Digital Ally, Inc. (Nasdaq: DGLY), which develops, manufactures and
markets advanced video surveillance products for law enforcement,
homeland security and commercial applications, today announced its
operating results for the third quarter of 2018. An investor
conference call is scheduled for 11:15 a.m. EDT today (see details
below).
Highlights for Quarter Ended September
30, 2018
- Revenues for the three months ended September 30, 2018 and 2017
were $2,878,059 and $2,983,577, respectively, a decrease of
$105,518 (4.0%). The primary reason for the revenue decline is
continued supply chain issues that caused us to carry approximately
$265,000 in backlog as of September 30, 2018. These issues began in
the second quarter and we continue to take steps to rectify them.
Additional factors for the decrease are that our in-car and
body-worn systems continued to face increased competition from
newer products with advanced features and competitors have
maintained their product price cuts and in one case also offers
free cloud storage for one year. We expect to introduce a new
product platform specifically for in-car systems to be in
production by second quarter 2019 to address our competitors’ new
product features. This new product platform will utilize
advanced chipsets that support new and highly advanced products for
our law enforcement and commercial customers. Our law enforcement
revenues also declined over the prior period due to willful
infringement of our patents and other actions by our competitors
and adverse marketplace effects related to the patent
litigation.
- We are concentrating on expanding our recurring service revenue
to help stabilize our revenues on a quarterly basis. We have
steadily increased our cloud storage revenues in recent quarters
and generated approximately $174,000 in Q-3 2018, an increase of
$56,000 (47%), over the comparable quarter in 2017. Additionally,
our revenues from extended warranties have also grown and were
approximately $279,000 for the three months ended September 30,
2018, compared to $237,000 for the prior year period for an
increase of $42,000 (18%). We are pursuing several new market
channels that do not involve our traditional law enforcement and
private security customers, such as our NASCAR affiliation, which
we believe will help expand the appeal of our products and service
capabilities to new commercial markets. If successful,
we believe that these new market channels could yield recurring
service revenues in the
future.
- We have undertaken a program in recent quarters to
substantially reduce selling, general and administrative
(“SG&A”) expenses through headcount reductions and other
SG&A cost reduction measures. Our Q-3 2018 and year to
date September 30, 2018 operating results reflect significant
reductions in overall SG&A expenses compared to previous
quarters as a result of this program.
- Litigation has resumed in our patent infringement case against
Axon Enterprise, Inc. (formerly TASER International, Inc.) and the
U.S. District Court for the District of Kansas has issued a claim
construction order (also called a Markman Order) in which it sided
with us and denied Axon’s attempts to limit the scope of the
claims. Following the Markman Order, the Court set the remaining
deadlines in the case. Fact discovery closed on October 8, 2018 and
the Final Pretrial Conference has been set for January 16, 2019. In
addition, WatchGuard had previously agreed to be bound by the
results of Axon’s Inter Partes Review (IPR) with the U.S Patent and
Trademark Office and, as such, is now statutorily barred from any
further IPR challenges. Since the defeat of Axon’s ‘292 Patent IPR,
the Court in the WatchGuard litigation has lifted the stay and set
a schedule moving the case towards trial. Discovery will close on
December 17, 2018, and the Final Pretrial Conference will take
place on April 9, 2019.
- Our Board of Directors initiated a review of strategic
alternatives to best position us for the future, including, but not
limited to, monetizing our patent portfolio and related patent
infringement litigation against Axon and WatchGuard, the sale of
all or certain assets, properties or groups of properties or
individual businesses or merger or combination with another
company. We retained Roth Capital Partners (“Roth”) to assist in
this review and process. As part of this strategic effort, the
Board of Directors approved the Proceeds Investment Agreement (the
“PIA Agreement”) with Brickell Key Investments LP (“BKI”) to be
used to fund our patent litigation, repay our existing debt
obligations and augment working capital. BKI funded $500,000 on
July 31, 2018 and exercised its option to fund an additional $9.5
million on August 21, 2018.
- Also as part of our review of strategic alternatives review, on
September 26, 2018, we entered into an underwriting agreement with
Roth to make an underwritten public offering of an aggregate of
2,400,000 common shares at a price of $3.05 per share. We also
granted the underwriters a forty-five (45)-day option to purchase
up to an additional 360,000 shares of common stock to cover
over-allotments, if any. On September 28, 2018, the underwriter
exercised its over-allotment option to acquire an additional
200,000 shares at $3.05 per share. Our net proceeds from the
offering totaled approximately $7,324,900, including the partial
exercise of the over-allotment option, after deducting underwriting
discounts and commissions and estimated expenses.
- We have retired all interest-bearing debt as of September 30,
2018 and the only long-term obligations outstanding as of September
30, 2018 is associated with the PIA Agreement.
- On April 17, 2018 we received a letter from The Nasdaq Stock
Market (“Nasdaq”) indicating that we were not compliant with the
minimum stockholders’ equity requirement under Nasdaq Listing Rule
5550(b)(1) for continued listing on The Nasdaq Capital Market
because our stockholders’ equity, as reported in our Annual Report
on Form 10-K for the year ended December 31, 2017, was below the
required minimum of $2.5 million. We reported total stockholders’
equity of $3,337,125 as of September 30, 2018 and therefore we are
now in compliance with the continued listing standard under Rule
5550(b) having stockholders' equity of not less than $2.5
million.
Management Comments
“We were disappointed that our third quarter
2018 revenues were down 4% from prior year levels and 19% on a
sequential basis,” stated Stanton E. Ross, Chief Executive Officer
of Digital Ally, Inc. “We continue to rectify supply chain issues
that caused us to carry approximately $265,000 in backlog as of
September 30, 2018 and reduced our expected third quarter 2018
revenues. We continue to expand our recurring service-based revenue
to help stabilize and grow our revenues on a quarterly basis. We
are pursuing several new market channels that do not involve our
traditional law enforcement and private security customers,
including our technology partner affiliation with NASCAR, which we
believe will help expand the appeal of our products and service
capabilities to new commercial markets. If successful,
we believe that these new market channels could yield recurring
service revenues in the future.”
“We are pleased that the Court has continued to
side with us in its rulings and has set the remaining deadlines in
the both the Axon and WatchGuard cases. Recently the Court
rejected Axon’s request to insert an entirely new invalidity
defense into the case, which severely limits the prior art it can
present at trial. Axon has previously lost an ex parte
reexamination challenge, four different IPR review challenges in
the U.S. Patent and Trademark Office, and one post-grant review
challenge against our law enforcement patent portfolio. We are very
eager to move forward in the trials where both Axon and WatchGuard
will have to answer for their conduct and defend their actions.
“We are enthusiastic about our recent financings
through BKI and the underwritten public equity offering.
These have provided working capital and enabled us to pay off all
interest bearing debt as of September 30, 2018,”concluded Ross.
Third Quarter Operating
Results
For the three months ended September 30, 2018,
our total revenue decreased by 4% to approximately $2.9 million,
compared with revenue of approximately $3.0 million for the three
months September 30, 2017. Our gross margin increased 17% to
$1,177,289 for the three months ended September 30, 2018, versus
$1,008,613 in 2017.
Our gross margin increase is primarily the
result of improvement in our cost of sales as a percentage of
revenues, which decreased to 59% during the three months ended
September 30, 2018 from 66% for the three months ended September
30, 2017.
Selling, General and Administrative (“SG&A”)
expenses decreased approximately 25% to $3,087,005 in the three
months ended September 30, 2018, versus $4,125,308 a year earlier,
the product of our cost reduction strategy. We implemented
significant reductions in research and development, selling,
promotional and general administrative expenses in 2018 compared to
2017. These reductions were accomplished primarily through
headcount reductions, as well as stringent cost containment
measures that will continue over the balance of 2018 and into 2019.
We had approximately 160 employees at September 30, 2017 compared
to approximately 85 at September 30, 2018. The legal fees
related to both the Axon and WatchGuard litigation are expected to
ramp up later this year and into 2019 because both cases are
proceeding to trial. We intend to pursue recovery from Axon,
WatchGuard, their insurers and other responsible parties as
appropriate.
Nine-Month Operating
Results
For the nine months ended September 30, 2018,
our total revenue decreased by 24% to approximately $8.9 million,
compared with revenue of approximately $11.7 million for the nine
months ended September 30, 2017. Gross profit decreased 12%
to $3,905,150 for the nine months ended September 30, 2018, versus
$4,458,678 in 2017.
Our gross margin decrease is primarily
attributable to the 24% decrease in revenues for the nine months
ended September 30, 2018 compared to 2017 offset by cost of sales
as a percentage of revenues decreasing to 56% from 62% for the same
periods
Selling, General and Administrative (“SG&A”) expenses
decreased approximately 22% to $9,225,491 in the nine months ended
September 30, 2018, versus $11,870,183 a year earlier.
Investor Conference Call
The Company will host an investor
conference call at 11:15 a.m. EST on Wednesday, November 14, 2018,
to discuss its operating results for the third quarter and first
nine months of 2018, along with other topics of
interest. Shareholders and
other interested parties may participate in the conference call by
dialing 844-761-0863 and entering
conference ID# 2972516 a few
minutes before 11:15 a.m. EST on Wednesday, November 14,
2018.
A replay of the conference call will be
available two hours after its completion, from November 14, 2018
until 11:59 p.m. on January 14, 2019 by dialing 855-859-2056 and
entering the conference ID #
2972516.
For additional news and information please
visit www.digitalallyinc.com or follow us on Twitter
@digitalallyinc and
Facebook www.facebook.com/DigitalAllyInc
Follow additional Digital Ally Inc. social media channels
here:
Linkedin I Instagram I Google+ I Pinterest
This press release contains forward-looking
statements within the meaning of Section 27A of the Securities Act
of 1933 and Section 21E of the Securities Act of 1934. These
forward-looking statements are based largely on the expectations or
forecasts of future events, can be affected by inaccurate
assumptions, and are subject to various business risks and known
and unknown uncertainties, a number of which are beyond the control
of management. Therefore, actual results could differ
materially from the forward-looking statements contained in this
press release. A wide variety of factors that may cause
actual results to differ from the forward-looking statements
include, but are not limited to, the following: whether the Company
will be able to improve its revenue and operating results; whether
the Company will be able to resolve its liquidity and operational
issues; whether any further financing or a substantial
transaction will result from the strategic review process of the
Board of Directors; whether it will be able to achieve improved
production and other efficiencies to restore its gross and
operating margins in the future; whether the Company will be
able to continue to expand into non-law enforcement markets;
whether the Company will resolve its product quality and supply
chain issues; whether there will be commercial markets,
domestically and internationally, for one or more of the Company’s
new products; whether the Company will achieve positive outcomes in
its litigation with Axon and WatchGuard; whether the USPTO rulings
will curtail, eliminate or otherwise have an effect on the actions
of Axon and WatchGuard respecting the Company, its products and
customers; the Company’s ability to deliver its newer product
offerings as scheduled, and in particular deliver the new product
platform by second quarter of 2019, obtain the required components
and products on a timely basis, and have them perform as planned;
whether the new partnership with NASCAR will help expand the appeal
for the Company’s products and services; its ability to maintain or
expand its share of the markets in which it competes, including
those outside the law enforcement industry; whether the it will be
able to adapt its technology to new and different uses, including
being able to introduce new products; whether and the extent to
which the new patents allowed by the USPTO will give the Company
effective, enforceable protection of the intellectual property
contained in its products in the marketplace; competition from
larger, more established companies with far greater economic and
human resources; its ability to attract and retain customers and
quality employees; the effect of changing economic conditions; and
changes in government regulations, tax rates and similar
matters. These cautionary statements should not be construed
as exhaustive or as any admission as to the adequacy of the
Company’s disclosures. The Company cannot predict or
determine after the fact what factors would cause actual results to
differ materially from those indicated by the forward-looking
statements or other statements. The reader should consider
statements that include the words “believes”, “expects”,
“anticipates”, “intends”, “estimates”, “plans”, “projects”,
“should”, or other expressions that are predictions of or indicate
future events or trends, to be uncertain and forward-looking.
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 annual report on Form 10-K for the year ended
December 31, 2017 and quarterly report on Form 10-Q for the three
and nine months ended September 30, 2018, filed with the Securities
and Exchange Commission.
(Financial Highlights Follow)
DIGITAL ALLY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2018 AND DECEMBER 31, 2017
|
(Unaudited) |
|
|
|
September 30,2018
|
|
December 31,2017
|
Assets |
|
|
|
Current assets: |
|
|
|
Cash and
cash
equivalents..................................................................................................... |
$ |
7,589,050 |
|
|
$ |
54,712 |
|
Accounts
receivable-trade, less allowance for doubtful accounts of $70,000 –
2018 and
2017............................................................................................. |
|
2,006,116 |
|
|
|
1,978,936 |
|
Accounts
receivable-other..................................................................................................... |
|
378,954 |
|
|
|
338,618 |
|
Inventories,
net...................................................................................................................... |
|
7,370,677 |
|
|
|
8,750,713 |
|
Restricted
cash....................................................................................................................... |
|
— |
|
|
|
500,000 |
|
Prepaid
expenses................................................................................................................... |
|
488,706 |
|
|
|
209,163 |
|
|
|
|
|
Total
current
assets........................................................................................ |
|
17,833,503 |
|
|
|
11,832,142 |
|
|
|
|
|
Furniture, fixtures and
equipment,
net........................................................................................... |
|
314,574 |
|
|
|
638,169 |
|
Intangible assets, net
..................................................................................................................... |
|
484,075 |
|
|
|
497,180 |
|
Income tax refund
receivable
........................................................................................................ |
|
90,000 |
|
|
|
90,000 |
|
Other
assets................................................................................................................................... |
|
244,052 |
|
|
|
115,043 |
|
|
|
|
|
Total
assets |
$ |
18,966,204 |
|
|
$ |
13,172,534 |
|
|
|
|
|
Liabilities and Stockholders’
Equity |
|
|
|
Current
liabilities: |
|
|
|
Accounts
payable.................................................................................................................. |
$ |
1,501,811 |
|
|
$ |
3,193,269 |
|
Accrued
expenses.................................................................................................................. |
|
1,161,446 |
|
|
|
1,240,429 |
|
Derivative
liabilities............................................................................................................... |
|
— |
|
|
|
16,816 |
|
Capital
lease
obligation-current.............................................................................................. |
|
— |
|
|
|
8,492 |
|
Contract
liabilities-current...................................................................................................... |
|
1,608,545 |
|
|
|
1,409,683 |
|
Subordinated and secured notes
payable............................................................................... |
|
— |
|
|
|
1,008,500 |
|
Secured
convertible debentures, at fair
value......................................................................... |
|
— |
|
|
|
3,262,807 |
|
Income
taxes
payable............................................................................................................. |
|
3,704 |
|
|
|
10,141 |
|
|
|
|
|
Total
current
liabilities................................................................................... |
|
4,275,506 |
|
|
|
10,150,137 |
|
|
|
|
|
Long-term
liabilities: |
|
|
|
Proceeds
investment agreement, at fair
value......................................................................... |
|
9,166,000 |
|
|
|
— |
|
Contract
liabilities-long
term.................................................................................................. |
|
2,187,573 |
|
|
|
2,158,649 |
|
|
|
|
|
Total
liabilities............................................................................................................................... |
|
15,629,079 |
|
|
|
12,308,786 |
|
|
|
|
|
Commitments and
contingencies................................................................................................... |
|
|
|
|
|
|
|
Stockholder’s
Equity: |
|
|
|
Common
stock, $0.001 par value; 50,000,000 shares authorized; shares
issued: 10,424,752 – 2018 and 7,037,799 –
2017............................................................. |
|
10,425 |
|
|
|
7,038 |
|
Additional paid in
capital....................................................................................................... |
|
77,538,983 |
|
|
|
64,923,735 |
|
Treasury
stock, at cost (63,518
shares)................................................................................. |
|
(2,157,226 |
) |
|
|
(2,157,226 |
) |
Accumulated
deficit............................................................................................................... |
|
(72,055,057 |
) |
|
|
(61,909,799 |
) |
|
|
|
|
Total
stockholders’
equity............................................................................. |
|
3,337,125 |
|
|
|
863,748 |
|
|
|
|
|
Total
liabilities and stockholders’
equity.................................................................. |
$ |
18,966,204 |
|
|
$ |
13,172,534 |
|
|
|
|
|
(FOR ADDITIONAL INFORMATION, PLEASE REFER TO THE
COMPANY’S QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED
SEPTEMBER 30, 2018 FILED WITH THE SEC)
DIGITAL ALLY,
INC.CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONSFOR THE THREE AND NINE MONTHS
ENDED SEPTEMBER 30, 2018 AND
2017 (Unaudited)
|
|
|
|
|
|
Three months ended
September 30, |
Nine months ended
September 30, |
|
|
2018 |
|
|
2017 |
|
|
2018 |
|
|
2017 |
|
|
|
|
|
|
Revenue: |
|
|
|
|
Product.......................................................................................................... |
$ |
2,334,863 |
|
$ |
2,521,663 |
|
$ |
7,319,676 |
|
$ |
10,263,833 |
|
Service and
other........................................................................................... |
|
543,196 |
|
|
461,914 |
|
|
1,593,446 |
|
|
1,436,106 |
|
|
|
|
|
|
Total
revenue................................................................................................. |
|
2,878,059 |
|
|
2,983,577 |
|
|
8,913,122 |
|
|
11,699,939 |
|
|
|
|
|
|
Cost of
revenue: |
|
|
|
|
Product.......................................................................................................... |
$ |
1,592,072 |
|
$ |
1,709,046 |
|
$ |
4,672,432 |
|
$ |
6,450,570 |
|
Service and
other........................................................................................... |
|
108,698 |
|
|
265,918 |
|
|
335,540 |
|
|
790,691 |
|
|
|
|
|
|
Total cost of
revenue..................................................................................... |
|
1,700,770 |
|
|
1,974,964 |
|
|
5,007,972 |
|
|
7,241,261 |
|
|
|
|
|
|
Gross
profit................................................................................................... |
|
1,177,289 |
|
|
1,008,613 |
|
|
3,905,150 |
|
|
4,458,678 |
|
Selling, general
and administrative expenses: |
|
|
|
|
Research
and development
expense.................................................................. |
|
323,981 |
|
|
831,573 |
|
|
1,097,861 |
|
|
2,495,924 |
|
Selling,
advertising and promotional
expense................................................... |
|
711,506 |
|
|
1,048,334 |
|
|
2,097,919 |
|
|
3,036,168 |
|
Stock-based compensation
expense.................................................................. |
|
669,480 |
|
|
478,863 |
|
|
1,757,227 |
|
|
981,652 |
|
General
and administrative
expense.................................................................. |
|
1,382,038 |
|
|
1,766,538 |
|
|
4,272,484 |
|
|
5,356,439 |
|
|
|
|
|
|
Total selling,
general and administrative
expenses.................................................... |
|
3,087,005 |
|
|
4,125,308 |
|
|
9,225,491 |
|
|
11,870,183 |
|
|
|
|
|
|
Operating
loss.................................................................................................. |
|
(1,909,716 |
) |
|
(3,116,695 |
) |
|
(5,320,341 |
) |
|
(7,411,505 |
) |
|
|
|
|
|
|
|
|
|
|
Interest
income......................................................................................................... |
|
2,206 |
|
|
1,761 |
|
|
4,507 |
|
|
10,619 |
|
Interest
expense........................................................................................................ |
|
(1,083,317 |
) |
|
(375,048 |
) |
|
(1,366,520 |
) |
|
(536,035 |
) |
Change in
warrant derivative
liabilities..................................................................... |
|
(9,799 |
) |
|
3,628 |
|
|
(319,105 |
) |
|
17,347 |
|
Secured
convertible debentures issuance
expense.................................................... |
|
— |
|
|
— |
|
|
(220,312 |
) |
|
— |
|
Loss on the
extinguishment of secured convertible
debentures................................ |
|
(100,000 |
) |
|
— |
|
|
(600,000 |
) |
|
— |
|
Change in fair
value of secured convertible
debentures............................................ |
|
(1,466,467 |
) |
|
(6,952 |
) |
|
(2,296,444 |
) |
|
66,790 |
|
Change in fair
value of proceeds investment
agreement........................................... |
|
(98,487 |
) |
|
— |
|
|
(98,487 |
) |
|
— |
|
|
|
|
|
|
Loss before
income tax
expense............................................................................... |
|
(4,665,580 |
) |
|
(3,493,306 |
) |
|
(10,216,702 |
) |
|
(7,852,784 |
) |
|
|
|
|
|
Income tax
(expense) benefit
................................................................................... |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Net
loss |
$ |
(4, 665,580 |
) |
$ |
(3,493,306 |
) |
$ |
(10,216,702 |
) |
$ |
(7,852,784 |
) |
|
|
|
|
|
Net loss per
share information: |
|
|
|
|
Basic................................................................................................................. |
$ |
(0.60 |
) |
$ |
(0.56 |
) |
$ |
(1.40 |
) |
$ |
(1.34 |
) |
Diluted.............................................................................................................. |
$ |
(0.60 |
) |
$ |
(0.56 |
) |
$ |
(1.40 |
) |
$ |
(1.34 |
) |
|
|
|
|
|
Weighted average
shares outstanding: |
|
|
|
|
Basic................................................................................................................. |
|
7,725,877 |
|
|
6,249,116 |
|
|
7,295,098 |
|
|
5,851,428 |
|
Diluted.............................................................................................................. |
|
7,725,877 |
|
|
6,249,116 |
|
|
7,295,098 |
|
|
5,851,428 |
|
(FOR ADDITIONAL INFORMATION, PLEASE REFER TO THE
COMPANY’S QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED
SEPTEMBER 30, 2018 FILED WITH THE SEC)
For Additional Information, Please
Contact:
Stanton E. Ross, CEO, at (913) 814-7774
or Thomas J. Heckman, CFO, at (913)
814-7774
Digital Ally (NASDAQ:DGLY)
Historical Stock Chart
From Aug 2024 to Sep 2024
Digital Ally (NASDAQ:DGLY)
Historical Stock Chart
From Sep 2023 to Sep 2024