Q2 2004 Applied Digital Solutions Earnings Conference Call - Final.

(From Fair Disclosure Wire)

OPERATOR: Good afternoon. My name is Mickey and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Applied Digital's Second Quarter 2004 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer period. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. I would now like to turn the call over to Mr. Scott Silverman, Chairman and Chief Executive Officer of Applied Digital Solutions. Sir, you may begin your conference.

SCOTT SILVERMAN, CHAIRMAN OF THE BOARD & CEO, APPLIED DIGITAL SOLUTIONS, INC.: Thank your Mickey. And good afternoon everybody and welcome to the second quarter 2004 conference call. With me today is Michael Krawitz, our Executive Vice President and General Counsel, as well as Evan McKeown, our Chief Financial Officer. I would like to turn it over to Michael and get rid of the forward-looking statements before we move on to the substance. Michael?

MICHAEL KRAWITZ, EVP, GENERAL COUNSEL, & SECRETARY, APPLIED DIGITAL SOLUTIONS, INC.: Thanks Scott and good afternoon everyone. Statements about the Company's future expectations including future revenues and earnings and all other statements in this conference call other than historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934, and as that term is defined in the Private Litigation Reform Act of 1995. Such forward-looking statements involve risks and uncertainties and are subject to change in any time and the Company's actual results could differ materially from expected results. The Company undertakes no obligations to update forward-looking statements to reflect subsequently occurring events or circumstances. Again, I would now like to introduce Evan McKeown, the Chief Financial Officer. EVAN MCKEOWN, CFO & SVP, APPLIED DIGITAL SOLUTIONS, INC.: Thank you Michael and good afternoon everyone. The Company's consolidated financial results include the financial condition, operating results, and cash flow to its majority-owned subsidiaries, Digital Angel Corporation, an AMEX traded Company under the symbol DOC and the InfoTech USA, Inc., an over-the-counter traded Company under the symbol IFTH. Revenue for the second quarter of 2004 was $26.3m, a 29% increase from the $24m -- $20.4m in revenue from the same period during 2003. The increase in comparative quarterly revenue was attributable to an increase in revenue from Digital Angel Corporation, InfoTech USA, Inc. and the Company's wholly owned subsidiary Government Telecommunications, Inc. Gross profit increased 22% from $5.9m in the 2003 period to $7.2m in the second quarter of 2004. The net loss for the second quarter of 2004 was $3m or $0.06 per basic share compared to net income of $56.4m or $1.82 per basic share in the second quarter of 2003. Included in the results for the second quarter of 2003 was a $70.4m gain for forgiveness of debt due to the satisfaction of the Company's debt obligation to IBM Credit LLC. Excluding the effects of the gain for forgiveness of debt, the Company incurred a net loss of $14m for the second quarter of 2003. Accordingly, excluding the gain for forgiveness of debt, the Company's net loss decreased by $11m, comparing the second quarter of 2003 to the second quarter of 2004. The Company completed the second quarter with cash and cash equivalence of $10.5m and restricted cash of approximately $900,000. For the six-months ended June 30, 2004, the Company reported revenue of $52.8m, a 17.9% increase versus $44.8m in the six-months ended June 30, 2003. Applied Digital had gross profit of $15.3m, an increase of 5.5% versus $14.5m for the year earlier period. The Company reported a net loss of $1.5m or $0.03 per basic share for the six-months ended June 30, 2004, compared to net income of $29.4m or $0.99 per basic share for the six months ended June 30, 2003. Included in the results for the six-months ended June 30, 2003, was a $70.4m gain for forgiveness of debt due to the satisfaction of the Company's debt obligation to IBM Credit LLC excluding…