2,900,461 Shares
[GRAPHIC OMITTED]
Common Stock
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This prospectus relates to 2,900,461 shares of our common stock, par value
$.001 per share, which will be sold at various times by the Selling Shareholders
listed in this prospectus starting on page 11. More information about the shares
is under "Description of Capital Stock."
The Selling Shareholders may sell the shares of common stock in one or more
transactions (which may include "block transactions") on the Nasdaq Stock
Market, in the over-the-counter market, in negotiated transactions or in a
combination of such methods of sales, at fixed prices which may be changed, at
market prices prevailing at the time of sales, at prices related to such
prevailing market prices or at negotiated prices.
Our shares are listed on the Nasdaq Stock Market under the symbol "ADSX."
On July 19, 2000, the last reported sale price of our common stock was $3.06 per
share. See "Price Range of Common Stock and Dividend Information."
We will not receive any proceeds from shares sold by the Selling
Shareholders and we will bear all the expenses incurred in connection with
registering this offering of common stock.
The Selling Shareholders may sell the shares of common stock directly or
through underwriters, dealers or agents. They may also pledge some of the shares
of common stock. This prospectus also relates to any sale of shares of common
stock that might take place following any foreclosure of such a pledge. More
information about the way the Selling Shareholders may distribute the common
stock is under the heading "Plan of Distribution."
See the information under the heading "Risk Factors" starting on page 3,
which describes certain factors you should consider before purchasing the common
stock.
Our principal office is at 400 Royal Palm Way, Suite 410, Palm Beach,
Florida 33480, and our telephone number is (561) 366-4800.
-------------------------------------
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.
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The date of this prospectus is August 15, 2000.
<PAGE>
TABLE OF CONTENTS
About This Prospectus..........................................................2
Recent Developments............................................................2
Risk Factors...................................................................3
Our Business...................................................................7
Selling Shareholders..........................................................11
Description of Capital Stock..................................................12
Price Range of Common Stock and
Dividend Information..........................................................13
Plan of Distribution..........................................................14
Legal Opinion.................................................................14
Experts.......................................................................14
Where You Can Find More Information
About Us................................................................15
Statements Regarding Forward-Looking
Information.............................................................16
Unaudited Condensed Combined Pro
Forma Financial Information.............................................17
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with the
Securities and Exchange Commission utilizing a "shelf" registration process.
Under this shelf process, the Selling Shareholders may, from time to time, sell
their shares of our common stock in one or more offerings. This prospectus
provides you with a general description of the common stock being offered. You
should read this prospectus together with additional information described under
the heading "Where You Can Find More Information About Us."
The registration statement that contains this prospectus, including the
exhibits to the registration statement, contains additional information about us
and the securities offered under this prospectus. That registration statement
can be read at the Commission's offices mentioned under the heading "Where You
Can Find More Information About Us."
RECENT DEVELOPMENTS
On September 14, 1999, our subsidiary, IntelleSale.com, Inc., filed a
registration statement with the Securities and Exchange Commission in connection
with its proposed initial public offering. In addition to IntelleSale.com
selling primary shares, we expected to sell shares of IntelleSale.com's common
stock as a selling shareholder. On January 31, 2000, we announced that we were
postponing the proposed initial public offering of IntelleSale.com's common
stock due to market conditions. Deferred initial public offering fees have been
capitalized in anticipation of completing the initial public offering within the
next fiscal year. On May 4, 2000, we announced that we had retained Prudential
Securities Incorporated to assist in pursuing strategic alternatives regarding
IntelleSale.com.
On March 3, 2000, we announced, and on April 24, 2000, we signed a
definitive merger agreement to acquire Destron Fearing Corporation, a Nasdaq
listed company trading under the stock symbol "DFCO". Destron Fearing is a
leading developer, manufacturer and marketer of a broad line of electronic and
visual identification devices for companion animals, livestock, laboratory
animals and wildlife. In this proposed transaction, we will issue 1.5 shares of
our common stock in exchange for each share of common stock of Destron Fearing.
The transaction is expected to close in August 2000, subject to the approval of
both our and Destron Fearing's shareholders. Under the agreement, Destron
Fearing would be merged into Digital Angel.net Inc., our wholly owned
subsidiary. This transaction will be accounted for under the purchase method of
accounting.
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On March 22, 2000, we filed a shelf registration statement to sell, from
time to time, up to 3 million shares of our common stock. Proceeds from the sale
were to be used for general corporate purposes, including the funding of future
acquisitions. On April 5, 2000, we announced that we were postponing this
offering because of adverse market conditions.
During the second quarter of 2000 we acquired, in transactions accounted
for under the purchase method of accounting:
o 100% of the capital stock of Independent Business Consultants, a
network integration company based in Valley Village, California,
effective as of April 1, 2000;
o 100% of the capital stock of Timely Technology Corp., a software
developer and application service provider based in Riverside,
California, effective as of April 1, 2000;
o 100% of the capital stock of P-Tech, Inc., a software development
company based in Manchester, New Hampshire, effective as of April 1,
2000; and
o 100% of the capital stock of Computer Equity Corporation, a
communications integration company based in Chantilly, Virginia,
effective as of June 1, 2000.
Business Divisions. Beginning in the fourth quarter of 1998 and continuing
into 2000, we reorganized into six operating segments to more effectively and
efficiently provide integrated communications products and services to a broad
base of customers. During the second quarter of 1999, several adjustments were
made to the composition of the Telephony, Internet and Non-core divisions to
better align the strengths of the respective divisions with the objectives of
those divisions. In October 1999, we disposed of the main business units
comprising our Communication Infrastructure division and dissolved this group.
In December 1999, our subsidiary, Digital Angel.net Inc., acquired the
patent rights to a miniature digital transceiver, which we named "Digital
Angel(TM)." While still in the development stage, we believe that this
technology may be available for a variety of purposes, such as providing a
tamper-proof means of identification for enhanced e-business security, locating
lost or missing individuals, tracking the location of valuable property and pets
and monitoring the medical conditions of at-risk patients. It is anticipated
that the implantable device will send and receive data and would be able to use
GPS (Global Positioning Satellite) technology for continuous tracking.
RISK FACTORS
You should carefully consider the risk factors listed below. These risk
factors may cause our future earnings to be less or our financial condition to
be less favorable than we expect. You should read this section together with the
other information in, or incorporated herein by reference into, this prospectus.
Forward Looking Statements and Associated Risk. This prospectus, including
the information incorporated herein by reference, contains "forward-looking
statements" as defined in the Private Securities Litigation Reform Act of 1995.
All such forward-looking information involves risks and uncertainties and may be
affected by many factors, some of which are beyond our control. These factors
include:
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o our growth strategies,
o anticipated trends in our business and demographics,
o our ability to successfully integrate the business operations of
recently acquired companies, and
o regulatory, competitive or other economic influences.
We cannot be certain of future financial results. While we have been
profitable for the last three fiscal years, future financial results are
uncertain. During the three months ended March 31, 2000, we recognized a net
loss. There can be no assurance that we will continue to be operated in a
profitable manner. Profitability depends upon many factors, including the
success of our various marketing programs, the maintenance or reduction of
expense levels and our ability to successfully coordinate the efforts of the
different segments of our business.
Future sales of shares of our common stock could adversely affect the
market price of our common stock. As of July 19, 2000, there were 59,017,635
shares of our common stock outstanding. In addition, 503 shares of our common
stock are reserved for issuance in exchange for certain exchangeable shares
issued by our Canadian subsidiary. As of July 19, 2000, since January 1, 2000,
we have issued an aggregate of 10,758,012 shares of common stock, of which
6,630,069 were issued for acquisitions, 2,280,387 shares of common stock were
issued as earnout payments in acquisitions, 45,925 shares were issued in
exchange for the exchangeable shares of our Canadian subsidiary and the
exchangeable shares of our former Canadian subsidiary, TigerTel Services,
Limited, 1,297,090 shares were issued upon the exercise of options, 317,500
shares were issued upon the exercise of warrants, and 187,041 shares were issued
under our employee stock purchase program.
We have effected, and will continue to effect, acquisitions or contract for
certain services through the issuance of common stock or our other equity
securities, as we have typically done in the past. In addition, we have agreed
to certain "price protection" provisions in prior acquisition agreements which
may result in additional shares of common stock being issued. Such issuances of
additional securities may be dilutive of the value of the common stock in
certain circumstances and may have an adverse impact on the market price of the
common stock.
We face significant competition. Each segment of our business is highly
competitive, and we expect that competitive pressures will continue. Many of our
competitors have far greater financial, technological, marketing, personnel and
other resources than us. The areas which we have identified for continued growth
and expansion are also target market segments for some of the largest and most
strongly capitalized companies in the United States, Canada and Europe. There
can be no assurance that we will have the financial, technical, marketing and
other resources required to compete successfully in this environment in the
future.
We face risks associated with acquisitions and expansion. We have engaged
in a continuing program of acquisitions of other businesses which are considered
to be complementary to our lines of business, and we anticipate that such
acquisitions will continue to occur. Our total assets were approximately $209.1
million as of March 31, 2000 and $229.0 million, $124.1 million, $61.3 million,
$33.2 million and $4.1 million as of December 31, 1999, 1998, 1997, 1996 and
1995, respectively. Net operating revenue was approximately $85.2 million and
$51.6 million for the three months ended March 31, 2000 and 1999, respectively,
and $336.7 million, $207.1 million, $103.2 million, $19.9 million and $2.3
million for the years ended December 31, 1999, 1998, 1997, 1996 and 1995,
respectively. Managing these dramatic changes in the scope of our business will
present ongoing challenges to our management, and there can be no assurance that
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our operations as currently structured, or as affected by future acquisitions,
will be successful.
It is our policy to retain existing management of acquired companies, under
the overall supervision of our senior management. The success of the operations
of these subsidiaries will depend, to a great extent, on the continued efforts
of the management of the acquired companies.
We have entered into earnout arrangements with certain sellers under which
they are entitled to additional consideration for their interests in the
companies they sold to us. Under these agreements, assuming that all earnouts
are achieved, as of July 19, 2000, we were contingently liable for additional
consideration of approximately $8.8 million in 2001, $3.0 million in 2002 and
$2.0 million in 2004, of which $1.0 million would be payable in cash and $12.8
million would be payable in stock.
We have entered into put options with the sellers of those companies in
which we acquired less than a 100% interest. These options require us to
purchase the remaining portion we do not own after periods ranging from four to
five years from the dates of acquisition at amounts per share generally equal to
10% to 20% of the average annual earnings per share of the acquired company
before income taxes for, generally, a two-year period ending on the effective
date of the put multiplied by a multiple ranging from four to five. The
purchases under these put options are recorded as changes in minority interest
based upon current operating results. In June 2000, we entered into agreements
to issue, in the aggregate, 2,252,070 shares of our common stock, 1,452,702
shares of which have been issued, to acquire $10.0 million in put options and to
settle earnout payments in certain companies owned by our subsidiary,
IntelleSale.com. These agreements superseded agreements entered into during the
second quarter of 1999.
Goodwill write-offs will reduce our earnings. As a result of the
acquisitions we have completed through March 31, 2000, we have approximately
$65.7 million of goodwill, $24.4 million of which is deductible for tax
purposes, which is currently being amortized over 20 years at the rate of
approximately $3.5 million per year, which reduces our net income and earnings
per share. In addition, future acquisitions may also increase the existing
goodwill and the amount of annual amortization, further reducing net income and
earnings per share. As required by Statement of Financial Accounting Standards
No. 121, we will periodically review our goodwill for impairment based on
expected future undiscounted cash flows. If we determine that there is such
impairment, we would be required to write down the amount of goodwill
accordingly, which would also reduce our earnings.
Our need for additional capital could adversely affect earnings and
shareholder rights. We may require additional capital to fund growth of our
current business as well as to make future acquisitions. However, we may not be
able to obtain capital from outside sources. Even if we do obtain capital from
outside sources, it may not be on terms favorable to us. Our current credit
agreement with IBM Credit Corporation may hinder our ability to raise additional
debt capital. If we raise additional capital by issuing equity securities, these
securities may have rights, preferences or privileges senior to those of our
common shareholders.
We depend on key individuals. Our future success is highly dependent upon
our ability to attract and retain qualified key employees. We are organized with
a small senior management team, with each of our separate operations under the
day-to-day control of local managers. If we were to lose the services of any
members of our central management team, our overall operations could be
adversely affected, and the operations of any of our individual facilities could
be adversely affected if the services of the local managers should be
unavailable. We have entered into employment contracts with our key officers and
employees and certain subsidiaries. The agreements are for periods of one to ten
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years through June 2009. Some of the employment contracts also call for bonus
arrangements based on earnings.
We face risks that the value of our inventory may decline. We purchase and
warehouse inventory, much of which is refurbished or excess inventory of
personal computer equipment. As a result, we assume inventory risks and price
erosion risks for these products. These risks are especially significant because
personal computer equipment generally is characterized by rapid technological
change and obsolescence. These changes affect the market for refurbished or
excess inventory equipment. Our success will depend on our ability to purchase
inventory at attractive prices relative to its resale value and our ability to
turn our inventory rapidly through sales. If we pay too much or hold inventory
too long, we may be forced to sell our inventory at a discount or at a loss or
write down its value, and our business could be materially adversely affected.
We do not pay dividends on our common stock. We do not have a history of
paying dividends on our common stock and we cannot assure you that any dividends
will be paid in the foreseeable future. The Amended and Restated Term and
Revolving Credit Agreement dated as of July 30, 1999, with IBM Credit
Corporation, as amended, places restrictions on the declaration and payment of
dividends. We intend to use any earnings which may be generated to finance the
growth of our businesses.
We may issue preferred stock. Our Board of Directors has the right to
authorize the issuance of preferred stock, without further shareholder approval,
the holders of which may have preferences over the holders of our common stock
as to payments of dividends, liquidation and other matters.
Our stock price may continue to be volatile. Our common stock is listed on
The Nasdaq National Market, which has experienced and is likely to experience in
the future significant price and volume fluctuations which could adversely
affect the market price of our common stock without regard to our operating
performance. In addition, we believe that factors such as the significant
changes to our business resulting from continued acquisitions and expansions,
quarterly fluctuations in our financial results or cash flows, shortfalls in
earnings or sales below expectations, changes in the performance of other
companies in our same market sectors and the performance of the overall economy
and the financial markets could cause the price of our common stock to fluctuate
substantially. During the 12 month period prior to July 19, 2000, the price per
share of our common stock has ranged from a high of $18.00 to a low of $1.63.
We are obligated to make termination payments upon a change of control. Our
employment agreements with Richard Sullivan, Garret Sullivan and David Loppert
include change of control provisions under which the employees may terminate
their employment within one year after a change of control and are entitled to
receive specified severance payments and/or continued compensation payments for
sixty months. The employment agreements also provide that these executive
officers are entitled to supplemental compensation payments for sixty months
upon termination of employment, even if there is no change in control, unless
their employment is terminated due to a material breach of the terms of the
employment agreement. Also, the agreements for both Richard Sullivan and Garrett
Sullivan provide for certain "triggering events," which include a change in
control, the termination of Richard Sullivan's employment other than for cause,
or if Richard Sullivan ceases to hold his current positions with us for any
reason other than a material breach of the terms of his employment agreement. In
that case, we would be obligated to pay, in cash and/or in stock, $12.1 million
and $3.5 million, respectively, to Richard Sullivan and to Garrett Sullivan, in
addition to certain other compensation. Finally, the employment agreements
provide for a gross up for excise taxes which are payable by these executive
officers if any payments upon a change of control are subject to such taxes as
excess parachute payments.
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Our obligation to make the payments described in this section could
adversely affect our financial condition or could discourage other parties from
entering into transactions with us which might be treated as a change in control
or triggering event for purposes of these agreements.
Digital Angel may not be able to develop products from its unproven
technology. In December 1999, Digital Angel acquired the patent rights to a
miniature digital receiver named "Digital Angel(TM)." This technology is still
in the development stage. Digital Angel's ability to develop and commercialize
products based on its proprietary technology will depend on its ability to
develop its products internally on a timely basis or to enter into arrangements
with third parties to provide these functions. If Digital Angel fails to develop
and commercialize products successfully and on a timely basis, it could have a
material adverse effect on Digital Angel's business, operating results and
financial condition.
Year 2000 compliance. We have not experienced any significant Year 2000
related problems. During 1998 and 1999, we implemented a company wide program to
ensure that we would be compliant prior to the Year 2000 failure dates. We have
not experienced any Year 2000 compliance problems. However, we cannot make any
assurances that unforeseen problems may not arise in the future.
Software sold to consumers. During 1998 and 1999, we identified what we
believe to be all potential Year 2000 problems with any of the software products
we develop and market. However, our management believes that it is not possible
to determine with complete certainty that all Year 2000 problems affecting our
software products have been identified or corrected due to the complexity of
these products. In addition, these products interact with other third party
vendor products and operate on computer systems which are not under our control.
For non-compliant products, we have provided and are continuing to provide
recommendations as to how an organization may address possible Year 2000 issues
regarding that product. Software updates are available for most, but not all,
known issues. Such information is the most currently available concerning the
behavior of our products and is provided "as is" without warranty of any kind.
However, variability of definitions of "compliance" with the Year 2000 and of
different combinations of software, firmware and hardware has led to, and could
lead to further lawsuits against us. The outcome of any such lawsuits and the
impact on us is not estimable at this time.
We do not believe that the Year 2000 problem has had or will continue to
have a material adverse effect on our business, results of operations or cash
flows. The estimate of the potential impact on our financial position, overall
results of operations or cash flows for the Year 2000 problem could change in
the future. Our ability to achieve Year 2000 compliance and the level of
incremental costs associated therewith, could be adversely impacted by, among
other things, the availability and cost of programming and testing resources, a
vendor's ability to modify proprietary software, and unanticipated problems
identified in the ongoing compliance review. The discussion of our efforts, and
management's expectations, relating to Year 2000 compliance are forward-looking
statements.
OUR BUSINESS
General
We are an emerging leader in the implementation of e-business solutions for
the Internet through Computer Telephony Internet Integration (CTII(TM)) (the
integration of computer, telecom and the Internet). Our goal is to be a single
source e-business provider that mid-size companies can turn to for intelligently
connecting their business processes via telephone or computer with their
customers, suppliers and partners to deliver the results expected from the
emerging e-business market. Our services integrate Web front-end applications
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with back-end enterprise resources either by telephone, computer/software or
both. We provide end to end solutions that enable e-business optimization while
powering e-business initiatives through intelligent collaboration and customer
interaction.
We optimize and integrate key e-business processes through collaboration
with our four technology groups, Telephony, Network, Internet and Applications.
Our goal is to meet the challenge of the fundamental way businesses view the use
of technology. Instead of looking at each of our four business groups as
distinct and separate, we regard them as seamless and interrelated. The
widely-used Internet Protocol is replacing the Circuit Switched network,
resulting in a shift from traditional use of telephones, computers and the
Internet into one dynamic network empowering the enterprise and eliminating all
limitations, physical, structural or geographic.
The majority of our current operations are the result of acquisitions
completed during the last five years. Our net operating revenue was
approximately $85.2 million and $51.6 million for the three months ended March
31, 2000 and 1999, respectively, and $336.7 million, $207.1 million, $103.2
million, $19.9 million and $2.3 million respectively, in 1999, 1998, 1997, 1996
and 1995. As of July 19, 2000, since 1995, we have completed 45 acquisitions.
Management analyzes each acquisition opportunity using criteria including
profitability over a two to three year period, the strength of the acquiree's
balance sheet, the strength of its customer base and the experience of its
management team. As of July 19, 2000, since January 1, 2000, we have completed
four acquisitions. We currently operate in the United States, Canada and the
United Kingdom.
Core Business
Our primary businesses, other than IntelleSale.com, the Non-Core Business
Group and Digital Angel, are now organized into four business divisions:
o Telephony--implements telecommunications and Computer Telephony
Integration (CTI) solutions for e-business. We integrate a wide
range of voice and data solutions from communications systems
to voice over Internet Protocol and Virtual Private Networking
(VPN). We provide complete design, project management,
cable/fiber infrastructure, installation and on-going support
for the customers we support. On December 30, 1999, we sold our
interest in our Canadian subsidiary, TigerTel, Inc. to
concentrate our efforts on our domestic CTI solutions.
o Network--is a professional services organization dedicated to
delivering quality e-business services and support to our
client partners, providing e-business infrastructure design and
deployment, personal computer network infrastructure for the
development of local and wide area networks as well as site
analysis, configuration proposals, training and customer
support services.
o Internet--equips our customers with the necessary tools and
support services to enable them to make a successful transition
to implementing e-business practices, Enterprise Resource
Planning (ERP) and Customer Relationship Management (CRM)
solutions, website design, and application and internet access
services to customers of our other divisions.
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o Applications--provides software applications for large retail
application environments, including point of sale, data
acquisition, asset management and decision support systems and
develops programs for portable data collection equipment,
including wireless hand-held devices. It is also involved in
the design, manufacture and support of satellite communication
technology including satellite modems, data broadcast receivers
and wireless global positioning systems for commercial and
military applications.
As of March 31, 2000 and 1999 and as of December 31, 1999, 1998 and 1997,
revenues from these four divisions together accounted for 26.7%, 40.3%, 38.2%,
35.9% and 40.5%, respectively, of our total revenues.
IntelleSale.com. IntelleSale.com, Inc. sells refurbished and new computer
equipment and related components online, through its website at
www.IntelleSale.com, and through other Internet companies, as well as through
traditional channels, which includes sales made by IntelleSale.com's sales
force.
As of March 31, 2000 and 1999 and as of December 31, 1999, 1998 and 1997,
revenues from IntelleSale.com accounted for 59.7%, 33.2%, 42.5%, 29.4% and
38.2%, respectively, of our total revenues.
On September 14, 1999, IntelleSale.com filed a registration statement with
the Securities and Exchange Commission in connection with its proposed initial
public offering. In addition to IntelleSale.com selling primary shares, we
expected to sell shares of IntelleSale.com stock as a selling shareholder. On
January 31, 2000, we announced that we were postponing the proposed initial
public offering of IntelleSale.com stock due to market conditions. Deferred
initial public offering fees have been capitalized in anticipation of completing
the initial public offering within the next year. On May 4, 2000, we announced
that we had retained Prudential Securities Incorporated to assist in pursuing
strategic alternatives regarding IntelleSale.com.
The Non-Core Business Group. This group is comprised of seven individually
managed companies whose businesses are as follows:
o Gavin-Graham Electrical Products is a custom manufacturer of
electrical products, specializing in digital and analog
panelboards, switchboards, motor controls and general control
panels. The company also provides custom manufacturing
processes such as shearing, punching, forming, welding,
grinding, painting and assembly of various component
structures.
o Ground Effects, Ltd., based in Windsor, Canada, is a certified
manufacturer and tier one supplier of standard and specialized
vehicle accessory products to the automotive industry. The
company exports over 80% of the products it produces to the
United States, Mexico, South America, the Far East and the
Middle East.
o Hopper Manufacturing Co., Inc. re-manufactures and distributes
automotive parts. This primarily includes alternators,
starters, water pumps, distributors and smog pumps.
o Innovative Vacuum Solutions, Inc. designs, installs and
re-manufactures vacuum systems used in industry.
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o Americom, STC Netcom and ACT Leasing are all involved in the
fabrication, installation and maintenance of microwave,
cellular and digital personal communication services towers.
As of March 31, 2000 and 1999 and as of December 31, 1999, 1998 and 1997,
revenues from the Non-Core business group, as well as the four disposed entities
within our Communications Infrastructure group, accounted for 16.5%, 29.5%,
19.2%, 34.7% and 21.3%, respectively, of our total revenues.
We had previously announced our intention to divest, in the ordinary course
of business, these non-core businesses at such time and on such terms as our
Board of Directors determines advisable. There can be no assurance that we will
divest of any or all of these businesses or as to the terms or timing of any
divestiture transaction.
Growth Strategy
Our growth strategy is focused on internal expansion and growth through
acquisitions. The following are the key elements of our strategy:
o Become a Single Source e-Business Solutions Provider. We
believe that our expertise in all four areas of our core
competency will enable us to capitalize on the interest of
businesses in fulfilling their e-business solutions through one
provider.
o Leverage of Existing Customer Relationships. We believe there
are significant opportunities within and between each of our
operating divisions to cross market our services to our
existing client base.
o Profit Center Management. While our corporate management team
provides overall guidance, strategic direction and
administrative support, our division presidents have
responsibility for the day-to-day operations of their
respective groups. We operate each business division as a
largely autonomous profit center, which is held accountable for
achieving its financial goals. This approach to management
increases our responsiveness to changes in the marketplace and
to our customers requirements and contributes to our ability to
grow profitably.
o Acquisitions. As of July 19, 2000, since 1995, we have
completed 42 acquisitions. Management analyzes each acquisition
opportunity using various criteria, including profitability
over a two to three year period, the strength of the acquiree's
balance sheet, the strength of its customer base and the
experience of its management team.
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SELLING SHAREHOLDERS
The following table sets forth information regarding the ownership of our
common stock by the Selling Shareholders and the shares being offered under this
prospectus.
We have issued the shares from time to time in various acquisition
transactions. The registration of these shares has been effected pursuant to
agreements entered into by us with the Selling Shareholders.
The percentage owned prior to and after the offering reflects the
outstanding common shares at the time of the registration statement. The amount
and percentage owned after the offering assumes the sale of all of the common
stock being registered on behalf of the Selling Shareholders.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
Ownership Prior to the Number of Shares Ownership After
Selling Shareholder Offering Offered Hereby the Offering
------------------- -------- -------------- ------------
Shares % Shares Shares %
------ --- ------ ------ ---
<S> <C> <C> <C> <C> <C> <C>
Kerry G. Burst 48,333 * 48,333 (1) -- *
Jeff Francis 143,916 * 143,916 (2) -- *
John Vaughn 143,916 * 143,916 (2) -- *
Capital Alliance 15,149 * 15,149 (2) -- *
Robert W. Munson 120,080 * 120,080 (3) -- *
Enrica Carroll 120,080 * 120,080 (3) -- *
Scott A. Lines 74,335 * 74,335 (3) -- *
Susan S. Lines 45,745 * 45,745 (3) -- *
Chuck Sword 40,027 * 40,027 (3) -- *
Michael Wayne Breindel 450,219 * 450,219 (4) -- *
Douglas Marlin. 431,060 * 431,060 (4) -- *
Kevin Barker. 76,633 * 76,633 (4) -- *
Gary D. and Sandra Hornbuckle 302,934 * 49,468 (5) 253,466 *
Sterling Hornbuckle 126,708 * 15,220 (5) 111,488 *
Luis Alvarez 11,416 * 11,416 (5) -- *
Harvey Newman 461,771 * 459,459 (6) 2,312 *
Martin Zuckerman 456,441 * 441,441 (6) 15,000 *
Donna Pizarro 112,613 * 112,613 (7) -- *
Carl Saracino 101,351 * 101,351 (8) -- *
Total 3,282,727 2,900,461 382,266
=======================================================================
--------------------------
<FN>
* Represents ownership of less than one percent.
(1) Represents shares issued in connection with the 1999 earnout payment due
under the terms of the acquisition agreement between us and the selling
shareholder of The Americom Group, Inc., dated as of June 4, 1998.
(2) Represents shares issued in connection with the 1999 earnout payment due
under the terms of the acquisition agreement between us and the selling
shareholders of Port Consulting, Inc., dated as of May 20, 1999.
(3) Represents shares issued in connection with the first earnout payment due
under the terms of the acquisition agreement between us and the selling
shareholders of STR, Inc. dated as of June 30, 1999.
(4) Represents shares issued under the Agreement and Plan of Merger between us
and Independent Business Consultants d/b/a Creative Computer Consultants
Firm effective as of April 1, 2000.
(5) Represents shares issued in connection with the first earnout payment due
under the terms of the acquisition agreement between us and the selling
shareholder and assigns of Hornbuckle Engineering, Inc. dated as of June
30, 1999.
(6) Represents shares issued to the selling shareholders of PPL, Ltd, in
consideration for their minority interest and in settlement of future
earnouts payments.
(7) Represents shares issued to the selling shareholder of Pizarro ReMarketing,
Inc. in consideration for her minority interest.
(8) Represents shares issued to the selling shareholder of Service Transport
Company in consideration for his minority interest.
</FN>
</TABLE>
11
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following description of our capital stock is subject to The General
and Business Corporation Law of Missouri and to provisions contained in our
Articles of Incorporation and Bylaws, copies of which are exhibits to our
Registration Statement on Form S-3 to which this prospectus is a part, which are
incorporated by reference into this prospectus. Reference is made to such
exhibits for a detailed description of the provisions thereof summarized below.
Authorized Capital
Our authorized capital stock consists of 80,000,000 shares of common stock,
$.001 par value, and 5,000,000 shares of preferred stock, $10.00 par value.
Holders of our common stock have no preemptive or other subscription rights.
Common Stock
As of July 19, 2000, there were 59,017,635 shares of our common stock
outstanding. In addition, 503 shares of our common stock are reserved for
issuance in exchange for the exchangeable shares of our Canadian subsidiary.
As of June 30, 2000, there were 1,362 holders of record of our common stock.
The holders of our common stock are entitled to one vote per share on all
matters submitted to a vote of the shareholders. Holders of our common stock do
not have cumulative voting rights. Therefore, holders of more than 50% of the
shares of our common stock are able to elect all directors eligible for election
each year. The holders of common stock are entitled to dividends and other
distributions out of assets legally available if and when declared by our Board
of Directors. Upon our liquidation, dissolution or winding up, the holders of
our common stock are entitled to share pro rata in the distribution of all of
our assets remaining available for distribution after satisfaction of all
liabilities, including any prior rights of any preferred stock which may be
outstanding. There are no redemption or sinking fund provisions applicable to
our common stock.
The transfer agent and registrar for the common stock is Florida Atlantic
Stock Transfer, Inc.
Preferred Stock
As of July 19, 2000, there was one share of our Class B Voting preferred
stock outstanding and issued in the name of a trustee under a voting trust
agreement. The Class B Voting preferred stock is entitled to a number of votes
equal to the number of outstanding shares of ACT-GFX, Canada, Inc. that can be
exchanged for our common stock (the "exchangeable shares"). As of July 19, 2000,
there were 503 exchangeable shares outstanding and entitled to vote through the
exercise by the trustee of voting rights under the voting trust agreement. The
holders of our common stock and Class B Voting preferred stock vote together as
a single class. The holder of the Class B Voting preferred stock is entitled to
dividends and other rights economically equivalent to those of holders of our
common stock.
Pursuant to the voting trust agreement, each holder of exchangeable shares
is entitled to instruct the trustee as to the voting of the number of votes
attached to the Class B Voting preferred stock represented by such holders'
exchangeable shares. The trustee will exercise each vote attached to the Class B
Voting preferred stock only as directed by the relevant holder, and in the
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<PAGE>
absence of instructions from such holder as to voting will not exercise such
votes.
Additional series of the preferred stock may be created and issued from
time to time by our Board of Directors, with such rights and preferences as it
may determine. Because of its broad discretion with respect to the creation and
issuance of any series of preferred stock without shareholder approval, our
Board of Directors could adversely affect the voting power of our common stock.
The issuance of preferred stock may also have the effect of delaying, deferring
or preventing a change in control of us.
Options and Warrants
As of July 19, 2000 there were 918,200 issued and outstanding warrants to
purchase shares of our common stock at a weighted average exercise price of
$4.69 per share and options held by our employees to purchase 11,244,701 shares
of our common stock at a weighted average exercise price of $2.24 per share. All
of the warrants are currently exercisable. Of the outstanding options, 9,351,590
are now exercisable at a weighted average exercise price of $3.03 per share, and
the rest become exercisable at various times over the next three years.
Indemnification
Our bylaws require us to indemnify each of our directors and officers
to the fullest extent permitted by law. An amendment to such article does not
affect the liability of any director for any act or omission occurring prior to
the effective time of such amendment.
PRICE RANGE OF COMMON STOCK AND DIVIDEND INFORMATION
Our common stock is listed on The Nasdaq National Market under the symbol
"ADSX." The following table shows, for the periods indicated, the high and low
sale prices per share of the common stock based on published financial sources.
High Low
1998
First Quarter................ 5.50 4.03
Second Quarter............... 4.88 3.13
Third Quarter ............... 3.50 1.56
Fourth Quarter .............. 5.50 1.53
1999
First Quarter................ 4.19 2.00
Second Quarter............... 3.50 2.00
Third Quarter................ 3.38 1.69
Fourth Quarter............... 16.00 1.63
2000
First Quarter................ 18.00 6.50
Second Quarter............... 10.25 2.97
Third Quarter (through
July 19, 2000)........ 3.63 3.00
Holders
As of June 30, 2000, there were 1,362 holders of record of our common
stock.
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<PAGE>
Dividends
We have never paid cash dividends on our common stock. The decision whether
to apply legally available funds to the payment of dividends on our common stock
will be made by our Board of Directors from time to time in the exercise of its
business judgment. The IBM Agreement contains restrictions on our ability to
declare and pay dividends.
PLAN OF DISTRIBUTION
The Selling Shareholders may sell the shares offered hereby in one or more
transactions (which may include "block" transactions) on the Nasdaq Stock
Market, in the over-the-counter market, in negotiated transactions or in a
combination of such methods of sales, at fixed prices which may be changed, at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices. The Selling Shareholders may
effect such transactions by selling the shares directly to purchasers, or may
sell to or through agents, dealers or underwriters designated from time to time,
and such agents, dealers or underwriters may receive compensation in the form of
discounts, concessions or commissions from the Selling Shareholders and/or the
purchaser(s) of the shares of our common stock for whom they may act as agent or
to whom they may sell as principals, or both. The Selling Shareholders may also
pledge certain of the shares of our common stock from time to time, and this
prospectus also relates to any sale of shares of our common stock that might
take place following any foreclosure of such a pledge. The Selling Shareholders
and any agents, dealers or underwriters that act in connection with the sale of
the shares of our common stock might be deemed to be "underwriters" within the
meaning of Section 2(11) of the Securities Act, and any discount or commission
received by them and any profit on the resale of the shares as principal might
be deemed to be underwriting discounts or commissions under the Securities Act.
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 Shareholders). 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 Shareholders.
LEGAL OPINION
Bryan Cave LLP, St. Louis, Missouri, as our counsel, has issued an opinion
as to the legality of the common stock.
EXPERTS
The consolidated financial statements incorporated in this Prospectus by
reference to the Annual Report on Form 10-K of Applied Digital Solutions, Inc.
(formerly, Applied Cellular Technology, Inc.) for the year ended December 31,
1999, have been so incorporated in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting. The consolidated financial
statements for the year ended December 31, 1997 incorporated in this Prospectus
by reference to the Annual Report on Form 10-K for the year ended December 31,
1999, have been so incorporated in reliance on the report of Rubin, Brown,
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<PAGE>
Gornstein & Co. LLP, independent accountants, given on the authority of said
firm as experts in auditing and accounting.
The consolidated financial statements incorporated in this Prospectus by
reference to the Current Report on Form 8-K/A of Applied Digital Solutions, Inc.
(formerly, Applied Cellular Technology, Inc.) dated August 12, 1999, have been
so incorporated in reliance on the report of Di Pesa & Company, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
WHERE YOU CAN FIND MORE INFORMATION ABOUT US
We file annual, quarterly and special reports, proxy statements and other
information with the Commission. You may read and copy any document we file at
the Commission's public reference rooms at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the Commission's regional offices
located at Northeast Regional Office, Seven World Trade Center, Suite 1300, New
York, New York 10048 and Midwest Regional Office, Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. You can request copies of
these documents by writing to the Commission and paying a duplicating charge.
Please call the Commission at 1-800-732-0330 for further information on the
operation of its public reference rooms in other cities. The Commission also
makes our filings available to the public on its Internet site
(http:\\www.sec.gov). Quotations relating to our common stock appear on The
Nasdaq National Market, 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.
The Commission allows us to "incorporate by reference" information from
other documents that we file with them, which means that we can disclose
important information by referring to those documents. The information
incorporated by reference is considered to be part of this prospectus, and
information we file later with the Commission will automatically update and
supersede this information. We incorporate by reference into this prospectus the
documents listed below, and any future filings we make with the Commission under
Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 prior
to the termination of this offering:
1. Our Annual Report on Form 10-K for the fiscal year ended December 31,
1999, as amended on Form 10-K/A filed on June 23, 2000;
2. Quarterly Report of Form 10-Q for the quarter ended June 30, 2000;
3. Our Quarterly Report on Form 10-Q for the quarter ended March 31,
2000;
4. Our Current Report on Form 8-K dated April 25, 2000 (filed on May 1,
2000);
5. Our Current Report on Form 8-K dated April 12, 2000 (filed on April
13, 2000);
6. Our Current Report on Form 8-K dated June 30, 2000 (filed on July 14,
2000);
7. Our Current Report on Form 8-K/A filed on January 11, 2000;
8. Our Current Report on Form 8-K/A filed on August 12, 1999; and
9. Our Registration Statement on Form 8-A filed on May 5, 1995,
registering our common stock under Section 12(g) of the Exchange Act,
including any amendments or reports filed for the purpose of updating
such description.
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 superseded, to
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<PAGE>
constitute a part of this prospectus or the registration statement. 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.
WE WILL PROVIDE YOU WITH COPIES OF ANY OF THE DOCUMENTS INCORPORATED BY
REFERENCE INTO THIS PROSPECTUS (OTHER THAN EXHIBITS ATTACHED TO THOSE DOCUMENTS,
UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE INTO THE
INFORMATION INCORPORATED HEREIN), WITHOUT CHARGE. PLEASE DIRECT YOUR WRITTEN OR
ORAL REQUEST TO APPLIED DIGITAL SOLUTIONS, INC., 400 ROYAL PALM WAY, SUITE 410,
PALM BEACH, FLORIDA 33480; ATTENTION: KAY LANGSFORD, VICE PRESIDENT OF
ADMINISTRATION (TELEPHONE: (561) 366-4800).
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.
STATEMENTS REGARDING FORWARD-LOOKING INFORMATION
This document and the documents incorporated in this document by reference
contain forward-looking statements within the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995 with respect to our financial
condition, results of operations and business. Words such as "anticipates,"
"expects," "intends," "plans," "believes," "seeks," "estimates" and similar
expressions identify forward-looking statements. These forward-looking
statements are not guarantees of future performance and are subject to certain
risks and uncertainties that could cause actual results to differ materially
from the results contemplated by the forward-looking statements. The section
entitled "Risk Factors" that appears in this prospectus describe some, but not
all, of the factors that could cause these differences.
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<PAGE>
UNAUDITED CONDENSED COMBINED PRO FORMA FINANCIAL INFORMATION
The unaudited pro forma information set forth below gives effect to the
acquisition of Bostek, Inc. and Affiliate and the financing of that acquisition
as if it had occurred on January 1, 1999.
The pro forma adjustments do not reflect any operating efficiencies and
cost savings which may be achievable with respect to the combined companies. The
pro forma adjustments do not include any adjustments to historical sales for any
future price changes nor any adjustments to selling and marketing expenses for
any future operating changes.
The following information is not necessarily indicative of the
operating results that would have occurred had the merger been consummated on
January 1, 1999. You should read the unaudited condensed combined pro forma
statement of operations and the accompanying notes together with the historical
financial statements of Bostek, Inc. and Affiliate and Applied Digital
Solutions, Inc. and Subsidiaries, including the notes thereto, both of which
have been incorporated by reference into this Prospectus.
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<PAGE>
<TABLE>
<CAPTION>
UNAUDITED CONDENSED COMBINED PRO FORMA STATEMENT OF OPERATIONS
For the year ended December 31, 1999
(In thousands, except per share data)
Applied Bostek, Inc. Applied
Digital and Affiliate Digital
Solutions, Inc. Historical Solutions, Inc.
Historical (1/1/1999- Pro Forma Pro Forma
12/31/1999 5/31/1999)(A) Adjustments 12/31/1999
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Net operating income $336,741 $33,400 $370,141
Cost of goods sold 241,790 29,596 271,386
---------------------------------------------------------------
Gross profit 94,951 3,804 98,755
Selling, general and administrative
Expenses (90,416) (3,424) (93,840)
Depreciation and amortization (9,687) (10) (447) (B) (10,144)
Restructuring and unusual costs (2,550) - (2,550)
Gain on sale of subsidiary 20,075 - 20,075
Interest income 616 - 616
Interest expense (3,842) (151) (352) (C) (4,345)
----------------------------------------------------------------
Income before provision for income
taxes, minority interest and
extraordinary loss 9,147 219 (799) 8,567
Provision for income taxes 3,160 74 (298) (D) 2,936
---------------------------------------------------------------
Income before minority interest and
extraordinary loss 5,987 145 (501) 5,631
Minority interest 395 - - 395
---------------------------------------------------------------
Income before extraordinary loss $ 5,592 $ 145 $(501) $ 5,236
===============================================================
Earnings per common share - basic
Income before extraordinary loss $ 0.12 N/A N/A $ 0.11
Earnings per share - diluted
Income before extraordinary loss $ 0.11 N/A N/A $0.10
Weighted average number of
common shares outstanding - basic 46,814 N/A N/A 46,814
Weighted average number of
common shares outstanding - diluted 50,086 N/A N/A 50,086
</TABLE>
The unaudited condensed combined pro forma statement of operations for the year
ended December 31, 1999 gives effect to the consolidated results of operations
for the year ended December 31, 1999 as if the acquisition of Bostek, Inc. and
Affiliate occurred on January 1, 1999.
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<PAGE>
PRO FORMA ADJUSTMENTS TO THE UNAUDITED CONDENSED COMBINED PRO FORMA STATEMENT OF
OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999 ARE AS FOLLOWS:
(A) Represents the historical unaudited condensed combined results of Bostek,
Inc. and Affiliate for the five months ended May 31, 1999. Bostek, Inc. and
Affiliate was acquired by Applied Digital Solutions, Inc. effective June 1,
1999.
(B) The $447 increase in depreciation and amortization expense represents the
estimated amount of goodwill amortization expense to be recorded for the
five month period from January 1, 1999 to May 31, 1999, assuming straight
line amortization of the $21,458 of goodwill related to the Bostek, Inc.
and Affiliate acquisition over a twenty year period.
(C) The $352 increase in interest expense represents the increase to interest
expense for the five month period from January 1, 1999 to May 31, 1999
associated with debt issued in connection with the purchase of Bostek, Inc.
and Affiliate, based upon borrowing the $10,055 paid to the sellers at
closing, at a 8.41% interest rate.
(D) The adjustment to the provision for income taxes results from providing for
taxes at a 40% rate (net federal and state) against the pre-tax pro-forma
adjustments.
19
