##### 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 1934For the fiscal year ended December 31, 2008
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934For the transition period from  to
  Commission file number: 001-33297
 VERICHIP CORPORATION
 (Exact name of registrant as specified in its charter)
 DELAWARE
    
    06-1637809(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 1690 South Congress Avenue, Suite 200
Delray Beach, Florida 33445
(Address of principal executive offices) (Zip code)
 (561) 805-8008
(Registrants telephone number, including area code)
  Common Stock, par value $0.01 per share
    
    The NASDAQ Stock Market LLC(Title of each class)
    
    (Name of each exchange on which registered)
  Yes o No þ
 Yes o No þ
 þ o
 þ
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ(Do not check if smaller reporting company)
 o þ




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##### 



Item
    
    Description
    
    PageSpecial Note Regarding Forward-Looking Statements
    
    
    3Part I
    
    
    41.
    
    Business
    
    
    41A.
    
    Risk Factors
    
    
    151B.
    
    Unresolved Staff Comments
    
    
    212.
    
    Properties
    
    
    213.
    
    Legal Proceedings
    
    
    214.
    
    Submission of Matters to a Vote of Security Holders
    
    
    22Part II
    
    
    235.
    
    Market for
Registrants Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities
    
    
    236.
    
    Selected Financial Data
    
    
    247
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    247A.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    348.
    
    Financial Statements and Supplementary Data
    
    
    349.
    
    Changes in and
Disagreements With Accountants on Accounting and Financial Disclosure
    
    
    349A(T).
    
    Controls and Procedures
    
    
    349B.
    
    Other Information
    
    
    35Part III
    
    
    3610.
    
    Directors, Executive Officers and Corporate Governance
    
    
    3611.
    
    Executive Compensation
    
    
    3812.
    
    Security Ownership
of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    5713.
    
    Certain Relationships and Related Transactions, and Director Independence
    
    
    5914.
    
    Principal Accounting Fees and Services
    
    
    66Part IV
    
    
    6615.
    
    Exhibits, Financial Statement Schedules
    
    
    66Signatures
    
    
    67Index to Consolidated Financial Statements and Financial Schedules
    
    
    F-1Exhibit 10.24Exhibit 21.1Exhibit 23.1Exhibit 31.1Exhibit 31.2Exhibit 32.1
   2




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Special Note Regarding Forward-Looking Statements
   
    
    our ability to continue listing our common stock on the Nasdaq Stock Market (Nasdaq);
    
    our ability to successfully consider, review, and if appropriate, implement other strategic
opportunities;
    
    our expectation that we will incur losses, on a consolidated basis, for the foreseeable future;
    
    our ability to fund our operations;
    
    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;
    
    uncertainty as to whether a market for our VeriMed system will develop and whether we will be
able to generate more than a nominal level of revenue from this business;
    
    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 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;
    
    market acceptance of our VeriMed system, which will depend in large part on the future
availability of insurance reimbursement for the VeriMed system microchip implant procedure
from government and private insurers, and the timing of such reimbursement, if it, in fact,
occurs;
    
    our ability to provide uninterrupted, secure access to the VeriMed database; and
    
    our ability to establish and maintain proper and effective internal accounting and financial
controls.
   3




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PART I
 
 ITEM 1. BUSINESS
 The Company
     BioBond is our registered trademark, and VeriMed, VeriChip, and VeriTrace are our trademarks.
This Annual Report on Form 10-K contains trademarks and trade names of other organizations and
corporations.
 Available Information
   4




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Overview
  Recent Events
 Continued Listing on Nasdaq Stock Market
    5




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Transactions with Digital Angel
   re-appointed
    Industry Overview
 RFID and the Healthcare Industry
   6




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Our Health Link System
  
    
    a glass-encapsulated microchip-equipped transponder, antenna, and capacitor;
    
    a fixed location, or a wireless handheld, scanner; and
    
    a secure, web-enabled database containing patient-approved information.
 TM
   
    
    public safety personnel, including local police, fire and rescue workers;
    
    emergency medical personnel, including EMTs and paramedics;
    
    medical facilities, including hospitals, urgent care centers and physician offices; and
    
    law enforcement personnel, including sheriffs departments, state police and the FBI.
   
    
    uncertainty as to whether a market for the Health Link system will
develop and whether we will be able to generate more than a nominal
level of revenue from the sale of such systems;
    
    uncertainty as to the future availability of insurance reimbursement
for the microchip implant procedure from government and private
insurers; and
    
    possible third-party claims asserting that we hold no rights for the
use of the implantable microchip technology and are violating the
third partys intellectual property rights. If such a claim were
successful, we could be enjoined from marketing this technology and
could be required to pay substantial damages.
 The Health Link System and Other Applications for Our Implantable Microchip
   7




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Healthcare Application
      
    
    A lack of direct to consumer advertising to educate the patient
population to the benefits of the Health Link system.
    
    Many people who fit the profile for which the Health Link system was
designed may not be willing to have a microchip implanted in their
upper right arms.
    
    Physicians may be reluctant to discuss the implant procedure with
their patients until a greater number of hospital emergency rooms have
adopted the Health Link system as part of their standard protocol.
    
    The media has from time to time reported, and may continue to report,
on the Health Link system in an unfavorable and, on occasion, an
inaccurate manner. For example, there have been articles published
asserting, despite at least one study to the contrary, that the
implanted microchip is not MRI compatible. There have also been
articles published asserting, despite numerous studies to the
contrary, that the implanted microchip causes malignant tumor
formation in animals.
  8




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
    
    Privacy concerns may influence individuals to refrain from undergoing
the implant procedure or dissuade physicians from recommending the
Health Link system to their patients. Misperceptions that a
microchip-implanted person can be tracked and that the microchip
itself contains a persons basic information and personal health
records may contribute to such concerns.
    
    Misperceptions and/or negative publicity may prompt legislative or
administrative efforts by politicians or groups opposed to the
development and use of human-implantable RFID microchips. In that
regard, in 2007 and 2008, a number of states have introduced, and at
least three states have enacted, legislation that would prohibit any
requirement that an individual undergo a microchip-implant procedure.
While we support all pending and enacted legislation that would
preclude anything other than voluntary implantation, legislative
bodies or government agencies may determine to go further, and their
actions may have the effect, directly or indirectly, of delaying,
limiting or preventing the use of human-implantable RFID microchips or
the sale, manufacture or use of RFID systems utilizing such
microchips.
    
    The cost of the microchip implant procedure is not covered by
Medicare, Medicaid or private health insurance.
    
    No studies to assess the impact of the Health Link system on the
quality of emergency department care have been completed and publicly
released.
     9




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Other Applications
   Sales, Marketing and Distribution
       10




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Manufacturing; Supply Arrangements
 third-party
  Environmental Regulation
  Government Regulation
 Laws and Regulations Pertaining to RFID Technologies
  U.S. Federal Communications Commission Regulations
   11




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Regulation by the FDA
  FDA Premarket Clearance and Approval Requirements
 Guidance for Industry and FDA Staff, Class
II Special Controls Guidance Document: Implantable Radiofrequency Transponder System for Patient
Identification and Health Information
 Radio-Frequency Wireless
Technology in Medical Devices.
  12




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Pervasive and Continuing Regulation
 
    
    quality system regulations, or QSR, which require manufacturers,
including third-party manufacturers, to follow stringent design,
testing, control, documentation and other quality assurance procedures
during all aspects of the manufacturing process;
    
    labeling regulations and FDA prohibitions against the promotion of
regulated products for uncleared, unapproved or off-label uses;
    
    clearance or approval of product modifications that could
significantly affect safety or effectiveness or that would constitute
a major change in intended use;
    
    medical device reporting, or MDR, regulations, which require that a
manufacturer report to the FDA if the manufacturers device may have
caused or contributed to a death or serious injury or malfunctioned in
a way that would likely cause or contribute to a death or serious
injury if the malfunction were to recur; and
    
    post-market surveillance regulations, which apply when necessary to
protect the public health or to provide additional safety and
effectiveness data for the device.
 Fraud and Abuse
  Anti-Kickback Laws
  Federal False Claims Act
   13




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State Laws and Regulations
  Privacy Laws and Regulations
  U.S. Federal Trade Commission Oversight
   State Legislation
    14




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The European Union
 Directive 95/46/EC of the European
Parliament and of the Council of 24 October 1995 on the Protection of Individuals With Regard to
the Processing of Personal Data and On the Free Movement of Such Data
 Radio Frequency Identification (RFID) in Europe: Steps
Towards a Policy Framework
 Health Insurance Portability and Accountability Act of 1996
  Employees
  
 ITEM 1A. RISK FACTORS
 The following risks and the risks described elsewhere in this Annual Report on Form 10-K ,
including the section entitled Managements Discussion and Analysis of Financial Condition and
Results of Operations, could materially affect our business, prospects, financial condition,
operating results and cash flows. If any these risks materialize, the trading price of our common
stock could decline, and you may lose all or part of your investment.
  15




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Risks Occasioned by the Xmark Transaction
 We will be unable to compete with Xmarks business for four years from the date of closing.
  We will continue to incur the expenses of complying with public company reporting requirements.
  Risks Related to Our VeriMed Health Link Business Which Utilizes the Implantable Microchip
 We may never achieve market acceptance or significant sales of this system.
   
    
    Many people who fit the profile for which the VeriMed Health Link
system was designed may not be willing to have a microchip implanted
in their upper right arm.
    
    Physicians may be reluctant to discuss the implant procedure with
their patients until a greater number of hospital emergency rooms have
adopted the VeriMed Health Link system as part of their standard
protocol.
    
    Physicians may be reluctant to discuss the implant procedure with
their patients because of the cost to their patients.
    
    The media has from time to time reported, and may continue to report,
on the VeriMed Health Link system in an unfavorable and, on occasion,
an inaccurate manner. For example, there have been articles published
asserting, despite at least one study to the contrary, that the
implanted microchip is not magnetic resonance imaging, or MRI,
compatible. There have also been articles published asserting, despite
numerous studies to the contrary, that the implanted microchip causes
malignant tumor formation in laboratory animals.
    
    Privacy concerns may influence individuals to refrain from undergoing
the implant procedure or dissuade physicians from recommending the
VeriMed Health Link system to their patients. Misperceptions that a
microchip-implanted person can be tracked and that the microchip
itself contains a persons basic information, such as name, contact
information, and personal health records, may contribute to such
concerns.
  16




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
    
    Misperceptions and/or negative publicity may prompt legislative or
administrative efforts by politicians or groups opposed to the
development and use of human-implantable RFID microchips. In 2007 and
2008, a number of states introduced, and at least four states
(Wisconsin, California, Oklahoma and North Dakota) have enacted,
legislation that would prohibit any requirement that an individual
undergo a microchip-implant procedure. While we support all pending
and enacted legislation that would preclude anything other than
voluntary implantation, legislative bodies or government agencies may
determine to go further, and their actions may have the effect,
directly or indirectly, of delaying, limiting or preventing the use of
human-implantable RFID microchips or the sale, manufacture or use of
RFID systems utilizing such microchips.
    
    At present, the cost of the microchip implant procedure is not covered
by Medicare, Medicaid or private health insurance.
    
    At present, no studies to assess the impact of the VeriMed Health Link
system on the quality of emergency department care have been completed
and publicly released.
  We believe that sales of our implantable microchip, and the extent to which our VeriMed Health Link
system achieves market acceptance, will depend, in part, on the availability of insurance
reimbursement from third-party payers, including federal and state governments under programs, such
as Medicare and Medicaid, and private insurance plans. Insurers may not determine to cover the cost
of the implant procedure, or it may take a considerable period of time for this to occur.
   17




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Implantation of our implantable microchip may be found to cause risks to a persons health, which
could adversely affect sales of our systems which incorporate the implantable microchip.
  If we are required to effect a recall of our implantable microchip, our reputation could be
materially and adversely affected and the cost of any such recall could be substantial, which could
adversely affect our results of operations and financial condition.
  Interruptions in access to, or the hacking into, our VeriMed Health Link patient information
database may have a negative impact on our revenue, damage our reputation and expose us to
litigation.
   Regulation of products and services that collect personally-identifiable information or otherwise
monitor an individuals activities may make the provision of our services more difficult or
expensive and could jeopardize our growth prospects.
   18




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If we fail to comply with anti-kickback and false claims laws, we could be subject to costly and
time-consuming litigation and possible fines or other penalties.
     19




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If we are found liable in lawsuits that have been brought against us or if we are found liable
in other litigation to which we may become subject in the future, we may be forced to pay
substantial damages, which could have a material adverse effect on our business.
  If we fail to continue to meet all applicable Nasdaq Stock Market requirements, our stock
could be delisted by the Nasdaq Stock Market. If delisting occurs, it would adversely affect the
market liquidity of our common stock and harm our businesses.
       20




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ITEM 1B. UNRESOLVED STAFF COMMENTS
  
 ITEM 2. PROPERTIES
   
 ITEM 3. LEGAL PROCEEDINGS
      21




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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
   Name of Director
    
    For
    
    
    WithheldScott R. Silverman
    
    
    9,365,722
    
    
    
    200,309Jeffrey S. Cobb
    
    
    9,370,065
    
    
    
    195,966Barry M. Edelstein
    
    
    9,368,683
    
    
    
    197,348Steven R. Foland
    
    
    9,370,365
    
    
    
    195,666Michael E. Krawitz
    
    
    9,365,220
    
    
    
    200,811
     22




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PART II
 
 ITEM 5.
    
    MARKET FOR THE REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER
MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES
  Fiscal Year Ended December 31, 2008
    
    High
    
    
    LowQuarter ended December 31, 2008
    
    $
    0.86
    
    
    $
    0.25Quarter ended September 30, 2008
    
    $
    2.22
    
    
    $
    0.35Quarter ended June 30, 2008
    
    $
    2.50
    
    
    $
    1.53Quarter ended March 31, 2008
    
    $
    2.77
    
    
    $
    1.89
 Fiscal Year Ended December 31, 2007
    
    High
    
    
    LowQuarter ended December 31, 2007
    
    $
    4.34
    
    
    $
    2.25Quarter ended September 30, 2007
    
    $
    10.35
    
    
    $
    3.49Quarter ended June 30, 2007
    
    $
    9.20
    
    
    $
    4.28Quarter ended March 31, 2007
    
    $
    6.50
    
    
    $
    4.86
 Holders
  Dividend Policy
   23




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Equity Compensation Plan Information
  (c)Number ofsecuritiesremaining(a)
    
    
    (b)
    
    
    available forNumber of
    
    
    Weighted-
    
    
    future issuancesecurities to be
    
    
    average
    
    
    under equityissued upon
    
    
    exercise price
    
    
    compensationexercise of
    
    
    per share of
    
    
    plansoutstanding
    
    
    outstanding
    
    
    (excludingoptions,
    
    
    options,
    
    
    securitieswarrants and
    
    
    warrants and
    
    
    reflected inPlan Category(1)
    
    rights
    
    
    rights
    
    
    column (a))Equity compensation plans approved by security holders
    
    
    912,285
    
    
    $
    3.73
    
    
    
    135,940Equity compensation plans not approved by security
holders(2)
    
    
    313,122
    
    
    $
    6.83
    
    
    
    Total
    
    
    1,225,407
    
    
    $
    4.52
    
    
    
    135,940
 (1)
    
    A narrative description of the material terms of our equity compensation plans is set forth in Note 5 to our
consolidated financial statements for the year ended December 31, 2008.(2)
    
    In addition, we have made grants outside of our equity plans and have outstanding options exercisable for
313,122 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
  
 ITEM 6. SELECTED FINANCIAL DATA
  
 ITEM
7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF
                OPERATIONS
 The following discussion and analysis of our financial condition and results of operations
should be read in conjunction with our audited annual financial statements and the notes to those
financial statements included elsewhere in this Annual Report on Form 10-K .
 Overview
   24




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VeriMed Patient Identification System
   Systems Incorporating the Implantable Microchip for Other Applications
 ®
  Basis of Presentation
 Efforts to Create Markets for Our Systems that Utilize the Implantable Microchip
  Results of Operations
  Year Ended December 31, 2008 Compared to Year Ended December 31, 2007
 Revenue
   25




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Gross Profit and Gross Profit Margin
   Selling, General and Administrative Expense
      Research and Development
   Interest Expense
   26




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Liquidity and Capital Resources
  Cash Flows Used in Operating Activities
   Cash Flows from Investing Activities
  Cash Flows from Financing Activities
  Credit Facilities
  The Wall Street Journal
  27




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Financial Condition
    28




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Critical Accounting Policies and Estimates
  Revenue Recognition
  Revenue Recognition Policy for Systems Using Our Implantable Microchip
  
    
    a purchase order has been received or a contract has been executed;
    
    the product is shipped;
    
    title has transferred;
    
    the price is fixed or determinable;
    
    there are no uncertainties regarding customer acceptance;
    
    collection of the sales proceeds is reasonably assured; and
    
    the period during which the distributor or physician has a right to
return the product has elapsed.
  Revenue Recognition Policy for VeriMed Services
   29




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Inventory
  Intangible Assets
 Goodwill and Other Intangible Assets
  Stock-Based Compensation
    30




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
    
    our projected operating performance;
    
    risk of non-achievement of projected operating performance;
    
    the purchase prices of the two businesses acquired during the first
half of 2005, including the risk that the acquisitions might not have
been completed at certain interim valuation dates; and
    
    trends and comparable valuations in the broad market for
privately-held and publicly-traded technology and medical device
companies.
  
    
    Unlevered free cash flows for our implantable microchip business were
projected for five years, which was deemed to be the appropriate
valuation period.
    
    Earnings before interest, taxes, depreciation and amortization, or
EBITDA, was used to estimate terminal value.
    
    Management considered the relevant multiples for RFID and medical
device companies to determine the appropriate terminal value multiple.
    
    A discount rate was applied to the net free cash flows and terminal
value. The rate was determined based on the risk-free rate of the
10-year U.S. Treasury Bond plus an applicable market risk premium and
the specific risk premium associated with our facts and circumstances.
The discount rate utilized by us was the rate of return expected from
the market or the rate of return for a similar investment with similar
risks.
    
    The purchase prices of the acquired businesses, adjusted for the risk
that the acquisitions might not have been completed at certain interim
valuation dates, were added to the value of the implantable microchip
business to determine enterprise value.
    
    Management computed the fully diluted value of each share of our
common stock in order to factor in the dilutive effect of reflecting
in-the-money stock options and warrants at each valuation date.
   31




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
    
    the estimated value of our common stock;
    
    the expected life of issued stock options;
    
    the expected volatility of our stock price;
    
    the expected dividend yield to be realized over the life of the stock options; and
    
    the risk-free interest rate over the expected life of the stock options.
  Accounting for Income Taxes
      32




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Impact of Recently Issued Accounting Standards
 Application
of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address
Fair Value Measurements for Purposes of Lease Classification or Measurement Under Statement 13 Effective Date of FASB Statement No. 157 Accounting for
Leases
 Disclosures about Derivative Instruments and Hedging
Activities Accounting for Derivative Instruments and Hedging Activities
 Accounting for Convertible Debt Instruments That May
Be Settled in Cash Upon Conversion (Including Partial Cash
Settlement)
 Accounting and Reporting by Insurance
Enterprises
  The Fair Value Option for Financial Assets and
Financial Liabilities
   33




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Accounting for Collaborative
Arrangements Related to the Development and Commercialization of Intellectual Property Reporting Revenue Gross as a Principal versus Net as an Agent
 
 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  
 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
                DISCLOSURE
  
 ITEM 9A(T). CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
 Evaluation of Disclosure Controls
  34




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Objective of Controls.
 Conclusion
 Changes in Internal Control Over Financial Reporting
  Managements Annual Report on Internal Control Over Financial Reporting
    
 ITEM 9B. OTHER INFORMATION
   35




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PART III
 
 Item 10. Directors, Executive Officers and Corporate Governance
  Name
    
    Positions with the CompanyScott R. Silverman
    
    Chairman of the Board, Executive ChairmanWilliam J. Caragol
    
    Acting Chief Financial Officer, Acting Treasurer and SecretaryJeffrey S. Cobb
    
    DirectorBarry M. Edelstein
    
    DirectorSteven R. Foland
    
    DirectorMichael E. Krawitz
    
    Director
       36




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Audit Committee
 www.verichipcorp.com
  
    
    our accounting, financial reporting processes, audits and the integrity of our
financial statements;
 
    
    our independent auditors qualifications, independence and performance;
 
    
    our compliance with legal and regulatory requirements;
 
    
    our internal accounting and financial controls; and
 
    
    our audited financial statements and reports, and the discussion of the statements and
reports with management, including any significant adjustments, management judgments and
estimates, new accounting polices and disagreements with management.
  Section 16(a) Beneficial Ownership Reporting Compliance
  Code of Business Conduct and Ethics
   37




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Item 11. Executive Compensation
 COMPENSATION DISCUSSION AND ANALYSIS
 General
    
    
    establishing, reviewing and approving our overall executive compensation philosophy
and policies;
    
    reviewing and approving those corporate goals and objectives that bear on the
compensation of our chief executive officer;
    
    determining the appropriate compensation for all other executive officers, with input
from other members of senior management;
    
    evaluating performance target goals for senior executive officers;
    
    reviewing and approving any annual or long-term cash bonus or incentive plans;
    
    reviewing and approving executive employment agreements, severance arrangements, and
change-in-control agreements or provisions; and
    
    administering our equity-based compensation plans, including the grant of stock
options and other equity awards under such plans.
   38




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Principal Components of Compensation of Our Executive Officers
  
    
    base salary;
 
    
    signing or retention bonuses, paid in cash;
 
    
    cash incentive compensation under the terms of individual senior management incentive
compensation plans established for our executive officers; and
 
    
    equity compensation, generally in the form of grants of stock options or restricted
 shares.
  39




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Allocation of Compensation Among Principal Components
  Base Salary
  Our Chairman of the Board
    40




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Our Acting Chief Financial Officer
   The Former Chief Executive Officer and President of Xmark Corporation (and Our Former President)
   41




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Bonus Compensation
      Compensation under Individual Senior Management Incentive Compensation Plans
   42




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Equity Compensation
  Accounting for Certain Transactions Involving Stock
Compensation  an Interpretation of APB Opinion No. 25
    43




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Severance and Change in Control Payments
      44




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Other Benefits
  Perquisites
  
    
    an automobile allowance for two automobiles and other automobile expenses, including
insurance, gasoline and maintenance costs;
 
    
    tickets to sporting events used primarily for business entertainment purposes; and
 
    
    a membership at a private club.
   Section 162(m) of the Internal Revenue Code
   45




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EXECUTIVE COMPENSATION
 Summary Compensation Table
  
    
    each person who served as our chief executive officer in 2008;
 
    
    each person who served as our chief financial officer in 2008; and
 
    
    one other individual who served as an executive officer during 2008 but was not
serving in such capacity at the end of 2008, for whom disclosure is required under
applicable rules of the Securities and Exchange Commission.
  Summary Compensation Table
 Non-EquityStock
    
    
    Option
    
    
    Incentive Plan
    
    
    All OtherName and
    
    
    
    
    
    Salary
    
    
    Bonus
    
    
    Awards
    
    
    Awards
    
    
    Compensation
    
    
    Compensation
    
    
    TotalPrincipal Position
    
    Year
    
    
    ($)
    
    
    ($)
    
    
    ($)
    
    
    ($)
    
    
    ($) (1)
    
    
    ($)
    
    
    ($)Scott R. Silverman
(2)
Executive Chairman of the
Board of Directors
    
    
    2008
    
    
    
    254,101
    (3)
    
    
    1,200,000
    
    
    
    2,351,339
    (4)
    
    
    
    
    
    
    
    
    
    
    5,497,592
    (5)
    
    
    9,303,0322007
    
    
    
    420,000
    
    
    
    
    
    
    
    2,097,899
    (4)
    
    
    
    
    
    
    800,000
    
    
    
    104,980
    (6)
    
    
    3,422,8792006
    
    
    
    400,323
    (7)
    
    
    900,000
    (8)
    
    
    154,762
    (4)
    
    
    
    
    
    
    
    
    
    
    3,403,016
    (9)
    
    
    4,858,101William J.
Caragol(10)
Acting Chief
Financial Officer
    
    
    2008
    
    
    
    216,206
    (11)
    
    
    
    
    
    
    157,500
    (13)
    
    
    
    
    
    
    
    
    
    
    1,276,400
    (15)
    
    
    1,650,1062007
    
    
    
    174,808
    (11)
    
    
    25,000
    (12)
    
    
    119,562
    (13)
    
    
    92,692
    (14)
    
    
    450,000
    
    
    
    15,251
    (16)
    
    
    877,3132006
    
    
    
    51,923
    (11)
    
    
    
    
    
    
    
    
    
    
    62,034
    (14)
    
    
    75,000
    
    
    
    66,029
    
    
    
    254,986Daniel A. Gunther
(17)
Former Chief
Executive Officer
and President of
Xmark Corporation
    
    
    2008
    
    
    
    134,311
    (18)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    171,518
    
    
    
    815,500
    (20)
    
    
    1,121,3292007
    
    
    
    225,309
    (18)
    
    
    
    
    
    
    119,562
    (19)
    
    
    
    
    
    
    370,370
    (21)
    
    
    1,940
    (22)
    
    
    717,1812006
    
    
    
    188,354
    (18)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    200,490
    (21)
    
    
    588
    
    
    
    389,432
 (1)
    
    The amounts shown in this column were paid under the terms of our executive management
incentive plan for fiscal year 2007, which were entered into with each of our named executive
officers other than Daniel A. Gunther, for the achievement of specified performance
objectives. Mr. Gunthers senior management incentive compensation plan for fiscal year 2007,
which sets forth performance objectives and related dollar amounts, contain the terms that
govern his receipt of incentive compensation for fiscal year 2007. For a description of the
material terms of each of these plans, see the discussion under Our 2007 Senior Management
Incentive Compensation Plans and Comparable Arrangements.(2)
    
    Mr. Silverman became our chief executive officer as of December 5, 2006. The Company
terminated him without cause on July 18, 2008, in connection with the Xmark Transaction. On
November 12, 2008, in connection with the purchase by R & R Consulting Partners, LLC (an
entity that is owned and controlled by Mr. Silverman) of 45.7% of the outstanding shares of
our common stock from Digital Angel, Mr. Silverman again became the chairman of our Board of
Directors. On December 31, 2008, we entered into a letter agreement with Mr. Silverman
effective December 1, 2008, which provides that Mr. Silverman will serve as our executive
chairman from December 1, 2008 through December 31, 2009.  46




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##### Table of Contents



(3)
    
    Amount represents 2008 salary paid to Mr. Silverman until his termination on July 18, 2008.(4)
    
    Mr. Silverman received an award of 500,000 restricted shares of our common stock in
December 2006 in connection with his appointment as our chief executive officer and 50,000
restricted shares of our common stock in January 2008. These shares vested on July 18, 2008.
The dollar amount of this award reflected in the table represents the amount recognized in
2006, 2007, and 2008 for financial statement reporting purposes in accordance with FAS 123R
without reduction for assumed forfeitures. The grant date fair value of the awards was
$4,500,000 and $104,000 for the 500,000 and 50,000 shares, respectively, which amount has been
determined in accordance with FAS 123R based on an estimated fair value of our common stock of
$9.00 and $1.04 per share on December 31, 2006, as determined by our Board of Directors and
management. The grant date fair value of each award was determined using the Black Scholes
pricing model. The value realized from this grant will ultimately be determined by the price
of our common stock
when the restricted period ends, which may be less than the value assigned at the time of
the grant. For more information regarding assumptions made in determining the amount under
the Black Scholes pricing model, see Note 5 of our consolidated financial statements.(5)
    
    The amount shown includes (i) $300 in respect of group term life insurance provided to
Mr. Silverman; (ii) a dividend of $1,162,500 paid to Mr. Silverman, which amount was not
factored into the grant date fair value required to be reported for the stock award; (iii)
$38,879 paid as vacation accrued in connection with Mr. Silvermans termination; and (iv)
$4,242,273 paid to Mr. Silverman under a separation agreement. See Compensation of Scott
R. Silverman below for more information regarding the $4,242,273 payment. The amount shown
also includes perquisites and other personal benefits aggregating $53,640, which were as
follows: AmountofNature of Expense
    
    ExpenseExpense allowance
    
    $
    45,000Automobile allowance for two automobiles, maintenance and gasoline
expenses
    
    
    8,640Total
    
    $
    53,640
 (6)
    
    The amount shown includes (i) $300 in respect of group term life insurance provided to
Mr. Silverman and (ii) amounts in respect of perquisites and other personal benefits
aggregating $104,680. The perquisites and other personal benefits were as follows: AmountofNature of Expense
    
    ExpenseExpense allowance
    
    $
    45,000Automobile allowance for two automobiles, maintenance and
gasoline expenses
    
    
    33,266* Other
    
    
    26,414Total
    
    $
    104,680
 *
    
    Tickets to sporting events primarily provided for business entertainment purposes and
related food and beverages, a club membership, home security monitoring service, and medical
examinations.  47




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##### Table of Contents



(7)
    
    Mr. Silvermans salary for 2006 includes $377,799 paid by Digital Angel to Mr. Silverman from
January 1, 2006 through December 4, 2006, during which time he served as the chief executive
officer of Digital Angel. All such amounts were paid or accrued by Digital Angel and do not
affect our financial statements.(8)
    
    In December 2006, Digital Angels Board of Directors determined to fix the amount payable to
Mr. Silverman under the Digital Angel 2006 incentive and recognition policy in order to
resolve and clarify outstanding compensation issues under the policy, given the wide range of
potential payments under the policy and the timing of our initial public offering and how that
would affect such range. Accordingly, Digital Angel fixed Mr. Silvermans bonus for 2006 at
$900,000. The amount is shown in the Bonus column instead of the Non-Equity Incentive
Compensation Plan column as the amount paid was not determined solely by reference to the
performance objectives set forth in the policy. All such amounts were paid or accrued by
Digital Angel and do not affect our financial statements.(9)
    
    The amount shown includes (i) $3.3 million owed to Mr. Silverman under an agreement Digital
Angel entered into with Mr. Silverman dated December 5, 2006 in connection with his agreeing
to waive all of his rights under his employment agreement with Digital Angel (the majority of
this amount was settled in the stock of Digital Angel, the value of which may be less when
realized), (ii) amounts in respect of perquisites and other personal benefits aggregating
$102,716 provided by Digital Angel, and (iii) $300 in respect of
group term life insurance provided to Mr. Silverman. See Compensation of Scott R.
Silverman below for more information regarding the $3.3 million payment. All such amounts
were paid or accrued by Digital Angel and do not affect our financial statements.(10)
    
    Mr. Caragol became our chief financial officer as of August 21, 2006 and our president as of
May 4, 2007. Effective January 1, 2009, Mr. Caragol became our acting chief financial
officer.(11)
    
    Mr. Caragols annual base salary in 2006, as specified in his offer letter with us, was
$150,000. On March 2, 2007, our compensation committee approved an increase to Mr. Caragols
base salary to $165,000. Then, on May 4, 2007, in connection with our Boards decision to
appoint Mr. Caragol to serve as our president, our compensation committee approved an increase
in Mr. Caragols base salary to $185,000. In 2008, our compensation committee approved a
further increase in Mr. Caragols base salary to $203,500. Included in 2008 was vacation paid
in connection with the letter agreement dated December 31, 2008 which terminated the May 15,
2008 letter agreement.(12)
    
    On March 2, 2007, our compensation committee approved a discretionary bonus to Mr. Caragol in
the amount of $25,000.(13)
    
    On March 2, 2007, Mr. Caragol and Mr. Gunther each received a restricted stock award of
50,000 restricted shares of our common stock. On April 28, 2008, Mr. Gunther voluntarily
entered into a termination agreement with us to terminate his restricted stock award of 50,000
restricted shares of our common stock. Mr. Caragols award vested on July 18, 2008. The dollar
amount of each award reflected in the table represents the amount recognized in 2008 and 2007
for financial statement reporting purposes in accordance with FAS 123R without reduction for
assumed forfeitures. The grant date fair value of each award, determined using the Black
Scholes pricing model, is reflected in the Grants of Plan-Based Awards table below. For
information regarding assumptions made in determining the amount under the Black Scholes
pricing model, see Note 5 of our consolidated financial statements.(14)
    
    In connection with Mr. Caragols appointment as our chief financial officer, on August 14,
2006, the compensation committee of our Board of Directors authorized the grant to Mr. Caragol
of options exercisable for 50,000 shares of our common stock. The options were scheduled to
vest equally over a three-year period. The dollar amount of this award reflected in the table
represents the amount recognized in 2006 and 2007 for financial statement reporting purposes
in accordance with FAS 123R, without reduction for assumed forfeitures, determined by
reference to that portion of the vesting period that occurred in 2006 and 2007 based on the
grant date fair value of the award. The grant date fair value of the award was $278,581, which
was determined using the Black Scholes pricing model. For information regarding assumptions
made in determining the amount under the Black Scholes pricing model, see Note 5 of our
consolidated financial statements for the year ended December 31, 2008, included in this
Annual Report on Form 10-K.  48




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##### Table of Contents



(15)
    
    The amount represents payments made to to Mr. Caragol (i) related to a change in control
payment received in connection with the Xmark Transaction in the amount of $1,141,400; and
(ii) a dividend payment in the amount of $135,000, which amount was not factored into the
grant date fair value, as the Company had no plans, nor did it
expect, to issue dividend distributions at that time.(16)
    
    The amount represents an expense allowance received by Mr. Caragol for 2007 in the amount of
$10,000 and tickets to sporting events primarily provided for business entertainment purposes
and related food and beverages.(17)
    
    Mr. Gunther served as our president from June 10, 2005 through March 2, 2007. On March 2,
2007, Mr. Gunther resigned his duties as our president and assumed the title and
responsibilities of chief executive officer and president of VeriChip Canada and VHI, which
companies were amalgamated and are now known as Xmark Corporation. In connection with the
Xmark Transaction, The Stanley Works assumed Mr. Gunthers employment agreement, as amended.
As a result, the Companys employment of Mr. Gunther terminated on July 18, 2008.(18)
    
    Mr. Gunthers annual base salary was paid in Canadian dollars. The 2006 base salary
reported has been converted to U.S. dollars using the average exchange rate for 2006 of
1.136 Canadian dollars for each U.S. dollar. The 2007 base salary reported has been
converted to U.S. dollars using the average exchange rate for 2007 of 1.08 Canadian dollars
for each U.S. dollar. The 2008 base salary reported has been converted to U.S. dollars
using the average exchange rate for 2008 of 1.01 for each U.S. dollar.(19)
    
    The amount reported in the table has been converted to U.S. dollars using the average
exchange rate for 2006, 2007 and 2008 of 1.136, 1.08 and 1.01, respectively, Canadian
dollars for each U.S. dollar.(20)
    
    Represents amount paid to Mr. Gunther in satisfaction of any amounts due to Mr.
Gunther under both the February 11, 2008 Letter Agreement and the Executive Management Change
in Control Plan in connection with the Xmark Transaction, as well as
the cost of group term life insurance we maintained on behalf of Mr.
Gunther.(21)
    
    The amount reported in the table has been converted to U.S. dollars using the average
exchange rate for 2006, 2007 and 2008 of 1.136, 1.08 and 1.01, respectively, Canadian dollars for each
U.S. dollar.(22)
    
    This amount represents the cost of group term life insurance we maintained on behalf of
Mr. Gunther and home internet service. 2008 Grants of Plan-Based Awards
    49




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##### Table of Contents



2008 Grants of Plan-Based Awards
 All Other
    
    
    All OtherStock
    
    
    OptionAwards:
    
    
    Awards:Number of
    
    
    Number of
    
    
    Exercise or
    
    
    Grant DateShares of
    
    
    Securities
    
    
    Base Price of
    
    
    Fair Value ofStock or
    
    
    Underlying
    
    
    Option
    
    
    Stock andUnits
    
    
    Options
    
    
    Awards
    
    
    OptionName
    
    Grant Date
    
    
    (#)
    
    
    (#)
    
    
    ($/Sh)
    
    
    Awards(1)Scott R. Silverman
    
    
    1/24/2008
    
    
    
    50,000
    (2)
    
    
    
    
    
    
    
    
    
    $
    104,000William J. Caragol
    
    
    1/24/2008
    
    
    
    50,000
    (2)
    
    
    
    
    
    
    
    
    
    $
    104,000Daniel A. Gunther
    
    
    1/24/2008
    
    
    
    50,000
    (3)
    
    
    
    
    
    
    
    
    
    $
    104,000
 (1)
    
    The grant date fair value of the equity award was determined under the Black Scholes pricing
model in accordance with FAS 123R. For information regarding assumptions made in determining the
amount under the Black Scholes pricing model, see Note 5 to our consolidated financial statements
for the year ended December 31, 2008, included in this Annual Report on Form 10-K.(2)
    
    The restricted stock vested on July 18, 2008 upon the closing of the Xmark Transaction.(3)
    
    On April 28, 2008, Mr. Gunther voluntarily entered into a termination agreement with us to
terminate his restricted stock award of 50,000 restricted shares of our common stock. Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table
 Executive Employment Arrangements
 Scott R. Silverman
    50




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William J. Caragol
   51




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Daniel A. Gunther
   52




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##### Table of Contents



Outstanding Equity Awards as Of December 31, 2008
  Outstanding Equity Awards as Of December 31, 2008
 Option Awards
    
    
    Stock AwardsEquityEquity
    
    
    IncentiveIncentive
    
    
    PlanPlan
    
    
    Awards:Awards:
    
    
    MarketEquity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Number
    
    
    or PayoutIncentive
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    of
    
    
    Value ofPlan
    
    
    
    
    
    
    
    
    
    
    Number
    
    
    
    
    
    
    Unearned
    
    
    UnearnedAwards:
    
    
    
    
    
    
    
    
    
    
    of Shares
    
    
    Market
    
    
    Shares,
    
    
    Shares,Number of
    
    
    
    
    
    
    Number of
    
    
    
    
    
    
    
    
    
    
    or Units
    
    
    Value of
    
    
    Units or
    
    
    Units orSecurities
    
    
    Number of
    
    
    Securities
    
    
    
    
    
    
    
    
    
    
    of Stock
    
    
    Shares or
    
    
    Other
    
    
    OtherUnderlying
    
    
    Securities
    
    
    Underlying
    
    
    
    
    
    
    
    
    
    
    That
    
    
    Units of
    
    
    Rights
    
    
    RightsUnexercised
    
    
    Underlying
    
    
    Unexercised
    
    
    Option
    
    
    
    
    
    
    Have
    
    
    Stock That
    
    
    That
    
    
    ThatOptions
    
    
    Unexercised
    
    
    Unearned
    
    
    Exercise
    
    
    Option
    
    
    Not
    
    
    Have Not
    
    
    Have Not
    
    
    Have Not(#)
    
    
    Options(#)
    
    
    Options
    
    
    Price
    
    
    Expiration
    
    
    Vested
    
    
    Vested
    
    
    Vested
    
    
    VestedName
    
    Exercisable(1)
    
    
    Unexercisable
    
    
    (#)
    
    
    ($)(2)
    
    
    Date
    
    
    (#)
    
    
    ($)
    
    
    (#)
    
    
    ($)Daniel A.
Gunther
    
    
    55,556
    
    
    
    
    
    
    
    
    
    
    $
    7.425
    
    
    
    8/11/2013
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    William J.
Caragol
    
    
    50,000
    
    
    
    
    
    
    
    
    
    
    $
    9.990
    
    
    
    8/21/2016
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 (1)
    
    On July 18, 2008, all stock option awards and restricted stock awards
that had previously been granted under our 2002 Flexible Stock Plan,
our 2005 Flexible Stock Plan, and our 2007 Stock Incentive Plan vested
upon the closing of Xmark Transaction.(2)
    
    The exercise price of VeriChip stock options reflected in the table
represents the estimated fair market value of our common stock on the
date of grant, as determined by our management and Board of Directors.  53




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##### Table of Contents



2008 Option Exercises and Stock Vested
  Option Awards
    
    
    Stock AwardsNumber of
    
    
    
    
    
    
    Number ofShares
    
    
    
    
    
    
    SharesAcquired on
    
    
    Value Realized
    
    
    Acquired on
    
    
    Value RealizedExercise
    
    
    on Exercise
    
    
    Vesting
    
    
    on VestingName
    
    (#)
    
    
    ($)(1)
    
    
    (#)
    
    
    ($)(2)Scott R. Silverman
    
    
    
    
    
    
    
    
    
    
    550,000
    
    
    $
    924,000111,111
    
    
    $
    163,889
    
    
    
    
    
    
    
    100,000
    
    
    $
    147,500
    
    
    
    
    
    
    
    William J. Caragol
    
    
    
    
    
    
    
    
    
    
    100,000
    
    
    $
    168,000Daniel A. Gunther
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 (1)
    
    Represents the aggregate dollar amount realized by determining the difference between the
market price of the underlying securities at exercise and the exercise price of the options.(2)
    
    Represents the aggregate dollar amount realized upon vesting by multiplying the number of
shares of stock by the market value of the underlying shares on the vesting date of July 18, 2008,
or $1.68. Pension Benefits
  Nonqualified Deferred Compensation
  Potential Payments Upon Termination or Change in Control
 Scott R. Silverman
    54




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William J. Caragol
     55




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##### Table of Contents



Daniel A. Gunther
  Director Compensation
  2008 Director Compensation
 Change inPension ValueFees
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    andEarned
    
    
    
    
    
    
    
    
    
    
    Non-Equity
    
    
    Nonqualifiedor Paid
    
    
    Stock
    
    
    Option
    
    
    Incentive Plan
    
    
    Deferred
    
    
    All Otherin Cash
    
    
    Awards
    
    
    Awards
    
    
    Compensation
    
    
    Compensation
    
    
    Compensation
    
    
    TotalName
    
    ($)
    
    
    ($)(1)
    
    
    ($) (1)
    
    
    ($)
    
    
    Earnings
    
    
    ($)
    
    
    ($)Jeffrey S. Cobb(2)
    
    
    60,000
    
    
    
    208,000
    
    
    
    50,676
    
    
    
    
    
    
    
    
    
    
    
    135,000
    
    
    
    110,676Barry M. Edelstein (3)
    
    
    65,000
    
    
    
    208,000
    
    
    
    20,883
    
    
    
    
    
    
    
    
    
    
    
    135,000
    
    
    
    85,883Steven R. Foland(4)
    
    
    57,500
    
    
    
    121,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    67,500
    
    
    
    57,500Paul C. Green(5)
    
    
    61,000
    
    
    
    208,000
    
    
    
    153,297
    
    
    
    
    
    
    
    
    
    
    
    135,000
    
    
    
    214,297Joseph J. Grillo(6)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Michael E. Krawitz (7)
    
    
    7,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    145,000
    
    
    
    152,500Daniel E. Penni(8)
    
    
    5,000
    
    
    
    
    
    
    
    55,187
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    60,187Constance K. Weaver(9)
    
    
    5,000
    
    
    
    
    
    
    
    55,187
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    60,187
 (1)
    
    The dollar amount of this award reflected in the table represents the
amount recognized in 2008 for financial statement reporting purposes
in accordance with FAS 123R. For information regarding assumptions
made in determining the amount under the Black Scholes pricing model,
see Note 5 of our consolidated financial statements for the year ended
December 31, 2008, included in this Annual Report on Form 10-K.(2)
    
    As of December 31, 2008, Mr. Cobb held options to purchase 25,000
shares of our common stock. Mr. Cobb was awarded 100,000 shares of
restricted stock on January 24, 2008, which vested on July 18, 2008.
On August 28, 2008, Mr. Cobb received a dividend of $135,000.(3)
    
    As of December 31, 2008, Mr. Edelstein held options to purchase 25,000
shares of our common stock. Mr. Edelstein was awarded 100,000 shares
of restricted stock on January 24, 2008, which vested on July 18,
2008. On August 28, 2008, Mr. Edelstein received a dividend of
$135,000.(4)
    
    As of December 31, 2008, Mr. Foland held no options to purchase shares
of our common stock. Mr. Foland was awarded 50,000 shares of
restricted stock on February 21, 2008, which vested on July 18, 2008.
On August 28, 2008, Mr. Edelstein received a dividend of $67,500.  56




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##### Table of Contents



(5)
    
    As of December 31, 2008, Mr. Green held options to purchase 69,444
shares of our common stock. On November 13, 2008, Mr. Green resigned
from our board of directors. Mr. Green was awarded 100,000 shares of
restricted stock on January 24, 2008, which vested on July 18, 2008.
On August 28, 2008, Mr. Green received a dividend of $135,000.(6)
    
    As of December 31, 2008, Mr. Grillo held no options to purchase shares
of our common stock. Mr. Grillo resigned from our board of directors
effective July 18, 2008.(7)
    
    As of December 31, 2008, Mr. Krawitz held no options to purchase
shares of our common stock. From January to October 2008, Mr. Krawitz
received $70,000 in consulting fees. On August 28, 2008, Mr. Green
received a dividend of $75,000.(8)
    
    As of December 31, 2008, Mr. Penni held options to purchase 25,000
shares of our common stock. On January 11, 2008, Mr. Penni resigned
from our board of directors.(9)
    
    As of December 31, 2008, Ms. Weaver held options to purchase 69,444
shares of our common stock. On January 11, 2008, Ms. Weaver resigned
from our board of directors.  
    
    a quarterly fee of $5,000; and
 
    
    an additional quarterly fee of $1,000 to the chairperson of our audit committee.
   
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.
  Security Ownership of Certain Beneficial Owners and Management
  
    each of our directors;
    each of our named executive officers;
    all of our executive officers and directors as a group; and
    each person, or group of affiliated persons, known to us to be the
beneficial owner of more than 5% of our outstanding shares of common
stock.
  57




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##### Table of Contents



Number ofShares
    
    
    Percent ofBeneficially
    
    
    OutstandingName and Address of Beneficial Owner
    
    Owned(#)
    
    
    Shares(%)Five percent stockholders:Scott R. Silverman(1)
    
    
    6,221,667
    
    
    
    53.0
    %Austin W. Marxe (2)527 Madison Avenue, Suite 2600New York, New York 10022
    
    
    1,034,099
    
    
    
    8.8
    %David M. Greenhouse(2)527 Madison Avenue, Suite 2600New York, New York 10022
    
    
    1,034,099
    
    
    
    8.8
    %Named Executive Officers and Directors:Scott R. Silverman (1)
    
    
    6,221,667
    
    
    
    53.0
    %William J. Caragol (3)
    
    
    153,000
    
    
    
    1.3
    %Jeffrey S. Cobb (4)
    
    
    125,000
    
    
    
    1.1
    %Barry M. Edelstein (5)
    
    
    125,000
    
    
    
    1.1
    %Steven R. Foland (6)
    
    
    55,600
    
    
    
    *Daniel A. Gunther(7)
    
    
    55,556
    
    
    
    *Michael E. Krawitz
    
    
    
    
    
    
    *Executive Officers and Directors as a group (6 persons) (8)
    
    
    6,680,267
    
    
    
    56.5
    %
 *
    
    Less than 1%(1)
    
    5,355,556 shares of our common stock are owned by R & R Consulting
Partners, LLC. Mr. Silverman is the managing member of R & R
Consulting Partners, LLC. The parties share voting and investment
control over the 5,355,556 shares of our common stock. The number
reflected in the table also includes 866,111 shares of our common
stock, which Mr. Silverman holds in his personal capacity.  58




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##### Table of Contents



(2)
    
    Austin W. Marxe and David M. Greenhouse share voting and investment
control over all securities owned by Special Situations Technology
Fund, L.P. (Tech), Special Situations Technology Fund II, L.P.
(Tech II), Special Situations Fund III L.P. (Fund III), and
Special Situations Fund III QP, L.P. (QP). 64,179 shares of our
common stock are owned by Tech, 392,398 shares of our common stock are
owned by Tech II, 15,000 shares of our common stock are owned by Fund
III, and 562,522 shares of our common stock are owned by QP. The
interest of Messrs. Marxe and Greenhouse in the shares of our common
stock owned by Tech, Tech II, Fund III and QP is limited to the extent
of their pecuniary interest. The information included in the table is
based solely on the Schedule 13G/A filed jointly with the SEC on
February 13, 2008 by Messrs. Marxe and Greenhouse.(3)
    
    Includes 103,000 shares of our common stock and 50,000 shares of our
common stock issuable upon the exercise of stock options that are
currently exercisable or exercisable within 60 days of February 5,
2009.(4)
    
    Includes 100,000 shares of our common stock and 25,000 shares of our
common stock issuable upon the exercise of stock options that are
currently exercisable or exercisable within 60 days of February 5,
2009.(5)
    
    Includes 100,000 shares of our common stock and 25,000 shares of our
common stock issuable upon the exercise of stock options that are
currently exercisable or exercisable within 60 days of February 5,
2009.(6)
    
    Includes 55,600 shares of our common stock.(7)
    
    Includes 55,556 shares of our common stock issuable upon the exercise
of stock options that are currently exercisable or exercisable within
60 days of February 5, 2009.(8)
    
    Includes shares of our common stock beneficially owned by current
executive officers and directors and shares issuable upon the exercise
of stock options that are currently exercisable or exercisable within
60 days of February 5, 2009, in each case as set forth in the
footnotes to this table.  
 Item 13. Certain Relationships and Related Transactions, and Director Independence.
  Director and Officer Roles and Relationships with Digital Angel and Its Other Affiliates
   59




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##### Table of Contents




    
    Our executive chairman, Scott R. Silverman, served on the Board of Directors of
Digital Angel from March 2002 until July 2007, and, from March 2003 until the end of his
term of service, in the capacity of chairman.
 
    
    Mr. Silverman served on the Board of Directors of Destron Fearing from July 2003 until
December 2007 and, from February 2004 until the end of his term of service, in the
capacity of chairman.
 
    
    Mr. Silverman currently serves as chairman of the Board of Directors of IFTH, in which
Digital Angel held a 49.9% ownership interest until August 1, 2008 and is a manager of
Blue Moon, which holds 2,570,000 shares of IFTH common stock.
 
    
    Mr. Silverman is the managing member of R & R Consulting Partners, LLC, which holds
5,355,556 shares of our common stock.
 
    
    Barry M. Edelstein served as interim chief executive officer and president of Destron
Fearing from August 2007 through December 2007, as well as a member of the Board of
Directors of Destron Fearing from June 2005 until January 2008.
 
    
    Jeffrey S. Cobb serves as a member of our compensation, audit, and nominating and
governance committees and served as a member of the compensation, audit, and nominating
committees of IFTH until his resignation on July 22, 2008.
 
    
    In 2008 Michael E. Krawitz provided legal services to us on a consulting basis in
2008 and received approximately $70,000 in fees. Mr. Krawitz currently serves on the
Board of Directors of IFTH. Mr. Krawitz served as the chief executive officer and
president of Digital Angel from September 2006 to December 2007. Prior to that, during
his time at Digital Angel, he served as assistant vice president and general counsel
beginning in April 1999, and was appointed vice president and assistant secretary in
December 1999, senior vice president in December 2000, secretary in March 2003, executive
vice president in April 2003 and chief privacy officer in November 2004.
  
    
    Mr. Silverman served as president of Digital Angel from March 2002 to March 2003,
acting president of Digital Angel from April 2005 to December 2006, and as the chief
executive officer of Digital Angel from March 2003 to December 2006, until he assumed the
position of our chief executive officer on December 5, 2006.
 
    
    Mr. Silverman also served as the chief executive officer of Thermo Life, a subsidiary
of Digital Angel.
 
    
    William J. Caragol, our acting chief financial officer, currently serves as chief
executive officer, president, acting chief financial officer and director of IFTH and is
a manager of Blue Moon, which holds 2,570,000 shares of IFTH common
stock.
   60




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##### Table of Contents



Transactions with Digital Angel
 Transition Services Agreement
      Loan Agreement with Digital Angel
    61




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##### Table of Contents



Valens Financing
   February 2008 Letter Agreement with Digital Angel
    62




---



##### Table of Contents



Tax Allocation Agreement with Digital Angel
      Supply and Development Agreement
   63




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##### Table of Contents



May 2008 Letter Agreement with Digital Angel
    64




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##### Table of Contents



Asset Purchase Agreement with Digital Angel
   Purchase Order with Digital Angel
  Review, Approval or Ratification of Transactions with Related Parties
  Director Independence
   65




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##### Table of Contents



Item 14. Principal Accounting Fees and Services
  2008
    
    
    2007Audit Fees
    
    $
    451,143
    
    
    $
    391,414Audit Related Fees (review of registration
statements and other SEC filings)
    
    $
    44,320
    
    
    $
    35,881Tax Fees (tax-related services, including income
tax advice regarding income taxes within the United
States)
    
    
    
    
    
    
    All other fees (acquisition due diligence services)
    
    
    
    
    
    
    Total Fees
    
    $
    495,463
    
    
    $
    427,295
 Pre-Approval Policies and Procedures
   
 PART IV
 
 ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
  (a)(1)
    
    List of Financial Statements Filed as Part of this Annual Report on Form 10-K:A list of the consolidated financial statements, notes to consolidated
financial statements, and accompanying report of independent registered
public accounting firm appears on page F-1 of the Index to Consolidated
Financial Statements and Financial Statement Schedules, which is filed as
part of this Annual Report on Form 10-K.(a)(2)
    
    Financial Statement Schedules:All other schedules are omitted because they are not applicable, the amounts
are not significant, or the required information is shown in our consolidated
financial statements or the notes thereto.(a)(3)
    
    Exhibits:See the Exhibit Index filed as part of this Annual Report on Form 10-K.
  66




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##### Table of Contents



SIGNATURES
  VERICHIP CORPORATIONDate: February 12, 2009
    By:
    /s/ Scott R. SilvermanScott R. SilvermanChairman of the Board  Signature
    

Title
    

Date/s/ Scott R. Silverman

Scott R. Silverman
    
    Chairman of the Board
    
    February 12, 2009/s/ William J. Caragol

William J. Caragol
    
    Acting Chief Executive
Officer, Acting Chief
Financial Officer
(Principal Financial Officer
and
Principal Accounting Officer)
    
    February 12, 2009/s/ Jeffrey S. Cobb

Jeffrey S. Cobb
    
    Director
    
    February 12, 2009/s/ Barry M. Edelstein

Barry M. Edelstein
    
    Director
    
    February 12, 2009/s/ Steven R. Foland
    
    Director
    
    February 12, 2009Steven R. Foland/s/ Michael E. Krawitz
    
    Director
    
    February 12, 2009Michael E. Krawitz
  67




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##### Table of Contents



INDEX TO FINANCIAL STATEMENTS
 PageVERICHIP CORPORATIONReport of Independent Registered Public Accounting Firm
    
    
    F-2Consolidated Balance Sheets as of December 31, 2008 and 2007
    
    
    F-3Consolidated Statements of Operations for the years
ended December 31, 2008 and 2007
    
    
    F-4Consolidated
Statements of Stockholders Equity for the years ended
December 31, 2008 and 2007
    
    
    F-5Consolidated
Statements of Cash Flows for the years ended December 31, 2008 and
2007
    
    
    F-6Notes to Consolidated Financial Statements
    
    
    F-7
  F-1




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
     Accounting for Uncertainty in Income
Taxes  an interpretation of FASB No. 109
 
  F-2




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##### Table of Contents



VERICHIP CORPORATION
 
 Consolidated Balance Sheets
  December 31,
    
    
    December 31,2008
    
    
    2007AssetsCurrent Assets:Cash
    
    $
    3,229
    
    
    $
    7,221Accounts receivable
    
    
    
    
    
    
    47Inventories, net of allowance
    
    
    
    
    
    
    95Prepaid expenses and other current assets
    
    
    275
    
    
    
    953Current assets from discontinued operations
    
    
    
    
    
    
    8,202Total Current Assets
    
    
    3,504
    
    
    
    16,518Equipment, net of accumulated depreciation
    
    
    39
    
    
    
    112Restricted cash
    
    
    4,543
    
    
    
    Other assets from discontinued operations
    
    
    
    
    
    
    33,368$
    8,086
    
    
    $
    49,998Liabilities and Stockholders EquityCurrent Liabilities:Accounts payable
    
    $
    72
    
    
    $
    338Accrued expenses and other current liabilities
    
    
    634
    
    
    
    632Note payable to stockholder, current portion
    
    
    
    
    
    
    2,167Current liabilities from discontinued operations
    
    
    460
    
    
    
    6,708Total Current Liabilities
    
    
    1,166
    
    
    
    9,845Note payable to stockholder, less current portion
    
    
    
    
    
    
    10,753Deferred gain
    
    
    4,500
    
    
    
    Other liabilities of discontinued operations
    
    
    
    
    
    
    3,809Total Liabilities
    
    
    5,666
    
    
    
    24,407Commitments and contingenciesStockholders Equity:Capital stock:Preferred stock, Authorized 5,000 shares of $.001 par value; no
shares issued or outstanding
    
    
    
    
    
    
    Common stock, Authorized 40,000 shares, of $.01 par value; issued
and outstanding 11,730 and 10,144 shares at December 31, 2008 and
2007, respectively
    
    
    117
    
    
    
    101Additional paid-in capital
    
    
    44,410
    
    
    
    54,486Accumulated deficit
    
    
    (42,107
    )
    
    
    (28,959
    )Accumulated other comprehensive loss  foreign currency translation
    
    
    
    
    
    
    (37
    )Total Stockholders Equity
    
    
    2,420
    
    
    
    25,591$
    8,086
    
    
    $
    49,998
   F-3




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##### Table of Contents



VERICHIP CORPORATION
 
 Consolidated Statements of Operations
  For the Years EndedDecember 31,2008
    
    
    2007Revenue
    
    
    43
    
    
    
    76Cost of sales
    
    
    275
    
    
    
    361Gross loss
    
    
    (232
    )
    
    
    (285
    )Operating expenses:Selling, general and administrative
    
    
    19,775
    
    
    
    13,184Research and development
    
    
    712
    
    
    
    106Total operating expenses
    
    
    20,487
    
    
    
    13,290Operating loss
    
    
    (20,719
    )
    
    
    (13,575
    )Gain on sale
    
    
    6,174
    
    
    
    Gain on settlement of debt
    
    
    1,823
    
    
    
    Interest income and other (expense), net
    
    
    (334
    )
    
    
    281Interest expense
    
    
    (879
    )
    
    
    (1,673
    )Total other income
    
    
    6,784
    
    
    
    1,392Loss from continuing operations
    
    
    (13,935
    )
    
    
    (14,967
    )Income from discontinued operations (net of tax expense
(benefit) of $233 and $(1,056))
    
    
    787
    
    
    
    3,057Net loss attributable to common stockholders
    
    $
    (13,148
    )
    
    $
    (11,910
    )Net loss per common share from continuing operations  basic and
diluted
    
    $
    (1.31
    )
    
    $
    (1.71
    )Net income per common share from discontinued operations  basic
and diluted
    
    
    0.07
    
    
    
    0.35Net loss per common share  basic and diluted
    
    $
    (1.24
    )
    
    $
    (1.36
    )Weighted average number of shares outstanding  basic and diluted
    
    
    10,597
    
    
    
    8,756
   F-4




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##### Table of Contents



VERICHIP CORPORATION
 
 Consolidated Statement of Stockholders Equit
  For the Years Ended December 31, 2008 and 2007
 AccumulatedAdditional
    
    
    
    
    
    
    Other
    
    
    TotalCommon Shares
    
    
    Paid-in
    
    
    Accumulated
    
    
    Comprehensive
    
    
    StockholdersNumber
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    Loss
    
    
    EquityBalance December 31, 2006
    
    
    6,056
    
    
    $
    61
    
    
    $
    39,371
    
    
    $
    (17,049
    )
    
    $
    (37
    )
    
    $
    22,346Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,910
    )
    
    
    
    
    
    
    (11,910
    )Issuance of shares in
public offering, net of
costs of $8,033
    
    
    3,100
    
    
    
    31
    
    
    
    12,076
    
    
    
    
    
    
    
    
    
    
    
    12,107Issuance of restricted stock
    
    
    100
    
    
    
    1
    
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    Warrant exercise
    
    
    395
    
    
    
    4
    
    
    
    (4
    )
    
    
    
    
    
    
    
    
    
    
    Issuance of
shares from option exercises
    
    
    536
    
    
    
    5
    
    
    
    370
    
    
    
    
    
    
    
    
    
    
    
    375Stock issuance costs
    
    
    
    
    
    
    
    
    
    
    (11
    )
    
    
    
    
    
    
    
    
    
    
    (11
    )Stock based compensation
    
    
    138
    
    
    
    1
    
    
    
    3,445
    
    
    
    
    
    
    
    
    
    
    
    3,446Repurchase of shares
    
    
    (181
    )
    
    
    (2
    )
    
    
    (760
    )
    
    
    
    
    
    
    
    
    
    
    (762
    )Balance December 31, 2007
    
    
    10,144
    
    
    
    101
    
    
    
    54,486
    
    
    
    (28,959
    )
    
    
    (37
    )
    
    
    25,591Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,148
    )
    
    
    
    
    
    
    (13,148
    )Stock based compensation
    
    
    622
    
    
    
    6
    
    
    
    5,026
    
    
    
    
    
    
    
    
    
    
    
    5,032Issuance of shares to lender
    
    
    120
    
    
    
    2
    
    
    
    300
    
    
    
    
    
    
    
    
    
    
    
    302Issuance of shares from option exercises
    
    
    844
    
    
    
    8
    
    
    
    434
    
    
    
    
    
    
    
    
    
    
    
    442Dividend to
stockholders
    
    
    
    
    
    
    
    
    
    
    (15,836
    )
    
    
    
    
    
    
    
    
    
    
    (15,836
    )Sale of Xmark Corporation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    37
    
    
    
    37Balance December 31, 2008
    
    
    11,730
    
    
    $
    117
    
    
    $
    44,410
    
    
    $
    (42,107
    )
    
    $
    
    
    
    $
    2,420
   F-5




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##### Table of Contents



VERICHIP CORPORATION
 
 Consolidated Statements of Cash Flows
  For the Years EndedDecember 31,2008
    
    
    2007Cash flows from operating activities:Net loss
    
    $
    (13,148
    )
    
    $
    (11,910
    )Adjustments to reconcile net loss to net cash used in operating
activities:Depreciation and amortization
    
    
    52
    
    
    
    73Stock based compensation
    
    
    5,032
    
    
    
    3,446Bad debt expense
    
    
    14
    
    
    
    Impairment of PP&E
    
    
    44
    
    
    
    Non cash interest income
    
    
    (43
    )
    
    
    Gain on settlement of debt
    
    
    (1,823
    )
    
    
    Gain on sale of Xmark Corporation
    
    
    (6,174
    )
    
    
    Accrued interest
    
    
    
    
    
    
    1,491Allowance for inventory excess
    
    
    213
    
    
    
    258Changes in operating assets and liabilities:Decrease (increase) in accounts receivable
    
    
    32
    
    
    
    (39
    )Decrease (increase) in inventories
    
    
    (117
    )
    
    
    155Increase (decrease) in prepaid expenses and other current assets
    
    
    344
    
    
    
    (832
    )Increase in accounts payable and accrued expenses
    
    
    (225
    )
    
    
    (316
    )Net cash used in continuing operations
    
    
    (15,799
    )
    
    
    (7,674
    )Net cash (used in) provided by discontinued operations
    
    
    (2,887
    )
    
    
    403Net cash used in operating activities
    
    
    (18,686
    )
    
    
    (7,271
    )Cash flows from investing activities:Proceeds from sale of Xmark Corporation
    
    
    43,363
    
    
    
    Payments for equipment and other assets
    
    
    (22
    )
    
    
    (59
    )Net cash (used in) provided by discontinued operations
    
    
    (114
    )
    
    
    42Net cash provided by (used in) investing activities
    
    
    43,227
    
    
    
    (17
    )Cash flows from financing activities:Short-term borrowing
    
    
    8,000
    
    
    
    Repayment of short-term borrowing
    
    
    (8,000
    )
    
    
    Financing costs
    
    
    (701
    )
    
    
    Principal
payments to former stockholder
    
    
    (10,423
    )
    
    
    (3,500
    )Guarantee
fee paid to former stockholder
    
    
    (500
    )
    
    
    Borrowings from stockholder
    
    
    
    
    
    
    1,293Initial public offering costs
    
    
    
    
    
    
    (2,879
    )Issuance of common shares from the exercise of stock options
    
    
    442
    
    
    
    363Proceeds from initial public offering, net of underwriter fees
    
    
    
    
    
    
    18,336Payment of dividend
    
    
    (15,836
    )
    
    
    Share repurchase
    
    
    
    
    
    
    (762
    )Net cash (used in) provided by discontinued operations
    
    
    (1,515
    )
    
    
    662Net cash (used in) provided by financing activities
    
    
    (28,533
    )
    
    
    13,513Net (decrease) increase in cash
    
    
    (3,992
    )
    
    
    6,225Cash,
beginning of year
    
    
    7,221
    
    
    
    996Cash, end of
year
    
    $
    3,229
    
    
    $
    7,221
   F-6




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##### Table of Contents



VERICHIP CORPORATION
 
 Notes to Consolidated Financial Statements
 (tabulated amounts in thousands of dollars, except per share amounts)
 1 Basis of Presentation
        F-7




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##### Table of Contents



Accounting Policies
 Principles of Consolidation
  Use of Estimates
  Concentration of Credit Risk
    F-8




---



##### Table of Contents



Trade Account Receivable
  Inventories
  Equipment
  Intangible Assets
 Goodwill and
Intangible Assets
  Accounting for the Impairment or Disposal of Long-Lived
Assets,
  F-9




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##### Table of Contents



Revenue Recognition
   Product Revenue
    Services Revenue
    F-10




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##### Table of Contents



Stock-Based Compensation
 Share Based Payment
         F-11




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##### Table of Contents



Income Taxes
    F-12




---



##### Table of Contents



Loss Per Common Share and Common Share Equivalent
  Impact of Recently Issued Accounting Standards
 Application
of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address
Fair Value Measurements for Purposes of Lease Classification or Measurement Under Statement 13 Effective Date of FASB Statement No. 157 Accounting for
Leases
 Disclosures about Derivative Instruments and Hedging
Activities Accounting for Derivative Instruments and Hedging Activities
 Accounting for Convertible Debt Instruments That May
Be Settled in Cash Upon Conversion (Including Partial Cash
Settlement)
 Accounting and Reporting by Insurance
Enterprises
  The Fair Value Option for Financial Assets and
Financial Liabilities
  F-13




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##### Table of Contents



Accounting for Collaborative
Arrangements Related to the Development and Commercialization of Intellectual Property Reporting Revenue Gross as a Principal versus Net as an Agent
 Research and Development
   F-14




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##### Table of Contents



2 Inventories
 December 31,
    
    
    December 31,2008
    
    
    2007Raw materials
    
    $
    161
    
    
    $
    Work in process
    
    
    
    
    
    
    Finished goods
    
    
    52
    
    
    
    808213
    
    
    
    808Allowance for excess and obsolescence
    
    
    (213
    )
    
    
    (713
    )$
    
    
    
    $
    95
 3 Equipment
 December 31,
    
    
    December 31,2008
    
    
    2007Equipment
    
    $
    292
    
    
    $
    308Hardware
    
    
    76
    
    
    
    75Software
    
    
    57
    
    
    
    64425
    
    
    
    447Less accumulated depreciation
    
    
    (386
    )
    
    
    (335
    )$
    39
    
    
    $
    112
  4 Financing Agreements and Liquidity
   5 Stockholders Equity
    F-15




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##### Table of Contents



Stock Option Plans
       2008
    
    
    2007Weighted-
    
    
    
    
    
    
    Weighted-Number
    
    
    Average
    
    
    Number
    
    
    Averageof
    
    
    Exercise
    
    
    of
    
    
    ExerciseOptions
    
    
    Price
    
    
    Options
    
    
    PriceOutstanding on January 1
    
    
    1,963
    
    
    $
    3.26
    
    
    
    2,099
    
    
    $
    2.10Granted(1)
    
    
    195
    
    
    
    0.58
    
    
    
    417
    
    
    
    5.88Exercised
    
    
    (844
    )
    
    
    0.54
    
    
    
    (536
    )
    
    
    0.70Cancelled and forfeited
    
    
    (87
    )
    
    
    5.88
    
    
    
    (17
    )
    
    
    5.75Outstanding on December 31
    
    
    1,225
    
    
    
    4.52
    
    
    
    1,963
    
    
    
    3.26Exercisable on December 31(2)
    
    
    1,055
    
    
    
    5.24
    
    
    
    1,530
    
    
    
    2.42Shares available on December 31 for
options that may be granted
    
    
    2,022,832
    
    
    
    
    
    
    
    865
 (1)
    
    The total compensation expense associated with the options granted in 2008 and 2007 was approximately $21,000 and $0.3
million, respectively. As of December 31, 2008 and 2007, the remaining amount of the compensation expense to be recorded over
the remaining vesting period of the options was approximately $31,000 and $0.9 million, respectively.(2)
    
    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 the Companys common stock was estimated to be $0.37 and $2.25 at December 31, 2008
and 2007, respectively, based upon its closing price on the NASDAQ. As of December 31, 2008 and 2007, the intrinsic value for
all options outstanding was approximately $34,000 and
$0.6 million, respectively.  F-16




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##### Table of Contents



Outstanding Stock Options
    
    

    Exercisable Stock OptionsWeighted-Average
    
    
    Weighted-
    
    
    
    
    
    
    Weighted-Remaining
    
    
    Average
    
    
    
    
    
    
    AverageRange of
    
    
    
    
    
    Contractual
    
    
    Exercise
    
    
    
    
    
    
    ExerciseExercise Prices
    
    Shares
    
    
    Life
    
    
    Price
    
    
    Shares
    
    
    Price$0.0000 to $1.9900
    
    
    438
    
    
    
    5.3
    
    
    $
    0.39
    
    
    
    268
    
    
    $
    0.41$4.9500 to $5.7500
    
    
    348
    
    
    
    7.6
    
    
    
    5.59
    
    
    
    348
    
    
    
    5.59$6.9300 to $7.6500
    
    
    328
    
    
    
    4.9
    
    
    
    7.09
    
    
    
    328
    
    
    
    7.09$8.5500 to $10.0000
    
    
    105
    
    
    
    6.0
    
    
    
    9.24
    
    
    
    105
    
    
    
    9.24$10.001to $20.2500
    
    
    6
    
    
    
    4.0
    
    
    
    20.25
    
    
    
    6
    
    
    
    20.251,225
    
    
    
    5.9
    
    
    $
    4.52
    
    
    
    1,055
    
    
    $
    5.19Vested and expected
to vest
    
    
    1,225
    
    
    
    5.9
    
    
    $
    4.52
    
    
    the estimated value of the Companys common stock;
    
    the expected life of issued stock options;
    
    the expected volatility of the Companys stock price;
    
    the expected dividend yield to be realized over the life of the stock option; and
    
    the risk-free interest rate over the expected life of the stock options.
   2008
    
    
    2007Expected dividend yield
    
    
    
    
    
    
    Expected stock price volatility
    
    
    35
    %
    
    
    50
    %Risk-free interest rate
    
    
    1.79-3.44
    %
    
    
    4.51
    %Expected term (in years)
    
    
    6.0
    
    
    
    6.0
  F-17




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##### Table of Contents



6 Selling, general and administrative expense:
 For the Years EndedDecember 31,2008
    
    
    2007Salaries and benefits (1)
    
    $
    14,567
    
    
    $
    8,166Depreciation and amortization
    
    
    52
    
    
    
    73Legal and accounting
    
    
    2,226
    
    
    
    1,517Sales and marketing
    
    
    1,424
    
    
    
    1,699Travel and entertainment
    
    
    280
    
    
    
    619Insurance
    
    
    217
    
    
    
    119Consulting
    
    
    255
    
    
    
    156Other
    
    
    754
    
    
    
    835$
    19,775
    
    
    $
    13,184
 (1)
    
    Included in salaries and benefits is $5.0 million and
$3.4 million of equity compensation expense for the years
2008 and 2007, respectively, associated with stock
compensation (includes stock options and restricted stock).
See Note 1 to the Consolidated Financial Statements. 7 Income taxes:
   December 31,2008
    
    
    2007Deferred tax assets:Liabilities and reserves
    
    $
    228
    
    
    $
    70Stock-based compensation
    
    
    4,162
    
    
    
    2,644Property and equipment
    
    
    12
    
    
    
    516Net operating loss carryforwards
    
    
    11,361
    
    
    
    9,142Gross deferred tax assets
    
    
    15,764
    
    
    
    12,372Valuation allowance
    
    
    (15,764
    )
    
    
    (12,372
    )Net deferred taxes
    
    $
    
    
    
    $
    
  F-18




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##### Table of Contents



For
the Years Ended December 31,2008
    
    
    2007Current:United States
    
    $
    
    
    
    $
    Canada
    
    
    233
    
    
    
    248Current income tax provision
    
    
    233
    
    
    
    248
 2008
    
    
    2007Deferred:United States
    
    $
    
    
    
    $
    Canada
    
    
    
    
    
    
    (1,305
    )Deferred income tax benefit
    
    
    
    
    
    
    (1,305
    )$
    233
    
    
    $
    (1,055
    )
  2008
    
    
    2007Continuing operations
    
    $
    
    
    
    $
    Discontinued operations
    
    
    233
    
    
    
    (1,055
    )$
    233
    
    
    
    (1,055
    )
  2008
    
    
    2007%
    
    
    %Statutory tax benefit
    
    
    (34
    )
    
    
    (34
    )State income taxes, net of federal benefits
    
    
    (6
    )
    
    
    (6
    )Tax basis difference in stock of subsidiary
    
    
    (12
    )
    
    
    Change in deferred tax asset valuation allowance
    
    
    52
    
    
    
    40
    
    
    
   F-19




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##### Table of Contents




    
    Income tax benefits should be recognized when, based on the technical
merits of a tax position, the company believes that if a dispute arose
with the taxing authority and were taken to a court of last resort, it
is more likely than not (i.e., a probability of greater than
50 percent) that the tax position would be sustained as filed; and
    
    If a position is determined to be more likely than not of being
sustained, the reporting company should recognize the largest amount
of tax benefit that is greater than 50 percent likely of being
realized upon ultimate settlement with the taxing authority.
  8 Loss per Share
  For the Years Ended
 December 31,2008
    
    
    2007Stock options
    
    
    1,225
    
    
    
    1,963Warrants
    
    
    
    
    
    
    33Restricted common stock
    
    
    
    
    
    
    6001,225
    
    
    
    2,596
 9 Unasserted ClaimPotential Intellectual Property Conflict
   F-20




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##### Table of Contents



10 Commitments and Contingencies
 Employment Contract
   F-21




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##### Table of Contents



Legal proceedings
  Metro Risk
   F-22




---



##### Table of Contents



Stock Option Plans
     F-23




---



##### Table of Contents



11 Related Party Transactions
 Agreements
with IFTH
   Payments
to Michael Krawitz
  Transition Services Agreement
      Loan Agreement with Digital Angel
  The Wall Street Journal
  F-24




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##### Table of Contents



F-25




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##### Table of Contents



Supply Agreement
    Letter Agreement with Digital Angel
   Pledge Agreement of Digital Angel
   12 Discontinued Operations
    F-26




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##### Table of Contents



Years EndedDecember 31,2008
    
    
    2007(in thousands)Revenue
    
    $
    20,002
    
    
    $
    32,030Cost of sales
    
    
    8,289
    
    
    
    14,599Gross profit
    
    
    11,713
    
    
    
    17,431Selling, general and administrative expenses
    
    
    9,093
    
    
    
    10,329Research and development expenses
    
    
    2,277
    
    
    
    4,573Other (income) expense
    
    
    (650
    )
    
    
    502Interest (income) expense
    
    
    (27
    )
    
    
    25Income before income taxes
    
    
    1,020
    
    
    
    2,002Provision for (benefit from) income taxes
    
    
    233
    
    
    
    (1,055
    )Income from discontinued operations
    
    $
    787
    
    
    $
    3,057
  December 31,
    
    
    December 31,2008
    
    
    2007(in thousands)Current assets:Cash
    
    $
    
    
    
    $
    Accounts receivable
    
    
    
    
    
    
    5,391Deferred tax asset
    
    
    
    
    
    
    216Inventory
    
    
    
    
    
    
    2,247Other current assets
    
    
    
    
    
    
    348Total current assets
    
    
    
    
    
    
    8,202Property and equipment, net
    
    
    
    
    
    
    840Intangibles, net
    
    
    
    
    
    
    16,752Goodwill
    
    
    
    
    
    
    15,776Total assets
    
    $
    
    
    
    $
    41,570Current liabilities:Line of credit
    
    $
    
    
    
    $
    1,515Accounts payable
    
    
    
    
    
    
    1,517Accrued expenses and other current liabilities
    
    
    227
    
    
    
    3,120Income taxes payable
    
    
    233
    
    
    
    300Deferred revenue
    
    
    
    
    
    
    256Total current liabilities
    
    
    460
    
    
    
    6,708Deferred taxes
    
    
    
    
    
    
    3,809Total liabilities
    
    $
    460
    
    
    $
    10,517Net (liabilities) assets from discontinued operations
    
    $
    (460
    )
    
    $
    31,053
  F-27




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##### Table of Contents



13 Supplementary Cash Flow Information
 For the Years EndedDecember 31,2008
    
    
    2007Income taxes paid
    
    $
    
    
    
    $
    Interest paid
    
    
    285
    
    
    
    $
    285
    
    
    $
    
  Years EndedDecember 31,2008
    
    
    2007Non-cash financing and investing activities:Offering costs
    
    $
    
    
    
    $
    440Debt financing costs
    
    
    331
    
    
    
    $
    331
    
    
    $
    440
  F-28




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##### Table of Contents



EXHIBIT INDEX
 Exhibit
 No.
    
    Description2.1
    
    
    Stock Purchase Agreement, dated May 15, 2008, between VeriChip Corporation and The Stanley Works (12)2.2
    
    
    Voting Agreement, dated May 15, 2008, between Applied Digital Solutions, Inc. and The Stanley Works (12)2.3
    
    
    Voting Agreement, dated May 15, 2008, between Scott R. Silverman and The Stanley Works (12)3.1
    
    
    Second Amended and Restated Certificate of Incorporation of VeriChip Corporation filed with the Secretary of State of
Delaware on December 18, 2006 (1)3.2
    
    
    Amended and Restated By-laws of VeriChip Corporation adopted as of December 12, 2005 (1)4.1
    
    
    Form of Specimen Common Stock Certificate (1)10.1
    *
    
    VeriChip Corporation 2002 Flexible Stock Plan, as amended through December 21, 2006 (4)10.2
    *
    
    VeriChip Corporation 2005 Flexible Stock Plan, as amended through December 21, 2006 (4)10.3
    *
    
    Form of Restricted Stock Award Agreement (4)10.4
    *
    
    Form of Non-Qualified Stock Option Award Agreement (4)10.5
    
    
    Commercial Loan Agreement dated as of December 27, 2005 between VeriChip Corporation and Digital Angel
Corporation (1)10.6
    
    
    Revolving Line of Credit Note Working Capital of VeriChip Corporation dated as of December 27, 2005 (1)10.7
    
    
    Security Agreement dated as of December 27, 2005 between VeriChip Corporation and Digital Angel Corporation (1)10.8
    
    
    First Amendment to Commercial Loan Agreement dated as of October 6, 2006 between Digital Angel Corporation and VeriChip
Corporation (1)10.9
    
    
    First Amendment to Security Agreement dated as of October 6, 2006 between Digital Angel Corporation and VeriChip
Corporation (1)10.10
    
    
    Second Amendment to Commercial Loan Agreement dated as of January 19, 2007 between Digital Angel Corporation and VeriChip
Corporation (1)10.11
    
    
    Second Amendment to Security Agreement dated as of January 19, 2007 between Digital Angel Corporation and VeriChip
Corporation (1)10.12
    
    
    Third Amendment to Commercial Loan Agreement dated as of February 8, 2007 between Digital Angel Corporation and VeriChip
Corporation (1)10.13
    
    
    Third Amended and Restated Revolving Line of Credit Note dated as of February 8, 2007 between Digital Angel Corporation
and VeriChip Corporation (1)10.14
    
    
    Amendment to Third Amended and Restated Revolving Line of Credit Note dated as of February 29, 2008 between VeriChip
Corporation and Digital Angel Corporation (11)




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##### Table of Contents



Exhibit
 No.
    
    Description10.15
    
    
    Third Amendment to Security Agreement dated as of February 8, 2007 between Digital Angel Corporation and VeriChip
Corporation (1)10.16
    
    
    Fourth Amendment to Commercial Loan Agreement and Security Agreement dated as of February 13, 2007 between Digital Angel
Corporation and VeriChip Corporation (2)10.17
    
    
    Amended and Restated Supply, License and Development Agreement dated as of December 27, 2005 between VeriChip Corporation
and Digital Angel Corporation (1)10.18
    
    
    First Amendment to Amended and Restated Supply, License and Development Agreement dated as of May 9, 2007 between the
Registrant and Digital Angel Corporation. (5)10.19
    *
    
    Letter Agreement dated as of August 11, 2005 between VeriChip Corporation and Daniel A. Gunther (1)10.20
    *
    
    Amendment to Letter Agreement dated as of March 2, 2007 between VeriChip Corporation and Daniel A. Gunther (3)10.21
    *
    
    2007 Senior Management Incentive Plan for Daniel A. Gunther dated as of March 2, 2007 (3)10.22
    *
    
    VeriChip Corporation Executive Management Change in Control Plan dated March 2, 2007(3)10.23
    *
    
    VeriChip Corporation Executive Management Incentive Plan dated April 2, 2007 (4)10.24
    *
    
    VeriChip Corporation 2007 Stock Incentive Plan, as amended and restated10.25
    *
    
    Form of Non-Qualified Option Award Agreement under the VeriChip Corporation 2007 Stock Incentive Plan (7)10.26
    
    
    Consulting Agreement dated as of August 8, 2007 between VeriChip Corporation and Randolph K. Geissler (7)10.27
    
    
    Registration Rights Agreement between VeriChip Corporation and Kallina Corporation, dated August 31, 2007 (8)10.28
    *
    
    Form of Stock Award Agreement (9)10.29
    
    
    Letter Agreement, dated December 20, 2007, between VeriChip Corporation and Digital Angel Corporation (10)10.30
    
    
    Securities Purchase Agreement dated as of February 29, 2008 among VeriChip Corporation, Xmark Corporation, Valens Offshore
SPV II, Corp. and LV Administrative Services, Inc. (11)10.31
    
    
    Secured Term Note dated as of February 29, 2008 by VeriChip Corporation and Xmark Corporation in favor of Valens Offshore
SPV II, Corp. (11)10.32
    
    
    Master Security Agreement dated as of February 29, 2008 among VeriChip Corporation, Xmark Corporation and LV
Administrative Services, Inc. (11)10.33
    
    
    Stock Pledge Agreement dated as of February 29, 2008 among VeriChip Corporation, Xmark Corporation and LV Administrative
Services, Inc. (11)10.34
    
    
    Intellectual Property Security Agreement dated as of February 29, 2008 among VeriChip Corporation, Xmark Corporation and
LV Administrative Services, Inc. (11)10.35
    
    
    Letter Agreement dated as of February 29, 2008 between VeriChip Corporation and Digital Angel Corporation (11)10.36
    
    
    Guarantee, dated May 15, 2008, between Digital Angel Corporation and The Stanley Works (12)




---



##### Table of Contents



Exhibit
 No.
    
    Description10.37
    
    
    Letter Agreement, dated May 15, 2008, between VeriChip Corporation and Digital Angel Corporation (12)10.38
    
    
    Separation Agreement, dated May 15, 2008, between VeriChip Corporation and Scott R. Silverman (12)10.39
    
    
    Letter Agreement, dated May 15, 2008, between VeriChip Corporation and William J. Caragol (12)10.40
    
    
    Amendment to Separation Agreement, dated July 9, 2008, between VeriChip Corporation and Scott R. Silverman (13)10.50
    
    
    Asset Purchase Agreement, dated November 12, 2008, among VeriChip Corporation, Digital Angel Corporation and
Destron Fearing Corporation (14)10.51
    *
    
    Letter Agreement, dated December 31, 2008, between VeriChip Corporation and William J. Caragol (15)10.52
    *
    
    Letter Agreement, dated December 31, 2008, between VeriChip Corporation and Scott R. Silverman (15)21.1
    
    
    List of Subsidiaries of VeriChip Corporation23.1
    
    
    Consent of Eisner LLP31.1
    
    

Certification by William J. Caragol, Acting Chief Executive Officer, pursuant to Exchange Act Rules 13A-14(a) and 15d-14(a)31.2
    
    

Certification by William J. Caragol, Acting Chief Financial Officer, pursuant to Exchange Act Rules 13A-14(a) and 15d-14(a)32.1
    
    
    Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 (1)
    
    Incorporated by reference to the Registration Statement on Form S-1 previously filed by VeriChip Corporation (Registration No. 333-130754).(2)
    
    Incorporated by reference to the Form 8-K previously filed by VeriChip Corporation on February 15, 2007.(3)
    
    Incorporated by reference to the Form 8-K previously filed by VeriChip Corporation on March 8, 2007.(4)
    
    Incorporated by reference to the Annual Report on Form 10-K previously filed by VeriChip Corporation on April 2, 2007.(5)
    
    Incorporated by reference to the Quarterly Report on Form 10-Q previously filed by VeriChip Corporation on May 15, 2007.(6)
    
    Incorporated by reference to the Form 8-K previously filed by VeriChip Corporation on June 20, 2007.(7)
    
    Incorporated by reference to the Quarterly Report on Form 10-Q previously filed by VeriChip Corporation on August 8, 2007.(8)
    
    Incorporated by reference to the Form 8-K previously filed by VeriChip Corporation on September 7, 2007.(9)
    
    Incorporated by reference to the Quarterly Report on Form 10-Q previously filed by VeriChip Corporation on November 8, 2007.(10)
    
    Incorporated by reference to the Form 8-K previously filed by VeriChip Corporation on December 21, 2007.(11)
    
    Incorporated by reference to the Form 8-K previously filed by VeriChip Corporation on March 5, 2008.(12)
    
    Incorporated by reference to the Form 8-K previously filed by VeriChip Corporation on May 16, 2008.(13)
    
    Incorporated by reference to the Form 10-Q filed by VeriChip Corporation on August 14, 2008.(14)
    
    Incorporated by reference to the Form 10-Q filed by VeriChip Corporation on November 14, 2008.(15)
    
    Incorporated by reference to the Form 8-K previously filed by VeriChip Corporation on January 6, 2009.*
    
    Management contract or compensatory plan.
    
    Confidential treatment has been obtained with respect to certain portions of this exhibit. Omitted portions have been filed separately with the Securities and Exchange Commission.