EMERGE INTERACTIVE INC
Table of Contents
(a)   Documents Filed with this Form 10-K Report        (1)   The Financial Statements and Schedules listed below are located after the signature page beginning on page F-1:           Description    Page    Report of Independent Registered Public Accounting Firm    F-1    Balance Sheets as of December 31, 2005 and 2004    F-2    Statements of Operations for the years ended December 31, 2005, 2004 and 2003    F-3    Statements of Stockholders’ Equity for the years ended December 31, 2005, 2004 and 2003    F-4    Statements of Cash Flows for the years ended December 31, 2005, 2004 and 2003    F-5    Notes to Financial Statements    F-6        (2)   The following financial statement schedules are filed as part of this report on page F-21:        Schedule   IX—Valuation and Qualifying Accounts.*           *   All other required financial statement schedules are omitted because the information required is either not applicable or is included in the financial statements or the related notes included in this report.        (3)   Exhibits    The exhibits that are required to be filed or incorporated by references herein are listed in the Exhibit Index beginning on page 28 hereof. Exhibits 10.1 and Exhibits 10.30 to 10.35 hereto constitute management contracts or compensatory plans or arrangements required to be filed as exhibits hereto.    26    Table of Contents  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: March 27, 2006               EMERGE INTERACTIVE, INC.      By:    /s/    DAVID C. WARREN              David C. Warren      Chief Executive Officer and Director      (Principal Executive Officer)          /s/    ROBERT E. DRURY              Robert E. Drury      Chief Financial Officer (Principal      Financial and Accounting Officer)    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.             Name     Capacity    Date       /s/    DAVID C. WARREN         David C. Warren     Chief Executive Officer and Director(Principal Executive Officer)   March 27, 2006             /s/    ROBERT E. DRURY         Robert E. Drury     Chief Financial Officer(Principal Financial and Accounting Officer)   March 27, 2006       /s/    JOHN C. BELKNAP         John C. Belknap     Chairman of the Board   March 27, 2006       /s/    JOHN C. FOLTZ         John C. Foltz     Director   March 27, 2006       /s/    CHRISTOPHER A. SINCLAIR         Christopher A. Sinclair     Director   March 27, 2006       /s/    ROBERT S. SPENCER         Robert S. Spencer     Director   March 27, 2006    27    Table of Contents  EXHIBIT INDEX             Exhibit Number    Description    Reference      3.1   Second Amended and Restated Certificate of Incorporation of eMerge Interactive (Exhibit 3.1)    (1)      3.2   Amended and Restated Bylaws of eMerge Interactive (Exhibit 3.1)    (12)      3.3   First Certificate of Correction Filed to Correct a Certain Error in the Second Amended and Restated Certificate of Incorporation of eMerge Interactive, Inc.    (11)      3.4   Second Certificate of Correction Filed to Correct a Certain Error in the Second Amended and Restated Certificate of Incorporation of eMerge Interactive, Inc.    (11)      10.1**   Amended and Restated 1996 Equity Compensation Plan (Exhibit 10.1)    (1)      10.2   Registration Rights Agreement dated July 18, 1997 (Exhibit 10.17)    (1)      10.3   Stockholders Agreement dated July 29, 1998 among eMerge Interactive, and individuals designated as the former shareholders of STS Agriventures, Ltd. (Exhibit 10.8)    (1)      10.4   Stockholders’ and Registration Rights Agreement dated February 24, 1999 (Exhibit 10.19)    (1)      10.5   Joinder and Correction to Stockholders and Registration Rights Agreement dated March 29, 1999 (Exhibit 10.20)    (1)      10.6   Preferred Stock Purchase Agreement dated April 1, 1999 (Series C Preferred Stock) (Exhibit 10.15)    (1)      10.7   Exclusive License Agreement between Iowa State University Research Foundation, Inc., and eMerge dated August 3, 1999 (Exhibit 10.33)    (1)      10.8   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 August 4, 1999 (Exhibit 10.32)    (1)      10.9   Securities Purchase Agreement dated October 27, 1999 between eMerge Interactive Technologies, LLC and Internet Capital Group, Inc. (Exhibit 10.30)    (1)      10.10   Equipment and Technology License Agreement, dated March 12, 2003 by and between Excel Corporation and eMerge Interactive, Inc. (Exhibit 10.45)    (2)      10.11   Real Property Lease between XL Realty, Corp. and eMerge Interactive, Inc. dated April 1, 2003 (Exhibit 10.57)    (3)      10.12   Securities Purchase Agreement, effective as of November 20, 2003, by and between eMerge Interactive, Inc. and The Biegert Family Irrevocable Trust. (Exhibit 10.1)    (4)      10.13   Registration Rights Agreement effective as of November 20, 2003, by and between eMerge Interactive, Inc. and The Biegert Family Irrevocable Trust. (Exhibit 10.2)    (4)      10.14   Common Stock Purchase Warrant effective as of November 20, 2003, by and between eMerge Interactive, Inc. and The Biegert Family Irrevocable Trust. (Exhibit 10.3)    (4)      10.15   Securities Purchase Agreement effective as of January 22, 2004, by and between eMerge Interactive, Inc. and Mainfield Enterprises, Inc., Cranshire Capital L.P., Smithfield Fiduciary LLC and Omicron Master Trust (Exhibit 10.5)    (5)      10.16   Form of Common Stock Purchase Additional Investment Right effective as of January 23, 2004, by and between eMerge Interactive, Inc. and Mainfield Enterprises, Inc., Cranshire Capital L.P., Smithfield Fiduciary LLC and Omicron Master Trust (Exhibit 10.7)    (5)      10.17   Registration Rights Agreement effective as of January 23, 2004, by and between eMerge Interactive, Inc. and Mainfield Enterprises, Inc., Cranshire Capital L.P., Smithfield Fiduciary LLC and Omicron Master Trust (Exhibit 10.8)    (5)    28    Table of Contents          Exhibit Number    Description    Reference      10.18   Form of Common Stock Purchase Warrant effective as of January 23, 2004, by and between eMerge Interactive, Inc. and Mainfield Enterprises, Inc., Cranshire Capital L.P., Smithfield Fiduciary LLC and Omicron Master Trust. (Exhibit 10.6)    (5)      10.19   Equipment Lease Agreement dated November 21, 2003 by and between Excel Corporation and eMerge Interactive, Inc. (Exhibit 10.51)    (6)      10.20   Securities Purchase Agreement, dated as of November 22, 2004, by and among eMerge Interactive, Inc. and the investor parties thereto (Exhibit 10.1)    (7)      10.21   Form of Warrant, dated as of December 2, 2004, issued by eMerge Interactive Inc. to each of Steelhead Investments Ltd., Cranshire Capital, L.P. and Omicron Master Trust (Exhibit 10.2)    (8)      10.22   Form of Additional Investment Right, dated as of December 2, 2004, issued by eMerge Interactive, Inc. to each of Steelhead Investments Ltd., Cranshire Capital, L.P. and Omicron Master Trust (Exhibit 10.3)    (8)      10.23   Registration Rights Agreement, dated as of December 2, 2004, by and among eMerge Interactive, Inc., Steelhead Investments Ltd., Cranshire Capital, L.P. and Omicron Master Trust (Exhibit 10.4)    (8)      10.24   Warrant, dated as of December 2, 2004, issued by eMerge Interactive, Inc. to Roth Capital Partners, LLC (Exhibit 10.5)    (8)      10.25   Securities Purchase Agreement, dated as of January 12, 2005, by and among eMerge Interactive, Inc. and the investor parties thereto (Exhibit 10.1)    (9)      10.26   Form of Warrant, dated as of January 27, 2005, issued by eMerge Interactive, Inc. to each of Steelhead Investments Ltd., Cranshire Capital, L.P. and Omicron Master Trust (Exhibit 10.2)    (10)      10.27   Registration Rights Agreement, dated as of January 27, 2005, by and among eMerge Interactive, Inc., Steelhead Investments Ltd., Cranshire Capital, L.P. and Omicron Master Trust (Exhibit 10.3)    (10)      10.28   Amendment to Warrants, dated as of January 27, 2005, by and among eMerge Interactive, Inc., Steelhead Investments Ltd., Cranshire Capital, L.P. and Omicron Master Trust (Exhibit 10.4)    (10)      10.29   Amendment to Additional Investment Rights, dated as of January 27, 2005, by and among eMerge Interactive, Inc., Steelhead Investments Ltd., Cranshire Capital, L.P. and Omicron Master Trust (Exhibit 10.5)    (10)      10.30**   Letter Agreement, dated July 29, 2005, by and between eMerge Interactive, Inc. and David C. Warren, regarding the amended and restated terms of Mr. Warren’s employment with eMerge Interactive, Inc. (Exhibit 10.1)    (12)      10.31**   Letter Agreement, dated July 29, 2005, by and between eMerge Interactive, Inc. and Robert E. Drury, regarding the amended and restated terms of Mr. Drury’s employment with eMerge Interactive, Inc. (Exhibit 10.2)    (12)      10.32**   Letter Agreement, dated July 29, 2005, by and between eMerge Interactive, Inc. and Mark S. Fox, regarding the amended and restated terms of Mr. Fox’s employment with eMerge Interactive, Inc. (Exhibit 10.3)    (12)      10.33**   Amended and Restated eMerge Interactive, Inc. 1999 Equity Compensation Plan (Exhibit 10.4)    (12)      10.34**   Form of Restricted Stock Agreement to be used in conjunction with grants made pursuant to the Amended and Restated eMerge Interactive, Inc. 1999 Equity Compensation Plan (Exhibit 10.5)    (12)    29    Table of Contents          Exhibit Number    Description    Reference      10.35**   Form of Stock Option Agreement to be used in conjunction with grants made pursuant to the Amended and Restated eMerge Interactive, Inc. 1999 Equity Compensation Plan (Exhibit 10.6)    (12)      10.36   Securities Purchase Agreement, dated as of January 19, 2006, by and between eMerge Interactive, Inc. and the investor party thereto (Exhibit 10.1)    (13)      10.37   Common Stock Purchase Warrant, dated as of January 27, 2006, issued by eMerge Interactive, Inc. to The Biegert Family Trust, dated June 11, 1998 (Exhibit 10.2)    (14)      10.38   Registration Rights Agreement, dated as of January 27, 2006, by and between eMerge Interactive, Inc. and The Biegert Family Trust, dated June 11, 1998 (Exhibit 10.3)    (14)      10.39   Form of Common Stock Purchase Warrant, dated as of January 27, 2006, issued by eMerge Interactive, Inc. to each of AgriCapital Securities, Inc. and B. Riley & Co. (Exhibit 10.4)    (14)      23.1   Consent of Independent Registered Public Accounting Firm    *      31.1   Certificate of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002    *      31.2   Certificate of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002    *      32.1   Certification by David C. Warren Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002    *      32.2   Certification by Robert E. Drury Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002    *    (1)   Incorporated by reference from exhibit shown in parentheses contained in the Company’s Registration Statement on Form S-1 (No. 333-89815), filed with the Commission.    (2)   Incorporated by reference from exhibit shown in parentheses contained in the Company’s Form 10-K for the annual period ended December 31, 2002, filed with the Commission.    (3)   Incorporated by reference from exhibit shown in parentheses contained in the Company’s Form 10-Q of the quarterly period ended March 31, 2003.    (4)   Incorporated by reference from exhibit shown in parentheses contained in the Company’s Registration Statement on Form S-3 (No. 333-111446), filed with the Commission on December 22, 2003.    (5)   Incorporated by reference from exhibit shown in parentheses contained in the Company’s Registration Statement on Form S-3 (No. 333-113082), filed with the Commission on February 25, 2004.    (6)   Incorporated by reference from exhibit shown in parentheses contained in the Company’s Form 10-K for the annual period ended December 31, 2003, filed with the Commission.    (7)   Incorporated by reference from exhibit shown in parentheses contained in the Company’s Current Report on Form 8-K dated November 22, 2004, filed with the Commission.    (8)   Incorporated by reference from exhibit shown in parentheses contained in the Company’s Current Report on Form 8-K dated December 2, 2004, filed with the Commission.    (9)   Incorporated by reference from exhibit shown in parentheses contained in the Company’s Current Report on Form 8-K dated January 12, 2005, filed with the Commission.    (10)   Incorporated by reference from exhibit shown in parentheses contained in the Company’s Current Report on Form 8-K dated January 27, 2005, filed with the Commission.    (11)   Incorporated by reference from exhibit shown in parentheses contained in the Company’s Form 10-K for the annual period ended December 31, 2004, filed with the Commission.    (12)   Incorporated by reference from exhibit shown in parentheses contained in the Company’s Current Report on Form 8-K dated July 29, 2005, filed with the Commission.    (13)   Incorporated by reference from exhibit shown in parentheses contained in the Company’s Current Report on Form 8-K dated January 19, 2006, filed with the Commission.    (14)   Incorporated by reference from exhibit shown in parentheses contained in the Company’s Current Report on Form 8-K dated January 27, 2006, filed with the Commission.    *   Filed herewith.    **   Indicates management contract or compensatory plan or arrangement.    30    Table of Contents     eMERGE INTERACTIVE, INC.    Financial Statements    (With Independent Registered Public Accounting Firm Report Thereon)    Table of Contents eMERGE INTERACTIVE, I NC.    Financial Statements    Table of Contents               Page    Report of Independent Registered Public Accounting Firm    F-1       Balance Sheets as of December 31, 2005 and 2004    F-2       Statements of Operations for the years ended December 31, 2005, 2004 and 2003    F-3       Statements of Stockholders’ Equity for the years ended December 31, 2005, 2004 and 2003    F-4       Statements of Cash Flows for the years ended December 31, 2005, 2004 and 2003    F-5       Notes to Financial Statements    F-6       Schedule IX—Valuation and Qualifying Accounts    F-21    Table of Contents  Report of Independent Registered Public Accounting Firm    The Board of Directors and Stockholders  eMerge Interactive, Inc.:    We have audited the financial statements of eMerge Interactive, Inc. as listed in the accompanying table of contents. In connection with our audits of the financial statements, we also have audited the financial statement schedule as listed in the accompanying table of contents. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.    We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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, 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 financial statements referred to above present fairly, in all material respects, the financial position of eMerge Interactive, Inc. at December 31, 2005 and 2004 and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2005 in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.    /s/    KPMG LLP    February 3, 2006  Orlando, Florida  Certified Public Accountants    F-1    Table of Contents  eMERGE INTERACTIVE, INC.    Balance Sheets    December 31, 2005 and 2004                     2005     2004    Assets                    Current assets:                    Cash and cash equivalents    $ 2,943,335     $ 5,954,976     Trade accounts receivable, less allowance for doubtful accounts of $100,831 in 2005 and $360,362 in 2004      119,409       244,766     Inventories      236,047       381,076     Prepaid expenses and other assets      480,644       610,201                   Total current assets      3,779,435       7,191,019     Property, plant and equipment, net      1,115,417       2,355,587     Food safety systems installed at customers, net      470,070       457,327     Other assets      37,500       —                     Total assets    $ 5,402,422     $ 10,003,933                  Liabilities and Stockholders’ Equity                    Current liabilities:                    Current installments of capital lease obligation    $ 4,639     $ —       Accounts payable      153,437       336,146     Accrued liabilities:                    Salaries and benefits      185,740       184,363     Legal and professional      211,004       214,184     Other      4,901       51,172     Advance payments from customers      842,183       1,083,508                   Total current liabilities      1,401,904       1,869,373     Capital lease obligation – long term      7,041       —       Advance payment from customers – long term      531,210       1,419,120                   Total liabilities      1,940,155       3,288,493                   Stockholders’ equity:                    Common stock, $0.008 par value, authorized 100,000,000 shares:                    Class A common stock, designated 92,711,110 shares, issued 52,941,951 and 48,648,760 shares in 2005 and 2004, respectively; outstanding 51,698,096 and 47,404,905 shares in 2005 and 2004, respectively      423,536       389,191     Additional paid-in capital      216,345,015       211,755,546     Accumulated deficit      (212,388,766 )     (205,001,260 )   Treasury stock, 1,243,855 shares, at cost      (428,037 )     (428,037 )   Unearned compensation      (489,481 )     —                     Total stockholders’ equity      3,462,267       6,715,440                   Total liabilities and stockholders’ equity    $ 5,402,422     $ 10,003,933                    See accompanying notes to financial statements.    F-2    Table of Contents  eMERGE INTERACTIVE, INC.    Statements of Operations    Years Ended December 31, 2005, 2004 and 2003                         2005     2004     2003     Revenue                            Products    $ 709,140     $ 284,119     $ 528,915     Leases      759,839       584,354       122,461     Services      405,475       287,546       275,462                        Total revenue      1,874,454       1,156,019       926,838          Cost of revenue                            Products      752,776       450,274       265,677     Leases      197,639       161,670       52,905     Services      50,290       28,040       3,082                        Total cost of revenue      1,000,705       639,984       321,664                        Gross profit      873,749       516,035       605,174                        Operating expenses:                            Selling, general and administrative      5,290,611       6,333,110       5,873,471     Technology and development      2,149,478       2,204,051       1,747,015     Depreciation and amortization      1,104,191       1,806,076       2,433,048                        Total operating expenses      8,544,280       10,343,237       10,053,534                        Operating loss      (7,670,531 )     (9,827,202 )     (9,448,360 )                      Interest and other income, net      248,022       351,227       67,703     Interest expense      (19,341 )     (19,285 )     (21,103 )   Gain (loss) on disposal of assets      (41,758 )     (46,375 )     4,492     (Increase) decrease in fair value of common stock warrants, net      (21,614 )     2,796,585       (423,840 )                      Loss from continuing operations before income taxes      (7,505,222 )     (6,745,050 )     (9,821,108 )   Income tax expense (benefit)      —         —         —                          Loss from continuing operations      (7,505,222 )     (6,745,050 )     (9,821,108 )        Discontinued operations:                            Gain (loss) from discontinued cattle operations, net of income taxes of $0 in 2005, 2004 and 2003      117,716       (27,064 )     94,363                        Net loss    $ (7,387,506 )   $ (6,772,114 )   $ (9,726,745 )                      Loss from continuing operations per common share—basic and diluted    $ (0.15 )   $ (0.15 )   $ (0.25 )                      Net loss per common share—basic and diluted    $ (0.15 )   $ (0.15 )   $ (0.25 )                      Weighted average number of common shares outstanding—basic and diluted      50,169,775       44,341,257       39,100,605                         See accompanying notes to financial statements.    F-3    Table of Contents  eMERGE INTERACTIVE, INC.    Statements of Stockholders’ Equity    December 31, 2005, 2004 and 2003                                             Common stock Class A    Common stock Class B      Additionalpaid-in capital      Accumulated deficit      Treasury stock      Unearned compensation      Total        Shares   Amount   Shares     Amount               Balances at December 31, 2002   33,085,992   $ 274,638   5,694,445     $ 45,556     $ 200,729,576     $ (188,502,401 )   $ (428,037 )   $ (109 )   $ 12,119,223     Exercise of common stock options for cash   373,107     2,985   —         —         294,283       —         —         —         297,268     Issuance of 79,791 shares of class A common stock in connection with business combinations   79,791     639   —         —         99,829       —         —         —         100,468     Issuance of 60,000 shares of class A common stock for services   60,000     480   —         —         59,820       —         —         —         60,300     Issuance of 1,605,136 shares of class A common stock for cash   1,605,136     12,841   —         —         424,146       —         —         —         436,987     Compensation associated with stock option modification   —       —     —         —         84,308       —         —         —         84,308     Amortization of unearned compensation   —       —     —         —         —         —         —         109       109     Net loss   —       —     —         —         —         (9,726,745 )     —         —         (9,726,745 )                                               Balances at December 31, 2003   35,204,026   $ 291,583   5,694,445     $ 45,556     $ 201,691,962     $ (198,229,146 )   $ (428,037 )   $  —       $ 3,371,918     Exercise of common stock options for cash   1,575,501     12,604   —         —         1,288,627       —         —         —         1,301,231     Issuance of 2,333,333 shares of class A common stock for cash, net of issuance costs   2,333,333     18,667   —         —         2,565,282       —         —         —         2,583,949     Issuance of 2,500,000 shares of class A common stock for cash, net of issuance costs   2,500,000     20,000   —         —         3,639,076       —         —         —         3,659,076     Conversion of class B common stock to class A common stock   5,694,445     45,556   (5,694,445 )     (45,556 )     —         —         —         —         —       Cashless exercise of warrants   53,964     432   —         —         (432 )     —         —         —         —       Compensation associated with stock option modification   —       —     —         —         360,063       —         —         —         360,063     Issuance of 43,636 shares of class A common stock for services   43,636     349   —         —         59,651       —         —         —         60,000     Reclassification of common stock warrants to equity   —       —     —         —         2,151,317       —         —         —         2,151,317     Net loss   —       —     —         —         —         (6,772,114 )     —         —         (6,772,114 )                                               Balances at December 31, 2004   47,404,905   $ 389,191   —       $  —       $ 211,755,546     $ (205,001,260 )   $ (428,037 )   $  —       $ 6,715,440     Exercise of common stock options for cash   24,002     192   —         —         11,635       —         —         —         11,827     Issuance of 2,900,000 shares of class A common stock for cash, net of issuance costs   2,900,000     23,200   —         —         3,768,898       —         —         —         3,792,098     Issuance of 211,714 shares of class A common stock for services   211,714     1,693   —         —         108,859       —         —         —         110,552     Compensation associated with stock option modification   —       —     —         —         4,813       —         —         —         4,813     Expense associated with common stock warrant modification   —       —     —         —         21,614       —         —         —         21,614     Issuance of restricted stock, net of cancellations   1,157,475     9,260   —         —         673,650       —         —         (682,910 )     —       Amortization of restricted stock   —       —     —         —         —         —         —         193,429       193,429     Net loss   —       —     —         —         —         (7,387,506 )     —         —         (7,387,506 )                                               Balances at December 31, 2005   51,698,096   $ 423,536   —       $  —       $ 216,345,015     $ (212,388,766 )   $ (428,037 )   $ (489,481 )   $ 3,462,267                                                  See accompanying notes to financial statements.    F-4    Table of Contents  eMERGE INTERACTIVE, INC.    Statements of Cash Flows    Years Ended December 31, 2005, 2004 and 2003                         2005     2004     2003     Cash flows from operating activities:                            Net loss    $ (7,387,506 )   $ (6,772,114 )   $ (9,726,745 )   Adjustments to reconcile net loss to net cash used in operating activities:                            Depreciation and amortization      1,246,154       1,906,570       2,454,989     (Gain) loss on disposal of assets      41,757       53,429       (4,492 )   Impairment of assets held for sale      —         21,192       —       Non-cash compensation      4,813       360,063       84,308     Amortization of unearned compensation      193,429       —         109     Issuance of common stock for services      110,552       60,000       60,300     Provision for inventory obsolescence      199,460       272,755       —       Increase (decrease) in fair value of common stock warrants      21,614       (2,796,585 )     423,840     Gain on settlement of contract      —         (305,719 )     —       Gain on sale of other assets      (100,000 )     —         —       Changes in operating assets and liabilities:                            Trade accounts receivable, net      125,358       (153,471 )     235,580     Inventories      142,278       (85,767 )     (531,636 )   Prepaid expenses and other assets      (50,196 )     213,551       112,147     Due from related parties, net      —         (5,449 )     44,895     Accounts payable and accrued liabilities      (230,783 )     (404,247 )     56,182     Advance payments from customers      (1,129,235 )     1,497,423       903,705                        Net cash used in operating activities      (6,812,305 )     (6,138,369 )     (5,886,818 )                      Cash flows from investing activities:                            Purchases of property and equipment      (240,761 )     (829,635 )     (1,161,606 )   Proceeds from sale of property, plant and equipment      45       10,810       26,498     Proceeds from sale of other assets      50,000       —         —       Collection of receivables due from related parties      —         200,000       2,259,258     Proceeds from sale of assets held for sale      —         59,239       —       Purchase of certificate of deposit      —         —         (76,080 )                      Net cash (used in) provided by investing activities      (190,716 )     (559,586 )     1,048,070                        Cash flows from financing activities:                            Net proceeds from private equity placements      3,792,098       10,204,074       1,000,000     Net proceeds from issuance of common stock      203,594       1,109,463       113,693     Payments on capital lease obligations      (4,312 )     (214,000 )     —                          Net cash provided by financing activities      3,991,380       11,099,537       1,113,693                        Net change in cash      (3,011,641 )     4,401,582       (3,725,055 )   Cash and cash equivalents, beginning of year      5,954,976       1,553,394       5,278,449                        Cash and cash equivalents, end of year    $ 2,943,335     $ 5,954,976     $ 1,553,394                        Supplemental disclosures:                            Cash paid for interest    $ 19,341     $ 26,190     $ 14,198     Non-cash investing and financing activities:                            Issuance of note receivable for sale of other assets      50,000       —         —       Capital lease for equipment      15,992       —         —       Issuance of restricted class A common stock      682,909       —         —       Due from broker for exercise of stock options      —         191,768       183,575     Return of property under capital lease      —         84,603       —       Issuance of class A common stock in connection with business combinations      —         —         100,468     Receipt of land in connection with settlement of open trade receivables      —         —         87,000      See accompanying notes to financial statements.    F-5    Table of Contents  eMERGE INTERACTIVE, INC.    NOTES TO FINANCIAL STATEMENTS    (1)    Organization and Summary of Significant Accounting Policies    (a)    Overview    eMerge Interactive, Inc. (the “Company”), a Delaware corporation, is a technology company focusing on the agricultural and meat processing industries. The Company’s technologies focus primarily on information-management and individual-animal tracking tools, as well as innovative food safety technologies.    (b)    Cash and Cash Equivalents    Cash and cash equivalents include amounts on deposit with financial institutions and investments with maturities of 90 days or less. The Company considers all highly liquid debt instruments with maturities of 90 days or less to be cash equivalents.    (c)    Trade Accounts Receivable    Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable. The Company determines the allowance based on customer specific information and historical write-off experience. The Company reviews its allowance for doubtful accounts quarterly. Past due balances over 90 days and a specified amount are reviewed individually for collectibility. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company does not have any off-balance-sheet credit exposure related to its customers.    (d)    Inventories    Inventories are stated at the lower of cost or market. Cost is primarily determined using standard costs, which approximate costs utilizing the first-in, first-out (FIFO) method. Slow product adoption, rapid technological change and new product introductions and enhancements could result in excess or obsolete inventory. The Company evaluates inventory levels and expected usage on a periodic basis, based upon business trends, to specifically identify obsolete, slow-moving and nonsalable inventory. Inventory allowances are evaluated periodically to ensure they reflect the current business environment and trends.    (e)    Property, Plant and Equipment    Property, plant and equipment are stated at cost. Equipment under capital leases is stated at the present value of future minimum lease payments. Depreciation on property, plant and equipment is calculated on the straight-line method over the estimated useful lives of the assets. Estimated useful lives range from 15 to 20 years for buildings and improvements, 3 to 5 years for computer equipment and software, 2 to 7 years for furniture, fixtures, and equipment, and 5 years for vehicles. Leasehold improvements and equipment under capital leases are amortized on a straight-line basis over the shorter of the lease term or the estimated useful life of the assets.    In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” the Company assesses the need to record impairment losses on long-lived assets when events and circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss would be recognized when future estimated undiscounted cash flows expected to result from use of the asset are less than the asset’s carrying value, with the loss measured at fair value based on discounted expected cash flows.    F-6    Table of Contents eMERGE INTERACTIVE, INC.    NOTES TO FINANCIAL STATEMENTS—(Continued)    (f)    Food Safety Systems Installed at Customers    Food safety systems installed at customers are stated at cost. Depreciation on the food safety systems is calculated on the straight-line method over the estimated useful lives of the assets, which is currently estimated at 5 years. The installation costs for these systems are capitalized and depreciated using the straight-line method over the contractual lives of the operating leases, which is currently 3 years.    (g)    Capitalized Software Costs    The Company accounts for the software components of its websites in accordance with the American Institute of Certified Public Accountants’ Statement of Position (“SOP”) 98-1, “Accounting for the Costs of Computer Software Developed or Obtained for Internal Use.” Accordingly, certain costs to develop internal-use computer software are capitalized after the Company has completed a preliminary project assessment and management, with relevant authority, commits to funding the related software project and it is probable that the project will be completed and the software will be used to perform the function intended. The costs capitalized by the Company relate principally to the Company’s internet site development and are amortized to operations over the assets’ estimated useful life of 3 years upon completion of the application development stage.    (h)    Fair Value of Financial Instruments    Cash and cash equivalents, trade accounts receivable and amounts due from related parties are financial assets with carrying values that approximate fair value. Accounts payable, accrued liabilities and short-term and long-term advance payments from customers are financial liabilities with carrying values that approximate fair value.    (i)    Accounting for Obligations and Instruments Potentially to be Settled in the Company’s Own Stock    Under Emerging Issues Task Force (“EITF”) 00-19, “Accounting for Derivative Financial Instruments Indexed To, and Potentially Settled In a Company’s Own Stock,” the initial balance sheet classification and measurement of contracts that are indexed to, and potentially settled in, the Company’s own stock are initially classified as equity if they require settlement in shares or as assets or liabilities if they require a net cash settlement.    All contracts are initially measured at fair value and subsequently accounted for based on the current classification. Contracts initially classified as equity do not recognize subsequent changes in fair value as long as the contracts continue to be classified as equity. For contracts classified as assets or liabilities, the Company reports changes in fair value in earnings and discloses these changes in the financial statements as long as the contracts remain classified as assets or liabilities. If contracts classified as assets or liabilities are ultimately settled in shares, any previously reported gains or losses on those contracts are not removed from earnings. The classification of a contract is reassessed at each balance sheet date.    (j)    Revenue Recognition    Revenues from the sale of all Animal Information Solutions (“AIS”) products and services are recognized as products are shipped or services are provided.    Revenues from the sale of hand-held VerifEYE™ Solo units and Carcass Inspection System (“CIS”) products and related services that include multiple deliverables, such as after-market supplies or services, are allocated based on the relative fair values of the individual components as determined in accordance with the revenue recognition principles of EITF 00-21, “Accounting for Revenue Arrangements with Multiple Deliverables.” Revenue allocated to each component is recognized as products are shipped or services are provided.    F-7    Table of Contents eMERGE INTERACTIVE, INC.    NOTES TO FINANCIAL STATEMENTS—(Continued)    When products are sold and the buyer is given the right to return the product, revenue from the sales transactions are recognized at the time of the sale only when all of the specified conditions of SFAS No. 48, “Revenue Recognition when Right of Return Exists” have been met. Sales revenue and cost of sales that are not recognized at the time of the sale because the specified conditions have not been met are recognized either when the return privilege has substantially expired or if those conditions are subsequently met, whichever occurs first.    Revenues from operating leases of the VerifEYE CIS are recognized on a straight-line basis over the life of the lease, once the unit is installed.    (k)    Income Taxes    Income taxes are accounted for under 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 losses and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to the taxable income in 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 the results of operations in the period that includes the enactment date. A valuation allowance is recorded to reduce the carrying amounts of deferred tax assets unless it appears more likely than not that such assets will be realized.    (l)    Stock-Based Compensation    As of December 31, 2005, the Company has two stock-based employee compensation plans. SFAS No. 123, “Accounting for Stock Based Compensation,” encourages the use of a fair-value method of accounting for stock-based awards under which the fair value of stock options is determined on the date of grant and expensed over the vesting period. As allowed by SFAS No. 123, the Company has elected to account for its stock-based compensation plans under an intrinsic value method that requires compensation expense to be recorded only if, on the date of grant, the current market price of the underlying stock exceeds the exercise price. The Company’s policy is to grant stock options at the fair market value of the underlying stock at the date of grant. Accordingly, no compensation expense has been recognized for stock options granted under the Company’s stock plans because the exercise price of all options granted was equal to or greater than the current market value of the stock on the grant date. The Company has, under certain circumstances, accelerated the vesting and extended the expiration date on options, which resulted in stock based employee compensation expense. In 2005, the Company granted restricted shares to certain officers, which are recorded as stock based compensation expense over the vesting period. See note 11—Stock Plan for additional information. If the Company had elected to adopt the fair value based recognition provisions of SFAS No. 123 for its stock option plans, net loss and net loss per share would have been changed to the pro forma amounts indicated below:                         2005     2004     2003     Net loss as reported    $ (7,387,506 )   $ (6,772,114 )   $ (9,726,745 )   Add: Stock-based employee compensation expense included in reported net loss      198,242       360,063       84,417     Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards      (1,437,318 )     (2,572,950 )     (1,667,997 )                      Pro forma net loss    $ (8,626,582 )   $ (8,985,001 )   $ (11,310,325 )                      Net loss per share as reported – basic and diluted    $ (0.15 )   $ (0.15 )   $ (0.25 )                      Pro forma net loss per share – basic and diluted    $ (0.17 )   $ (0.20 )   $ (0.29 )                       F-8    Table of Contents eMERGE INTERACTIVE, INC.    NOTES TO FINANCIAL STATEMENTS—(Continued)    As a result of the issuance of SFAS No. 123R discussed in note 1(o) below, the Company will be required, beginning in the first quarter of 2006, to expense stock compensation related to options using a fair value based method.    (m)    Net Loss Per Share    Net loss per share is computed in accordance with SFAS No. 128, “Earnings Per Share,” by dividing the net loss allocable to common stockholders by the weighted average number of shares of common stock outstanding. The incremental shares from the assumed conversion of the Company’s potential common stock, such as stock options and warrants (594,810 shares at December 31, 2005, 2,127,698 shares at December 31, 2004 and 706,255 shares at December 31, 2003) have not been used in the calculation of diluted net 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 loss per share allocable to common stockholders are equal.    (n)    Comprehensive Income (Loss)    Comprehensive income (loss) is the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. The Company had no such transactions, events or circumstances during 2005, 2004 and 2003 other than net losses. Thus, comprehensive loss is the same as net loss for 2005, 2004 and 2003.    (o)    Recent Accounting Pronouncements    In December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 123R, “Share-Based Payments,” which requires companies to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award and recognize this cost in the Company’s statements of operations over the period during which the employee is required to provide such services. Under the provisions of SFAS No. 123R, the Company expects to apply the modified prospective application of this statement with an effective date of January 1, 2006. Under the modified prospective application, SFAS No. 123R, which provides certain changes to the method for valuing stock based compensation among other changes, will apply to awards granted after the effective date and to awards that are outstanding on the effective date and are subsequently modified or cancelled. Compensation expense for outstanding awards for which the requisite service had not been rendered as of the effective date will be recognized over the remaining service period using the compensation cost calculated for pro forma disclosure purposes under SFAS No. 123. As of December 31, 2005, the Company expects to record a total expense of approximately $681,000 for the year ended December 31, 2006 from unamortized compensation expense related to stock options and restricted stock grants, as determined in accordance with SFAS No. 123R. In addition, for any new awards that may be granted during 2006, the Company may incur additional expense during the year ended December 31, 2006 that cannot yet be quantified. The Company is in the process of determining how the new method of valuing stock-based compensation as prescribed in SFAS No. 123R will be applied to valuing stock-based awards granted after the effective date and the impact that the recognition of compensation expense related to such awards will have on its financial statements.    In December 2004, the FASB issued SFAS No.151, “Inventory Costs,” which clarifies the accounting for abnormal amounts of idle facility expense, freight, handling costs and wasted material (spoilage). Under SFAS No. 151, such items will be recognized as current-period charges. In addition, SFAS No. 151 requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. SFAS no. 151 will be effective for the Company for inventory costs incurred on or after January 1, 2006. The adoption of SFAS no. 151 will not have a significant effect on the Company’s financial statements.    F-9    Table of Contents eMERGE INTERACTIVE, INC.    NOTES TO FINANCIAL STATEMENTS—(Continued)    In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections.” SFAS No. 154 establishes, unless impracticable, retrospective application as the required method for reporting a change in accounting principle in the absence of explicit transition requirements specific to a newly adopted accounting principle. SFAS No. 154 will be effective for the Company for all accounting changes and any error corrections occurring after January 1, 2006.    (p)    Use of Estimates    Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with accounting principles generally accepted in the United States of America. Actual results could differ from those estimates.    (q)    Reclassifications    Certain reclassifications have been made to the 2004 and 2003 financial statements in order to conform to 2005 classifications. The changes had no effect on previously reported net loss.    (2)    Liquidity    The Company has incurred losses and negative cash flows from operations in every year since inception and has an accumulated deficit of $212.4 million as of December 31, 2005. For the year ended December 31, 2005, the Company incurred a net loss of $7.4 million and negative cash flows from operations of $6.8 million. The Company’s objectives are to increase its revenue related to sales of both AIS products and services and Food Safety Technologies (“FST”) products and services, actively control operating costs and continue to evaluate the structure of its operations to improve cash flows for the foreseeable future. Cash and cash equivalents at December 31, 2005 are $2.9 million. In January 2006, the Company received $3.2 million from issuance of common stock and warrants and the exercise of an outstanding warrant, which will be used to support operations. Management has developed an operating plan for 2006 and believes the Company has adequate financial resources for achievement of that plan. However, if sales from the Company’s products and services do not meet expectations in 2006, the Company may need to seek additional sources of liquidity.    The Company’s common stock has been trading below $1 since March 17, 2005, and it is currently not in compliance with the minimum bid price requirement for continued listing on the Nasdaq Capital Market. The Company has been granted an extension until April 27, 2006 to regain compliance with the Nasdaq bid price requirement. If at any time before April 27, 2006, the bid price of the Company’s common stock closes at $1 per share or more for a minimum of ten consecutive business days, the Company will regain compliance. If the Company has not regained compliance by April 27, 2006, Nasdaq will provide written notification that the Company’s common stock will be delisted, at which time, the Company may appeal Nasdaq’s determination. The Company intends to appeal any such decision, which it believes will stay any such determination to delist its stock until after the annual meeting of shareholders, which is scheduled to be held on May 18, 2006.    Ultimately, non-compliance could result in Nasdaq delisting the Company’s common stock. Such delisting could have an adverse effect on the liquidity of the Company’s common stock and could also impact the Company’s ability to raise additional equity capital, if necessary.    F-10    Table of Contents eMERGE INTERACTIVE, INC.    NOTES TO FINANCIAL STATEMENTS—(Continued)    (3)    Inventories    Inventories at December 31, 2005 and 2004 consist of:                   2005    2004   Raw materials    $ 95,537    $ 325,535   Work-in-process      —        35,491   Finished goods      140,510      20,050                    $ 236,047    $ 381,076                 In both the second and fourth quarters of 2005 and 2004, the Company performed reviews of its inventory for estimated obsolescence or slow-moving inventory based upon assumptions about future demand and market conditions. As a result of these reviews, the Company recorded a reserve for obsolescence of $199,460 and $272,755, respectively, with the expense included in cost of revenue—products for the years ended December 31, 2005 and 2004.    (4)    Related Party Transactions    Through June 10, 2005, the Company leased office facilities in Sebastian, Florida from an affiliated entity, XL Realty Corp. Rent paid to XL Realty Corp. was approximately $110,000 in 2005, $257,000 in 2004 and $240,000 in 2003. Effective June 10, 2005, XL Realty Corp. sold the property to an unrelated party and there will be no additional rent paid to XL Realty Corp. XL Realty Corp. is owned by Safeguard Scientifics, Inc. (“Safeguard”), which owns 7,524,577 shares of the Company’s class A common stock, or 14.6% of the outstanding shares of the Company as of December 31, 2005.    (5)    Property, Plant and Equipment, Net    Property, plant and equipment, net at December 31, 2005 and 2004 consists of:                   2005    2004   Computer equipment and software    $ 5,512,540    $ 9,544,483   Furniture, fixtures and equipment      1,095,412      1,644,592   Leasehold improvements      371,368      371,368   Barn equipment and vehicles      10,725      10,725   Construction-in-process      758,323      892,235                      7,748,368      12,463,403   Less accumulated depreciation      6,632,951      10,107,816                Property, plant and equipment, net    $ 1,115,417    $ 2,355,587                 Construction-in-process consists of food safety systems, which will be installed at customer locations. Assets under capital lease amounted to $16,255 as of December 31, 2005. Accumulated amortization for assets under capital lease totaled $2,438 as of December 31, 2005.    F-11    Table of Contents eMERGE INTERACTIVE, INC.    NOTES TO FINANCIAL STATEMENTS—(Continued)    (6)    Food Safety Systems Installed At Customers    Food safety systems installed at customers at December 31, 2005 and 2004 consists of:                   2005    2004   VerifEYE CIS units    $ 636,033    $ 579,762   Less accumulated depreciation      165,963      122,435                Food safety systems installed at customers, net    $ 470,070    $ 457,327                 The two VerifEYE CIS units, noted above, are leased to a customer under operating lease agreements that expire in 2007 and 2008.    (7)    Leases    The Company leases certain property and equipment under various operating and capital lease arrangements that expire over the next three years. Future minimum lease payments under scheduled capital and operating leases that have initial or remaining noncancellable terms in excess of one year are as follows:                    Capitalleases     Operatingleases   2006    $ 5,697     $ 62,851   2007      6,215       —     2008      1,391       —                  Total minimum lease payments    $ 13,303     $ 62,851                   Amount representing interest      (1,623 )         Obligation under capital leases      11,680           Current installments of capital lease obligations      4,639                          Capital lease obligation, excluding current installments    $ 7,041                           Rental expense under all operating leases was approximately $293,000 in 2005, $446,000 in 2004 and $409,000 in 2003.    (8)    Advance Payments From Customers    The Company leases two VerifEYE CIS units to a customer under three year operating lease agreements. The two units under lease as of December 31, 2005, have been prepaid and the advance payment is included in advance payments from customers and recorded as revenue over the lease term on a straight-line basis.    (9)    Equity    Common Stock    The Company has authorized the issuance of 100,000,000 shares of common stock.    Class A—The Company has designated 92,711,110 shares as class A common stock. Holders of class A common stock are entitled to one vote for each share.    Class B—The Company has 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. No shares of class B common stock are outstanding as of December 31, 2005.    F-12    Table of Contents eMERGE INTERACTIVE, INC.    NOTES TO FINANCIAL STATEMENTS—(Continued)    Issuances of Common Stock    In July 2003, the Company issued 79,791 shares of class A common stock as additional consideration in compliance with the Hefley Order Buying acquisition agreement.    In September 2003 and October 2003, the Company issued an aggregate of 60,000 shares of class A common stock, with an aggregate value of $60,300, to Investor Relations International as consideration for investor relations services.    On November 20, 2003, the Company issued 1,605,136 shares of class A common stock to The Biegert Family Irrevocable Trust in a private placement transaction (the “Biegert Transaction”) for $0.623 per share, receiving proceeds of $1.0 million. In connection with the transaction, the Company issued warrants to purchase 802,568 shares of the Company’s class A common stock. The exercise price of the warrants was $0.98 per share. The $1.0 million of proceeds were allocated to the common stock and warrants based on their relative fair values. The warrants were repriced to $0.36 per share in January 2006 and were exercised.    On January 23, 2004, the Company issued 2,333,333 shares of class A common stock to a group of investors in a private placement transaction (the “Sage Transaction”) for $3.00 per share, receiving gross proceeds of $7.0 million. In connection with the transaction, the Company issued warrants to purchase 830,508 shares of the Company’s class A common stock and additional investment rights to purchase 830,508 shares of the Company’s class A common stock. The exercise price of the warrants was $3.6875 per share and the exercise price of the additional investment rights was $3.00 per share. The warrants were exercisable immediately and expire on January 23, 2009. The warrants were repriced to $1.60 per share in December 2004, repriced to $1.40 per share in January 2005 and repriced to $0.36 per share in January 2006. The additional investment rights expired unexercised on July 13, 2004. The $6.5 million of net proceeds were allocated to the common stock, warrants and additional investment rights based on their relative fair values. As part of this transaction, the Company issued warrants exercisable for 163,333 shares of the Company’s class A common stock at an exercise price of $3.73 per share to the placement agent as consideration for providing financial and advisory services.    On December 2, 2004, the Company issued 2,500,000 shares of class A common stock to a group of investors in a private placement transaction (the “HBK Transaction”) for $1.60 per share, receiving gross proceeds of $4.0 million. In connection with the transaction, the Company issued warrants to purchase 875,000 shares of the Company’s class A common stock and additional investment rights to purchase 1,250,000 shares of the Company’s class A common stock. The exercise price of the warrants was $2.00 per share and the exercise price of the additional investment rights was $1.60 per share. The warrants were exercisable at any time after the six-month anniversary of the date of issuance, or June 2, 2005, and expire on December 2, 2009. The warrants were repriced to $0.36 per share in January 2006. The additional investment rights expired unexercised on September 22, 2005, the 180th trading day after the effective date of the registration statement. The registration statement went effective on January 6, 2005. The $3.7 million of net proceeds were recorded in stockholders equity. As part of this transaction, the Company issued warrants exercisable for 150,000 shares of the Company’s class A common stock at an exercise price of $2.30 per share to the placement agent as consideration for providing financial and advisory services.    On January 27, 2005, the Company issued 2,900,000 shares of class A common stock to a group of investors in a private placement transaction (the “HBK II Transaction”) for $1.40 per share, receiving gross proceeds of $4.1 million. In connection with the transaction, the Company issued warrants to purchase 435,000 shares of the Company’s class A common stock. The exercise price of the warrants is $1.75 per share. The warrants became exercisable on July 27, 2005, and expire on January 27, 2010. The shares issued in this private placement and issuable pursuant to the warrants issued in this private placement have been registered with the SEC for resale pursuant to a registration statement, which went effective on April 6, 2005. The $3.8 million of net proceeds were recorded in stockholders’ equity.    F-13    Table of Contents eMERGE INTERACTIVE, INC.    NOTES TO FINANCIAL STATEMENTS—(Continued)    On February 1, 2005, the Company issued 25,424 shares of class A common stock to Kenneth G. Jordan as consideration for consulting services. These shares were valued at $30,000 and this expense is included in selling, general and administrative expenses in the statement of operations for the year ended December 31, 2005. These shares are restricted for one year from the date of issuance.    On March 31, 2005, the Company issued 25,000 shares of class A common stock and a warrant exercisable for 25,000 shares of the Company’s class A common stock at an exercise price of $3.00 per share to Murdock Capital Partners Corp. as consideration for investor relations services. These shares and warrants were valued at $31,000, in the aggregate, and are included in selling, general and administrative expenses in the statement of operations for the year ended December 31, 2005. The shares are restricted for one year from the date of issuance. The warrants are exercisable immediately with the underlying shares restricted for one year from the date of issuance.    In July 2005, the Company granted certain officers 1,157,475 restricted shares of the Company’s common stock in accordance with the Company’s Amended and Restated 1999 Equity Compensation Plan (the “1999 Plan”). The market value of the restricted shares was approximately $682,910 at the date of the grant and are recorded as unearned compensation, a component of shareholders’ equity. This amount is being charged to expense over the vesting period and totaled $193,429 for the year ended December 31, 2005. See note 11—Stock Plan for additional information.    On November 16, 2005, the Company issued 80,645 shares of class A common stock to each of AgriCapital Corporation and B. Riley & Co., for a total issuance of 161,290 shares, as consideration for consulting services. These shares were valued at $50,000 and this expense is included in selling, general and administrative expenses in the statement of operations for the year ended December 31, 2005. These shares are restricted for one year from the date of issuance.    (10)    Common Stock Warrants and Additional Investment Rights    As a part of the private placements, discussed in note 9, the Company issued warrants and additional investment rights and evaluated these issuances to determine the effect, if any of EITF 00-19, “Accounting for Derivative Financial Instruments Indexed To, and Potentially Settled In a Company’s Own Stock.” In accordance with EITF 00-19 a transaction which includes a potential for net-cash settlement, including liquidated damages, requires that derivative financial instruments, including warrants and additional investment rights, initially be recorded at fair value as an asset or liability and subsequent changes in fair value be reflected in the statement of operations. The registration rights agreements for both the 2003 Biegert Transaction and the 2004 Sage Transaction provided that if the registration statements for the warrants and additional investment rights did not remain effective, it was possible the Company would be required to make cash payments, as liquidated damages. In accordance with EITF 00-19, the fair values of the warrants and the additional investment rights issued in the Biegert and Sage Transactions were accounted for as a liability, and subsequent changes in their fair value are reflected in the statement of operations.    Effective December 31, 2004, the registration rights agreements for both the Biegert Transaction and the Sage Transaction were amended to clarify that the Company is not liable for liquidated damages with respect to the warrant shares. Under EITF 00-19, this amendment changed the accounting for the warrant shares, which were reclassified to additional paid in capital on December 31, 2004.    The increase in the fair value of the Biegert Transaction warrants was $94,000 and $424,000 for the years ended December 31, 2004 and 2003, respectively, and was recorded as expense and included in net (increase) decrease in fair value of common stock warrants in the statement of operations.    F-14    Table of Contents eMERGE INTERACTIVE, INC.    NOTES TO FINANCIAL STATEMENTS—(Continued)    The decrease in the fair value of the Sage Transaction warrants was $1.6 million for the year ended December 31, 2004, and was recorded as income and included in net (increase) decrease in fair value of common stock warrants in the statement of operations.    The decrease in the fair value of the Sage Transaction additional investment rights was $1.3 million for the year ended December 31, 2004, and was recorded as income and included in net (increase) decrease in fair value of common stock warrants in the statement of operations.    Upon completion of both the HBK Transaction and the HBK II Transaction, the warrants issued in the Sage Transaction were re-priced to reflect the price per share of the stock issued in these transactions. The effect of the re-pricing on December 2, 2004 is included in the change in fair value of these warrants for the year ended December 31, 2004. The effect of the re-pricing on January 27, 2005 from $1.60 per share to $1.40 per share is $22,000 and is recorded as expense and included in net (increase) decrease in fair value of common stock warrants in the statement of operations for the year ended December 31, 2005.    (11)    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 1996 Plan authorizes grants of shares or options to purchase up to 2,168,750 shares of authorized but unissued common stock. Awards granted under the 1996 Plan have a maximum term of ten years and vesting schedules are determined at the discretion of the Compensation Committee of the Board of Directors on the effective date of grant. In May 1999, the 1996 Plan was terminated with respect to the issuance of new grants.    In May 1999, the Company’s stockholders approved the 1999 Plan, which reserved 2,500,000 shares of authorized, unissued shares of common stock for issuance to employees, advisors, and non-exempt members of the Board of Directors. Awards granted under the 1999 Plan have a maximum term of ten years and vesting schedules are determined at the discretion of the Compensation Committee on the effective date of grant.    In July 2000, the Company’s stockholders approved an amendment to the 1999 Plan to increase the number of shares available for grant to 4,000,000 shares. In May 2002, the Company’s stockholders approved a second amendment to the 1999 Plan to increase the number of shares available for grant to 6,000,000 shares. In May 2005, the Company’s stockholders approved a third amendment to the 1999 Plan to increase the number of shares available for grant to 9,000,000 shares.    F-15    Table of Contents eMERGE INTERACTIVE, INC.    NOTES TO FINANCIAL STATEMENTS—(Continued)    A summary of stock option and restricted stock transactions for the years ended December 31, 2005, 2004 and 2003 follows:                              2005   2004   2003       Number of Shares     Weightedaverageexerciseprice    Number of Shares     Weightedaverageexerciseprice   NumberofShares     Weightedaverageexerciseprice   Stock options:                                       Options outstanding at beginning of year   4,576,919     $ 2.10   5,414,771     $ 2.07   4,728,776     $ 2.48   Granted during the year   1,246,500       0.99   1,499,369       2.23   1,561,717       0.62   Exercised   (24,002 )     0.49   (1,575,501 )(1)     0.83   (373,107 )     0.80   Cancelled   (619,076 )     2.80   (761,720 )     5.18   (502,615 )     2.31                              Options outstanding at end of year   5,180,341     $ 1.75   4,576,919     $ 2.10   5,414,771     $ 2.07                                    Options exercisable at end of year   3,595,389     $ 1.97   2,620,350     $ 2.62   2,929,960     $ 2.77                                    Restricted awards:                                       Awarded and restricted at beginning of year   —             —             —             Awarded during the year   1,157,475           —             —             Vested   —             —             —             Cancelled   —             —             —                                              Awarded and restricted at end of year   1,157,475           —             —                                              Total   6,337,816           4,576,919           5,414,771                                             (1)   Includes 91,499 stock options afforded accelerated vesting after December 31, 2003 per the terms of the separation agreement with an officer of the Company. These shares were originally included in shares cancelled in 2003.    As of December 31, 2005, the range of exercise prices and weighted-average remaining contractual lives of outstanding options was as follows:                         Outstanding    Exercisable   Exercise Price Range    Number ofOptions    RemainingLife(in years)    AverageExercisePrice    Number ofOptions    AverageExercisePrice   $0.33 – $  0.39    552,750    7.08    $ 0.3862    395,250    $ 0.3874   $0.41 – $  0.56    433,750    8.59    $ 0.5172    187,500    $ 0.5023   $0.58 – $  0.58    603,000    6.41    $ 0.5800    603,000    $ 0.5800   $0.60 – $  0.89    590,320    6.08    $ 0.8245    511,187    $ 0.8495   $0.89 – $  1.16    859,375    9.04    $ 1.1453    242,750    $ 1.1219   $1.16 – $  1.41    280,749    8.00    $ 1.3756    267,749    $ 1.3795   $1.41 – $  1.44    530,000    5.80    $ 1.4400    507,500    $ 1.4400   $1.44 – $  1.91    694,084    8.13    $ 1.8519    370,140    $ 1.8310   $1.91 – $  4.41    447,125    7.05    $ 3.2976    321,125    $ 3.4420   $4.41 – $62.38    189,188    4.73    $ 15.3727    189,188    $ 15.3727                                5,180,341    7.31    $ 1.7520    3,595,389    $ 1.9734                             As of December 31, 2005 and 2004, there were 1,678,733 and 482,382 shares available for grant, respectively.    F-16    Table of Contents eMERGE INTERACTIVE, INC.    NOTES TO FINANCIAL STATEMENTS—(Continued)    The weighted average fair value of stock options, calculated on the date of grant using the Black-Scholes option-pricing model, was $0.74 in 2005, $1.93 in 2004 and $0.51 in 2003. The following weighted average assumptions were used to determine fair value:                      2005     2004     2003     Expected volatility    98.3 %   129.1 %   118.0 %   Dividend yield    0 %   0 %   0 %   Risk-free interest rate    3.91 %   3.38 %   3.00 %   Expected life in years    5.00     5.00     4.95      All stock options granted, except as noted in the paragraphs below, have been granted to directors or employees with an exercise price equal to the fair value of the common stock at the grant date.    In July 2005, the Company granted certain officers an aggregate of 1,157,475 restricted shares of the Company’s common stock in accordance with the 1999 Plan. The shares vest as of the earlier of (1) January 29, 2007, (2) the date of a Reorganization or Change of Control (as such terms are defined in the 1999 Plan) or (3) the termination of the executive’s employment on account of death or disability. Upon the termination of the executive’s employment for any reason other than death or disability, all restricted shares that are not then vested will be forfeited. The market value of the restricted shares was $682,910 at the date of the grant and was recorded as unearned compensation, a component of stockholders’ equity. This amount is being charged to expense over the vesting period and totaled $193,429 for the year ended December 31, 2005.    In July 2005, the Company granted 40,000 stock options, to employees, with an exercise price of $0.60 and a fair value of $0.59. No expense was recorded as these options were issued at an exercise price greater than market value on date of issue.    In June 2005, the Company accelerated the vesting of 7,450 stock options and extended the expiration date of 258,650 stock options for six months, recognizing expense of $4,813. This amount is included in technology and development expenses in the statement of operations.    In May 2004, as part of the compensation package of the Company’s newly appointed Chief Financial Officer and Executive Vice President of Sales and Marketing, the Board of Directors approved the issuance of 200,000 options to purchase class A common stock at an exercise price of $1.84 to the Chief Financial Officer and 150,000 options to purchase class A common stock at an exercise price of $1.65 to the Executive Vice President of Sales and Marketing. In November 2004, the Executive Vice President of Sales and Marketing resigned and these options expired without vesting. Due to the limited number of options remaining in the 1999 Plan at the time of issuance, these options were not issued from the 1999 Plan, but are subject to the same terms and conditions as the 1999 Plan.    In January 2004, the Company accelerated the vesting of 91,499 stock options and extended the expiration date of 295,500 stock options for one year, recognizing expense of $112,523. This amount was included in selling, general and administrative expenses in the statement of operations. In June 2004, the Company accelerated the vesting of 156,250 stock options and extended the expiration date of 523,000 stock options for two years, recognizing expense of $247,540. This amount was included in selling, general and administrative expenses in the statement of operations.    In June 2003, the Company extended the expiration date of 547,643 stock options for one year, with a 60-day exercise restriction and recognized expense of $84,308 in 2003. This amount is included in selling, general and administrative expenses in the statement of operations.    F-17    Table of Contents eMERGE INTERACTIVE, INC.    NOTES TO FINANCIAL STATEMENTS—(Continued)    In March 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 grant date and amortized the unearned compensation to earnings over the vesting period. Compensation expense related to the grant of these options totaled $109 in 2003, and is included in selling, general and administrative expenses in the statements of operations.    (12)    Segment Information    The Company’s reportable segments consist of AIS products and services and FST products and services. AIS consists of animal tracking, data management and supply procurement services. FST consists of the VerifEYE inspection systems.    The following summarizes revenue, cost of revenue and gross profit information related to the Company’s two operating segments:                      Years Ended December 31,       2005    2004    2003   Revenue:                        Animal information solutions    $ 526,621    $ 369,130    $ 313,697   Food safety technologies      1,347,833      786,889      613,141                     Total revenue      1,874,454      1,156,019      926,838                     Cost of revenue:                        Animal information solutions      219,041      104,299      55,277   Food safety technologies(1)      781,664      535,685      266,387                     Total cost of revenue      1,000,705      639,984      321,664                     Gross Profit:                        Animal information solutions      307,580      264,831      258,420   Food safety technologies      566,169      251,204      346,754                     Gross profit    $ 873,749    $ 516,035    $ 605,174                      (1)   Cost of revenue for FST includes $199,460 and $272,755 in provision for obsolete inventory for the years ended December 31, 2005 and 2004, respectively. Without this provision, the cost of revenue and gross profit would be $582,204 and $765,629, respectively, for the year ended December 31, 2005 and $262,930 and $523,959, respectively, for the year ended December 31, 2004.    The Company’s assets and other statement of operations data are not allocated to a segment. During the year ended December 31, 2005, approximately 67% of total revenues were from one FST customer. During the year ended December 31, 2004, approximately 53% of total revenues were from one FST customer. During the year ended December 31, 2003, approximately 25% of total revenues were from one FST customer.    (13)    Income Taxes    Deferred tax assets and liabilities have been determined based upon the differences between the financial statement amounts and the tax bases of assets and liabilities as measured by enacted tax rates expected to be in effect when these differences are expected to reverse. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the realization of future taxable income during the periods in which those temporary differences become deductible. Management considers past     F-18    Table of Contents eMERGE INTERACTIVE, INC.    NOTES TO FINANCIAL STATEMENTS—(Continued)     history, the scheduled reversal of taxable temporary differences, projected future taxable income, and tax planning strategies in making this assessment. As of December 31, 2005 and 2004, management believes it is more likely than not that the Company’s net deferred tax asset will not be realized and accordingly has recorded a valuation allowance against the deferred tax assets.    Significant components of the Company’s deferred income tax assets are as follows:                     2005     2004     Deferred tax assets:                    Net operating loss carryforwards    $ 79,413,000     $ 77,128,000     Research and experimentation tax credit carryforwards      1,986,000       1,850,000     Deferred revenue      1,353,000       1,197,000     Other      171,000       225,000                         82,923,000       80,400,000     Valuation allowance      (82,923,000 )     (80,400,000 )                 Net deferred tax assets    $ —       $ —                      The Company has available as of December 31, 2005 for federal income tax purposes, unused net operating loss carryforwards of approximately $211.0 million, which may be applied against future taxable income and will expire in years beginning in 2012. The Company also has approximately $2.0 million in research and experimentation tax credits carryforwards. The research and experimentation credits, which begin to expire in 2012, can also be used to offset future regular tax liabilities. Utilization of net operating losses and tax credit carryforwards may be limited in the event of an ownership change under Section 382 of the Internal Revenue Code.    The difference between the “expected” tax benefit (computed by applying the federal corporate income tax rate of 34 percent to the loss before income taxes) and the actual tax benefit is primarily due to the effect of the valuation allowance.    (14)    Commitments and Contingencies    Legal Proceedings    The Company is 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 the Company and co-defendant 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. Management believes the case to be without merit and intends to defend it vigorously.    The Company is involved in various other claims and legal actions arising in the ordinary course of business. While the outcome of legal actions cannot be predicted with certainty, management believes that the ultimate disposition of these matters will not have a material adverse effect on the Company’s financial position, results of operations or liquidity.    (15)    Subsequent Events    On January 27, 2006, the Company received $2.9 million in gross proceeds from a private equity placement with an investor of 8,000,000 shares of its class A common stock at $0.36 per share and warrants exercisable for     F-19    Table of Contents eMERGE INTERACTIVE, INC.    NOTES TO FINANCIAL STATEMENTS—(Continued)     5,000,000 shares of its class A common stock at an exercise price of $0.45 per share. In addition, the investor exercised an existing warrant to purchase 802,568 shares of class A common stock at an exercise price of $0.36 per share for additional gross proceeds of $288,924. As part of this transaction, the Company also issued warrants exercisable for 400,000 shares of class A common stock at an exercise price of $0.36 per share to the placement agent as partial consideration for providing financial and advisory services.    Effective March 7, 2006, the Company completed a review of its current products under development, including the HandScan, CIS II and the cameraless version of VerifEYE products. Based on additional market research and the anticipated costs required to successfully bring these products to market, as well as the Company’s determination that it is necessary to implement additional cost cutting measures for 2006, the development of these VerifEYE derivative products has been halted. As a result of this decision to halt development, the Company reduced its workforce by ten. These associates will be provided with severance packages, resulting in a charge of approximately $195,000 in the first quarter of 2006.    F-20    Table of Contents  Schedule IX  Valuation and Qualifying Accounts                      Description    Balance as ofDecember 31,2004    Charged tocosts andexpenses    Deductions–Describe     Balance as ofDecember 31,2005   Allowance for doubtful accounts related to trade accounts receivable    $ 360,362    $ —      $ (259,531 )(a)   $ 100,831   Allowance for doubtful accounts related to cattle deposits    $ 346,792    $ —      $ —       $ 346,792   Valuation allowance related to deferred tax assets    $ 80,400,000    $ 2,523,000    $ —       $ 82,923,000         Description    Balance as ofDecember 31,2003    Charged tocosts andexpenses    Deductions–Describe     Balance as ofDecember 31,2004   Allowance for doubtful accounts related to trade accounts receivable    $ 371,876    $ —      $ (11,514 )(b)   $ 360,362   Allowance for doubtful accounts related to cattle deposits    $ 496,028    $ —      $ (149,236 )(c)   $ 346,792   Valuation allowance related to deferred tax assets    $ 76,450,000    $ 3,950,000    $ —       $ 80,400,000         Description    Balance as ofDecember 31,2002    Charged tocosts andexpenses    Deductions–Describe     Balance as ofDecember 31,2003   Allowance for doubtful accounts related to trade accounts receivable    $ 929,299    $ —      $ (557,423 )(a)   $ 371,876   Allowance for doubtful accounts related to cattle deposits    $ 576,493    $ —      $ (80,465 )(a)   $ 496,028   Valuation allowance related to deferred tax assets    $ 68,146,000    $ 8,304,000    $ —       $ 76,450,000    (a)   Payment of $24,610 was received against this balance and the remaining $234,921 was determined to be uncollectible and was written off.    (b)   Receivable balances were determined to be uncollectible and were written off.    (c)   Payment of $95,236 was received against this balance and the remaining $54,000 was determined to be uncollectible and was written off.    F-21      EX-23.1 2 dex231.htm CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM   Consent of Independent Registered Public Accounting Firm   Exhibit 23.1    Consent of Independent Registered Public Accounting Firm    The Board of Directors  eMerge Interactive, Inc.:    We consent to the incorporation by reference in the registration statements on Form S-3 (No. 333-123618, 333-121589, 333-113082 and 333-111446) and on Form S-8 (Nos. 333-127186, 333-39896 and 333-60382) of eMerge Interactive, Inc. of our report dated February 3, 2006, with respect to the balance sheets of eMerge Interactive, Inc. as of December 31, 2005 and 2004, and the related statements of operations, stockholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2005, and the related financial statement schedules, which report appears in the December 31, 2005, annual report on Form 10-K of eMerge Interactive, Inc.    /s/    KPMG LLP    March 27, 2006  Orlando, Florida  Certified Public Accountants      EX-31.1 3 dex311.htm CERT-CEO   Cert-CEO   Exhibit 31.1    CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002    I, David C. Warren, certify that:    1.   I have reviewed this annual report on Form 10-K of eMerge Interactive, Inc.;    2.   Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;    3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;    4.   The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:    a.   designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;    b.   (paragraph omitted pursuant to SEC Release Nos. 33-8238 and 34-47986);    c.   evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and    d.   disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and    5.   The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):    a.   all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and    b.   any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.         /s/    DAVID C. WARREN          David C. Warren  President, Chief Executive Officer and Director  (Principal Executive Officer)  March 27, 2006      EX-31.2 4 dex312.htm CERT -CFO   Cert -CFO   Exhibit 31.2    CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002    I, Robert E. Drury, certify that:    1.   I have reviewed this annual report on Form 10-K of eMerge Interactive, Inc.;    2.   Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;    3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;    4.   The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:    a.   designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;    b.   (paragraph omitted pursuant to SEC Release Nos. 33-8238 and 34-47986);    c.   evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and    d.   disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and    5.   The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):    a.   all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and    b.   any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.         /s/    ROBERT E. DRURY          Robert E. Drury  Executive Vice President and Chief Financial Officer  (Principal Financial and Accounting Officer)  March 27, 2006      EX-32.1 5 dex321.htm CERT-SECTION 906-CEO   Cert-section 906-CEO   Exhibit 32.1    Certification by David C. Warren Pursuant to 18 U.S.C. Section 1350, as Adopted  Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002    In connection with the filing of the Annual Report on Form 10-K for the Year Ended December 31, 2005 (the “Report”) by eMerge Interactive, Inc. (“Registrant”), the undersigned hereby certifies that:    1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and    2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Registrant.         /s/    DAVID C. WARREN          David C. Warren  President, Chief Executive Officer and Director  (Principal Executive Officer)  March 27, 2006      EX-32.2 6 dex322.htm CERT-SECTION 906-CFO   Cert-section 906-CFO   Exhibit 32.2    Certification by Robert E. Drury Pursuant to 18 U.S.C. Section 1350, as Adopted  Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002    In connection with the filing of the Annual Report on Form 10-K for the Year Ended December 31, 2005 (the “Report”) by eMerge Interactive, Inc. (“Registrant”), the undersigned hereby certifies that:    1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and    2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Registrant.         /s/    ROBERT E. DRURY          Robert E. Drury  Executive Vice President and Chief Financial Officer  (Principal Financial and Accounting Officer)  March 27, 2006      -----END PRIVACY-ENHANCED MESSAGE-----