Feeling chipper: Applied Digital Solutions is back from the brink, as CEO Scott Silverman maneuvers his high-tech firm through shark-infested waters - Technology

by Rochelle Broder-Singer

The last time West Palm Beach-based Applied Digital Solutions earned national headlines was in 2002, when the company made history by implanting its VeriChip into a human being. The radio-frequency chip was intended to store medical data, and it seemed a great idea until the FDA announced it would block use of the implant to store medical information, pursuant to exhaustive clinic trials. That news sent the company's stock spiraling south, and sparked a spate of investor lawsuits.

More recently, Applied came back from the brink of bankruptcy, with chairman and CEO Scott R. Silverman pulling off a last-minute deal that saved it from being swallowed by creditor IBM. At stake was a $95 million line of credit which was about to come due.

Silverman says an unnamed IBM shareholder sent Applied a white paper from IBM's health division regarding a device suspiciously similar to the VeriChip, right around the time when negotiations with IBM over the debt were hitting a wall. Applied field a lawsuit, claiming that Big Blue had engineered the loan with the intention of ultimately stealing its patent.

Silverman suddenly found himself back at the negotiating table with the behemoth technology company and, ultimately, they reached an agreement. Applied settled its lawsuit, and IBM accepted a payment of just $30 million to cancel the debt. Silverman paid up in June, having raised the money through the sale of freshly issued stock ($18 million), a convertible bond issue ($10.5 million) and $1.5 million from working capital. "Obviously, that has a positive result on our balance sheet," says Silverman.

Why the quick move by IBM? Silverman believes IBM had already written down the full $95 million obligation in 2002, so any money that came in was pure icing. Plus, he says, they were concerned about the litigation, "which we still believe to this day to have merit."

In the meantime, Silverman has not been idle, pushing the VeriChip into applications--and places--where the FDA has no jurisdiction. He has negotiated deals for VeriChip distributors in Mexico, Argentina, Colombia, Venezuela, the Dominican Republic and Russia, among others. In the US, he's targeting government agencies, which could use the chip for everything from security to a replacement for military dog tags. "If and when one of those relationships yields a contract for VeriChip, it will be a big day for Applied," he says.

Silverman hopes to follow the successful strategy of an older Applied product, which avoids humans altogether: chips implanted in pets and livestock to reunite them with their owners if they're lost. Schering-Plough is the exclusive US distributor of those chips and scanners, which enjoy a 92 percent penetration in the animal-tracking market. "On a monthly basis, over 4,000 pets are reunited with their owners because they have a microchip in their neck," says Silverman. Next on the list: developing a GPS tracking system so the chip can be used to locate kidnap victims in the Americas.