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While fascinated Americans watching Good Morning America, NBC’s Today and the CBS Evening News viewed seven of their peers being “chipped” – that is, implanted with an electronic identification device called “VeriChip” — the financially struggling manufacturer and marketer of the biochips hopes its savior is drawing nigh – namely, the federal government.
Indeed, despite Friday’s international media blitz of free advertising, yesterday’s announcement that Applied Digital Solutions (Nasdaq: ADSX) of Palm Beach, Fla., has balked at posting its first-quarter earnings with a loss is only the latest sign that the company is on a slippery financial footing. It lost $216 million in 2001 and has an $87.3 million obligation to IBM Credit at a 17 percent interest rate.
The widely hyped “chipping” event came just five days before a Nasdaq deadline for getting the stock price over $1 or face de-listing. Applied Digital President Scott R. Silverman said there was no correlation between the timing of the event and the Nasdaq deadline.
Although the headlines screamed “Here come the cyborgs,” young Derek Jacobs, one of the implantees, did not emerge as a bionic super-entity. In fact, the VeriChip is simply an inert ID number that does not interact with the body in any way. Unlike sophisticated cochlear implants, the VeriChip is a pretty simple piece of silicon that basically allows a person to be scanned like a box of Wheaties.
And despite all the hoopla, Applied Digital stock fell 29 percent on the big day.
Complicating matters was the fact that no hospital had yet signed an agreement to use the medical identification system.
Now the big push is on to convert all the media coverage into dollars, as the financially troubled company tries to score a federal procurement touchdown by signing up the U.S. government as a customer.
High-tech tracking of humans
The company manufactures two implantable chips: the VeriChip, which currently holds only an ID number, but is capable of carrying several lines of text; and the far more complex Digital Angel chip, which is GPS-trackable and contains an ID number. The Digital Angel is currently available only in wristwatch form, but, as WND reported in April, the company expects to re-introduce the concept of implanting Digital Angel in humans.
ADS acquired the patent for Digital Angel in December 1999 and the telecommunications company reorganized itself around the invention. Patent documents describe the GPS-trackable invention as a “transceiver device” that is “small enough to be implanted in a child,” for the purpose of “tracking and recovery of humans.” It contains a transceiver, a receiver and a sending and receiving antenna.
The original technical explanations found on ADS’s website – since removed when the company switched over temporarily to externally “worn” (not implanted) products due to complaints from privacy advocates – described Digital Angel as capable of being powered by the user’s own muscle movements.
“These features enable the device to remain implanted and functional for years without maintenance,” the company’s online materials maintained. “This transceiver sends and receives data and can be continuously tracked by Global Positioning Satellite (GPS) technology.” ADS subsidiary Digital Angel Corporation added a biosensor unit to go with the ensemble to track heart rate, skin temperature, blood oxygen levels and more.
At the request of a ground station, so the company’s explanation went, these two groups of information (location and body functions) would be conveyed wirelessly to the Internet, where the implantee’s movements, location and personal vital signs could be monitored remotely and stored in a database for future reference.
Friends in high places?
Without question, Applied Digital Solutions sees its best customer as the government. And to head up this major government sales effort, ADS has appointed Frank Lalley, a 35-year General Services Administration veteran, as vice president of the just-created “government solutions” organization.
“The new position is aimed at meeting government needs for the company’s advanced technology products, such as VeriChip, Thermo Life and Digital Angel, which is now part of Digital Angel Corporation (Amex: DOC),” according to ADS. (Thermo Life is a miniaturized power source consisting of a thermoelectric generator powered by body heat.)
Lalley’s most recent position with the federal government was as assistant commissioner for service delivery in the GSA’s Federal Technology Service. In that position, he was the senior executive responsible for the federal government’s $1 billion long-distance telecommunications program, which provides voice, data, video, wireless and satellite services to 165 government agencies around the world.
Lalley also served as former associate deputy assistant secretary for telecommunications at the Veterans Affairs Department, chairman of the Interagency Management Council and head of the Service Delivery Office. He has also been employed in the departments of Energy and Defense.
Commenting on Lalley’s appointment, Silverman, Applied Digital’s president, said: “With the attention that VeriChip, Digital Angel and Thermo Life have attracted from all levels of government, it was imperative to bring in someone with Frank Lalley’s extensive experience and reputation for effective leadership in the public sector. His knowledge, expertise and vast network of governmental contacts will help enormously as we respond to the needs of various government agencies for our advanced technology solutions. We’re delighted that Frank has agreed to take on this added responsibility and we’re confident that this expansion of his role within Applied Digital will help us seize significant growth opportunities in the public sector.”
Your tax dollars at work?
What uses does ADS envision for government use? In 2000, ADS offered a long list of suggested tax-funded uses for the company’s biochips. These included use in soldiers, people under house arrest, prisoners and parolees. At the same time, the chief scientist for the development of Digital Angel, Dr. Peter Zhou, also indicated he was “very interested” in pursuing the Digital Angel tracking chip as a form of national health-care ID — along the lines of the universal biometric identifier proposed by then-Secretary of Health and Human Services Donna Shalala.
Other uses envisioned and discussed by ADS executives included widespread use as a “universal standard” in computer logon security, and even as a method of gun control.
And earlier this year, CEO Richard Sullivan suggested that all foreigners entering the country might be injected with the chips, replacing green cards — “allowing officials to monitor their activities better.”
“I think the positives overwhelmingly overcome any small negatives,” Sullivan concluded. “The government is more prepared, for the overall benefit of our citizens, to advocate some of these changes.”
Sullivan has also stated that in 5 years he expects to see the chips implanted into children, the elderly, airport workers and nuclear power plant workers.
Others, like Fred McClimans, CEO of Current Analysis, a business intelligence and analysis firm, see such chips as benefiting the potentially explosive wireless advertising field, where advertisers could send ads to a user’s cell phone, PDA or Internet appliance, tailored to their real-time location.
“We might be able to actually improve on our ability to track personal information and habits even more completely than we do today,” McClimans told CNN last year. “In fact we can probably make a quick buck here to boot. Let’s say we all get together and implant everybody with these new chips,” he added, somewhat tongue-in-cheek.
Lamenting the lack of “common sense” in Congress regarding the dearth of comprehensive privacy laws, McCLimans asked: “So what will it be: common sense or computer chips? Sadly, I think the answer is chips. Let’s face it: The potential value is too great … a scary thought.”
ADS and government: ‘old pals’?
Applied Digital’s purpose in all of this is to sign a deal with government so it can fulfill the $100 billion market projection made by McKinsey & Co. management consultants.
WorldNetDaily has previously reported on a deal, forged by then-Secretary of Commerce Norman Mineta, between ADS and the Clinton administration, and announced privately just days before the 2000 presidential election. At the closed-door meeting where the partnership was announced, ADS executives stated that they were well positioned for success because of close partnerships with the Defense and Energy departments. In addition, Sullivan claimed the highest-ranking officer in charge of research and development for the CIA was present at the meeting.
Just prior to the NYC event at which Mineta delivered the keynote speech, he had also been keynote speaker for ADS subsidiary Timely Technology Corporation at the California Inland Empire Technology Summit.
In January, Lalley jumped ship from the GSA to become president and CEO of Computer Equity (Compec) and Government Telecommunications, Inc., both subsidiaries acquired by Applied Digital Solutions in June 2000.
His responsibilities include running the day-to-day operations of GTI, which provides voice, data and networking solutions to government and commercial customers. Being vice president of “government solutions” is simply an additional role.
Government Telecommunications, Inc. scored healthy contracts under the Clinton administration, totaling millions of dollars.
Calls soliciting comment for this report from the Office of Homeland Security, the Department.of Transportation and the White House were not returned before publication time.
A financially troubled company
Scoring a federal deal is becoming increasingly important to financially troubled parent company Applied Digital Solutions.
- On Nov. 5, 2001, IBM Credit issued a “reservation of rights” letter to Applied Digital Solutions, under which it reserved all of its rights with respect to the Applied Digital’s outstanding obligations under an IBM credit agreement, including its right to accelerate the maturity of all amounts owed it by Applied Digital.
- In the June 22, 2001 article, “Applied Digital shares nosedive on heavy volume,” the South Florida Business Journal noted, “Five-day volume starting June 13 was nearly 40 million shares. That is more than the 34 million shares registered by selling stockholders in a series of SEC registration statements filed over the past two weeks.”
- “Certain selling shareholders within that [S-3] registration statement do not share the same long-term vision of Applied Digital and have opted to liquidate and move on,” said ADS’s then-president and COO Mercedes Walton in November.
- At that time, according to the latest SEC filing, Applied Digital had a negative net worth of $59.1 million. In July, ADS filed a registration statement for 13.8 million shares of stock to be sold by insiders. By November 2001, ADS won the “Turkey of the Year’ award from SFBJ for “gushing red ink faster than you can say ‘pass the gravy please!'”
- A Securities and Exchange Commission report revealed Jan. 4 that Sullivan, CEO of ADS and chairman of the board, planned on Nov. 27 to sell 3 million shares of stock for an estimated $1.44 million.
Nasdaq halted trading
In addition, on April 22, Nasdaq halted trading in Applied Digital Solutions at 11:05 a.m. Nasdaq said it required information from the company and added that trading would not resume until Applied Digital had fully satisfied Nasdaq’s request. After ADS informed Nasdaq of various technical issues, including details surrounding an April 17 contract announcement issued by South St. Paul, Minn.-based subsidiary Digital Angel Corp. (AMEX: DOC), Nasdaq re-opened trading the following day at 10 a.m.
In its last filing, PricewaterhouseCoopers said it had doubts Applied Digital could continue as a going concern. An April 19 report by SFBJ indicated ADS changed its independent auditor from PricewaterhouseCoopers to middle-market specialist Grant Thornton LLP.
In explaining the change, ADS President Silverman said the company planned to file a letter with the Securities and Exchange Commission to prove there were no issues of disagreement between the PricewaterhouseCoopers and Applied Digital or subsidiary Digital Angel. He said the move was part of company-wide restructuring, and that the change would provide cost savings and increased efficiencies, though he did not specify how much.
However, yesterday Dow Jones/Associated Press reported that Grant Thornton LLP had also resigned as the company’s auditor, after ADS announced it would “delay filing its first-quarter results after disagreeing with an auditor over whether to record a noncash charge of $14 million that would result in a loss for the period.”
Grant Thornton resigned after ADS said it would take the matter to the Securities and Exchange Commission.
Replacing med-alert bracelets?
Meanwhile, as ADS continues to strategize aggressively to maneuver itself into a long-sought-after government partnership, it is hoping in the short term that the VeriChip will replace med-alert bracelets.
But Tanya Glazebrook of the MedicAlert Foundation International issued a statement responding to the company’s media “chipping” event, suggesting that VeriChip raises serious medical, ethical and infrastructure questions.
The most integral question, according to Glazebrook, is “why?”
“Medical identification is not a new concept. Effective, non-invasive medical identification services have existed for years, and are recognized and used by medical professionals and emergency responders worldwide. It simply is unnecessary to implant a device into a person’s body when non-invasive, less expensive methods of protection exist,” she said.
ADS maintains the VeriChip is especially useful in emergency situations — for example, where a person has fallen unconscious. But Glazebrook argues, “How would these people know that a person has the chip if the person was unconscious or unable to provide the information?”
And, if a person has to have a dog tag or med-alert bracelet just to inform someone that they have a chip ID implant, why not just use the bracelet, or create a ‘smart’ med-alert bracelet?
MedicRec Inc. founder and CEO Jay Armstrong told WorldNetDaily, “We understand that some people are implanting chips in their bodies, but we think that most people prefer to wear their medical data as jewelry.” Armstrong’s company offers a “smart” necklace that can store thousands of digital records and be read by a handheld PC.
“VeriChip’s live media event today no doubt will generate a great deal of interest and controversy,” Glazebrook concluded. “We only hope that the buzz that this event creates will be balanced by thoughtful review and discussion of this device compared with the trusted services that already exist. ”
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