Applied Digital Solutions, Inc. (the "Company" or "Applied
Digital") (NASDAQ: ADSX), a leading provider of identification and
security technology, today reported financial results for its
fourth quarter ended December 31, 2006, and full year 2006. The
Company�s consolidated financial results include the financial
position, operating results and cash flows of its majority-owned
subsidiaries, VeriChip Corporation ("VeriChip") (NASDAQ: CHIP),
Digital Angel Corporation ("Digital Angel") (AMEX: DOC), and
InfoTech USA, Inc. ("InfoTech") (OTC: IFTH). The Company�s revenue
increased to approximately $31.4 million for the 2006 fourth
quarter, compared to revenue of $29.0 million for the 2006 third
quarter. Digital Angel�s revenue increased to approximately $15.0
million for the 2006 fourth quarter, compared to approximately
$13.2 million for the 2006 third quarter, while VeriChip generated
revenue of approximately $7.0 million for the 2006 fourth quarter,
compared to revenue of $6.8 million in the 2006 third quarter.
Gross profit increased to approximately $12.8 million in the 2006
fourth quarter, compared to approximately $12.4 million in the 2006
third quarter primarily as a result of increased gross profit at
InfoTech and Digital Angel. Gross profit margin decreased to 40.7%
in the 2006 fourth quarter, compared to approximately 42.6% in the
2006 third quarter. The loss from continuing operations
attributable to common stockholders for the 2006 fourth quarter was
approximately $17.4 million, or ($0.26) per share, compared to a
loss from continuing operations attributable to common stockholders
for the 2006 third quarter of approximately $3.6 million, or
($0.05) per share. The additional loss was primarily a result of
the impact of payments to the Company�s former chief executive
officer, who is now the chief executive officer of VeriChip, and a
non-cash goodwill impairment charge of approximately $6.6 million
in the fourth quarter of 2006. Revenue for the 2006 full year was
$122.7 million, an increase of 7.9%, compared to 2005 full year
revenue of $113.7 million. VeriChip generated 2006 full year
revenue of $27.3 million, compared to 2005 revenue of $15.9
million, primarily attributable to two RFID businesses acquired
during the first half of 2005. Sales of Pacific Decision Sciences
Corporation�s (�PDSC�) service automation software increased to
approximately $6.1 million for the 2006 full year, from $2.3
million for the 2005 full year. Digital Angel reported 2006 full
year revenue of approximately $57.0 million, compared to 2005 full
year revenue of approximately $56.8 million. Gross profit increased
to approximately $51.1 million for the 2006 full year from
approximately $44.9 million for the 2005 full year, and gross
profit margins increased to 41.7% for the 2006 full year from 39.5%
for the 2005 full year. The improvement in both gross profit and
gross profit margins was primarily a result of a more favorable mix
of business, including higher overall sales from VeriChip, and
sales of higher margin products and services at PDSC. The loss from
continuing operations attributable to common stockholders for the
2006 full year was approximately $27.2 million, or $0.40 per share,
compared to a loss from continuing operations attributable to
common stockholders for the 2005 full year of approximately $12.4
million, or $0.20 per share. The increase in the loss was primarily
due to payments to the Company�s former chief executive officer,
increased interest expense, increased sales and marketing costs at
VeriChip related to its investment in its VeriMed Patient
Identification System, increased amortization expense related to
VeriChip�s intangible assets, which it acquired in connection with
two business acquisitions in the first half of 2005, and increased
compensation and legal expense at Digital Angel. Digital Angel has
incurred significant legal expenses defending its intellectual
property. The Company ended 2006 with cash and cash equivalents
totaling approximately $7.4 million. Michael Krawitz, Chief
Executive Officer of the Company, commented, �In 2006, we worked to
accomplish the most critical element of our business model: the IPO
of VeriChip, which began trading in February 2007. VeriChip�s
healthcare security products for maternity wards and nursing homes
grew at more than 11%, providing cash flow and growth while the
VeriMed Patient Identification System network is being established.
We believe that the combination of the existing healthcare business
lines and the VeriMed Patient Identification System makes for good
prospects for VeriChip, and therefore a good investment for Applied
Digital. �Moving forward, we�ll benefit from the fact that VeriChip
and Digital Angel have positioned themselves as leaders in RFID for
people (VeriChip) and RFID for animals (Digital Angel). With those
two investments and the strong operational performance of our
software programming team at PDSC, we believe we are able to
undertake strategic initiatives from a position of strength.� 2006
fourth quarter and full year highlights include: VeriChip reached
record sales of its infant protection products across all product
platforms and multiple geographies, focused in North America.
Management of VeriChip estimates that one in three U.S. hospitals
and birthing centers now use a VeriChip infant protection system.
VeriChip had a total of 392 medical facilities, 80 of which were
protocol adopted, enrolled in the VeriMed Patient Identification
System as of December 31, 2006. During the six-month period from
July to December 2006, VeriChip recorded a 266% increase in the
number of medical facilities that enrolled in the VeriMed network.
Digital Angel entered into an agreement to acquire the assets of
McMurdo Marine Electronics Business, the U.K.�s manufacturer of
emergency location beacons, for approximately $6.1 million (USD),
with additional deferred payments up to $3 million (USD), depending
upon performance of the business following the acquisition. In
February 2007, VeriChip completed its initial public offering,
offering 3.1 million shares of its common stock at $6.50 per share.
Conference Call The Company will host a conference call today for
investors, analysts, business and trade media, and other interested
parties at 9:00 a.m. EST to discuss these results. Interested
participants should call (866) 323-2725 within the United States or
(706) 643-1836 internationally. Please use passcode 1326714.
Alternatively, an audio-only, simultaneous Web cast of the live
conference call can be accessed through the Investor Relations link
on the Company's Web site at www.adsx.com. For persons unable to
participate in either the conference call or the Web cast, a
digitized replay will be available from March 9 at approximately
11:30 a.m. EST to April 8 at 11.59 p.m. EST. For the replay, dial
(800) 642-1687 (USA) or (706) 645-9291 (international), using
access code 1326714. Alternatively, a replay can be accessed
through the Investor Relations section under "Audio Archives" on
the Company's Web site at www.adsx.com. 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 product
line are RFID applications, end-to-end food safety systems,
GPS/Satellite communications, and telecomm and security
infrastructure, positioning Applied Digital as the leader in
identification technology. Applied Digital is the owner of majority
positions in Digital Angel Corporation (AMEX: DOC) and VeriChip
Corporation (NASDAQ: CHIP). This press release contains certain
�forward-looking� statements (as such term is defined in the
Private Securities Litigation Reform Act of 1995). Forward-looking
statements included in this press release include, without
limitation, those concerning expectations for strong revenue growth
of our RFID and other businesses, success of the Company�s
marketing and sales initiative, and expected growth in sales,
earnings and improvement in gross margins. These forward-looking
statements are based on the Company's current expectations and
beliefs and are subject to a number of risks, uncertainties and
assumption. Among the important factors that could cause actual
results to differ materially from those expressed in, or implied
by, the forward-looking statements are our ability to successfully
implement our business strategy; uncertainty as to our working
capital requirements over the next 12 to 24 months; our ability to
successfully integrate the businesses of acquired companies; our
ability to maintain compliance with the covenants of our credit
facilities; our expectation regarding future profitability and
liquidity; competitive and economic influences; market acceptance
of our VeriMed system; our ability to provide uninterrupted, secure
access to the VeriMed database; the relative maturity in the U.S.
and limited size of the markets for our infant protection and
wander prevention systems and vibration monitoring instruments; the
degree of success we have in leveraging our brand reputation,
reseller network and end-use customer base for our infant
protection and wander prevention systems to gain inroads in the
emerging market for asset/staff location and identification
systems; the rate and extent of the U.S. healthcare industry�s
adoption of RFID asset/staff location and identification systems;
our ability to complete our efforts to integrate our infant
protection, wander prevention and asset/staff location and
identification systems on one technology platform; our ability to
become a major player in the food source traceability and safety
arena; our ability to successfully develop survival and emergency
radios for the military and commercial uses; our reliance on
third-party dealers and distributors to successfully market and
sell our products; our ability to defend against costly product
liability claims and claims that our products infringe the
intellectual property rights of others; our ability to comply with
current and future regulations relating to our businesses; and our
ability to maintain proper and effective internal accounting and
financial controls. Additional information about these and other
factors that could affect the Company's business is set forth in
the Company's Form 10-K/A under the caption "Risk Factors" filed
with the Securities and Exchange Commission on April 6, 2006. The
Company undertakes no obligation to update or release any revisions
to these forward-looking statements to reflect events or
circumstances after the date of this statement or to reflect the
occurrence of unanticipated events, except as required by law.
APPLIED DIGITAL SOLUTIONS, INC. AND SUBSIDIARIES CONSOLIDATED
BALANCE SHEETS DATA (In thousands, except par value) � ASSETS
December 31, 2006� � 2005� CURRENT ASSETS Cash and cash equivalents
$ 7,404� $ 22,417� Restricted cash 81� 310� Accounts receivable and
unbilled receivables (net of allowance for doubtful accounts of
$1,045 in 2006 and $838 in 2005) 22,855� 26,236� Inventories
14,331� 12,317� Deferred taxes 697� 392� Other current assets �
4,792� � 3,232� TOTAL CURRENT ASSETS 50,160� 64,934� � PROPERTY AND
EQUIPMENT, NET 12,131� 11,120� � GOODWILL, NET 82,385� 86,231� �
INTANGIBLES, NET 20,200� 21,568� � DEFERRED OFFERING COSTS 5,079�
1,140� � OTHER ASSETS, NET � 1,395� � 995� � � � $ 171,350� � $
185,958� � LIABILITIES AND STOCKHOLDERS� EQUITY � CURRENT
LIABILITIES Notes payable and current maturities of long-term debt
$ 7,326� $ 3,645� Accounts payable 18,741� 12,465� Accrued expenses
19,121� 22,311� Deferred revenue 4,356� 2,765� Net liabilities of
discontinued operations � 5,407� � 5,499� TOTAL CURRENT LIABILITIES
54,951� 46,685� � LONG-TERM DEBT AND NOTES PAYABLE 14,211� 15,692�
DEFERRED TAXES 5,803� 5,614� OTHER LONG-TERM LIABILITIES � 3,447� �
1,659� � TOTAL LIABILITIES � 78,412� � 69,680� COMMITMENTS AND
CONTINGENCIES � � � � MINORITY INTEREST � 49,074� � 49,762� � � � �
� TOTAL STOCKHOLDERS� EQUITY � 43,864� � 66,546� � � � $ 171,350� �
$ 185,958� � APPLIED DIGITAL SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS DATA (In thousands, except
per share data) � For the years ended December 31, 2006� � 2005� �
2004� PRODUCT REVENUE $ 104,206� $ 97,669� $ 96,755� SERVICE
REVENUE � 18,482� � 16,068� � 15,244� TOTAL REVENUE 122,688�
113,737� 111,999� COST OF PRODUCTS SOLD 63,114� 60,222� 71,851�
COST OF SERVICES SOLD � 8,474� � 8,611� � 7,365� GROSS PROFIT
51,100� 44,904� 32,704� � OPERATING COSTS AND EXPENSES: SELLING,
GENERAL AND ADMINISTRATIVE EXPENSE 63,055� 51,101� 38,164� RESEARCH
AND DEVELOPMENT 8,947� 7,202� 3,795� GOODWILL AND ASSET IMPAIRMENT
� 6,629� � 7,141� � �� TOTAL OPERATING COSTS AND EXPENSES 78,631�
58,303� 41,959� � OPERATING LOSS BEFORE OTHER ITEMS (27,531)
(13,399) (9,255) � INTEREST AND OTHER INCOME 1,330� 2,643� 1,896�
INTEREST (EXPENSE) RECOVERY � (3,454) � 1,720� � (2,860) TOTAL
OTHER (EXPENSES) INCOME (2,124) 4,363� (964) � LOSS FROM CONTINUING
OPERATIONS BEFORE TAXES, MINORITY INTEREST, AND GAINS (LOSSES)
ATTRIBUTABLE TO CAPITAL TRANSACTIONS OF SUBSIDIARIES (29,655)
(16,177) (10,219) � (PROVISION) BENEFIT FOR INCOME TAXES � (62) �
447� � (77) LOSS FROM CONTINUING OPERATIONS BEFORE MINORITY
INTEREST,AND GAIN (29,717) (15,730) (10,296) (LOSS) ATTRIBUTABLE TO
CAPITAL TRANSACTIONS OF SUBSIDIARIES MINORITY INTEREST 3,699�
4,373� 655� NET GAIN (LOSS) ON CAPITAL TRANSACTIONS OF SUBSIDIARIES
(1,627) 411� 11,090� GAIN (LOSS) ATTRIBUTABLE TO CHANGES IN
MINORITY INTEREST AS A RESULT OF CAPITAL TRANSACTIONS OF
SUBSIDIARIES � 436� � 598� � (20,203) LOSS FROM CONTINUING
OPERATIONS (27,209) (10,348) (18,754) GAIN (LOSS) FROM DISCONTINUED
OPERATIONS, NET OF INCOME TAXES OF $0 �� 99� (730) CHANGE IN
ESTIMATE ON LOSS ON DISPOSAL AND OPERATING LOSSES DURING THE PHASE
OUT PERIOD � �� � 84� � 2,185� INCOME FROM DISCONTINUED OPERATIONS
�� 183� 1,455� � NET LOSS (27,209) (10,165) (17,299) PREFERRED
STOCK DIVIDENDS �� (1,573) �� ACCRETION OF BENEFICIAL CONVERSION
FEATURE OF REDEEMABLE PREFERRED STOCK � SERIES D � �� � (474) � ��
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS � $ (27,209) � $
(12,212) � $ (17,299) (LOSS) EARNINGS PER COMMON SHARE � BASIC AND
DILUTED LOSS FROM CONTINUING OPERATIONS $ (0.40) $ (0.20) $ (0.37)
INCOME FROM DISCONTINUED OPERATIONS � �� � 0.01� � 0.03� � NET
(LOSS) INCOME PER COMMON SHARE � BASIC AND DILUTED � $ (0.40) � $
(0.19) � $ (0.34) � WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING � BASIC AND DILUTED � 67,338� � 62,900� � 51,291�
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