As
filed with the U.S. Securities and Exchange Commission on October 2, 2018.
Registration
Statement No. 333-_______
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
S-3
REGISTRATION
STATEMENT
UNDER
THE
SECURITIES ACT OF 1933
DIGITAL
ALLY, INC.
(Exact
name of registrant as specified in its charter)
Nevada
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|
20-0064269
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(State
or other jurisdiction of
incorporation
or organization)
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|
(I.R.S.
Employer
Identification
Number)
|
Digital
Ally, Inc.
9705
Loiret Blvd.
Lenexa,
KS 66219
(913)
814-7774
(Address,
including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Stanton
E. Ross
Chief
Executive Officer
Digital
Ally, Inc.
9705
Loiret Blvd.
Lenexa,
KS 66219
(913)
814-7774
(Name,
address, including zip code, and telephone number, including area code, of agent for service)
Copies
to:
David
E. Danovitch, Esq.
Michael
DeDonato, Esq.
Robinson
Brog Leinwand
Greene
Genovese & Gluck P.C.
875
Third Avenue, 9
th
Floor
New
York, NY 10022
(212)
603-6300
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|
Christian
J. Hoffmann, III
9705
Loiret Blvd.,
Lenexa,
KS 66219
(913)
814-7774
|
Approximate
date of commencement of proposed sale to the public:
From time to time after the effective date of this registration statement.
If
the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please
check the following box. [ ]
If
any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under
the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check
the following box. [X]
If
this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please
check the following box and list the Securities Act registration statement number of the earlier effective registration statement
for the same offering. [ ]
If
this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list
the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]
If
this Form is a registration statement pursuant to General Instruction I.D. or a post-effective amendment thereto that shall become
effective upon filing with the Commission pursuant to Rule 462(e) under the Securities Act, check the following box. [ ]
If
this Form is a post-effective amendment to a registration statement filed pursuant to General Instruction I.D. filed to register
additional securities or additional classes of securities pursuant to Rule 413(b) under the Securities Act, check the following
box. [ ]
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”,
“smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer
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[ ]
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Accelerated
filer
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[ ]
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Non-accelerated
filer
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[ ]
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Smaller
reporting company
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[X]
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|
Emerging
growth company
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[ ]
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If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of Securities Act. [ ]
Title
of Each Class of Securities to be Registered
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Amount
to be
Registered
(1)
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|
Proposed
Maximum Offering Price
Per
Share
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Proposed
Maximum
Aggregate
Offering
Price
(9)
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Amount
of
Registration
Fee
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|
Common Stock underlying the July 2018 Proceeds
Investment Agreement Warrants
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465,712
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(2)
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$
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2.90
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$
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1,350,565
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$
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163.69
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Common Stock underlying the
June 2017 Warrants
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200,000
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(3)
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$
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2.90
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$
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580
,000
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$
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70.30
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|
Common Stock underlying the August 2017 Warrants
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94,000
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(4)
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$
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2.90
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$
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272,600
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$
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33.04
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Common Stock underlying the September 2017 Warrants
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100,000
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(5)
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$
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2.90
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$
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290
,000
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$
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35.15
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Common Stock underlying November 2017 Warrants
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100,000
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(6)
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$
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2.90
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$
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290
,000
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|
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$
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35.15
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|
Common Stock underlying December 2017 Warrants
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120,000
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(7)
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$
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2.90
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$
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348,000
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$
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42.18
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Common Stock underlying March 2018 Warrants
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96,000
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(8)
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$
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2.90
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$
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278,400
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$
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33.74
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|
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Total
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1,175,712
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$
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2.90
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$
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3,409,565
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$
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413.24
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(1)
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All
shares registered pursuant to this registration statement are to be offered by the selling stockholders. Pursuant to Rule
416 under the Securities Act of 1933, as amended (the “Securities Act”), this registration statement also covers
such indeterminate number of additional shares of the registrant’s common stock, $0.001 par value per share (the “Common
Stock”) issued to prevent dilution resulting from stock splits, stock dividends or similar events.
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(2)
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Represents the maximum number of shares of Common Stock initially issuable upon exercise of the July 2018
Proceeds Investment Agreement (as defined below).
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(3)
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Represents
the maximum number of shares of Common Stock initially issuable upon exercise of the June 2017 Warrants (as defined below).
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(4)
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Represents
the maximum number of shares of Common Stock initially issuable upon exercise of the August 2017 Warrants (as defined below).
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(5)
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Represents
the maximum number of shares of Common Stock initially issuable upon exercise of the September 2017 Warrants (as defined below).
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(6)
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Represents
the maximum number of shares of Common Stock initially issuable upon exercise of the November 2017 Warrants (as defined below).
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(7)
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Represents
the maximum number of shares of Common Stock initially issuable upon exercise of the December 2017 Warrants (as defined below).
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(8)
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Represents
the maximum number of shares of Common Stock initially issuable upon exercise of the March 2018 Warrants (as defined below).
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(9)
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Estimated
solely for purposes of calculating the amount of the registration fee in accordance with Rule 457(c) under the Securities
Act based on the average of the high and low sales prices of the registrant’s Common Stock on the Nasdaq Capital Market
(“NASDAQ”) on October 1, 2018, which date is within five (5) business days of the filing of this registration
statement.
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The
registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until
the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become
effective in accordance with section 8(a) of the Securities Act or until the Registration Statement shall become effective on
such date as the Commission, acting pursuant to said section 8(a), may determine.
The
information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement
filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it
is not soliciting offers to buy these securities in any jurisdiction where the offer or sale is not permitted.
PRELIMINARY
PROSPECTUS
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SUBJECT
TO COMPLETION
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DATED
OCTOBER 2, 2018
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DIGITAL
ALLY, INC.
1,175,712
Shares of Common Stock
This
prospectus relates to the offer and resale by the selling stockholders identified in this prospectus of up to an aggregate of
1,175,712 shares of common stock, $0.001 par value per share (the “Common Stock”) of Digital Ally, Inc. (the
“Company”, “we”, “us” or “our”). The offered shares of Common Stock are issuable,
or may in the future become issuable, with respect to: (i) the exercise of warrants to purchase an aggregate of 465,712 shares
of Common Stock (the “July 2018 Proceeds Investment Agreement Warrants”) issued in connection with that certain Proceeds
Investment Agreement, dated as of July 31, 2018 (the “July 2018 Proceeds Investment Agreement”), by and between the
Company and Brickell Key Investments LP (the “July 2018 Investor”), (ii) the exercise of warrants
to purchase an aggregate of 200,000 shares of Common Stock (the “June 2017 Warrants”) and warrants to purchase an
aggregate of 100,000 shares of Common Stock (the “November 2017 Warrants”) issued in connection with that certain
Securities Purchase Agreement, dated June 30, 2017, as amended (the “June 2017 Purchase Agreement”), by and among
the Company and the purchasers signatory thereto (the “June 2017 Investors”); (iii) the exercise of warrants
to purchase an aggregate of 94,000 shares of Common Stock (the “August 2017 Warrants”) issued in connection with that
certain Securities Purchase Agreement, dated August 21, 2017 (the “August 2017 Purchase Agreement”), by and among
the Company and the purchasers signatory thereto (the “August 2017 Investors”); (iv) the exercise of warrants
to purchase an aggregate of 100,000 shares of Common Stock (the “September 2017 Warrants”) issued in connection with
that certain Securities Purchase Agreement, dated September 29, 2017 (the “September 2017 Purchase Agreement”), by
and among the Company and the purchasers signatory thereto (the “September 2017 Investors”); (v) the exercise of warrants
to purchase an aggregate of 120,000 shares of Common Stock (the “December 2017 Warrants”) issued in connection with
that certain Securities Purchase Agreement, dated December 29, 2017 (the “December 2017 Purchase Agreement”), by and
among the Company and the purchasers signatory thereto (the “December 2017 Investors”); and (vi) the exercise
of warrants to purchase an aggregate of 96,000 shares of Common Stock (the “March 2018 Warrants”) issued in connection
with (a) that certain Securities Purchase Agreement, dated March 7, 2018, by and among the Company and the purchasers signatory
thereto, and (b) that certain Securities Purchase Agreement, dated March 16, 2018, by and among the Company and the purchasers
signatory thereto (such investors issued warrants in connection with such agreements referred to in (a) and (b), the “March
2018 Investors”). The July 2018 Investor, June 2017 Investors, August 2017 Investors, September 2017 Investors,
December 2017 Investors and March 2018 Investors are collectively herein referred to as the “Selling Stockholders”.
The July 2018 Proceeds Investment Agreement Warrants, June 2017 Warrants, August 2017 Warrants, September 2017 Warrants,
November 2017 Warrants, December 2017 Warrants and March 2018 Warrants are collectively herein referred to as the “Warrants”.
For additional information regarding the issuance of the Warrants, see “Issuance of Warrants”.
The
Selling Stockholders may offer the shares of Common Stock from time to time through public or private transactions at prevailing
market prices or at privately negotiated prices. See “Plan of Distribution.”
We
are not selling any shares of Common Stock under this prospectus and will not receive any proceeds from the sale of shares of
Common Stock by the selling shareholders. To the extent the Warrants are exercised for cash, as applicable, we will receive up
to $3,539,351. However, we cannot predict when and in what amounts or if the Warrants will be exercised, and it is possible
that the Warrants may expire and never be exercised, in which case we would not receive any cash proceeds.
Our
Common Stock is currently quoted on NASDAQ under the symbol “DGLY”. On October 1, 2018, the last reported
sales price of our Common Stock was $2.90 per share. There is no established public trading market for the Warrants,
and we do not expect a market to develop. In addition, we do not intend to apply for a listing of the Warrants on any national
securities exchange.
Investing
in our securities involves a high degree of risk. See the section entitled “Risk Factors” appearing on page 5 of this
prospectus for a discussion of information that should be considered in connection with an investment in our securities.
Neither
the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or
determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The
date of this Prospectus is ____________ , 2018
TABLE
OF CONTENTS
The
registration statement, including the exhibits and the documents incorporated herein by reference, can be read on the Securities
and Exchange Commission website or at the Securities and Exchange Commission offices mentioned under the heading “Where
You Can Find More Information”.
Until
____________, all dealers that effect transactions in these securities, whether or not participating in this offering, may be
required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
About
this Prospectus
You
should rely only on the information contained or incorporated by reference in this prospectus and any prospectus supplement. We
and the Selling Stockholders have not authorized any other person to provide you with different information. If anyone provides
you with different or inconsistent information, you should not rely on it. This prospectus is not an offer to sell securities,
and it is not soliciting an offer to buy securities in any jurisdiction where the offer or sale is not permitted. You should assume
that the information appearing in this prospectus or any prospectus supplement, as well as information we have previously filed
with the Securities and Exchange Commission (the “SEC”) and incorporated by reference, is accurate as of the date
on the front of those documents only. Our business, financial condition, results of operations and prospects may have changed
since those dates. This prospectus may not be used to consummate a sale of our securities unless it is accompanied by a prospectus
supplement.
We
further note that the representations, warranties and covenants made by us in any agreement that is filed as an exhibit to any
document that is incorporated by reference in this prospectus were made solely for the benefit of the parties to such agreement,
including, in some cases, for the purpose of allocating risk among the parties to such agreements, and should not be deemed to
be a representation, warranty or covenant to you. Moreover, such representations, warranties or covenants were accurate only as
of the date when made. Accordingly, such representations, warranties and covenants should not be relied on as accurately representing
the current state of our affairs.
Unless
stated otherwise or the context otherwise requires, references in this prospectus to the “Company”, “we”,
“us” or “our” refer to Digital Ally, Inc.
PROSPECTUS
SUMMARY
This
summary highlights certain information about us, this offering and selected information contained elsewhere in or incorporated
by reference into this prospectus. This summary is not complete and does not contain all the information that you should consider
before deciding whether to invest in the securities covered by this prospectus. For a more complete understanding of Digital Ally,
Inc. and this offering, we encourage you to read and consider carefully the more detailed information in this prospectus, including
the information in any free writing prospectus that we have authorized for use in connection with this offering, including the
information set forth in the section titled “Risk Factors” in this prospectus beginning on page 5.
Company
Overview
We
produce digital video imaging and storage products for use in law enforcement, security and commercial applications. Our current
products are an in-car digital video/audio recorder contained in a rear-view mirror for use in law enforcement and commercial
fleets, a system that provides our law enforcement customers with audio/video surveillance from multiple vantage points and hands-free
automatic activation of body-worn cameras and in-car video systems; a miniature digital video system designed to be worn on an
individual’s body; and cloud storage solutions including cloud-based fleet management and driver monitoring/training applications.
We have active research and development programs to adapt our technologies to other applications. We have the ability to integrate
electronic, radio, computer, mechanical, and multi-media technologies to create unique solutions to address needs in a variety
of other industries and markets, including mass transit, school bus, taxi cab and the military. We sell our products to law enforcement
agencies and other security organizations, and consumer and commercial fleet operators through direct sales domestically and third-party
distributors internationally. We have several new and derivative products in research and development that we anticipate will
begin commercial production during the remainder of 2018 and 2019.
Our
Products
We
produce and sell digital audio/video recording, storage and other products in law enforcement and commercial applications. These
product series have been used primarily in law enforcement and private security applications, both of which use the core competency
of our technology in digital video compression, recording and storage. In 2011, we introduced several derivative products as “event
recorders” that can be used in taxi cab, limousine, ambulance and other commercial fleet vehicle applications which served
to greatly diversify our addressable market. Our commercial products have also been utilized by off-airport parking service providers,
cruise lines, education and NASCAR races among a diverse group of other commercial applications. We also intend to produce and
sell other digital video products in the future that will continue to expand our reach beyond the traditional law enforcement,
private security and commercial fleet applications. We have developed and continue to develop both local server and cloud-based
storage, archiving and search capabilities that provide customers with innovative, useful and secure methods to store and maintain
their audio/video data. These products incorporate our standards-based digital compression capability that allows the recording
of significant time periods on a chip and circuit board which can be designed into small forms and stored.
Corporate
History
We
were incorporated in Nevada on December 13, 2000 as Vegas Petra, Inc. From that date until November 30, 2004, when we entered
into a Plan of Merger with Digital Ally, Inc., a Nevada corporation which was formerly known as Trophy Tech Corporation (the “Acquired
Company”), we had not conducted any operations and were a closely-held company. In conjunction with the merger, we were
renamed Digital Ally, Inc.
The
Acquired Company, which was incorporated on May 16, 2003, engaged in the design, development, marketing and sale of bow hunting-related
products. Its principal product was a digital video recording system for use in the bow hunting industry. It changed its business
plan in 2004 to adapt its digital video recording system for use in the law enforcement and security markets. We began shipments
of our in-car digital video rear view mirror in March 2006.
On
January 2, 2008, we commenced trading on NASDAQ under the symbol “DGLY”. We conduct our business from 9705 Loiret
Boulevard, Lenexa, Kansas 66219.
Where
You Can Find Us
Our
executive offices are located at 9705 Loiret Boulevard, Lenexa, Kansas 66219 and our telephone number is (913) 814-7774. Our website
address is
www.digitalallyinc.com
. Information contained on our website does not form part of this prospectus and is intended
for informational purposes only.
Recent
Developments
Strategic
Review and Subsequent Financing
The Company’s board
of directors (the “Board of Directors”) has initiated a review of strategic alternatives to best position
the Company for the future, including, but not limited to, monetizing its patent portfolio and related patent infringement litigation
against Axon Enterprises, Inc. (formerly known as Taser International, Inc.) (“Axon”) and Enforcement Video,
LLC dba WatchGuard Video (“Watchguard”), the sale of all or certain assets, properties or groups of properties
or individual businesses or merger or combination with another company. The result of the strategic review may also include the
continued implementation of the Company’s business plan with additional debt or equity financing. The Company retained Roth
to assist in this review and process. Thus, the Company is considering alternatives to address its near-term and long-term liquidity
and operational issues. There can be no assurance that a transaction or financing will result from this process. As part of this
strategic alternatives process, the Board of Directors approved the July 2018 Proceeds Investment Agreement, described
below. Management believes this financing will address the Company’s near-term liquidity needs, which primarily included
the repayment of principal and interest on the senior convertible debentures and subordinated notes payable.
On July 31, 2018, the
Company entered into a Proceeds Investment Agreement (the “July 2018 Proceeds Investment Agreement”) with Brickell
Key Investments LP (“BKI”), pursuant to which BKI funded an aggregate of $500,000 (the “First Tranche”)
to be used (i) to fund the Company’s litigation proceedings relating to the infringement of certain patent assets listed
in the July 2018 Proceeds Investment Agreement and (ii) to repay the Company’s existing debt obligations and for
certain working capital purposes set forth in the July 2018 Proceeds Investment Agreement. Pursuant to the July 2018
Proceeds Investment Agreement, BKI was granted an option to provide the Company with an additional $9.5 million, at BKI’s
sole discretion (the “Second Tranche”).
On
August 21, 2018, BKI exercised such option to fund the Second Tranche.
On
September 28, 2018, the Company announced that it had completed a firm commitment underwritten public offering (the “Offering”)
for an aggregate of 2,400,000 shares of Common Stock at a public price of $3.05 per share. The Company granted the underwriters
for the Offering a forty-five (45)-day option to purchase up to an additional 360,000 shares of Common Stock to cover over-allotments,
if any. W
e expect the gross proceeds from the Offering to be approximately $7.32
million
without any consideration of the 360,000 shares of Common Stock to cover over-allotments, if any. The Company expects additional
gross proceeds of $1.098 million should the over-allotment option be exercised in full by such underwriters. The Company
intends
to use the net proceeds for working capital and general corporate purposes.
Furthermore,
on September 28, 2018, the underwriters for the Offering exercised the over-allotment option to acquire an additional 200,000
shares of Common Stock at $3.05 per share. The partial exercise of the over-allotment option resulted in additional gross
proceeds of $610,000, which t
he Company
intends to use for working capital
and general corporate purposes.
THE
OFFERING
Common
Stock to be offered by the Selling Stockholders
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1,175,712
shares of Common Stock underlying the Warrants.
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Common
Stock outstanding prior to this offering (1)
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10,361,234
shares of Common Stock
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Common
Stock to be outstanding after this offering, after giving effect to the issuance of 1,175,712 shares underlying the
Warrants (1)
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11,536,946
shares of Common Stock.
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Use
of proceeds
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We
will not receive any of the proceeds from any sale of the shares of Common Stock by the Selling Stockholders. We may receive
proceeds in the event that any of the Warrants are exercised at their respective exercise prices per share which may result
in gross proceeds of $3,539,351. The net proceeds of this offering will be used for working capital, for expenses of
this offering and for general corporate purposes.
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Market
symbol and trading
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Our
Common Stock is listed on NASDAQ under the symbol “DGLY”. There is no established trading market for the Warrants
and we do not expect a trading market to develop. We do not intend to list the Warrants on any securities exchange or other
trading market. Without a trading market, the liquidity of the Warrants will be extremely limited.
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Risk
factors
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Investing
in our securities involves a high degree of risk. You should read the “Risk Factors” section on page 5 of this
prospectus for a discussion of factors to consider before deciding to invest in the units.
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NASDAQ
Symbol
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“DGLY”.
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(1)
|
The
number of shares of our Common Stock outstanding prior to and to be outstanding immediately
after this offering, as set forth in the table above, is based on 10,361,234 shares
outstanding as of October 1, 2018, and including or excluding the following as
of such date:
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●
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Excludes
434,637 shares of Common Stock issuable upon exercise of outstanding options with a weighted average exercise price
of $4.65 per share;
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●
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Includes
834,075 shares of Common Stock subject to forfeiture pursuant to outstanding non-vested Restricted Stock grants;
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●
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Excludes
577,926 shares of Common Stock reserved for future issuance pursuant to our existing stock incentive plans;
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●
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Excludes
4,699,645 shares of Common Stock issuable upon exercise of warrants outstanding as of October 1, 2018 having
a weighted average exercise price of $5.54 per share;
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●
|
Excludes
1,175,712 shares of Common Stock issuable upon exercise of the Warrants offered in this offering; and
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●
|
Excludes
63,518 shares of Common Stock held as treasury stock.
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RISK
FACTORS
An
investment in our securities involves a high degree of risk. Before making an investment decision, you should carefully consider
the risks described below and under “Risk Factors” in any applicable prospectus supplement and in our most recent
Annual Report on Form 10-K, and in our updates to those Risk Factors in our most recent Prospectus Supplement filed pursuant
to Rule 424(b)(5) of the Securities Act, Quarterly Reports on Form 10-Q or Current Reports on Form 8-K following the most
recent Form 10-K, and in all other information appearing in this prospectus or incorporated by reference into this prospectus
and any applicable prospectus supplement. The material risks and uncertainties that management believes affect us will be described
in those documents. In addition to those risk factors, there may be additional risks and uncertainties of which management is
not aware or focused on or that management deems immaterial. Our business, financial condition or results of operations could
be materially adversely affected by any of these risks. The trading price of our securities could decline due to any of these
risks, and you may lose all or part of your investment. This prospectus is qualified in its entirety by these risk factors herein.
Risks
Relating to our Common Stock and this Offering
The
possible issuance of Common Stock subject to options, notes, and warrants may dilute the interest of stockholders.
We
had granted options to purchase a total of 434,637 shares of Common Stock under our stock option and restricted stock
plans and issued Common Stock purchase warrants for the purchase of 4,699,645 shares of Common Stock, which are
outstanding and unexercised as of October 1, 2018. The foregoing figures include the Warrants, which in the aggregate,
permit the holders of such securities the right to exercise such Warrants to purchase 1,175,712 shares of Common
Stock. To the extent that outstanding stock options and our warrants are exercised, dilution to the interests of our
stockholders may occur. Moreover, the terms upon which we will be able to obtain additional equity capital may be adversely
affected since the holders of the outstanding options can be expected to exercise them at a time when we would, in all
likelihood, be able to obtain any needed capital on terms more favorable to us than those provided in such outstanding
options.
We
have never paid dividends and have no plans to in the future.
Holders
of shares of Common Stock are entitled to receive dividends as may be declared by our Board of Directors. To date, we have paid
no cash dividends on the issued and outstanding Common Stock and we do not expect to pay cash dividends in the foreseeable future.
We intend to retain future earnings, if any, to provide funds for operation of our business. Therefore, any return investors in
our Common Stock will have to be in the form of appreciation, if any, in the market value of their shares of Common Stock.
We
have additional securities available for issuance, which, if issued, could adversely affect the rights of the holders of our Common
Stock.
Our
amended and restated articles of incorporation (“Articles of Incorporation”) authorize the issuance of 50,000,000
shares of capital stock, which all are classified as Common Stock. The Common Stock can be issued by our Board of Directors without
stockholder approval. Any future issuances of equity would further dilute the percentage ownership of us held by our stockholders.
Our
stock price is likely to be highly volatile because of several factors, including a limited public float.
The
market price of our Common Stock is likely to be highly volatile because there has been a relatively thin trading market for our
stock, which causes trades of small blocks of stock to have a significant impact on our stock price. You may not be able to resell
shares of our Common Stock following periods of volatility because of the market’s adverse reaction to volatility.
Other
factors that could cause such volatility may include, among other things:
|
●
|
digital
video in-car recording products not being accepted by the law enforcement industry or digital video recording not being accepted
as evidence in criminal proceedings;
|
|
●
|
acceptance
of our new products in the marketplace and, in particular, in the commercial market;
|
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●
|
actual
or anticipated fluctuations in our operating results;
|
|
●
|
the
potential absence of securities analysts covering us and distributing research and recommendations about us;
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●
|
overall
stock market fluctuations;
|
|
●
|
economic
conditions generally and in the law enforcement and security industries in particular;
|
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●
|
announcements
concerning our business or those of our competitors or customers;
|
|
●
|
our
ability to raise capital when we require it, and to raise such capital on favorable terms;
|
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●
|
we
have no institutional line-of-credit available to fund our operations and we may be unable to obtain a line of credit under
terms that are mutually agreeable;
|
|
●
|
changes
in financial estimates by securities analysts or our failure to perform as anticipated by the analysts;
|
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●
|
announcements
of technological innovations;
|
|
●
|
conditions
or trends in the industry;
|
|
●
|
litigation;
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●
|
changes
in market valuations of other similar companies;
|
|
●
|
announcements
by us or our competitors of new products or of significant technical innovations, contracts, acquisitions, strategic partnerships
or joint ventures;
|
|
●
|
future
sales of Common Stock;
|
|
●
|
actions
initiated by the SEC or other regulatory bodies;
|
|
●
|
existence
or lack of patents or proprietary rights;
|
|
●
|
changes
in accounting standards, policies, guidance, interpretations or principles;
|
|
●
|
statements
or changes in opinions, ratings or earnings estimates made by brokerage firms or industry analysts relating to the markets
in which we operate or expect to operate;
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●
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departure
of key personnel or failure to hire key personnel; and
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●
|
general
market conditions.
|
Any
of these factors could have a significant and adverse impact on the market price of our Commons stock. In addition, the stock
market in general has at times experienced extreme volatility and rapid decline that has often been unrelated or disproportionate
to the operating performance of particular companies. These broad market fluctuations may adversely affect the trading price of
our Common Stock, regardless of our actual operating performance.
The
market for our Common Stock is sometimes limited and may not provide adequate liquidity.
At
times our Common Stock has been thinly traded on NASDAQ. On many days, the trading volume can be relatively small, which meant
there was limited liquidity in our shares of Common Stock. Selling our shares during such periods is more difficult because smaller
quantities of shares are bought and sold and news media coverage about us can be limited. These factors have at times resulted
in a limited trading market for our Common Stock and therefore holders of our stock may have been unable to sell shares purchased,
if they desired to do so.
If
we are not able to comply with the applicable continued listing requirements or standards of NASDAQ, NASDAQ could delist our common
stock.
Our
common stock is currently listed on NASDAQ. In order to maintain that listing, we must satisfy minimum financial and other continued
listing requirements and standards, including those regarding director independence and independent committee requirements, minimum
stockholders’ equity, minimum share price, and certain corporate governance requirements. There can be no assurances that
we will be able to comply with the applicable listing standards.
In
the event that our common stock is delisted from NASDAQ and is not eligible for quotation on another market or exchange, trading
of our common stock could be conducted in the over-the-counter market or on an electronic bulletin board established for unlisted
securities such as the Pink Sheets or the OTC Bulletin Board. In such event, it could become more difficult to dispose of, or
obtain accurate price quotations for, our common stock, and there would likely also be a reduction in our coverage by securities
analysts and the news media, which could cause the price of our common stock to decline further. Also, it may be difficult for
us to raise additional capital if we are not listed on a major exchange. On April 17, 2018, the Company was officially notified
by Nasdaq that it that it did not comply with Listing Rule 5550(b) (the “Rule”), which requires a minimum $2,500,000
stockholders’ equity, among other continued listing criteria. The Company has been granted an extension necessary to demonstrate
compliance no later than the filing of its Quarterly Report on Form 10-Q as of September 30, 2018. If the Company
fails to achieve compliance with the Rule, the Company may be delisted from Nasdaq. In the event we are delisted from Nasdaq,
our common stock may lose liquidity, increase volatility, and lose market maker support.
The
sale of a substantial amount of our Common Stock, including resale of the shares of Common Stock issuable upon the exercise of
Warrants being offered hereunder could adversely affect the prevailing market price of our Common Stock and cause stockholders
to experience dilution.
We
have outstanding an aggregate of 10,361,234 shares of our Common Stock as of October 1, 2018. The Warrants
being registered under this prospectus are exercisable for an aggregate of 1,175,712 shares of Common Stock, subject
to adjustment as provided in the Warrants. The Warrants are exercisable at any time. Upon such registration, these registered
shares will become generally available for immediate resale. Sales of substantial amounts of shares of our Common Stock in
the public market, or the perception that such sales might occur, could adversely affect the market price of our Common
Stock, and the market value of our other securities, and could result in dilution to shareholders who hold our Common Stock.
A substantial number of shares of Common Stock are being offered by this prospectus, and we cannot predict if and when the
Selling Stockholders may sell such shares in the public markets. In addition, certain holders of shares of our Common Stock
have additional rights, subject to some conditions, to require us to file registration statements covering the sale of their
shares or to include their shares in registration statements that we may file for ourselves or other stockholders. As a
result, the additional sale of shares into the market may result in additional volatility and downward pressure on the price
of our Common Stock.
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
prospectus, including the sections entitled “Risk Factors”, “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and “Business”, contain forward-looking statements that include information
relating to future events, future financial performance, strategies, expectations, our competitive environment, regulation and
availability of resources. These forward-looking statements include, without limitation, statements regarding: proposed new products
or services; our statements concerning litigation or other matters; statements concerning projections, predictions, expectations,
estimates or forecasts for our business, financial and operating results and future economic performance; statements of management’s
goals and objectives; trends affecting our financial condition, results of operations or future prospects; our financing plans
or growth strategies; and other similar expressions concerning matters that are not historical facts. Words such as “may”,
“will”, “should”, “could”, “would”, “predicts”, “potential”,
“continue”, “expects”, “anticipates”, “future”, “intends”, “plans”,
“believes” and “estimates,” and similar expressions, as well as similar statements in the future tense,
identify forward-looking statements.
Forward-looking
statements should not be read as a guarantee of future performance or results and will not necessarily be accurate indications
of the times at, or by which, that performance or those results will be achieved. Forward-looking statements are based on information
available at the time they are made and/or management’s good faith belief as of that time with respect to future events
and are subject to risks and uncertainties that could cause actual performance or results to differ materially from what is expressed
in or suggested by the forward-looking statements.
Forward-looking
statements speak only as of the date they are made. You should not put undue reliance on any forward-looking statements. We assume
no obligation to update forward-looking statements to reflect actual results, changes in assumptions or changes in other factors
affecting forward-looking information, except to the extent required by applicable securities laws. If we do update one or more
forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking
statements.
Factors
that could cause or contribute to our actual results differing materially from those discussed herein or for our stock price to
be adversely affected include, but are not limited to: (1) our losses in recent years, including fiscal 2017 and 2016, and our
ability to pay certain senior secured convertible debt issued in April 2017 and in connection with the June 2017 Purchase Agreement
and the December 2017 Purchase Agreement, when due; (2) macro-economic risks from the effects of the decrease in budgets for the
law-enforcement community; (3) our ability to increase revenues, increase our margins and return to consistent profitability in
the current economic and competitive environment, including whether deliveries will resume under our contract with American
Medical Response; (4) our operation in developing markets and uncertainty as to market acceptance of our technology and new
products; (5) the availability of funding from federal, state and local governments to facilitate the budgets of law enforcement
agencies, including the timing, amount and restrictions on such funding; (6) our ability to deliver our new product offerings
as scheduled in 2018 and have such new products perform as planned or advertised; (7) whether we will be able to increase the
sales, domestically and internationally, for our products, and the degree to which the interest shown in our products, including
our DVM-800 HD, FirstVU HD, VuLink, VuVault.net, FleetVU and MicroVU HD products, in 2018; (8) our ability to maintain
or expand our share of the market for our products in the domestic and international markets in which we compete, including increasing
our international revenues to their historical levels; (9) our ability to produce our products in a cost-effective manner; (10)
competition from larger, more established companies with far greater economic and human resources; (11) our ability to attract
and retain quality employees; (12) risks related to dealing with governmental entities as customers; (13) our expenditure of significant
resources in anticipation of sales due to our lengthy sales cycle and the potential to receive no revenue in return; (14) characterization
of our market by new products and rapid technological change; (15) our dependence on sales of our DVM-800, DVM-800 HD, FirstVU,
First VU HD and DVM-250 products; (16) potential that stockholders may lose all or part of their investment if we are unable to
compete in our markets and return to profitability; (17) defects in our products that could impair our ability to sell our products
or could result in litigation and other significant costs; (18) our dependence on key personnel; (19) our reliance on third-party
distributors and sales representatives for part of our marketing capability; (20) our dependence on a few manufacturers and suppliers
for components of our products and our dependence on domestic and foreign manufacturers for certain of our products; (21) our
ability to protect technology through patents and to protect our proprietary technology and information as trade secrets and through
other similar means; (22) our ability to generate more recurring cloud and service revenues; (23) risks related to our license
arrangements; (24) our revenues and operating results may fluctuate unexpectedly from quarter to quarter; (25) sufficient voting
power by coalitions of a few of our larger stockholders, including directors and officers, to make corporate governance decisions
that could have significant effect on us and the other stockholders; (26) sale of substantial amounts of our Common Stock that
may have a depressive effect on the market price of the outstanding shares of our Common Stock; (27) possible issuance of Common
Stock subject to options and warrants that may dilute the interest of stockholders; (28) our nonpayment of dividends and lack
of plans to pay dividends in the future; (29) future sale of a substantial number of shares of our Common Stock that could depress
the trading price of our Common Stock, lower our value and make it more difficult for us to raise capital; (30) our additional
securities available for issuance, which, if issued, could adversely affect the rights of the holders of our Common Stock; (31)
our stock price is likely to be highly volatile due to a number of factors, including a relatively limited public float; (32)
whether the legal actions that the Company is taking or has taken against Utility Associates, Inc. (“Utility”),
Axon and WatchGuard will achieve their intended objectives; (33) whether the United States Patent and Trademark Office (the
“USPTO”) rulings will curtail, eliminate or otherwise have an effect on the actions of Axon, WatchGuard and Utility
respecting us, our products and our customers; (34) whether the remaining two claims under the U.S. Patent No. 6,831,556
have applicability to us or our products; and (35) whether our patented VuLink technology is becoming the
de-facto
“standard”
for agencies engaged in deploying state-of-the-art body-worn and in-car camera systems; (36) the USPTO decision on WatchGuard’s
petition seeking
Inter Partes
Review of the U.S. Patent No. 8,781,292; (37) whether such technology will have a significant
impact on our revenues in the long-term; and (38) indemnification of our officers and directors.
ISSUANCE
OF WARRANTS
The
shares of common stock offered by the Selling Stockholders pursuant to this prospectus were issued, or will be issuable, in connection
with the following transactions described below:
July
2018 Proceeds Investment Agreement
On
July 31, 2018, the Company entered into a Proceeds Investment Agreement (the “July 2018 Proceeds Investment Agreement”)
with Brickell Key Investments LP (“BKI”), pursuant to which BKI funded an aggregate of $500,000 (the “First
Tranche”) to be used (i) to fund the Company’s litigation proceedings relating to the infringement of certain patent
assets listed in the July 2018 Proceeds Investment Agreement and (ii) to repay the Company’s existing debt obligations and
for certain working capital purposes set forth in the July 2018 Proceeds Investment Agreement. Pursuant to the July 2018 Proceeds
Investment Agreement, BKI was granted an option to provide the Company with an additional $9.5 million, at BKI’s sole discretion
(the “Second Tranche”). On August 21,
2018, BKI exercised such option to fund the Second Tranche. Pursuant to the July 2018 Proceeds Investment Agreement, the Company
issued BKI a warrant to purchase up to 465,712 shares of Common Stock (the “July 2018 Warrant”), at an exercise price
equal to the higher of (i) $2.60 per share or (ii) the closing market price as quoted on the Trading Market (as defined in the
July 2018 Warrant) on the day prior to the issuance date of the July 2018 Warrant, provided that the holder of the July 2018 Warrant
will be prohibited from exercising the July 2018 Warrant if, as a result of such exercise, such holder, together with its affiliates,
would own more than 4.99% of the total number of shares of Common Stock outstanding immediately after giving effect to such exercise.
However, such holder may increase or decrease such percentage to any other percentage not in excess of 9.99%, provided that any
increase in such percentage shall not be effective until 61 days after such notice to the Company. The July 2018 Warrant is exercisable
for five years from the date of issuance and is exercisable on a cashless exercise basis if there is no effective registration
statement. No contractual registration rights were given.
June
2017 Private Placement
On
June 30, 2017, the Company borrowed an aggregate of $700,000 under two unsecured promissory notes (the “June 2017
Notes”) with two private, third-party lenders. The June 2017 Notes bore interest of 8% per annum with all principal and
accrued interest due on or before their September 30, 2017 maturity date and may be prepaid without penalty at any time. The
June 2017 Notes are unsecured and subordinated to all existing and future senior indebtedness, as such term is defined in the
June 2017 Notes. In connection with the issuance of the June 2017 Notes, the Company issued such lenders warrants exercisable
to purchase a total of 200,000 shares of Common Stock at an exercise of $3.65 per share and an expiration date of June 29,
2022. On September 30, 2017, the Company negotiated an extension of the maturity date of one of the June 2017 Notes to
December 31, 2017 and then a second extension to March 31, 2018. In connection with the first extension, the Company issued
warrants to purchase 100,000 shares of common stock at $2.60 per share until November 15, 2022 (the “November 2017
Warrants”). On March 16, 2018, the Company issued warrants to purchase 60,000 shares of stock at $3.25 per share until
March 15, 2029 for the subsequent extension. On November 15, 2017, in connection with the extension of the second June
2017 Note, the Company issued a warrant to purchase 100,000 shares of stock at $2.60 per share and on March 16, 2018 in
connection with a second extension of the second June 2017 Note, the Company issued warrants to purchase 60,000 shares at
$3.25 per share. On April 3, 2018, the Company retired the second June 2017 Note, which had a principal balance of
$350,000.
August
2017 Private Placement
The
Company entered into a Securities Purchase Agreement, dated August 21, 2017, with institutional investors (the “August 2017
Purchase Agreement”) pursuant to which the Company agreed to issue and sell, in registered direct offering, an aggregate
of 940,000 shares of Common Stock at an offering price of $3.00 and Series B warrants to purchase shares of Common Stock (the
“Series B Warrants”), for gross proceeds of $3 million, before the deduction of the placement agent fee and offering
expenses. For each share of Common Stock purchased, such investors received two registered warrants, each with an exercise price
of $3.36 per share (the “Series A-1 Warrants” and the “Series A-2 Warrants”). The Series A-1 Warrants
are exercisable to purchase up to an aggregate of 680,000 shares of Common Stock (or 0.68 warrant shares per share of Common Stock
purchased) and have a term of five (5) years commencing six (6) months following the closing date. The Series A-2 Warrants are
exercisable to purchase an aggregate of 200,000 shares of Common Stock (or 0.20 warrant shares per share of Common Stock purchased)
and have a term of five (5) years. Additionally, the Company issued to certain of the investors, in lieu of shares of Common Stock
at closing, the Series B Warrants that are immediately exercisable to purchase 60,000 shares of Common Stock for which the investors
paid $2.99 per share at the closing and will pay $0.01 per share upon exercise of the Series B Warrants so that such investors’
beneficial interest would not exceed 9.9% of the issued and outstanding shares of Common Stock. The Series B Warrants terminate
upon their exercise in full. In addition, in connection with the August 2017 Purchase Agreement, the placement agents for such
offering received warrants to purchase an aggregate of 94,000 shares of Common Stock, which warrants are exercisable at a price
of $3.75 per share, have an initial exercise date of February 23, 2018 and are exercisable until August 21, 2022. Other than as
described, such warrants have substantially the same terms as the Series A-1 Warrants and the Series A-2 Warrants.
September
2017 Private Placement
On
September 29, 2017, the Company borrowed $300,000 under an unsecured note payable with a private, third party lender (the “September
2017 Note”). The September 2017 Note bore interest at 8% per annum and was due and payable in full on November 30, 2017
and could be prepaid without penalty. The September 2017 Note was unsecured and subordinated to all existing and future senior
indebtedness other than on intellectual property, as such term is defined in the June September 2017 Note. In connection with
the issuance of the September 2017 Note, the Company issued such lender warrants which were immediately exercisable to purchase
an aggregate of 100,000 shares of Common Stock at an exercise of $2.75 per share and which expire on September 30, 2022. On April
3, 2018, the Company retired the September 2017 Note, which had a principal balance of $300,000.
December
2017 Private Placement
On
December 29, 2017, the Company borrowed $350,000 with the same private, third party lender that was issued the September 2017
Note and combined such note into a new secured promissory note (the “December 2017 Note”) with a principal balance
of $658,500 as of such date that was due and payable in full on March 1, 2018 and may be prepaid without penalty. The December
2017 Note is secured by the Company’s intellectual property portfolio, as such term is defined in the related security agreement
entered into in connection with the issuance of such note. In connection with issuance of the December 2017 Note, the Company
issued such lender additional warrants which were immediately exercisable to purchase an aggregate of 120,000 shares of common
stock at an exercise price of $3.25 per share and which expire on December 28, 2022. On April 3, 2018, the Company retired the
December 2017 Note.
March
2018 Private Placements
On
March 7, 2018, the Company borrowed $250,000 under a secured promissory note payable with a private, third party lender (the “March
2018 Note”). The March 2018 Note bears interest at 12% per annum and is due and payable in full on June 7, 2018. The March
2018 Note is secured by the inventory of the Company and junior to senior liens held by the holders of the certain 8% Secured
Convertible Debentures issued by the Company in December 2016 and subordinated to all existing and future senior indebtedness,
as such term was defined in the March 2018 Note. The March 2018 Note is convertible at any time after its date of issue at the
option of the holder into shares of the Common Stock at $3.25 per share and matures on June 7, 2018. In connection with the issuance
of the March 2018 Note, the Company issued warrants to such lender exercisable to purchase 36,000 shares of Common Stock at $3.50
per share until March 7, 2019. On September 20, 2018, the Company retired the March 2018 Note.
SELLING
STOCKHOLDERS
The
table below lists the Selling Stockholders and other information regarding the “beneficial ownership” of the shares
of Common Stock by the Selling Stockholders. In accordance with Rule 13d-3 of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”), “beneficial ownership” includes any shares of Common Stock as to which
the Selling Stockholders have sole or shared voting power or investment power and any shares of Common Stock the Selling Stockholders
have the right to acquire within sixty (60) days (including shares of Common Stock issuable upon exercise of the Warrants currently
exercisable or exercisable within sixty (60) days).
The
second column indicates the number of shares of Common Stock beneficially owned by the Selling Stockholders, based on their
respective ownership as of October 1, 2018. The second column also assumes the exercise of all Warrants held by the
Selling Stockholders on October 1, 2018, without regard to any limitations on exercise described in this prospectus or
in such Warrants.
The
third column lists the shares of Common Stock being offered by this prospectus by the Selling Stockholders. Such aggregate amount
of Common Stock does not take into account any applicable limitations on exercise of the Warrants.
This
prospectus covers the resale of (i) all of the shares of Common Stock issued and issuable upon exercise of the Warrants, (ii)
any additional shares of Common Stock issued and issuable in connection with the Warrants (in each case without giving effect
to any limitations on exercise) and (iii) any securities issued or then issuable upon any stock split, dividend
or other distribution, recapitalization or similar event with respect to the Warrants.
Because
the exercise price of the Warrants may be adjusted, the number of shares of Common Stock that will actually be issued upon exercise
of the Warrants may be more or less than the number of shares of Common Stock being offered by this prospectus. The Selling Stockholders
can offer all, some or none of its shares of Common Stock, thus we have no way of determining the number of shares of Common Stock
it will hold after this offering. Therefore, the fourth and fifth columns assume that the Selling Stockholders will sell all shares
of Common Stock covered by this prospectus. See “Plan of Distribution.”
|
|
Number
of
Shares of
Common Stock
Owned Prior to
Offering (1)
|
|
|
Maximum
Number of
Shares of
Common Stock
to be Sold
Pursuant to this
Prospectus (1)
|
|
|
Number
of
Shares of
Common Stock
Owned After
Offering
|
|
|
Percentage
Beneficially
Owned After
Offering
|
|
Brickell Key Investments LP (2)
|
|
|
465,712
|
|
|
|
465,712
|
|
|
|
0
|
|
|
|
0
|
%
|
Global Equity Funding, LLC
(3)
|
|
|
300,000
|
|
|
|
300,000
|
|
|
|
0
|
|
|
|
0
|
%
|
Michael Doherty (4)
|
|
|
260,000
|
|
|
|
260,000
|
|
|
|
0
|
|
|
|
0
|
%
|
Cory Royer (5)
|
|
|
83,139
|
|
|
|
36,000
|
|
|
|
47,139
|
|
|
|
0.4
|
%
|
Royal Roofing, LLC (6)
|
|
|
20,000
|
|
|
|
20,000
|
|
|
|
0
|
|
|
|
0
|
%
|
WestPark Capital, LLC (7)
|
|
|
42,300
|
|
|
|
42,300
|
|
|
|
0
|
|
|
|
0
|
%
|
Frank Salvatore (8)
|
|
|
7,850
|
|
|
|
7,850
|
|
|
|
0
|
|
|
|
0
|
%
|
Doug Kaiser (9)
|
|
|
7,850
|
|
|
|
7,850
|
|
|
|
0
|
|
|
|
0
|
%
|
Jonathon Bloom (10)
|
|
|
18,000
|
|
|
|
18,000
|
|
|
|
0
|
|
|
|
0
|
%
|
Brandon Ross (11)
|
|
|
18,000
|
|
|
|
18,000
|
|
|
|
0
|
|
|
|
0
|
%
|
TOTAL
|
|
|
1,222,851
|
|
|
|
1,175,712
|
|
|
|
47,139
|
|
|
|
0.4
|
%
|
(1)
|
Represents
shares of Common Stock owned by the Selling Stockholders upon full exercise of Warrants offered hereby.
|
|
|
(2)
|
Represents
shares of Common Stock underlying a warrant issued to Brickell Key Investments LP in connection with the July 2018 Proceeds
Investment Agreement.
|
|
|
(3)
|
Represents
shares of Common Stock underlying warrants issued to
Global
Equity Funding, LLC in connection with its participation in the June 2017 Purchase Agreement, September 2017 Purchase
Agreement and December 2017 Purchase Agreement.
|
|
|
(4)
|
Represents
shares of Common Stock
underlying warrants issued to
Michael Doherty in connection with his participation in the June 2017 Purchase Agreement and the extensions of
the June 2017 Notes in November 2017 and March 2018.
|
|
|
(5)
|
Represents
shares of Common Stock
underlying warrants issued to
Cory Royer in connection with the issuance of the March 2018 Note.
|
|
|
(6)
|
Represents
shares of Common Stock
underlying warrants issued to
Royal Roofing, LLC in connection with its participation in the June 2017 Purchase Agreement.
|
|
|
(7)
|
Represents
shares of Common Stock underlying warrants issued to
WestPark
Capital, LLC, which acted as placement agent in connection with the August 2017 Purchase Agreement and received
such warrants for its services.
|
|
|
(8)
|
Represents
shares of Common Stock underlying warrants issued to Frank Salvatore, a principal of WestPark Capital, LLC,
which acted as placement agent in connection with the August 2017 Purchase Agreement and received such warrants
for its services.
|
|
|
(9)
|
Represents
shares of Common Stock underlying warrants issued to
Doug
Kaiser, a principal of WestPark Capital, LLC, which acted as placement agent in connection with
the August 2017 Purchase Agreement and received such warrants for its services.
|
|
|
(10)
|
Represents
shares of Common Stock underlying warrants issued to
Jonathon
Bloom, a principal of WestPark Capital, LLC, which acted as placement agent in connection with
the August 2017 Purchase Agreement and received such warrants for its services.
|
|
|
(11)
|
Represents
shares of Common Stock underlying warrants issued to
Brandon
Ross, a principal of WestPark Capital, LLC, which acted as placement agent in connection with
the August 2017 Purchase Agreement and received such warrants for its services.
|
Material
Relationships with Selling Stockholders
In
addition to the transactions described above in “Issuance of Warrants”, we have had the following material relationships
with the Selling Stockholders in the last three (3) years: The Company has been party to various investment banking and similar
arrangements with WestPark Capital, LLC pursuant to which WestPark Capital, LLC has been paid banking fees and expenses.
USE
OF PROCEEDS
The
Selling Stockholders will receive all of the proceeds from the sale of shares of Common Stock under this prospectus. We will not
receive any proceeds from these sales. However, to the extent the Warrants are exercised for cash, we will receive
up to $3,539,351. The Selling Stockholders will pay any agent’s commissions and expenses they incur for brokerage,
accounting, tax or legal services or any other expenses they incur in disposing of the shares of Common Stock. We will bear all
other costs, fees and expenses incurred in effecting the registration of the shares of Common Stock covered by this prospectus
and any prospectus supplement. These may include, without limitation, all registration and filing fees, SEC filing fees and expenses
of compliance with state securities or “blue sky” laws.
PLAN
OF DISTRIBUTION
The
Selling Stockholders and any of their respective pledgees, assignees and successors-in-interest may, from time to time, sell any
or all of their securities covered hereby on any trading market, stock exchange or other trading facility on which the securities
are traded or in private transactions. These sales may be at fixed or negotiated prices. The Selling Stockholders may use any
one or more of the following methods when selling securities:
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●
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ordinary
brokerage transactions and transactions in which the broker-dealer solicits purchasers;
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●
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block
trades in which the broker-dealer will attempt to sell the securities as agent but may position and resell a portion of the
block as principal to facilitate the transaction;
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●
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purchases
by a broker-dealer as principal and resale by the broker-dealer for its account;
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●
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an
exchange distribution in accordance with the rules of the applicable exchange;
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|
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●
|
privately
negotiated transactions;
|
|
|
|
|
●
|
settlement
of short sales;
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●
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in
transactions through broker-dealers that agree with the Selling Stockholders to sell a specified number of such securities
at a stipulated price per security;
|
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|
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●
|
through
the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise;
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●
|
a
combination of any such methods of sale; or
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|
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●
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any
other method permitted pursuant to applicable law.
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The
Selling Stockholders may also sell securities under Rule 144 under the Securities Act, if available, rather than under this prospectus.
Broker-dealers
engaged by the Selling Stockholders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive
commissions or discounts from the Selling Stockholders (or, if any broker-dealer acts as agent for the purchaser of securities,
from the purchaser) in amounts to be negotiated, but, except as set forth in a supplement to this prospectus, in the case of an
agency transaction not in excess of a customary brokerage commission in compliance with FINRA Rule 2440; and in the case of a
principal transaction a markup or markdown in compliance with FINRA IM-2440.
In
connection with the sale of the securities covered hereby, the Selling Stockholders may enter into hedging transactions with broker-dealers
or other financial institutions, which may in turn engage in short sales of the securities in the course of hedging the positions
they assume. The Selling Stockholders may also sell securities short and deliver these securities to close out their short positions,
or loan or pledge the securities to broker-dealers that in turn may sell these securities. The Selling Stockholders may also enter
into option or other transactions with broker-dealers or other financial institutions or create one or more derivative securities
which require the delivery to such broker-dealer or other financial institution of securities offered by this prospectus, which
securities such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended
to reflect such transaction).
The
Selling Stockholders and any broker-dealers or agents that are involved in selling the securities may be deemed to be “underwriters”
within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers
or agents and any profit on the resale of the securities purchased by them may be deemed to be underwriting commissions or discounts
under the Securities Act. Each Selling Stockholder has informed us that it does not have any written or oral agreement or understanding,
directly or indirectly, with any person to distribute the securities.
We
are required to pay certain fees and expenses incurred by us incident to the registration of the securities. We have agreed to
indemnify the Selling Stockholders against certain losses, claims, damages and liabilities, including liabilities under the Securities
Act.
Because
the Selling Stockholders may be deemed to be an “underwriter” within the meaning of the Securities Act, it will be
subject to the prospectus delivery requirements of the Securities Act, including Rule 172 thereunder. In addition, any securities
covered by this prospectus which qualify for sale pursuant to Rule 144 under the Securities Act may be sold under Rule 144 rather
than under this prospectus. Each Selling Stockholder has advised us that there is no underwriter or coordinating broker acting
in connection with the proposed sale of the resale securities by the Selling Stockholder.
We
agreed to keep this prospectus effective until the earlier of (i) the date on which the securities may be resold by the Selling
Stockholders without registration and without regard to any volume or manner-of-sale limitations by reason of Rule 144, without
the requirement for us to be in compliance with the current public information requirement under Rule 144 under the Securities
Act or any other rule of similar effect or (ii) all of the securities have been sold pursuant to this prospectus or Rule 144 under
the Securities Act or any other rule of similar effect. The resale securities will be sold only through registered or licensed
brokers or dealers if required under applicable state securities laws. In addition, in certain states, the resale securities covered
hereby may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the
registration or qualification requirement is available and is complied with.
Under
applicable rules and regulations under the Exchange Act, any person engaged in the distribution of the resale securities may not
simultaneously engage in market making activities with respect to the Common Stock for the applicable restricted period, as defined
in Regulation M, prior to the commencement of the distribution. In addition, the Selling Stockholders will be subject to applicable
provisions of the Exchange Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of
purchases and sales of the Common Stock by the Selling Stockholders or any other person. We will make copies of this prospectus
available to the Selling Stockholders and have informed the Selling Stockholders of the need to deliver a copy of this prospectus
to each purchaser at or prior to the time of the sale (including by compliance with Rule 172 under the Securities Act).
LEGAL
MATTERS
The
validity of the shares of Common Stock offered hereby will be passed upon for us by Robinson Brog Leinwand Greene Genovese &
Gluck P.C., New York, New York.
EXPERTS
The
consolidated financial statements of Digital Ally, Inc. as of December 31, 2017 and 2016 and for each of the years in the
two-year period ended December 31, 2017 incorporated in the prospectus by reference from the Digital Ally, Inc.’s
Annual Report on Form 10-K for the year ended December 31, 2017 have been audited by RSM US LLP, independent registered
public accounting firm, as stated in their report thereon, which is incorporated herein by reference, and have been
incorporated in this Prospectus and Registration Statement in reliance upon such report and upon the authority of such firm
as experts in accounting and auditing.
INCORPORATION
BY REFERENCE
We
incorporate by reference the filed documents listed below (excluding those portions of any Current Report on Form 8-K that are
not deemed “filed” pursuant to the General Instructions of Form 8-K), except as superseded, supplemented or modified
by this prospectus or any subsequently filed document incorporated by reference herein as described below:
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●
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our
Annual Report on Form 10-K for the fiscal year ended December 31, 2017, filed with the SEC on April 13, 2018;
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●
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our
Quarterly Report on Form 10-Q for the three months ended March 31, 2018, filed with the SEC on May 15, 2018;
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●
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our
Quarterly Report on Form 10-Q for the six months ended June 30, 2018, filed with the SEC on August 20, 2018;
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|
|
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●
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our
Current Reports on Form 8-K filed with the SEC on April 4, 2018, April 13, 2018, April 20, 2018, May 15, 2018, May 17, 2018,
June 27, 2018, July 10, 2018, August 2, 2018, August 20, 2018, August 24, 2018, September 26, 2018 and September
28, 2018; and
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|
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●
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the
description of our Common Stock in Item 1 of the Registration Statement on Form 8-A for registration of our Common Stock pursuant
to Section 12(g) of the Exchange Act filed with the SEC on December 28, 2007, including any other amendment or report filed
for the purpose of updating such description.
|
We
also incorporate by reference into this prospectus additional documents we may file with the SEC under Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act after the date hereof but before the completion or termination of this offering (excluding any
information not deemed “filed” with the SEC). Any statement contained in a previously filed document is deemed to
be modified or superseded for purposes of this prospectus to the extent that a statement contained in this prospectus or in a
subsequently filed document incorporated by reference herein modifies or supersedes the statement, and any statement contained
in this prospectus is deemed to be modified or superseded for purposes of this prospectus to the extent that a statement contained
in a subsequently filed document incorporated by reference herein modifies or supersedes the statement.
We
will provide, without charge, to each person to whom a copy of this prospectus is delivered, including any beneficial owner, upon
the written or oral request of such person, a copy of any or all of the documents incorporated by reference herein, including
exhibits. Requests should be directed to:
Digital
Ally, Inc.
9705
Loiret Blvd.,
Lenexa,
KS 66219
(913)
814-7774
Corporate@digitalallyinc.com
Copies
of these filings are also available on our website at
www.digitalallyinc.com.
For other ways to obtain a copy of these
filings, please refer to “Where You Can Find More Information” above.
WHERE
YOU CAN FIND MORE INFORMATION
We
file annual, quarterly and current reports, proxy statements and other information with the SEC. We have also filed with the SEC
under the Securities Act a registration statement on Form S-1 with respect to the Common Stock offered by this prospectus. This
prospectus, which constitutes part of the registration statement, does not contain all the information set forth in the registration
statement or the exhibits and schedules which are part of the registration statement, portions of which are omitted as permitted
by the rules and regulations of the SEC. Statements made in this prospectus regarding the contents of any contract or other document
are summaries of the material terms of the contract or document. With respect to each contract or document filed as an exhibit
to the registration statement, reference is made to the corresponding exhibit. For further information pertaining to us and the
Common Stock offered by this prospectus, reference is made to the registration statement, including the exhibits and schedules
thereto, copies of which may be inspected without charge at the Public Reference Room of the SEC at 100 F Street, N.E., Washington,
D.C. 20549 on official business days during the hours of 10 a.m. to 3 p.m. Copies of all or any portion of the registration statement
may be obtained from the SEC at prescribed rates. Information on the Public Reference Room may be obtained by calling the SEC
at 1-800-SEC-0330. In addition, the SEC maintains an Internet site that contains reports, proxy and information statements and
other information regarding issuers that file electronically with the SEC. The web site can be accessed at
www.sec.gov.
The internet address of Digital Ally is
www.digitalallyinc.com
. Information contained on our website is not a part of,
and is not incorporated into, this prospectus, and the inclusion of our website address in this prospectus is an inactive textual
reference only.
DIGITAL
ALLY, INC.
PROSPECTUS
1,175,712
Shares of Common Stock
____________,
2018
PART
II — INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item
14. Other Expenses of Issuance and Distribution.
SEC Registration Fee
|
|
$
|
413.24
|
|
Accounting Fees and Expenses
|
|
$
|
7,500.00
|
|
Legal Fees and Expenses
|
|
$
|
7,500.00
|
|
Miscellaneous
|
|
$
|
572.58
|
|
Total
|
|
$
|
15,985.82
|
|
Item
15. Indemnification of Directors and Officers.
Under
Nevada law, a corporation may include in its articles of incorporation a provision that eliminates or limits the personal liability
of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duties as a director, but no
such provision may eliminate or limit the liability of a director (a) for any breach of his or her fiduciary duty as a director,
(b) for acts or omissions not in good faith or that involve intentional misconduct, fraud or a knowing violation of law, (c) for
conduct violating the Nevada Revised Statutes (“NRS”), or (d) for any transaction from which the director will personally
receive a benefit in money, property or services to which the director is not legally entitled.
Section
78.7502 of the NRS provides, in general, that a corporation may indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, except an action by or in the right of the corporation, by reason of the fact that the person is or was a director,
officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses, including attorneys’
fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by the person in connection with the action,
suit or proceeding if the person acted in good faith and in a manner which he or she reasonably believed to be in or not opposed
to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe
the conduct was unlawful.
NRS
Section 78.4502 also provides, in general, that a corporation may indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment
in its favor by reason of the fact that the person is or was a director, officer, employee or agent of the corporation, or is
or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against expenses, including amounts paid in settlement and attorneys’ fees actually
and reasonably incurred by the person in connection with the defense or settlement of the action or suit if the person acted in
good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the corporation;
provided, however, that indemnification may not be made for any claim, issue or matter as to which such a person has been adjudged
by a court of competent jurisdiction, after exhaustion of all appeals therefrom, to be liable to the corporation or for amounts
paid in settlement to the corporation, unless and only to the extent that the court in which the action or suit was brought or
other court of competent jurisdiction determines upon application that in view of all the circumstances of the case, the person
is fairly and reasonably entitled to indemnity for such expenses as the court deems proper.
Any
indemnification pursuant to the above provisions may be made by the corporation only as authorized in the specific case upon a
determination that indemnification of the director, officer, employee or agent is proper in the circumstances. The determination
must be made: (a) by the stockholders; (b) by the Board of Directors by majority vote of a quorum consisting of directors who
were not parties to the action, suit or proceeding; (c) if a majority vote of a quorum consisting of directors who were not parties
to the action, suit or proceeding so orders, by independent legal counsel in a written opinion; or (d) if a quorum consisting
of directors who were not parties to the action, suit or proceeding cannot be obtained, by independent legal counsel in a written
opinion.
Our
Articles of Incorporation and amended and restated bylaws provide, among other things, that a director or officer of the
corporation may be indemnified against expenses, liability, and loss (including attorneys’ fees inclusive of any appeal),
judgments, fines and amounts paid in settlement reasonably incurred by such person in connection with any claim, action, suit
or proceeding, whether civil, criminal, or investigative, to the fullest extent permitted under the NGCL, unless it is ultimately
determined by a court of competent jurisdiction that he is not entitled to be indemnified by the corporation. Directors and officers
of the corporation cannot be personally liable for damages for breach of fiduciary duty, except (a) for acts of omissions involving
intentional misconduct, fraud, or knowing violation of law, or (b) the payment of dividends in violation of Section 78.300 of
the NRS.
Insofar
as indemnification for liabilities arising under the Securities Act of 1933, as amended (the “Securities Act”) may
be provided for directors, officers, employees, agents or persons controlling an issuer pursuant to the foregoing provisions,
the opinion of the Securities and Exchange Commission (the “SEC”) is that such indemnification is against public policy
as expressed in the Securities Act, and is therefore unenforceable. In the event that a claim for indemnification by such director,
officer or controlling person of us in the successful defense of any action, suit or proceeding is asserted by such director,
officer or controlling person in connection with the securities being offered, we will, unless in the opinion of our counsel the
matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification
by us is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
At
the present time, there is no pending litigation or proceeding involving a director, officer, employee or other agent of ours
in which indemnification would be required or permitted. We are not aware of any threatened litigation or proceeding, which may
result in a claim for such indemnification.
Item
16. Exhibits.
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(a)
|
A
list of the exhibits required by Item 601 of Regulation S-K to be filed as a part of this registration statement is set forth
in the Index to Exhibits, which immediately precedes such exhibits.
|
Item
17. Undertakings.
The
undersigned registrant hereby undertakes:
|
(1)
|
To
file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
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|
i.
|
To
include any prospectus required by section 10(a)(3) of the Securities Act of 1933;
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ii.
|
To
reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information
set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered
(if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low
or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the SEC pursuant
to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate
offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement.
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iii.
|
To
include any material information with respect to the plan of distribution not previously disclosed in the registration statement
or any material change to such information in the registration statement;
|
Provided
however that:
Paragraphs
(a)(1)(i), (a)(1)(ii) and (a)(1)(iii) of this section do not apply if the registration statement is on Form S-3 and the information
required to be included in a post-effective amendment by those paragraphs is contained in reports filed with or furnished to the
Commission by the registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are incorporated
by reference in the registration statement, or is contained in a form of prospectus filed pursuant to Rule 424(b) that is part
of the registration statement;
|
(2)
|
That,
for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
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|
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(3)
|
To
remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold
at the termination of the offering.
|
|
|
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|
(4)
|
That,
for the purpose of determining liability under the Securities Act of 1933 to any purchaser:
|
(i)
Each prospectus filed by the registrant pursuant to Rule 424(b)(3) shall be deemed to be part of the registration statement as
of the date the filed prospectus was deemed part of and included in the registration statement; and
(ii)
Each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as part of a registration statement in reliance
on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (vii), or (x) for the purpose of providing the information
required by Section 10(a) of the Securities Act of 1933 shall be deemed to be part of and included in the registration statement
as of the earlier of the date such form of prospectus is first used after effectiveness or the date of the first contract of sale
of securities in the offering described in the prospectus. As provided in Rule 430B, for liability purposes of the issuer and
any person that is at that date an underwriter, such date shall be deemed to be a new effective date of the registration statement
relating to the securities in the registration statement to which that prospectus relates, and the offering of such securities
at that time shall be deemed to be the initial
bona fide
offering thereof.
Provided, however
, that no statement
made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or
deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will,
as to a purchaser with a time of contract of sale prior to such effective date, supersede or modify any statement that was made
in the registration statement or prospectus that was part of the registration statement or made in any such document immediately
prior to such effective date.
|
(5)
|
That,
for purposes of determining any liability under the Securities Act of 1933, as amended, each filing of the registrant’s
annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended (and, where applicable,
each filing of an employee benefit plan’s annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934, as amended) that is incorporated by reference in the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof;
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|
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(6)
|
Insofar
as indemnification for liabilities arising under the Securities Act of 1933, as amended, may be permitted to directors, officers
and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised
that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in
the Securities Act of 1933, as amended, and is, therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Securities Act of 1933, as amended, and will be governed
by the final adjudication of such issue.
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SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Lenexa, State of Kansas, on October
2, 2018.
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DIGITAL
ALLY, INC.
|
|
|
|
|
By:
|
/s/
Stanton E. Ross
|
|
Name:
|
Stanton
E. Ross
|
|
Title:
|
Chairman,
President and Chief Executive Officer
|
|
|
(Principal
Executive Officer)
|
Power
of Attorney
KNOW
ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints each of Stanton E. Ross and
Thomas J. Heckman, his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution,
for him or her and in his or her name, place and stead, in any and all capacities, to sign, execute and file with the Securities
and Exchange Commission and any state securities regulatory board or commission any documents relating to the proposed issuance
and registration of the securities offered pursuant to this registration statement on Form S-3 under the Securities Act of 1933,
as amended, including any amendment or amendments relating thereto (and, in addition, any post-effective amendments), with all
exhibits and any and all documents required to be filed with respect thereto with any regulatory authority, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite
and necessary to be done in and about the premises in order to effectuate the same as fully to all intents and purposes as he
or she might or could do if personally present, hereby ratifying and confirming all that said attorneys-in-fact and agents, or
either of them, or their or his substitutes, may lawfully do or cause to be done.
Pursuant
to the requirements of the Securities Act of 1933, this registration statement has been signed below by the following persons
in the capacities indicated below on the 2nd day of October, 2018.
Signature
and Title
|
|
Date
|
|
|
|
/s/
Stanton E. Ross
|
|
October 2
,
2018
|
Name:
Stanton E. Ross
Title:
Chairman, President and Chief Executive Officer
|
|
|
|
|
|
/s/
Thomas J. Heckman
|
|
October 2
,
2018
|
Name:
Thomas J. Heckman
Title:
Chief Financial Officer, Secretary and Treasurer
|
|
|
|
|
|
/s/
Leroy C. Richie
|
|
October 2
,
2018
|
Name:
Leroy C. Richie
Title:
Director
|
|
|
|
|
|
/s/
Michael J. Caulfield
|
|
October 2
,
2018
|
Name:
Michael J. Caulfield
Title:
Director
|
|
|
|
|
|
/s/
Daniel F. Hutchins
|
|
October 2
,
2018
|
Name:
Daniel F. Hutchins
Title:
Director
|
|
|
EXHIBIT
INDEX
(a)
The following exhibits are filed as part of this registration statement.
*Filed
herewith.
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