As Filed with the Securities and Exchange Commission on November 14, 2000
Registration No. 333-47996
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 1 TO
FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
APPLIED DIGITAL SOLUTIONS, INC.
(Exact name of registrant as specified in its charter)
3661
(Primary Standard Industrial
Classification Code Number)
MISSOURI 43-1641533
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
400 Royal Palm Way, Suite 410
Palm Beach, Florida 33480
(561) 366-4800
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
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Garrett A. Sullivan
Applied Digital Solutions, Inc.
400 Royal Palm Way, Suite 410
Palm Beach, Florida 33480
(561) 366-4800
Fax: (561) 366-0002
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies of all correspondence to:
David I. Beckett, Esq. Denis P. McCusker, Esq.
Applied Digital Solutions, Inc. Bryan Cave LLP
400 Royal Palm Way, Suite 410 One Metropolitan Square
Palm Beach, Florida 33480 211 North Broadway, Suite 3600
(561) 366-4800 St. Louis, Missouri 63102-2750
Fax: (561) 366-0002 (314) 259-2000
Fax: (314) 259-2020
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Amending the Prospectus, adding additional shares and adding exhibits
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<TABLE>
<CAPTION>
Calculation Of Additional Registration Fee
============================= ==================== ===================== ===================== =====================
Title of each class of Amount to be Proposed maximum Proposed maximum Amount of
securities to be registered registered (1) offering price per aggregate offering registration fee (3)
unit(2) price(2)
============================= ==================== ===================== ===================== =====================
<S> <C> <C> <C> <C>
Common Stock, $.001 par
value per share 18,942,860 shares $3.1803 $60,243,978 $15,905
============================= ==================== ===================== ===================== =====================
<FN>
(1) In the original filing, 10,777,748 shares were registered. By this
amendment, the registrant is adding 8,165,112 shares to the registration,
for an aggregate of 18,942,860 shares.
(2) Pursuant to Rule 457(c), the proposed offering price and registration fee
have been calculated on the basis of the average of the high and low
trading prices for the common stock for the five day period ended October
13, 2000 (in respect of the initial filing), as reported on the Nasdaq
National Market, and on the basis of the average of the high and low
trading prices for the common stock for the five day period ended November
9, 2000 (in respect of the shares added by this amendment) as reported
on the Nasdaq National Market.
(3) An initial registration fee of $9,255 was paid at the time of the original
registration, and an additional $6,650 has been paid with respect to
the 8,165,112 shares being added by this amendment, calculated as indicated
in Note 2 above.
</FN>
</TABLE>
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.
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<PAGE>
================================================================================
The information in this preliminary prospectus is not complete and may be
changed. The Selling Shareholders may not sell these securities until the
amendment to the registration statement filed with the Securities and Exchange
Commission is effective. This preliminary prospectus is not an offer to sell
these securities and we are not soliciting any offer to buy these securities in
any state where the offer or sale is not permitted.
================================================================================
SUBJECT TO COMPLETION, DATED NOVEMBER 13, 2000
18,942,860 Shares
APPLIED DIGITAL SOLUTIONS, INC.
[GRAPHIC OMITTED]
Common Stock
-------------------------------------
This prospectus relates to 18,942,860 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 14. More information about the shares
is under the heading "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 November 9, 2000, the last reported sale price of our common stock was $2.88
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.
-------------------------------------
The date of this prospectus is November ___, 2000.
<PAGE>
TABLE OF CONTENTS
About This Prospectus..........................................................2
Risk Factors...................................................................3
Our Business...................................................................9
Recent Developments...........................................................11
Selling Shareholders..........................................................14
Description of Capital Stock..................................................18
Price Range of Common Stock and Dividend Information..........................21
Plan of Distribution..........................................................22
Legal Opinion.................................................................22
Experts.......................................................................22
Where You Can Find More information About Us..................................23
Statements Regarding Forward-Looking Information..............................24
Unaudited Pro Forma Condensed Combined Financial Statements ..................25
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."
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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:
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 both the three and nine month periods ended September 30,
2000, we incurred net losses. There can be no assurance that we will return to
profitability which 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 November 9, 2000, there were 102,101,653
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. Since January 1, 2000, we have issued an
aggregate of 53,842,030 shares of common stock, of which 47,192,933 shares were
issued for acquisitions, 2,455,882 shares of common stock were issued as earnout
and put 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, 3,165,610 shares
were issued upon the exercise of options, 735,833 shares were issued upon the
exercise of warrants, 37,994 shares were issued for services and 207,853 shares
were issued under our employee stock purchase program. In addition, we have
entered into additional acquisition agreements which, when completed, will
result in the issuance of approximately 11.8 million additional shares of our
common stock.
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 to the value of our common stock in
certain circumstances and may have an adverse impact on the market price of our
common stock.
Our Series C Convertible Preferred Stock. You should be aware of the
following matters relating to our Series C Convertible Preferred Stock which is
described under "Recent Developments":
o The conversion of the Series C Preferred Stock and the exercise of the
related warrants could result in a substantial number of additional
shares being issued if the market price of our common stock declines.
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<PAGE>
At the earlier of 90 days after the issuance of the Series C Preferred
Stock or upon the effective date of our registration statement relating
to the common stock issuable on the conversion of preferred stock, the
holders of the Series C Preferred Stock have the option to convert the
Series C Preferred at a floating rate based on the market price of our
common stock, but the conversion price may not exceed $7.56 per share,
subject to adjustment. As a result, the lower the price of our common
stock at the time of conversion, the greater the number of shares the
holders of the Series C Preferred Stock will receive.
o To the extent that shares of the Series C Preferred Stock are
converted, a significant number of shares of common stock may be sold
into the market, which could decrease the price of our common stock. In
that case, we could be required to issue an increasingly greater number
of shares of our common stock upon future conversions of the Series C
Preferred Stock, sales of which could further depress the price of our
common stock.
o Upon the occurrence of certain triggering events set forth in the
certificate of designation relating to our Series C Preferred Stock, we
may be required to redeem the preferred stock at a redemption price
equal to 130% of the stated value (or $33.8 million) plus accrued
dividends, if such redemption is not prohibited by our credit
agreement. In addition, under certain circumstances during the
occurrence of a triggering event, the conversion price of the preferred
stock may be reduced to 50% of the lowest closing price of our common
stock during such period. We may also be required to redeem the
preferred stock at a redemption price equal to 130% of the stated value
upon a change of control or other major transactions. If we become
obligated to effect such redemption, it could adversely affect our
financial condition. If such reduction in the conversion price occurs,
it would double the number of shares of common stock issuable on
conversion.
o We may be required to delist our shares of common stock from the Nasdaq
National Market if specific events occur. In accordance with Nasdaq
Rule 4460, which generally requires shareholder approval for the
issuance of securities representing 20% or more of an issuer's
outstanding listed securities, and under the terms of the agreement
pursuant to which we sold the Series C Preferred Stock and related
warrants, we must solicit shareholder approval of the issuance of the
common stock issuable upon the conversion of the Series C Preferred
Stock and the exercise of the related warrants, at a meeting of our
shareholders which shall occur on or before June 30, 2001. If we obtain
shareholder approval, the number of shares that could be issued upon
the conversion of the Series C Preferred Stock would not be limited by
the Nasdaq 20% limitation. If we do not obtain shareholder approval and
are not obligated to issue shares because of restrictions relating to
Nasdaq Rule 4460, we may be required to pay a substantial penalty and
may be required to voluntarily delist our shares of common stock from
the Nasdaq National Market. In that event, trading in our shares of
common stock could decrease substantially, and the price of our shares
of common stock may decline.
o We will be required to accrete the discount on the preferred stock
through equity. However, the accretion will reduce the income available
to common stockholders and earnings per shares. The value assigned to
the warrants will increase the discount on the preferred stock.
o We may not pay dividends on our common stock without the consent of the
holders of a majority of the shares of preferred stock.
o The holders of the preferred stock have the right to require us to
issue up to an additional $26 million in stated value of the preferred
stock for an aggregate purchase price of $20 million, at any time until
ten months from the effective date of the registration statement
relating to the common stock issuable on conversion of the initial
series of the preferred stock. The additional preferred stock will have
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<PAGE>
the same preferences, qualifications and rights as the initial
preferred stock. The additional preferred stock would be accompanied by
warrants to purchase up to 800,000 shares of our 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. Since January 1, 1995 we have made 49
acquisitions and since January 1, 2000 we have made 7 acquisitions. Our total
assets were approximately $341.6 million as of September 30, 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 $73.8 million and $107.3 million for the three months
ended September 30, 2000 and 1999, respectively, $222.9 million and $231.8
million for the nine months ended September 30, 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 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 earnout
profits are achieved, we are contingently liable for additional consideration of
approximately $19.6 million in 2001, $9.1 million in 2002 and $2.0 million in
2004, of which $1.0 million would be payable in cash and $29.7 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, 1,628,197 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 amortization will reduce our earnings. As a result of the
acquisitions we have completed through September 30, 2000, we have approximately
$175.6 million of goodwill, approximately $23.3 million of which is deductible
for tax purposes, which is currently being amortized over 20 years at the rate
of approximately $8.8 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. Goodwill associated with the Pacific Decision
Sciences Corporation, ATEC and Connect Intelligence acquisitions recently
completed amounted to approximately $38.4 million and will be amortized over 20
years at the rate of approximately $2.0 million per year. As required by
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Statement of Financial Accounting Standards No. 121, we will periodically review
our goodwill for impairment, based on expected discounted 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. In addition, the terms of the Series C Preferred Stock and the
sale of substantial amounts of our common stock upon the conversion of the
Series C Preferred may make it more difficult for us to raise capital through
the sale of equity or equity-related securities. If we raise additional capital
by issuing equity securities, these securities may have rights, preferences or
privileges senior to those of our common shareholders.
Covenants under Credit Agreement. We entered into an amended and restated
credit agreement with IBM Credit Corporation on October 17, 2000, which contains
various covenants relating to our financial position and performance as well as
restrictions on declaration and payment of dividends. As of June 30, 2000, we
were out of compliance with three of four financial debt covenants in our prior
agreement with IBM Credit, and we received waivers of compliance from IBM. We
are in compliance with the terms of the new agreement, but we cannot assure you
that we will be able maintain compliance with our covenants in the future. If we
fail to comply with such covenants, IBM Credit would have the right to
accelerate the maturity of our loans.
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
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 Second IBM Agreement
places restrictions on the declaration and payment of dividends. In addition, we
may not pay dividends on our common stock without the consent of the holders of
a majority of the shares of the preferred stock. 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. As described under
"Recent Developments," we issued a series of convertible preferred stock in
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October, 2000, and have granted the purchasers the right to require us to issue
additional shares of convertible preferred stock in the future.
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 November 9, 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, Garrett 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.
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.
We are involved in litigation. We, and certain of our subsidiaries, are
parties to various legal actions as either plaintiff or defendant in the
ordinary course of business.
On April 7, 2000, we and IntelleSale.com filed a counterclaim against David
Romano and Eric Limont, the former owners of Bostek, Inc. and Micro Components
International Incorporated, two companies acquired by IntelleSale.com in June
1999, in the U.S. District Court for the District of Delaware for, generally,
breach of contract, breach of fiduciary duty and fraud. Messrs. Romano and
Limont had filed their claim generally alleging that their earnout payment from
IntelleSale.com was inadequate. In July 2000, we and IntelleSale.com amended our
counterclaim in the U.S. District Court for the District of Delaware to seek
damages for, among other things, securities law violations. In addition, on May
19, 2000, IntelleSale.com and two of its subsidiaries, Bostek, Inc. and Micro
Components International Incorporated, filed suits against Messrs. Romano and
Limont in Superior Court of Massachusetts to recover damages as a result of
fraud, misrepresentations, and breach of fiduciary duties. In July 2000, Messrs.
Romano and Limont amended their complaint in the U.S. District Court for the
District of Delaware to add a claim for $10 million for the $10 million payment
not made to them. We believe that the claims filed by Messrs. Romano and Limont
are without merit and we intend to vigorously defend against the claims. In
addition, we intend to vigorously pursue our claims against Messrs. Romano and
Limont.
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While we believe that the final outcome of these proceedings will not have
a material adverse effect on our financial position, cash flows or results of
operations, we cannot assure the ultimate outcome of these actions and the
estimates of the potential future impact on our financial position, cash flows
or results of operations for these proceedings could change in the future. In
addition, we will continue to incur additional legal costs in connection with
pursuing and defending such actions.
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.
Digital Angel is subject to restrictions imposed by government regulation.
Digital Angel is subject to federal, state and local regulation in the United
States and other countries, and it cannot predict the extent to which it may be
affected by future legislative and other regulatory developments concerning its
products and markets. Digital Angel is required to obtain regulatory approval
before marketing most of its products. Digital Angel's readers must and do
comply with the FCC Part 15 Regulations for Electromagnetic Emissions, and its
insecticide products have been approved by the U.S. Environmental Protection
Agency and are produced under EPA regulations. Sales of insecticide products are
incidental to Digital Angel's primary business and do not represent a material
part of its operations. Digital Angel's products also are subject to compliance
with foreign government agency requirements. Digital Angel's contracts with its
distributors generally require the distributor to obtain all necessary
regulatory approvals from the governments of the countries into which they sell
Digital Angel's products. However, any such approval may be subject to
significant delays. Some regulators also have the authority to revoke approval
of previously approved products for cause, to request recalls of products and to
close manufacturing plants in response to violations. Any actions by these
regulators could materially adversely affect Digital Angel's business.
Year 2000 compliance. We have not experienced any significant internal Year
2000 related problems. During 1998 and 1999, we implemented a company wide
program to ensure that our internal systems 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
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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
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 $73.8 million and $107.3 million for the three months ended
September 30, 2000 and 1999, respectively, $222.9 million and $231.8 million for
the nine months ended September 30, 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. Since
1995, we have completed 49 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. Since January 1, 2000,
we have completed 7 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,
9
<PAGE>
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.
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.
For the nine month periods ended September 30, 2000 and 1999 and for the
years ended December 31, 1999, 1998 and 1997, revenues from these four divisions
together accounted for 43.7%, 39.5%, 38.3%, 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.
For the nine month periods ended September 30, 2000 and 1999 and for the
years ended December 31, 1999, 1998 and 1997, revenues from IntelleSale.com
accounted for 40.3%, 37.9%, 42.5%, 29.4% and 38.2%, respectively, of our total
revenues.
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.
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.
For the nine month periods ended September 30, 2000 and 1999 and for the
years ended 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 16.0%, 22.6%, 19.2%, 34.7% and 21.3%,
respectively, of our total revenues.
Digital Angel.net Inc. In December of 1999, we announced that we had
acquired the patent rights to a miniature digital transceiver which we named
10
<PAGE>
Digital Angel(TM). This technology is still in the development stage and Digital
Angel's ability to develop and commercialize products based on this 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.
In some of its applications, a tiny device is expected to be bonded closely
to the body or implanted just under the skin. We believe that if the technology
is successful, Digital Angel will be able to send and receive data and be
located by GPS (Global Positioning System) technology. In addition to monitoring
the location and medical condition of at-risk patients, we believe Digital
Angel(TM) could have other applications that will prove to be useful. These
applications may include locating lost or missing individuals or household pets;
tracking endangered wildlife; managing livestock and other farm-related animals;
pinpointing the location of valuable stolen property; finding lost airline
baggage and postal packages; managing the commodity supply chain; preventing the
unauthorized use of firearms; and providing a tamper-proof means of
identification for enhanced e-commerce security.
Digital Angel, through its recently completed merger with Destron Fearing,
is now in the animal identification business, a business which Destron Fearing
has been in since 1945 (see "Recent Developments"). For over 50 years, Destron
Fearing has developed, manufactured and marketed a broad range of individual
animal identification products. Destron Fearing owned patents worldwide in
microchip technology and was a leader in the world evolution of radio frequency
animal identification.
Divestitures. We previously announced our intention to divest, in the
ordinary course of business, our 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. Since 1995, we have completed 49 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.
RECENT DEVELOPMENTS
Series C Preferred Stock Transaction
The Preferred Stock. On October 26, 2000 we issued 26,000 shares of Series
C convertible preferred stock to a select group of institutional investors in a
11
<PAGE>
private placement. The stated value of the preferred stock is $1,000 per share,
or an aggregate of $26 million, and the purchase price of the preferred stock
and the related warrants was an aggregate of $20 million. The preferred stock is
convertible into shares of our common stock initially at a rate of $7.56 in
stated value per share, which is reduced to $5.672 in stated value per share 91
days after issuance of the preferred stock. At the earlier of 90 days after the
issuance of the preferred stock or upon the effective date of our registration
statement relating to the common stock issuable on the conversion of the initial
series of preferred stock, the holders also have the option to convert the
stated value of the preferred stock to common stock at an alternative conversion
rate starting at 140% and declining to 110% of the average closing price for the
10 trading days preceding the date of the notice of conversion. The conversion
price and the alternative conversion price are subject to adjustment based on
certain events, including our issuance of shares of common stock, or options or
other rights to acquire common stock, at an issuance price lower than the
conversion price of the preferred stock, or issuance of convertible securities
that have a more favorable price adjustment provision than the preferred stock.
We will be required to accrete the discount on the preferred stock through
equity. However, the accretion will reduce the income available to common
stockholders and earnings per shares. The value assigned to the warrants will
increase the discount on the preferred stock. The holders of the preferred stock
are entitled to receive annual dividends of 4% of the stated value (or 5.2% of
the purchase price) payable in either cash or additional shares of preferred
stock.
If certain triggering events occur in respect of the preferred stock, the
holders may require us to redeem the preferred stock at a price per share equal
to 130% of the stated value (or an aggregate of $33.8 million) plus accrued
dividends, as long as such redemption is not prohibited under our credit
agreement. In addition, under certain circumstances during the occurrence of a
triggering event, the conversion price per share of the preferred stock would be
reduced to 50% of the lowest closing price of our common stock during such
period. The triggering events include (i) failure to have the registration
statement relating to the common stock issuable on the conversion of the
preferred stock declared effective on or prior to 180 days after issuance of the
preferred stock or the suspension of the effectiveness of such registration
statement, (ii) suspensions in trading of or failure to list the common stock
issuable on conversion of the preferred stock, (iii) failure to obtain
shareholder approval at least by June 30, 2001 for the issuance of the common
stock upon the conversion of the preferred stock and upon the exercise of the
warrants, and (iv) certain defaults in payment of or acceleration of our payment
obligations under our credit agreement. The detailed terms of the preferred
stock are set forth in the Certificate of Designation relating thereto, which is
an exhibit to the registration statement of which this prospectus is a part.
Warrants. The holders of the preferred stock have also received 800,000
warrants to purchase up to 800,000 shares of our common stock over the next five
years. The exercise price is $4.73 per share, subject to adjustment for various
events, including the issuance of shares of common stock, or options or other
rights to acquire common stock, at an issuance price lower than the exercise
price under the warrants. The exercise price may be paid in cash, in shares of
common stock or by surrendering warrants.
Option to Acquire Additional Preferred Stock. The investors may purchase up
to an additional $26 million in stated value of Series C convertible preferred
stock and warrants with an initial conversion price of $5.00 per share, for an
aggregate purchase price of $20 million, at any time up to ten months following
the effective date of our registration statement relating to the common stock
issuable on conversion of the initial series of the preferred stock. The
additional preferred stock will have the same preferences, qualifications and
rights as the initial preferred stock.
12
<PAGE>
Pacific Decision Sciences Corporation
On October 25, 2000, we acquired Pacific Decision Sciences Corporation, a
California corporation ("PDSC"). In the merger transaction, we issued
approximately 8,568,532 shares of our common stock. In addition, for each of the
twelve-month periods ending September 30, 2001 and September 30, 2002, the
former stockholders of PDSC will be entitled to receive earnout payments,
payable in cash or in shares of our common stock, of $9,662,947 plus 4.0 times
EBITDA (as defined in the merger agreement) in excess of $3,675,880, subject to
reduction by 4.0 times the shortfall from the Projected EBITDA Amount (as
defined in the merger agreement).
PDSC, based in Santa Ana, California, is a provider of proprietary
web-based customer relationship management software. It develops, sells and
implements software systems that enable automated, single point of contact
delivery of customer service.
Destron Fearing Acquisition
On September 8, 2000 we completed our acquisition of Destron Fearing
Corporation, through a merger of our wholly-owned subsidiary, Digital Angel.net
Inc., into Destron Fearing. As a result of the merger, Destron Fearing is now
our wholly-owned subsidiary and has been renamed "Digital Angel.net Inc." The
transaction will be accounted for under the purchase method of accounting.
In connection with the merger, each outstanding share of Destron Fearing
common stock was exchanged for 1.5 shares of our common stock, with fractional
shares settled in cash. In addition, outstanding options and warrants to
purchase shares of Destron Fearing common stock were converted into a right to
purchase that number of shares of our common stock as the holders would have
been entitled to receive had they exercised such options or warrants prior to
September 8, 2000 and participated in the merger. We issued 20,500,852 shares of
our common stock in exchange for all the outstanding common stock of Destron
Fearing and will issue up to 2,731,006 shares of our common stock upon the
exercise of the Destron Fearing options and warrants.
Destron Fearing has been in the animal identification business since 1945.
For over 50 years, Destron Fearing has developed, manufactured and marketed a
broad range of individual animal identification products. Destron Fearing owns
patents worldwide in microchip technology and is a leader in the world evolution
of radio frequency animal identification.
Other Recent Acquisitions
Since April 1, 2000 we have 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;
o 100% of the capital stock of Computer Equity Corporation, a
communications integration company based in Chantilly, Virginia,
effective as of June 1, 2000;
o 100% of the capital stock of WebNet Services, Inc., an internet
service provider, network integrator and website developer, effective
as of July 1, 2000;
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<PAGE>
o 16% of the capital stock of ATEC Group, Inc. (AMEX:TEC), a systems
integration company, effective as of October 27, 2000;
o 80% of the capital stock of Connect Intelligence Limited, a bandwidth
service provider based in Ireland, effective as of November 2, 2000;
and
o 54% of the capital stock of SysComm International Corporation (Nasdaq:
SYCM), a hardware and software network integration company, effective
as of November 13, 2000.
In addition, effective as of October 19, 2000, we entered into transactions
with MCY.com, Inc. (OTC-BB:MCYC) under which
o we sold to MCY a non-exclusive worldwide license to use our
recently-acquired Net-Vu product, an Internet-based Automatic Contact
Distributor, for $9 million in cash plus $1 million in shares of MCY;
and
o MCY granted to us an exclusive license to MCY's digital encryption and
distribution systems, including its NETrax(TM) software for use in
various non-entertainment business-to-business applications, in
consideration for 11.8 million shares of our common stock valued at
$40 million.
These transactions with MCY are subject to governmental clearance under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.
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. Although such
registration will allow the sale of the shares by the Selling Shareholders from
time to time as described herein, we believe that the Selling Shareholders do
not currently intend to sell all or substantially all of the shares.
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>
Selling Shareholder Ownership Prior to Number of Shares Ownership After
the Offering Offered Hereby the Offering
--------------------------------------------------------------------------------------------------------------------
Shares % Shares %
<S> <C> <C> <C> <C> <C>
Michael Metropolis 8,627 * 8,627 (1) - -
Michelle Metropolis 8,627 * 8,627 (1) - -
Joseph T. Gabriel 8,627 * 8,627 (1) - -
Patrick C. Chai 168,919 * 168,919 (2) - -
Robert W. Borra 168,919 * 168,919 (2) - -
Michael Erickson 162,162 * 162,162 (3) - -
Christopher J. Ballenger 643,772 * 643,772 (4) - -
Glenn J. Ballenger 549,093 * 549,093 (4) - -
The Ballenger Children Trust II 7,919 * 7,919 (4) - -
-3/5/96 - Glenn Ballenger, Trustee
Graciela P. Ballenger 56,564 * 56,564 (4) - -
John G. Ballenger 2,250,616 2.2% 2,250,616 (4) - -
Robert Barham, III 9,616 * 9,616 (4) - -
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<PAGE>
David Barnes 1,244 * 1,244 (4) - -
Brandon Bowers 2,262 * 2,262 (4) - -
Dorothy C. Brooks 54,240 * 54,240 (4) - -
Thomas J. Burns 8,417 * 8,417 (4) - -
Philip Carolan 678 * 678 (4) - -
Michael Clements 1,244 * 1,244 (4) - -
Eugene J. Collins 407,707 * 407,707 (4) - -
Holly Cooper 678 * 678 (4) - -
Charles Costello 226 * 226 (4) - -
Thomas M. Cuneo 204,305 * 204,305 (4) - -
Ellen Day 340 * 340 (4) - -
Michael DeMan 169 * 169 (4) - -
Eric Fantaski 453 * 453 (4) - -
James F. Fantaski 1,471 * 1,471 (4) - -
Michael K. Gammill 164,033 * 164,033 (4) - -
Lisa M. Gaudette 20,362 * 20,362 (4) - -
Bryan Hastings 1,131 * 1,131 (4) - -
David R. Henschel 565 * 565 (4) - -
Frederick M. Henschel 228,911 * 228,911 (4) - -
John F. Henschel 1,131 * 1,131 (4) - -
Richard S. Henschel 1,131 * 1,131 (4) - -
Thomas and Dawn Hitchens, (JTWROS) 5,656 * 5,656 (4) - -
Susan Houser 4,751 * 4,751 (4) - -
Alfred Iwersen, Jr. 6,787 * 6,787 (4) - -
Linda L. Kenney 42,761 * 42,761 (4) - -
Jo Ann Kreiter 849 * 849 (4) - -
James M. and Deborah Kreiter 1,018 * 1,018 (4) - -
(JTWROS)
Paul and Fatomi Kreiter (JTWROS) 1,584 * 1,584 (4) - -
Suzzane M. Kreiter 1,131 * 1,131 (4) - -
Kenneth & Tina Langhyer (JTWROS) 2,149 * 2,149 (4) - -
Larry & Karen Langhyer (JTWROS) 2,149 * 2,149 (4) - -
Charles E. and Eleanor Langhyer 1,018 * 1,018 (4) - -
(JTWROS)
William N. Leonard 22,626 * 22,626 (4) - -
Tammy Lynch 226 * 226 (4) - -
Todd Markulik 678 * 678 (4) - -
Douglas McCafferty 849 * 849 (4) - -
Judith McCune 22,626 * 22,626 (4) - -
Kathleen McWilliams 56,564 * 56,564 (4) - -
Scott W. Milligan 30 * 30 (4) - -
Anne A. Monahan 1,131 * 1,131 (4) - -
15
<PAGE>
Gwen O'Brien 3,394 * 3,394 (4) - -
Brian O'Donoghue 16,968 * 16,968 (4) - -
Colleen Patrick 1,640 * 1,640 (4) - -
Kurt Prindiville 226 * 226 (4) - -
Joseph P. Rockhill, Trustee, 183,717 * 183,717 (4) - -
Living Revocable Bypass Trust of
Joseph P. Rockhill of August 5,
1992
David M. Schaumburg 99,700 * 99,700 (4) - -
Andrew L. Shea, (Steven L. Shea, 1,131 * 1,131 (4) - -
Trustee, F/O/B )
Matthew P. Shea, (Steven L. Shea, 1,131 * 1,131 (4) - -
Trustee, F/O/B)
Steven L. Shea, Jr., (Steven L. 1,131 * 1,131 (4) - -
Shea, Trustee, F/O/B)
Thomas D. Smith 340 * 340 (4) - -
Thomas A. Stasko 10,181 * 10,181 (4) - -
Susan K. Steinmetz 1,131 * 1,131 (4) - -
Jack V. Straley 67,848 * 67,848 (4) - -
Karl Straley 40,839 * 40,839 (4) - -
Tawaststjerna Family Trust - 1995 73,532 * 73,532 (4) - -
- Jacqueline Tawaststjerna,
Trustee
Chloe Tawaststjerna (Jacqueline 8,485 * 8,485 (4) - -
M. Tawaststjerna, Custodian)
Minor child
Gregory L. Tawaststjerna 5,656 * 5,656 (4) - -
Jacqueline M. Tawaststjerna 437,600 * 437,600 (4) - -
Patrick Thurston 226 * 226 (4) - -
George Trubiloff 792 * 792 (4) - -
James Tweedie 113 * 113 (4) - -
Erin L. Voss 7,890 * 7,890 (4) - -
Margaret Warren 4,865 * 4,865 (4) - -
Dennis E. Weikert 22,626 * 22,626 (4) - -
John J. Woloszyn 20,362 * 20,362 (4) - -
John J. Woloszyn IRA (BHC 10,181 * 10,181 (4) - -
Securities Incorporated -
Custodian FBO)
Frank Wright 113 * 113 (4) - -
Mary D. Wright 113 * 113 (4) - -
Laurie Yates 1,640 * 1,640 (4) - -
David Young 1,358 * 1,358 (4) - -
Mitchell Zuckoff 1,131 * 1,131 (4) - -
Mitchell and Suzanne Zuckoff, 1,471 * 1,471 (4) - -
(JTWROS)
Capital Alliance Corp. 592,539 * 234,798 (4) 357,741 *
William D. Asby 21,482 * 21,482 (5) - -
Steffanie R. Beach 21,482 * 21,482 (5) - -
16
<PAGE>
David A. Crowell 26,844 * 26,844 (5) - -
Michael B. Dobbins 455,777 * 455,777 (5) - -
Calvin L. Ellis 21,482 * 21,482 (5) - -
Deborah M. Goff 17,909 * 17,909 (5) - -
David E. Keeney 71,453 * 71,453 (5) - -
Peter W. Mitchell 21,482 * 21,482 (5) - -
John R. Munshour 455,777 * 455,777 (5) - -
Kevin M. Rook 133,005 * 133,005 (5) - -
Paul R. Schechinger 133,005 * 133,005 (5) - -
Vincent J. Zulkowski 21,482 * 21,482 (5) - -
Amro Albanna 215,075 * 215,075 (6) - -
Steven P. Couture 91,071 * 91,071 (7) - -
Jeffrey M. Couture 88,393 * 88,393 (7) - -
Raymond D. Maggi 88,393 * 88,393 (7) - -
Charles Phillips 13,333 * 13,333 (8) - -
Michael Hanlon 320,512 * 320,512 (9) - -
Max Turpie 641,827 * 641,827 (9) - -
Lisa Hartigan 641,827 * 641,827 (9) - -
Tom Kelly 641,827 * 641,827 (9) - -
Ray Naughton 641,827 * 641,827 (9) - -
The Governor & Company of the 288,462 * 288,462 (9) - -
Bank of Ireland, as trustees for
the Davey Technology BES Fund
Essex Trust Limited 14,423 * 14,423 (9) - -
Errigal Holdings 14,423 * 14,423 (9) - -
Bradley Holt 320,000 * 320,000 (10) - -
Surinder Rametra 2,780,968 2.7% 2,780,968 (11) - -
Nirmala Rametra 2,780,968 2.7% 2,780,968 (11) - -
John H. Spielberger 1,000,556 * 1,000,556 (12) - -
Catherine Spielberger 26,056 * 26,056 (12) - -
Bearpen Limited Partnership 312,674 * 312,674 (12) - -
52nd Street Associates, Inc. 37,994 * 37,994 (13) - -
-----------------------------------------------------------------------------------------------------------------
Total 19,300,601 18,942,860 357,741
=================================================================================================================
17
<PAGE>
<FN>
-------------------------------
* Represents ownership of less than one percent
1. Represents shares issued in connection with the merger of MVAK
Technologies, Inc. into Innovative Vacuum Solutions, Inc. in 1999
2. Represents shares issued in connection with our subsidiary,
IntelleSale.com, Inc.'s settlement of future earnout obligations
payable to the selling shareholders of GDB Services, Inc.
3. Represents shares issued in connection with our subsidiary,
IntelleSale.com, Inc.'s acquisition of Mr. Erickson's 18% minority
interest position in Norcom Resources, Inc.
4. Represents shares issued and shares that may be required to be issued
in connection with our acquisition of Computer Equity Corporation
("Compec"), a company we acquired effective as of June 1, 2000. The
shares included herein in the aggregate include (a) 4,829,294 shares
issued to the Compec selling shareholders as provided for in the
Agreement and Plan of Merger and (b) 1,225,896 shares that may be
required to be issued under the formula set forth in the Agreement and
Plan of Merger
5. Represents shares issued in connection with our acquisition of P-Tech,
Inc., a company we acquired effective as of April 1, 2000
6. Represents shares issued in connection with our acquisition of Timely
Technology Corporation, a company we acquired effective as of April 1,
2000
7. Represents shares issued in connection with our acquisition of WebNet
Services, Inc., a company we acquired effective as of July 1, 2000
8. Represents shares issued in connection with our subsidiary,
IntelleSale.com, Inc.'s settlement of future earnout obligations
payable to the selling shareholder of Fiscal Advantage Corp.
9. Represents shares issued and held in escrow in connection with our
acquisition of an 80% interest in Connect Intelligence Limited
10. Represents shares issued to Mr. Holt as a transaction fee in
connection with our acquisition of Destron Fearing Corporation
11. Represents shares issued in connection with our acquisition of Mr. And
Mrs. Rametra's approximately 16% interest in ATEC Group, Inc.
(AMEX:TEC)
12. Represents shares to be issued in connection with our acquisition from
the selling shareholders of approximately a 54% interest in SysComm
International Corporation (Nasdaq: SYCM)
13. Represents shares issued for services rendered by McKinsey & Co., Inc.
</FN>
</TABLE>
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 245,000,000 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 November 9, 2000, there were 102,101,653 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.
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.
18
<PAGE>
Preferred Stock
Class B Voting Preferred Stock. As of November 9, 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 November 9, 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
absence of instructions from such holder as to voting will not exercise such
votes.
Class C Convertible Preferred Stock. On October 26, 2000 we issued 26,000
shares of Series C convertible preferred stock to a select group of
institutional investors in a private placement. The stated value of the
preferred stock is $1,000 per share, or an aggregate of $26 million, and the
purchase price of the preferred stock and the related warrants was an aggregate
of $20 million. The preferred stock is convertible into shares of our common
stock initially at a rate of $7.56 in stated value per share, which is reduced
to $5.672 in stated value per share 91 days after issuance of the preferred
stock. At the earlier of 90 days after the issuance of the preferred stock or
upon the effective date of our registration statement relating to the common
stock issuable on the conversion of the initial series of preferred stock, the
holders also have the option to convert the stated value of the preferred stock
to common stock at an alternative conversion rate starting at 140% and declining
to 110% of the average closing price for the 10 trading days preceding the date
of the notice of conversion. The conversion price and the alternative conversion
price are subject to adjustment based on certain events, including our issuance
of shares of common stock, or options or other rights to acquire common stock,
at an issuance price lower than the conversion price of the preferred stock, or
issuance of convertible securities that have a more favorable price adjustment
provision than the preferred stock. We will be required to accrete the discount
on the preferred stock through equity. However, the accretion will reduce the
income available to common stockholders and earnings per shares. The value
assigned to the warrants will increase the discount on the preferred stock. The
holders of the preferred stock are entitled to receive annual dividends of 4% of
the stated value (or 5.2% of the purchase price) payable in either cash or
additional shares of preferred stock.
If certain triggering events occur in respect of the preferred stock, the
holders may require us to redeem the preferred stock at a price per share equal
to 130% of the stated value (or an aggregate of $33.8 million) plus accrued
dividends, as long as such redemption is not prohibited under our credit
agreement. In addition, under certain circumstances during the occurrence of a
triggering event, the conversion price per share of the preferred stock would be
reduced to 50% of the lowest closing price of our common stock during such
period. The triggering events include (i) failure to have the registration
statement relating to the common stock issuable on the conversion of the
preferred stock declared effective on or prior to 180 days after issuance of the
preferred stock or the suspension of the effectiveness of such registration
statement, (ii) suspensions in trading of or failure to list the common stock
issuable on conversion of the preferred stock, (iii) failure to obtain
shareholder approval at least by June 30, 2001 for the issuance of the common
stock upon the conversion of the preferred stock and upon the exercise of the
warrants, and (iv) certain defaults in payment of or acceleration of our payment
19
<PAGE>
obligations under our credit agreement. The detailed terms of the preferred
stock are set forth in the Certificate of Designation relating thereto, which is
an exhibit to the registration statement of which this prospectus is a part.
Other Preferred Stock. Additional series of 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 November 9, 2000 there were:
o 1,317,343 issued and outstanding warrants to purchase shares of our
common stock at a weighted average exercise price of $4.11 per share;
o warrants issued in connection with the sale of Series C convertible
preferred stock to purchase up to 800,000 shares of our common stock
at $4.73 per share over the next five years, subject to adjustment;
and
o options held by our employees and others to purchase 22,558,643 shares
of our common stock at a weighted average exercise price of $2.43 per
share. All of the warrants are currently exercisable. Of the
outstanding options, 11,278,722 are now exercisable at a weighted
average exercise price of $2.83 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.
20
<PAGE>
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 5.22 2.59
Fourth Quarter (through
November 9, 2000) 4.31 2.72
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, and the certificate of designation relating to our
Series C Convertible Preferred Stock prohibits payment of dividends on our
common stock without the consent of the holders of a majority of the outstanding
shares of preferred stock.
21
<PAGE>
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 years ended December 31,
1999 and 1998, 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, Gornstein & Co. LLP, independent accountants, given
on the authority of said firm as experts in auditing and accounting.
The consolidated financial statements of Destron Fearing Corporation as of
and for the year ended September 30, 1999, incorporated by reference to the
Current Report on Form 8-K of Applied Digital Solutions, Inc. dated September 8,
22
<PAGE>
2000, have been audited by Arthur Andersen LLP, independent public accountants,
as indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said report.
The consolidated financial statements of Computer Equity Corporation and
Subsidiaries as of February 28, 1999 and February 29, 2000 and for the two years
then ended incorporated in this Prospectus by reference to the Current Report on
Form 8-K/A of Applied Digital Solutions, Inc. dated September 11, 2000, have
been so incorporated in reliance on the report of Grant Thornton LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
The consolidated financial statements of Bostek, Inc. and Affiliate as of
and for the year ended December 31, 1998 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 (filed on March 30, 2000), as amended on Form 10-K/A filed on June
23, 2000;
2. Our Quarterly Report on Form 10-Q for the quarter ended March 31,
2000 (filed on May 15, 2000);
3. Our Quarterly Report on Form 10-Q for the quarter ended June 30,
2000 (filed on August 14, 2000), as amended on Form 10-Q/A filed on
September 25, 2000;
4. Our Amendment to Current Report on Form 8-K/A filed on August 12,
1999;
5. Our Amendment to Current Report on Form 8-K/A filed on January 11,
2000 (amending Current Report on Form 8-K filed on December 13, 1999);
6. Our Current Report on Form 8-K dated April 12, 2000 (filed on April
13, 2000);
7. Our Current Report on Form 8-K dated April 24, 2000 (filed on May
1, 2000);
8. Our Current Report on Form 8-K dated June 30, 2000 (filed on July
14, 2000), as amended by our Current Report on Form 8-K/A dated September
11, 2000 (filed on September 11, 2000);
9. Our Current Report on Form 8-K dated September 8, 2000 (filed on
September 21, 2000);
10. Our Current Report on Form 8-K dated October 17, 2000 (filed on
October 24, 2000);
23
<PAGE>
11. Our Current Report on Form 8-K dated October 26, 2000 (filed on
October 26, 2000);
12. Our Current Report on Form 8-K dated October 25, 2000 (filed on
November 1, 2000); and
13. 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 the
description of such common stock.
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
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-Loveland, 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.
24
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
INTRODUCTION
The accompanying unaudited pro forma condensed combined financial
statements reflect the consolidated financial position of Applied Digital
Solutions, Inc. and subsidiaries ("the Company") as of June 30, 2000, and the
results of its condensed consolidated operations for the six months ended June
30, 2000 and 1999 and the year ended December 31, 1999 after giving effect to
the acquisition of Computer Equity Corporation ("Compec") and the merger with
Destron Fearing Corporation ("Destron"). The unaudited pro forma condensed
combined balance sheet is based on the historical balance sheet of the Company
and gives effect to the merger with Destron as if it had been consummated on
June 30, 2000. The unaudited pro forma condensed combined statement of
operations for the six months ended June 30, 2000 and 1999 gives effect to the
acquisition of Compec and the merger with Destron as if they had occurred on
January 1, 2000 and 1999. The unaudited pro forma condensed combined statement
of operations for the year ended December 31, 1999 gives effect to the
acquisition of Compec and the merger with Destron as if they had occurred at the
beginning of each company's complete fiscal year. The Company's fiscal year
ended on December 31, 1999, while Compec's fiscal year ended February 29, 2000
and Destron's fiscal year ended on September 30, 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.
During June 2000, the Company's subsidiary, Compec Acquisition Corp,
acquired all of the outstanding common shares of Compec in a transaction
accounted for under the purchase method of accounting. The aggregate purchase
price was approximately $24.6 million of which $15.7 million was paid in shares
of the Company's common stock and $8.9 million was paid in cash. An additional
$10.3 million of purchase price is contingent upon Compec achieving certain
earnings targets in the next twenty-four months. The purchase price for Compec
was assigned to the assets acquired and the liabilities assumed based on their
estimated fair values at the acquisition date, which approximated their book
values. Based upon such allocations, the aggregate purchase price exceeded the
estimated fair value of the net assets acquired (goodwill) by approximately
$15.9 million, which is being amortized on a straight- line basis over 20 years.
Any additional amounts paid out under the purchase price contingency provision
noted above are expected to result in additional goodwill. A final determination
of the required purchase accounting adjustments, including the allocation of the
purchase price to the assets acquired and liabilities assumed based on their
respective fair values, has not yet been made. Accordingly, the purchase
accounting adjustments made in connection with the development of the pro forma
combined financial information are preliminary.
On April 24, 2000, the Company announced that a definitive merger agreement
had been signed pursuant to which the Company will acquire Destron in a tax-free
exchange of common stock. Destron will merge with Digital Angel.net Inc., a
wholly owned subsidiary of the Company, and the combined companies will do
business under the Digital Angel.net Inc. name. The pro forma adjustments
reflecting the consummation of the merger are based upon the purchase method of
accounting and upon the assumptions set forth in the notes hereto. Each share of
Destron common stock issued and outstanding immediately prior to the
effectiveness of the merger will be canceled and automatically converted into
the right to receive 1.5 shares of the Company's common stock, $.001 par value
per share, subject to adjustments as set forth in the merger agreement.
Additionally, all of Destron's warrants and stock options will be assumed by the
Company. The merger was approved by the shareholders of the Company on September
2, 2000 and by the shareholders of Destron on September 7, 2000. For purposes of
preparing the Company's consolidated financial statements, the Company will
establish a new basis for Destron's assets and liabilities based upon the fair
values thereof, the value of the Company's shares, warrants and stock options
issued to consummate the merger and the costs of the merger. A final
determination of the required purchase accounting adjustments, including the
allocation of the purchase price to the assets acquired and liabilities assumed
based on their respective fair values, has not yet been made. Accordingly, the
purchase accounting adjustments made in connection with the development of the
pro forma combined financial information are preliminary and have been made
solely for purposes of developing such pro forma combined financial information.
Accordingly, upon completion of the merger, the actual financial position and
results of operations will differ, perhaps significantly, from the pro forma
amounts reflected herein because of a variety of factors, including access to
additional information and changes in value and operating results between the
dates of the pro forma financial information data and the date on which the
merger is consummated.
25
<PAGE>
<TABLE>
APPLIED DIGITAL SOLUTIONS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
JUNE 30, 2000
(In Thousands)
<CAPTION>
APPLIED DESTRON
DIGITAL FEARING
SOLUTIONS, INC. CORPORATION PRO FORMA
HISTORICAL HISTORICAL MERGER COMBINED
JUNE 30, 2000 JUNE 30, 2000 ADJUSTMENTS JUNE 30, 2000
============================================== =============
<S> <C> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 12,688 $ 2,236 $ - $ 14,924
Accounts receivable and unbilled
receivables, net 50,122 2,481 52,603
Inventories 39,009 3,909 42,918
Notes receivable 4,463 - 4,463
Prepaid expenses and other current assets 9,912 562 10,474
-------------------------------------- --------
Total Current Assets 116,194 9,188 125,382
Property and equipment, net 17,410 1,859 19,269
Notes receivable 3,345 - 3,345
Goodwill, net 97,359 1,770 77,126(A) 176,255
Other assets 17,782 110 17,892
-------------------------------------- --------
$252,090 $12,927 $77,126 $342,143
====================================== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Notes payable $ 31,627 $ - $ - $ 31,627
Current maturities of long-term debt 8,953 581 9,534
Due to shareholders of acquired subsidiary 18,864 - 18,864
Accounts payable 23,683 685 24,368
Accrued expenses 16,353 424 3,000(B) 19,777
Other current liabilities - - -
-------------------------------------- --------
Total Current Liabilities 99,480 1,690 3,000 104,170
Long-Term Debt 35,050 66 - 35,116
-------------------------------------- --------
Total Liabilities 134,530 1,756 3,000 139,286
-------------------------------------- --------
Commitments and Contingencies - - - -
-------------------------------------- --------
Minority Interest 2,272 - 2,272
-------------------------------------- --------
Stockholders' Equity
Preferred shares - - -
Common stock 59 136 (115)(C) 80
Common stock warrants - 100 (100)(C) -
Additional paid-in capital 129,211 20,300 64,976 (C) 214,487
Retained earnings (deficit) (6,236) (9,365) 9,365 (C) (6,236)
Treasury stock (7,310) - (7,310)
Accumulated other comprehensive loss (436) - (436)
-------------------------------------- --------
Total Stockholders' Equity 115,288 11,171 74,126 200,585
-------------------------------------- --------
$252,090 $12,927 $77,126 $342,143
====================================== ========
The unaudited pro forma condensed combined balance sheet at June 30, 2000 gives
effect to the financial position as if the merger of Destron occurred on June
30, 2000.
26
<PAGE>
PRO FORMA ADJUSTMENTS FOR THE UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE
SHEET AT JUNE 30, 2000 ARE AS FOLLOWS:
<FN>
(A) The adjustment to goodwill represents the amount required to reflect the
goodwill associated with the excess of the purchase price paid by the
Company over the sum of the amounts assigned to identifiable assets
acquired and liabilities assumed. It is assumed that the new book basis of
the acquired net tangible assets and liabilities approximates the
historical valuation of Destron's tangible assets and liabilities, using
the purchase method of accounting. For purposes of this presentation, the
fair value of the Company's shares issuable in exchange for Destron's
common stock has been calculated using the share price of $3.84. For
purposes of this presentation, the fair value of Destron's 1,804,274 stock
options and warrants to be assumed by the Company has been calculated
utilizing the Black- Scholes option pricing model, Destron's outstanding
options and warrants and their weighted average exercise price as of
September 7, 2000, a 1.5 exchange ratio and a stock price of $3.84. Under
these assumptions, the merger consideration and related goodwill is as
follows:
Fair Value of Stock Issued (Including Shares Issued for
Transaction Fee) $ 79,724
Fair Value of Options and Warrants Assumed 5,573
Estimated Transaction Costs (Excluding Shares Issued for
Transaction Fee) 3,000
--------
Merger Consideration 88,297
Net Tangible Assets Acquired (Excluding Goodwill) 9,401
--------
Goodwill 78,896
Destron Historical Goodwill (1,770)
--------
Goodwill Merger Adjustment $ 77,126
========
(B) The accrued expense adjustment represents the accrued estimated transaction
costs to be incurred as the Merger is completed. The costs are primarily
for financial advisory, legal, accounting, printing and similar expenses.
(C) The stockholders' equity adjustment represents the fair value of the
Company's stock to be issued in the Merger and the elimination of Destron's
historical equity accounts as follows:
Fair Value of Stock Issued $ 85,297
Destron's Historical Stockholders' Equity (11,171)
--------
$ 74,126
========
</FN>
</TABLE>
27
<PAGE>
<TABLE>
APPLIED DIGITAL SOLUTIONS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
For the six months ended June 30, 2000
(In thousands, except per share data)
<CAPTION>
COMPUTER
EQUITY
APPLIED CORPORATION DESTRON
DIGITAL HISTORICAL FEARING
SOLUTIONS, INC. (JANUARY 1, PRO FORMA CORPORATION PRO FORMA
HISTORICAL 2000 - COMBINED HISTORICAL COMBINED
JUNE 30, MAY 31, PRO FORMA JUNE 30, JUNE 30, MERGER JUNE 30,
2000 2000) (A) ADJUSTMENTS 2000 2000 ADJUSTMENTS 2000
======================================== ====================================== ============
<S> <C> <C> <C> <C> <C> <C> <C>
Net operating revenue $149,016 $10,453 $ - $159,469 $10,807 $ - $170,276
Cost of goods sold 108,570 7,776 116,346 6,420 122,766
Unusual inventory charge 8,500 8,500 8,500
-------------------------------- -------------------------------- --------
Gross profit 31,946 2,677 34,623 4,387 39,010
Selling, general and administrative
expenses (44,524) (2,848) (47,372) (2,344) (49,716)
Depreciation and amortization (4,399) (178) (330)(B) (4,907) (267) (1,930)(G) (7,104)
Unusual and restructuring charges (8,500) (8,500) - (8,500)
Interest and other income 566 566 111 677
Interest expense (2,467) (310)(C) (2,777) (48) (2,825)
-------------------------------- -------------------------------- --------
Income (loss) before provision
(benefit) for income taxes,
minority interest and
extraordinary loss (27,378) (349) (640) (28,367) 1,839 (1,930) (28,458)
Provision (benefit) for income taxes (8,721) (187) (124)(D) (9,032) 38 - (H) (8,994)
-------------------------------- -------------------------------- --------
Income (loss) before minority interest
and extraordinary loss (18,657) (162) (516) (19,335) 1,801 (1,930) (19,464)
Minority interest 243 243 - 243
-------------------------------- -------------------------------- --------
Income (loss) before extraordinary
loss $(18,900) $ (162) $ (516) $(19,578) $ 1,801 $(1,930) $(19,707)
================================ ================================ ========
Earnings (loss) per common share -
basic
Income (loss) before extraordinary
loss $ (0.38) $ (0.36) $ (0.26)
Earnings (loss) per share - diluted
Income (loss) before extraordinary
loss $ (0.38) $ (0.36) $ (0.26)
Weighted average number of common
shares outstanding - basic 50,003 4,804 54,807(E) 20,761 75,568(I)
Weighted average number of common
shares outstanding - diluted 50,003 4,804 54,807(F) 20,761 75,568(J)
The unaudited pro forma condensed combined statement of operations for the six
months ended June 30, 2000 gives effect to the consolidated results of
operations for the six month period as if the acquisition of Compec and the
merger of Destron occurred on January 1, 2000.
28
<PAGE>
PRO FORMA ADJUSTMENTS FOR THE UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT
OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2000 ARE AS FOLLOWS:
<FN>
(A) Represents the historical unaudited condensed combined results of Compec
for the five months ended May 31, 2000. Compec was acquired by the Company
effective June 1, 2000.
(B) The $330 increase in depreciation and amortization expense represents the
estimated amount of goodwill amortization expense to be recorded assuming
straight line amortization of the $15,853 of goodwill recorded on the
Company's books related to the Compec acquisition over a twenty year
period.
(C) The $310 increase in interest expense represents the increase to interest
expense associated with debt issued in connection with the purchase of
Compec, based upon borrowing the $8,848 paid to the sellers at closing at
an 8.41% interest rate.
(D) The $124 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 adjustment for interest expense. The amortization of
goodwill is not deductible and therefore receives no tax benefit.
(E) Includes the 4,804 shares of the Company's common stock issued to Compec's
shareholders. For purposes of this pro forma presentation, such shares of
the Company's common stock were deemed to be outstanding for the entire pro
forma period.
(F) There were no potential diluted common shares assumed by the Company in
connection with the acquisition of Compec.
(G) The $1,930 increase in depreciation and amortization expense represents the
estimated amount of goodwill amortization expense to be recorded for the
six month period from January 1, 2000 to June 30, 2000, assuming straight
line amortization of the $78,896 of goodwill over a 20 year period and
taking into consideration the $42 of goodwill amortization expense included
in Destron's historical statement of operations.
(H) The amortization of goodwill related to the Destron acquisition is not
deductible and therefore receives no tax benefit.
(I) The number of shares of the Company's common stock to be issued were
determined under the assumption that all of the 13,667,278 shares of
Destron common stock outstanding on September 7, 2000, the date Destron's
shareholders approved the merger, are exchanged for common stock of the
Company at an exchange ratio of 1.5, that approximately 260,420 shares of
the Company's common stock will be issued for payment of a finder's fee and
without taking into account the exercise of options and warrants of Destron
assumed by the Company. For purposes of this pro forma presentation the
Company's common stock were deemed to be outstanding for the entire pro
forma period.
(J) The diluted potential common shares were not included in the computation of
diluted loss per share because to do so would have been anti-dilutive.
</FN>
</TABLE>
29
<PAGE>
<TABLE>
APPLIED DIGITAL SOLUTIONS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
For the six months ended June 30, 1999
(In thousands, except per share data)
<CAPTION>
APPLIED BOSTEK, INC. APPLIED COMPUTER
DIGITAL AND AFFILIATE DIGITAL EQUITY
SOLUTIONS, INC. HISTORICAL SOLUTIONS, INC. CORPORATION
HISTORICAL (JANUARY 1, 1999 - PRO FORMA HISTORICAL
JUNE 30, MAY 31, 1999) PRO FORMA JUNE 30, JUNE 30, PRO FORMA
1999 (A) ADJUSTMENTS 1999 1999 ADJUSTMENTS
===========================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net operating revenue $124,528 $33,400 $ $157,928 $15,050 $
Cost of goods sold 79,782 29,596 109,378 11,477
----------------------------------------------------------------------------------------
Gross profit 44,746 3,804 48,550 3,573
Selling, general and administrative
expenses (37,816) (3,424) (447)(B) (41,687) (2,002) (396)(E)
Depreciation and amortization (3,761) (10) (3,771) (257)
Unusual and restructuring charges (2,550) - (2,550) -
Interest and other income 278 - 278 140
Interest expense (1,135) (151) (352)(C) (1,638) (2) (372)(F)
-------------------------------------- ----------------------------------------
Income (loss) before provision (benefit)
for income taxes, minority interest
and extraordinary loss (238) 219 (799) (818) 1,452 (768)
Provision (benefit) for income taxes 442 74 (320)(D) 196 590 (149)(G)
-------------------------------------- ----------------------------------------
Income (loss) before minority interest
and extraordinary loss (680) 145 (479) (1,014) 862 (619)
Minority interest 464 464 -
-------------------------------------- ----------------------------------------
Income (loss) before extraordinary loss $ (1,144) $ 145 $(479) $ (1,478) $ 862 $ (619)
====================================== ========================================
Earnings (loss) per common share - basic
Income (loss) before extraordinary
loss $ (0.03) N/A N/A $ (0.03)
Earnings (loss) per share - diluted
Income (loss) before extraordinary
loss $ (0.03) N/A N/A $ (0.03)
Weighted average number of common
shares outstanding - basic 45,347 N/A N/A 45,347 4,804
Weighted average number of common
shares outstanding - diluted 45,347 N/A N/A 45,347 4,804
</TABLE>
The unaudited pro forma condensed combined statement of operations for the six
months ended June 30, 1999 gives effect to the consolidated results of
operations for the six month period as if the acquisitions of Bostek and Compec
and the merger of Destron occurred on January 1, 1999.
30
<PAGE>
<TABLE>
APPLIED DIGITAL SOLUTIONS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENT OF OPERATIONS (Continued)
For the six months ended June 30, 1999
(In thousands, except per share data)
<CAPTION>
DESTRON
FEARING
PRO FORMA CORPORATION PRO FORMA
COMBINED HISTORICAL COMBINED
JUNE 30, JUNE 30, MERGER JUNE 30,
1999 1999 ADJUSTMENTS 1999
============================================ =============
<S> <C> <C> <C> <C>
Net operating revenue $172,978 $10,720 $ $183,698
Cost of goods sold 120,855 6,060 126,915
------------------------------------- --------
Gross profit 52,123 4,660 56,783
Selling, general and administrative expenses (44,085) (1,739) (45,824)
Depreciation and amortization (4,028) (241) (1,930)(J) (6,199)
Unusual and restructuring charges (2,550) - (2,550)
Interest and other income 418 463 881
Interest expense (2,012) (191) (2,203)
------------------------------------- --------
Income (loss) before provision (benefit)
for income taxes, minority interest and
extraordinary loss (134) 2,952 (1,930) 888
Provision (benefit) for income taxes 637 70 - (K) 707
------------------------------------- --------
Income (loss) before minority interest and
extraordinary loss (771) 2,882 (1,930) 181
Minority interest 464 - 464
------------------------------------- --------
Income (loss) before extraordinary loss $ (1,235) $ 2,882 $(1,930) $ (283)
===================================== ========
Earnings (loss) per common share - basic
Income (loss) before extraordinary
loss $ (0.02) $ (0.00)
Earnings (loss) per share - diluted
Income (loss) before extraordinary
loss $ (0.02) $ (0.00)
Weighted average number of common
shares outstanding - basic 50,151(H) 20,761 70,912 (L)
Weighted average number of common
shares outstanding - diluted 50,151(I) 20,761 70,912 (M)
31
<PAGE>
PRO FORMA ADJUSTMENTS FOR THE UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT
OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1999 ARE AS FOLLOWS:
<FN>
(A) Represents the historical unaudited condensed combined results of Bostek
for the five months ended May 31, 1999. Bostek was acquired by the
Company's subsidiary, Intellesale.com, 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 assuming
straight line amortization of the $21,458 of goodwill recorded on the
Company's books related to the Bostek acquisition over a twenty year
period.
(C) The $352 increase in interest expense represents the increase to interest
expense associated with debt issued in connection with the purchase of
Bostek, based upon borrowing the $10,055 paid to the sellers at closing at
an 8.41% interest rate.
(D) The $320 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.
(E) The $396 increase in depreciation and amortization expense represents the
estimated amount of goodwill amortization expense, assuming straight line
amortization of the $15,853 of goodwill recorded on the Company's books
related to the Compec acquisition over a twenty year period.
(F) The $372 increase in interest expense represents the increase to interest
expense associated with debt issued in connection with the purchase of
Compec, based upon borrowing the $8,848 paid to the sellers at closing at
an 8.41% interest rate.
(G) The $149 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 adjustment for interest expense. The amortization of
goodwill is not deductible and therefore receives no tax benefit.
(H) Includes the 4,804 shares of the Company's common stock issued to Compec's
shareholders. For purposes of this pro forma presentation, such shares of
the Company's common stock were deemed to be outstanding for the entire pro
forma period.
(I) There were no potential diluted common shares assumed by the Company in
connection with the acquisition of Compec.
(J) The $1,930 increase in depreciation and amortization expense represents the
estimated amount of goodwill amortization expense to be recorded for the
six month period from January 1, 1999 to June 30, 1999, assuming straight
line amortization of the $78,896 of goodwill related to the Destron
acquisition over a 20 year period and taking into consideration the $42 of
goodwill amortization expense included in Destron's historical statement of
operations.
(K) The amortization of goodwill is not deductible and therefore receives no
tax benefit.
(L) The number of shares of the Company's common stock to be issued were
determined under the assumption that all of the 13,667,278 shares of
Destron common stock outstanding on September 7, 2000, the date Destron's
shareholders approved the merger, are exchanged for common stock of the
Company at an exchange ratio of 1.5, that approximately 260,420 shares of
the Company's common stock will be issued for payment of a finder's fee and
without taking into account the exercise of options and warrants of Destron
assumed by the Company. For purposes of this pro forma presentation the
Company's common stock were deemed to be outstanding for the entire pro
forma period.
(M) The diluted potential common shares were not included in the computation of
diluted loss per share because to do so would have been anti-dilutive.
</FN>
</TABLE>
32
<PAGE>
<TABLE>
APPLIED DIGITAL SOLUTIONS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
For the year ended December 31, 1999
(In thousands, except per share data)
<CAPTION>
APPLIED BOSTEK, INC. APPLIED COMPUTER
DIGITAL AND AFFILIATE DIGITAL EQUITY
SOLUTIONS, INC. HISTORICAL SOLUTIONS, INC. CORPORATION
HISTORICAL (JANUARY 1, 1999 - PRO FORMA HISTORICAL
DECEMBER 31, MAY 31, 1999) PRO FORMA DECEMBER 31, FEBRUARY 29, PRO FORMA
1999 (A) ADJUSTMENTS 1999 2000 ADJUSTMENTS
============================================== ===========================================
<S> <C> <C> <C> <C> <C> <C>
Net operating revenue $336,741 $33,400 $ $370,141 $33,058 $
Cost of goods sold 241,790 29,596 271,386 24,760
-----------------------------------------------------------------------------------
Gross profit 94,951 3,804 98,755 8,298
Selling, general and administrative
expenses (90,416) (3,424) (93,840) (4,490)
Depreciation and amortization (9,687) (10) (447)(B) (10,144) (498) (793)(E)
Restructuring and unusual charges (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) - (744)(F)
-----------------------------------------------------------------------------------
Income (loss) before provision for
income taxes, minority interest and
extraordinary loss 9,147 219 (799) 8,567 3,310 (1,537)
Provision for income taxes 3,160 74 (320)(D) 2,914 1,273 (298)(G)
-----------------------------------------------------------------------------------
Income (loss) before minority interest
and extraordinary loss 5,987 145 (479) 5,653 2,037 (1,239)
Minority interest 395 - - 395 -
-----------------------------------------------------------------------------------
Income (loss) before extraordinary loss $ 5,592 $ 145 $(479) $ 5,258 $ 2,037 $(1,239)
===================================================================================
Earnings (loss) per common share - basic
Income (loss) before extraordinary
loss $ 0.12 N/A N/A $ 0.11
Earnings (loss) per share - diluted
Income (loss) 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 4,804
Weighted average number of common
shares outstanding - diluted 50,086 N/A N/A 50,086 4,804
</TABLE>
The unaudited pro forma condensed combined 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 acquisitions of Bostek and Compec
and the merger of Destron had occurred on January 1, 1999.
33
<PAGE>
<TABLE>
APPLIED DIGITAL SOLUTIONS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (Continued)
For the year ended December 31, 1999
(In thousands, except per share data)
<CAPTION>
DESTRON
FEARING
PRO FORMA CORPORATION PRO FORMA
COMBINED HISTORICAL COMBINED
DECEMBER 31, SEPTEMBER 30, MERGER DECEMBER 31,
1999 1999 ADJUSTMENTS 1999
============ ============================ ============
<S> <C> <C> <C> <C>
Net operating revenue $403,199 $18,548 $ $ 421,747
Cost of goods sold 296,146 10,996 307,142
------------------------------------- ---------
Gross profit 107,053 7,552 114,605
Selling, general and administrative expenses (98,330) (3,929) (102,259)
Depreciation and amortization (11,435) (214) (3,861)(J) (15,510)
Restructuring and unusual charges (2,550) (2,550)
Gain on sale of subsidiary 20,075 20,075
Interest income 616 18 634
Interest expense (5,089) (273) (5,362)
------------------------------------- ---------
Income (loss) before provision for income
taxes, minority interest and
extraordinary loss 10,340 3,154 (3,861) 9,633
Provision for income taxes 3,889 80 - (K) 3,969
------------------------------------- ---------
Income (loss) before minority interest and
extraordinary loss 6,451 3,074 (3,861) 5,664
Minority interest 395 395
------------------------------------- ---------
Income (loss) before extraordinary loss $ 6,056 $ 3,074 $(3,861) $ 5,269
===================================== =========
Earnings (loss) per common share - basic
Income (loss) before extraordinary
loss $ 0.12 $ 0.07
Earnings (loss) per share - diluted
Income (loss) before extraordinary
loss $ 0.11 $ 0.07
Weighted average number of common
shares outstanding - basic 51,618(H) 20,761 72,379(L)
Weighted average number of common
shares outstanding - diluted 54,890(I) 22,250 77,140(M)
34
<PAGE>
PRO FORMA ADJUSTMENTS FOR THE UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT
OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999 ARE AS FOLLOWS:
<FN>
(A) Represents the historical unaudited condensed combined results of Bostek
for the five months ended May 31, 1999. Bostek was acquired by the
Company's subsidiary, Intellesale.com, 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 assuming
straight line amortization of the $21,458 of goodwill recorded by the
Company related to the Bostek acquisition over a twenty year period.
(C) The $352 increase in interest expense represents the increase to interest
expense associated with debt issued in connection with the purchase of
Bostek, based upon borrowing the $10,055 paid to the sellers at closing at
an 8.41% interest rate.
(D) The $320 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.
(E) The $793 increase in depreciation and amortization expense represents the
estimated amount of goodwill amortization expense to be recorded assuming
straight line amortization of the $15,853 of goodwill recorded by the
Company related to the Compec acquisition over a twenty year period.
(F) The $744 increase in interest expense represents the increase to interest
expense associated with debt issued in connection with the purchase of
Compec, based upon borrowing the $8,848 paid to the sellers at closing at
an 8.41% interest rate.
(G) The $298 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 adjustment for interest expense. The amortization of
goodwill is not deductible and therefore receives no tax benefit.
(H) Includes the 4,804 shares of the Company's common stock issued to Compec's
shareholders. For purposes of this pro forma presentation, such shares of
the Company's common stock were deemed to be outstanding for the entire pro
forma period.
(I) There were no potential diluted common shares assumed by the Company in
connection with the acquisition of Compec.
(J) The $3,861 increase in depreciation and amortization expense represents the
estimated amount of goodwill amortization expense to be recorded, assuming
straight line amortization of the $78,896 of goodwill over a 20 year period
and taking into consideration the $84 of goodwill amortization expense
included in Destron's historical statement of operations.
(K) The amortization of goodwill is not deductible and therefore receives no
tax benefit.
(L) The number of shares of the Company's common stock to be issued were
determined under the assumption that all of the 13,667,278 shares of
Destron common stock outstanding on September 7, 2000, the date Destron's
shareholders approved the merger, are exchanged for common stock of the
Company at an exchange ratio of 1.5, that approximately 260,420 shares of
the Company's common stock will be issued for payment of a finder's fee and
without taking into account the exercise of options and warrants of Destron
assumed by the Company. For purposes of this pro forma presentation the
Company's common stock were deemed to be outstanding for the entire pro
forma period.
(M) The diluted potential common shares outstanding were determined utilizing
the treasury stock method under the assumption that all potentially
dilutive potential common shares were outstanding for the entire pro forma
period. The dilutive potential common shares consist of the estimated
number of Destron options and warrants of 1,804,274 outstanding as of
September 7, 2000. The Destron options and warrants as of September 7,
2000, adjusted for an assumed ratio of 1.5, are those that are assumed to
be acquired by the Company.
</FN>
</TABLE>
35
<PAGE>
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 SEC registration fee are
estimates, payable by the Registrant in connection with the sale and
distribution of the shares registered hereby**:
SEC Registration Fee ....................... $ 15,905
Accounting Fees and Expenses ............... 20,000 *
Legal Fees and Expenses .................... 20,000 *
Miscellaneous Expenses ..................... 4,095 *
-----------
Total.............................. $ 60,000 *
===========
-------------
* Estimated
** The Selling Shareholders 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
the State 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
shareholder-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.
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.
See Exhibit Index.
II-1
<PAGE>
Item 17. Undertakings.
(a) The undersigned issuer 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;
(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;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in this registration
statement or any material change to such information in this
registration statement;
provided, however, that paragraphs (i) and (ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the Registrant
pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of
1934 that are incorporated by reference in this registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, 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 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 that is incorporated by reference in this registration
statement shall be deemed to be a new registration statement relating to the
securities offered herein, 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 (the "Act") 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.
II-2
<PAGE>
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 Palm Beach, State of Florida, on November 13, 2000.
APPLIED DIGITAL SOLUTIONS, INC.
By: /s/ David A. Loppert
--------------------------------------------
David A. Loppert, Vice President, Chief
Financial Officer
POWER OF ATTORNEY
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.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
Chairman of the Board of Directors,
Chief Executive Officer and
/s/ Richard J. Sullivan* Secretary (Principal Executive November 13, 2000
--------------------------------- Officer)
(Richard J. Sullivan)
/s/ Garrett A. Sullivan* President and Director (Principal November 13, 2000
--------------------------------- Operating Officer)
(Garrett A. Sullivan)
/s/ David A. Loppert Vice President, Chief Financial
--------------------------------- Officer November 13, 2000
(David A. Loppert)
/s/ Lorraine M. Breece*
--------------------------------- Chief Accounting Officer November 13, 2000
(Lorraine M. Breece)
/s/ Richard S. Friedland* Director November 13, 2000
---------------------------------
(Richard S. Friedland)
/s/ Arthur F. Noterman* Director November 13, 2000
---------------------------------
(Arthur F. Noterman)
/s/ Daniel E. Penni* Director November 13, 2000
---------------------------------
(Daniel E. Penni)
/s/ Angela M. Sullivan* Director November 13, 2000
---------------------------------
(Angela M. Sullivan)
/s/ Constance K. Weaver* Director November 13, 2000
---------------------------------
(Constance K. Weaver)
*By: /S/ David A. Loppert
--------------------
David A. Loppert
Attorney-in-fact
</TABLE>
II-3
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
------ -----------
4.1 Second Restated Articles of Incorporation of the Registrant
(incorporated herein by reference to Exhibit 4.1 to the
Registrant's Post-Effective Amendment No. 1 on Form S-1 to
Registration Statement (Form S-3 File No. 333-64605) filed with
the Commission on June 24, 1999)
4.2 Amendment of Articles of Incorporation of the Registrant filed
with the Secretary of State of the State of Missouri on September
5, 2000 (incorporated herein by reference to Exhibit 4.3 to the
Registrant's Post-Effective Amendment No. 3 on Form S-3 to
Registration Statement on Form S-4 (File No. 333-38420-02) filed
with the Commission on September 29, 2000)
4.3 Certificate of Designation of Preferences of Series C Convertible
Preferred Stock (incorporated herein by reference to Exhibit 3.1
to the Registrant's Current Report on Form 8-K filed with the
Commission on October 26, 2000)
4.4 Amended and Restated Bylaws of the Registrant dated March 31,
1998 (incorporated herein by reference to Exhibit 3.1 to the
Registrant's Registration Statement on Form S-3 (File No.
333-51067) filed with the Commission on April 27, 1998)
5.1 Opinion of Bryan Cave LLP regarding the validity of the common
stock(*)
10.1 Securities Purchase Agreement, dated as of October 24, 2000,
relating to the Registrant's Series C Convertible Preferred Stock
(incorporated by reference to Exhibit 10.1 to the Registrant's
Current Report on Form 8-K filed with the Commission on October
26, 2000)
10.2 Form of warrant to purchase common stock of the Registrant issued
to the holders of the Series C Convertible Preferred Stock
(incorporated by reference to Exhibit 4.1 to the Registrant's
Current Report on Form 8-K filed with the Commission on October
26, 2000)
10.3 Registration Rights Agreement between the Registrant and the
holders of the Series C Convertible Preferred Stock (incorporated
by reference to Exhibit 10.1 to the Registrant's Current Report
on Form 8-K filed with the Commission on October 26, 2000)
10.4 Agreement and Plan of Merger dated as of October 18, 2000 among
the Registrant, PDS Acquisition Corp., Pacific Decision Sciences
Corporation, H&K Vasa Family 1999 Limited Partnership, H&K Vasa
Family 2000 Limited Partnership, David Dorret and David Englund
(incorporated by reference to Exhibit 2 to the Registrant's
Current Report on Form 8-K filed with the Commission on November
1, 2000)
23.1 Consent of PricewaterhouseCoopers LLP(*)
23.2 Consent of Rubin, Brown, Gornstein & Co. LLP(*)
23.3 Consent of Arthur Andersen LLP(*)
23.4 Consent of Grant Thornton LLP(*)
23.5 Consent of Di Pesa & Company(*)
23.6 Consent of Bryan Cave LLP (included in Exhibit 5.1)(*)
24.1 Power of Attorney (**)
---------------------
* = To be filed by amendment.
** = Previously filed.
II-4
