Veriteq (DIGA) 8-K Applied Digital Reports Second Quarter 2004 Results

Exhibit 99.1

Applied Digital Reports Second Quarter 2004 Results

Company Generates 29% Increase in Revenue

DELRAY BEACH, Fla.--(BUSINESS WIRE)--Aug. 3, 2004--Applied Digital (NASDAQ:ADSX), a provider of innovative security products, today released its financial results for the second-quarter ended June 30, 2004. The Company's consolidated financial results include the financial condition, operating results and cash flows of its majority-owned subsidiaries, Digital Angel Corporation (AMEX:DOC), and InfoTech USA, Inc. (OTC:IFTH).

Revenue for the second quarter of 2004 was $26.3 million, a 29% increase from the $20.4 million in revenue from the same period during 2003. The increase in comparative quarterly revenue was attributable to an increase in revenue from Digital Angel Corporation, InfoTech USA, Inc., and the Company's wholly-owned subsidiary Government Telecommunications, Inc. (GTI).

Gross profit increased 22% from $5.9 million in the 2003 period to $7.2 million in the second quarter of 2004. The net loss for the second quarter of 2004 was $(3.0) million, or $(0.06) per basic share, compared to net income of $56.4 million or $1.82 per basic share in the second quarter of 2003. Included in the results for the second quarter of 2003, was a $70.4 million gain for forgiveness of debt due to the satisfaction of the Company's debt obligation to IBM Credit, LLC. Excluding the effects of the gain for forgiveness of debt, the Company incurred a net loss of $(14) million for the second quarter of 2003. Accordingly, excluding the gain for forgiveness of debt, the Company's net loss decreased by $11 million comparing the second quarter of 2003 to the second quarter of 2004. The Company completed the second quarter with cash and cash equivalents of $10.5 million, and restricted cash of approximately $0.9 million.

For the six-months ended June 30, 2004, the Company reported revenue of $52.8 million, a 17.9% increase versus $44.8 million in the six-months ended June 30, 2003. Applied Digital had gross profit of $15.3 million, an increase of 5.5% versus $14.5 million for the year earlier period. The Company reported a net loss of $(1.5) million, or $(0.03) per basic share for the six-months ended June 30, 2004, compared to net income of $29.4 million or $0.99 per basic share for the six-months ended June 30, 2003. Included in the results for the six-months ended June 30, 2003, was a $70.4 million gain for forgiveness of debt due to the satisfaction of the Company's debt obligation to IBM Credit, LLC. Excluding the effects of the gain for forgiveness of debt, the Company incurred a net loss of $(41) million for the six-months ended June 30, 2003. Accordingly, excluding the gain for forgiveness of debt, the Company's net loss decreased by $39.5 million comparing the first half of 2003 to the first half of 2004.

"In the second quarter, we continued to make strides in the right direction," said Scott R. Silverman, Applied Digital's Chairman and CEO. "Our revenues continue to grow and our business model, 'Security Through Innovation,' became more focused and refined. Our innovative security products provide security for people, animals, food chains, government/military assets and commercial assets. We continue to see our results improve in many ways - revenues are stronger, gross profit continues to improve and our balance sheet is strong. Although we saw an operational improvement over the comparable period last year, a quarterly loss is unacceptable. In large part, it was attributable to the loss at Digital Angel Corporation and the new CEO at Digital Angel has made steady improvement in his first two quarters, which should lead to much improved results in the third and fourth quarters. With our new corporate branding and marketing strategy to capitalize on our innovative security products, we look forward to the second half of the year."

Some of the highlights of the second quarter included:

• The company's wholly owned subsidiary VeriChip Corporation entered into a memorandum of understanding with FN Manufacturing, a gun manufacturer, to develop the first integrated User Authorization System for firearms using VeriChip's RFID technology.
  
  
• The company's wholly-owned subsidiary Government Telecommunications, Inc. (GTI) was awarded a contract option valued at $25 million from the United States Postal Service to upgrade telecommunications networks at 108 Postal Service facilities. Under the award, GTI is conducting site surveys, and designing, installing and testing network cabling at 108 mail processing plants and co-located administrative facilities within the United States.

• The company completed a private placement, raising approximately $5.5 million, with Satellite Strategic Finance Associates, LLC, an accredited institutional investor. The placement was done at the prevailing price of the company's common stock at the time of the financing.

The Company's executives will hold a conference call to discuss these results. The conference call will take place at 4:45 PM EDT today. Interested participants should call (800) 472-8309 when calling within the United States or (706) 643-9561 when calling internationally. Please use passcode 9130150.

There will be a playback available as well. To listen to the playback, please call (800) 642-1687 when calling within the United States or (706) 645-9291 when calling internationally. Please use passcode 9130150. The call will also be webcast and will be available on the Company's Web site athttp://www.adsx.com on the Home Page of the site.

About Applied Digital

Applied Digital develops innovative security products for consumer, commercial, and government sectors worldwide. Our unique and often proprietary products provide security for people, animals, food chains, government/military assets, and commercial assets. Included in this diversified product line are RFID applications, end-to-end food safety systems, GPS/Satellite communications, and secure telecomm infrastructure. Applied Digital is a leading provider of Security Through Innovation(TM). Applied Digital is the owner of a majority position in Digital Angel Corporation. For more information, visit the company's Web site at http://www.adsx.com.

Statements about the Company's future expectations, including future revenues and earnings, and all other statements in this press release other than historical facts are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934, and as that term is defined in the Private Litigation Reform Act of 1995. Such forward-looking statements involve risks and uncertainties and are subject to change at any time, and the Company's actual results could differ materially from expected results. The Company undertakes no obligation to update forward-looking statements to reflect subsequently occurring events or circumstances.

APPLIED DIGITAL SOLUTIONS, INC. AND SUBSIDIARIES 

CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)
 

Assets
		June 30,			December 31,
		2004			2003
Current Assets		(unaudited	)
Cash and cash equivalents	$	10,448		$	10,161
Restricted cash		880			765
Accounts receivable and unbilled receivables (net of allowance for doubtful accounts of $1,030 in 2004 and $1,035 in 2003)		13,656			14,078
Inventories		11,002			9,444
Notes receivable		1,197			1,658
Other current assets		3,383			2,760
Total Current Assets		40,566			38,866
Property And Equipment, net		8,076			8,228
Notes Receivable, net		292			504
Goodwill, net		67,289			62,842
Other Assets, net		4,479			1,491
	$	120,702		$	111,931
Liabilities and Stockholders’ Equity
Current Liabilities
Notes payable and current maturities of long-term debt	$	5,702		$	5,226
Accounts payable		12,065			13,639
Other accrued expenses		20,264			22,517
Put accrual		200			200
Net liabilities of Discontinued Operations		5,545			8,294
Total Current Liabilities		43,776			49,876
Long-Term Debt and Notes Payable		1,929			2,860
Other Long-Term Liabilities		3,098			3,430
Total Liabilities		48,803			56,166
Commitments And Contingencies		-			-
Minority Interest		31,436			23,029
Stockholders’ Equity
Preferred shares: Authorized 5,000 shares in 2004 and 2003 of $10 par value; special voting, no shares issued or outstanding in 2004 and 2003, Class B voting, no shares issued or outstanding in 2004 and 2003		-			-
Common shares: Authorized 125,000 shares in 2004 and 560,000 in 2003, of $.01 par value; 52,576 shares issued and 50,571 shares outstanding in 2004 and 41,220 shares issued and 41,126 shares outstanding in 2003		526			412
Common and preferred additional paid-in capital		453,215			443,099
Accumulated deficit		(415,417	)		(413,923	)
Common stock warrants		6,909			5,650
Treasury stock (carried at cost, 2,005 shares in 2004 and 94 in 2003)		(4,398	)		(1,777	)
Accumulated other comprehensive income		218			206
Notes received for shares issued		(590	)		(931	)
Total Stockholders’ Equity		40,463			32,736
	$	120,702		$	111,931

APPLIED DIGITAL SOLUTIONS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (In thousands, except per share data)

(Unaudited)

	For The Three Months						For The Six Months
	Ended June 30,						Ended June 30,
		2004			2003			2004			2003
Product revenue	$	22,459		$	16,831		$	45,497		$	37,164
Service revenue		3,878			3,599			7,342			7,628
Total revenue		26,337			20,430			52,839			44,792
Cost of products sold		17,320			13,133			34,058			27,299
Cost of services sold		1,850			1,353			3,475			2,978
Gross profit		7,167			5,944			15,306			14,515
Selling, general and administrative expense		8,176			12,137			16,469			41,274
Research and development		1,140			1,424			2,065			2,625
Depreciation and amortization		864			453			1,316			924
Interest and other income		(83	)		(214	)		(581	)		(432	)
Gain on forgiveness of debt		-			(70,392	)		-			(70,392	)
Interest expense (reduction)		(139	)		4,533			(449	)		9,125
(Loss) income from continuing operations before taxes, minority interest and (gain) loss attributable to capital transactions of subsidiary		(2,791	)		58,003			(3,514	)		31,391
Provision for income taxes		27			967			119			775
(Loss) income from continuing operations before minority interest and (gain) loss attributable to capital transactions of subsidiary		(2,818	)		57,036			(3,633	)		30,616
Minority interest		(649	)		(805	)		(1,028	)		(944	)
Net (gain) loss on capital transactions of subsidiary		(196	)		50			1,767			221
Loss (gain) attributable to changes in minority interest as a result of capital transactions of subsidiary		259			742			(1,891	)		948
(Loss) income from continuing operations		(2,232	)		57,049			(2,481	)		30,391
Loss from discontinued operations		(750	)		(248	)		(1,128	)		(373	)
Change in estimate on loss on disposal of discontinued operations and operating losses during the phase out period		13			(435	)		2,115			(592	)
Net (loss) income	$	(2,969	)	$	56,366		$	(1,494	)	$	29,426
(Loss) income per common share - basic
(Loss) income from continuing operations	$	(0.04	)	$	1.84		$	(0.05	)	$	1.02
(Loss) income from discontinued operations		(0.02	)		(0.02	)		0.02			(0.03	)
Net (loss) income per common share - basic	$	(0.06	)	$	1.82		$	(0.03	)	$	0.99
(Loss) income per common share - diluted
(Loss) income from continuing operations	$	(0.04	)	$	1.76		$	(0.05	)	$	0.98
(Loss) income from discontinued operations		(0.02	)		(0.02	)		0.02			(0.03	)
Net (loss) income per common share - diluted	$	(0.06	)	$	1.74		$	(0.03	)	$	0.95
Weighted average number of common shares outstanding - basic		50,855			30,947			49,398			29,605
Weighted average number of common shares outstanding - diluted		50,855			32,317			49,398			31,039

Contact:

For Applied Digital:

CEOcast, Inc.

Ken Sgro, 212-732-4300
kensgro@ceocast.com