UNAUDITED PRO FORMA
CONDENSED FINANCIAL STATEMENTS INTRODUCTION
The accompanying unaudited pro forma condensed financial statements
reflect the financial position of the Registrant as of December 31, 2001,
and the results of its condensed operations for the year ended December 31,
2001 after giving effect to the merger of its Advanced Wireless Group and
MAS, as more fully described below. The Advanced Wireless Group was
comprised of three subsidiaries of the Company: Digital Angel, Timely
Technology Corp. and Signature Industries, Limited. The unaudited pro forma
condensed balance sheet is based on the historical balance sheet of the
Registrant and gives effect to the merger of the Advanced Wireless Group and
MAS as if it had occurred on December 31 2001. The unaudited pro forma
condensed statement of operations for the year December 31, 2001 gives
effect to the merger as if it had occurred on January 1, 2001 for the
Registrant and the Advanced Wireless Group and on November 1, 2000 for MAS.
MAS's fiscal year ended on October 31.
The pro forma adjustments reflecting the consummation of the merger
and resulting disposition of 22.55% of the Advanced Wireless Group are based
upon a modified equity method of accounting for the newly merged entity and
upon the assumptions set forth in the notes hereto. On March 27, 2002, the
effective time of the merger, each share of Digital Angel common stock
issued and outstanding immediately prior to the effective time of the merger
was canceled and converted into the right to receive 0.9375 shares of MAS's
common stock. In addition, the Registrant contributed to MAS its ownership
interest in the common stock of Timely Technology Corp. and Signature
Industries, Limited. Prior to the merger, the Registrant owned 16.6% of MAS.
In satisfaction of a condition to the consent to the merger by the
Registrant's lender, IBM Credit Corporation, the Registrant transferred to a
Delaware business trust controlled by an advisory board all of the shares of
MAS owned by it and, as a result, the trust has legal title to approximately
77.45% of MAS common stock, after giving effect to the exercise of options
to acquire shares of Digital Angel Corporation exercised prior to the
merger. The trust has voting rights with respect to the MAS common shares
until the Registrant repays its obligation to IBM Credit Corporation in
full. The Registrant has retained beneficial ownership of the shares. The
trust may be obligated to liquidate the shares of MAS common stock owned by
it for the benefit of IBM Credit Corporation in the event the Registrant
fails to make payments, or otherwise defaults under its new credit agreement
with IBM Credit Corporation. As a result of the control of the MAS shares by
the trust, the Registrant's investment in the newly merged entity will not
be consolidated and will be accounted for in a manner similar to the equity
method of accounting post merger.
The following information is not necessarily indicative of the
financial position or operating results that would have occurred had the
merger been consummated on the dates, or at the beginning of the periods for
which the consummation of the merger is being given effect.
A final determination of the required accounting adjustments has
not yet been made. The accounting adjustments made in the pro forma
condensed financial information have been made solely for purposes of
developing such pro forma condensed financial information. The actual
financial position and results of operations will differ, perhaps
significantly, from the pro forma amounts reflected herein because of a
variety of factors, including access to additional information and changes
in value and operating results between the dates of the pro forma financial
information data and the date on which the merger was completed.
UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
December 31, 2001
APPLIED DIGITAL SOLUTIONS PRO FORMA
HISTORICAL PRO FORMA BALANCE SHEET
December 31, 2001 ADJUSTMENTS DECEMBER 31, 2001
------------------------- -------------- -----------------
ASSETS
Current Assets
Cash and cash equivalents $ 3,696 $ (440) (A) $ 3,256
Due from buyers of divested subsidiaries 2,625 2,625
Accounts receivable, net 21,871 (5,402) (A) 16,469
Inventories 6,174 (5,819) (A) 355
Note receivable, net 2,256 2,256
Other current assets 4,786 (679) (A) 4,107
--------- -------- ---------
Total Current Assets 41,408 (12,340) 29,068
Property and equipment, net 20,185 (14,476) (A) 5,709
Notes receivable, net 4,004 4,004
Goodwill, net 90,831 (73,168) (A) 17,663
Other assets 4,282 (753) (A) 3,529
Investment in MAS 6,779 (6,779) (A) -
(3,190) (C)
3,542 (B)
Investment in Digital Angel Corporation stock held in trust 99,176 (A) 99,528
--------- -------- ---------
$ 167,489 $ (7,988) $ 159,501
========= ======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Notes payable and current maturities of long-term debt $ 83,836 $ (88) (A) $ 83,748
Accounts payable and accrued expenses 33,648 (5,342) (A) 28,306
Earnout and put accruals 200 200
Net liabilities of Discontinued Operations 9,460 9,460
--------- -------- ---------
Total Current Liabilities 127,144 (5,430) 121,714
Long-Term Debt and other Liabilities 2,586 (2,425) (A) 161
--------- -------- ---------
Total Liabilities 129,730 (7,855) 121,875
--------- -------- ---------
Commitments and Contingencies - - -
--------- -------- ---------
Minority Interest 4,460 (485) (A) 3,975
--------- -------- ---------
Redeemable Preferred Stock Options - Series C 5,180 5,180
Stockholders' Equity
Common stock 252 252
Common stock warrants 3,293 3,293
Additional paid-in capital 342,189 342,189
(3,190) (C)
Accumulated deficit (304,581) 3,542 (B) (304,229)
Treasury stock (1,777) (1,777)
Accumulated other comprehensive loss (747) (747)
Notes received for shares issued (10,510) (10,510)
--------- -------- ---------
Total Stockholders' Equity 28,119 352 28,471
--------- -------- ---------
$ 167,489 $ (7,988) $ 159,501
========= ======== =========
The unaudited pro forma condensed combined balance sheet at December 31, 2001 gives
effect to the financial position as if the merger of the Advanced Wireless Group and MAS
occurred on December 31, 2001.
PRO FORMA ADJUSTMENTS FOR THE UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE
SHEET AT DECEMBER 31, 2001 ARE AS FOLLOWS:
(A) To reflect the investment in the Advanced Wireless Group under the
modified equity method of accounting.
(B) To eliminate 22.55% of the equity in net loss of the Advanced Wireless
Group due to the reduction in the Registrant's ownership percentage as a
result of the merger.
(C) To adjust the equity in net loss of MAS to reflect the increased ownership
as if the Registrant had acquired 77.45% of MAS at the beginning of MAS's
fiscal year ended October 31, 2001.
UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
For the Year Ended December 31, 2001
APPLIED DIGITAL SOLUTIONS
HISTORICAL PRO FORMA
YEAR ENDED PRO FORMA COMBINED
DECEMBER 31, 2001 ADJUSTMENTS DECEMBER 31, 2001
------------------------- -------------- -----------------
Total revenue $ 156,314 $(35,738) (A) $ 120,576
Cost of products and services sold 109,839 (22,300) (A) 87,539
--------- -------- ---------
Gross profit 46,475 (13,438) (A) 33,037
Selling, general and administrative expense 97,042 (10,338) (A) 86,704
Research and development expense 8,610 (5,071) (A) 3,539
Asset impairment 71,719 (726) 70,993
Depreciation and amortization 28,899 (12,310) (A) 16,589
Non-cash compensation expense 5,274 5,274
Loss on sale of subsidiaries and business assets 6,058 6,058
Interest and other income (2,076) 17 (A) (2,059)
Interest expense 8,555 (529) (A) 8,026
--------- -------- ---------
Loss from continuing operations before
provision for income taxes, minority interest and
equity in net loss of affiliate (177,606) 15,519 (A) (162,087)
Provision for income taxes 20,870 20,870
--------- -------- ---------
Loss from continuing operations before minority
interest and equity in net loss of affiliate (198,476) 15,519 (A) (182,957)
Minority interest (718) (189) (A) (907)
3,190 (C)
(3,542) (B)
Equity in net loss of affiliate 328 15,708 (A) 15,684
--------- -------- ---------
Net loss from continuing operations $(198,086) $ 352 $(197,734)
Preferred stock dividends and other and
accretion of beneficial conversion feature of
redeemable preferred stock-Series C (10,539) (10,539)
--------- -------- ---------
Net loss from continuing operations available to
common shareholders $(208,625) $ 352 $(208,273)
========= ======== =========
Earnings per common share - basic $ (1.23) $ (1.23)
Earnings per share - diluted $ (1.23) $ (1.23)
Weighted average number of common
shares outstanding - basic 170,009 170,009
Weighted average number of common
shares outstanding - diluted 170,009 170,009
The unaudited pro forma condensed statement of operations for the year as if the merger
of the Advanced Wireless Group and MAS occurred at the beginning of each entity's complete
fiscal year.
PRO FORMA ADJUSTMENTS FOR THE UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2001 ARE AS FOLLOWS:
(A) To reflect the Advanced Wireless Group under the modified equity method
of accounting.
(B) To eliminate 22.55% of the equity in net loss of the Advanced Wireless
Group due to the reduction in the Registrant's ownership percentage
as a result of the merger.
(C) To adjust the equity in net loss of MAS to reflect the increased
ownership as if the Registrant had acquired 77.45% of MAS at the
beginning of MAS's fiscal year ended October 31, 2001.
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