGE INTERACTIVE INC - 10-Q Quarterly Report

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

Quarterly Report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended March 31, 2003.

Transition Report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from ______ to ______

Commission File Number: 000-29037

eMerge Interactive, Inc.

(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)

65-0534535
(I.R.S. Employer Identification No.)

10305 102^nd Terrace Sebastian, Florida 32958
(Address of principal executive offices)

(772) 581-9700
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days: YES x NO o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
YES o NO x

The number of shares of the registrant’s common stock, $0.008 par value, outstanding as of May 12, 2003, was 38,780,439. There were 33,085,994 shares of Class A common stock outstanding and 5,694,445 shares of Class B common outstanding as of this date.

eMerge Interactive, Inc.

FORM 10-Q QUARTERLY REPORT
(For Three Months Ended March 31, 2003)

TABLE OF CONTENTS

			Page

PART I	FINANCIAL INFORMATION


	Item 1.	Financial Statements:

		Condensed Consolidated Balance Sheets as of March 31, 2003 and December 31, 2002	3

		Condensed Consolidated Statements of Operations for the three months ended March 31, 2003 and 2002	4

		Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2003 and 2002	5

		Notes to Condensed Consolidated Financial Statements	6

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11

	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	14

	Item 4.	Controls and Procedures	14


PART II	OTHER INFORMATION


	Item 1.	Legal Proceedings	15

	Item 4.	Submission of Matters to a Vote of Security Holders	15

	Item 6.	Exhibits and Reports on Form 8-K	15

PART I. FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

eMerge Interactive, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)

	March 31, 2003			December 31, 2002


Assets
Current assets:
Cash and cash equivalents	$	5,077,604		$	5,278,449
Trade accounts receivable, less allowance for doubtful accounts of $894,962 in 2003 and $929,299 in 2002		136,812			413,875
Inventories (note 3)		290,538			36,428
Prepaid expenses		458,740			484,476
Due from related parties (note 4)		297,451			2,281,630

Total current assets		6,261,145			8,494,858
Property, plant and equipment, net of accumulated depreciation of $7,258,390 in 2003 and $6,600,235 in 2002		4,962,981			5,347,511
Due from related parties (note 4)		217,074			217,074

Total assets	$	11,441,200		$	14,059,443


Liabilities and Stockholders’ Equity
Current liabilities:
Current installments of capital lease obligation	$	401,772		$	315,406
Accounts payable		572,869			568,394
Accrued liabilities:
Salaries and benefits (note 7)		408,012			469,847
Legal and professional		190,659			165,985
Other		128,250			122,121
Advance payments from customers		291,327			101,500

Total current liabilities		1,992,889			1,743,253
Capital lease obligation, excluding current installments		115,976			196,967

Total liabilities		2,108,865			1,940,220

Stockholders’ equity (note 6)
Common stock, $.008 par value, authorized 100,000,000 shares:
Class A common stock, designated 92,711,110 shares, issued 34,329,847 shares in 2003 and 2002; outstanding 33,085,992 shares in 2003 and 2002		274,638			274,638
Class B common stock, designated 7,288,890 shares, 5,694,445 shares issued and outstanding in 2003 and 2002		45,556			45,556
Additional paid-in capital		200,729,576			200,729,576
Accumulated deficit		(191,289,398	)		(188,502,401	)
Treasury stock, 1,243,855 shares, at cost		(428,037	)		(428,037	)
Unearned compensation		—			(109	)

Total stockholders’ equity		9,332,335			12,119,223

Total liabilities and stockholders’ equity	$	11,441,200		$	14,059,443

See accompanying notes to condensed consolidated financial statements.

eMerge Interactive, Inc.
Condensed Consolidated Statements of Operations
For the Three Months Ended March 31, 2003 and 2002
(Unaudited)

	Three Months Ended March 31,

	2003			2002

Revenue	$	161,542		$	230,026
Cost of revenue		74,476			148,091

Gross profit		87,066			81,935

Operating expenses:
Selling, general and administrative		1,575,132			2,028,656
Technology and development		511,451			586,161
Impairment and related charges (note 7)		—			57,925
Depreciation and amortization of intangibles		666,511			1,034,590

Total operating expenses		2,753,094			3,707,332

Operating loss		(2,666,028	)		(3,625,397	)

Interest and other (expense) income, net		(14,076	)		94,727
Interest expense		(8,382	)		(308,591	)
Gain on disposal of assets		3,513			—
Equity in operations of unconsolidated investee		—			2,386

Loss from continuing operations before income taxes		(2,684,973	)		(3,836,875	)
Income tax expense (benefit)		—			—

Loss from continuing operations		(2,684,973	)		(3,836,875	)
Discontinued operations (note 8):
Loss from discontinued cattle operations, net of income taxes of $0 in 2003 and 2002		(102,024	)		(251,393	)
Minority interest		—			(66,905	)

Net loss	$	(2,786,997	)	$	(4,155,173	)

Loss from continuing operations per common share – basic and diluted	$	(0.07	)	$	(0.10	)

Net loss per common share – basic and diluted	$	(0.07	)	$	(0.10	)

Weighted average number of common shares outstanding - basic and diluted		38,780,437			39,709,449

See accompanying notes to condensed consolidated financial statements.

eMerge Interactive, Inc.
Condensed Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 2003 and 2002
(Unaudited)

	2003			2002

Cash flows from operating activities:
Net loss	$	(2,786,997	)	$	(4,155,173	)
Adjustments to reconcile net loss to net cash provided by (used for) operating activities:
Depreciation		666,511			1,136,440
(Gain) loss on disposal of assets		(3,513	)		111
Impairment of assets held for sale		—			233,947
Equity in operations of unconsolidated investee		—			(2,386	)
Amortization of unearned compensation		109			4,508
Change in fair value of financial instruments		—			(2,218	)
Minority interest		—			66,905
Changes in operating assets and liabilities:
Trade accounts receivable, net		277,063			(7,870,358	)
Inventories		(254,110	)		(1,584,015	)
Prepaid expenses and other assets		25,736			(1,465,454	)
Due from related parties, net		1,984,179			(296,333	)
Accounts payable and accrued liabilities		(21,182	)		(3,550,644	)
Advance payments from customers		189,827			712,814

Net cash provided by (used for) operating activities		77,623

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