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Exhibit 10.2

DIGITAL ANGEL CORPORATION
ANNUAL INCENTIVE PLAN

               I.               PURPOSES OF THE PLAN

                                1.01                         The Digital Angel
Corporation (“Company”) Annual Incentive Plan (“Plan”) is established to promote
the interests of the Company and to enhance shareholder value of the Company by
creating an annual incentive program to (i) attract and retain employees who
will strive for excellence, and (ii) motivate those individuals to set and
achieve above-average objectives by providing them with rewards for
contributions to the financial performance of the Company.

             II.               ADMINISTRATION OF THE PLAN

                                2.01                         The Plan is hereby
adopted by the Company’s Board of Directors, which hereby delegates the
administration of the Plan to the Compensation Committee pursuant to the powers
provided to the Committee by the Board of Directors of the Company.

                                2.02                         The interpretation
and construction of the Plan and the adoption of rules and regulations for
administering the Plan shall be made by the Committee.  Decisions of the
Committee shall be final and binding on all parties who have an interest in the
Plan.

            III.               DETERMINATION OF PARTICIPANTS

                                3.01                         The Committee
shall, within ninety (90) days of the start of each fiscal year (a “Performance
Period”), determine which employees are entitled to participate in the Plan for
such Performance Period. An individual shall be eligible to receive
distributions pursuant to the Plan for a Performance Period if such individual
is employed by the Company or any of its participating subsidiaries on the
earlier of March 1 of the succeeding fiscal year or the date on which bonuses
under this Plan are distributed, whichever is earlier.  If an individual is not
employed by the Company or a participating subsidiary on such date, such
employee will not eligible to receive a bonus under the Plan.  However, an
individual who is on a leave of absence or whose employment terminates and is
then re-hired in the same fiscal year may remain eligible at the discretion of
the Committee, and the Committee may provide a pro rata bonus.  In the event of
termination of an individual’s employment as a result of death or disability,
the Committee shall provide the individual or the individual’s estate with a pro
rata bonus.

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                                3.02                         For purposes of the
Plan:

                                                                A.            An
individual shall be considered an employee for so long as such individual
remains employed by the Company or one or more subsidiary corporations.

                                                                B.           
Each corporation (other than the Company) in an unbroken chain of corporations
beginning with the Company shall be considered to be a subsidiary of the
Company, provided each such corporation (other than the last corporation in the
unbroken chain) owns, at the time of determination, stock possessing more than
fifty percent of the total combined voting power of all classes of stock in one
of the other corporations in such chain.

            IV.               BONUS AWARDS

                                4.01                         No eligible
employee shall earn any portion of a bonus award made hereunder for any
Performance Period until December 31 of the applicable Plan year.

                                4.02                         The individual
bonus awards payable to the participants in the Plan for any Performance Period
shall be based upon the Company’s success in achieving specified financial and
operational targets determined by the Committee for that Performance Period
(“Annual Targets”), which Annual Targets shall be set forth in an Exhibit to
this Plan and provided to all participants in the Plan. In determining whether
the Company has achieved the Annual Targets, the measurement of each Annual
Target will be finally determined by the Committee consistent with the Company’s
historical methodology for calculating such amounts for financial reporting
purposes; provided, however, the Committee shall have the right, in its
discretion, to make adjustments to exclude the effect of one time or special
items which, in the Committee’s judgment, unfairly affect the applicable Annual
Target.   In the event the Company acquires, sells or engages in transactions
with other companies or businesses during any applicable fiscal year that would
affect the computation of the Annual Targets, the Committee shall use its
discretion to determine the impact, if any, such transactions should have on the
Annual Targets.  While the bonuses shall be granted if the Company achieves the
Annual Targets, the Committee may use its discretion to award bonuses based on
curves, matrices or other criteria or measurement for prorating the amount of
the payout if the Committee determines it to be appropriate based on executive
performance and other facts and circumstances, with the goal being to reward
performance based upon the Company’s objectives.
 
                                4.03                         The bonuses of an
individual participant shall be based on a percentage of each individual’s base
salary as of the last day of the applicable Performance Period, which percentage
may be increased or decreased based on the extent to which the Company meets or
exceeds the Annual Targets.  The percentage of base salary applicable to each
participant shall be as established by the Committee, taking into account the
provisions of any applicable employment agreements.  In the event the Company
achieves Annual Targets that are in between specified Annual Targets, the
Committee may use its discretion to provide or not provide an individual an
additional

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bonus, pro rata or otherwise, based on the Company’s achievement.

                                4.04                         Following
completion of the bonus calculation referenced above, the Committee shall issue
a written report containing the final calculation.

                                4.05                         Following the end
of each Performance Period, the Committee may determine to grant to any
Participant a bonus, which may not exceed the maximum amount specified in
sections 4.02 and 4.03 above for such Participant. The Committee may reduce or
eliminate the bonus granted to any Participant based on factors determined by
the Committee, including but not limited to, performance against budgeted
financial goals and the Participant’s personal performance.
 
             V.               PAYMENT OF BONUS AWARDS

                                5.01                         Bonuses shall be
paid no later than March 1 of the calendar year following the applicable
Performance Period.  All payments under the Plan shall be subject to the
Company’s collection of all applicable federal, state and local income and
employment withholding taxes.
 
            VI.               GENERAL PROVISIONS
 
                                6.01                         The Plan shall
become effective when adopted by the Compensation Committee.  The Committee may
at any time amend, suspend or terminate the Plan, provided such action is
effected by written resolution and does not adversely affect rights and
interests of Plan participants.

                                6.02                         No amounts awarded
or accrued under this Plan shall actually be funded, set aside or otherwise
segregated prior to payment.  The obligation to pay the bonuses awarded
hereunder shall at all times be an unfunded and unsecured obligation of the
Company.  Plan participants shall have the status of general creditors and shall
look solely to the general assets of the Company for the payment of their bonus
awards.
 
                                6.03                         No Plan participant
shall have the right to alienate, pledge or encumber his/her interest in this
Plan, and such interest shall not (to the extent permitted by law) be subject in
any way to the claims of the employee’s creditors or to attachment, execution or
other process of law.
 
                                6.04                         Neither the action
of the Company in establishing the Plan, nor any action taken under the Plan by
the Committee, nor any provision of the Plan, shall be construed so as to grant
any person the right to a onus or to remain in the employ of the Company or its
subsidiaries for any period of specific duration.  Rather,

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each employee will be employed “at-will,” which means that either such employee
or the Company may terminate the employment relationship at any time for any
reason, with or without cause, subject in each case to any employment agreement
between such person and the Company.
 
6.05  This is the full and complete agreement between the eligible employees and
the Company with respect to incentive bonus compensation. This Plan does not
supersede, but is supplemental to, any provisions of any employment agreement to
which any of the employees eligible under this Plan may be party. 
 
6.06   This plan shall be interpreted in accordance with the laws of the State
of Minnesota.

6.07   This plan may be amended or terminated by the decision of the Board of
Directors of the Company; provided, however, that amendment or termination shall
not affect any incentive compensation that was earned prior to the date of such
amendment or termination.
 
 
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