Note 1 - Basis of Presentation

3 Months Ended

Mar. 31, 2012

Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block]

1.  Basis of Presentation

Digital Angel Corporation, a Delaware corporation, and its subsidiary, (referred to together as, “Digital Angel,” “the Company,” “we,” “our,” and “us”) operates in one business segment, which we refer to as Signature Communications, or SigComm. SigComm comprises the operations of Signature Industries Limited, or Signature, our 98.5% owned subsidiary located in the United Kingdom (“U.K.”). Signature's functional currency is British Pounds. Our reporting currency is U.S. Dollars.

The accompanying condensed consolidated financial statements of the Company have been prepared in accordance with United States (“U.S.”) generally accepted accounting principles (“GAAP”) and with the instructions to Form 10-Q and Article 8 of Regulation S-X under the Securities Exchange Act of 1934, as amended. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The interim financial information in this report has not been audited. In the opinion of the Company’s management, all adjustments (consisting of normal recurring adjustments) considered necessary for fair financial statement presentation have been made. Results of operations reported for interim periods may not be indicative of the results for the entire year. These condensed consolidated financial statements and notes should be read in conjunction with the consolidated financial statements and notes included in our Form 10-K for the year ended December 31, 2011, filed with the Securities and Exchange Commission (“SEC”) on March 29, 2012.

The preparation of financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Although these estimates are based on the knowledge of current events and actions that we may undertake in the future, they may ultimately differ from actual results. Included in these estimates are assumptions about allowances for inventory obsolescence, bad debt reserves, assumptions used in Black-Scholes valuation models, estimated contract losses, lease termination obligations and other contingent liabilities, among others.

Discontinued Operations

In July 2011, we sold all of our outstanding capital stock of our then wholly-owned subsidiary, Destron Fearing, (“Destron”) to Allflex USA, Inc. (the “Destron Transaction”).  In June 2011, we sold certain assets of our SARBE business excluding one contract for the sale of personal emergency location beacons (“PELS”) to the U.K. Ministry of Defence, or MOD.  On April 10, 2012, the MOD notified Signature of its exercise of the termination provision of the PELS contract effective April 24, 2012. The Destron transaction, SARBE sale and termination notice from the MOD are more fully discussed in Note 6.

Related Parties

We have in the past entered into various related party transactions. Each of these transactions is described in Note 13 to our Annual Report on Form 10-K for the year ended December 31, 2011.

Liquidity

As of March 31, 2012, the Company had unrestricted cash of approximately $3.3 million, and a working capital deficiency of approximately $58 thousand.  However, included in current liabilities are approximately $0.7 million of liabilities associated with subsidiaries we closed in 2001 and 2002 that were not guaranteed by us and that we believe we will not be required to pay.  We believe that we have sufficient funds to operate the business and meet our commitments and obligations over the next twelve months ending March 31, 2013.

Over the next twelve months ended March 31, 2013, the Company expects to achieve positive operating cash flows from its SigComm business.  In addition, the Company expects to realize cash inflows from:

(i)  the release of an escrow related to the sale of its SARBE business,

(ii)  U.K. value-added tax refunds, and

(iii)  funds held in escrow from the sale of Destron.

The Company expects that with the funds on hand and these expected cash inflows, it will have sufficient funds to cover its corporate and U.K. overhead for the next twelve months, to pay the expected amounts due to the MOD related to the PELS contract termination, any obligations that the Company may be required to pay under the Thamesmead lease, and pay down the accounts payable and accrued liabilities.