771252--3/8/2007--DIGITAL_ANGEL

related topics

{property, intellectual, protect}

{product, liability, claim}

{product, market, service}

{customer, product, revenue}

{operation, international, foreign}

{interest, director, officer}

{personnel, key, retain}

{stock, price, operating}

Conflicts of interest may arise among Applied Digital, Verichip and us that could be resolved in a manner unfavorable to us. Since we are controlled by Applied Digital, certain independence protections provided by the AMEX Rules are currently not in place. We obtain the implantable microchip used in our Animal Applications segment s products from a single supplier, making us vulnerable to supply disruptions that could constrain our sales of such systems and/or increase our per-unit cost of production of the microchip. We compete with other companies in the visual and electronic identification and pilot locator beacon markets, and the products sold by our competitors could become more popular than our products or render our products obsolete. The expiration of patents in 2008 and 2009 covering the implantable microchip technology used in our Animal Applications segment will expose us to potential competition that may have a material adverse effect on our sales and results of operations. Infringement by third parties on our intellectual property or development of substantially equivalent proprietary technology by our competitors could negatively affect our business. If others assert that our products infringe their intellectual property rights, 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. Domestic and foreign government regulation and other factors could impair our ability to develop and sell our products in certain markets. We rely heavily on revenues derived from sales to various governmental agencies of our animal identification and search and rescue beacon products, and the loss of, or a significant reduction in, orders from these customers could result in significant losses and deficits in cash flows from operations. Loss of our principal distributor or customers could negatively affect our net revenue. Technological change could cause our products and technology to become obsolete or require us to redesign our products, which could have a material adverse effect on our business. We depend on a small team of senior management 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. Our foreign operations pose additional risks to our business.

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771252--3/8/2007--DIGITAL_ANGEL_CORP