Applied Digital Solutions, maker of the VeriChip and Digital Angel, has missed a final date to make a required payment of $46.2 million to IBM Credit Corporation.
Failure to make the payment could force IBM to liquidate a trust that holds more than 19 million shares of Digital Angel Corp. (DOC:AMEX), to recoup some of its money.
Digital Angel Corp. is a South St. Paul, Minn., company controlled by Applied Digital (ADSX:NASDAQ).
Liquidating this trust could create a domino-like effect, threatening Digital Angel Corp.’s $5 million credit line with Wells Fargo Business Credit . According to SEC filings, Digital Angel has an agreement with Wells Fargo permitting it to borrow up to $5 million.
Amounts borrowed under the credit facility are general obligations of Digital Angel secured by a first priority lien on substantially all of the company’s assets, including its accounts receivable, patents and other intellectual property relating to the Digital Angel product.
If the Digital Angel shares in the trust are sold, Applied Digital would lose control of the company. IBM could hold on to the shares or sell them in the open market.
Today’s SEC filing warns that if IBM Credit were to enforce its rights against the collateral, there would be doubt that the company would be able to continue operations in the normal course of business.
WND previously reported that Applied Digital failed to make the payment on Friday, Feb. 28, and was warned by IBM that the payment needed to be made on or prior to March 6, yesterday.
At that time, Applied Digital stated that it continued to discuss with IBM Credit Corporation an amendment to the IBM Credit Agreement. The agreement has been amended three times. The company, however, now confirms that it has not entered into an amendment with IBM to restructure the payment terms and other provisions of the credit agreement.
Lawsuit alleges IBM conspiracy
In response, Applied has filed a grandiose lawsuit against IBM, alleging tortious interference with business relationships, conspiracy to commit fraud, fraud, breach of good faith and fair dealing, lender liability, and breach of the Florida Uniform Trade Secrets Protection Act.
The lawsuit was filed yesterday in Palm Beach County, Fla. IBM Credit has been the company’s lender since 1999.
Meanwhile, Applied is facing its own lawsuit problems. As previously reported by WND, a dozen lawsuits allege Applied Digital’s CEO, chairman and founder, Richard Sullivan, ”engaged in fraudulent scheme and deceptive course of business” meant to artificially manipulate the stock.
SEC filings indicate the company has not yet produced significant revenue from its products, and a December filing stated that it had yet to earn any revenue from VeriChips. The VeriChip is a short-range RFID identification chip designed for implantation in humans and touted for its potential uses in security, banking and identification fields.