##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
 (Mark One)
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2009
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from   to
 Commission file number: 000-26020
 DIGITAL ANGEL CORPORATION
  Delaware
    
    43-1641533(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)
 490 Villaume Avenue
South Saint Paul, Minnesota 55075
 
  (Title of each class)
    
    (Name of each exchange on which registered)Common Stock, $0.01 par value
    
    NASDAQ Capital Market
  Yes o No þ
 Yes o No þ
 þ o
 Yes o
No o
 þ
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
(Do not check if a smaller reporting company)
    
    Smaller reporting company þ
 o þ
   Class
    
    Outstanding at March 30, 2010Common Stock, $.01 par value per share
    
    27,576,381 shares




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##### 



DIGITAL ANGEL CORPORATION
TABLE OF CONTENTS
 Item
    
    Description
    
    PagePART I1.
    
    Business
    
    31A.
    
    Risk Factors
    
    112.
    
    Properties
    
    173.
    
    Legal Proceedings
    
    17PART II5.
    
    Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    187.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    208.
    
    Financial Statements
    
    329.
    
    Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
    
    329A(T).
    
    Controls and Procedures
    
    32PART III10.
    
    Directors, Executive Officers and Corporate Governance
    
    3311.
    
    Executive Compensation
    
    3312.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    3313.
    
    Certain Relationships and Related Transactions, and Director Independence
    
    3314.
    
    Principal Accountant Fees and Services
    
    33PART IV15.
    
    Exhibits and Financial Statements
    
    33Signatures
    
    34Exhibit 10.81 Asset Sale and Purchase AgreementExhibit 21.1 List of SubsidiariesExhibit 23.1 Consent of Independent Registered Public Accounting FirmExhibit 31.1 302 Certificate of Chief Executive OfficerExhibit 31.2 302 Certificate of Chief Financial OfficerExhibit 32.1 906 Certificate of Chief Executive OfficerExhibit 32.2 906 Certificate of Chief Financial Officer
   2




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PART 1
 
 ITEM 1. BUSINESS
 Unless the context otherwise provides, when we refer to the Company, we, Digital Angel, or
us, we are referring to Digital Angel Corporation and its subsidiaries (either wholly- or
majority-owned).
 Overview
   
    
    Our Animal Identification segment develops, manufactures and markets visual and electronic
identification tags and implantable radio frequency identification (RFID) microchips, primarily
for identification, tracking and location of companion pets, livestock (e.g., cattle and hogs),
horses, fish and wildlife worldwide, and, more recently, for animal bio-sensing applications, such
as temperature reading for companion pet and livestock applications; and
    
    Our Emergency Identification segment develops, manufactures and markets global position
systems (GPS) and GPS-enabled products used for emergency location and tracking of pilots,
aircraft and maritime vehicles in remote locations as well as sound horn alarms.
 Discontinued Operations
  Internet Website
 www.digitalangel.com www.destronfearing.com www.signatureindustries.com Form 10-Q,
   Recent Events
 Notice of Nasdaq Delisting
    3




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Repayment of Existing Term Debt Obligations
  Registered Direct Offering and Sale of Common Stock and Warrants
  Termination of Standby Equity Distribution Agreement
   Industry Overview
     
    
    a tag, containing a microchip-equipped transponder, an antenna and a capacitor, attached
to the item to be identified, located or tracked, which wirelessly transmits stored information to
a receiver;
    
    one or more receivers, also referred to as readers or scanners, which are devices that
read the tag by sending out an RF signal to which a tag, in the range of the signal, responds; and
    
    the equipment, cabling, computer network and software applications to use the processed data
for one or more applications.
  4




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Pet Identification and Safeguarding
 pet passports
 Livestock/Fish Identification and Tracking and Food Safety and Traceability
   Emergency Identification
    
    
    navigation, ranging from personal hand-held devices for trekking, to devices fitted to cars,
trucks, ships and aircraft;
    
    synchronization;
    
    location-based services such as enhanced 911;
    
    surveying;
  5




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
    
    entering data into a geographic information system;
    
    search and rescue;
    
    geophysical sciences; and
    
    tracking devices used in wildlife management.
  Operating Segments
 Financial Information About Our Segments
  For the years ended December 31,2009
    
    
    2008(in thousands)Animal Identification
    
    $
    30,774
    
    
    $
    38,501Emergency Identification
    
    
    18,689
    
    
    
    23,759Total
    
    $
    49,463
    
    
    $
    62,260
  Animal Identification Segment
 Principal Products and Services
  
    
    visual and electronic ear tags for livestock; and
    
    implantable microchips and RFID scanners for the companion pet, livestock, horses, fish and
wildlife industries.
  TM ®
    6




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Growth Strategy
  
    
    focus on animal identification products in the growing livestock, fish and wildlife
industries;
    
    become a major player in the food source traceability and safety tracking systems arena; and
    
    increase our market share in the pet identification and equine markets with enhanced
products such as our temperature-sensing Bio-Thermo® product.
  ® ®
 New Products
 ®
   Sales, Marketing and Distribution
 ® ® ® ®
  7




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® ® ®
  Competition
   Manufacturing; Supply Arrangements
   Emergency Identification Segment
 Principal Products and Services
  
    
    GPS enabled search and rescue equipment and intelligent communications products and services
for mobile data and radio communications applications, including our SARBETM brand which
serves commercial and military markets; and
    
    alarm sounders for industrial use and other electronic components.
 GPS Enabled Search and Rescue Equipment and Intelligent Communications Products
 TM
  8




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Alarm Sounders
  Growth Strategy
  Sales and Distribution
   Competition
  Manufacturing; Supply Arrangements
  Government Regulation
 Animal Identification Laws and Regulations
  U.S. Federal Communications Commission Regulations
   9




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Industry Canada Regulations
   Emergency Identification Laws and Regulations
  Intellectual Property
      Seasonality
  Employees
  Geographic Areas
   10




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United
    
    
    
    
    
    
    SouthStates
    
    
    Europe
    
    
    America
    
    
    Total2009Net revenue
    
    $
    21,694
    
    
    $
    27,074
    
    
    $
    695
    
    
    $
    49,463Property and equipment, net
    
    
    4,854
    
    
    
    2,390
    
    
    
    119
    
    
    
    7,3632008Net revenue
    
    $
    29,275
    
    
    $
    31,927
    
    
    $
    1,058
    
    
    $
    62,260Property and equipment, net
    
    
    5,764
    
    
    
    2,544
    
    
    
    241
    
    
    
    8,549
   
 ITEM 1A. RISK FACTORS
 We have a history of operating losses and we may not become profitable in the future, which could
ultimately result in our inability to continue operations in the normal course of business.
  Historical losses and maturity of debt have raised concerns about our ability to continue
operations at the current level.
     11




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If we fail to continue to meet all applicable Nasdaq Capital Market requirements, our stock could
be delisted by the Nasdaq Capital Market. If delisting occurs, it could adversely affect the market
liquidity of our common stock and harm our businesses.
    
    
    shareholders equity of $2.5 million, market value of publicly-held shares of $35 million,
or net income from continuing operations of $500,000 in the most recently completed fiscal year or
in two of the last three most recently completed fiscal years;
    
    500,000 shares of publicly-held common stock with a market value of at least $1 million;
    
    300 round-lot stockholders; and
    
    compliance with Nasdaqs corporate governance requirements, as well as additional or more
stringent criteria that may be applied in the exercise of Nasdaqs discretionary authority.
 We have substantial debt and debt service.
    
    
    our ability to obtain additional or replacement financing in the future for operations,
capital expenditures, potential acquisitions, and other purposes may be limited, or financing may
not be available on terms favorable to us or at all;
    
    a substantial portion of our cash flows from operations must be used to pay our interest
expense and repay our debt, which reduces the funds that would otherwise be available to us for our
operations and future business opportunities; and
    
    our ability to continue operations at the current level could be negatively affected if we
cannot refinance our obligations before their due date.
   12




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We have effected or entered into (and will likely continue to effect or enter into) capital raising
transactions, acquisitions, legal settlements and contracts for services that involve the issuance
of shares of our common stock (or securities convertible into or exchangeable for such shares) and,
if such transactions occur, investments in our common stock will be further diluted.
   
    
    to raise additional capital;
    
    upon the exercise of outstanding options and stock purchase warrants or additional options
and warrants issued in the future;
    
    in connection with severance agreements;
    
    in connection with loans or other capital raising transactions; and
    
    in connection with acquisitions of other businesses or assets.
  Volatility in economic conditions and the financial markets may adversely affect our industry,
business and financial performance.
  Our stock price has reflected a great deal of volatility, including a significant decrease over the
past few years. The volatility may mean that, at times, our stockholders may be unable to resell
their shares at or above the price at which they acquired them.
  We rely heavily on revenues derived from sales to various governmental agencies, and the loss of,
or a significant reduction in, orders from government agencies could result in significant losses
and negative changes to cash flows from operations.
   13




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Our Animal Identification segment relies heavily on revenue from a principal distributor and two
customers and the loss of the principal distributor and customers could negatively affect our
revenue, cash flows and results of operations.
  We depend on a small team of senior management and key employees, and we may have difficulty
attracting and retaining additional personnel.
   Over the past few years, we have made significant changes in the nature and scope of our
businesses.
  Management continues to review strategic alternatives to increase shareholder value, which may
result in a further decrease in consolidated revenue and the overall size of our operations.
  Technological change could cause our products and technology to become obsolete or require the
redesign of our products, which could have a material adverse effect on our businesses.
  We may be subject to costly product liability claims from the use of our systems, which could
damage our reputation, impair the marketability of our systems and force us to pay costs and
damages that may not be covered by adequate insurance.
  If others assert that our products infringe their intellectual property rights, we may be drawn
into costly disputes and risk paying substantial damages or losing the right to sell our products.
  
    
    pay actual damages, royalties, lost profits and/or increased damages and the third partys
attorneys fees, which may be substantial;
  14




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
    
    cease the development, manufacture, use and/or sale of products that use the intellectual
property in question through a court-imposed sanction called an injunction;
    
    expend significant resources to modify or redesign our products, manufacturing processes or
other technology so that it does not infringe others intellectual property rights or to develop or
acquire non-infringing technology, which may not be possible; or
    
    obtain licenses to the disputed rights, which could require us to pay substantial upfront
fees and future royalty payments and may not be available to us on acceptable terms, if at all, or
to cease marketing the challenged products.
  We obtain the implantable microchip used in certain of our Animal Identification segments products
from a single supplier, making us vulnerable to supply disruptions that could constrain our sales
of such systems and/or increase the per-unit cost of production of the microchip.
  The expiration or invalidation of patents covering products and technologies in our Animal
Identification segment could expose us to potential competition that may have a material adverse
effect on our sales and results of operations.
  Our inability to safeguard our intellectual property may adversely affect our business by causing
us to lose a competitive advantage or by forcing us to engage in costly and time-consuming
litigation to defend or enforce our rights.
   We compete with other companies in the visual and electronic identification and locator markets,
and the products sold by our competitors could become more popular than our products or render our
products obsolete.
    15




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Infringement by third parties on our intellectual property or development of substantially
equivalent proprietary technology by our competitors could negatively affect our businesses.
  
    
    maintain patent and trade secret protection;
    
    obtain future patents and licenses; and
    
    operate without infringing on the proprietary rights of third parties.
  Our efforts to protect our intellectual property may be less effective in some foreign countries
where intellectual property rights are not as well protected as in the U.S.
  Domestic and foreign government regulation and other factors could impair our ability to develop
and sell our products in certain markets.
   Our results of operations may be adversely affected if we write-off additional goodwill and other
intangible assets.
  We face the risk that the value of our inventory may decline before it is sold or that our
inventory may not be able to be sold at anticipated prices.
  Our foreign operations pose additional risks .
   16




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Currency exchange rate fluctuations could have an adverse effect on our sales and financial
results.
  If we fail to maintain proper and effective internal controls, our ability to produce accurate
financial statements could be impaired, which could adversely affect our operating results, our
ability to operate our business and our stock price.
  
 ITEM 2. PROPERTIES
   Factory /Office
    
    
    Warehouse
    
    
    TotalOwned
    
    
    Leased
    
    
    Owned
    
    
    Leased
    
    
    Owned
    
    
    LeasedAnimal Identification
    
    
    31,892
    
    
    
    4,464
    
    
    
    47,800
    
    
    
    8,005
    
    
    
    79,692
    
    
    
    12,469Emergency Identification
    
    
    
    
    
    
    25,467
    
    
    
    
    
    
    
    44,784
    
    
    
    
    
    
    
    70,251Total
    
    
    31,892
    
    
    
    29,931
    
    
    
    47,800
    
    
    
    52,789
    
    
    
    79,692
    
    
    
    82,720
  Factory /Office
    
    
    Warehouse
    
    
    TotalOwned
    
    
    Leased
    
    
    Owned
    
    
    Leased
    
    
    Owned
    
    
    LeasedEurope
    
    
    
    
    
    
    4,416
    
    
    
    
    
    
    
    8,005
    
    
    
    
    
    
    
    12,421Minnesota
    
    
    31,892
    
    
    
    
    
    
    
    47,800
    
    
    
    
    
    
    
    79,692
    
    
    
    South America
    
    
    
    
    
    
    48
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    48Texas
    
    
    
    
    
    
    4,966
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,966United Kingdom
    
    
    
    
    
    
    20,501
    
    
    
    
    
    
    
    44,784
    
    
    
    
    
    
    
    65,285Total
    
    
    31,892
    
    
    
    29,931
    
    
    
    47,800
    
    
    
    52,789
    
    
    
    79,692
    
    
    
    82,720
 
 ITEM 3. LEGAL PROCEEDINGS
   17




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PART II
 
 ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
   High
    
    
    Low2009First Quarter
    
    $
    0.68
    
    
    $
    0.40Second Quarter
    
    
    1.70
    
    
    
    0.69Third Quarter
    
    
    1.49
    
    
    
    1.03Fourth Quarter
    
    
    1.25
    
    
    
    0.622008First Quarter
    
    $
    7.36
    
    
    $
    4.16Second Quarter
    
    
    6.88
    
    
    
    4.88Third Quarter
    
    
    6.16
    
    
    
    2.64Fourth Quarter
    
    
    2.88
    
    
    
    0.36
   Holders
  Dividends
   18




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Securities Authorized for Issuance Under Equity Compensation Plans
  Equity Compensation Plan Information(c)(a)
    
    
    (b)
    
    
    Number of securitiesNumber of securities
    
    
    Weighted-average
    
    
    remaining available forto be issued
    
    
    exercise price
    
    
    future issuance underupon exercise of
    
    
    per share of
    
    
    equity compensation plansoutstanding options,
    
    
    outstanding options,
    
    
    (excluding securitiesPlan Category (1)
    
    warrants and rights
    
    
    warrants and rights
    
    
    reflected in column (a))Equity compensation plans approved by security holders
    
    
    3,206,109
    
    
    $
    16.32
    
    
    
    1,199,080
    (2)Equity compensation plans not approved by security holders (3)
    
    
    296,874
    
    
    
    11.33
    
    
    
    Total
    
    
    3,502,983
    
    
    
    15.90
    
    
    
    1,199,080
 (1)
    
    A narrative description of the material terms of our equity compensation plans is set forth in
Note 11 to our consolidated financial statements.(2)
    
    Includes 119 shares available for future issuance under our 1999 Employees Stock Purchase Plan.(3)
    
    We have made grants outside of our equity plans and have outstanding options exercisable for
shares of our common stock. These options were granted as an inducement for employment or for
the rendering of consulting services. Recent Sales of Unregistered Securities / Recent Purchases of Securities
    19




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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
   
    
    our growth strategies including, without limitation, our ability to deploy our products and
services including Bio-Thermo;
    
    anticipated trends in our business and demographics;
    
    the ability to hire and retain skilled personnel;
    
    relationships with and dependence on technological partners;
    
    our reliance on government contractors;
    
    uncertainties relating to customer plans and commitments;
    
    our future profitability and liquidity;
    
    our ability to maintain compliance with covenants under our credit facilities, including our
ability to make principal and interest payments when due;
    
    our ability to obtain patents, enforce those patents, preserve trade secrets and operate
without infringing on the proprietary rights of third parties;
    
    governmental export and import policies, global trade policies, worldwide political
stability and economic growth;
    
    expectations about the outcome of litigation and asserted claims;
    
    regulatory, competitive or other economic influences;
    
    our ability to successfully mitigate the risks associated with foreign operations;
    
    our ability to successfully implement our business strategy;
    
    our expectation that we can achieve profitability in the future;
    
    our ability to fund our operations;
    
    borrowings under DSD Holdings existing bank and credit facilities as well as Signatures
invoice discounting facility are payable on demand and/or the facilities could be terminated at any
time without notice;
    
    our reliance on third-party dealers to successfully market and sell our products;
    
    our reliance on a single source of supply for our implantable microchip;
    
    we may become subject to costly product liability claims and claims that our products
infringe the intellectual property rights of others;
    
    our ability to comply with current and future regulations relating to our businesses;
  20




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
    
    the potential for patent infringement claims to be brought against us asserting that we hold
no rights for the use of the implantable microchip technology and that we are violating another
partys intellectual property rights. If any such a claim is successful, we could be enjoined from
engaging in activities to market the systems that utilize the implantable microchip and be required
to pay substantial damages;
    
    our ability to comply with the obligations in our various registration rights agreements;
    
    the impact of new accounting pronouncements;
    
    our ability to establish and maintain proper and effective internal accounting and financial
controls;
    
    our ability to maintain our listing on the Nasdaq Capital Market and the effect of a
delisting;
    
    our ability to continue operations at the current level; and
    
    our actual results may differ materially from those reflected in forward-looking statements
as a result of (i) the risk factors described under the heading Risk Factors beginning on page 12
of this Annual Report and in our other public filings, (ii) general economic, market or business
conditions, (iii) the opportunities (or lack thereof) that may be presented to and pursued by us,
(iv) competitive actions by other companies, (v) changes in laws, and (vi) other factors, many of
which are beyond our control.
   Overview
  
    
    developing, manufacturing and marketing of visual and electronic identification tags and
implantable RFID microchips, primarily for identification, tracking and location of companion pets,
livestock (e.g., cattle and hogs), horses, fish and wildlife worldwide, and, more recently, for
animal bio-sensing applications, such as temperature reading for companion pet and livestock
applications; and
    
    developing, manufacturing and marketing global position systems (GPS) and GPS-enabled
products used for emergency location and tracking of pilots, aircraft and maritime vehicles in
remote locations as well as sound horn alarms.
  Recent and other Significant Events Affecting Our Results of Operations and Financial Condition
 Repayment of Existing Term Debt Obligations
   21




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Registered Direct Offering and Sale of Common Stock and Warrants
  Termination of Standby Equity Distribution Agreement
   Notice of Nasdaq Delisting
   Impact of Recently Issued Accounting Standards
  Business Segment Overview
     22




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2009
    
    
    2008Sources of Revenue:Visual and electronic identification tags and implantable microchips for companion pets, horses,
livestock, fish and wildlife markets from our Animal Identification segment
    
    
    62.2
    %
    
    
    61.8
    %GPS enabled products used for location tracking and message monitoring of pilots, aircraft and
maritime vehicles in remote locations from our Emergency Identification segment
    
    
    37.8
    
    
    
    38.2Total
    
    
    100.0
    %
    
    
    100.0
    %
 2009
    
    
    2008Sources of Gross Profit:Visual and electronic identification tags and implantable microchips for companion pets, horses,
livestock, fish and wildlife markets from our Animal Identification segment
    
    
    52.5
    %
    
    
    41.9
    %GPS enabled products used for location tracking and message monitoring of pilots, aircraft and
maritime vehicles in remote locations from our Emergency Identification segment
    
    
    47.5
    
    
    
    58.1Total
    
    
    100.0
    %
    
    
    100.0
    %
  2009
    
    
    2008Revenue
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales
    
    
    59.0
    
    
    
    68.0Gross profit
    
    
    41.0
    
    
    
    32.0Selling, general and administrative expenses
    
    
    49.8
    
    
    
    48.8Research and development expenses
    
    
    2.4
    
    
    
    3.2Restructuring, severance and separation expenses
    
    
    1.4
    
    
    
    5.9Goodwill and asset impairment charges
    
    
    14.9
    
    
    
    57.0Total operating costs and expenses
    
    
    68.5
    
    
    
    114.9Operating loss
    
    
    (27.5
    )
    
    
    (82.9
    )Interest and other income (expense), net
    
    
    0.6
    
    
    
    4.3Interest expense
    
    
    (4.3
    )
    
    
    (17.5
    )Loss from
continuing operations before income tax benefit
    
    
    (31.2
    )
    
    
    (96.1
    )Benefit from income taxes
    
    
    
    
    
    
    0.3Loss from continuing operations
    
    
    (31.2
    )
    
    
    (95.8
    )Income from discontinued operations, net of income taxes
    
    
    6.1
    
    
    
    2.6Net loss
    
    
    (25.1
    )
    
    
    (93.2
    )(Income) loss attributable to the noncontrolling interest, continuing operations
    
    
    0.2
    
    
    
    (0.2
    )(Income) loss attributable to the noncontrolling interest, discontinued operations
    
    
    (0.1
    )
    
    
    Net loss attributable to Digital Angel Corporation
    
    
    (25.0
    )%
    
    
    (93.4
    )%
   23




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
    
    To streamline our segments operations and improve our supply chain management;
    
    To streamline and consolidate our corporate structure and minimize overhead costs;
    
    To divest of non-core assets and businesses;
    
    To attempt to produce additional cash flow and revenue from our technology products;
    
    To transition portions of our in-house manufacturing to lower-cost countries;
    
    To instill a pay for performance culture; and
    
    To seek growth through strategic acquisitions or partnerships.
  Critical Accounting Policies and Estimates
  Revenue Recognition
  Goodwill and Other Intangible Assets
  Principles of Consolidation
   24




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Stock-Based Compensation
   Inventory Obsolescence
  Accounting for Income Taxes
      25




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Results of Operations from Continuing Operations
  For the years ended December 31,2009
    
    
    2008(in thousands)Animal Identification
    
    $
    (757
    )
    
    $
    (41,716
    )Emergency Identification
    
    
    (9,207
    )
    
    
    (1,257
    )Corporate (1)
    
    
    (3,626
    )
    
    
    (8,662
    )Total
    
    $
    (13,590
    )
    
    $
    (51,635
    )
 (1)
    
    Our Corporate segment includes all amounts given effect to
in the consolidation of our subsidiaries, such as the
elimination of inter-segment revenues expenses, assets and
liabilities. Corporate also includes certain selling,
general and administrative expense and interest expense and
other expenses associated with corporate activities and
functions. Animal Identification Segment
 Year Ended December 31, 2009 Compared to the Year Ended December 31, 2008
 % of
    
    
    
    
    
    
    % of
    
    
    Change2009
    
    
    Revenue
    
    
    2008
    
    
    Revenue
    
    
    Increase (Decrease)(dollar amounts in thousands)Revenue
    
    $
    30,774
    
    
    
    100.0
    %
    
    $
    38,501
    
    
    
    100.0
    %
    
    $
    (7,727
    )
    
    
    (20.1
    )%Gross profit
    
    
    10,635
    
    
    
    34.5
    
    
    
    8,355
    
    
    
    21.7
    
    
    
    2,280
    
    
    
    27.3Selling, general
and
administrative
expenses
    
    
    9,492
    
    
    
    30.8
    
    
    
    11,550
    
    
    
    30.0
    
    
    
    (2,058
    )
    
    
    (17.8
    )Research
and development
expenses
    
    
    1,206
    
    
    
    3.9
    
    
    
    1,993
    
    
    
    5.2
    
    
    
    (787
    )
    
    
    (39.5
    )Restructuring,
severance and
separation
expenses
    
    
    497
    
    
    
    1.6
    
    
    
    2,357
    
    
    
    6.1
    
    
    
    (1,860
    )
    
    
    (78.9
    )Goodwill
and asset
impairment
charges
    
    
    197
    
    
    
    0.6
    
    
    
    34,171
    
    
    
    87.2
    
    
    
    (33,974
    )
    
    
    (99.4
    )Operating loss
    
    $
    (757
    )
    
    
    (2.4
    )%
    
    $
    (41,716
    )
    
    NM
    %
    
    $
    40,959
    
    
    
    98.2
 Revenue 
 Gross Profit and Gross Profit Margin 
 Selling, General and Administrative Expenses 
 Research and Development Expenses  TM
 Restructuring, Severance and Separation Expenses
  26




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##### Table of Contents



Goodwill and Asset Impairment Charges 
 Outlook and Trends
 ®
 Emergency Identification Segment
 Year Ended December 31, 2009 Compared to the Year Ended December 31, 2008
 % of
    
    
    
    
    
    
    % of
    
    
    Change2009
    
    
    Revenue
    
    
    2008
    
    
    Revenue
    
    
    Increase (Decrease)(dollar amounts in thousands)Revenue
    
    $
    18,689
    
    
    
    100.0
    %
    
    $
    23,759
    
    
    
    100.0
    %
    
    $
    (5,070
    )
    
    
    (21.3
    )%Gross profit
    
    
    9,636
    
    
    
    51.6
    
    
    
    11,563
    
    
    
    48.7
    
    
    
    (1,927
    )
    
    
    (16.7
    )Selling, general and administrative expenses
    
    
    11,520
    
    
    
    61.6
    
    
    
    12,224
    
    
    
    54.5
    
    
    
    (704
    )
    
    
    (5.8
    )Restructuring, severance and separation expenses
    
    
    181
    
    
    
    1.0
    
    
    
    596
    
    
    
    2.5
    
    
    
    (415
    )
    
    
    (69.6
    )Goodwill and asset impairment
    
    
    7,142
    
    
    
    38.3
    
    
    
    
    
    
    
    
    
    
    
    7,142
    
    
    NMOperating loss
    
    $
    (9,207
    )
    
    
    (49.3
    )%
    
    $
    (1,257
    )
    
    
    (5.3
    )%
    
    $
    (7,950
    )
    
    NM
 (1)
    
    NM = Not meaningful Revenue 
 Gross Profit and Gross Profit Margin 
 Selling, General and Administrative Expenses 
  27




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##### Table of Contents



Restructuring, Severance and Separation Expenses 
 Goodwill and Asset Impairment
 Outlook and Trends
  Corporate Segment
 Year Ended December 31, 2009 Compared to the Year Ended December 31, 2008
 Change2009
    
    
    2008
    
    
    Increase (Decrease)(dollar amounts in thousands)Revenue
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    
    
    %Gross profit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Selling, general and administrative expenses
    
    
    3,626
    
    
    
    6,641
    
    
    
    (3,015
    )
    
    
    (45.4
    )Restructuring expenses
    
    
    
    
    
    
    725
    
    
    
    (725
    )
    
    
    (100.0
    )Goodwill and asset impairment charges
    
    
    
    
    
    
    1,296
    
    
    
    (1,296
    )
    
    
    (100.0
    )Operating loss
    
    $
    (3,626
    )
    
    $
    (8,662
    )
    
    $
    5,036
    
    
    
    40.4
 Selling, General and Administrative Expenses 
 Restructuring Expenses 
 Goodwill and Asset Impairment Charges 
 Consolidated
 Interest and Other Income, net
  Interest Expense
   28




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##### Table of Contents



Income Taxes
  Net Loss from Continuing Operations
  LIQUIDITY AND CAPITAL RESOURCES FROM CONTINUING OPERATIONS
    
    
    Accounts and unbilled receivables, net of allowance for doubtful accounts, were $7.4 million
and $8.9 million at December 31, 2009 and 2008, respectively. The decrease is primarily due to
lower companion animal and electronic tag sales during the fourth quarter of 2009 compared to the
fourth quarter of 2008. We anticipate accounts receivable to decrease slightly during 2010.
    
    Inventories increased to $9.8 million at December 31, 2009, compared to $7.1 million at
December 31, 2008. The increase was primarily due to our Emergency Identification segment which
continued to build inventory levels during 2009 in preparation for production on a large PELS
contract. The increase is slightly offset by a decrease in inventory at our Animal Identification
segment due to a reduction of transponders. We expect inventory levels to decrease in 2010 as we
fulfill the PELS contract.
    
    Accounts payable decreased $0.3 million to $8.1 million at December 31, 2009, from $8.4
million at December 31, 2008. The decrease was primarily due to our Emergency Identification
segment resulting from fewer purchases in the fourth quarter of 2009. The decrease was slightly
offset by an increase in accounts payable at our Animal Identification segment due to the general
timing of billings and payments of purchases. We anticipate accounts payable levels to decrease
throughout 2010.
    
    Accrued expenses decreased $1.2 million to $6.6 million at December 31, 2009, from $7.7
million at December 31, 2008. The decrease was primarily related
to the reclassification of certain bonuses to long-term liabilities
based on our plans and expectations of the timing of the payments as
well as payments of accrued
severance at our Emergency Identification segment during 2009. We expect accrued expenses to
increase in 2010.
    29




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##### Table of Contents



Financial Condition
 Financing Agreements and Debt Obligations
  Destron Fearings Revolving Facility
   Signatures Invoice Discounting Factoring Agreements
     30




---



##### Table of Contents



Destron Fearing A/Ss Line of Credit
  Nordisk Factoring Agreement
  Registered Direct Offering and Sale of Common Stock and Warrants
  Standby Equity Distribution Agreement
   Liquidity
    31




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##### Table of Contents



Outlook
  
 ITEM 8. FINANCIAL STATEMENTS
  
 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
 ITEM 9A(T). CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  Report of Management on Internal Control Over Financial Reporting
 Internal Controls  Integrated Framework
  (i)
    
    pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of our assets;
  32




---



##### Table of Contents



(ii)
    
    provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with accounting principles generally accepted in
the U.S., and that our receipts and expenditures are being made only in accordance with
authorization of our management and directors; and(iii)
    
    provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of our assets that could have a material effect on the consolidated
financial statements.
   Inherent Limitations of Disclosure Controls and Procedures and Internal Control over Financial
Reporting
  Changes in Internal Control over Financial Reporting
  
 PART III
 
  
 PART IV
 
 ITEM 15. EXHIBITS AND FINANCIAL STATEMENTS
 (a)(1)
    
    The financial statements listed below are included in this reportReport of Independent Registered Public Accounting FirmFinancial StatementsConsolidated Balance SheetsConsolidated Statements of OperationsConsolidated Statements of Stockholders EquityConsolidated Statements of Cash FlowsNotes to Consolidated Financial Statements(a)(3)
    
    ExhibitsSee the Exhibit Index filed as part of this Annual Report on Form 10-K.
  33




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##### Table of Contents



DIGITAL ANGEL CORPORATIONDate: April 1, 2010
    By:
    /s/ Joseph J. GrilloJoseph J. GrilloPresident and Chief Executive Officer  Signature
    
    Title
    
    Date/s/ Joseph J. Grillo
    
    President, Chief Executive
Officer and Director
    
    April 1, 2010(Joseph J. Grillo)
    
    (Principal Executive Officer)/s/ Lorraine M. Breece
    
    Senior Vice President and Chief
Financial Officer
    
    April
1, 2010(Lorraine M. Breece)
    
    (Principal Accounting Officer)/s/ Daniel E. Penni
    
    Chairman of the Board of Directors
    
    April
1, 2010(Daniel E. Penni)/s/ John R. Block
    
    Director
    
    April
1, 2010(John R. Block)/s/ Dennis G. Rawan
    
    Director
    
    April
1, 2010(Dennis G. Rawan)/s/ Michael S. Zarriello
    
    Director
    
    April
1, 2010(Michael S. Zarriello)
  34




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##### Table of Contents



DIGITAL ANGEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
 CONTENTS
 PageReport of Independent Registered Public Accounting Firm
    
    
    F-2Consolidated Balance Sheets as of December 31, 2009 and 2008
    
    
    F-3Consolidated Statements of Operations for each of the years in the two-year period ended December 31, 2009
    
    
    F-4Consolidated Statements of Stockholders Equity for each of the years in the two-year period ended December 31, 2009
    
    
    F-5Consolidated Statements of Cash Flows for each of the years in the two-year period ended December 31, 2009
    
    
    F-7Notes to Consolidated Financial Statements
    
    
    F-8
  F-1




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
    
  F-2




---



##### Table of Contents



Digital Angel Corporation and Subsidiaries
 
 Consolidated Balance Sheets
 (in thousands, except par value)
 December 31,2009
    
    
    2008ASSETSCurrent assets:Cash and cash equivalents
    
    $
    1,895
    
    
    $
    1,413Restricted cash
    
    
    202
    
    
    
    Accounts receivable, net of allowance for doubtful accounts of $906 in 2009 and $476 in 2008
    
    
    7,396
    
    
    
    8,875Note receivable
    
    
    450
    
    
    
    450Inventories
    
    
    9,836
    
    
    
    7,143Deferred taxes
    
    
    
    
    
    
    130Other current assets
    
    
    2,064
    
    
    
    1,433Current assets of discontinued operations
    
    
    1,853
    
    
    
    4,345Total current assets
    
    
    23,696
    
    
    
    23,789Property and equipment, net
    
    
    7,363
    
    
    
    8,549Goodwill, net
    
    
    3,343
    
    
    
    6,848Intangibles, net
    
    
    11,447
    
    
    
    18,508Note receivable
    
    
    596
    
    
    
    1,015Other assets, net
    
    
    599
    
    
    
    322Other assets of discontinued operations
    
    
    
    
    
    
    5,175Total assets
    
    $
    47,044
    
    
    $
    64,206LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Notes payable and current maturities of long-term debt
    
    $
    9,297
    
    
    $
    8,581Accounts payable
    
    
    8,124
    
    
    
    8,385Advances from factors
    
    
    1,241
    
    
    
    1,494Accrued expenses
    
    
    6,580
    
    
    
    7,737Deferred gain on sale
    
    
    960
    
    
    
    Deferred revenue
    
    
    548
    
    
    
    840Current liabilities of discontinued operations
    
    
    2,514
    
    
    
    2,705Total current liabilities
    
    
    29,264
    
    
    
    29,742Commitments and contingencies:Long-term debt and notes payable
    
    
    392
    
    
    
    6,942Deferred taxes
    
    
    
    
    
    
    1,227Other liabilities
    
    
    1,445
    
    
    
    2,223Other liabilities of discontinued operations
    
    
    
    
    
    
    1,367Total liabilities
    
    
    31,101
    
    
    
    41,501Stockholders equity:Digital Angel Corporation stockholders equity:Preferred shares ($10 par value; shares authorized, 5,000; shares issued, nil)
    
    
    
    
    
    
    Common shares ($.01 par value; shares authorized 50,000; shares issued, 23,479 and 16,080;
shares outstanding, 23,479 and 15,950)
    
    
    235
    
    
    
    161Additional paid-in-capital
    
    
    588,652
    
    
    
    584,466Accumulated deficit
    
    
    (571,203
    )
    
    
    (558,839
    )Accumulated other comprehensive (loss) income  foreign currency translation
    
    
    (1,737
    )
    
    
    (2,308
    )Subtotal
    
    
    15,947
    
    
    
    23,480Treasury stock (carried at cost, nil and 130 shares)
    
    
    
    
    
    
    (820
    )Total Digital Angel Corporation stockholders equity
    
    
    15,947
    
    
    
    22,660Non-controlling interest
    
    
    (4
    )
    
    
    45Total stockholders equity
    
    
    15,943
    
    
    
    22,705Total liabilities and stockholders equity
    
    $
    47,044
    
    
    $
    64,206
 See the accompanying notes to consolidated financial statements.
  F-3




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##### Table of Contents



Digital Angel Corporation and Subsidiaries
 
 Consolidated Statements of Operations
 (in thousands, except per share data)
 For the years endedDecember 31,2009
    
    
    2008Revenue
    
    $
    49,463
    
    
    $
    62,260Cost of sales
    
    
    29,192
    
    
    
    42,342Gross profit
    
    
    20,271
    
    
    
    19,918Selling, general and administrative expenses
    
    
    24,638
    
    
    
    30,415Research and development expenses
    
    
    1,206
    
    
    
    1,993Restructuring, severance and separation expenses
    
    
    678
    
    
    
    3,678Goodwill and asset impairments
    
    
    7,339
    
    
    
    35,467Operating loss
    
    
    (13,590
    )
    
    
    (51,635
    )Interest and other income (expense), net
    
    
    319
    
    
    
    2,722Interest expense
    
    
    (2,176
    )
    
    
    (10,892
    )Loss from continuing operations before income tax benefit
    
    
    (15,447
    )
    
    
    (59,805
    )Benefit from income taxes
    
    
    24
    
    
    
    165Loss from continuing operations
    
    
    (15,423
    )
    
    
    (59,640
    )Income from discontinued operations, net of income taxes of $608 and $0 (attributable to Digital Angel Corporation)
    
    
    2,993
    
    
    
    1,629Net loss
    
    
    (12,430
    )
    
    
    (58,011
    )Loss (income) attributable to the noncontrolling interest, continuing operations
    
    
    110
    
    
    
    (102
    )Income attributable to the noncontrolling interest, discontinued operations
    
    
    (44
    )
    
    
    (20
    )Net loss attributable to Digital Angel Corporation
    
    $
    (12,364
    )
    
    $
    (58,133
    )(Loss) income per common share attributable to Digital Angel Corporation common stockholders  basic and diluted:Loss from
continuing operations, net of noncontrolling interest
    
    $
    (0.82
    )
    
    $
    (3.94
    )Income from discontinued operations, net of noncontrolling interest
    
    
    0.16
    
    
    
    0.11Net loss
    
    $
    (0.66
    )
    
    $
    (3.83
    )Weighted average number of common shares outstanding  basic and diluted
    
    
    18,768
    
    
    
    15,156
 See the accompanying notes to consolidated financial statements.
  F-4




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##### Table of Contents



Digital Angel Corporation and Subsidiaries
 
 Consolidated Statements of Stockholders Equity
 For the Years Ended December 31, 2009 and 2008
 (in thousands)
 Digital Angel Corporation StockholdersAccumulatedAdditional
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    
    
    
    
    TotalCommon Stock
    
    
    Paid-In
    
    
    Accumulated
    
    
    Comprehensive
    
    
    Treasury
    
    
    Noncontrolling
    
    
    StockholdersNumber
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    Income (Loss)
    
    
    Stock
    
    
    Interest
    
    
    EquityBalance, December 31, 2007
    
    
    13,135
    
    
    $
    131
    
    
    $
    573,565
    
    
    $
    (500,706
    )
    
    $
    428
    
    
    $
    (2,423
    )
    
    $
    13,365
    
    
    $
    84,360Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (58,133
    )
    
    
    
    
    
    
    
    
    
    
    122
    
    
    
    (58,011
    )Comprehensive loss:Foreign currency translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,736
    )
    
    
    
    
    
    
    53
    
    
    
    (2,683
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (58,133
    )
    
    
    (2,736
    )
    
    
    
    
    
    
    175
    
    
    
    (60,694
    )Acquisition of Geissler Technologies Corporation
    
    
    1,488
    
    
    
    15
    
    
    
    6,864
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,879Issuance of common stock for services
    
    
    262
    
    
    
    3
    
    
    
    1,443
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,446Issuance of common stock for financing
    
    
    216
    
    
    
    2
    
    
    
    742
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    744Issuance of restricted stock and stock options for services
    
    
    31
    
    
    
    
    
    
    
    441
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    441Issuance of shares in connection with warrants exercised
    
    
    22
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Issuance of common stock for legal settlement
    
    
    162
    
    
    
    2
    
    
    
    498
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    500Re-pricing of common stock warrants
    
    
    
    
    
    
    
    
    
    
    1,112
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,112Exercise of common stock warrants
    
    
    778
    
    
    
    8
    
    
    
    2,307
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,315Stock issuance costs
    
    
    
    
    
    
    
    
    
    
    (73
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (73
    )Treasury shares issued to affiliate
    
    
    
    
    
    
    
    
    
    
    (646
    )
    
    
    
    
    
    
    
    
    
    
    646
    
    
    
    
    
    
    
    Retirement of treasury shares
    
    
    
    
    
    
    
    
    
    
    (1,777
    )
    
    
    
    
    
    
    
    
    
    
    1,777
    
    
    
    
    
    
    
    Treasury shares acquired under severance agreement
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (820
    )
    
    
    
    
    
    
    (820
    )Partial share repurchase
    
    
    (14
    )
    
    
    
    
    
    
    (10
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10
    )Changes in noncontrolling interest as a result of other
capital transactions by subsidiaries
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,495
    )
    
    
    (13,495
    )Balance, December 31, 2008
    
    
    16,080
    
    
    $
    161
    
    
    $
    584,466
    
    
    $
    (558,839
    )
    
    $
    (2,308
    )
    
    $
    (820
    )
    
    $
    45
    
    
    $
    22,705
 See the accompanying notes to consolidated financial statements.
  F-5




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##### Table of Contents



Digital Angel Corporation and Subsidiaries
Consolidated Statements of Stockholders Equity (continued)
For the Years Ended December 31, 2009 and 2008  (in thousands)
 Digital Angel Corporation StockholdersAccumulatedAdditional
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    
    
    
    
    TotalCommon Stock
    
    
    Paid-In
    
    
    Accumulated
    
    
    Comprehensive
    
    
    Treasury
    
    
    Noncontrolling
    
    
    StockholdersNumber
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    Income (Loss)
    
    
    Stock
    
    
    Interest
    
    
    EquityBalance, December 31, 2008 (brought forward)
    
    
    16,080
    
    
    $
    161
    
    
    $
    584,466
    
    
    $
    (558,839
    )
    
    $
    (2,308
    )
    
    $
    (820
    )
    
    $
    45
    
    
    $
    22,705Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12,364
    )
    
    
    
    
    
    
    
    
    
    
    (66
    )
    
    
    (12,430
    )Comprehensive loss:Foreign currency translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    571
    
    
    
    
    
    
    
    17
    
    
    
    588Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12,364
    )
    
    
    571
    
    
    
    
    
    
    
    (49
    )
    
    
    (11,842
    )Issuance of common stock under the Standby Equity
Distribution Agreement
    
    
    2,880
    
    
    
    29
    
    
    
    2,776
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,805Issuance of common stock for equipment purchase
    
    
    296
    
    
    
    3
    
    
    
    183
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    186Issuance of common stock in a private placement sale
    
    
    255
    
    
    
    2
    
    
    
    125
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    127Issuance of common stock for price protection under the terms
of a legal settlement
    
    
    960
    
    
    
    10
    
    
    
    (10
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Issuance of common stock under the terms of a legal settlement
    
    
    357
    
    
    
    4
    
    
    
    396
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    400Issuance of common stock for Geissler Technologies
Corporation earn out
    
    
    330
    
    
    
    3
    
    
    
    297
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    300Retirement of treasury stock
    
    
    295
    
    
    
    3
    
    
    
    (823
    )
    
    
    
    
    
    
    
    
    
    
    820
    
    
    
    
    
    
    
    Issuance of common stock for services
    
    
    101
    
    
    
    1
    
    
    
    125
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    126Issuance of common stock for financing
    
    
    1,393
    
    
    
    14
    
    
    
    786
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    800Issuance of restricted stock and stock options for services
    
    
    453
    
    
    
    4
    
    
    
    (4
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Partial share repurchase
    
    
    (8
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Retirement of common stock
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Share-based compensation expense
    
    
    
    
    
    
    
    
    
    
    519
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    519Stock issuance costs
    
    
    
    
    
    
    
    
    
    
    (129
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (129
    )Issuance of common stock for SEDA commitment fee
    
    
    88
    
    
    
    1
    
    
    
    124
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    125Amortization of SEDA commitment fee
    
    
    
    
    
    
    
    
    
    
    (125
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (125
    )Reclassification of warrant as liability per EITF 07-5
    
    
    
    
    
    
    
    
    
    
    (54
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (54
    )Balance, December 31, 2009
    
    
    23,479
    
    
    $
    235
    
    
    $
    588,652
    
    
    $
    (571,203
    )
    
    $
    (1,737
    )
    
    $
    
    
    
    $
    (4
    )
    
    $
    15,943
 See the accompanying notes to consolidated financial statements.
  F-6




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##### Table of Contents



Digital Angel Corporation and Subsidiaries
 
 Consolidated Statements of Cash Flows
 (in thousands)
 For the years ended December 31,2009
    
    
    2008Cash flows from operating activities:Net loss
    
    $
    (12,430
    )
    
    $
    (58,011
    )Adjustments to reconcile net loss to net cash (used in) provided by operating activities:Income from discontinued operations
    
    
    (2,993
    )
    
    
    (1,629
    )Equity compensation and administrative expenses
    
    
    645
    
    
    
    1,875Depreciation and amortization
    
    
    4,068
    
    
    
    4,010Amortization of debt discount and financing costs
    
    
    595
    
    
    
    8,049Allowance for doubtful accounts
    
    
    430
    
    
    
    334Provision for inventory excess and obsolescence
    
    
    (138
    )
    
    
    2,049Loss on settlement of debt
    
    
    
    
    
    
    2,512Impairment of goodwill and assets
    
    
    7,339
    
    
    
    35,467Change in fair value of warrant liability
    
    
    (49
    )
    
    
    Other
    
    
    
    
    
    
    221(Increase) decrease in restricted cash
    
    
    (202
    )
    
    
    90Net change in operating assets and liabilities
    
    
    (2,517
    )
    
    
    4,648Net cash provided by discontinued operations
    
    
    1,352
    
    
    
    1,689Net cash (used in) provided by operating activities
    
    
    (3,900
    )
    
    
    1,304Cash flows from investing activities:Decrease (increase) in notes receivable
    
    
    419
    
    
    
    (1,452
    )Proceeds from note receivable with PSID
    
    
    
    
    
    
    9,500Payment for investment in subsidiary
    
    
    
    
    
    
    (241
    )Proceeds from special dividend received
    
    
    
    
    
    
    7,230Payments for property and equipment
    
    
    (420
    )
    
    
    (2,080
    )Payment for costs of business acquisition
    
    
    
    
    
    
    (261
    )Increase in other assets
    
    
    (134
    )
    
    
    (416
    )Net cash
provided by discontinued operations (including cash of $8,260 in 2009
from  sale of McMurdo)
    
    
    8,260
    
    
    
    1,051Net cash provided by investing activities
    
    
    8,125
    
    
    
    13,331Cash flows from financing activities:Net amounts paid on notes payable
    
    
    (1,217
    )
    
    
    (1,341
    )Net payments of long-term debt
    
    
    (5,343
    )
    
    
    (15,001
    )Proceeds from warrant exercise
    
    
    
    
    
    
    2,315Treasury stock acquired from Rabbi Trust
    
    
    
    
    
    
    (820
    )Issuance of common shares and warrants
    
    
    127
    
    
    
    Sale of common shares under the Standby Equity Distribution Agreement
    
    
    2,805
    
    
    
    Payments of dividends to subsidiarys noncontrolling shareholder
    
    
    
    
    
    
    (34
    )Stock issuance costs
    
    
    (129
    )
    
    
    (83
    )Net cash used in discontinued operations
    
    
    
    
    
    
    (25
    )Net cash used in financing activities
    
    
    (3,757
    )
    
    
    (14,989
    )Net increase (decrease) in cash and cash equivalents
    
    
    468
    
    
    
    (354
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    14
    
    
    
    (9
    )Cash and cash equivalents  Beginning of year
    
    
    1,413
    
    
    
    1,776Cash and cash equivalents  End of year
    
    $
    1,895
    
    
    $
    1,413Supplemental disclosure of cash flow information:Income taxes paid
    
    $
    58
    
    
    $
    113Interest paid
    
    
    1,487
    
    
    
    2,070
 See the accompanying notes to consolidated financial statements.
  F-7




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##### Table of Contents



Digital Angel Corporation and Subsidiaries
 
 Notes to Consolidated Financial Statements
  1. Organization and Summary of Significant Accounting Policies
   Business Segments
  Animal Identification Segment
  
    
    visual and electronic ear tags for livestock; and
    
    implantable microchips and RFID scanners for the companion pet, livestock, horses, fish and wildlife industries.
 Emergency Identification Segment
  
    
    GPS enabled search and rescue equipment and intelligent communications
products and services for telemetry, mobile data and radio
communications applications, including our SARBETM brand,
which serve military and commercial markets;
    
    alarm sounders for industrial use and other electronic components.
 Corporate and Eliminations
  Discontinued Operations
   F-8




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##### Table of Contents



Summary of Significant Accounting Policies
 Liquidity
    Principles of Consolidation
    Year EndedDecember 31, 2008(in thousands)Statement of Operations Data as Restated to Reflect the Adoption of the Modified
Requirements of the Business Combination Topic of the Codification:Loss from
continuing operations, as previously reported on form 10-K
    
    $
    (58,391
    )Reclassify McMurdo results to discontinued operations
    
    
    (1,371
    )Remove minority interest (to present below as noncontrolling interest)
    
    
    122Loss from continuing operations, restated
    
    
    (59,640
    )Income from discontinued operations, net of income taxes of $0
    
    
    1,629Net loss, restated
    
    
    (58,011
    )Income attributable to noncontrolling interest, continuing and discontinued operations
    
    
    (122
    )Net loss attributable to common stockholders of Digital Angel Corporation
    
    $
    (58,133
    )
  F-9




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##### Table of Contents



December 31,2008(in thousands)Balance Sheet Data Restated to Reflect the Adoption of the Modified Requirements of
the Business Combination Topic of the Codification:Stockholders equity attributable to Digital Angel Corporation, as previously reported
    
    $
    22,660Stockholders equity attributable to noncontrolling interest
    
    
    45Stockholders equity, restated
    
    $
    22,705
 Use of Estimates
  Foreign Currencies
   Cash and Cash Equivalents
  Accounts Receivable
  Concentration of Credit Risk
   Inventories
  Property and Equipment
   F-10




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##### Table of Contents



Goodwill and Intangible Assets
      Advertising Costs
  Revenue Recognition
     F-11




---



##### Table of Contents



Stock-Based Compensation
   Research and Development
  Restructuring, Severance and Separation Expenses
  Foreign Currency Adjustment of Intercompany Loans
  Income Taxes
    F-12




---



##### Table of Contents



(Loss) Income Per Common Share and Common Share Equivalent
  Comprehensive Income (Loss)
  Impact of Recently Issued Accounting Standards
       F-13




---



##### Table of Contents



Principles of Consolidation
 Uncertain Nasdaq Listing
  2. Accounts Receivable
 December 31,
    
    
    December 31,2009
    
    
    2008(in thousands)Receivables assigned to factors
    
    $
    1,241
    
    
    $
    1,494Unfactored accounts receivable
    
    
    7,061
    
    
    
    7,857Allowance for doubtful accounts
    
    
    (906
    )
    
    
    (476
    )$
    7,396
    
    
    $
    8,875
 Factoring Agreements
  RBS Invoice Discounting Agreement
  Bibby Invoice Discounting Factoring Agreement
   F-14




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##### Table of Contents



Nordisk Factoring Agreement
  3. Acquisitions
 Goodwilland
    
    
    Other NetOther
    
    
    AssetsDate
    
    
    Acquisition
    
    
    Intangibles
    
    
    AndCompany Acquired
    
    Acquired
    
    
    Price
    
    
    Acquired
    
    
    Liabilities
    
    
    Business Description(in thousands)Geissler Technologies Corporation
    
    
    1/14/08
    
    
    $
    7,147
    
    
    $
    7,430
    
    
    $
    (283
    )
    
    Develops e.tag technology for customer interface and herd management
 Geissler Technologies Corporation
    Current assets
    
    
    
    
    
    $
    317Intangibles:Patented and non-patented proprietary technology
    
    
    
    
    
    
    2,000Trademarks and tradenames
    
    
    
    
    
    
    390Software
    
    
    
    
    
    
    500Customer relationships and non-compete
    
    
    
    
    
    
    375Goodwill
    
    
    
    
    
    
    4,165Current liabilities
    
    
    
    
    
    
    (600
    )Total
    
    
    
    
    
    $
    7,147
    F-15




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##### Table of Contents



For the year endedDecember 31,2008(in thousands)Net operating revenue
    
    $
    62,288Net loss from continuing operations attributable to common
shareholders  basic and diluted
    
    
    (59,641
    )Net loss from continuing operations per common share  basic and diluted
    
    
    (3.93
    )
 Dispositions
  4. Inventories
  December 31,2009
    
    
    2008(in thousands)Raw materials
    
    $
    8,088
    
    
    $
    5,581Work in process
    
    
    762
    
    
    
    614Finished goods
    
    
    986
    
    
    
    948$
    9,836
    
    
    $
    7,143
 5. Property and Equipment
  December 31,2009
    
    
    2008(in thousands)Land
    
    $
    278
    
    
    $
    278Building and leasehold improvements
    
    
    6,768
    
    
    
    6,676Equipment
    
    
    15,152
    
    
    
    14,22322,198
    
    
    
    21,177Less: Accumulated depreciation
    
    
    (14,835
    )
    
    
    (12,628
    )Total property and equipment
    
    $
    7,363
    
    
    $
    8,549
     F-16




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##### Table of Contents



6. Goodwill
  December 31,2009
    
    
    2008(in thousands)Beginning balance
    
    $
    6,848
    
    
    $
    33,947
    (1)Acquisition
    
    
    
    
    
    
    4,165Adjustment to purchase price allocation
    
    
    
    
    
    
    (141
    )Earn-out payment
    
    
    300
    
    
    
    Impairment
    
    
    (3,816
    )
    
    
    (31,006
    )Foreign currency and other adjustments
    
    
    11
    
    
    
    (117
    )Ending balance
    
    $
    3,343
    
    
    $
    6,848
 (1)
    
    Balance represents the beginning balance as previously reported on Form 10-K of
approximately $35.2 million less $1.3 million reclassified to discontinued operations in 2009. Method of Accounting for Goodwill
     7. Intangibles, net
  WeightedAverage Lives(in years) atDecember 31,
    
    
    December 31,2009
    
    
    2008
    
    
    2009Trademark, net of accumulated amortization of $113 and nil(1)
    
    $
    
    
    
    $
    2,306
    
    
    
    N/ATrademarks, net of accumulated amortization of $222 and $189
    
    
    980
    
    
    
    1,281
    
    
    
    7.3Patents and non-patented proprietary technology, net of accumulated
amortization of $771 and $613
    
    
    4,219
    
    
    
    6,654
    
    
    
    10.5Customer relationships, net of accumulated amortization of $987 and $941
    
    
    5,916
    
    
    
    7,755
    
    
    
    9.9Tradenames and non compete, net of accumulated amortization of $41 and $23
    
    
    28
    
    
    
    90
    
    
    
    2.0Software, net of accumulated amortization of $118 and $78
    
    
    304
    
    
    
    422
    
    
    
    5.0$
    11,447
    
    
    $
    18,508
 (1)
    
    During 2008, management reviewed the nature of our intangible assets with
indefinite lives and decided to change the lives to 20 years. Effective January 1, 2009, we began
to amortize these intangibles. As of December 31, 2009, these trademarks were fully impaired.  F-17




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##### Table of Contents



December 31,2009
    
    
    2008(in thousands)Beginning balance
    
    $
    18,508
    
    
    $
    17,737
    (1)Acquisition
    
    
    
    
    
    
    3,348Amortization
    
    
    (2,253
    )
    
    
    (1,610
    )Impairment
    
    
    (4,692
    )
    
    
    (1,070
    )Foreign currency and other adjustments
    
    
    (116
    )
    
    
    103Ending balance
    
    $
    11,447
    
    
    $
    18,508
 (1)
    
    Balance represents the beginning balance as previously reported on Form 10-K of
approximately $22.2 million less $4.5 million reclassified to discontinued operations in 2009.  2010
    
    $
    1,7592011
    
    
    1,6122012
    
    
    1,6062013
    
    
    1,4662014
    
    
    1,461Thereafter
    
    
    3,543$
    11,447
   8.
Accrued Expenses and Other Liabilities
  December 31,2009
    
    
    2008(in thousands)Accrued salary, wages and payroll expenses
    
    $
    1,741
    
    
    $
    1,697Accrued bonuses
    
    
    929
    
    
    
    1,261Accrued liabilities of companies whose assets were sold
    
    
    849
    
    
    
    Accrued litigation reserve and legal settlement
    
    
    637
    
    
    
    318Accrued professional fees
    
    
    850
    
    
    
    374Other accrued expenses
    
    
    1,574
    
    
    
    4,087$
    6,580
    
    
    $
    7,737
  December 31,2009
    
    
    2008(in thousands)Accrued
bonuses (long-term)
    
    $
    950
    
    
    
    Accrued
legal settlement
    
    
    118
    
    
    
    625Accrued tax
obligations
    
    
    243
    
    
    
    244Accrued
financing fee
    
    
    
    
    
    
    800Other
    
    
    134
    
    
    
    554$
    1,445
    
    
    $
    2,223
   F-18




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##### Table of Contents



9. Notes Payable and Other Financings
  December 31,2009
    
    
    2008(in thousands)Revolving facility, bears interest at prime plus 2.0% but not
less than 10.0% (10.0% at December 31, 2009), net of discount of
$232 and $580
    
    $
    1,994
    
    
    $
    2,024Senior secured, non-convertible term note, bears interest at 12.0%
    
    
    79
    
    
    
    1,103Senior secured, non-convertible term note, bears interest at 12.0%
    
    
    1,164
    
    
    
    3,067Senior secured, non-convertible term note, bears interest at 12.0%
    
    
    134
    
    
    
    2,000Mortgage notes payable, collateralized by Destron Fearings land
and building, payable in monthly installments of principal and
interest totaling $20 thousand, bearing interest at 8.2%, due
through November 2010.
    
    
    2,034
    
    
    
    2,103Line of credit, bears interest at the international rates Danske
Bank can establish on a loan in DKK in the international market
plus 2.0% (6.6% at December 31, 2009) and is determined
quarterly. The agreement shall remain effective until further
notice.
    
    
    2,925
    
    
    
    3,417Equipment loan, collateralized by Destron Fearing A/Ss
production equipment, payable in quarterly installments of
principal and interest totaling $64 thousand, bearing interest at
variable rates (6.6% at December 31, 2009, due through July
2010).
    
    
    274
    
    
    
    497Notes payable  other and capital lease obligations
    
    
    1,085
    
    
    
    1,312Total debt
    
    
    9,689
    
    
    
    15,523Less: current maturities
    
    
    9,297
    
    
    
    8,581Total long term notes payable and debt
    
    $
    392
    
    
    $
    6,942
  Year:2010
    
    $
    9,5292011
    
    
    3042012
    
    
    88Total payments
    
    
    9,921Debt discount, net
    
    
    (232
    )Total debt outstanding
    
    $
    9,689
  $6.0 Million Revolving Asset-Based Facility with Kallina
    F-19




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##### Table of Contents



Senior Secured Non-Convertible Term Notes
        Destron Fearing A/Ss Line of Credit
   F-20




---



##### Table of Contents



10. Fair Value of Financial Instruments
 Cash and Cash Equivalents
  Notes Payable and Long-Term Debt
  Accounts Payable and Accrued Expenses
  11. Stockholders Equity
  Warrants
  BalanceExercised/
    
    
    December 31,
    
    
    Exercise
    
    
    Date of
    
    Date ofClass of Warrants
    
    Authorized
    
    
    Issued
    
    
    Forfeited
    
    
    2009
    
    
    Price
    
    
    Issue

    
    ExpirationSeries B
    
    
    83
    
    
    
    83
    
    
    
    
    
    
    
    83
    
    
    $
    16.910
    
    
    April 2004
    
    April 2010Series D
    
    
    83
    
    
    
    83
    
    
    
    
    
    
    
    83
    
    
    $
    25.443
    
    
    October 2004
    
    October 2010Series E
    
    
    122
    
    
    
    122
    
    
    
    
    
    
    
    122
    
    
    $
    20.759
    
    
    June 2005
    
    June 2010Series E
    
    
    25
    
    
    
    25
    
    
    
    
    
    
    
    25
    
    
    $
    19.104
    
    
    June 2005
    
    June 2010Destron Fearing Warrants  Class D
    
    
    71
    
    
    
    71
    
    
    
    71
    
    
    
    
    
    
    $
    15.086
    
    
    February 2004
    
    February 2009384
    
    
    
    384
    
    
    
    
    
    
    
    313
      Dividend
    
    
    
    
    
    
    Expected
    
    
    Risk-Free
    
    
    Date of theClass of Warrant
    
    Yield
    
    
    Volatility
    
    
    Lives (Yrs.)
    
    
    Rate
    
    
    AssumptionsSeries B
    
    
    0.00
    %
    
    
    69.00
    %
    
    
    6.00
    
    
    
    3.38
    %
    
    April 5, 2004Series D
    
    
    0.00
    %
    
    
    50.00
    %
    
    
    6.00
    
    
    
    3.31
    %
    
    October 21, 2004Series E
    
    
    0.00
    %
    
    
    50.00
    %
    
    
    5.00
    
    
    
    3.75
    %
    
    June 10, 2005
  F-21




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##### Table of Contents



Stock Option Plans
             F-22




---



##### Table of Contents



2009
    
    
    2008Weighted-
    
    
    
    
    
    
    Weighted-Average
    
    
    
    
    
    
    AverageNumber
    
    
    Exercise
    
    
    Number
    
    
    Exerciseof Options
    
    
    Price
    
    
    of Options
    
    
    PriceOutstanding on January 1
    
    
    2,863
    
    
    $
    18.02
    
    
    
    2,405
    
    
    $
    22.44Granted
    
    
    499
    
    
    
    0.97
    
    
    
    629
    
    
    
    2.59Exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Forfeited
    
    
    (173
    )
    
    
    23.60
    
    
    
    (171
    )
    
    
    23.46Outstanding at December 31
    
    
    3,189
    
    
    
    15.05
    
    
    
    2,863
    
    
    
    18.02Exercisable at December 31(1)
    
    
    2,300
    
    
    
    20.25
    
    
    
    2,245
    
    
    
    22.33Vested or expected to vest at December 31
    
    
    3,024
    
    
    
    14.27
    
    
    
    2,833
    
    
    
    16.59Shares available on December 31 for options that may be granted
    
    
    1,199
    
    
    
    
    
    
    
    21
 (1)
    
    The intrinsic value of a stock option is the amount by which the fair value of the underlying stock exceeds the exercise
price of the option. The fair value of our common stock was $0.75 at December 31, 2009 based upon the closing price on the
Nasdaq Capital Market. As of December 31, 2009 and 2008, the aggregate intrinsic value of options outstanding, exercisable
and vested or expected to vest was $0.1 million and $0.1 million, respectively.   Outstanding Options
    
    
    Exercisable StockWeighted-
    
    
    
    
    
    
    OptionsAverage
    
    
    Weighted-
    
    
    
    
    
    
    Weighted-Remaining
    
    
    Average
    
    
    
    
    
    
    AverageContractual
    
    
    Exercise
    
    
    
    
    
    
    ExerciseRange of Exercise Prices
    
    Shares
    
    
    Life in Years
    
    
    Price
    
    
    Shares
    
    
    Price$0.0000 to $2.0000
    
    
    913
    
    
    
    8.9
    
    
    $
    0.75
    
    
    
    196
    
    
    $
    0.46$2.0001 to $4.0000
    
    
    40
    
    
    
    7.2
    
    
    
    2.91
    
    
    
    19
    
    
    
    3.20$4.0001 to $6.0000
    
    
    227
    
    
    
    8.2
    
    
    
    5.23
    
    
    
    76
    
    
    
    5.23$6.0001 to $8.0000
    
    
    18
    
    
    
    7.6
    
    
    
    7.44
    
    
    
    18
    
    
    
    7.44$8.0001 to $10.0000
    
    
    22
    
    
    
    7.6
    
    
    
    8.97
    
    
    
    22
    
    
    
    8.97$10.0001 and over
    
    
    1,969
    
    
    
    4.1
    
    
    
    23.20
    
    
    
    1,969
    
    
    
    23.20Total stock options
    
    
    3,189
    
    
    
    5.8
    
    
    
    15.05
    
    
    
    2,300
    
    
    
    20.25
  Year Ended December 31,2009
    
    
    2008Estimated option life
    
    6 years
    
    
    5 yearsRisk free interest rate
    
    2.34%
    
    
    1.55  3.57%Expected volatility
    
    130.00%
    
    
    60.00  91.51%Expected dividend yield
    
    %
    
    
    %
 Restricted Stock Grants
    F-23




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##### Table of Contents



12. Asset Impairment Testing
   
    
    Earnings before interest, taxes, depreciation and amortization were used as the measure of cash flow;
    
    Cash flows were projected for five years and added to the present value of the terminal value; and
    
    Discount rate used was 20%. The rate was determined based on the level of risk associated with a
reporting units operations and the related degree of certainty of generating future cash flows.
    13. Income Taxes
  2009
    
    
    2008Current:United States
    
    $
    4
    
    
    $
    (78
    )International
    
    
    (54
    )
    
    
    (40
    )Current income tax provision
    
    
    (50
    )
    
    
    (118
    )Deferred:United States
    
    
    
    
    
    
    International
    
    
    74
    
    
    
    283Deferred income taxes benefit
    
    
    74
    
    
    
    283Total income tax benefit
    
    $
    24
    
    
    $
    165
   F-24




---



##### Table of Contents



2009
    
    
    2008Deferred tax assets:Liabilities and reserves
    
    $
    1,381
    
    
    $
    1,584Stock-based compensation
    
    
    4,300
    
    
    
    3,672Property and equipment
    
    
    382
    
    
    
    825Net operating loss carryforwards
    
    
    110,341
    
    
    
    107,555Gross deferred tax assets
    
    
    116,404
    
    
    
    113,636Valuation allowance
    
    
    (116,404
    )
    
    
    (113,476
    )
    
    
    
    160Deferred tax liabilities:Property and equipment
    
    
    
    
    
    
    30Intangible assets
    
    
    
    
    
    
    1,227
    
    
    
    1,257Net Deferred Tax Liabilities
    
    $
    
    
    
    $
    (1,097
    )
  December 31,
    
    
    December 31,2009
    
    
    2008(in thousands)Current deferred tax assets
    
    $
    
    
    
    $
    130Long-term deferred tax liability
    
    
    
    
    
    
    (1,227
    )Net Deferred Tax Liabilities
    
    $
    
    
    
    $
    (1,097
    )
   2009
    
    
    2008Domestic
    
    $
    (6,326
    )
    
    $
    (51,794
    )International
    
    
    (9,121
    )
    
    
    (8,011
    )$
    (15,447
    )
    
    $
    (59,805
    )
     F-25




---



##### Table of Contents



2009
    
    
    2008%
    
    
    %Statutory tax/(benefit) rate
    
    
    (35
    )
    
    
    (35
    )Nondeductible intangibles amortization/impairment
    
    
    11
    
    
    
    20State income taxes, net of federal benefits
    
    
    (2
    )
    
    
    (2
    )Foreign tax differences
    
    
    4
    
    
    
    Shares issued for services
    
    
    (4
    )
    
    
    Change in deferred tax asset valuation allowance (1)
    
    
    18
    
    
    
    15Impact of discontinued operations
    
    
    8
    
    
    
    2
    
    
    
    
 (1)
    
    Substantially attributed to net operating losses. Liabilities for Uncertain Tax Positions
  2009
    
    
    2008Gross unrecognized tax benefits at January 1
    
    $
    201
    
    
    $
    193Increases in tax positions for current year
    
    
    17
    
    
    
    74Lapse in statute of limitations
    
    
    (11
    )
    
    
    (66
    )Gross unrecognized tax benefits at December 31
    
    $
    207
    
    
    $
    201
  14. Discontinued Operations
  Sale of FDC
  Sale of Computer Equity
   F-26




---



##### Table of Contents



Sale of 49.94% ownership in IFTH
  Sale of 45.6% ownership in PSID (f/k/a VeriChip Corporation)
  Sale of McMurdo
     F-27




---



##### Table of Contents



Years Ended December 31,2009
    
    
    2008(in thousands)Revenue
    
    $
    14,534
    
    
    $
    24,860Cost of sales
    
    
    8,634
    
    
    
    14,955Gross profit
    
    
    5,900
    
    
    
    9,905Selling, general and administrative expenses
    
    
    3,852
    
    
    
    6,750Research and development expenses
    
    
    710
    
    
    
    1,297Operating income
    
    
    1,338
    
    
    
    8,047Gain on sale
    
    
    1,769
    
    
    
    3,174Interest and other income (expense), net
    
    
    585
    
    
    
    4Interest expense
    
    
    (91
    )
    
    
    (144
    )Equity in loss of affiliates
    
    
    
    
    
    
    (3,263
    )Income from discontinued operations before income taxes
    
    
    3,601
    
    
    
    1,629Provision for income taxes
    
    
    (608
    )
    
    
    Income from discontinued operations
    
    
    2,993
    
    
    
    1,629Income attributable to the non-controlling interest
    
    
    (44
    )
    
    
    (20
    )Income from discontinued operations attributable to Digital Angel Corporation
    
    $
    2,949
    
    
    $
    1,609Income from discontinued operations per common share  basic and diluted
    
    $
    0.16
    
    
    $
    0.11Weighted average number of common shares outstanding  basic and diluted
    
    
    18,768
    
    
    
    15,156
    December 31,2009
    
    
    2008(in thousands)Current assets:Cash
    
    $
    66
    
    
    $
    394Accounts receivable
    
    
    1,787
    
    
    
    2,070Inventory
    
    
    
    
    
    
    1,779Other current assets
    
    
    
    
    
    
    102Total current assets
    
    
    1,853
    
    
    
    4,345Property and equipment, net
    
    
    
    
    
    
    318Goodwill and intangibles, net
    
    
    
    
    
    
    4,857Total assets
    
    $
    1,853
    
    
    $
    9,520Current liabilities:Accounts payable
    
    $
    259
    
    
    $
    1,319Advances from factors
    
    
    
    
    
    
    (20
    )Accrued expenses and other current liabilities
    
    
    2,255
    
    
    
    1,406Total current liabilities
    
    
    2,514
    
    
    
    2,705Deferred taxes
    
    
    
    
    
    
    1,367Total liabilities
    
    $
    2,514
    
    
    $
    4,072Net (liabilities) assets of discontinued operations
    
    $
    (661
    )
    
    $
    5,448
  F-28




---



##### Table of Contents



15. Loss Per Share
  2009
    
    
    2008Numerator for basic and diluted loss per share:Loss from continuing operations
    
    $
    (15,313
    )
    
    $
    (59,742
    )Income from discontinued operations
    
    
    2,949
    
    
    
    1,609Net loss attributable to common stockholders
    
    $
    (12,364
    )
    
    $
    (58,133
    )Denominator for basic and diluted loss per share:Basic and diluted weighted-average shares outstanding (1)
    
    
    18,768
    
    
    
    15,156(Loss) Income per share  basic and dilutedContinuing operations
    
    $
    (0.82
    )
    
    $
    (3.94
    )Discontinued operations
    
    
    0.16
    
    
    
    0.11Total  basic and diluted
    
    $
    (0.66
    )
    
    $
    (3.83
    )
 (1)
    
    The following stock options and warrants outstanding as of December 31, 2009 and 2008
were not included in the computation of dilutive loss per share because the net effect would
have been anti-dilutive: 2009
    
    
    2008(in thousands)Stock options
    
    
    3,189
    
    
    
    2,863Warrants
    
    
    313
    
    
    
    384Restricted stock
    
    
    461
    
    
    
    313,963
    
    
    
    3,278
 16. Commitments and Contingencies
  MinimumRentalPaymentsYear:2010
    
    $
    8532011
    
    
    5762012
    
    
    5102013
    
    
    4842014
    
    
    463Thereafter
    
    
    12,712$
    15,598
  Annual Incentive Plan
   F-29




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##### Table of Contents



Amendment to Schering-Plough Supply and Distribution Agreement
 ®
 Destron Fearings RME Supply Agreement
  17. Profit Sharing Plan
   18. Legal Proceedings
  Former Officer
  Chemring Suit
   F-30




---



##### Table of Contents



19. Segment Information
   2009 (in thousands)Total fromAnimal
    
    
    Emergency
    
    
    
    
    
    
    ContinuingIdentification
    
    
    Identification
    
    
    Corporate
    
    
    OperationsRevenues
    
    $
    30,774
    
    
    $
    18,689
    
    
    $
    
    
    
    $
    49,463Depreciation and amortization(1)
    
    $
    3,011
    
    
    $
    1,058
    
    
    $
    
    
    
    $
    4,069Interest and other income
    
    
    202
    
    
    
    
    
    
    
    117
    
    
    
    319Interest expense
    
    
    (1,246
    )
    
    
    (177
    )
    
    
    (753
    )
    
    
    (2,176
    )Operating loss
    
    
    (757
    )
    
    
    (7,672
    )
    
    
    (5,161
    )
    
    
    (13,590
    )Loss from continuing operations before provision for income taxes
    
    
    (2,766
    )
    
    
    (7,850
    )
    
    
    (4,831
    )
    
    
    (15,447
    )Goodwill, net
    
    
    3,343
    
    
    
    
    
    
    
    
    
    
    
    3,343Segment assets from continuing operations
    
    
    23,954
    
    
    
    13,635
    
    
    
    7,602
    
    
    
    45,191Expenditures for property and equipment
    
    
    55
    
    
    
    365
    
    
    
    
    
    
    
    420
 2008 (in thousands)Total fromAnimal
    
    
    Emergency
    
    
    
    
    
    
    ContinuingIdentification
    
    
    Identification
    
    
    Corporate
    
    
    OperationsRevenues
    
    $
    38,501
    
    
    $
    23,759
    
    
    $
    
    
    
    $
    62,260Depreciation and amortization(1)
    
    $
    3,129
    
    
    $
    855
    
    
    $
    26
    
    
    $
    4,010Interest and other income (expense)
    
    
    1,015
    
    
    
    
    
    
    
    1,707
    
    
    
    2,722Interest expense
    
    
    (3,248
    )
    
    
    (157
    )
    
    
    (7,487
    )
    
    
    (10,892
    )Operating loss
    
    
    (41,716
    )
    
    
    (1,257
    )
    
    
    (8,662
    )
    
    
    (51,635
    )Loss from continuing operations before provision for income taxes
    
    
    (43,949
    )
    
    
    (1,415
    )
    
    
    (14,441
    )
    
    
    (59,805
    )Goodwill, net
    
    
    3,310
    
    
    
    3,538
    
    
    
    
    
    
    
    6,848Segment assets from continuing operations
    
    
    28,809
    
    
    
    17,976
    
    
    
    7,901
    
    
    
    54,686Expenditures for property and equipment
    
    
    580
    
    
    
    1,533
    
    
    
    
    
    
    
    2,113
 (1)
    
    Depreciation and amortization includes $1.7 million and $1.9 million included in cost of
sales in 2009 and 2008, respectively.   Animal
    
    
    EmergencyIdentification
    
    
    Identification
    
    
    TotalBalance  December 31, 2007
    
    $
    30,010
    
    
    $
    3,937
    
    
    $
    33,947Acquisitions
    
    
    4,165
    
    
    
    
    
    
    
    4,165Adjustment to purchase price allocation
    
    
    (141
    )
    
    
    
    
    
    
    (141
    )Impairment
    
    
    (31,006
    )
    
    
    
    
    
    
    (31,006
    )Foreign currency and other adjustments
    
    
    282
    
    
    
    (399
    )
    
    
    (117
    )Balance  December 31, 2008
    
    
    3,310
    
    
    
    3,538
    
    
    
    6,848GTC earn-out payment
    
    
    300
    
    
    
    
    
    
    
    300Impairment
    
    
    
    
    
    
    (3,816
    )
    
    
    (3,816
    )Foreign currency and other adjustments
    
    
    (267
    )
    
    
    278
    
    
    
    11Balance  December 31, 2009
    
    $
    3,343
    
    
    $
    
    
    
    $
    3,343
  F-31




---



##### Table of Contents



United
    
    
    
    
    
    
    SouthStates
    
    
    Europe
    
    
    America
    
    
    Total2009Net revenue
    
    $
    21,694
    
    
    $
    27,074
    
    
    $
    695
    
    
    $
    49,463Property and equipment, net
    
    
    4,854
    
    
    
    2,390
    
    
    
    119
    
    
    
    7,3632008Net revenue
    
    $
    29,275
    
    
    $
    31,927
    
    
    $
    1,058
    
    
    $
    62,260Property and equipment, net
    
    
    5,764
    
    
    
    2,544
    
    
    
    241
    
    
    
    8,549
 20. Related Party Transactions
  Intercompany Loan Agreement with PSID
       PSIDs Stock Purchase Agreement
  
    
    A Voting Agreement (the Voting Agreement) in which we granted an irrevocable proxy in favor of the Transaction and
against any alternative proposal. The Voting Agreement limited our ability to transfer shares of stock we held in PSID
or vote for any alternative deal during the period prior to the consummation of the Transaction.
  F-32




---



##### Table of Contents




    
    A Guarantee (the Guarantee) in favor of Stanley holding Stanley harmless from certain liabilities under the PSID SPA.
    
    A Non-Competition Agreement (the Non-Competition Agreement) in which we agreed that we would not compete with Xmark
for 3 years following the consummation of the Transaction. We do not operate in any of these businesses today. The
Non-Competition Agreement terminates upon a Change in Control Effective Date (as defined in the Non-Competition
Agreement).
     Transition Services Agreement
    Sale of PSID Shares
    F-33




---



##### Table of Contents



Purchase Agreement with Blue Moon
  Private Placement Sale with Certain Directors
  Destron Fearing A/Ss Leased Facility
  Sale of Thermo Life
  Sale
of Control Products Group
  21. Restructuring, Severance and Separation Expenses
   Animal
    
    
    EmergencyIdentification
    
    
    Identification
    
    
    Corporate
    
    
    TotalYear Ended December 31, 2009:Restructuring and workforce reduction charges:Severance
    
    $
    347
    
    
    $
    181
    
    
    $
    
    
    
    $
    528Contract termination
    
    
    150
    
    
    
    
    
    
    
    
    
    
    
    150$
    497
    
    
    $
    181
    
    
    $
    
    
    
    $
    678Year Ended December 31, 2008:Restructuring and workforce reduction charges:Severance
    
    $
    1,903
    
    
    $
    597
    
    
    $
    371
    
    
    $
    2,871Contract termination
    
    
    
    
    
    
    
    
    
    
    354
    
    
    
    354Facility closing
    
    
    453
    
    
    
    
    
    
    
    
    
    
    
    453$
    2,356
    
    
    $
    597
    
    
    $
    725
    
    
    $
    3,678Asset impairment:Fixed assets
    
    $
    1,971
    
    
    $
    
    
    
    $
    146
    
    
    $
    2,117Other assets
    
    
    244
    
    
    
    
    
    
    
    
    
    
    
    244$
    2,215
    
    
    $
    
    
    
    $
    146
    
    
    $
    2,361
   F-34




---



##### Table of Contents



ContractTerminationand FacilitySeverance
    
    
    Closing Costs
    
    
    TotalBalance  January 1, 2009
    
    $
    1,066
    
    
    $
    478
    
    
    $
    1,544Additional expense
    
    
    528
    
    
    
    150
    
    
    
    678Cash payments
    
    
    (1,291
    )
    
    
    (396
    )
    
    
    (1,687
    )Balance  December 31, 2009
    
    $
    303
    
    
    $
    232
    
    
    $
    535
 22. Supplemental Cash Flow Information
  For the years endedDecember 31,2009
    
    
    2008Decrease in accounts receivable and unbilled receivables
    
    $
    1,304
    
    
    $
    385(Increase) decrease in inventories
    
    
    (2,166
    )
    
    
    730Decrease in other current assets
    
    
    392
    
    
    
    666(Decrease) increase in accounts payable, accrued expenses and other liabilities
    
    
    (2,047
    )
    
    
    2,867$
    (2,517
    )
    
    $
    4,648
  For the years endedDecember 31,2009
    
    
    2008Issuance of common stock, warrants, and options for business acquisition
    
    $
    
    
    
    $
    6,879Issuance of common stock for purchase of equipment
    
    
    186
    
    
    
    Issuance of common stock for legal settlement
    
    
    400
    
    
    
    500Issuance of common stock for SEDA commitment fee
    
    
    125
    
    
    
    Issuance of common stock for deferred financing fee
    
    
    800Issuance of warrants in connection with financings
    
    
    
    
    
    
    744Assets acquired for long-term debt and capital leases
    
    
    
    
    
    
    330
 23. Subsequent Events
 Registered Direct Offering
   F-35




---



##### Table of Contents



Termination of Standby Equity Distribution Agreement
   Sale
of Thermo Life
  Sale
of Control Products Group
  Settlement of Note Receivable
    F-36




---



##### Table of Contents



Exhibit Index
 ExhibitNumber
    
    Description2.1
    
    
    Agreement and Plan of Merger dated January 14, 2008 among the Company, GT Acquisition Sub, Inc., Geissler
Technologies Corporation and the individuals named therein (incorporated by reference to Exhibit 2.1 to the
registrants Current Report on Form 8-K filed with the Commission on January 17, 2008)2.2
    
    
    Asset Purchase Agreement among the Company, Pacific Decision Sciences Corporation and Customer Service Delivery
Platform Corporation dated June 2, 2008 (incorporated by reference to Exhibit 2.1 to the registrants Current
Report on Form 8-K filed with the Commission on June 6, 2008)2.3
    
    
    Stock Purchase Agreement between the Company and Blue Moon Energy Partners LLC dated August 1, 2008 (incorporated
by reference to Exhibit 2.1 to the registrants Current Report on Form 8-K filed with the Commission on August 4,
2008)3.1
    
    
    Certificate of Incorporation of the Company filed with the Secretary of State of Delaware on March 7, 2007
(incorporated by reference to Exhibit 3.1 to the registrants Current Report on Form 8-K filed with the
Commission on April 25, 2007)3.2
    
    
    Certificate of Elimination to Certificate of Designations filed with the Secretary of State of Missouri on April
5, 2007 (incorporated by reference to Exhibit 3.4 to the registrants Annual Report on Form 10-K/A filed with the
Commission on April 6, 2007)3.3
    
    
    Certificate of Amendment of Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.2
to the registrants Quarterly Report on Form 10-Q filed with the Commission on May 12, 2008)3.4
    
    
    Certificate of Amendment of Certificate of Incorporation of the Company dated December 21, 2007 (incorporated by
reference to Annex A to the registrants Definitive Proxy Statement on Schedule 14(a) filed with the Commission
on April 28, 2008)3.5
    
    
    Certificate of Amendment of Certificate of Incorporation of the Company dated October 31, 2008 (incorporated by
reference to Exhibit 3.1 to the registrants Quarterly Report on Form 10-Q filed with the Commission on August
11, 2008)3.6
    
    
    Certificate of Amendment of Certificate of Incorporation of the Company dated November 10, 2008 (incorporated by
reference to Exhibit 3.1 to the registrants Quarterly Report on Form 10-Q filed with the Commission on November
12, 2008)3.7
    
    
    Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.3 to the registrants
Quarterly Report on Form 10-Q filed with the Commission on August 9, 2007)3.8
    
    
    Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 10.3 to the registrants Current
Report on Form 8-K filed with the Commission on September 28, 2009)10.1
    
    
    Voting Agreement by and between Applied Digital Solutions, Inc. and The Stanley Works dated as of May 15, 2008
(incorporated by reference to Exhibit 10.1 to the registrants Current Report on Form 8-K filed with the
Commission on May 16, 2008)10.2
    *
    
    1996 Non-Qualified Stock Option Plan of Applied Cellular Technology, Inc., as amended through June 13, 1998
(incorporated herein by reference to Exhibit 4.1 to the registrants Registration Statement on Form S-8 (File No.
333-11294) filed with the Commission on December 2, 1999)10.3
    *
    
    Applied Digital Solutions, Inc. 1999 Flexible Stock Plan, as amended (incorporated herein by reference to Exhibit
4.2 to the registrants Registration Statement on Form S-8 (File No. 333-118776) filed with the Commission on
September 3, 2004)10.4
    *
    
    Amended and Restated Digital Angel Corporation Transition Stock Option Plan, as amended (incorporated herein by
reference to Exhibit 4.1 to the registrants Registration Statement on Form S-8 (file No. 333-148958) filed with
the Commission on January 31, 2008)10.5
    *
    
    Applied Digital Solutions, Inc. 1999 Employees Stock Purchase Plan, as amended (incorporated by reference to
Exhibit 4.2 to the registrants Registration Statement on Form S-8 (File No. 333-126229) filed with the
Commission on June 29, 2005)10.6
    *
    
    Form of Stock Award Agreement in connection with the Applied Digital Solutions, Inc. 1999/2003 Flexible Stock Plan
(incorporated by reference to Exhibit 10.110 to the registrants Annual Report on Form 10-K filed with the
Commission on March 15, 2007)10.7
    *
    
    Applied Digital Solutions, Inc. 1999 Employees Stock Purchase Plan, as amended (incorporated by reference to
Exhibit 4.2 to the registrants Registration Statement on Form S-8 (File No. 333-126229) filed with the
Commission on June 29, 2005)10.8
    *
    
    Form of Stock Award Agreement in connection with the Applied Digital Solutions, Inc. 1999/2003 Flexible Stock Plan
(incorporated by reference to Exhibit 10.110 to the registrants Annual Report on Form 10-K filed with the
Commission on March 15, 2007)
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##### Table of Contents



ExhibitNumber
    
    Description10.9
    *
    
    Incentive and Recognition Policy dated April 2, 2007 (incorporated
by reference to Exhibit 10.112 to the registrants Annual Report
on Form 10-K/A filed with the Commission on April 6, 2007)10.10
    *
    
    Employment Agreement effective as of January 1, 2008 between
Applied Digital Solutions, Inc. and Joseph J. Grillo (incorporated
by reference to Exhibit 10.1 to the registrants Current Report on
Form 8-K filed with the Commission on January 4, 2008)10.11
    *
    
    Form of Non-Qualified Stock Option Agreement (incorporated herein
by reference to Exhibit 4.2 to the registrants Registration
Statement on Form S-8 (file No. 333-148958) filed with the
Commission on January 31, 2008)10.12
    *
    
    Employment Agreement, dated March 24, 2008, by and between the
registrant and Parke H. Hess (incorporated by reference to Exhibit
10.1 to the registrants Amendment No. 1 to the Quarterly Report
on Form 10-Q/A filed with the Commission on July 9, 2008)10.13
    *
    
    Applied Digital Solutions, Inc. 2003 Flexible Stock Plan, as
Amended and Restated through June 20, 2008 (incorporated by
reference to Exhibit 10.1 to the registrants Quarterly Report on
Form 10-Q filed with the Commission on August 11, 2008)10.14
    *
    
    Form of Amendment to the Option Agreements issued to Joseph Grillo
and Parke Hess (incorporated by reference to Exhibit 10.1 to the
registrants Current Report on Form 8-K filed with the Commission
on September 24, 2008)10.15
    *
    
    Form of Stock Option Agreement under the 2003 Flexible Stock Plan (incorporated by reference
to Exhibit 10.102 to the registrants Annual Report on Form 10-K filed with
the Commission on March 31, 2009)10.16
    *
    
    Digital Angel Corporation 2003 Flexible Stock Plan, as Amended
(incorporated by reference to Exhibit 4.1 to the registrants
Registration Statement Under The Securities Act of 1933 on Form
S-8 filed with the Commission on October 16, 2009)10.17
    
    
    Form of Series B Warrant to Purchase Common Stock of Applied
Digital Solutions, Inc. (incorporated herein by reference to
Exhibit 10.3 to the registrants Current Report on Form 8-K filed
with the Commission on April 15, 2004)10.18
    
    
    Form of Series D Warrant to Purchase Common Stock of Applied
Digital Solutions, Inc., in favor of Satellite Strategic Finance
Associates, LLC dated October 21, 2004 (incorporated herein by
reference to Exhibit 10.3 to the registrants Current Report on
Form 8-K filed with the Commission on October 22, 2004)10.19
    
    
    Form of Series E Warrant to Purchase Common Stock of Applied
Digital Solutions, Inc. dated as of June 10, 2005 (incorporated by
reference to Exhibit 10.8 to the registrants Current Report on
Form 8-K/A filed with the Commission on June 13, 2005)10.20
    
    
    Supply Agreement between Digital Angel Corporation and Raytheon
Microelectronics España, S.A. dated April 26, 2006 (incorporated
by reference to Exhibit 10.1 to the registrants Quarterly Report
on Form 10-Q filed with the Commission on May 9, 2006)10.21
    
    
    Amended Credit Facility between Danske Bank and Daploma
International A/S dated June 1, 2006 (incorporated by reference to
Exhibit 10.1 to the registrants Current Report on Form 8-K filed
with the Commission on June 5, 2006)10.22
    
    
    Letter of Support Issued to Danske Bank A/SM (incorporated by
reference to Exhibit 10.2 to the registrants Current Report on
Form 8-K filed with the Commission on June 5, 2006)10.23
    
    
    Letter Agreement regarding Amendment of $13,500,000 Note dated as
of February 29, 2008 among Applied Digital Solutions, Inc., Laurus
Master Fund, Ltd., Valens U.S. SPV I, LLC, Valens Offshore SPV I,
Ltd. and PSource Structured Debt Limited (incorporated by
reference to Exhibit 10.10 to the registrants Current Report on
Form 8-K filed with the Commission on March 5, 2008)10.24
    
    
    Master Security Agreement between Applied Digital Solutions, Inc.
and Laurus Master Fund, Ltd., dated August 24, 2006 (incorporated
by reference to Exhibit 10.3 to the registrants Current Report on
Form 8-K filed with the Commission on August 25, 2006)10.25
    
    
    Stock Pledge Agreement between Applied Digital Solutions, Inc. and
Laurus Master Fund, Ltd., dated August 24, 2006 (incorporated by
reference to Exhibit 10.4 to the registrants Current Report on
Form 8-K filed with the Commission on August 25, 2006)10.26
    
    
    Registration Rights Agreement between Applied Digital Solutions,
Inc. and Laurus Master Fund, Ltd., dated August 24, 2006
(incorporated by reference to Exhibit 10.6 to the registrants
Current Report on Form 8-K filed with the Commission on August 25,
2006)10.27
    
    
    Omnibus Amendment and Waiver dated as of October 31, 2007 among
Applied Digital Solutions, Inc., VeriChip Corporation, Laurus
Master Fund, Ltd., Kallina Corporation, Valens U.S. SPV I, LLC,
Valens Offshore SPV II, Corp. and PSource Structured Debt Limited
(incorporated by reference to Exhibit 10.1 to the registrants
Current Report on Form 8-K filed with the Commission on November
6, 2007)
  36




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##### Table of Contents



ExhibitNumber
    
    Description10.28
    
    
    Omnibus Amendment Agreement dated February 29, 2008
among Applied Digital Solutions, Inc., Laurus Master
Fund, Ltd., Kallina Corporation, Valens U.S. SPV I,
LLC, Valens Offshore SPV II, Corp., Valens Offshore SPV
I, Ltd. and PSource Structured Debt Limited
(incorporated by reference to Exhibit 10.141 to the
registrants Annual Report on Form 10-K filed with the
Commission on March 17, 2008)10.29
    
    
    Securities Purchase Agreement dated August 31, 2007
between Applied Digital Solutions, Inc. and Kallina
Corporation (incorporated by reference to Exhibit 10.1
to the registrants Current Report on Form 8-K/A filed
with the Commission on November 7, 2007)10.30
    
    
    Secured Term Note dated August 31, 2007 between Applied
Digital Solutions, Inc. and Kallina Corporation
(incorporated by reference to Exhibit 10.2 to the
registrants Current Report on Form 8-K/A filed with
the Commission on November 7, 2007)10.31
    
    
    Letter Agreement regarding Amendment of $7,000,000 Note
dated as of February 29, 2008 among Applied Digital
Solutions, Inc., Kallina Corporation, Valens U.S. SPV
I, LLC, Valens Offshore SPV I, Ltd. and Valens Offshore
SPV II, Corp. (incorporated by reference to Exhibit
10.9 to the registrants Current Report on Form 8-K
filed with the Commission on March 5, 2008)10.32
    
    
    Subordination Agreement dated as of February 29, 2008
among Applied Digital Solutions, Inc., VeriChip
Corporation and LV Administrative Services, Inc.
(incorporated by reference to Exhibit 10.11 to the
registrants Current Report on Form 8-K filed with the
Commission on March 5, 2008)10.33
    
    
    Amendment of Warrants and Conditional Consent to Asset
Sales dated as of February 29, 2008 among Applied
Digital Solutions, Inc., Laurus Master Fund, Ltd.,
Kallina Corporation, Valens U.S. SPV I, LLC, Valens
Offshore SPV I, Ltd., Valens Offshore SPV II, Corp. and
PSource Structured Debt Limited (incorporated by
reference to Exhibit 10.12 to the registrants Current
Report on Form 8-K filed with the Commission on March
5, 2008)10.34
    
    
    Master Security Agreement dated August 31, 2007 between
Applied Digital Solutions, Inc. and Kallina Corporation
(incorporated by reference to Exhibit 10.3 to the
registrants Current Report on Form 8-K/A filed with
the Commission on November 7, 2007)10.35
    
    
    Stock Pledge Agreement dated August 31, 2007 among
Applied Digital Solutions, Inc., Kallina Corporation,
Computer Equity Corporation, Digital Angel Corporation
and Digital Angel Technology Corporation (incorporated
by reference to Exhibit 10.4 to the registrants
Current Report on Form 8-K/A filed with the Commission
on November 7, 2007)10.36
    
    
    Intellectual Property Security Agreement dated August
31, 2007 between Applied Digital Solutions, Inc. and
Kallina Corporation (incorporated by reference to
Exhibit 10.5 to the registrants Current Report on Form
8-K/A filed with the Commission on November 7, 2007)10.37
    
    
    Intercreditor Agreement dated August 31, 2007 among
Applied Digital Solutions, Inc., Kallina Corporation,
Laurus Master Fund, Ltd., Valens U.S. SPV I, LLC and
Valens Offshore SPV II, Corp. (incorporated by
reference to Exhibit 10.6 to the registrants Current
Report on Form 8-K/A filed with the Commission on
November 7, 2007)10.38
    
    
    Guaranty by Applied Digital Solutions, Inc. in favor of
Kallina Corporation dated August 31, 2007 (incorporated
by reference to Exhibit 10.7 to the registrants
Current Report on Form 8-K/A filed with the Commission
on November 7, 2007)10.39
    
    
    Amendment and Partial Assignment of Loans, Liens and
Documents dated August 31, 2007 among Kallina
Corporation, Valens U.S. SPV I, LLC, and certain other
parties named therein (incorporated by reference to
Exhibit 10.8 to the registrants Current Report on Form
8-K/A filed with the Commission on November 7, 2007)10.40
    
    
    Amendment and Partial Assignment of Loans, Liens and
Documents dated August 31, 2007 among Kallina
Corporation, Valens Offshore SPV II, Corp., and certain
other parties named therein (incorporated by reference
to Exhibit 10.9 to the registrants Current Report on
Form 8-K/A filed with the Commission on November 7,
2007)10.41
    
    
    Intellectual Property Security Agreement dated August
31, 2007 between Applied Digital Solutions, Inc. and
Laurus Master Fund, Ltd. (incorporated by reference to
Exhibit 10.11 to the registrants Current Report on
Form 8-K/A filed with the Commission on November 7,
2007)10.42
    
    
    Secured Term Note dated August 31, 2007 among Digital
Angel Corporation, Digital Angel Technology
Corporation, Fearing Manufacturing Co., Inc. and
Digital Angel International in favor of Applied Digital
Solutions, Inc. (incorporated by reference to Exhibit
10.13 to the registrants Current Report on Form 8-K/A
filed with the Commission on November 7, 2007)
  37




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##### Table of Contents



ExhibitNumber
    
    Description10.43
    
    
    Digital Angel Corporation Security Agreement dated
August 31, 2007 among Applied Digital Solutions, Inc.,
Digital Angel Corporation, Digital Angel Technology
Corporation, Fearing Manufacturing Co., Inc. and
Digital Angel International (incorporated by reference
to Exhibit 10.14 to the registrants Current Report on
Form 8-K/A filed with the Commission on November 7,
2007)10.44
    
    
    Subordination Agreement dated August 31, 2007 among
Applied Digital Solutions, Inc., Kallina Corporation,
Valens Offshore SPV II, Corp. and Valens U.S. SPV I,
LLC (incorporated by reference to Exhibit 10.15 to the
registrants Current Report on Form 8-K/A filed with
the Commission on November 7, 2007)10.45
    
    
    Secured Revolving Note dated August 31, 2007 among
Digital Angel Corporation, Digital Angel Technology
Corporation, Fearing Manufacturing Co., Inc., and
Digital Angel International in favor of Kallina
Corporation (incorporated by reference to Exhibit 10.16
to the registrants Current Report on Form 8-K/A filed
with the Commission on November 7, 2007)10.46
    
    
    Security Agreement dated August 31, 2007 among Digital
Angel Corporation, Digital Angel Technology
Corporation, Fearing Manufacturing Co., Inc., Digital
Angel International, and Kallina Corporation
(incorporated by reference to Exhibit 10.17 to the
registrants Current Report on Form 8-K/A filed with
the Commission on November 7, 2007)10.47
    
    
    Stock Pledge Agreement dated August 31, 2007 among
Digital Angel Corporation, Digital Angel Technology
Corporation and Kallina Corporation (incorporated by
reference to Exhibit 10.18 to the registrants Current
Report on Form 8-K/A filed with the Commission on
November 7, 2007)10.48
    
    
    Intellectual Property Security Agreement dated August 31, 2007
among Digital Angel Corporation, Digital Angel Technology
Corporation, Fearing Manufacturing Co., Inc., and Kallina
Corporation (incorporated by reference to Exhibit 10.19 to the
registrants Current Report on Form 8-K/A filed with the
Commission on November 7, 2007)10.49
    
    
    Registration Rights Agreement dated August 31, 2007 between
Destron Fearing Corporation (formerly Digital Angel Corporation)
and Kallina Corporation (incorporated by reference to Exhibit
10.20 to the registrants Current Report on Form 8-K/A filed with
the Commission on November 7, 2007)10.50
    
    
    Subsidiary Guaranty by Digital Angel Corporation, Digital Angel
Technology Corporation, Fearing Manufacturing Co., Inc., and
Digital Angel International in favor of Kallina Corporation dated
August 31, 2007 (incorporated by reference to Exhibit 10.22 to the
registrants Current Report on Form 8-K/A filed with the
Commission on November 7, 2007)10.51
    
    
    Settlement Agreement and General Release dated September 28, 2007
among Hark M. Vasa, H&K Vasa 1999 Family Limited Partnership, H&K
Vasa 2000 Family Limited Partnership, Applied Digital Solutions,
Inc. and Pacific Decision Sciences Corporation (f/k/a PDS
Acquisition Corporation) (incorporated by reference to Exhibit
10.1 to the registrants Quarterly Report on Form 10-Q filed with
the Commission on November 9, 2007)10.52
    
    
    Letter Agreement dated December 20, 2007 between
PositiveID Corporation and Applied Digital Solutions,
Inc. (incorporated by reference to Exhibit 10.4 to the
registrants Current Report on Form 8-K filed with the
Commission on December 21, 2007)10.53
    
    
    Joinder Agreement dated January 14, 2008 between GT
Acquisition Sub, Inc. and Kallina Corporation
(incorporated by reference to Exhibit 10.1 to the
registrants Current Report on Form 8-K filed with the
Commission on January 17, 2008)10.54
    
    
    Joinder Agreement dated January 14, 2008 among GT
Acquisition Sub, Inc., Kallina Corporation, Valens
Offshore SPV I, Ltd., Valens Offshore SPV II, Corp.,
Valens U.S. SPV I, LLC and PSource Structured Debt
Limited (incorporated by reference to Exhibit 10.2 to
the registrants Current Report on Form 8-K filed with
the Commission on January 17, 2008)10.55
    
    
    Letter Agreement dated as of February 29, 2008 between
PositiveID Corporation and Applied Digital Solutions,
Inc. (incorporated by reference to Exhibit 10.6 to the
registrants Current Report on Form 8-K filed with the
Commission on March 5, 2008)10.56
    
    
    Amendment No. 1, dated January 5, 2008, to the Product
Supply and Distribution Agreement dated February 13,
2007 between Digital Angel Corporation and
Schering-Plough Home Again LLC (incorporated by
reference to Exhibit 10.1 to the registrants Quarterly
Report on Form 10-Q filed with the Commission on May
12, 2008)10.57
    
    
    Guarantee by Applied Digital Solutions, Inc. in favor
of The Stanley Works dated as of May 15, 2008
(incorporated by reference to Exhibit 10.2 to the
registrants Current Report on Form 8-K filed with the
Commission on May 16, 2008)10.58
    
    
    Non-Competition Agreement by and between Applied
Digital Solutions, Inc. and The Stanley Works dated as
of May 15, 2008 (incorporated by reference to Exhibit
10.3 to the registrants Current Report on Form 8-K
filed with the Commission on May 16, 2008)
  38




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##### Table of Contents



ExhibitNumber
    
    Description10.59
    
    
    Intercompany Letter Agreement by and between Applied
Digital Solutions, Inc. and PositiveID Corporation
dated as of May 15, 2008 (incorporated by reference to
Exhibit 10.4 to the registrants Current Report on Form
8-K filed with the Commission on May 16, 2008)10.60
    
    
    Consent and Waiver Agreement by and among Laurus Master
Fund, Ltd., Kallina Corporation, Valens U.S. SPV I,
LLC, Valens Offshore SPV I, Ltd., Valens Offshore SPV
II, Corp., PSource Structured Debt Limited, and Applied
Digital Solutions, Inc. dated as of May 15, 2008
(incorporated by reference to Exhibit 10.5 to the
registrants Current Report on Form 8-K filed with the
Commission on May 16, 2008)10.61
    
    
    Secured Promissory Note from Customer Service Delivery
Platform Corporation dated June 2, 2008 (incorporated
by reference to Exhibit 2.2 to the registrants Current
Report on Form 8-K filed with the Commission on June 6,
2008)10.62
    
    
    Security Agreement between Customer Service Delivery
Platform Corporation and Applied Digital Solutions,
Inc. dated June 2, 2008 (incorporated by reference to
Exhibit 2.3 to the registrants Current Report on Form
8-K filed with the Commission on June 6, 2008)10.63
    
    
    Stock Purchase Agreement between Digital Angel
Corporation and Sterling Hallmark, Inc. dated July 10,
2008 (incorporated by reference to Exhibit 10.1 to the
registrants Current Report on Form 8-K filed with the
Commission on July 16, 2008)10.64
    
    
    Noncompetition and Confidentiality Agreement between
Digital Angel Corporation and Sterling Hallmark, Inc.
dated July 10, 2008 (incorporated by reference to
Exhibit 10.3 to the registrants Current Report on Form
8-K filed with the Commission on July 16, 2008)10.65
    
    
    Omnibus Amendment between Digital Angel Corporation,
Laurus Master Fund, Ltd., Kallina Corporation, Valens
Offshore SPV I, Ltd., Valens Offshore SPV II Corp,
Valens US SPV I, LLC, Psource Structured Debt Limited
and LV Administrative Services, Inc. dated July 21,
2008 (incorporated by reference to Exhibit 10.1 to the
registrants Current Report on Form 8-K filed with the
Commission on July 24, 2008)10.66
    
    
    Letter Agreement dated September 30, 2008 between
Digital Angel Corporation, Laurus Master Fund, LTD,
Kallina Corporation, Valens U.S. SPV I, LLC, Valens
Offshore SPV I Ltd., Valens Offshore SPV II Corp. and
Psource Structured Debt Limited and consented to by
Destron Fearing Corporation, Digital Angel Technology
Corporation, Digital Angel International, Inc. and
Fearing Manufacturing Co. Inc. (incorporated by
reference to Exhibit 10.1 to the registrants Current
Report on Form 8-K filed with the Commission on October
3, 2008)10.67
    
    
    Secured Term Note dated September 30, 2008 payable by
Digital Angel Corporation to Valens Offshore SPV II
Corp. (incorporated by reference to Exhibit 10.2 to the
registrants Current Report on Form 8-K filed with the
Commission on October 3, 2008)10.68
    
    
    Agreement dated September 30, 2008 between Digital
Angel Corporation and Valens Offshore SPV II Corp.
(incorporated by reference to Exhibit 10.3 to the
registrants Current Report on Form 8-K filed with the
Commission on October 3, 2008)10.69
    
    
    Stock Purchase Agreement dated November 12, 2008
between Digital Angel Corporation, Scott Silverman and
R&R Consulting Partners, LLC (incorporated by reference
to Exhibit 10.2 to the registrants Current Report on
Form 8-K filed with the Commission on November 18,
2008)10.70
    
    
    Asset Purchase Agreement dated November 12, 2008
between Digital Angel Corporation and Positive ID
Corporation (incorporated by reference to Exhibit 10.1
to the registrants Current Report on Form 8-K filed
with the Commission on November 18, 2008)10.71
    
    
    Letter Agreement dated November 26, 2008 between
Digital Angel Corporation, Destron Fearing Corporation,
Digital Angel Technology Corporation, Digital Angel
International, Inc., Laurus Master Fund, Ltd, Kallina
Corporation, Valens Offshore SPV I, Ltd., Valens
Offshore SPV II Corp, Valens US SPV I, LLC, Psource
Structured Debt Limited and LV Administrative Services,
Inc. (incorporated by reference to Exhibit 10.101
to the registrants Annual Report on Form 10-K
filed with the Commission on March 31, 200910.72
    
    
    Recourse Invoice Discounting Agreement
between Bibby Financial Services and
Signature Industries Limited on July 7,
2009 (incorporated by reference to Exhibit
10.1 to the registrants Current Report on
Form 8-K filed with the Commission on July
10, 2009)10.73
    
    
    Standard Conditions for the Purchase of
Debts (Edition A/2004) Incorporated into
the Confidential Invoice Discounting
Agreement Made between Bibby Financial
Services and Signature Industries Limited
on July 7, 2009 (incorporated by reference
to Exhibit 10.2 to the registrants
Current Report on Form 8-K filed with the
Commission on July 10, 2009)10.74
    
    
    Standby Equity Distribution Agreement
dated as of July 10, 2009 by and between
YA Global Master SPV Ltd. and Digital
Angel Corporation (incorporated by
reference to Exhibit 4.1 to the
registrants Current Report on Form 8-K
filed with the Commission on July 14, 200910.75
    
    
    Amendment No. 1 to the
Standby Equity
Distribution Agreement
(incorporated by reference
to Exhibit 10.3 to the
registrants Quarterly
Report on Form 10-Q filed
with the Commission on
August 7, 2009)
  39




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##### Table of Contents



ExhibitNumber
    
    Description10.76
    
    
    Form of Letter Agreement dated November 5, 2009 between Digital Angel Corporation, Laurus Master Fund, Ltd, Kallina
Corporation, Valens U.S. SPV I LLC, Valens Offshore SPV I Ltd, Valens Offshore SPV II Corp. and PSource Structured Debt Limited
and consented to by Destron Fearing Corporation, Digital Angel Technology Corporation, Digital Angel International, Inc. and
Fearing Manufacturing Co. Inc. (incorporated by reference to Exhibit 10.1 to the registrants Current Report on Form 8-K filed
with the Commission on November 12, 2009)10.77
    
    
    Amendment to Letter Agreement dated December 14, 2009 between Digital Angel Corporation, Laurus Master Fund, LTD, Kallina
Corporation, Valens U.S. SPV I, LLC, Valens Offshore SPV I, Ltd., Valens Offshore SPV II, Corp., Psource Structured Debt
Limited, LV Administrative Services, Inc., Destron Fearing Corporation, Digital Angel Technology Corporation, Digital Angel
International, Inc., Fearing Manufacturing Co. Inc. and Florida Decision Corporation (incorporated by reference to Exhibit 10.1
to the registrants Current Report on Form 8-K filed with the Commission on December 15, 2009)10.78
    
    
    Securities Purchase Agreement by and among Digital Angel Corporation and Iroquois Master Fund Ltd. and Alpha Capital Anstalt
dated February 4, 2010 (incorporated by reference to Exhibit 10.1 to the registrants Current Report on Form 8-K filed with the
Commission on February 4, 2010)10.79
    
    
    Digital Angel Corporations Form of Warrant to Purchase Common Stock (incorporated by reference to Exhibit 10.2 to the
registrants Current Report on Form 8-K filed with the Commission on February 4, 2010)10.80
    
    
    Placement Agency Agreement with Chardan Capital Markets, LLC dated February 3, 2010 (incorporated by reference to the
registrants Current Report on Form 8-K filed with the Commission on February 4, 2010)10.81
    **
    
    Asset Sale and Purchase Agreement Relating to Certain Assets of Signature Industries Limiteds marine business McMurdo
between Signature Industries Limited, McMurdo Limited, Digital Angel Corporation and Orolia SA dated November 20, 200921.1
    **
    
    List of Subsidiaries of Digital Angel Corporation23.1
    **
    
    Consent of Eisner LLP31.1
    **
    
    Certification by Joseph J. Grillo, Chief Executive Officer and President, pursuant to Exchange Act Rules
13A-14(a) and 15d-14(a)31.2
    **
    
    Certification by Lorraine M. Breece, Senior Vice President and Chief Financial Officer, pursuant to Exchange Act Rules
13A-14(a) and 15d-14(a)32.1
    **
    
    Certification by Joseph J. Grillo Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 200232.2
    **
    
    Certification by Lorraine M. Breece Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
 *
    
    - Management contract or compensatory plan.**
    
    - Filed herewith.  40