Letter to Digital Angel Stockholders from CEO Joseph J. Grillo

SOUTH ST. PAUL, Minn.--(BUSINESS WIRE)--The following is a letter to the stockholders of Digital Angel Corporation (NASDAQ:DIGAD) from CEO Joseph J. Grillo:

Dear Digital Angel Stockholder:

Last week we announced the sale of our stake in VeriChip Corporation and certain related assets, and I wanted to take this opportunity to give you some of the background that went into our decision to enter into these transactions.

First of all, the VeriMed business, based on the implantable RFID microchip for humans, has not yet achieved wide acceptance, with fewer than 1,000 customers having agreed to be implanted with a VeriMed chip to date. In our judgment it is going to require a large investment over some years to build the infrastructure and generate a critical mass of end-user demand in order for this to become a sustainable and profitable business. The same is true, we believe, of the implantable glucose-monitoring product now in development. This technology, though perhaps promising, is nevertheless still several years away from commercialization, as it requires further laboratory development and of course costly clinical trials and an FDA clearance process before it can be brought to market.

While I held the position of Chairman of VeriChip, I worked with their Board of Directors for a significant period of time as we looked for the best possible strategic alternative for that company. We considered a number of proposals. In the end, the Boards of both VeriChip and Digital Angel determined that the route we took was the best one for each company’s stockholders. We at Digital Angel wish VeriChip all the best in the future.

As a result of these transactions, we have realized cash for Digital Angel that we can use for debt repayment and working capital, at the same time freeing up financial and management resources to concentrate on our core businesses, which we think, despite the current economic climate, retain their fundamental soundness and positive growth prospects.

As announced, under the terms of these transactions we have sold or assigned certain patents and other intellectual property relating to human implantation of RFID microchips, as we have no intentions of further involvement in this business. I would like to emphasize, however, that Digital Angel has retained all the intellectual property that is key to our Animal Identification business, and beyond that we have secured indemnities against infringement upon these core patents and know-how as we continue to pursue technological innovation in this important market segment. Moreover, we have retained certain rights in the glucose monitoring technology in the event that such technology is ever developed and could be useful in our animal businesses.

Finally, I would like to comment upon our stock price, which is causing understandable concern for all of us who own stock in Digital Angel. I think it’s important to remind everyone that the non-cash charges for goodwill impairment – resulting in large bottom-line losses – that we have chosen to take, reflect broad stock market declines in asset values for all of Digital Angel’s public comparable companies as well as our own, according to the applicable accounting rules. More specifically, we have been notified by Nasdaq that we have until March 6, 2009, to regain compliance with continued listing rules, and we will be working very hard in the meantime to achieve that.

I would also point to our recently published third quarter 2008 results, which show a loss of just ($300,000) in operating EBITDA (earnings before interest, taxes, depreciation and amortization) and excluding restructuring and asset impairment charges. This result reflects a sharp improvement over prior quarters and is in fact the best comparable operating EBITDA result in at least five years for the Company.

For this and other reasons the management of your Company continues to believe that the restructuring program now in progress is on track to bring us to profitability in coming quarters. We are executing this plan and conducting our business and pursuing new business, day in and day out. And over the coming months we are planning to introduce new products in both of our lines of business that will reflect the technological innovation that we have displayed for decades in these two markets.

I thank you for your continued support.

Sincerely,

Joseph J. Grillo
President & Chief Executive Officer
Digital Angel Corporation

About Digital Angel

Digital Angel (www.digitalangel.com) is an advanced technology company in the field of animal identification and emergency identification solutions. Digital Angel's products are utilized around the world in such applications as pet identification using its patented, FDA-approved implantable microchip; livestock identification and tracking using visual and radio frequency identification (RFID) ear tags; and global positioning systems (GPS) search and rescue beacons for use on aircraft, ships and boats, and by adventure enthusiasts.

This press release contains certain “forward-looking” statements (as such term is defined in the Private Securities Litigation Reform Act of 1995). Forward-looking statements included in this press release include, without limitation, those concerning expectations regarding the future of our business in current economic conditions, our ability to comply with listing requirements, expected benefits of the restructuring program, and future product development. These forward-looking statements are based on the Company's current expectations and beliefs and are subject to a number of risks, uncertainties and assumptions. Additional information about these and other factors that could affect the Company's businesses is set forth in the Company's Form 10-K under the caption "Risk Factors" filed with the Securities and Exchange Commission ("SEC") on March 17, 2008, and subsequent filings with the SEC. The Company undertakes no obligation to update or release any revisions to these forward-looking statements to reflect events or circumstances after the date of this statement or to reflect the occurrence of unanticipated events, except as required by law.