1347022--3/28/2008--VeriChip

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{system, service, information}

{control, financial, internal}

{product, candidate, development}

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Our expense levels will increase over the next several years, contributing to our expectation that we will incur losses for the foreseeable future. We may need additional funding and may be unable to raise capital when needed, which would force us to delay, reduce or eliminate our product development programs or efforts to create a market for our VeriMed system. The markets for our infant protection and wander prevention systems in the United States and for our vibration monitoring instruments internationally are relatively mature markets of limited size, which may limit our ability to increase our sales of these systems. As of December 31, 2007, we have sold and had installed a limited number of our asset/personnel location and identification systems. There are a number of factors beyond our control that may limit future sales of these systems. We may be unable to increase our sales of infant protection and wander prevention systems outside of North America. Sales of our vibration monitoring instruments will be adversely affected if the introduction of our new instrumentation platform for these instruments is delayed or if the new platform does not achieve market acceptance. Our competitors, including those who have greater resources and experience than we do, may commercialize technologies that make ours obsolete or noncompetitive. We rely upon third-party dealers to market and sell, as well as install, service and maintain, our infant protection, wander prevention and asset/personnel location and identification systems, and to market and sell our vibration monitoring instruments. As such, our revenue from sales of these products significantly depends on their efforts, as does the level of end-use customer satisfaction. We may be subject to costly product liability claims from the use of our systems, which could damage our reputation, impair the marketability of our systems and force us to pay costs and damages that may not be covered by adequate insurance. If others assert that our products infringe their intellectual property rights, including rights to the patent covering our implantable microchip, we may be drawn into costly disputes and risk paying substantial damages or losing the right to sell our products. Our inability to safeguard our intellectual property may adversely affect our business by causing us to lose a competitive advantage or by forcing us to engage in costly and time-consuming litigation to defend or enforce our rights. Our efforts to protect our intellectual property may be less effective in some foreign countries where intellectual property rights are not as well protected as in the United States. We may not be successful in our efforts to obtain federal registration of our trademarks containing the Veri prefix with the U.S. Patent and Trademark Office. We depend on key personnel to manage our business effectively, and, if we are unable to hire, retain or motivate qualified personnel, our ability to design, develop, market and sell our systems could be harmed. We are subject to various environmental laws and regulations that could impose substantial costs upon us. Risks Related to Our VeriMed Business Which Utilizes the Implantable Microchip We are endeavoring to create a market for our VeriMed system. We may never achieve market acceptance or significant sales of this system. We believe that sales of our implantable microchip, and the extent to which our VeriMed 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. Our sales of systems that incorporate our implantable microchip may be enjoined by third parties who have rights to the intellectual property used in these systems and we may be required to pay damages which would have an adverse effect on our business. Even if our VeriMed system achieves some level of market acceptance, the anticipated significant and growing recurrent revenue from microchip-implanted persons subscribing to our database may not be realized. If we do not meet the minimum purchase requirements under our agreement with Digital Angel, Digital Angel may sell implantable microchips for secure human identification applications to third parties. Our loss of this exclusive supply arrangement may result in our facing competition with respect to our implantable microchip-based systems, which could have a material adverse effect on the expected growth of our business. If Digital Angel were to terminate its agreement with us, we would not be able to obtain our implantable microchip. This would make it difficult to fulfill our expectations for future revenue and revenue growth from the sale of systems that use the implantable microchip. 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 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. 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. Risks Related to Our Continued Affiliation with Digital Angel Digital Angel maintains significant voting control over us. This may delay, prevent or deter corporate actions that may be in the best interest of our stockholders. Conflicts of interest may arise among Digital Angel and us that could be resolved in a manner unfavorable to us. Risks Related to Our Common Stock We expect that our stock price will fluctuate significantly due to events and developments unique to our business or the healthcare industry generally. Provisions of our second amended and restated certificate of incorporation or our amended and restated bylaws could delay or prevent an acquisition of our company, even if the acquisition would be beneficial to our stockholders, and could make it more difficult for you to change management. We will need to dedicate significant time and expense to enhancing, documenting, testing and certifying our internal control over financial reporting.

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1347022--3/28/2008--VeriChip_CORP