Digital Ally, Inc. Announces Second Quarter Operating
Results
LENEXA, KS-(Marketwired - Aug 5, 2016) - Digital Ally, Inc.
(NASDAQ: DGLY), which develops, manufactures and markets advanced
video surveillance products for law enforcement, homeland security
and commercial applications, today announced its operating results
for the second quarter and first half of 2016. An investor
conference call is scheduled for 11:15 a.m. EDT on Monday, August
8, 2016 (see details below) to discuss these operating results and
other topics of interest.
Highlights for Quarter Ended June 30, 2016
- Gross profit margin approximated 28.9% of total revenue in the
second quarter of 2016, compared with 54.9% in the prior-year
quarter and 42.1% in the first quarter of 2016. The reduction in
gross profit margin relative to the prior-year quarter was
primarily due to charges taken to correct our contract
manufacturer's workmanship issues that resulted in contamination of
the printed circuit boards (PCB) for our FirstVU HD product. We
became aware of these issues during second quarter 2016.
- Total revenue decreased by 22% to approximately $4.4 million in
the second quarter of 2016, compared with approximately $5.6
million in the quarter ended June 30, 2015. We attribute the
decrease to ongoing confusion caused by a competitor's misleading
press release regarding our patents combined with delayed FirstVU
HD sales while we resolved the PCB board contamination issues.
- The Company shipped four orders in excess of $100,000 each
during the most recent quarter, for a total of $1.4 million,
compared with seven individual orders exceeding $100,000 each in
the year-earlier quarter, for a total of $1.3 million.
- Our sales mix continues to migrate to our DVM-800 in-car video
system and FirstVU HD body-worn camera, which contributed 62% of
total sales for the three months ended June 30, 2015, versus 55%
for the corresponding period of the previous year.
- The Company reported an operating loss of ($2,892,657) for the
quarter ended June 30, 2016, compared with an operating loss of
($816,962) in the three months ended June 30, 2015.
- A net loss of ($2,865,084), or ($0.54) per share, was recorded
in the second quarter of 2016, compared with a net loss of
($792,388), or ($0.20) per share, in the corresponding period of
the previous year.
- On a non-GAAP basis, the Company recorded an adjusted EBITDA
loss of ($2,393,626), or ($0.45) per share, in the most recent
quarter, compared with a non-GAAP adjusted EBITDA loss of
($318,207), or ($0.08) per share, in the three months ended June
30, 2015.
- On May 27, 2016, Digital Ally filed suit against WatchGuard
alleging patent infringement involving the Company's
"auto-activation" technology utilized in its VuLink product.
Management Comments
"Our second quarter revenues were down from prior-year levels,"
stated Stanton E. Ross, Chief Executive Officer of Digital Ally,
Inc. "We believe our second quarter 2016 revenues were negatively
impacted by the ongoing confusion caused by a competitor's
misleading press release regarding our patents. Additionally, our
FirstVU HD sales were hindered by the PCB board contamination
issues. We expect FirstVU HD sales to recover during the remainder
of 2016 as we resolve the PCB board contamination matter and we
prosecute the patent lawsuits against our competitors. The
"auto-activation" technology embodied in our VuLink product is
becoming a standard requirement for agencies utilizing body-worn
cameras. We are encouraged by the progress of litigation instituted
against our competitors to protect our patented technology."
"Our body-worn camera has received much media attention in
recent months. Consequently, many law enforcement agencies, both
domestic and international, are actively testing and evaluating the
FirstVU HD, and we expect demand to accelerate during the balance
of 2016. We have dramatically increased our production and delivery
capabilities relative to the FirstVU HD body-worn camera, and we
continue to develop other new products. We believe a shift
occurring in the buying pattern of our customers, as our patented
VuLink ecosystem that provides officers with auto-activation of
in-car and body camera systems has generated significant interest
among law enforcement agencies. Agencies are recognizing the
importance and value of collecting video evidence of interactions
between law enforcement and civilians from multiple perspectives
and automatically activating the recordings in high-stress
situations. As policy and proper funding fall into place, we are
optimistic these evaluation programs will continue to culminate in
sales as the potential customers evaluate our body-worn and in-car
video camera solutions."
"The Company's gross margin decreased to 28.9% of revenue in the
second quarter of 2016, from 42.1% in the first quarter 2016. This
gross margin decline was primarily attributable to workmanship
issues we became aware of in the second quarter 2016 on the printed
circuit boards used in our FirstVU HD product. The workmanship
problems resulted in a higher than normal rate of contaminated PCB
boards in our finished goods inventory, as well as deployed units
in the field that had to be replaced. A contract manufacturer did
not follow the Company's specifications regarding the flux used in
the soldering process for certain of the components utilized in the
PCB board assemblies and the vendor is correcting its quality
control procedures to address this issue. We believe the FirstVU HD
connector upgrade program that effected previous quarters' gross
margins has been completed. We have accrued the estimated costs
associated with the workmanship issues on PCB boards that resulted
in higher failure rates in the second quarter 2016 and charged them
to cost of sales as of June 30, 2016. Therefore, we believe that
gross margins should return to more normal levels in future
quarters."
"We entered 2016 with a stronger balance sheet and greater
liquidity, which should support a significantly higher level of
product sales and shipments if anticipated orders are forthcoming,"
added Ross. "Unrestricted cash and equivalents totaled $4.1 million
and we were debt-free at June 30, 2016. We had approximately $14.6
million in net working capital available at such date, including
$2.8 million of accounts receivable and $9.7 million of inventory.
We will work to continue reducing inventory levels during the
balance of 2016 to provide additional funding for operations,"
concluded Ross.
Second Quarter Operating Results
For the three months ended June 30, 2016, the Company's revenue
decreased 22% to approximately $4.4 million, compared with revenue
of approximately $5.6 million in the three months ended June 30,
2015. We attribute the decrease to ongoing confusion caused by a
competitor's misleading press release regarding our patents
combined with delayed FirstVU HD sales while we resolve the PCB
board contamination issues. We expect FirstVU HD sales to recover
during the remainder of 2016 as we resolve the PCB board
contamination matter and prosecute the patent lawsuits against our
competitors. We believe the VuLink product differentiates our
product offerings from our competitors and customers will become
more familiar with our patented "auto-activation" technology. We
believe our "auto-activation" technology is becoming a standard
feature for agencies utilizing body-worn cameras.
Digital Ally shipped four orders in excess of $100,000 each
during the most recent quarter, which generated combined revenue of
approximately $1.4 million. During the second quarter of 2015, the
Company shipped seven orders valued individually at greater than
$100,000, which generated combined revenue of approximately $1.3
million.
Gross profit decreased 59% to $1,265,236 (28.9% of revenue) in
the most recent quarter, versus $3,092,194 (54.9% of revenue) in
the prior-year quarter and $1,853,619 (42.1% of revenue) in the
first quarter of 2016. The reduction in gross profit margin
relative to the prior-year quarter was primarily due to workmanship
issues on PCB boards for our FirstVU HD product that we became
aware of during second quarter 2016. The workmanship issues
resulted in a higher than normal rate of contaminated PCB boards in
our finished goods inventory, as well as deployed units in the
field. The Company incurred total charges to cost of sales
approximating $650,000 during the three months ended June 30, 2016
related to this issue. These charges result from the disassembly of
the FirstVU HD, inspection of all PCB boards and replacement of PCB
boards exhibiting contamination issues. We are requesting and
receiving deployed units for disassembly and inspection in order to
identify contaminated PCB boards for replacement purposes. This
process was not complete as of June 30, 2016; therefore, we have
increased our warranty reserves to accommodate such future costs,
although there is no assurance that we have identified the complete
population of potentially contaminated PCB boards and estimated
cost to complete the process. We will negotiate with the contract
manufacturer responsible for the workmanship issues for
reimbursement of some portion of the costs; however, it is too
early to estimate the potential recovery, if any, from the ultimate
resolution of this matter. Additionally, we scrapped approximately
$350,000 of cable assemblies and older versions of our products in
the second quarter 2016, which also increased our cost of revenues.
The Company's goal is to improve gross margins to 60% of revenue
over the longer term based on the expected margins of its newer
products, in particular the DVM-800 and FirstVU HD, if they
continue to gain traction in the marketplace and production of
commercial products increases. In addition, as revenue from these
products increases, the Company will seek to further improve gross
margins through economies of scale and more efficient utilization
of fixed manufacturing overhead components. We plan to continue our
initiative on more efficient management of our supply chain through
outsourcing production, quantity purchases and more effective
purchasing practices.
Selling, General and Administrative ("SG&A") expenses
increased 6% to $4,157,893 in the second quarter of 2016, compared
with $3,909,156 in the second quarter of 2015. Research and
Development costs rose 4% to $813,150 (vs. $783,880 in 2015). The
Company increased the size of its engineering staff of web-based
developers in order to expand its offerings to include, among other
items, cloud-based evidence storage and management of its law
enforcement customers (VuVault.net) and its web-based commercial
fleet driver monitoring and management tool (FleetVU). Selling,
advertising and promotional expense rose 8% to $1,003,507 for the
three months ended June 30, 2016 compared with $932,407 a year
earlier. The Company hired additional territory salesmen during the
last half of 2015 to provide better coverage of the domestic
market, which additions have not yet resulted in increased revenues
as they become familiar with our products and customers.
Stock-based compensation expense, a non-cash expense, totaled
$355,236 and $329,201 for the three months ended June 30, 2016 and
2015, respectively, an increase of 8%. The increase is primarily
due to the amortization of the restricted stock granted during 2015
and 2016 to our officers and other employees. Professional fees and
related expenses totaled $484,254 and $430,809 for the three months
ended June 30, 2016 and 2015, respectively, an increase of 12%. The
increase is due to higher litigation expenses related to the
Utility, Taser and WatchGuard lawsuits. We expect litigation
expense to trend higher during the remainder of 2016 as we pursue
recovery, injunctions, awards and judgements from Utility, Taser
and WatchGuard. Executive, support and administrative staff payroll
expenses increased 33% to $843,598, compared with $634,128 a year
earlier, due primarily to the hiring of additional technical
support staff to handle field inquiries and installation matters.
Additionally, executive payroll increased over prior year levels as
key executives received raises and bonuses after several years of
salaries being frozen. Other SG&A expenses totaled $658,148 and
$798,731 for the three months ended June 30, 2016 and 2015,
respectively, a decrease of 18%. The decrease is primarily
attributable to decreased consulting and contract labor expenses.
We utilized consultants to help design, develop and launch a new
corporate website in 2015.
For the reasons previously stated, the Company reported an
operating loss of ($2,892,657) for the second quarter of 2016,
compared with an operating loss of ($816,962) in the year-earlier
quarter.
Interest income increased to $7,198 for the three months ended
June 30, 2016, versus $2,828 a year earlier.
Interest expense totaled $907 and $79,841 for the three months
ended June 30, 2016 and 2015, respectively, due to our reduced
indebtedness in 2016. All interest bearing debt other than capital
leases was retired in 2015 from the proceeds of our registered
direct offering of common stock in July 2015.
Non-operating income of $21,282 was recorded in the second
quarter of 2016 as a result of changes in warrant derivative values
compared with non-operating income of $116,061 for second quarter
2015.
Because the Company elected to account for and record its Senior
Secured Convertible Note payable on a fair value basis, it was
required to expense certain related issuance costs to "other
expense" during the second quarter of 2015. Such costs totaled $0
for second quarter 2016 and $14,474 in the year-earlier
quarter.
The Company reported a 2016 second quarter net loss of
($2,865,084), or ($0.54) per share, compared with a prior-year net
loss of ($792,388), or ($0.20) per share. No income tax provision
or benefit was recorded in the second quarters of either 2016 or
2015. The weighted average number of shares outstanding totaled
5,319,259 in the most recent quarter, versus 4,044,112 in the
year-earlier quarter.
The Company expects to continue to maintain a full valuation
allowance on its deferred tax assets, including approximately $34.8
million of net operating loss carry forwards, until it determines
that it can sustain a level of profitability that demonstrates its
ability to realize such assets.
On a non-GAAP basis, the Company reported an adjusted EBITDA
loss (before, depreciation, amortization, net interest expense,
changes in derivative liabilities, losses on the conversion of
secured convertible notes payable, secured convertible note
issuance expenses, and stock-based compensation), of ($2,393,626),
or ($0.45) per share, for the quarter ended June 30, 2016, versus a
non-GAAP adjusted EBITDA loss of ($318,207), or ($0.08) per share,
in the second quarter of 2015. Non-GAAP adjusted EBITDA loss is
described in greater detail in a table at the end of this press
release.
Six-Month Operating Results
For the six months ended June 30, 2016, the Company's revenue
decreased 11% to approximately $8.8 million, compared with revenue
of approximately $9.9 million in the first half of 2015. The
Company experienced delays in FirstVU orders during the first half
of 2016 as it dealt with the PCB board contamination and connector
upgrade issues. Marketplace confusion from a competitor's
misleading press release regarding our patented "auto-activation"
technology also occurred during the period.
Digital Ally shipped five orders in excess of $100,000 each
during the first half of 2016, which generated combined revenue of
approximately $1.5 million. During the prior-year period, the
Company shipped 11 orders valued individually at greater than
$100,000, for a total of $1.8 million in revenue.
International revenue totaled $326,960 during the first half of
2016, versus $106,486 in the corresponding period of the previous
year, an increase of 207%.
Gross profit decreased 34% to $3,118,855 (35.5% of revenue) in
the six months ended June 30, 2016, from $4,745,934 (48.0% of
revenue) in the prior-year period. The decline is the result of
rework issues involving our FirstVU product.
Selling, General and Administrative ("SG&A") expenses
increased 11% to $8,349,407 in the first half of 2016, compared
with $7,526,091 in the first half of 2015. Increases were primarily
attributable to increased professional fees, in particular legal
fees, and increases in SG&A payroll.
The Company reported an operating loss of ($5,230,552) for the
six months ended June 30, 2016, compared with an operating loss of
($2,780,157) in the year-earlier period.
Interest income increased to $16,190 for the six months ended
June 30, 2016, versus $8,143 a year earlier.
Interest expense totaled $1,662 and $206,014 for the six months
ended June 30, 2016 and 2015, respectively, due to our reduced
indebtedness in 2016. All interest bearing debt other than capital
leases was retired in 2015 from the proceeds of our registered
direct offering of common stock in July 2015.
Non-operating income of $37,815 was recorded in the six months
ended June 30, 2016 as a result of changes in warrant derivative
values compared with non-operating income of $116,061 in the
year-earlier period.
The holder of the $4.0 million Senior Secured Convertible Note
exercised its right to convert the remaining principal balance of
such Note into common stock during the first quarter of 2015.
Because the Company elected to account for and record the Note on a
fair value basis, when the holder of the Note exercised its right
to convert the remaining principal balance of the Note and accrued
interest into 661,213 shares of common stock, a non-cash,
non-recurring charge of $4,434,383 was incurred during the six
months ended June 30, 2015. This reflected the increase in the
Company's stock price over the conversion rate as of the conversion
dates. There was no corresponding income or expense relative to
changes in fair value of secured convertible notes payable in 2016
since the Note was fully converted in 2015.
Because the Company elected to account for and record such Note
on a fair value basis, it was required to expense certain related
issuance costs to "other expense" during the six months ended June
2015. Such costs totaled $0 at June 30, 2016 and $74,350 at June
30, 2015.
Other income was $0 for the six months ended June 30, 2016
compared with $1,878 in the first half of 2015.
The Company reported a net loss of ($5,178,209), or ($0.98) per
share, in the first half of 2016, compared with a prior-year net
loss of ($7,203,100), or ($1.94) per share. No income tax provision
or benefit was recorded in the first six months of either 2016 or
2015. The weighted average number of shares outstanding totaled
5,282,514 in the six months ended June 30, 2016, versus 3,710,960
in the year-earlier period.
On a non-GAAP basis, the Company reported an adjusted EBITDA
loss (earnings/loss before, depreciation, amortization, net
interest expense, changes in derivative liabilities, losses on the
conversion of secured convertible notes payable, secured
convertible note issuance expenses, and stock-based compensation),
of ($4,153,673), or ($0.79) per share, for the six months ended
June 30, 2016, versus a non-GAAP adjusted EBITDA loss of
($1,843,032), or ($0.50) per share, in the six months ended June
30, 2015. Non-GAAP adjusted EBITDA loss is described in greater
detail in a table at the end of this press release.
Non-GAAP Financial Measures
Digital Ally, Inc. has provided financial information in this
release that has not been prepared in accordance with GAAP. This
information includes non-GAAP adjusted EBITDA loss. Digital Ally
uses such non-GAAP financial measures internally in analyzing its
financial results and believes they are useful to investors, as a
supplement to GAAP measures, in evaluating Digital Ally's ongoing
operational performance. Digital Ally believes that the use of
these non-GAAP financial measures provides an additional tool for
investors to evaluate ongoing operating results and trends and in
comparing its financial measures with other companies in Digital
Ally's industry, many of which present similar non-GAAP financial
measures to investors. As noted, the non-GAAP financial measures
discussed above exclude certain non-cash and/or non-recurring
expenses/income including: (1) depreciation and amortization
expense, (2) net interest expense, (3) share-based compensation
expense, (4) changes in fair value of secured convertible notes
payable, (5) secured convertible notes payable issuance expenses,
(6) and changes in warrant derivative valuations.
Non-GAAP financial measures should not be considered in
isolation from, or as a substitute for, financial information
prepared in accordance with GAAP. Investors are encouraged to
review the reconciliation of these non-GAAP measures to their most
directly comparable GAAP financial measure as detailed above. As
previously mentioned, a reconciliation of GAAP to the non-GAAP
financial measures has been provided in the tables included as part
of this press release.
Investor Conference Call
The Company will host an investor conference call at 11:15 a.m.
Eastern Time (ET) on Monday, August 8, 2016, to discuss its
operating results for the second quarter and first half of 2016,
along with other topics of interest. Shareholders and other
interested parties may participate in the conference call by
dialing 844-761-0863 a few minutes before 11:15 a.m. Eastern Time
on Monday, August 8, 2016.
A replay of the conference call will be available two hours
after the completion of the call from August 8, 2016 until 11:59
p.m. on October 8, 2016 by dialing 855-859-2056 and entering the
conference ID# 60575884.
About Digital Ally, Inc.
Digital Ally, Inc. develops, manufactures and markets advanced
technology products for law enforcement, homeland security and
commercial applications. The Company's primary focus is digital
video imaging and storage. For additional information, visit
www.digitalallyinc.com. The Company is headquartered in Lenexa,
Kansas, and its shares are traded on The NASDAQ Capital Market
under the symbol "DGLY".
This press release contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Act of 1934. These forward-looking
statements are based largely on the expectations or forecasts of
future events, can be affected by inaccurate assumptions, and are
subject to various business risks and known and unknown
uncertainties, a number of which are beyond the control of
management. Therefore, actual results could differ materially from
the forward-looking statements contained in this press release. A
wide variety of factors that may cause actual results to differ
from the forward-looking statements include, but are not limited
to, the following: whether the Company will be able to improve its
revenue and operating results and return to profitability during
the balance of 2016; whether it will be able to achieve improved
production and other efficiencies to restore its gross and
operating margins to targeted levels during 2016; whether demand
for the FirstVU HD will accelerate in the second half of 2016; the
cost and time required to resolve the contaminated PCB board
problem; whether there will be commercial markets, domestically and
internationally, for one or more of the Company's new products, and
the degree to which the interest shown in its new products,
including the FirstVU HD, VuLink, VuVault.net, FleetVU and MicroVU
HD, will continue to translate into sales during 2016; whether the
Company will achieve positive outcomes in its litigation with
various parties, including Taser, Utility Associates and
WatchGuard; whether Utility Associates will appeal the USPTO's
final decision on the '556 Patent and if so, whether such appeal
will be successful in whole or in part; whether the USPTO rulings
will curtail, eliminate or otherwise have an effect on the actions
of Taser and Utility Associates respecting the Company, its
products and customers; whether the outstanding common stock
purchase warrants will be exercised for cash; the Company's ability
to deliver its newer product offerings, including the FirstVU HD
and DVM-800, as scheduled, obtain the required components and
products on a timely basis, and have them perform as planned; its
ability to maintain or expand its share of the markets in which it
competes, including those outside the law enforcement industry;
whether the FirstVU HD, DVM-800 and commercial products will
continue to generate an increasing portion of the Company's total
sales; whether the civil unrest in several U.S. cities will
translate into growth in demand for the Company's products; whether
the federal economic stimulus funding for law enforcement agencies
will have a positive impact on the Company's revenue; whether the
Company will be able to adapt its technology to new and different
uses, including being able to introduce new products; whether and
the extent to which the new patents allowed by the USPTO will give
the Company effective, enforceable protection of the intellectual
property contained in its products in the marketplace; competition
from larger, more established companies with far greater economic
and human resources; its ability to attract and retain customers
and quality employees; the effect of changing economic conditions;
and changes in government regulations, tax rates and similar
matters. These cautionary statements should not be construed as
exhaustive or as any admission as to the adequacy of the Company's
disclosures. The Company cannot predict or determine after the fact
what factors would cause actual results to differ materially from
those indicated by the forward-looking statements or other
statements. The reader should consider statements that include the
words "believes", "expects", "anticipates", "intends", "estimates",
"plans", "projects", "should", or other expressions that are
predictions of or indicate future events or trends, to be uncertain
and forward-looking. The Company does not undertake to publicly
update or revise forward-looking statements, whether as a result of
new information, future events or otherwise. Additional information
respecting factors that could materially affect the Company and its
operations are contained in its annual report on Form 10-K for the
year ended December 31, 2015 and quarterly report on Form 10-Q for
the three and six months ended June 30, 2016, as filed with the
Securities and Exchange Commission.
(Financial Highlights Follow)
DIGITAL ALLY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 2016 AND DECEMBER 31, 2015
June 30,2016
December 31,2015
Assets
(Unaudited)
Current assets:
Cash and cash equivalents
$
4,142,490
$
6,924,079
Accounts receivable-trade, less allowance for doubtful accounts
of $67,776 - 2016 and $74,997 - 2015
2,833,655
3,368,909
Accounts receivable-other
201,956
142,473
Inventories, net
9,706,182
10,661,766
Prepaid expenses
1,010,880
586,015
Total current assets
17,895,163
21,683,242
Furniture, fixtures and equipment
2,177,748
2,043,041
Less accumulated depreciation and amortization
1,253,744
978,855
924,004
1,064,186
Intangible assets, net
450,148
410,261
Other assets
274,093
316,521
Total assets
$
19,543,408
$
23,474,210
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable
$
1,432,727
$
1,374,160
Accrued expenses
1,035,215
936,327
Derivative liabilities
29,238
67,053
Capital lease obligations-current
31,872
34,828
Deferred revenue-current
731,436
568,988
Income taxes payable
3,044
10,139
Total current liabilities
3,263,532
2,991,495
Long-term liabilities:
Capital lease obligations-less current portion
25,121
41,284
Deferred revenue-less current portion
1,896,358
1,685,891
Total liabilities
5,185,011
4,718,670
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.001 par value; 10,000,000 common stock
shares authorized; shares issued: 0 - 2016 and 2015;
-
-
Common stock, $0.001 par value; 25,000,000 common stock shares
authorized; shares issued: 5,441,999 - 2016 and 5,241,999 -
2015;
5,442
5,242
Additional paid in capital
58,635,044
57,854,178
Treasury stock, at cost (63,518 shares)
(2,157,226
)
(2,157,226
)
Accumulated deficit
(42,124,863
)
(36,946,654
)
Total stockholders' equity
14,358,397
18,755,540
Total liabilities and stockholders' equity
$
19,543,408
$
23,474,210
(FOR ADDITIONAL INFORMATION, PLEASE REFER TO THE COMPANY'S
ANNUAL REPORT ON FORM 10-Q FOR THE PERIOD ENDED JUNE 30, 2016 FILED
WITH THE SEC)
|
|
DIGITAL ALLY, INC.
|
|
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
FOR THE THREE AND SIX MONTHS ENDED
|
|
JUNE 30, 2016 AND 2015
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
|
Six months ended June 30,
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product revenue
|
$
|
4,131,905
|
|
|
$
|
5,459,214
|
|
|
$
|
8,307,980
|
|
|
$
|
9,557,198
|
|
Other revenue
|
|
252,506
|
|
|
|
175,023
|
|
|
|
481,374
|
|
|
|
325,803
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
4,384,411
|
|
|
|
5,634,237
|
|
|
|
8,789,354
|
|
|
|
9,883,001
|
|
Cost of revenue
|
|
3,119,175
|
|
|
|
2,542,043
|
|
|
|
5,670,499
|
|
|
|
5,137,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
1,265,236
|
|
|
|
3,092,194
|
|
|
|
3,118,855
|
|
|
|
4,745,934
|
|
Selling, general and administrative expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expense
|
|
813,150
|
|
|
|
783,880
|
|
|
|
1,622,004
|
|
|
|
1,527,223
|
|
|
Selling, advertising and promotional expense
|
|
1,003,507
|
|
|
|
932,407
|
|
|
|
1,926,499
|
|
|
|
1,776,293
|
|
|
Stock-based compensation expense
|
|
355,236
|
|
|
|
329,201
|
|
|
|
781,066
|
|
|
|
598,401
|
|
|
General and administrative expense
|
|
1,986,000
|
|
|
|
1,863,668
|
|
|
|
4,019,838
|
|
|
|
3,624,174
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total selling, general and administrative expenses
|
|
4,157,893
|
|
|
|
3,909,156
|
|
|
|
8,349,407
|
|
|
|
7,526,091
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
(2,892,657
|
)
|
|
|
(816,962
|
)
|
|
|
(5,230,552
|
)
|
|
|
(2,780,157
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
7,198
|
|
|
|
2,828
|
|
|
|
16,190
|
|
|
|
8,143
|
|
Interest expense
|
|
(907
|
)
|
|
|
(79,841
|
)
|
|
|
(1,662
|
)
|
|
|
(206,014
|
)
|
Change in warrant derivative liabilities
|
|
21,282
|
|
|
|
116,061
|
|
|
|
37,815
|
|
|
|
281,783
|
|
Change in fair value of secured convertible notes payable
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,434,383
|
)
|
Secured convertible note payable issuance expenses
|
|
-
|
|
|
|
(14,474
|
)
|
|
|
-
|
|
|
|
(74,350
|
)
|
Other income (expense)
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income tax expense
|
|
(2,865,084
|
)
|
|
|
(792,388
|
)
|
|
|
(5,178,209
|
)
|
|
|
(7,203,100
|
)
|
Income tax (expense) benefit
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
$
|
(2,865,084
|
)
|
|
$
|
(792,388
|
)
|
|
$
|
(5,178,209
|
)
|
|
$
|
(7,203,100
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
(0.54
|
)
|
|
$
|
(0.20
|
)
|
|
$
|
(0.98
|
)
|
|
$
|
(1.94
|
)
|
|
Diluted
|
$
|
(0.54
|
)
|
|
$
|
(0.20
|
)
|
|
$
|
(0.98
|
)
|
|
$
|
(1.94
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
5,319,259
|
|
|
|
4,044,112
|
|
|
|
5,282,514
|
|
|
|
3,710,960
|
|
|
Diluted
|
|
5,319,259
|
|
|
|
4,044,112
|
|
|
|
5,282,514
|
|
|
|
3,710,960
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(FOR ADDITIONAL INFORMATION, PLEASE REFER TO THE COMPANY'S
ANNUAL REPORT ON FORM 10-Q FOR THE PERIOD ENDED JUNE 30, 2016 FILED
WITH THE SEC)
|
|
DIGITAL ALLY, INC.
|
|
RECONCILIATION OF NET LOSS TO NON-GAAP ADJUSTED EBITDA LOSS
|
|
FOR THE THREE AND SIX MONTHS ENDED
|
|
JUNE 30, 2016 AND 2015
|
|
(unaudited)
|
|
|
|
|
Three Months EndedJune 30,
|
|
|
Six Months EndedJune 30,
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
$
|
(2,865,084
|
)
|
|
$
|
(792,388
|
)
|
|
$
|
(5,178,209
|
)
|
|
$
|
(7,203,100
|
)
|
Non-GAAP adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
355,236
|
|
|
|
329,201
|
|
|
|
781,066
|
|
|
|
598,401
|
|
|
Depreciation and amortization
|
|
143,795
|
|
|
|
166,726
|
|
|
|
295,813
|
|
|
|
328,703
|
|
|
Change in fair value of secured convertible notes payable
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,434,383
|
|
|
Convertible note payable issuance expenses
|
|
-
|
|
|
|
14,474
|
|
|
|
-
|
|
|
|
74,350
|
|
|
Change in derivative liabilities
|
|
(21,282
|
)
|
|
|
(116,061
|
)
|
|
|
(37,815
|
)
|
|
|
(281,783
|
)
|
|
Interest (income) expense, net
|
|
(6,291
|
)
|
|
|
79,841
|
|
|
|
(14,528
|
)
|
|
|
206,014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Non-GAAP adjustments
|
|
471,458
|
|
|
|
474,181
|
|
|
|
1,024,536
|
|
|
|
5,360,068
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP adjusted EBITDA loss
|
$
|
(2,393,626
|
)
|
|
$
|
(318,207
|
)
|
|
$
|
(4,153,673
|
)
|
|
$
|
(1,843,032
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP adjusted EBITDA loss per share information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
(0.45
|
)
|
|
$
|
(0.08
|
)
|
|
$
|
(0.79
|
)
|
|
$
|
(0.50
|
)
|
|
Diluted
|
$
|
(0.45
|
)
|
|
$
|
(0.08
|
)
|
|
$
|
(0.79
|
)
|
|
$
|
(0.50
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP basis EBITDA loss per share information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
(0.54
|
)
|
|
$
|
(0.20
|
)
|
|
$
|
(0.98
|
)
|
|
$
|
(1.94
|
)
|
|
Diluted
|
$
|
(0.54
|
)
|
|
$
|
(0.20
|
)
|
|
$
|
(0.98
|
)
|
|
$
|
(1.94
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
5,319,259
|
|
|
|
4,044,112
|
|
|
|
5,282,514
|
|
|
|
3,710,960
|
|
|
Diluted
|
|
5,319,259
|
|
|
|
4,044,112
|
|
|
|
5,282,514
|
|
|
|
3,710,960
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(FOR ADDITIONAL INFORMATION, PLEASE REFER TO THE COMPANY'S
QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED JUNE 30, 2016
FILED WITH THE SEC)
|
|
DIGITAL ALLY, INC.
|
|
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
FOR THE SIX MONTHS ENDED JUNE 30, 2016 AND 2015
|
|
(Unaudited)
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
Cash Flows From Operating Activities:
|
|
|
|
|
|
|
|
|
Net loss
|
$
|
(5,178,209
|
)
|
|
$
|
(7,203,100
|
)
|
|
Adjustments to reconcile net loss to net cash flows used in
operating activities:
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
295,813
|
|
|
|
328,703
|
|
|
|
Secured convertible note payable issuance expenses
|
|
-
|
|
|
|
74,350
|
|
|
|
Stock-based compensation
|
|
781,066
|
|
|
|
598,401
|
|
|
|
Change in derivative liabilities
|
|
(37,815
|
)
|
|
|
(281,783
|
)
|
|
|
Change in fair value of secured convertible note payable
|
|
-
|
|
|
|
4,434,383
|
|
|
|
Interest expense related to stock conversion
|
|
-
|
|
|
|
33,020
|
|
|
|
Provision for inventory obsolescence
|
|
266,479
|
|
|
|
321,121
|
|
|
|
Provision for doubtful accounts receivable
|
|
(7,221
|
)
|
|
|
9,020
|
|
|
|
|
|
|
|
|
|
|
Change in assets and liabilities:
|
|
|
|
|
|
|
|
|
(Increase) decrease in:
|
|
|
|
|
|
|
|
|
|
Accounts receivable - trade
|
|
542,475
|
|
|
|
(703,355
|
)
|
|
|
Accounts receivable - other
|
|
(59,483
|
)
|
|
|
11,909
|
|
|
|
Inventories
|
|
689,105
|
|
|
|
(3,495,776
|
)
|
|
|
Prepaid expenses
|
|
(424,865
|
)
|
|
|
(605,868
|
)
|
|
|
Other assets
|
|
42,428
|
|
|
|
(103,776
|
)
|
|
Increase (decrease) in:
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
58,567
|
|
|
|
125,138
|
|
|
|
Accrued expenses
|
|
98,888
|
|
|
|
287,037
|
|
|
|
Income taxes payable
|
|
(7,095
|
)
|
|
|
3
|
|
|
|
Deposits
|
|
-
|
|
|
|
2,523
|
|
|
|
Unearned income
|
|
372,915
|
|
|
|
543,036
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
(2,566,952
|
)
|
|
|
(5,625,014
|
)
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
Purchases of furniture, fixtures and equipment
|
|
(134,707
|
)
|
|
|
(224,237
|
)
|
|
Additions to intangible assets
|
|
(60,811
|
)
|
|
|
(36,108
|
)
|
|
Release of restricted cash related to secured convertible
note
|
|
-
|
|
|
|
1,500,000
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
(195,518
|
)
|
|
|
1,239,655
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
Debt issuance expenses for secured convertible note payable
|
|
-
|
|
|
|
(74,350
|
)
|
|
Principal payments on capital lease obligation
|
|
(19,119
|
)
|
|
|
(52,958
|
)
|
|
Proceeds from exercise of stock options and warrants
|
|
-
|
|
|
|
2,133,889
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
(19,119
|
)
|
|
|
2,006,581
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
(2,781,589
|
)
|
|
|
(2,378,778
|
)
|
Cash and cash equivalents, beginning of period
|
|
6,924,079
|
|
|
|
3,049,716
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
$
|
4,142,490
|
|
|
$
|
670,938
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
Cash payments for interest
|
$
|
1,650
|
|
|
$
|
162,046
|
|
|
|
|
|
|
|
|
|
|
Cash payments for income taxes
|
$
|
7,095
|
|
|
$
|
8,197
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of non-cash investing and financing
activities:
|
|
|
|
|
|
|
|
|
Restricted common stock grant
|
$
|
200
|
|
|
$
|
139
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures financed by capital lease obligations
|
$
|
-
|
|
|
$
|
102,624
|
|
|
|
|
|
|
|
|
|
|
Conversion of secured convertible note into common stock
|
$
|
-
|
|
|
$
|
7,740,834
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(FOR ADDITIONAL INFORMATION, PLEASE REFER TO THE COMPANY'S
QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED JUNE 30, 2016
FILED WITH THE SEC)
Contact Information
For Additional Information, Please Contact:Dan ReynoldsInvestor
Relations(913) 274-2512Dan.Reynolds@DigitalAllyInc.com
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