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 quarter and full year ended December 31,
2018. An investor conference call is scheduled for 11:15 a.m.
EDT on Monday, April 1, 2019 (see details below).
Highlights for Year Ended December 31,
2018
- Revenue decreased to approximately $11.3 million in 2018 from
approximately $14.6 million in 2017, a 23% decline. Revenue
in fourth quarter 2018 decreased to approximately $2.4 million from
approximately $2.9 million in the same period in 2017. The primary
reasons for the revenue decrease in the fourth quarter 2018 and for
the 2018 fiscal year are that we continue to face increased
challenges for our in-car and body-worn systems as our competitors
have released new products with more advanced features compared to
ours and have maintained their extreme product price cuts. We plan
to introduce a new product platform, the EVO-HD, designed
specifically for in-car systems in 2019 to address our competitors’
new product features. This new product platform will utilize
advanced chipsets that will generate 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. Revenues from
cloud storage have been increasing in recent quarters and increased
to $694,000 for 2018 compared to $279,000 for 2017, an increase of
$415,000, or 149%. Additionally, revenues from extended warranties
have also been increasing and were approximately $1,106,000 for the
year ended December 31, 2018, compared to $870,000 for the prior
year period for an increase of $236,000 (27%). 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 operating results
reflect significant reductions in total SG&A expenses compared
to previous quarters, except for professional fees incurred for
pending litigation and stock-based compensation that has increased
as we utilize non-cash stock grants for employee retention
purposes.
- We have asserted two significant patent infringement lawsuits
involving Axon and WatchGuard that has had significant impacts on
our quarterly results primarily due to the timing and amounts of
legal fees expended on such lawsuits. Future quarterly
results during 2019 and possibly beyond will continue to be
impacted as these cases move to trial. If the juries in such
lawsuits determine Axon and WatchGuard are infringing our patents,
they would then determine the amount of compensatory damages owed
to us by the defendants and whether such damage awards should be
trebled due to willful infringement by each of the
defendants. In addition, there may be attempts by the
defendants to settle such lawsuits prior to the trial. Such
jury awards and/or potential settlements prior to trial would
likely have a significant impact on our quarterly operating results
if they occur.
- Our Board of Directors has 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 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 strategic alternatives review, on
September 26, 2018, we completed an underwritten public offering
through Roth for a total 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 December 31,
2018 and the only long-term obligations outstanding as of December
31, 2018 is associated with the PIA Agreement.
Management Comments
“We were disappointed to report revenues for the
year ended 2018 that decreased 23% from the year prior, despite our
increase in our service-based revenues in 2018,” stated Stanton E.
Ross, Chief Executive Officer of Digital Ally, Inc. “We continue to
expand our recurring service-based revenue to help stabilize and
grow our revenues on a quarterly basis. Additionally, we plan to
introduce a new product platform, the EVO-HD, designed specifically
for in-car systems in 2019 to address our competitors’ new product
features. This new product platform will utilize advanced
chipsets that will generate new and highly advanced products for
our law enforcement and commercial customers. We are also
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 U. S. District 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 pleased to have achieved our recent
financings through BKI and Roth. These have provided working
capital and enabled us to retire all interest bearing debt as of
December 31, 2018,” concluded Ross.
2018 Operating Results
For the year ended December 31, 2018, our total
revenue decreased by 23% to approximately $11.3 million, compared
with revenue of approximately $14.6 million in the year ended
December 31, 2017. The primary reasons for the revenue
decrease in 2018 are that our in-car and body-worn systems are
nearing the end of their product life cycle and competitors have
released competing products with more features and have maintained
their extreme product price cutting to gain market share.
Additionally, our law enforcement revenues declined over the
prior period due willful infringement of our patents and other
actions by our competitors, adverse marketplace effects related to
the patent litigation and supply chain issues. We will introduce
our EVO-HD in 2019 with the goal of enhancing our product line
features to meet these competitive challenges. Our gross margin
decreased 13% to $3,961,808 in 2018 from $4,544,973 in 2017.
Selling, General and Administrative (“SG&A”)
expenses decreased approximately 13% to $14,517,865 in 2018 versus
$15,744,438 a year earlier. 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 operating
results reflect significant reductions in overall SG&A
expenses, except for professional fees incurred for pending
litigation and stock-based compensation that has increased as we
are utilizing non-cash stock grants for employee retention
purposes. We expect that the legal fees related to both the
Axon and WatchGuard litigation will remain high in 2019 as we
proceed to trial. We intend to pursue recovery from Axon,
WatchGuard, their insurers and other responsible parties as
appropriate.
We reported a 2018 net loss of ($15,544,551), or
($1.93) per share, compared with a prior-year net loss of
($12,252,457), or ($1.76) per share.
Fourth Quarter Operating
Results
For the three-months ended December 31, 2018,
our revenue decreased by 17% to approximately $2.4 million,
compared with revenue of approximately $2.9 million in the fourth
quarter of the previous year. Gross profit was $56,658 (2% of
revenue) in the fourth quarter 2018, versus $86,295 (3% of revenue)
in the fourth quarter 2017.
Selling, General and Administrative (“SG&A”)
expenses increased approximately 37% to $5,292,374 in the three
months ended December 31, 2018, versus $3,874,255 a year
earlier. We incurred significant legal fees and expenses in
the fourth quarter 2018 related to the ongoing Axon, WatchGuard and
PGA lawsuits. The Axon and WatchGuard case stays have been lifted
and both lawsuits are proceeding towards trial.
We reported a net loss of ($5,327,849), or
($0.51) per share, in the fourth quarter of 2018, compared with a
net loss of ($4,399,673), or ($0.63) per share, in the prior-year
period.
Investor Conference Call
The Company will host an investor
conference call at 11:15 a.m. EDT on Monday, April 1, 2019, to
discuss its operating results for the fourth quarter and year ended
December 31, 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# 2298185 a few
minutes before 11:15 a.m. EDT on Monday, April 1,
2019.
A replay of the conference call will be
available two hours after its completion, from April 1, 2019 until
11:59 p.m. on June 1, 2019 by dialing 855-859-2056 and entering the
conference ID #
2298185.
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:
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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 it will be able to resolve its liquidity and operational
issues; whether any further financing or a substantial
transaction will be required or 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 has resolved 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 and the extent to
which the US Patent and Trademark Office (USPTO) rulings will
curtail, eliminate or otherwise have an effect on the actions of
Axon and WatchGuard and others in the marketplace respecting the
Company, its products and customers; its ability to deliver its
newer product offerings as scheduled, and in particular the
new EVO-HD product platform, 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 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, 2018 filed with the Securities and Exchange
Commission.
For Additional Information, Please
Contact:
Stanton E. Ross, CEO, at (913) 814-7774
or Thomas J. Heckman, CFO, at (913)
814-7774
(Financial Highlights Follow)
DIGITAL ALLY, INC.
CONSOLIDATED BALANCE SHEETS DECEMBER 31,
2018 AND 2017
|
|
December 31,2018 |
|
|
December
31,2017 |
|
Assets |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
3,598,807 |
|
|
$ |
54,712 |
|
Accounts
receivable-trade, less allowance for doubtful accounts of $70,000 –
2018 and 2017 |
|
|
1,847,886 |
|
|
|
1,978,936 |
|
Accounts
receivable-other |
|
|
382,412 |
|
|
|
338,618 |
|
Inventories, net |
|
|
6,999,060 |
|
|
|
8,750,713 |
|
Restricted cash |
|
|
— |
|
|
|
500,000 |
|
Income
tax refund receivable |
|
|
44,603 |
|
|
|
— |
|
Prepaid
expenses |
|
|
429,403 |
|
|
|
209,163 |
|
|
|
|
|
|
|
|
|
|
Total
current assets |
|
|
13,302,171 |
|
|
|
11,832,142 |
|
|
|
|
|
|
|
|
|
|
Furniture, fixtures and
equipment, net |
|
|
247,541 |
|
|
|
638,169 |
|
Intangible assets,
net |
|
|
486,797 |
|
|
|
497,180 |
|
Income tax refund
receivable |
|
|
45,397 |
|
|
|
90,000 |
|
Other assets |
|
|
256,749 |
|
|
|
115,043 |
|
|
|
|
|
|
|
|
|
|
Total
assets |
|
$ |
14,338,655 |
|
|
$ |
13,172,534 |
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity
(Deficit) |
|
|
|
|
|
|
|
|
Current
liabilities: |
|
|
|
|
|
|
|
|
Accounts
payable |
|
$ |
784,599 |
|
|
$ |
3,193,269 |
|
Accrued
expenses |
|
|
2,080,667 |
|
|
|
1,240,429 |
|
Derivative liabilities |
|
|
— |
|
|
|
16,816 |
|
Capital
lease obligation-current |
|
|
— |
|
|
|
8,492 |
|
Contract
liabilities-current |
|
|
1,748,789 |
|
|
|
1,409,683 |
|
Subordinated and secured notes payable |
|
|
— |
|
|
|
1,008,500 |
|
Secured
convertible debentures, at fair value |
|
|
— |
|
|
|
3,262,807 |
|
Income
taxes payable |
|
|
3,689 |
|
|
|
10,141 |
|
|
|
|
|
|
|
|
|
|
Total
current liabilities |
|
|
4,617,744 |
|
|
|
10,150,137 |
|
|
|
|
|
|
|
|
|
|
Long-term
liabilities: |
|
|
|
|
|
|
|
|
Proceeds
investment agreement, at fair value |
|
|
9,142,000 |
|
|
|
— |
|
Contract
liabilities-long term |
|
|
1,991,091 |
|
|
|
2,158,649 |
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
15,750,835 |
|
|
|
12,308,786 |
|
|
|
|
|
|
|
|
|
|
Commitments and
contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholder’s Equity
(Deficit): |
|
|
|
|
|
|
|
|
Common
stock, $0.001 par value; 50,000,000 shares authorized; shares
issued: 10,445,445 – 2018 and 7,037,799 – 2017 |
|
|
10,445 |
|
|
|
7,038 |
|
Additional paid in capital |
|
|
78,117,507 |
|
|
|
64,923,735 |
|
Treasury
stock, at cost (63,518 shares) |
|
|
(2,157,226 |
) |
|
|
(2,157,226 |
) |
Accumulated deficit |
|
|
(77,382,906 |
) |
|
|
(61,909,799 |
) |
|
|
|
|
|
|
|
|
|
Total
stockholders’ equity (deficit) |
|
|
(1,412,180 |
) |
|
|
863,748 |
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders’ equity (deficit) |
|
$ |
14,338,655 |
|
|
$ |
13,172,534 |
|
|
|
|
|
|
|
|
|
|
(FOR ADDITIONAL INFORMATION, PLEASE REFER TO THE
COMPANY’S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER
31, 2018 FILED WITH THE SEC)
DIGITAL ALLY,
INC.CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONSFOR THE THREE AND YEAR ENDED
DECEMBER 31, 2018 AND 2017
|
|
Three months ended
December 31, |
|
|
Year ended December 31, |
|
|
|
2018 |
|
|
2017 |
|
|
2018 |
|
|
2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product |
|
$ |
1,811,235 |
|
|
$ |
2,509,727 |
|
|
$ |
9,130,911 |
|
|
$ |
12,773,560 |
|
Service
and other |
|
|
567,052 |
|
|
|
367,934 |
|
|
|
2,160,498 |
|
|
|
1,804,040 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
|
2,378,287 |
|
|
|
2,877,661 |
|
|
|
11,291,409 |
|
|
|
14,577,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product |
|
|
2,134,224 |
|
|
|
2,320,904 |
|
|
|
6,805,897 |
|
|
|
8,771,474 |
|
Service
and other |
|
|
187,405 |
|
|
|
470,462 |
|
|
|
523,704 |
|
|
|
1,261,153 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
cost of revenue |
|
|
2,321,629 |
|
|
|
2,791,366 |
|
|
|
7,329,601 |
|
|
|
10,032,627 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit |
|
|
56,658 |
|
|
|
86,295 |
|
|
|
3,961,808 |
|
|
|
4,544,973 |
|
Selling, general and
administrative expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development expense |
|
|
346,202 |
|
|
|
653,087 |
|
|
|
1,444,063 |
|
|
|
3,149,011 |
|
Selling,
advertising and promotional expense |
|
|
699,874 |
|
|
|
836,923 |
|
|
|
2,797,793 |
|
|
|
3,873,091 |
|
Stock-based compensation expense |
|
|
515,429 |
|
|
|
770,927 |
|
|
|
2,272,656 |
|
|
|
1,752,579 |
|
General
and administrative expense |
|
|
3,730,869 |
|
|
|
1,613,318 |
|
|
|
8,003,353 |
|
|
|
6,969,757 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total selling, general
and administrative expenses |
|
|
5,292,374 |
|
|
|
3,874,255 |
|
|
|
14,517,865 |
|
|
|
15,744,438 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss |
|
|
(5,235,716 |
) |
|
|
(3,787,960 |
) |
|
|
(10,556,057 |
) |
|
|
(11,199,465 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other
income |
|
|
15,018 |
|
|
|
1,199 |
|
|
|
19,524 |
|
|
|
11,818 |
|
Interest expense |
|
|
— |
|
|
|
(197,701 |
) |
|
|
(1,366,520 |
) |
|
|
(733,736 |
) |
Change in warrant
derivative liabilities |
|
|
— |
|
|
|
(1,087 |
) |
|
|
(319,105 |
) |
|
|
16,260 |
|
Secured convertible
debentures issuance expense |
|
|
(131,151 |
) |
|
|
— |
|
|
|
(351,462 |
) |
|
|
— |
|
Loss on the
extinguishment of subordinated notes payable |
|
|
— |
|
|
|
(424,527 |
) |
|
|
(600,000 |
) |
|
|
(424,527 |
) |
Change in fair value of
secured convertible debentures |
|
|
— |
|
|
|
(79,597 |
) |
|
|
(2,296,444 |
) |
|
|
(12,807 |
) |
Change in fair value of
proceeds investment agreement |
|
|
24,000 |
|
|
|
— |
|
|
|
(74,487 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income tax
expense |
|
|
(5,327,849 |
) |
|
|
(4,489,673 |
) |
|
|
(15,544,551 |
) |
|
|
(12,342,457 |
) |
Income tax
(benefit) |
|
|
— |
|
|
|
(90,000 |
) |
|
|
— |
|
|
|
(90,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(5,327,849 |
) |
|
$ |
(4,399,673 |
) |
|
$ |
(15,544,551 |
) |
|
$ |
(12,252,457 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share
information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
(0.51 |
) |
|
$ |
(0.63 |
) |
|
$ |
(1.93 |
) |
|
$ |
(1.76 |
) |
Diluted |
|
$ |
(0.51 |
) |
|
$ |
(0.63 |
) |
|
$ |
(1.93 |
) |
|
$ |
(1.76 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares
outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
10,365,099 |
|
|
|
6,974,281 |
|
|
|
8,073,257 |
|
|
|
6,974,281 |
|
Diluted |
|
|
10,365,099 |
|
|
|
6,974,281 |
|
|
|
8,073,257 |
|
|
|
6,974,281 |
|
(FOR ADDITIONAL INFORMATION, PLEASE REFER TO THE
COMPANY’S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER
31, 2018 FILED WITH THE SEC)
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