Applied Digital Reports Fourth Quarter and 2005 Year End Financial Results; Sequential Quarterly Revenue Increases 24% to $34.6 Million; VeriChip Corporation Achieves Record Revenue of $6.8 Million for the Quarter.DELRAY BEACH Delray Beach, resort city (1990 pop. 47,181), Palm Beach co., SE Fla., on the Atlantic coast; settled 1895, inc. 1911. Mostly residential, Delray Beach is also the trade center for a citrus-fruit and vegetable-growing region. , Fla. -- Fourth Quarter Operating Margins Operating Margin A ratio used to measure a company's pricing strategy and operating efficiency. Calculated by: Increase to 38.4% from 31.3% in 2004 Applied Digital (Nasdaq:ADSX ADSX Applied Digital Solutions, Inc. (stock symbol) ), a leading provider of identification and security technology, today reported financial results for the fourth quarter of 2005 and year ended December December: see month. 31, 2005. The Company's consolidated financial results include the financial position, operating results and cash flows of its majority-owned subsidiaries majority-owned subsidiary A firm in which more than 50% of outstanding voting stock is owned by the parent company. , Digital Angel Corporation (AMEX AMEX See: American Stock Exchange :DOC See doc file and docs. 1. Doc - Directed Oc 2. doc - /dok/ Common spoken and written shorthand for "documentation". Often used in the plural "docs" and in the construction "doc file" (i.e. documentation available on-line). ) and InfoTech USA, Inc. (OTC OTC See: Over-the-counter. OTC See over-the-counter market (OTC). :IFTH IFTH Institut Français Textile-Habillement (French Textile and Apparel Institute) ). Revenue for the fourth quarter of 2005 was $34.6 million, compared to $27.8 million in the third quarter of 2005 and $31.4 million in the fourth quarter of 2004. The Company generated revenue growth at VeriChip Corporation VeriChip Corporation, a wholly owned subsidiary of Applied Digital (Nasdaq: ADSX), markets a line of Radio Frequency Identification (RFID) Devices (including VeriChip) used in security, financial, emergency identification, and other applications. , where revenue increased to $6.8 million in the fourth quarter of 2005 compared with $6.1 million in the third quarter of 2005 and approximately $68,000 in the fourth quarter of 2004. VeriChip's revenue increase is attributable attributable emanating from or pertaining to attribute. attributable proportion see attributable risk (below). attributable risk in large part to two acquisitions during 2005. Digital Angel Corporation also reported near record revenue of $14.8 million for the fourth quarter of 2005, compared to $13.8 million in the third quarter of 2005 and $14.3 million in the fourth quarter of 2004. Revenue for the year ended December 31, 2005 was $113.7 million compared to revenue of $112.0 million for the year ended December 31, 2004. Digital Angel's revenue for the year ended December 31, 2005 was $56.8 million, a 23% increase over the $46.3 million reported for 2004, while VeriChip's revenue increased to $15.9 million for the year ended December 31, 2005 compared to $0.2 million for 2004. Gross profit increased 35% to approximately $13.3 million in the fourth quarter of 2005 compared to approximately $9.8 million in the fourth quarter of 2004, and gross profit margins Gross profit margin Gross profit divided by sales, which is equal to each sales dollar left over after paying for the cost of goods sold. gross profit margin A measure calculated by dividing gross profit by net sales. increased to 38.4% in the fourth quarter of 2005 compared to gross profit margins of 31.3% in the fourth quarter of 2004. Gross profit increased 37% to approximately $44.8 million for the year ended December 31, 2005 compared to approximately $32.8 million in 2004, and gross profit margins increased to 39.4% in 2005 compared to gross profit margins of 29.3% in 2004. Gross margin in both the fourth quarter and year ended December 31, 2005 significantly improved primarily as a result of a more favorable fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. mix of business (due primarily to sales of higher margin products from VeriChip Corporation). VeriChip A tamper-proof identification device from VeriChip Corporation (Division of Applied Digital Solutions), Delray Beach, FL (www.adsx.com) that is implanted under the skin of a person for medical or security purposes. Corporation's gross profit margins were approximately 59% for the year ended December 31, 2005. The loss from continuing operations continuing operations Parts of a business that are expected to be maintained as an ongoing segment of an overall business operation. Income and losses from continuing operations are reported separately if any segments have been discontinued during the for the fourth quarter of 2005 was approximately $7.8 million, or $0.12 per share, compared to a loss from continuing operations of $13.2 million, or $0.24 per share, for the fourth quarter of 2004. Included in the loss from continuing operations for the fourth quarter of 2005 was an impairment Impairment 1. A reduction in a company's stated capital. 2. The total capital that is less than the par value of the company's capital stock. Notes: 1. This is usually reduced because of poorly estimated losses or gains. 2. charge of approximately $3.9 million (excluding $3.2 million of the charge attributable to the non Applied Digital stock holders of Digital Angel) for goodwill and other intangible assets Intangible Asset An asset that is not physical in nature. Notes: Examples are things like copyrights, patents, intellectual property, and goodwill. These are the opposite of tangible assets. associated with Digital Angel's OuterLink subsidiary, $0.9 million of non-cash compensation expense associated with options granted to consultants, and approximately $0.5 million of accounting fees incurred in connection with preparing separate financial statements for VeriChip as a result of its contemplated initial public offering. Included in the results from continuing operations for the fourth quarter of 2004 was a loss of $8.9 million attributable primarily to the decrease in the Company's ownership percentage of Digital Angel during the period, and non-cash interest expense of approximately $2.2 million as a result of the quarter-to-quarter revaluation Revaluation A calculated adjustment to a country's official exchange rate relative to a chosen baseline. The baseline can be anything from wage rates to the price of gold to a foreign currency. In a fixed exchange rate regime, only a decision by a country's government (i.e. of certain of the Company's warrants. These warrants were issued to certain investors in connection with the repayment of IBM (International Business Machines Corporation, Armonk, NY, www.ibm.com) The world's largest computer company. IBM's product lines include the S/390 mainframes (zSeries), AS/400 midrange business systems (iSeries), RS/6000 workstations and servers (pSeries), Intel-based servers (xSeries) Credit, the Company's former lender. As a result of the warrants being exchangeable into shares of the Digital Angel common stock owned by the Company, the value of the warrants is required to be treated as liability on the Company's balance sheet and the liability is required to be re-valued at each reporting period. Fluctuations in the market price of Digital Angel's common stock result in increases/decreases in the value of the warrant liability, which are reflected in the Company's operating results as increases/reductions in interest expense. The warrants vested vested adj. referring to having an absolute right or title, when previously the holder of the right or title only had an expectation. Examples: after 20 years of employment Larry Loyal's pension rights are now vested. (See: vest, vested remainder) on June June: see month. 30, 2003 and expire expire /ex·pire/ (ek-spi´er) 1. to exhale. 2. to die. ex·pire v. 1. To breathe one's last breath; die. 2. To exhale. on June 30, 2007. Partially offsetting this charge in the fourth quarter of 2004 was approximately $0.8 million in income from the partial exercise of these warrants. Excluding these items, the loss from continuing operations for the fourth quarter of 2005 was $2.5 million compared to a loss from continuing operations of $2.9 million in the 2004 fourth fiscal quarter. The loss from continuing operations for the year ended December 31, 2005 was approximately $10.3 million. The loss from continuing operations available to common stockholders (after the deduction deduction, in logic, form of inference such that the conclusion must be true if the premises are true. For example, if we know that all men have two legs and that John is a man, it is then logical to deduce that John has two legs. of preferred stock Stock shares that have preferential rights to dividends or to amounts distributable on liquidation, or to both, ahead of common shareholders. Preferred stock is given preference over common stock. Holders of preferred stock receive dividends at a fixed annual rate. dividends and accretion The act of adding portions of soil to the soil already in possession of the owner by gradual deposition through the operation of natural causes. The growth of the value of a particular item given to a person as a specific bequest under the provisions of a will between the of preferred stock beneficial conversion feature of $2.1 million), was $12.4 million, compared to a loss available to common stockholders of $18.8 million for the year ended December 31, 2004. The loss per share was $0.20 and $0.37 for the year ended December 31, 2005 and 2004, respectively. The Company's preferred stock was fully converted during the third quarter of 2005. Included in these results for the year ended December 31, 2005 was an impairment charge of $3.9 million (excluding $3.2 million of the charge attributable to the non Applied Digital stockholders of Digital Angel), $1.1 million of non-cash compensation expense, $0.5 million of accounting fees and an interest reduction of approximately $3.2 million as a result of the revaluation of the warrants, all of which is discussed above. Also included in the results for the year ended December 31, 2005 was income of $1.0 million attributable primarily to the increase in the Company's ownership percentage of Digital Angel during 2005 as compared to an expense of $9.1 million in 2004 due primarily to a decrease in the Company's ownership percentage during 2004. Also, included in the loss for the year ended December 31, 2004 was $0.9 million of expense associated with the revaluation of the warrants discussed above. Excluding these items, the loss from continuing operations for fiscal 2005 was $9.0 million compared to a loss from continuing operations of $8.8 million for 2004. The Company ended fiscal 2005 with cash and cash equivalents of $22.4 million. Some of the highlights of the fourth quarter and year-to-date Year-to-date (YTD) The period beginning at the start of the calendar year up to the current date. 2006 included: --Filing of VeriChip's IPO (Initial Public Offering) The first time a company offers shares of stock to the public. While not a computer term per se, many founders, employees and insiders of computer companies have found this acronym more exciting than any tech term they ever heard. Registration Statement. On December 29, 2005, VeriChip filed it registration statement on Form S-1 with the Securities and Exchange Commission for its planned initial public offering. --Securing a $12 million non-convertible debt financing Debt Financing When a firm raises money for working capital or capital expenditures by selling bonds, bills, or notes to individual and/or institutional investors. In return for lending the money, the individuals or institutions become creditors and receive a promise to repay . In December 2005, the Company entered into a $12 million non-convertible more traditional debt facility. With an improved balance sheet and with progress the Company has made in other areas, it has obtained this traditional debt facility and repaid approximately $5.4 million in potentially convertible debt. The proceeds of this debt financing will provide additional working capital for the continued growth of Applied Digital, including the development of additional technologies, VeriChip Corporation and certain of the Company's other subsidiaries. --Increasing international distribution of VeriChip's Products. VeriChip entered into a distribution agreement with Ingersoll Rand Ingersoll Rand (NYSE: IR) is a diversified industrial firm founded in 1871. The Ingersoll Rand name came into use in 1905 through the combination of Ingersoll-Sargeant Drill Company and Rand Drill Company. Security Technologies, a sector of Ingersoll-Rand Company Limited. Under the terms of the agreement, Ingersoll Rand Security Technologies has the non-exclusive right to promote, sell, install and maintain certain of VeriChip's infant protection, wander prevention and asset tracking products, as well as the related Auto-ID platform and application development interface, in healthcare, commercial and industrial markets in North and South America South America, fourth largest continent (1991 est. pop. 299,150,000), c.6,880,000 sq mi (17,819,000 sq km), the southern of the two continents of the Western Hemisphere. , including the Caribbean and Hawaii Hawaii, island, United States Hawaii, island (1990 pop. 120,217), 4,037 sq mi (10,456 sq km), largest and southernmost island of the state of Hawaii and coextensive with Hawaii co.; known as the Big Island. . --Shipping the first Hugs HUGS - Haskell User's Gofer System (R) in United Kingdom. On October October: see month. 19, 2005, VeriChip shipped its first Hugs(R) infant protection system for use in the United Kingdom. The sale and installation of the Hugs system is being coordinated by VeriChip's international distributor, Australia-based Austco Communication Systems Pty, Ltd. --Continuing the adoption of the VeriMed System. 9 new hospitals and medical facilities nationwide agreed to adopt the VeriMed(TM) System for patient identification in the fourth quarter, bringing the total to 80. Substantially all of these facilities are in the implementation stage. --Growing sales of electronic RFID (Radio Frequency IDentification) A data collection technology that uses electronic tags for storing data. The tag, also known as an "electronic label," "transponder" or "code plate," is made up of an RFID chip attached to an antenna. sales at Digital Angel subsidiary. Sales of electronic RFID (radiofrequency identification) livestock livestock Farm animals, with the exception of poultry. In Western countries the category encompasses primarily cattle, sheep, pigs, goats, horses, donkeys, and mules; other animals (e.g., buffalo, oxen, or camels) may predominate in other areas. tags in 2005, which totaled 1.9 million, increased 73% over total sales in 2004. As previously stated, VeriChip has filed a registration statement in connection with its proposed initial public offering. VeriChip's results are consolidated with the results of the Company. Therefore, any changes to VeriChip's financial results in connection with the S-1 filing process could result in changes to the financial reporting of the Company, which changes may be material. Among other things, VeriChip has granted stock options with exercise prices based upon valuations of the fair value of VeriChip's common stock on the dates of grant. While the Company and VeriChip believe that the valuations are correct, as part of the S-1 process VeriChip may be required to modify such valuations, which would result in a charge. Any such charge would also be required to be reflected in the Company's financial statements and, as such, the results reported in this press release may change. The Company's executives will host a conference call to discuss these results. This conference call will take place at 4:30 p.m. today. Scott R. Silverman Silverman is the surname of:
Michael (mī`kəl) [Heb.,=who is like God?], archangel prominent in Christian, Jewish, and Muslim traditions. In the Bible and early Jewish literature, Michael is one of the angels of God's presence. Krawitz, Executive Vice President and General Counsel and Evan McKeown McKeown is a surname. People
About Applied Digital -- "The Power of Identification Technology" Applied Digital develops innovative identification and security products for consumer, commercial, and government sectors worldwide. The Company's unique and often proprietary products provide identification and security systems for people, animals, the food supply, government/military arena, and commercial assets. Included in this diversified diversified (di·verˑ·s product line are RFID applications, end-to-end end-to-end a pattern of anastomosis in which severed ends are matched and united, in contrast with other patterns such as end-to-side or side-to-side. Usually applied to anastomosis of the intestine. food safety systems, GPS/Satellite communications, and telecomm See telecommunications. and security infrastructure, positioning Applied Digital as the leader in identification technology. Applied Digital is the owner of a majority position in Digital Angel Corporation (AMEX:DOC). Statements about the Company's future expectations, including future revenues and earnings, and all other statements in this press release other than historical facts are "forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. " within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934, and as that term is defined in the Private Litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute. When a person begins a civil lawsuit, the person enters into a process called litigation. Reform Act of 1995. Such forward-looking statements involve risks and uncertainties and are subject to change at any time, and the Company's actual results could differ materially from expected results. The Company undertakes no obligation to update forward-looking statements to reflect subsequently occurring events or circumstances CIRCUMSTANCES, evidence. The particulars which accompany a fact. 2. The facts proved are either possible or impossible, ordinary and probable, or extraordinary and improbable, recent or ancient; they may have happened near us, or afar off; they are public or .
APPLIED DIGITAL SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET DATA
(In thousands, except par value)
ASSETS December 31,
--------------------------
2005 2004
------------ ------------
CURRENT ASSETS (Unaudited)
Cash and cash equivalents $ 22,417 $ 30,839
Restricted cash 310 327
Accounts receivable and unbilled
receivables (net of allowance for
doubtful accounts of $879 in 2005 and
$810 in 2004) 26,236 16,553
Inventories 12,317 8,115
Other current assets 3,654 2,858
------------------------------------------ ------------ ------------
TOTAL CURRENT ASSETS 64,934 58,692
PROPERTY AND EQUIPMENT, NET 11,120 7,864
GOODWILL, NET 86,231 68,194
INTANGIBLES, NET 21,568 4,011
OTHER ASSETS 2,135 1,427
------------------------------------------ ------------ ------------
$ 185,988 $ 140,188
========================================== ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable and current maturities of
long-term debt $ 3,645 $ 2,044
Accounts payable 12,465 9,318
Accrued expenses 25,076 20,811
Net liabilities of discontinued
operations 5,499 5,495
------------------------------------------ ------------ ------------
TOTAL CURRENT LIABILITIES 46,685 37,668
LONG-TERM DEBT AND NOTES PAYABLE 15,692 2,288
OTHER LONG-TERM LIABILITIES 7,303 5,075
------------------------------------------ ------------ ------------
TOTAL LIABILITIES 69,680 45,031
------------------------------------------ ------------ ------------
COMMITMENTS AND CONTINGENCIES
----------------------------------------------------------------------
MINORITY INTEREST 49,762 54,313
------------------------------------------ ------------ ------------
STOCKHOLDERS' EQUITY
Preferred shares: Authorized 5,000 shares
in 2005 and 2004 of $10 par value;
special voting, no shares issued or
outstanding in 2005 and 2004, Class B
voting, no shares issued or outstanding
in 2005 and 2004 -- --
Common shares: Authorized 125,000 shares
in 2005 and 2004, of $.01 par value;
67,139 shares issued and 67,039 shares
outstanding in 2005 and 56,541 shares
issued and 56,441 shares outstanding in
2004 671 565
Additional paid-in-capital 506,168 471,271
Accumulated deficit (441,387) (431,222)
Common stock warrants 3,593 2,882
Treasury stock (carried at cost, 100
shares in 2005 and 2004) (1,777) (1,777)
Accumulated other comprehensive (loss)
income (122) 402
Notes received for shares issued (600) (1,277)
------------------------------------------ ------------ ------------
TOTAL STOCKHOLDERS' EQUITY 66,546 40,844
------------------------------------------ ------------ ------------
$ 185,988 $ 140,188
========================================== ============ ============
APPLIED DIGITAL SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS DATA
(In thousands, except per share data)
For the years ended December 31,
--------------------------------
2005 2004 2003
---------- --------- ---------
(Unaudited)
--------------------------------
PRODUCT REVENUE $ 97,669 $ 96,755 $ 77,774
SERVICE REVENUE 16,068 15,244 15,213
------------------------------------ ---------- --------- ---------
TOTAL REVENUE 113,737 111,999 92,987
COST OF PRODUCTS SOLD 60,301 71,851 59,538
COST OF SERVICES SOLD 8,611 7,365 5,354
------------------------------------ ---------- --------- ---------
GROSS PROFIT 44,825 32,783 28,095
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSE 48,034 36,335 55,880
RESEARCH AND DEVELOPMENT 7,202 3,795 6,255
DEPRECIATION AND AMORTIZATION 2,988 1,908 1,262
GOODWILL AND ASSET IMPAIRMENT 7,141 -- 2,456
LOSS ON SALE OF SUBSIDIARY -- -- (330)
GAIN ON EXTINGUISHMENT OF DEBT -- -- 70,064
INTEREST AND OTHER INCOME 2,643 1,896 919
INTEREST REDUCTION (EXPENSE) 1,720 (2,860) (22,587)
------------------------------------- ---------- ---------- ----------
(LOSS) INCOME FROM CONTINUING
OPERATIONS BEFORE TAXES, MINORITY
INTEREST, AND GAINS (LOSSES)
ATTRIBUTABLE TO CAPITAL
TRANSACTIONS OF SUBSIDIARY (16,177) (10,219) 10,308
BENEFIT (PROVISION) FOR INCOME TAXES 447 (77) (1,702)
------------------------------------ ---------- --------- ---------
(LOSS) INCOME FROM CONTINUING
OPERATIONS BEFORE MINORITY INTEREST,
AND GAIN (LOSS) ATTRIBUTABLE TO
CAPITAL TRANSACTIONS OF SUBSIDIARY (15,730) (10,296) 8,606
MINORITY INTEREST 4,373 655 4,132
NET GAIN (LOSS) ON CAPITAL
TRANSACTIONS OF SUBSIDIARY 411 11,090 (244)
GAIN (LOSS) ATTRIBUTABLE TO CHANGES
IN MINORITY INTEREST AS A RESULT OF
CAPITAL TRANSACTIONS OF SUBSIDIARY 598 (20,203) (6,535)
------------------------------------ ---------- --------- ---------
(LOSS) INCOME FROM CONTINUING
OPERATIONS (10,348) (18,754) 5,959
GAIN (LOSS) FROM DISCONTINUED
OPERATIONS, NET OF INCOME TAXES OF
$0 99 (730) (2,434)
CHANGE IN ESTIMATE ON LOSS ON
DISPOSAL AND OPERATING LOSSES DURING
THE PHASE OUT PERIOD 84 2,185 (382)
------------------------------------ ---------- --------- ---------
NET (LOSS) INCOME (10,165) (17,299) 3,143
PREFERRED STOCK DIVIDENDS (1,573) -- --
ACCRETION OF BENEFICIAL CONVERSION
FEATURE OF REDEEMABLE PREFERRED
STOCK - SERIES D (474) -- --
------------------------------------ ---------- --------- ---------
NET (LOSS) INCOME AVAILABLE TO
COMMON STOCKHOLDERS $ (12,212) $ (17,299) $ 3,143
==================================== ========== ========= =========
(LOSS) EARNINGS PER COMMON SHARE -
BASIC
(LOSS) INCOME FROM CONTINUING
OPERATIONS $ (0.20) $ (0.37) $ 0.17
INCOME (LOSS) FROM DISCONTINUED
OPERATIONS 0.01 0.03 ( 0.08)
------------------------------------ ---------- --------- ---------
NET (LOSS) INCOME PER COMMON SHARE -
BASIC $ (0.19) $ (0.34) $ 0.09
==================================== ========== ========= =========
(LOSS) EARNINGS PER COMMON SHARE -
DILUTED
(LOSS) INCOME FROM CONTINUING
OPERATIONS $ (0.20) $ (0.37) $ 0.16
INCOME (LOSS) FROM DISCONTINUED
OPERATIONS 0.01 0.03 ( 0.08)
------------------------------------ ---------- --------- ---------
NET (LOSS) INCOME PER COMMON SHARE -
DILUTED $ (0.19) $ (0.34) $ 0.08
==================================== ========== ========= =========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING - BASIC 62,900 51,291 36,178
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING - DILUTED 62,900 51,291 37,299
==================================== ========== ========= =========
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