Digital Ally, Inc. (Nasdaq: DGLY) (the “Company” or “our”), today
announced its operating results for the third quarter 2023. An
investor conference call is scheduled for 11:15 a.m. EDT on
Wednesday, November 15, 2023 (see details below).
All share and price per share information in
this press release has been adjusted to reflect the Company’s
1-for-20 reverse stock split, which was effective on February 6,
2023.
Highlights for the third quarter ended
September 30, 2023
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Total revenues for the three months ended September 30, 2023 were
$6,337,699, a decrease of $2,146,454, or (25%), as compared to
$8,484,153 for the three months ended September 30, 2022. Overall
product revenues were $2,095,237 for the three months ended
September 30, 2023, a decrease of $967,136, or (32%), as compared
to $3,062,373 for the three months ended September 30, 2022. The
decrease in product revenues for the period is attributable to the
Entertainment Segment’s (the “Entertainment Segment”) efforts to
reduce expenses and maximize their margins, thus leading to a
significant decrease in product revenue for the three months ended
September 30, 2023 compared to the three months in September 30,
2022. Service and other revenues also experienced a decline during
the three months ended September 30, 2023, in comparison to the
same period in 2022, due to a reduction in marketing expenses
within the Entertainment Segment, that resulted in a correlating
decline in service revenues for the period. The primary reason for
the overall revenue decrease is a decrease of $876,542, or (33%),
in service revenues from 2022 levels at the Entertainment Segment,
due to the reduction in marketing expenses within the Entertainment
Segment throughout the period. |
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On September 1, 2021, the Company formed a wholly-owned subsidiary,
TicketSmarter, Inc., through which the Company completed the
acquisition of Goody Tickets, LLC (“Goody Tickets”) and
TicketSmarter, LLC (“TicketSmarter”) (collectively the
“TicketSmarter Acquisition”). Goody Tickets and TicketSmarter®, are
ticket resale marketplaces with seats offered at over 125,000 live
events, offering over 48 million tickets for sale through its
TicketSmarter.com platform. Within this Entertainment Segment, the
Company also formed Kustom 440, Inc. (“Kustom 440”) in late 2022 to
create unique entertainment experiences through concerts,
festivals, and private experiences. This segment generated
additional revenues totaling $2,903,808 in service and product
revenues for the three months ended September 30, 2023, a decrease
of $1,472,306, or (34%), as compared to $4,376,114 in service and
product revenues for the three months ended September 30, 2022. The
decrease is largely due to management’s focus on right-sizing the
Entertainment Segment, and working towards profitability; thus,
decreasing marketing expenses, directly correlating to a decrease
in revenues. |
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We entered the revenue cycle management business late in the second
quarter of 2021 with the formation of our wholly owned subsidiary,
Digital Ally Healthcare, Inc. and its majority-owned subsidiary
Nobility Healthcare, LLC (“Nobility Healthcare”). Nobility
Healthcare completed its first acquisition on June 30, 2021, when
it acquired a private medical billing company, and a second
acquisition on August 31, 2021 upon the completion of its
acquisition of another private medical billing company. On January
1, 2022, Nobility Healthcare completed the acquisition of 100% of
the capital stock of a private dental billing company.
Additionally, on February 1, 2022, Nobility Healthcare also
completed an asset purchase for a portfolio of a medical billing
company. These acquisitions further enhanced the Company’s Revenue
Cycle Management Operating Segment (the “Revenue Cycle Management
Operating Segment”), which provides revenue cycle management
solutions to medium to large healthcare organizations throughout
the country. These acquisitions, along with the Revenue Cycle
Management Operating Segment’s acquisitions that were previously
completed in 2021, generated service revenues for the three months
ended September 30, 2023 of $1,636,543, a decrease of $378,569, or
(19%), as compared to $2,015,112 for the three months ended
September 30, 2022. |
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Our healthcare venture is following a roll-up strategy in the
medical billing industry. The venture’s acquisition targets include
the approximate 6,000 medical billing companies in the United
States, most of which are relatively small and closely-held private
companies. Each year a portion of these company owners sell because
they want to retire or exit the business for other pursuits. The
Company saw the opportunity to form the venture and provide the
capital to make acquisitions and pursue the medical billing company
roll-up strategy at a faster pace. We expect our healthcare venture
to continue its track record of providing superior medical billing
services and practice management services, as well as executing a
profitable roll-up strategy. |
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Overall gross profits for the three months ended September 30, 2023
were $1,595,500, an increase of $630,649, or 106%, as compared to
$595,500 for the three months ended September 30, 2022. The overall
increase is attributable to the consistent focus on the cost of
goods sold, particularly surrounding the Entertainment Segment, as
well as the enhanced margins within the Video Solutions Segment
(the “Video Solutions Segment”), with its newer product offerings.
Our goal is to improve our margins over the longer term based on
the expected margins generated by our new recent Revenue Cycle
Management Operating Segment and Entertainment Segment together
with our Video Solutions Segment and its expected margins from our
EVO-Fleet, EVO-HD, DVM-800, VuLink, FirstVu Pro, FirstVu II, Shield
disinfectants and our cloud evidence storage and management
offerings, as they gain traction in the marketplace. In addition,
if revenues from the Video Solutions Segment increase, we will seek
to further improve our margins from this segment through expansion
and increased efficiency utilizing fixed manufacturing overhead
components. We plan to continue our initiative to more efficient
management of our supply chain through outsourcing production,
quantity purchases and more effective purchasing practices. |
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Selling, general and administrative expenses for the three months
ended September 30, 2023 were $6,374,192, a decrease of $788,331,
or (11%), as compared to $7,162,523 for the three months ended
September 30, 2022. The decrease was primarily attributable to the
reduction in new sponsorships being entered into by the
Company. |
Recent Developments
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In June 2023, the Company, entered into an Agreement and Plan of
Merger (the “Merger Agreement”) with Clover Leaf Capital Corp., a
Delaware corporation (Nasdaq: CLOE) (“Clover Leaf”), CL Merger Sub,
Inc., a Nevada corporation and a wholly owned subsidiary of Clover
Leaf (“Merger Sub”), Yntegra Capital Investments LLC, a Delaware
limited liability company, in the capacity as the representative
from and after the Effective Time (as defined in the Merger
Agreement) for the stockholders of Clover Leaf in accordance with
the terms and conditions of the Merger Agreement, and Kustom
Entertainment, Inc., a Nevada corporation, a wholly owned
subsidiary of the Company, with a focus and mission to own and
produce events, festivals, and entertainment alongside its evolving
primary and secondary ticketing technologies (“Kustom”). Pursuant
to the Merger Agreement, subject to the terms and conditions set
forth therein upon the consummation of the transactions
contemplated by the Merger Agreement (the “Closing”), Merger Sub
will merge with and into Kustom, with Kustom continuing as the
surviving corporation in the Merger and a wholly owned subsidiary
of Clover Leaf. Upon the Closing, which is subject to the
satisfaction or waiver of certain other customary closing
conditions (including the approval of Clover Leaf’s shareholders),
the common stock of the combined company is expected to be listed
on Nasdaq under a mutually agreed new ticker symbol that reflects
the name “Kustom Entertainment.” In October 2023, Kustom
Entertainment and Clover Leaf announced the filing of a
Registration Statement on Form S-4 by Clover Leaf with the SEC on
October 4, 2023, relating to the previously announced proposed
business combination between Kustom Entertainment and Clover
Leaf. |
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On October 17, 2023, the Board of Directors of the Company (the
“Board”) appointed D. Duke Daughtery as a member of the Board,
effective immediately, to hold office until the next meeting of
shareholders of the Company at which directors are being elected or
as set forth in the Company’s bylaws. |
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On October 26, 2023, the Company entered into a Loan and Security
Agreement (the “Loan Agreement”) by and between the Company,
Digital Ally Healthcare (together with the Company, the
“Borrower”), and Kompass Kapital Funding, LLC, a Kansas limited
liability company (“Kompass”). In connection with the Loan
Agreement, on October 26, 2023, the Company entered into a
Mortgage, Assignment of Leases and Rents, Security Agreement and
Fixture Filing (the “Mortgage”) by and between the Company, as
grantor, and Kompass, as grantee, and issued a Revolving Note (the
“Revolving Note”) to Kompass. The gross proceeds to the Company are
$4,880,000 before repaying those certain Senior Secured Convertible
Notes issued on April 5, 2023 in the aggregate amount of $3,162,500
and paying customary fees and expenses. Pursuant to the Loan
Agreement, Kompass agreed to make the revolving loans (the
“Revolving Loans”) available to the Borrower as the Borrower may
from time to time request until, but not including, October 26,
2025, and in such amounts as the Borrower may from time to time
request, provided, however, that the aggregate principal balance of
the Revolving Loans outstanding at any time shall not exceed the
lesser of $4,880,000.00 or an amount equal to eighty percent of the
value of the mortgaged property, which consists of the real
property owned by the Company (the “Mortgaged Property”). Under the
Loan Agreement, the Revolving Loans made by Kompass may be repaid
and, subject to customary terms and conditions, borrowed again up
to, but not including October 26, 2025, unless the Revolving Loans
are otherwise accelerated, terminated or extended as provided in
the Loan Agreement. The Revolving Loans shall be used by the
Borrower for the purpose of working capital and to retire existing
debt. Under the Loan Agreement, the borrower is required to provide
written notice to Kompass prior to creating, assuming or incurring
any debt or becoming liable, whether as endorser, guarantor, surety
or otherwise, for any debt or obligation of any other party. While
obligations remain outstanding under the Loan Agreement, the
Borrower is required to maintain a minimum balance of $97,600 in a
reserve account. Under the Loan Agreement, the Borrower is
prohibited from creating, assuming, incurring or suffering or
permitting to exist any lien of any kind or character upon the
collateral, which consists of the Mortgaged Property and the
Company’s interest in the Capital Reserve Account. The Loan
Agreement contains customary covenants, representations and
warranties by the Borrower. Pursuant to the Loan Agreement,
the Company issued the Revolving Note to Kompass whereby the
Company and Digital Ally Healthcare jointly and severally promise
to pay to the order of Kompass the lesser of (i) $4,880,000.00, or
(ii) the aggregate principal amount of all Revolving Loans
outstanding under and pursuant to the Loan Agreement at the
maturity or maturities and in the amount or amounts stated on the
records of Kompass, together with interest (computed on the actual
number of days elapsed on the basis of a 360 day year) at a
floating per annum rate equal to the greater of (i) the Prime Rate
plus four percent or (ii) eight percent, on the aggregate principal
amount of all Revolving Loans outstanding from time to time as
provided in the Loan Agreement. The Company entered into the
Mortgage to secure its obligations under the Loan Agreement. The
property mortgaged under the Mortgage consists of the Mortgaged
Property. The Mortgage contains customary covenants,
representations and warranties by the Company. |
Management Comments
Stanton E. Ross, Chief Executive Officer of
Digital Ally, stated, “We are very pleased to report over $6.3
million in quarterly revenues for the third quarter of 2023, along
with greatly improved gross profits compared to the third quarter
of 2022. We are pleased to see the continued success and traction
in the marketplace with our new video products, particularly the
EVO-HD, FirstVu Pro, and QuickVu docking stations, which are
continuing to build upon our existing subscription plans and
deferred revenue. It is exciting to see our deferred revenue
balance approaching the $10 million mark, as our contract
liabilities went from approximately $7.2 million at September 30,
2022, to nearly $9.9 million at September 30, 2023. We continue to
build excitement around the momentum being gained in our Digital
Ally Healthcare venture, as Nobility Healthcare, LLC continues to
right-size and maximize the profitability of the four completed
acquisitions. The numerous medical billing company acquisitions
that we have already completed demonstrate our roll-up strategy is
effective and attractive to potential targets. We look forward to
seeing the growth potential of this venture come to fruition and
continue throughout 2023 and beyond.”
Ross added: “Additionally, we are very excited
about the filing of a Registration Statement on Form S-4 by Clover
Leaf with the SEC relating to the proposed business combination
between Kustom Entertainment and Clover Leaf Capital Corp. to
create Kustom Entertainment, Inc., a company with a focus and
mission to own and produce events, festivals, and entertainment
alongside its evolving primary and secondary ticketing
technologies. We expect that this business combination will provide
clarity to both shareholder as well as the marketplace, showing two
distinct, stand-alone entities, Digital Ally and Kustom
Entertainment, Further, we remain excited about the organic growth
opportunities with the Kustom 440 subsidiary. Kustom 440 hosted its
first festival during 2023, in Kansas City at Legends Field,
headlining Chris Young and Gabby Barrett. We were very pleased with
the results of the show and the turn-out for this event and look
forward to announcing more shows in the near future. We will
continue to inform our investors as we move forward with the
business combination, alongside our continuous efforts to take
advantage of new business opportunities and to maximize our
existing business lines to benefit the Company and its shareholders
through 2023 and beyond.”
2023 Operating Results
Total revenues for the three months ended
September 30, 2023 and 2022 were $6,337,699 and $8,484,153,
respectively, a decrease of $2,146,454 (25%).
Overall gross profit for the three months ended
September 30, 2023 and 2022 was $1,226,149 and $595,500,
respectively, an increase of $630,649 (106%). The overall increase
is attributable to the Entertainment Segment reaching profitability
for the three months ended September 30, 2023 along with a
sustained gross profit within the Video Solutions Segment and
Revenue Cycle Management Operating Segment. Further, a decrease in
the overall cost of sales as a percentage of overall revenues to
81% for the three months ended September 30, 2023 from 93% for the
three months ended September 30, 2022 also contributed to improved
gross profits.
Selling, general and administrative expenses
were $6,374,192 and $7,162,523 for the three months ended September
30, 2023 and 2022, respectively, a decrease of $788,331 (11%). The
decrease was primarily attributable to the reduction in new
sponsorships being entered into by the Company.
We reported an operating loss of $5,148,043 and
$6,567,023 for the three months ended September 30, 2023 and 2022,
respectively, an improvement of $1,418,980 (22%).
Total other income decreased to $1,469,000 for
the three months ended September 30, 2023, compared to total other
income of $4,647,952 for the three months ended September 30, 2022.
The decrease in other income was largely attributable to the gain
on the change in fair value of warrant derivative liabilities of
$1,863,326 and interest expenses of $959,898 associated with the
April 5, 2023 Purchase Agreement, both incurred during the three
months ended September 30, 2023 as compared to other income of
$1,164,849 related to the change in fair value of warrant
derivative liabilities and a gain on the extinguishment of warrants
derivative liabilities of $3,624,794 during the three months ended
September 30, 2022.
We reported a net loss attributable to common
stockholders of $3,708,673, or $1.32 per share, and $1,902,475, or
$0.76 per share, for the years three months September 30, 2023 and
2022, respectively. No income tax provision or benefit was recorded
in either 2023 or 2022 as the Company has maintained a full
valuation reserve on its deferred tax assets.
Investor Conference Call
The Company will host an investor
conference call at 11:15 a.m. EDT on Wednesday, November 15, 2023,
to discuss its third quarter 2023 financial results, corporate and
individual subsidiary outlook, and previously announced corporate
separation. Shareholders and other interested parties may
participate in the conference call by dialing 888-886-7786 and
entering conference ID #73514221 a few minutes before 11:15 a.m.
Eastern on Wednesday, November 15, 2023.
For additional news and information please visit
DigitalAlly.com or follow additional Digital Ally Inc. social media
channels here:
Facebook | Instagram | LinkedIn | Twitter
Additional Information and Where to Find It
In connection with the business combination
between Clover Leaf and Kustom Entertainment (the “Business
Combination”), Clover Leaf has filed a proxy statement and
registration statement on Form S-4 (the “Proxy/Registration
Statement”) with the SEC (as defined herein), which includes a
proxy statement to be distributed to holders of Clover Leaf’s
common stock in connection with Clover Leaf’s solicitation of
proxies for the vote by Clover Leaf’s stockholders with respect to
the Business Combination and other matters as described in the
Proxy/Registration Statement, as well as, a prospectus relating to
the offer of the securities to be issued to Kustom Entertainment’s
stockholder in connection with the Business Combination. After the
Proxy/Registration Statement has been approved by the SEC, Clover
Leaf will mail a definitive proxy statement, when available, to its
stockholders. Before making any voting or investment decision,
investors and security holders of Clover Leaf and other interested
parties are urged to read the proxy statement and/or prospectus,
any amendments thereto and any other documents filed with the SEC
carefully and in their entirety when they become available because
they will contain important information about the Business
Combination and the parties to the Business Combination. Investors
and security holders may obtain free copies of the preliminary
proxy statement/prospectus and definitive proxy
statement/prospectus (when available) and other documents filed
with the U.S. Securities and Exchange Commission (the “SEC”) by
Clover Leaf through the website maintained by the SEC at
http://www.sec.gov, or by directing a request to: 1450 Brickell
Avenue, Suite 1420, Miami, FL 33131.
Forward-Looking Statements
This press release contains forward-looking
statements within the meaning of Section 27A of the Securities Act
of 1933 and Section 21E of the Securities Act of 1934. These
forward-looking statements are based largely on the expectations or
forecasts of future events, can be affected by inaccurate
assumptions, and are subject to various business risks and known
and unknown uncertainties, a number of which are beyond the control
of management. Therefore, actual results could differ materially
from the forward-looking statements contained in this press
release. These forward-looking statements include, without
limitation, Digital Ally’s, Clover Leaf’s and Kustom
Entertainment’s expectations with respect to the proposed Business
Combination between Clover Leaf and Kustom Entertainment, including
statements regarding the benefits of the Business Combination, the
anticipated timing of the Business Combination, the implied
valuation of Kustom Entertainment, the products offered by Kustom
Entertainment and the markets in which it operates, and Kustom
Entertainment’s projected future results. A wide variety of factors
that may cause actual results to differ from the forward-looking
statements include, but are not limited to, the following: (1) our
losses in recent years, including fiscal years 2022 and 2021; (2)
economic and other risks for our business from the effects of the
COVID-19 pandemic, including the impacts on our law-enforcement and
commercial customers, suppliers and employees and on our ability to
raise capital as required; (3) our ability to increase revenues,
increase our margins and return to consistent profitability in the
current economic and competitive environment; (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 2023, and whether new products
perform as planned or advertised and whether they will help
increase our revenues; (7) whether we will be able to increase the
sales, domestically and internationally, for our products in the
future; (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; (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)
that stockholders may lose all or part of their investment if we
are unable to compete in our markets and return to profitability;
(16) defects in our products that could impair our ability to sell
our products or could result in litigation and other significant
costs; (17) our dependence on key personnel; (18) our reliance on
third-party distributors and sales representatives for part of our
marketing capability; (19) 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;
(20) our ability to protect technology through patents and to
protect our proprietary technology and information, such as trade
secrets, through other similar means; (21) our ability to generate
more recurring cloud and service revenues; (22) risks related to
our license arrangements; (23) our revenues and operating results
may fluctuate unexpectedly from quarter to quarter; (24) sufficient
voting power by coalitions of a few of our larger stockholders,
including directors and officers, to make corporate governance
decisions that could have a significant effect on us and the other
stockholders; (25) the 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; (26) the possible issuance
of Common Stock subject to options and warrants that may dilute the
interest of stockholders; (27) our nonpayment of dividends and lack
of plans to pay dividends in the future; (28) 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; (29) our additional
securities available for issuance, which, if issued, could
adversely affect the rights of the holders of our Common Stock;
(30) our stock price is likely to be highly volatile due to a
number of factors, including a relatively limited public float;
(31) whether such technology will have a significant impact on our
revenues in the long-term; (32) whether we will be able to meet the
standards for continued listing on the Nasdaq Capital Market; (33)
indemnification of our officers and directors; (34) risks related
to our proposed business combination, including our ability to
consummate the transactions and our ability to realize some or all
of the anticipated benefits therefrom; (35) the risk that the
Business Combination may not be completed in a timely manner or at
all, which may adversely affect the price of Digital Ally’s and
Clover Leaf’s securities; (36) the risk that the Business
Combination may not be completed by Clover Leaf’s business
combination deadline, even if extended by its stockholders; (37)
the potential failure to obtain an extension of the business
combination deadline if sought by Clover Leaf; (38) the failure to
satisfy the conditions to the consummation of the Business
Combination, including the adoption of the Merger Agreement by the
stockholders of Clover Leaf; (39) the occurrence of any event,
change or other circumstance that could give rise to the
termination of the Merger Agreement; (40) the failure to obtain any
applicable regulatory approvals required to consummate the Business
Combination; (41) the receipt of an unsolicited offer from another
party for an alternative transaction that could interfere with the
Business Combination; (42) the effect of the announcement or
pendency of the Business Combination on Kustom Entertainment’s
business relationships, performance, and business generally; (43)
the inability to recognize the anticipated benefits of the Business
Combination, which may be affected by, among other things,
competition and the ability of the post-combination company to grow
and manage growth profitability and retain its key employees; (44)
costs related to the Business Combination; (45) the outcome of any
legal proceedings that may be instituted against Kustom
Entertainment or Clover Leaf following the announcement of the
proposed Business Combination; (46) the ability to maintain the
listing of Clover Leaf’s securities on the Nasdaq prior to the
Business Combination; (47) the ability to implement business plans,
forecasts, and other expectations after the completion of the
proposed Business Combination, and identify and realize additional
opportunities; (48) the risk of downturns and the possibility of
rapid change in the highly competitive industry in which Kustom
Entertainment operates; (49) the risk that demand for Kustom
Entertainment’s services may be decreased due to a decrease in the
number of large-scale sporting events, concerts and theater shows;
(50) the risk that any adverse changes in Kustom Entertainment’s
relationships with buyer, sellers and distribution partners may
adversely affect the business, financial condition and results of
operations; (51) the risk that changes in Internet search engine
algorithms and dynamics, or search engine disintermediation, or
changes in marketplace rules could have a negative impact on
traffic for Kustom Entertainment’s sites and ultimately, its
business and results of operations; (52) the risk that any decrease
in the willingness of artists, teams and promoters to continue to
support the secondary ticket market may result in decreased demand
for Kustom Entertainment’s services; (53) the risk that Kustom
Entertainment is not able to maintain and enhance its brand and
reputation in its marketplace, adversely affecting Kustom
Entertainment’s business, financial condition and results of
operations; (54) the risk of the occurrence of extraordinary
events, such as terrorist attacks, disease epidemics or pandemics,
severe weather events and natural disasters; (55) the risk that
because Kustom Entertainment’s operations are seasonal and its
results of operations vary from quarter to quarter and year over
year, its financial performance in certain financial quarters or
years may not be indicative of, or comparable to, Kustom
Entertainment’s financial performance in subsequent financial
quarters or years; (56) the risk that periods of rapid growth and
expansion could place a significant strain on Kustom
Entertainment’s resources, including its employee base, which could
negatively impact Kustom Entertainment’s operating results; (57)
the risk that Kustom Entertainment may never achieve or sustain
profitability; (58) the risk that Kustom Entertainment may need to
raise additional capital to execute its business plan, which many
not be available on acceptable terms or at all; (59) the risk that
third-parties suppliers and manufacturers are not able to fully and
timely meet their obligations; (60) the risk that Kustom
Entertainment is unable to secure or protect its intellectual
property; (61) the risk that the post-combination company’s
securities will not be approved for listing on Nasdaq or if
approved, maintain the listing and (62) other risks and
uncertainties indicated from time to time in the proxy statement
and/or prospectus to be filed relating to the Business Combination.
These cautionary statements should not be construed as exhaustive
or as any admission as to the adequacy of the Company’s
disclosures. The Company cannot predict or determine after the fact
what factors would cause actual results to differ materially from
those indicated by the forward-looking statements or other
statements. The reader should consider statements that include the
words “believes,” “expects,” “anticipates,” “intends,” “estimates,”
“plans,” “projects,” “should,” or other expressions that are
predictions of or indicate future events or trends, to be uncertain
and forward-looking. It does not undertake to publicly update or
revise forward-looking statements, whether because of new
information, future events or otherwise. Additional information
respecting factors that could materially affect the Company and its
operations are contained in its filings with the SEC.
The foregoing list of factors is not exhaustive.
Recipients should carefully consider such factors, with respect to
the proposed Business Combination, and the other risks and
uncertainties described and to be described in the “Risk Factors”
section of Clover Leaf’s Annual Report on Form 10-K filed for the
year ended December 31, 2022 filed with the SEC on April 14, 2023
and subsequent periodic reports filed by Clover Leaf with the SEC,
the Proxy Statement and Registration Statement and other documents
filed or to be filed by Clover Leaf from time to time with the SEC.
These filings identify and address other important risks and
uncertainties that could cause actual events and results to differ
materially from those contained in the forward-looking statements
with respect to the proposed Business Combination. Forward-looking
statements speak only as of the date they are made. Recipients are
cautioned not to put undue reliance on forward-looking statements
with respect to the proposed Business Combination, and neither
Kustom Entertainment nor Clover Leaf assume any obligation to, nor
intend to, update or revise these forward-looking statements,
whether as a result of new information, future events, or
otherwise, except as required by law. Neither Kustom Entertainment
nor Clover Leaf gives any assurance that either Kustom
Entertainment or Clover Leaf, or the combined company, will achieve
its expectations.
Participants in the Solicitation
Clover Leaf and Kustom Entertainment and their
respective directors and certain of their respective executive
officers and other members of management and employees may be
considered participants in the solicitation of proxies from the
stockholders of Clover Leaf with respect to the Business
Combination. Information about the directors and executive officers
of Clover Leaf is set forth in its Annual Report on Form 10-K for
the fiscal year ended December 31, 2022 filed with the SEC on April
14, 2023. Additional information regarding the participants in the
proxy solicitation and a description of their direct and indirect
interests, by security holdings or otherwise, will be included in
the proxy statement and/or prospectus and other relevant materials
to be filed with the SEC regarding the Business Combination when
they become available. Stockholders, potential investors and other
interested persons should read the proxy statement and/or
prospectus carefully when it becomes available before making any
voting or investment decisions. When available, these documents can
be obtained free of charge from the sources indicated above.
No Offer or Solicitation
This communication shall not constitute a
solicitation of a proxy, consent or authorization with respect to
any securities or in respect of the proposed Business Combination.
This communication shall not constitute an offer to sell or the
solicitation of an offer to buy any securities, nor shall there be
any sale of securities in any state or jurisdiction in which such
offer, solicitation or sale would be unlawful prior to registration
or qualification under the securities laws of any such state or
jurisdiction. No offering of securities shall be made except by
means of a prospectus meeting the requirements of Section 10 of the
U.S. Securities Act of 1933, as amended, or an exemption
therefrom.
For Additional Information, Please
Contact:Brody J. Green, President, at (913)
814-7774,Stanton E. Ross, CEO, at (913) 814-7774,
orThomas J. Heckman, CFO, at (913)
814-7774
(Financial Highlights Follow)
DIGITAL ALLY,
INC.CONDENSED CONSOLIDATED BALANCE
SHEETSSEPTEMBER 30, 2023 AND DECEMBER 31,
2022
|
|
September 30,
2023(Unaudited) |
|
|
December 31, 2022 |
|
Assets |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
2,207,831 |
|
|
$ |
3,532,199 |
|
Accounts receivable – trade, net of $200,667 allowance – September
30, 2023 and $152,736 – December 31, 2022 |
|
|
2,022,730 |
|
|
|
2,044,056 |
|
Other receivables, net of $5,000 allowance – September 30, 2023 and
$0 – December 31, 2022 (including $0 due from related parties –
September 30, 2023 and $138,384 – December 31, 2022, refer to Note
20) |
|
|
2,617,812 |
|
|
|
4,076,522 |
|
Inventories, net |
|
|
5,194,779 |
|
|
|
6,839,406 |
|
Prepaid expenses |
|
|
7,323,615 |
|
|
|
8,466,413 |
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
19,366,767 |
|
|
|
24,958,596 |
|
|
|
|
|
|
|
|
|
|
Property, plant, and
equipment, net |
|
|
7,451,042 |
|
|
|
7,898,686 |
|
Goodwill and other intangible
assets, net |
|
|
16,861,228 |
|
|
|
17,872,970 |
|
Operating lease right of use
assets, net |
|
|
1,034,518 |
|
|
|
782,129 |
|
Income tax receivable |
|
|
9,447 |
|
|
|
— |
|
Other assets |
|
|
6,633,072 |
|
|
|
5,155,681 |
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
51,356,074 |
|
|
$ |
56,668,062 |
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
12,589,610 |
|
|
$ |
9,477,355 |
|
Accrued expenses |
|
|
2,808,068 |
|
|
|
1,090,967 |
|
Current portion of operating lease obligations |
|
|
264,958 |
|
|
|
294,617 |
|
Contract liabilities – current portion |
|
|
2,751,983 |
|
|
|
2,154,874 |
|
Notes payable – related party – current portion |
|
|
2,106,000 |
|
|
|
— |
|
Debt obligations, net – current portion |
|
|
2,213,148 |
|
|
|
485,373 |
|
Warrant derivative liabilities |
|
|
1,412,820 |
|
|
|
— |
|
Income taxes payable |
|
|
— |
|
|
|
8,097 |
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
24,146,587 |
|
|
|
13,511,283 |
|
|
|
|
|
|
|
|
|
|
Long-term liabilities: |
|
|
|
|
|
|
|
|
Debt obligations – long term |
|
|
147,721 |
|
|
|
442,467 |
|
Operating lease obligation – long term |
|
|
837,755 |
|
|
|
555,707 |
|
Contract liabilities – long term |
|
|
7,134,547 |
|
|
|
5,818,082 |
|
Notes payable – related party – long term |
|
|
219,000 |
|
|
|
— |
|
Lease Deposit |
|
|
10,445 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
32,496,055 |
|
|
|
20,327,539 |
|
|
|
|
|
|
|
|
|
|
Commitments and
contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Equity: |
|
|
|
|
|
|
|
|
Common stock, $0.001 par value per share; 200,000,000 shares
authorized; shares issued: 2,800,752 shares issued – September 30,
2023 and 2,720,170 shares issued – December 31, 2022 |
|
|
2,801 |
|
|
|
2,721 |
|
Additional paid in capital |
|
|
128,367,929 |
|
|
|
127,869,342 |
|
Noncontrolling interest in consolidated subsidiary |
|
|
677,318 |
|
|
|
448,694 |
|
Accumulated deficit |
|
|
(110,188,029 |
) |
|
|
(91,980,234 |
) |
|
|
|
|
|
|
|
|
|
Total stockholders’ equity |
|
|
18,860,019 |
|
|
|
36,340,523 |
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity |
|
$ |
51,356,074 |
|
|
$ |
56,668,062 |
|
(FOR ADDITIONAL INFORMATION, PLEASE REFER TO THE
COMPANY’S QUARTERLY REPORTON FORM 10-Q FOR THE THREE AND NINE
MONTHS ENDED SEPTEMBER 30, 2023 FILED WITH THE SEC ON NOVEMBER 14,
2023)
DIGITAL ALLY,
INC.CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONSFOR THE THREE AND SIX MONTHS
ENDEDSEPTEMBER 30, 2023 AND
2022(Unaudited)
|
|
For the three months ended September
30, |
|
|
For the nine months ended September
30, |
|
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product |
|
$ |
2,095,237 |
|
|
$ |
3,062,373 |
|
|
$ |
7,626,706 |
|
|
$ |
7,682,614 |
|
Service and other |
|
|
4,242,462 |
|
|
|
5,421,780 |
|
|
|
14,687,813 |
|
|
|
20,447,778 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
|
6,337,699 |
|
|
|
8,484,153 |
|
|
|
22,314,519 |
|
|
|
28,130,392 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product |
|
|
2,587,750 |
|
|
|
3,262,457 |
|
|
|
7,108,366 |
|
|
|
8,154,984 |
|
Service and other |
|
|
2,523,800 |
|
|
|
4,626,196 |
|
|
|
9,698,175 |
|
|
|
15,721,210 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue |
|
|
5,111,550 |
|
|
|
7,888,653 |
|
|
|
16,806,541 |
|
|
|
23,876,194 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
1,226,149 |
|
|
|
595,500 |
|
|
|
5,507,978 |
|
|
|
4,254,198 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and
administrative expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expense |
|
|
564,146 |
|
|
|
616,174 |
|
|
|
2,039,361 |
|
|
|
1,654,395 |
|
Selling, advertising and promotional expense |
|
|
1,932,982 |
|
|
|
1,832,916 |
|
|
|
5,885,097 |
|
|
|
7,375,364 |
|
General and administrative expense |
|
|
3,877,064 |
|
|
|
4,713,433 |
|
|
|
13,845,074 |
|
|
|
15,256,049 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total selling, general and
administrative expenses |
|
|
6,374,192 |
|
|
|
7,162,523 |
|
|
|
21,769,532 |
|
|
|
24,285,808 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss |
|
|
(5,148,043 |
) |
|
|
(6,567,023 |
) |
|
|
(16,261,554 |
) |
|
|
(20,031,610 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
12,986 |
|
|
|
13,333 |
|
|
|
84,071 |
|
|
|
116,928 |
|
Interest expense |
|
|
(959,898 |
) |
|
|
(14,255 |
) |
|
|
(2,480,947 |
) |
|
|
(39,766 |
) |
Other income (loss) |
|
|
25,394 |
|
|
|
(1,892 |
) |
|
|
76,180 |
|
|
|
41,167 |
|
Loss on accrual for legal
settlement |
|
|
— |
|
|
|
— |
|
|
|
(1,792,308 |
) |
|
|
— |
|
Loss on conversion of
convertible note |
|
|
— |
|
|
|
— |
|
|
|
(93,386 |
) |
|
|
— |
|
Change in fair value of
contingent consideration promissory notes |
|
|
19,888 |
|
|
|
(138,877 |
) |
|
|
177,909 |
|
|
|
347,169 |
|
Change in fair value of
short-term investments |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(84,818 |
) |
Change in fair value of
warrant derivative liabilities |
|
|
1,863,326 |
|
|
|
1,164,849 |
|
|
|
1,803,560 |
|
|
|
6,726,638 |
|
Gain on extinguishment of
liabilities |
|
|
507,304 |
|
|
|
— |
|
|
|
507,304 |
|
|
|
— |
|
Gain on extinguishment of
warrant derivative liabilities |
|
|
— |
|
|
|
3,624,794 |
|
|
|
— |
|
|
|
3,624,794 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income
(expense) |
|
|
1,469,000 |
|
|
|
4,647,952 |
|
|
|
(1,717,617 |
) |
|
|
10,732,112 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income tax
benefit |
|
|
(3,679,043 |
) |
|
|
(1,919,071 |
) |
|
|
(17,979,171 |
) |
|
|
(9,299,498 |
) |
Income tax benefit |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
(3,679,043 |
) |
|
|
(1,919,071 |
) |
|
|
(17,979,171 |
) |
|
|
(9,299,498 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (income) attributable to
noncontrolling interests of consolidated subsidiary |
|
|
(29,630 |
) |
|
|
16,596 |
|
|
|
(228,624 |
) |
|
|
(268,636 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to
common stockholders |
|
$ |
(3,708,673 |
) |
|
$ |
(1,902,475 |
) |
|
$ |
(18,207,795 |
) |
|
$ |
(9,568,134 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share
information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
(1.32 |
) |
|
$ |
(0.76 |
) |
|
$ |
(6.55 |
) |
|
$ |
(3.83 |
) |
Diluted |
|
$ |
(1.32 |
) |
|
$ |
(0.76 |
) |
|
$ |
(6.55 |
) |
|
$ |
(3.83 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares
outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
2,800,752 |
|
|
|
2,518,261 |
|
|
|
2,779,530 |
|
|
|
2,498,681 |
|
Diluted |
|
|
2,800,752 |
|
|
|
2,518,261 |
|
|
|
2,779,530 |
|
|
|
2,498,681 |
|
(FOR ADDITIONAL INFORMATION, PLEASE REFER TO THE
COMPANY’S QUARTERLY REPORTON FORM 10-Q FOR THE THREE AND SIX MONTHS
ENDED SEPTEMBER 30, 2023 FILED WITH THE SEC ON NOVEMBER 14,
2023)
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