As
Filed with the Securities and Exchange Commission on May 11, 2005
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
S-3
Pre-Effective
Amendment No. 1
REGISTRATION
STATEMENT UNDER
THE
SECURITIES ACT OF 1933
APPLIED
DIGITAL SOLUTIONS, INC.
(Exact
name of registrant as specified in its charter)
MISSOURI |
|
43-1641533 |
(State
or other jurisdiction of |
|
(I.R.S.
Employer |
incorporation
or organization) |
|
Identification
No.) |
1690
South Congress Avenue, Suite 200
(561)
805-8000
(Address,
including zip code, and telephone number,
including
area code, of registrant’s principal executive offices)
Scott
R. Silverman
Chairman,
Chief Executive Officer and Acting President
Applied
Digital Solutions, Inc.
1690
South Congress Avenue, Suite 200
(Name,
address, including zip code, and telephone number,
including
area code, of agent for service)
Copies of
all correspondence to:
Harvey
Goldman, Esq.
Holland
& Knight LLP
701
Brickell Avenue, Suite 3000
Approximate
date of commencement of proposed sale to the public: From time to time after
this registration statement becomes effective.
If the
only securities being registered on this form are being offered pursuant to
dividend or interest reinvestment plans, please check the following box. o
If any of
the securities being registered on this form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, other
than securities offered in connection with dividend or interest reinvestment
plans, check the following box. x
If this
form is filed to register additional securities for an offering pursuant to Rule
462(b) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. o
If this
form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. o
If
delivery of the prospectus is expected to be made pursuant to Rule 434, check
the following box. o
CALCULATION
OF REGISTRATION FEE
|
Title
of Each Class of
Securities
to be Registered |
Amount
to be
Registered |
Proposed
Maximum
Offering
Price per
Unit
(1) |
Proposed
Maximum
Aggregate
Offering
Price(1) |
Amount
of
Registration
Fee(4) |
Common
Stock, $.01 par |
684,543
shares(2)
(3) |
$4.14 |
$2,834,008 |
$359.07 |
|
(1) |
The
fee has been paid and is on account. Pursuant to Rule 457(c) of the
Securities Act of 1933, as amended, the proposed offering price and
registration fee were calculated on the basis of the average of the high
and low trading prices for the common stock on March 17, 2005, as reported
on the Nasdaq SmallCap Market. |
|
(2) |
The
684,543 shares were issued under a stock purchase
agreement. |
|
(3) |
Pursuant
to Rule 416 under the Securities Act, the shares being registered
hereunder include such indeterminate number of shares of common stock as
may be issuable with respect to the shares being registered hereunder as a
result of stock splits, stock dividends, or similar
transactions. |
|
(4) |
Calculated
pursuant to 457(c) of the rules and regulations under the Securities Act
of 1933, as amended. |
The
registrant hereby amends this registration statement on such date or dates as
may be necessary to delay its effective date until the registrant shall file a
further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
The
information in this prospectus is not complete and may be changed. These
securities may not be sold until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting any offer to buy these
securities in any state where the offer or sale is not permitted.
APPLIED
DIGITAL SOLUTIONS, INC.
684,543
Shares
of
Common
Stock
This
prospectus relates to the resales of 684,543 shares of our common stock, par
value $.01 per share, which were issued in connection with a stock purchase
agreement dated February 25, 2005 between us and Digital Angel Corporation,
referred to in this prospectus as a share exchange agreement, and which Digital
Angel Corporation issued to the shareholders of DSD Holdings A/S under the terms
of an acquisition agreement as more fully described in this prospectus on page
16. As this prospectus relates to resales of our common stock, we are not
offering these shares for cash, and accordingly, we will not receive any of the
proceeds from the resales of our common stock. Resales of the shares of our
common stock may occur at various times by the selling security holders listed
in this prospectus. See “Selling Security Holders” beginning on page
16.
Our
shares of common stock are listed on the Nasdaq SmallCap Market, also referred
to as the SmallCap, under the symbol “ADSX.” On May 9, 2005, the last reported
sale price of our common stock was $3.74 per share.
Our
principal executive offices are located at 1690 South Congress Avenue, Suite
200, Delray Beach, Florida 33445, and our telephone number is (561)
805-8000.
INVESTING
IN THESE SECURITIES INVOLVES RISKS. YOU SHOULD CAREFULLY CONSIDER THE RISK
FACTORS BEGINNING ON PAGE 11 OF THIS PROSPECTUS BEFORE PURCHASING THE COMMON
STOCK.
NEITHER
THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS
APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR
ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The
date of this prospectus is May __, 2005.
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16 |
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This
summary highlights selected information contained elsewhere in this prospectus.
This summary does not contain all of the information you should consider before
making an investment decision. You should read the entire prospectus carefully,
including “Risk Factors” beginning on page 11 and the consolidated financial
statements and the notes to those financial statements incorporated in this
prospectus by reference to our Annual Report on Form 10-K for the year ended
December 31, 2004 before making an investment decision. Unless the context
otherwise requires in this prospectus, the terms “we,” “us” and “our” refer to
Applied Digital Solutions, Inc. and its subsidiaries.
This
prospectus includes one or more non-GAAP financial measures within the meaning
of Regulation G. With respect to each non-GAAP financial measure, we have
disclosed the most directly comparable financial measure calculated and
presented in accordance with GAAP and a reconciliation of each non-GAAP measure
to the most directly comparable GAAP measure. The non-GAAP financial measures
were presented in the prospectus because our management believes that the
non-GAAP financial results are meaningful to investors because they provide a
consistent comparison of prior period results.
APPLIED
DIGITAL SOLUTIONS, INC.
Our
Business
We
develop innovative security products for consumer, commercial and government
sectors worldwide. Our unique and often proprietary products provide security
for people, animals, food chains, government/military assets, and commercial
assets. Included in this diverse product line are applications for radio
frequency identification systems, commonly referred to as RFID, end-to-end food
safety systems, global positioning systems, referred to as GPS, satellite
communications, and secure telecomm infrastructure. Our adage is Security Though
InnovationTM. We have
developed a product to provide a secure tamper proof means of managing medical
information. Two of our mature brands are: Home Again® and
SARBETM, and our
newer brands include VeriChipTM, Bio
ThermoTM and
Digital AngelTM. We plan
to grow our suite of products through acquisitions and in-house
development.
We and
our subsidiaries (either wholly or majority-owned) currently engage in the
following principal business activities:
|
· |
marketing
secure voice, data and video telecommunications networks, primarily to
several agencies of the U.S. government; |
|
· |
marketing
visual identification tags and implantable RFID microchips, primarily for
identification, tracking and location of pets, livestock and other
animals, and, more recently, for animal bio-sensing applications, such as
temperature reading for companion pet and livestock (e.g., cattle)
applications; |
|
· |
developing
and marketing GPS-enabled products used for location tracking and message
monitoring of vehicles, pilots and aircraft in remote
locations; |
|
· |
developing
and marketing call center and customer relationship management software
and services; |
|
· |
marketing
RFID-enabled products for use in a variety of healthcare, security,
financial and identification applications;
and |
|
· |
marketing
information technology (“IT”) hardware and
services. |
As of
March 31, 2005, our business operations consisted of the operations of six
subsidiaries, which we collectively refer to as the Advanced Technology segment,
and two majority-owned subsidiaries, Digital Angel Corporation (AMEX:DOC) and
InfoTech USA, Inc. (OTC:IFTH). As of March 31, 2005, we owned approximately
55.1% of Digital Angel Corporation and approximately 52.5% of InfoTech USA, Inc.
Advanced Technology, Digital Angel Corporation, referred to as Digital Angel,
and InfoTech USA, Inc., referred to as InfoTech, comprise our three operating
segments.
The
tables below provide a percentage breakdown of the significant sources of our
consolidated revenues and gross profits over the past three fiscal years and, as
such, make evident certain trends in the composition of such revenues and gross
profits:
Sources
of Revenue: |
Percentage
of Total Revenue |
|
Three-
Months
Ended
|
Year
ended
|
Year
ended
|
Year
ended
|
Sales
of voice, data and video telecommunications networks to government
agencies from our Advanced Technology segment |
18.1% |
37.0% |
39.9% |
31.8% |
|
|
|
|
|
Visual
identification tags and implantable microchips for the companion animal,
livestock, laboratory animal, fish and wildlife markets from our Digital
Angel segment |
36.1% |
23.1% |
25.8% |
21.2% |
|
|
|
|
|
GPS
enabled tracking and message monitoring, search and rescue beacons,
intelligent communications products and services for telemetry, mobile
data and radio communications from our Digital Angel
segment |
23.3% |
18.2% |
11.1% |
10.2% |
|
|
|
|
|
Sales
of IT hardware and services from our InfoTech segment |
17.0% |
16.1% |
15.5% |
23.1% |
|
|
|
|
|
Other
products and services |
5.5% |
5.6% |
7.7% |
13.7% |
|
|
|
|
|
Total |
100.0% |
100.0% |
100.0% |
100.0% |
Sources
of Gross Profit: |
Percentage
of Total Gross Profit |
|
Three-
Months
Ended
|
Year
ended
|
Year
ended
|
Year
ended
|
Sales
of voice, data and video telecommunications networks to government
agencies from our Advanced Technology segment |
15.0% |
18.8% |
25.0% |
25.8% |
|
|
|
|
|
Visual
identification tags and implantable microchips for the companion animal,
livestock, laboratory animal, fish and wildlife markets from our Digital
Angel segment |
38.7% |
30.8% |
34.7% |
25.9% |
|
|
|
|
|
GPS
enabled tracking and message monitoring, search and rescue beacons,
intelligent communications products and services for telemetry, mobile
data and radio communications from our Digital Angel
segment |
31.5% |
30.4% |
17.5% |
15.7% |
|
|
|
|
|
Sales
of IT hardware and services from our InfoTech segment |
8.1% |
9.9% |
8.9% |
13.4% |
|
|
|
|
|
Other
products and services |
6.7% |
10.1% |
13.9% |
19.2% |
|
|
|
|
|
Total |
100.0% |
100.0% |
100.0% |
100.0% |
(Loss)
income from continuing operations before taxes, minority interest, gain (loss)
attributable to capital transactions of subsidiary and equity in loss of
affiliate from each of our segments during the three-months ended March 31, 2005
and during the years ended December 31, 2004, 2003 and 2002 was as follows (we
evaluate performance based on stand-alone segment operating income as presented
below):
|
|
|
|
Year
Ended December 31, |
|
|
|
Three-
Months
Ended
|
|
2004 |
|
2003 |
|
2002 |
|
Income
(loss) from continuing operations before taxes, minority interest, gain
(loss) attributable to capital transactions
of subsidiary and equity in loss of affiliate by
segment: |
|
|
|
(in
thousands) |
|
Advanced
Technology |
|
$ |
(752 |
) |
$ |
(474 |
) |
$ |
(108 |
) |
$ |
(786 |
) |
Digital
Angel |
|
|
(418 |
) |
|
(2,391 |
) |
|
(6,274 |
) |
|
(45,156 |
) |
InfoTech
|
|
|
(63 |
) |
|
(202 |
) |
|
(3,052 |
) |
|
(422 |
) |
“Corporate/Eliminations”
(1) |
|
|
1,271 |
|
|
(7,152 |
) |
|
19,742 |
|
|
(49,613 |
) |
Total |
|
$ |
38 |
|
$ |
(10,219 |
) |
$ |
10,308 |
|
$ |
(95,977 |
) |
(1)
For the three-months ended March 31, 2005, “Corporate/Eliminations” includes
$2.3 million in interest reductions resulting from the revaluation of certain
warrants that are settleable in shares of Digital Angel’s common stock that we
own or are exercisable into shares of our common stock or settleable/exercisable
into a combination of shares from both companies at the holders’ option. As a
result of the holders having the option to settle the warrants in shares of the
Digital Angel common stock that we own, increases in the market price of Digital
Angel’s common stock result in increases/reductions in our interest expense.
Also, included in Corporation/Eliminations for the three-months ended March 31,
2005 was $0.5 million in recovery of a note receivable that we had previously
reserved. Excluding these items, the loss from continuing operations before
taxes, minority interest, gain (loss) attributable to capital transactions of
subsidiary and equity in loss of affiliate for the three-months ended March 31,
2005 was $2.8 million. For 2003, “Corporate/Eliminations” includes a gain on the
forgiveness of debt of approximately $70.1 million. Excluding the effects of the
gain on forgiveness of debt, the loss from continuing operations before taxes,
minority interest, gain (loss) attributable to capital transactions of
subsidiary and equity in loss of affiliate for 2003 was $59.8
million.
Business
Segments
ADVANCED
TECHNOLOGY SEGMENT
For the
three-months ended March 31, 2005, and the years ended December 31, 2004, 2003
and 2002, revenues from this segment were $5.2 million, $47.8 million, $44.6
million, and $41.9 million, respectively, and accounted for 23.7%, 42.7%, 48.0%
and 42.6%, respectively, of our total revenues.
The
principal products and services in the Advanced Technology segment are as
follows:
|
· |
secure
voice, data and video telecommunications
networks; |
· |
implantable
microchips called VeriChipTM
and RFID scanners; |
|
· |
patient
wandering, infant protection and asset tracking/location systems combining
automated RFID identification and real-time location
technologies; |
· |
proprietary
call center software; and |
|
· |
customer
relationship management software and
services. |
The
Advanced Technology segment’s customer base includes governmental agencies,
commercial operations, distributors and consumers.
Our
wholly-owned subsidiary, Computer Equity Corporation, is a telecommunications
network integrator and a supplier of telephone systems, data networks, video,
cable and wire infrastructure and wireless telecommunications products and
services to various agencies of the federal government. Its products include
voice mail, Internet cabling, phones and telephone wiring.
The
VeriChipTM
microchip, which is about the size of a grain of rice, contains a unique
verification number that is captured by briefly passing a proprietary scanner
over the VeriChipTM.
VeriChipTM will be
available in several formats, some of which will be insertable under the skin.
The brief outpatient “chipping” procedure lasts just a few minutes and involves
only local anesthetic followed by quick, painless insertion of the VeriChip.
Once inserted just under the skin, the VeriChip is inconspicuous to the naked
eye. A small amount of radio frequency energy passes from the scanner energizing
the dormant VeriChipTM, which
then emits a radio frequency signal transmitting the verification number.
VeriChipTM can be used in a variety of security, financial, emergency
identification and healthcare applications.
Our
patient wandering, infant protection and asset tracking/location systems were
developed by eXI. These products uniquely combine automated identification and
real-time location technologies. eXI’s proprietary security products: HALO™,
RoamAlert™, Assetrac™ and HoundWare™ are sold to hospitals, nursing homes and
commercial customers, respectively.
Our
proprietary call center software and related services are designed to deliver a
comprehensive suite of customer interaction tools consisting of automated call
distribution management systems, referred to as ACDs, Internet provider ACDs,
web contact solutions, soft phones and status displays. Our newest call center
technology is sold under the brand name Net-VU
Contract Manager.
Our
customer relationship management software and services provide a complete
solution to manage all aspects of customer service, including help desk, call
handling and service dispatch, contracts management, service marketing, billing,
inventory management and more.
In
addition to the products discussed above, we have developed a miniaturized low
power thermoelectric generator called Thermo LifeTM, which
we intend to sell through our wholly-owned subsidiary, Thermo Life Energy Corp.
Thermo LifeTM is
intended to provide a miniaturized power source for a wide range of
applications. These applications include, but are not limited to, wireless
switches, wireless sensors, wearable electronics, internal medical devices,
micro sensor networks and RFID networks with active transponders.
Approximately
$4.0 million, or 76.3%, $41.4 million, or 86.7%, $37.1 million, or 83.2%, and
$31.3 million, or 74.7%, of the Advanced Technology segment’s revenues for the
three-months ended March 31, 2005 and the years ended December 31, 2004, 2003
and 2002, respectively, were generated by Computer Equity Corporation. No other
individual products or services provided more than 10.0% of the revenues for
this segment during the three-months ended March 31, 2005 or during 2004, 2003
and 2002. To date, we have not recorded significant revenues from sales of our
VeriChip microchips and scanners, and we have not recorded any revenues from our
Thermo Life product.
DIGITAL
ANGEL SEGMENT
For the
three-months ended March 31, 2005 and the years ended December 31, 2004, 2003
and 2002, revenues from this segment were $13.0 million, $46.3 million, $34.4
million and $32.5 million, respectively, and accounted for 59.3%, 39.6%, 37.0%
and 33.0%, respectively, of our total revenues.
Digital
Angel segment’s proprietary products provide security for companion pets, food
chains, government/military assets and commercial assets worldwide. This
segment’s principal products are:
|
· |
visual
ear tags for livestock; |
|
· |
electronic
implantable microchips and RFID scanners for the companion pet, fish,
livestock and wildlife industries, including our Home Again® and
Bio-ThemoTM
product brands; |
|
· |
GPS
enabled search and rescue equipment and intelligent communications
products and services for telemetry, mobile data and radio communications
applications, including our SARBETM
brand, which serve commercial and military markets;
|
|
· |
GPS
and geosynchronous satellite tracking systems, including tracking software
systems for mapping and messaging associated with the security of
high-value assets; and |
|
· |
intrinsically
safe sounders (horn alarms) for industrial use and other electronic
components. |
The
description of Digital Angel’s principal products that follows is oriented to
reflect Digital Angel’s organizational structure, which includes its Animal
Applications and GPS and Radio Communications divisions. The Animal Applications
division’s sales were $7.9 million (excluding intercompany sales
of approximately $0.4 million), $25.9 million, $23.9 million and $21.0 million,
respectively, and represented 60.8%, 55.9%, 69.6% and 64.6% of the total revenue
from this segment during the three-months ended March 31, 2005 and during the
years ended December 31,
2004,
2003 and 2002, respectively. Sales of the GPS and Radio Communications division
were $5.1 million, $20.4 million, $10.5 million and $11.5 million, respectively,
and represented 39.2%, 44.1%, 30.4% and 35.4% of this segment’s revenue during
the three-months ended March 31, 2005 and during the years ended December 31,
2004, 2003 and 2002, respectively.
Animal
Applications
The
Animal Applications division develops, manufactures and markets radio,
electronic and visual identification devices for the companion animal, fish and
wildlife, and livestock markets worldwide.
The
Animal Applications division’s RFID products consist of miniature electronic
microchips, scanners, and for some applications, injection systems. We hold
patents on our syringe-injectable microchip, which is encased in a glass or
glass-like material capsule and incorporates an antenna and a microchip with a
unique permanent identification code for the animal in which it is implanted.
The microchip is typically injected under the skin using a hypodermic syringe,
without requiring surgery. An associated scanner device uses radio frequency to
interrogate the microchip and read the code.
The
Animal Applications division’s pet identification system involves the insertion
of a microchip with identifying information in the animal. Scanners at animal
shelters, veterinary clinics and other locations can determine the animal’s
owner and other information. Our recently introduced Bio-ThermoTM product,
which provides accurate temperature readings of animals by simply passing an
RFID handheld scanner over the animal or by having the animal walk through a
portal scanner, is included in the Animal Application’s division.
The
Animal Applications division’s miniature electronic microchips are used for the
tagging of fish, especially salmon, for identification in migratory studies and
other purposes. The electronic microchips are accepted as a safe, reliable
alternative to traditional identification methods because the fish can be
identified without capturing or sacrificing the fish.
In
addition to pursuing the market for permanent identification of companion
animals and tracking microchips for fish, the Animal Applications division also
produces visual and electronic identification products, principally for
livestock producers. The tracking of cattle and hogs is crucial in order to
provide security for asset management, disease control and food safety. Digital
Angel has marketed visual identification products for livestock since the 1940s.
Visual identification products typically include numbered ear tags. Electronic
identification products for livestock are currently being utilized by livestock
producers, and as part of various pilot studies for the United States Department
of Agriculture’s and other state and governmental cattle identification
programs. Currently, sales of visual products represent a substantial percentage
of the Animal Applications division’s sales to livestock producers.
GPS
and Radio Communications
The GPS
and Radio Communications division engages in the design, manufacture and support
of GPS-enabled equipment and our SARBETM G2R
personnel location beacon. Applications for the segment’s products include
location tracking and message monitoring of vehicles, aircraft and people in
remote locations through systems that integrate GPS and geosynchronous satellite
communications, and GPS-enabled equipment and intelligent communications
products and services for telemetry, mobile data and radio communications
applications serving commercial and military markets. In addition, this division
designs, manufactures and distributes intrinsically safe sounders (horn alarms)
for industrial use and other electronic components.
INFOTECH
SEGMENT
For the
three-months ended March 31, 2005, and the years ended December 31, 2004, 2003
and 2002, revenues from this segment were $3.7 million, $18.0 million, $14.5
million and $22.7 million, respectively, and accounted for 17.0%, 16.1%, 15.5%,
and 23.1%, respectively, of our total revenues.
The
principal products and services in this segment were computer hardware and
computer services. This segment is a full service provider of IT products and
services. In 2004, this segment continued its strategy of moving away from a
product-driven systems integration business model to a customer-oriented IT
strategy-based business model. It has further developed its deliverable IT
products and services by adding new consulting and service offerings, and
increasing the number of strategic alliances with outside technical service
firms and manufacturers of high-end IT products.
The
majority of InfoTech’s revenue during the three-months ended March 31, 2005 and
during 2004, 2003 and 2002 was derived from sales of computer hardware, which
provided approximately 85.7%, 82.5%, 80.3% and 88.3% of InfoTech’s revenue in
the three-months ended March 31, 2005 and during 2004, 2003 and 2002,
respectively. InfoTech’s services consist of IT consulting, installation,
project management, design and deployment, computer maintenance and other
professional services. No single service accounted for more than 10% of
InfoTech’s total revenue during the three-months ended March 31, 2005 and during
2004, 2003 and 2002.
The
“Corporate/Eliminations” category includes all amounts recognized upon
consolidation of our subsidiaries, such as the elimination of inter-segment
revenues, expenses, assets and liabilities. “Corporate/Eliminations” also
includes certain revenues, gross profit and selling, general and administrative
expense (reductions) associated with companies sold or closed in 2001 and 2002,
and interest expense (reduction) and other expenses associated with corporate
activities and functions.
About
Us
We are a
Missouri corporation and were incorporated on May 11, 1993. Our principal
executive offices are located at 1690 South Congress Avenue, Suite 200, Delray
Beach, Florida 33445, and our telephone number is (561) 805-8000.
The
Offering
Common
stock offered by the selling security holders |
684,543
shares |
|
|
Common
stock outstanding after this offering |
|
|
|
Use
of proceeds |
We
will not receive any proceeds from the sale of shares of our common stock
by the selling security holders listed in this prospectus under “Selling
Security Holders” beginning on page 16. |
|
|
Dividend
policy |
We
have not paid, and do not anticipate paying, dividends on shares of our
common stock. |
|
|
Market
price of common stock |
The
market price of shares of our common stock has ranged from a high of $8.55
to a low of $1.94 during the 12 months preceding the date of this
prospectus. |
|
|
Risk
factors |
See
“Risk Factors” beginning on page 11, for a discussion of factors you
should carefully consider before deciding to invest in our common
stock. |
|
|
Nasdaq
SmallCap Market symbol |
ADSX |
(1)
Includes 684,543 shares that were issued to Digital Angel Corporation under the
terms of the stock purchase agreement.
(2) The
number of shares of common stock to be outstanding after this offering is based
on the number of shares outstanding as of May 9, 2005. As of that date, we had
62,413,235 shares of common stock outstanding, excluding (i) warrants to
purchase up to 1,198,856 shares of our common stock which are currently
exercisable at a weighted average exercise price of $5.98 per share, and (ii)
options, 2,561,766 of which are currently exercisable at a weighted average
exercise price of $7.87 per share.
You
should carefully consider the risks described below and all other information
contained in or incorporated by reference into this prospectus before making an
investment decision. If any of the following risks, or other risks and
uncertainties that are not yet identified or that we currently think are
immaterial, actually occur, our business, financial condition and results of
operations could be materially and adversely affected. In that event, the
trading price of our shares could decline, and you may lose part or all of your
investment.
We
have a history of operating losses and negative cash flows and we may not become
profitable in the future, which could ultimately result in our inability to
continue operations in the normal course of business.
Historically,
we have incurred losses and have not generated positive cash flows from
operations. Excluding a gain of approximately $1.3 million attributable to
capital transactions of Digital Angel, a reversal of approximately $2.3 million
of interest expense as a result of the revaluation of certain common stock
warrants, which are settleable in shares of the Digital Angel common stock owned
by us, and the recovery of approximately $0.5 million on a note receivable that
we had previously reserved, we incurred a loss from continuing operations for
the three-months ended March 31, 2005 of approximately $2.5 million. We incurred
a consolidated loss from continuing operations of $18.8 million in 2004.
Excluding a gain on the extinguishment of debt of approximately $70.1 million
recorded on June 30, 2003, we incurred a consolidated loss from continuing
operations in 2003 of $64.1 million, and we incurred a consolidated loss from
continuing operations of $89.5 million in 2002. Our consolidated operating
activities used cash of $3.2 million, $13.9 million, $11.4 million and $3.9
million during the three-months ended March 31, 2005 and during the years ended
December 31, 2004, 2003 and 2002, respectively. During these periods, we have
funded our operating cash requirements, as well as our capital needs, with the
proceeds from investing and/or financing activities.
At March
31, 2005, our consolidated cash and cash equivalents totaled $26.2 million. We
believe that we currently have sufficient funds to operate our business over the
next twelve months. However, our goal is to achieve operating profits and to
generate positive cash flows from operations. Our profitability and cash flows
from operations depend on many factors, including the success of our marketing
programs, the maintenance and reduction of expenses and our ability to
successfully develop and bring to market our new products and technologies. If,
in the future, we are not successful in managing these factors and achieving our
goal of profitability and positive cash flows from operations, we may not have
sufficient funds to operate our business, which could ultimately result in our
inability to continue operations in the normal course.
Over
the past few years, we have made significant changes in the nature and scope of
our businesses and have expanded into different product lines, including new,
unproven technologies.
During
the past few years, we have made significant changes in the nature and scope of
our business operations and have expanded into different product lines,
including new, unproven products such as VeriChipTM and
Thermo LifeTM. If we
are not successful in implementing our business model and developing and
marketing these products or if these products do not gain sufficient market
acceptance, we may not be able to achieve or sustain profitable operations. In
that case, the market price of our stock would likely decrease.
Our
stock price has reflected a great deal of volatility, including a significant
decrease over the past few years. The volatility may mean that, at times, our
shareholders may be unable to resell their shares at or above the price at which
they acquired them.
Since
January 1, 2000, the price per share of our common stock has ranged from a high
of $180.00 to a low of $0.30, or $18.00 and $0.03, respectively, on a pre-stock
split basis (i.e., prior to our effecting a 1-for-10 reverse stock split in
April 2004). The price of our common stock has been, and may continue to be,
highly volatile and subject to wide fluctuations. The market value of our common
stock has declined in the past, in part, due to our operating performance. In
the future, broad market and industry factors may decrease the market price of
our common stock, regardless of our actual operating performance. This is even
more of an issue as we increase our focus on developing and marketing new,
unproven products for which there is considerable resistance, as a matter of
privacy and other concerns. Declines in the market price of our common stock
could affect our access to capital, which may, in the future, impact our ability
to continue as a going concern. In addition, declines in the price of our common
stock may harm employee morale and retention, curtail investment opportunities
presented to us, and negatively impact other aspects of our business. As a
result of any such declines, shareholders may be unable to resell their shares
at or above the price at which they acquired them.
We
have effected or entered into (and will likely continue to effect or enter into)
capital raising transactions, acquisitions, legal settlements and contracts for
services that involve the issuance of shares of our common stock (or securities
convertible into or exchangeable for such shares) and, as a result, the value of
our common stock may be further diluted.
We have
effected and entered into (and will likely continue to effect and enter into)
capital raising transactions, acquisitions, legal settlements and contracts for
services that involve the issuance of shares of our common stock or securities
convertible into or exchangeable for such shares. These share issuances may be
dilutive to the value of our common stock and may result in a decrease in the
market price of our common stock.
We
have issued and outstanding a significant number of derivative securities (e.g.,
options and warrants) and the conversion or exercise of such securities may
adversely affect the market price of our common stock.
As of May
9, 2005, there were outstanding warrants and options to acquire up to 6,251,564
additional shares of our common stock, and we had 190,307 additional shares of
our common stock available to be issued in the future under our Employees Stock
Purchase Plan. The exercise of outstanding options and warrants and the sale in
the public market of the shares purchased upon exercise may have a dilutive
effect on our common stock and may result in a decrease in the market price of
our common stock.
We
rely heavily on revenues derived from sales to various agencies of the U.S.
government, and the loss of, or a significant reduction in, orders from the U.S.
government could result in significant losses and deficits in cash flows from
operations.
Approximately
99% of our revenue from sales of voice, data and video telecommunications
networks for the three-months ended March 31, 2005, and for the years ended
December 31, 2004, 2003 and 2002, respectively, were generated through sales to
various agencies of the U.S. government. In addition, Digital Angel’s principal
customers for electronic identification devices for fish are Pacific States
Marine, a government contractor that relies on funding from the U.S. government,
and the U.S. Army Corps of Engineers. Under certain contracts, a government
agency is permitted to terminate its contract for convenience, including cases
where funds are no longer appropriated. In January 2005, the USPS terminated for
convenience the mail processing infrastructure contract that accounted for 52%
and 16% of Computer Equity Corporation’s consolidated revenues in 2004 and 2003,
respectively. Because we rely on revenues and cash flows generated from
contracts, directly or indirectly, with governmental agencies, the loss of any
such contract would result in a drop-off in revenues and cash flows, and such
drop-off may be significant and thereby have a material adverse effect on our
financial condition and results of operations.
Our
VeriChipTM
product, when used in medical or healthcare-related applications, is subject to
the FDA’s jurisdiction. The FDA approval limits the full utilization of the
VeriChipTM
in such applications, which may constrain our future operations and operating
results.
Our
VeriChipTM product
has been deemed to be a medical device, subject to the FDA’s jurisdiction, with
respect to medical or healthcare-related applications. The FDA approved
VeriChipTM for
medical applications in October 2004. The FDA’s approval limits our use of the
VeriChipTM in
medical applications by allowing only an identification number to be included on
the chip. The patient information must reside in a database outside of the chip.
The FDA has the authority to revoke approval of a previously approved product
for cause, to request the recall of a product and to close manufacturing plants
producing the product in response to violations of the terms of its approval.
The FDA approval limits the full utilization of the VeriChipTM in such
applications, which may constrain our future operations and operating
results.
Digital
Angel’s sale of shares of its common stock to third parties at prices below the
per share carrying amount of our investment in Digital Angel has given (and may,
in the future, give) rise to losses in our consolidated statement of operations.
Digital
Angel has issued shares of its common stock to third parties at prices per share
lower than the per share carrying amount of our investment in Digital Angel,
triggering losses in our consolidated statement of operations. Future stock
issuances to third parties by Digital Angel, including upon the exercise of
stock options and warrants, may give rise to further losses. Such losses would
reduce our net income, perhaps significantly. In addition, such issuances give
rise to a decrease in our ownership position. Further, if our equity interest in
Digital Angel (55.1% at March 31, 2005) were, as a result of future issuance of
Digital Angel shares, to drop below 50%, we may not be able to
consolidate its operations in our financial statements. This would result in a
significant reduction in our consolidated revenues and assets.
We
depend on a single production arrangement with Raytheon Corporation for our
patented syringe-injectable microchips without the benefit of a formal written
agreement, and the loss of or any significant reduction in the production could
result in significant losses and decreases in our cash
flows.
We rely
solely on a production arrangement with Raytheon Corporation (“Raytheon”) for
the manufacture of our patented syringe-injectable microchips that are used in
all of our implantable electronic identification products, but we do not have a
formal written agreement with Raytheon. Raytheon utilizes our proprietary
technology and our equipment in the production of our syringe-injectable
microchips. The termination, or any significant reduction, by Raytheon of the
assembly of our microchips or a material increase in the price charged by
Raytheon for the assembly of our microchips could have an adverse effect on our
profitability and cash flows from operations. Moreover, if Raytheon were to
terminate our production arrangement, we cannot ensure that the assembly of our
microchips from another source would be on comparable or acceptable
terms.
In
addition, Raytheon may not be able to produce sufficient quantities of the
microchips to meet any significant increased demand for our products or to meet
any such demand on a timely basis. Any inability or unwillingness of Raytheon to
meet our demand for microchips would require us to utilize an alternative
production arrangement and remove our automated assembly production machinery
from the Raytheon facility, which would be costly and could delay production.
The failure to make such an alternative production arrangement could result in
significant losses and decreases in our cash flows.
We
have initiated, and are defendants in, various legal actions, the outcome of
which could have a negative effect on our competitive position, operating
results and cash flows.
We are
party to various legal actions as either plaintiff or defendant. This includes
actions initiated by us based on what we believe to be infringements of our
patents by certain of our competitors. This also includes a federal antitrust
lawsuit filed in December 2004 against Digital Angel and Avid Identification
Systems, Inc. (“Avid”) alleging that these companies are participating in a
monopolistic “conspiracy” in the marketing, sale and distribution of microchips
and scanners used to identify lost pets. This lawsuit seeks dollar damages and
to force Avid to make its microchip encryption code public. The ultimate outcome
of these actions and the estimates of the potential future impact on our
competitive position, operating results and cash flows could be materially
different from our current expectations and estimates, which could result in the
decline in our revenues, margins and cash flows, and in the case of those
actions against us, our payment of damages. We expect to continue to incur
legal costs in connection with pursuing and defending such actions, which will
effect our profitability and decrease our cash.
We
are subject to government regulation and any action on the part of regulators
could have a material adverse effect on our business.
Our
electronic and visual identification devices for the companion animal, livestock
and wildlife markets are subject to federal, state and local regulation in the
U.S. and other countries, and we cannot predict the extent to which we may be
affected by future legislative and other regulatory developments concerning our
products and markets. We develop, assemble and market a broad line of RFID
readers that are required to comply with the FCC Part 15 Regulations for
Electromagnetic Emissions. Our products also are subject to compliance with
foreign government agency requirements. Our contracts with our distributors
generally require the distributor to obtain all necessary regulatory approvals
from the governments of the countries into which they sell our products.
However, any such approval may be subject to significant delays. Any actions by
regulatory agencies could materially adversely affect our profitability and cash
flows.
Our
intellectual property rights or patent rights might not provide protection and
might be invalid or unenforceable.
Our
ability to commercialize any of our products under development will depend, in
part, on our ability to obtain patents, enforce those patents, preserve trade
secrets, and operate without infringing on the proprietary rights of third
parties. The patent applications licensed to or owned by us may not result in
issued patents, patent protection may not be secured for any particular
technology, any patents that have been or may be issued to us may not be valid
or enforceable and patents issued to us may not provide meaningful
protection.
The
VeriChipTM
technology that is produced under patents #6,400,338 and #5,211,129 is owned by
Digital Angel and licensed to VeriChip Corporation under an exclusive
distribution and licensing agreement with a remaining term through
March 3, 2013. If we were to no longer own a majority interest in Digital Angel,
VeriChip Corporation may be unable to retain licensing rights for the use of
these patents beyond the licensing period.
We
may be subject to product liability claims from the use of our products that
could result in costs or damages payable by us adversely affecting our business,
financial condition, and results of operations.
Manufacturing,
marketing, selling and testing our products entail a risk of product liability.
We could be subject to product liability claims in the event our products or
products under development fail to perform as intended. Even unsuccessful claims
could result in the expenditure of funds in litigation and
the
diversion of management time and resources and could damage our reputation and
impair the marketability of our products. While we maintain liability insurance,
it is possible that a successful claim could be made against us, that the amount
of indemnification payments or insurance would not be adequate to cover the
costs of defending against or paying such a claim, or that damages payable by us
would have a material adverse effect on profitability and cash
flows.
We
face the risk that the value of our inventory may decline before it is sold or
that our inventory may not be able to be sold at the anticipated
prices.
On March
31, 2005, the book value of our inventory was $11.2 million as compared to a
book value of $8.1 million as of December 31, 2004. Digital Angel’s inventory
was $8.0 million, our Advanced Technology segment’s inventory was $2.9 million,
and InfoTech’s inventory was $0.3 million. Our Advanced Technology’s inventory
consists primarily of work-in-process related to government contract projects.
Digital Angel’s inventory consists primarily of raw materials related to our
GPS-enabled equipment and finished goods related to implantable microchips and
visual eartags. Historically, Digital Angel’s inventory has turned approximately
4 times per year. Our inventory may decline in value as a result of
technological obsolescence or change in product. During the three-months ended
March 31, 2005 and the years ended December 31, 2004, 2003 and 2002, we recorded
approximately $30,000, $0.2 million, $0.4 million and $0.1 million in inventory
reserves, respectively. Our success depends in part on our ability to minimize
the cost to purchase/produce inventory and turn that inventory rapidly through
sales. The failure to turn such inventory may require us to sell such inventory
at a discount or at a loss or write down its value, which could result in
significant losses and decreases in our cash flows.
New
accounting pronouncements may significantly impact our future results of
operations and earnings per share.
In
December 2004, the FASB issued FAS 123R. This statement, which will be
effective for us beginning on January 1, 2006, will change how we account for
share-based compensation, and may have a significant impact on our future
results of operations and earnings per share. We currently account for
share-based payments to employees and directors using the intrinsic value
method. Under this method, we generally do not recognize any compensation
related to stock option grants we issue under our stock option
plans.
FAS 123R
will require us to recognize share-based compensation as compensation expense in
the statement of operations based on the fair values of such equity on the date
of the grant, with the compensation expense recognized over the period in which
the recipient is required to provide service in exchange for the equity award.
This statement will also require us to adopt a fair value-based method for
measuring the compensation expense related to share-based compensation. We have
not yet completed our evaluation of the impact of the adoption of FAS 123R
on our results of operations. In connection with evaluating the impact of
FAS 123R, we are considering the potential implementation of different
valuation methods to determine the fair value of share-based compensation. We
believe the adoption of FAS 123R will have a material impact on our results
of operations and earnings per share, regardless of the valuation method used.
Future changes in generally accepted accounting principles may also have a
significant effect on our reported results.
This
prospectus and some of the documents incorporated in this prospectus by
reference contain “forward-looking statements” within the meaning of Section 27A
of the Securities Act of 1933 and Section 21E of the Securities Exchange
Act of 1934. All statements other than statements of historical facts, including
statements regarding the prospects of our industry and our prospects, plans,
financial position, anticipated product offerings, and business strategy
constitute forward-looking statements. These statements are subject to many
important factors that could cause actual results to differ
materially
from
those projected in the forward-looking statements. Among these factors are those
included in this prospectus under the heading “Risk Factors” and those which are
discussed in our most recently filed Annual Report on Form 10-K under the
heading “Risk Factors” and elsewhere, which is incorporated by reference in this
prospectus. All forward-looking statements included in this prospectus and the
documents we incorporate by reference are made only as of the date of this
prospectus, and we do not undertake any obligation to publicly update or correct
any forward-looking statements to reflect events or circumstances that
subsequently occur or of which we hereafter become aware. Subsequent written and
oral forward-looking statements attributable to us or to persons acting on our
behalf are expressly qualified by the cautionary statements set forth above and
elsewhere in this prospectus and in other reports filed by us with the
Securities and Exchange Commission (“SEC”).
This
prospectus relates to our common stock to be offered for sale for the account of
certain selling security holders named under the caption “Selling Security
Holders” in this prospectus and any amendment to this prospectus. We will not
receive any of the proceeds from the sale of shares of
our common stock by the
selling security holders.
DSD
Holdings A/S
Pursuant
to the terms of a share exchange agreement dated February 25, 2005, we sold to
Digital Angel Corporation 684,543 shares of our common stock. Under the terms of
the share exchange agreement, we agreed to make a strategic investment in
Digital Angel Corporation whereby we acquired an additional 644,140 shares of
Digital Angel Corporation’s common stock. We agreed to the terms of the share
exchange because we desire to maintain a controlling interest in Digital Angel.
Per the terms of the share exchange agreement, the value of the common stock
exchanged between us and Digital Angel Corporation was $3.5 million, which
represented the initial partial payment due under an acquisition agreement as
discussed in the paragraphs below.
The
number of shares of Digital Angel Corporation’s and our common stock issued in
the exchange was based upon the average of the volume-weighted-average price of
Digital Angel Corporation’s and our common stock, respectively, for the ten
trading days immediately preceding, and not including, the transaction closing
date, which was $5.434 for Digital Angel Corporation’s common stock and $5.113
for our common stock. Digital Angel Corporation used our common stock that it
received from us under the share exchange agreement as partial consideration for
the acquisition of DSD Holdings A/S and its wholly-owned subsidiaries, Daploma
International A/S and Digitag A/S, as DSD Holdings A/S’ selling shareholders
desired to receive their consideration in shares of our common stock as apposed
to Digital Angel Corporation’s common stock.
On
February 28, 2005, Digital Angel Corporation completed the acquisition of DSD
Holdings A/S and its wholly-owned subsidiaries, Daploma International A/S and
Digitag A/S. Under the terms of the acquisition, Digital Angel Corporation
purchased all of the outstanding capital stock of DSD Holdings A/S in
consideration for a purchase price of seven times DSD Holdings A/S’s average
annual EBITDA, as defined in the agreement, over the next three years less
outstanding indebtedness at the end of the time period and less 30% of the total
compensation paid to Lasse Nordfjeld, Chief Executive Officer of DSD Holdings
A/S, pursuant to an employment agreement. An initial payment of $3.5 million was
made at closing by the delivery of 684,543 shares of our common stock valued at
$3.5 million, which Digital Angel Corporation acquired from us in exchange for
$3.5 million of Digital Angel Corporation’s common stock. The initial payment of
$3.5 million was negotiated between Digital Angel Corporation and
the
selling
shareholders of DSD Holdings A/S. The initial payment of $3.5 million was the
minimum payment due and no amount will be returned if DSD Holdings A/S fails to
achieve a certain EBITDA level over the next three years.
The
former shareholders of DSD Holdings A/S are selling security holders with
respect to the 684,543 shares of our common stock that Digital Angel Corporation
issued to DSD Holdings A/S in connection with the acquisition agreement.
Pursuant to the share exchange agreement, we have agreed with Digital Angel
Corporation to use our best efforts to maintain a current registration statement
until the date when all of the 684,543 shares of our common stock covered by the
registration statement have been sold or may be sold without volume restriction
pursuant to Rule 144(k) of the 1993 Securities Act, as amended.
We are
registering our shares in order to permit the selling security holders to offer
the shares of our common stock for resale from time to time. The selling
security holders listed below have not had any material relationship with us
within the past three years.
The
following table lists the following information with respect to each of the
selling security holders: (i)
the
selling security holders’ name; (ii)
the
number of outstanding shares of
common stock beneficially
owned by the selling security holders prior to this offering; (iii)
the
number of shares of
common stock to be
beneficially owned by the selling security holders after the completion of this
offering assuming the sale of all of the shares of
common stock offered
by the selling security holders; and (iv)
the
percentage of outstanding shares of
common stock to be
beneficially owned by the selling security holders after the completion of this
offering assuming the sale of all of the shares of
common stock offered
by the selling security holders and based on 62,413,235 shares of
our common stock outstanding
on May 9, 2005.
The
selling security holders may sell all, some or none of its shares in this
offering. See “Plan of Distribution” below. To our knowledge, none of the
selling shareholders are broker-dealers or an affiliate of a
broker-dealer.
Selling
Security Holders |
Shares
Owned Prior to the
Offering |
Number
of Shares
Offered
Hereby |
Shares
Owned After
the
Offering |
|
|
|
|
Number |
% |
LANO
Holding ApS |
423,185 |
|
423,185
(1) |
-- |
* |
Torsten
Nordfjeld |
68,591 |
|
68,591
(2) |
-- |
* |
Vaekstfonden |
38,540 |
|
38,540
(3) |
-- |
* |
Parfait
ApS |
154,227 |
|
154,227
(4) |
-- |
* |
Total |
684,543 |
|
684,543 |
-- |
* |
*
Represents less than 1% of our outstanding common shares.
|
(1) |
Represents
shares issued to the selling security holder in connection with a stock
exchange agreement dated February 28, 2005, among the selling security
holder, Digital Angel Corporation, and such other parties referenced
therein, which transaction was exempt from registration pursuant to the
Securities Act of 1933. The transaction document included an
acknowledgement that the shares were not registered and that the shares
must be held until registered unless an exemption from registration is
available. In addition, the instruments representing the shares were
legended to indicate that they were restricted. Lasse Nordfjeld has sole
voting and dispositive powers with respect to the
shares. |
|
(2) |
Represents
shares issued to the selling security holder in connection with a stock
exchange agreement dated February 28, 2005, among the selling security
holder, Digital Angel Corporation, and such other parties referenced
therein, which transaction was exempt from registration pursuant to the
Securities Act of 1933. The transaction document included an
acknowledgement that the shares were not registered and that the shares
must be held until registered unless an exemption from registration is
available. In addition, the instruments representing the shares were
legended to indicate that they were restricted. Torsten Nordfjeld has sole
voting and dispositive powers with respect to the
shares. |
|
(3) |
Represents
shares issued to the selling security holder in connection with a stock
exchange agreement dated February 28, 2005, among the selling security
holder, Digital Angel Corporation, and such other parties referenced
therein, which transaction was exempt from registration pursuant to the
Securities Act of 1933. The transaction document included an
acknowledgement that the shares were not registered and that the shares
must be held until registered |
|
|
unless an exemption from registration is available. In
addition, the instruments representing the shares were legended to
indicate that they were restricted. Poul Bukbjerg and Merete Moeller share
voting and dispositive powers with respect to the
shares. |
|
(4) |
Represents
shares issued to the selling security holder in connection with a stock
exchange agreement dated February 28, 2005, among the selling security
holder, Digital Angel Corporation, and such other parties referenced
therein, which transaction was exempt from registration pursuant to the
Securities Act of 1933. The transaction document included an
acknowledgement that the shares were not registered and that the shares
must be held until registered unless an exemption from registration is
available. In addition, the instruments representing the shares were
legended to indicate that they were restricted. Bjarne Lehmann Weng has
sole voting and dispositive powers with respect to the
shares. |
To our
knowledge, the preceding table represents the holdings by the selling security
holders. Information concerning the selling security holders may change from
time to time, which changed information will be set forth in supplements to this
prospectus if and when necessary. Because the selling security holders may offer
all or some of the common stock that they hold, we can only give an estimate as
to the amount of common stock that will be held by the selling security holders
upon the termination of this offering. See “Plan of Distribution.”
The
selling security holders or any of its pledgees, donees, assignees and
successors-in-interest may, from time to time, sell any or all of their shares
of common stock on any stock exchange, market or trading facility on which the
shares are traded or in private transactions. These sales may be at fixed or
negotiated prices. The selling security holders may use any one or more of the
following methods when selling shares:
|
· |
ordinary
brokerage transactions and transactions in which the broker-dealer
solicits purchasers; |
|
· |
block
trades in which the broker-dealer will attempt to sell the shares as agent
but may position and resell a portion of the block as principal to
facilitate the transaction; |
|
· |
purchases
by a broker-dealer as principal and resale by the broker-dealer for its
account; |
|
· |
an
exchange distribution in accordance with the rules of the applicable
exchange; |
|
· |
privately
negotiated transactions; |
|
· |
settlement
of short sales made after the date of this
prospectus; |
|
· |
broker-dealers
may agree with the selling security holders to sell a specified number of
such shares at a stipulated price per
share; |
|
· |
a
combination of any such methods of sale;
and |
|
· |
any
other method permitted pursuant to applicable
law. |
The
selling security holders may also sell shares that qualify for sale pursuant to
Rule 144 under the Securities Act of 1933, as amended, also referred to as the
Securities Act, rather than under this prospectus. In effecting sales,
broker-dealers engaged by the selling security holders may arrange for other
brokers-dealers to participate in sales. Broker-dealers may receive commissions
or discounts from the selling security holders (or, if any broker-dealer acts as
agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated. The selling security holders does not expect these commissions and
discounts to exceed what is customary in the types of transactions involved.
Broker-dealers may agree to sell a specified number of such shares at a
stipulated price per share, and, to the extent such
broker-dealer
is unable to do so acting as agent for us or a selling shareholder, to purchase
as principal any unsold shares at the price required to fulfill the
broker-dealer commitment. Broker-dealers who acquire shares as principal may
thereafter resell such shares from time to time in transactions, which may
involve block transactions and sales to and through other broker-dealers,
including transactions of the nature described above, in the over-the-counter
markets or otherwise at prices and on terms then prevailing at the time of sale,
at prices other than related to the then-current market price or in negotiated
transactions. In connection with such resales, broker-dealers may pay to or
receive from the purchasers of such shares commissions as described
above.
The
selling security holders may from time to time pledge or grant a security
interest in some or all of the shares of common stock owned by them and, if they
default in the performance of their secured obligations, the pledgees or secured
parties may offer and sell the shares of common stock from time to time under
this prospectus, or under an amendment to this prospectus pursuant to Rule
424(b)(3) or other applicable provision of the Securities Act amending the
selling security holders’ list to include the pledgee, transferee or other
successors in interest as selling security holders under this
prospectus.
The
selling security holders also may transfer the shares of common stock in other
circumstances, in which case the transferees, pledgees, donees or other
successors-in-interest will be the selling beneficial owners for purposes of
this prospectus.
The
selling security holders and any broker-dealers or agents that are involved in
selling the shares may be deemed to be “underwriters” within the meaning of the
Securities Act in connection with such sales. In such event, any commissions
received by such broker-dealers or agents and any profit on the resale of the
shares purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act.
We are
required to pay all fees and expenses incurred by us incident to the
registration of the shares. We will receive no portion of the proceeds from the
sale of the shares and will bear all of the costs relating to the registration
of this offering (other than any fees and expenses of counsel for the selling
security holders). Any commissions, discounts or other fees payable to a broker,
dealer, underwriter, agent or market maker in connection with the sale of any of
the shares will be borne by the selling security holders.
UNDER
THE SECURITIES LAWS OF SOME STATES, THE SHARES OF COMMON STOCK MAY BE SOLD IN
SUCH STATES ONLY THROUGH REGISTERED OR LICENSED BROKERS OR DEALERS. IN ADDITION,
IN SOME STATES THE SHARES OF COMMON STOCK MAY NOT BE SOLD UNLESS SUCH SHARES
HAVE BEEN REGISTERED OR QUALIFIED FOR SALE IN SUCH STATE OR AN EXEMPTION FROM
REGISTRATION OR QUALIFICATION IS AVAILABLE AND IS COMPLIED
WITH.
The
validity of the securities offered hereby will be passed on for us by
Holland
& Knight LLP,
701
Brickell Avenue,
Suite
3000, Miami, Florida
33131, relying
on the opinion of special Missouri counsel, Thompson Coburn LLP.
The
consolidated financial statements for the years ended December 31, 2004 and
2003, incorporated in this prospectus by reference to the Annual Report on Form
10-K of Applied Digital Solutions, Inc. for the year ended December 31, 2004,
have been so incorporated in reliance on the reports of Eisner LLP, independent
registered public accounting firm, given on the authority of said firm as
experts in auditing and accounting.
We have
filed a registration statement, of which this prospectus is a part, with the SEC
under the Securities Act with respect to our common stock. This prospectus,
which constitutes a part of the registration statement, does not contain all of
the information set forth in the registration statement, parts of which are
omitted as permitted by the rules and regulations of the SEC. Statements
contained in this prospectus as to the contents of any contract or other
document are not necessarily complete. For further information pertaining to us
and our common stock, we refer you to our registration statement and the
exhibits thereto, copies of which may be inspected without charge at the SEC’s
Public Reference Room, 450 Fifth Street, N.W., Washington, D.C. 20549.
Information concerning the operation of the SEC’s Public Reference Room is
available by calling the SEC at 1-800-SEC-0330. Copies of all or any part of the
registration statement may be obtained at prescribed rates from the SEC. The SEC
also makes our filings available to the public on its Internet site
(http://www.sec.gov). Quotations relating to our common stock appear on Nasdaq,
and such reports, proxy statements and other information concerning us can also
be inspected at the offices of the National Association of Securities Dealers,
Inc., 1735 K Street N.W., Washington, D.C. 20006.
We file
annual, quarterly and special reports, proxy statements and other information
with the SEC. Such periodic reports, proxy and information statements and other
information are available for inspection and copying at the public reference
facilities and Internet site of the SEC referred to above.
Website
Access to Information and Disclosure of Web Access to Company
Reports
Our
website address is: http://www.adsx.com. We make available free of charge
through our website our Annual Report on Form 10-K, our Quarterly Reports on
Form 10-Q, our Current Reports on Form 8-K, Forms 3, 4 and 5 and all amendments
to those reports as soon as reasonably practicable after such material is
electronically filed with the SEC.
|
b) |
Our
Current Report on Form 8-K filed with the SEC on March 10,
2005; |
|
c) |
Our
Definitive Proxy Statement on Schedule 14A filed with the SEC on April 29,
2005; |
|
d) |
Our
Current Report on Form 8-K filed with the SEC on April 1,
2005; |
|
e) |
Our
Current Report on Form 8-K filed with the SEC on April 6,
2005; |
|
f) |
Our
Current Report on Form 8-K filed with the SEC on April 21,
2005; |
|
g) |
Our
Current Report on Form 8-K filed with the SEC on May 3, 2005;
and |
|
h) |
Our
Quarterly Report on Form 10-Q filed with the SEC on May 5,
2005. |
|
i) |
The
description of our common stock contained in the registration statement on
Form 8-A filed with the SEC on May 5, 1995, including any amendments or
reports filed for the purposes of updating the description of the common
stock. |
All
documents subsequently filed by us with the Securities and Exchange Commission
pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act, prior to the
filing of a post-effective amendment which indicates that all securities offered
have been sold or which deregisters all securities then remaining unsold, shall
be deemed to be incorporated by reference in this prospectus and to be a part
hereof from the date of filing of such documents;
provided,
however, that we are not incorporating any information furnished under either
Item 2.02 or Item 7.01 of any Current Report on Form 8-K.
To the
extent that any statement in this prospectus is inconsistent with any statement
that is incorporated by reference and that was made on or before the date of
this prospectus, the statement in this prospectus shall control. The
incorporated statement shall not be deemed, except as modified or superceded, to
constitute a part of this prospectus or the registration statement of which this
prospectus is a part. Statements contained in this prospectus as to the contents
of any contract or other document are not necessarily complete and, in each
instance, we refer you to the copy of each contract or document filed as an
exhibit to the registration statement of which this prospectus is a
part.
YOU
MAY REQUEST, EITHER ORALLY OR IN WRITING, AND WE WILL PROVIDE, A COPY OF THOSE
FILINGS AT NO COST BY CONTACTING KAY LANGSFORD-LOVELAND, OUR VICE PRESIDENT -
ADMINISTRATION, AT APPLIED DIGITAL SOLUTIONS, INC., 1690 SOUTH CONGRESS AVENUE,
SUITE 200, PALM BEACH, FLORIDA 33445, OR BY CALLING (561)
805-8000.
We
have not authorized anyone to give any information or to make any representation
concerning this offering except the information and representations which are
contained in this prospectus or which are incorporated by reference in this
prospectus. If anyone gives or makes any other information or representation,
you should not rely on it. This prospectus is not an offer to sell, or a
solicitation of an offer to purchase, any securities other than those to which
it relates, nor does it constitute an offer to sell or a solicitation of an
offer to purchase by any person in any circumstances in which an offer or
solicitation is unlawful. You should not interpret the delivery of this
prospectus or any sale made hereunder as an indication that there has been no
change in our affairs since the date of this prospectus. You should also be
aware that the information in this prospectus may
change after this date.
PART
II
INFORMATION
NOT REQUIRED IN PROSPECTUS
Item
14. Other Expenses of Issuance and Distribution
The
following table sets forth the expenses (other than underwriting discounts and
commissions), which, other than the Securities and Exchange Commission (“SEC”)
registration fee, are estimates, payable by the Registrant in connection with
the sale and distribution of the securities registered hereby**:
SEC
Registration Fee |
|
$ |
359 |
|
Accounting
Fees and Expenses |
|
|
4,000 |
* |
Legal
Fees and Expenses |
|
|
7,500 |
* |
Miscellaneous
Expenses |
|
|
641 |
* |
Total
|
|
$ |
12,500 |
* |
_____________
* Estimated
**
The
selling security holders will pay any sales commissions or underwriting discount
and fees incurred
in
connection with the sale of shares registered hereunder.
Item
15. Indemnification of Directors and Officers
Sections
351.355(1) and (2) of The General and Business Corporation Law of Missouri
provide that a corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses,
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful, except
that, in the case of an action or suit by or in the right of the corporation,
the corporation may not indemnify such persons against judgments and fines and
no person shall be indemnified as to any claim, issue or matter as to which such
person shall have been adjudged to be liable for negligence or misconduct in the
performance of his duty to the corporation, unless and only to the extent that
the court in which the action or suit was brought determines upon application
that such person is fairly and reasonably entitled to indemnity for proper
expenses. Section 351.355(3) provides that, to the extent that a director,
officer, employee or agent of the corporation has been successful in the defense
of any such action, suit or proceeding or any claim, issue or matter therein, he
shall be indemnified against expenses, including attorneys’ fees, actually and
reasonably incurred in connection with such action, suit or proceeding. Section
351.355(7) provides that a corporation may provide additional indemnification to
any person indemnifiable under subsection (1) or (2), provided such additional
indemnification is authorized by the corporation’s articles of incorporation or
an amendment thereto or by a shareholders-approved bylaw or agreement, and
provided further that no person shall thereby be indemnified against conduct
which was finally adjudged to have been knowingly fraudulent, deliberately
dishonest or willful misconduct or which involved an accounting for profits
pursuant to Section 16(b) of the Exchange Act of 1934.
The
bylaws of the Registrant provide that the Registrant shall indemnify, to the
full extent permitted under Missouri law, any director, officer, employee or
agent of the Registrant who has served as a director, officer, employee or agent
of the Registrant or, at the Registrant’s request, has served as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise.
Insofar
as indemnification for liabilities arising under the Securities Act of 1933 may
be permitted to directors, officers or persons controlling the Registrant
pursuant to such provisions, the Registrant has been informed that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in such Act and is therefore
unenforceable.
Item
16. Exhibits.
Item
17. Undertakings
(a) The
undersigned registrant hereby undertakes:
(1) To file,
during any period in which offers or sales are being made, a post-effective
amendment to this registration statement:
(i) To
include any prospectus required by Section 10(a)(3) of the Securities Act of
1933;
(ii) To
reflect in the prospectus any facts or events arising after the effective date
of this registration statement (or the most recent post-effective amendment
hereof) which, individually or in the aggregate, represent a fundamental change
in the information set forth in this registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume
and price represent no more than 20 percent change in the maximum aggregate
offering price set forth in the “Calculation of Registration Fee” table in the
effective registration statement; and
(iii) To
include any material information with respect to the plan of distribution not
previously disclosed in the registration statement or any material change to
such information in the registration statement.
(2) That, for
the purpose of determining any liability under the Securities Act of 1933, each
such post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona
fide offering
thereof.
(3) To remove
from registration by means of a post-effective amendment any of the securities
being registered which remain unsold at the termination of the
offering.
(b) The
undersigned registrant hereby undertakes that, for purposes of determining any
liability undertakes that, for purposes of determining any liability under the
Securities Act of 1933, each filing of the registrant’s annual report pursuant
to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan’s annual report pursuant to
Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by
reference in the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona
fide offering
thereof.
(c) Insofar
as indemnification for liabilities arising under the Securities Act of 1933 may
be permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event
that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, the registrant certifies that
it has reasonable grounds to believe that it meets all of the requirements for
filing on Form S-3 and has duly caused this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Delray Beach, State of Florida, on May 10, 2005.
|
|
APPLIED
DIGITAL SOLUTIONS, INC. |
|
|
|
By: |
/s/
SCOTT R. SILVERMAN*
Scott
R. Silverman, Chairman, CEO and Acting
President |
POWER
OF ATTORNEY
The
undersigned constitutes and appoints Evan C. McKeown as his or her true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him or her and in his name, place, and stead, in any and all
capacities, to sign the Applied Digital Solutions, Inc. Registration Statement
on Form S-3 and any and all amendments thereto, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, and each or either of them
or their substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant
to the requirements of the Securities Act of 1933, this registration statement
has been signed by the following persons in the capacities and on the dates
indicated.
Signature |
Title |
Date |
/s/
SCOTT R. SILVERMAN*
(Scott
R. Silverman) |
Chairman
of the Board of Directors, Chief Executive Officer and Acting President
(Principal Executive Officer) |
|
|
|
|
/s/
EVAN
C. MCKEOWN
(Evan
C. McKeown) |
Senior
Vice President and Chief Financial Officer (Principal Financial
Officer) |
|
|
|
|
/s/
LORRAINE
M. BREECE*
(Lorraine
M. Breece) |
Vice
President and Chief Accounting Officer (Principal Accounting
Officer) |
|
/s/
J.
MICHAEL NORRIS*
(J.
Michael Norris) |
Director |
|
|
|
|
/s/
DANIEL E. PENNI*
(Daniel
E. Penni) |
Director |
|
|
|
|
/s/
DENNIS
G. RAWAN*
(Dennis
G. Rawan) |
Director |
|
|
|
|
/s/
CONSTANCE
K WEAVER*
(Constance
K. Weaver) |
Director |
|
|
|
|
/s/
MICHAEL
S. ZARRIELLO*
(Michael
S. Zarriello) |
Director |
|
|
|
|
|
*By:/s/
Evan C. McKeown
Evan
C. McKeown
Attorney-in-Fact |
|
EXHIBIT
INDEX
Exhibit
Number |
Description |
|
|
3.1 |
|
|
|
3.2 |
|
|
|
3.3 |
|
|
|
|
Opinion
of Holland & Knight LLP* |
|
|
23.1 |
Consent
of Eisner LLP* |
|
|
23.2 |
Consent
of Holland & Knight LLP (included in Exhibit 5.1) |
|
|
24.1 |
Power
of Attorney (included on signature page) |
_______
* Filed
herewith