IPO Alert: VeriChip Amended IPO Filing and Backdoor Plays

VeriChip has made an amended filing on its IPO process, and this now looks closer to fruition than it has previously.  The company will trade under the ticker "CHIP" on NASDAQ.  Underwriters on the prospectus are listed as Merriman Curhan Ford, C.E.Unterberg Towbin, and Kaufman Brothers.  The number of shares and pricing terms have not been set here.

If you have been following the story at all, as it is a cult stock status, VeriChip is what the street has been deeming as RFID for people and portable location-based assets mostly geared toward healthcare.  VeriChip just announced on Monday that it received the US patent for its portable RFID asset tracking system, so that may have been the last hurdle (or one of them) that the company has been waiting to finally come public.

As of November 2006, its RFID systems have been installed in over 4,000 healthcare locations, primarily located in North America.  The company believes it already has 50% facility penetration for infant tagging at birth facilities in the US.  It is also looking to its VeriMed system, the controversial human implantable microchip, as the next major avenue of growth after some key patents expire in April 2008; other products are VeriGuard and VeriTrace.  Its revenues for 2005 were $24.5 million (after acquisitions) and its net loss after taxes was $5.5 million; the 9-months ended 2006 saw revenues of $20.34 million and a net loss after taxes of $3.45 million.

Applied Digital (ADSX) has been one backdoor play on this IPO and now that looks to be coming closer to actually happening.  The company was formed in November 2001 and Applied (ADSX) owns 5.55+ million shares; IBM Credit Corp owns 410,889 shares in the company.  The other backdoor play here is actually Digital Angel (DOC-AMEX), which is the sole supplier of its implantable microchip that has been sourced from Raytheon (RTN).  The company has minimum purchase requirements on chip purchases or Digital Angel can sell to third parties: 2007 $875,000; 2008 $1.75M; 2009 $2.5M; 2010 $3.75M; 2011 & Beyond $3.75M.  Digital Angel is an old tied-company to Applied Digital as well, so this actual situation is deemed as a double backdoor play.

This has been in the hopper for some time, and this latest patent announced Monday might have been one of the last hurdles to an IPO.  Applied Digital (ADSX) is up 1% at $1.959 and has a market cap of $131 million.  Digital Angel (DOC) is also up 1% at $2.69 and has a market cap of $119.75 million.

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Jon C. Ogg
January 9, 2007