Updates patent litigation status
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 2017. An investor
conference call is scheduled for 11:15 a.m. EDT on November 15,
2017 (see details below).
Highlights for Quarter Ended September
30, 2017
- Total revenue decreased 31.2% to approximately $3.0 million in
the third quarter 2017, compared with approximately $4.3 million in
the quarter ended September 30, 2016. The primary reason for the
revenue decrease was the halt of deliveries under the AMR contract,
which was expected to generate significant revenues in the third
quarter. In the third quarter 2016, we generated revenues in excess
of $760,000 on one contract with a large international customer
that did not recur in 2017. Additionally, our law enforcement
revenues declined over the prior period due to price-cutting and
other actions by our competitors and adverse marketplace effects
related to the patent litigation.
- Gross profit margin deteriorated to 33.8% of total revenue in
the third quarter 2017, compared with 46.9% in the year-earlier
quarter.
- Service and other revenues decreased to $462,000, or 8%, during
the three months ended September 30, 2017 compared with $503,000 in
the year-earlier quarter. Installation revenues tend to vary more
than other service revenue types and are dependent on larger
customer implementations. In June 2017, AMR’s installation roll out
had been put on hold, which significantly reduced third quarter
2017 installation revenues. By contrast, in third quarter 2016 we
had a non-law enforcement international customer complete a large
installation.
- During October 2017, the Company entered into an exclusive
supply agreement with VIEVU®, LLC, owned by The
Safariland Group (“VIEVU”), to integrate our patented
VuLink® automatic activation technology with
VIEVU’s suite of body-worn cameras. The supply agreement provides
VIEVU with the exclusive right to integrate the VuLink system in
its body camera products. The supply agreement is renewable
annually as long as VIEVU purchases at least 10,000 VuLink systems
in 2018, with minimum purchase requirements increasing in 2019 for
calendar year 2020. The Company believes this is the first step to
fully monetizing the Company’s VuLink based patents.
- On July 6, 2017 and August 3, 2017, U.S. Patent and Trademark
Office (“USPTO”) rendered its final decisions to decline to
institute an inter partes reviews (IPR) against Digital Ally’s ’452
Patent as requested by Axon. These represented Axon’s final
attempts to invalidate the claims of Digital Ally’s ’452 Patent in
front of the USPTO. Axon had previously filed petitions for
two IPRs against Digital Ally’s ’452 Patent. Axon has twice
unsuccessfully attempted to invalidate claims in the ’452 Patent
and is now statutorily barred from filing any further IPRs against
the ’452 Patent, as well as against the ’292 Patent.
- The Company filed suit on January 15, 2016 in the U.S. District
Court for the District of Kansas (Case No: 2:16-cv-02032) against
Axon, alleging willful patent infringement against Axon’s body
camera product line. The Company later added the ‘452 Patent to the
suit and is seeking both monetary damages and a permanent
injunction against Axon for infringement of both the ‘452 and ‘292
Patents. This litigation has been stayed since the filing of
the petitions for IPR. Because both of Axon’s petitions for IPRs on
the ‘452 Patent that related to the claims in the lawsuit were
denied, the Company is seeking to lift the stay and proceed with
the lawsuit to a trial where the question of infringement and
damages can be addressed.
- The Company reported an operating loss of ($3,116,695) for the
three months ended September 30, 2017 compared with an operating
loss of ($3,241,641) in the year-earlier quarter.
- A net loss of ($3,493,306), or ($0.56) per share, was recorded
in the three months ended September 30, 2017, compared with a net
loss of ($3,255,579), or ($0.61) per share, in the three months
ended September 30, 2016.
- On a non-GAAP basis, the Company recorded an adjusted net loss
of ($2,456,091), or ($0.39) per share, for the three months ended
September 30, 2017 compared with a non-GAAP adjusted net loss of
($2,684,671), or ($0.50) per share in the year-earlier
quarter.
- We recently released our new DVM-800 HD in-car video system,
which provides the first full HD quality in-car video system
available on the market. We believe that the DVM-800 HD is the new
standard in high definition 1080p in-car video systems for law
enforcement and will gain the attention of our customers and
potential customers because of its advanced features at an
attractive price point.
Management Comments
“We were disappointed with our third quarter
2017 revenues, which were down 31% from prior year levels and 14%
on a sequential basis” stated Stanton E. Ross, Chief Executive
Officer of Digital Ally, Inc. “We were expecting significant
deliveries with AMR in third quarter 2017, but they were placed on
hold after they experienced two catastrophic accidents involving
the loss of life in vehicles equipped with our DVM-250’s. AMR
alleged that the DVM-250 units in those vehicles failed to record
the accidents. We met with AMR representatives in the third quarter
2017 to discuss the accidents and the performance of our equipment
including a plan to re-start the contract deliveries. We have
proposed to AMR that it update and upgrade its existing equipment
and resume deliveries under the contract, including a roll out to
new locations in the first quarter of 2018. AMR has yet to approve
our proposal, but we are encouraged by the dialogue we have had
with AMR and are hopeful that deliveries will resume under the
contract during first quarter 2018, although we can offer no
assurances in this regard. Additionally, our law enforcement
revenues declined over the prior period due to price-cutting and
other actions by our competitors and adverse marketplace effects
related to the patent litigation. Finally, in the third
quarter 2016 we generated revenues in excess of $760,000 on one
contract with a large international customer that did not recur in
2017,” Mr. Ross concluded.
“We had significant decisions in our favor from
the USPTO in July and August. On July 6, 2017, the USPTO
denied institution of Axon’s first IPR action on the ’452 Patent,
finding that Axon had not established even a reasonable likelihood
that the challenged claims would be found unpatentable after
completion of an IPR trial. On August 3, 2017, the USPTO issued a
decision denying institution of Axon’s second IPR request on the
’452 Patent. Axon has twice unsuccessfully attempted to invalidate
claims in the ’452 Patent and is now statutorily barred from filing
any further IPRs against the ’452 Patent, as well as against the
’292 Patent. In the four IPRs that Axon filed against Digital
Ally’s ’292 and ’452 Patents, Axon has lost on three of the IPR
petitions by failing to persuade the USPTO to even institute a
hearing. The result of the fourth IPR, which only challenges
certain claims of the ’292 Patent, has yet to be decided by the
USPTO, with a decision expected to be rendered approximately during
the first quarter of 2018. For the fourth and only remaining IPR,
we are vigorously defending Axon’s claims of unpatentability and
are looking forward to confirming the uniqueness of our innovation.
We have dropped the ‘292 Patent from the Axon litigation. Because
the ’452 Patent has been validated by the USPTO, we are now seeking
to lift the stay and proceed with our lawsuit in District Court
against Axon to a trial where the question of infringement and
damages can be addressed,” Mr. Ross stated.
“We are pursuing several new market channels
that do not involve our traditional law enforcement and private
security customers and utilize our core technology of mobile
audio/video recording equipment together with our cloud storage and
archiving services. These new market channels do not effectively
utilize the power of audio/video recordings, which could represent
large untapped addressable markets for our products and
services. If successful, we believe that these new market
channels could yield increased recurring service revenues for us in
the future,” Mr. Ross continued. “We are promoting a new
revenue model that bundles our product offerings, including the
long-term lease of our body-worn and/or in-car audio/video
hardware, together with a monthly subscription for our cloud
storage, search and archiving services for the underlying audio and
video material. We believe this revenue service model may appeal to
our customers, in particular our commercial and other non-law
enforcement customers because it reduces the capital outlay up
front and eliminates repairs and maintenance in exchange for level
monthly payments for the utilization of the equipment, data storage
and management services.”
“We are excited to enter into the supply
agreement with VIEVU and are appreciative of it acknowledging the
strength of our patent and choice to enter into this agreement.
This agreement will provide a clear path forward for VIEVU’s
customers to realize the value of a complete solution with
automatic activation and help clarify to our competitors and to the
entire law enforcement community which offerings will be available
exclusively with our patented technology. We believe that our
revenues in 2018 will be significantly and favorably impacted by
this contract and our other strategies for monetizing this
important auto-activation patent.”
“We recently announced the launch of the DVM-800
HD in-car video system, which we believe will be disruptive in the
market and will lead to an expansion of our overall market share in
the law enforcement channel. The DVM-800 HD system provides full
1080P high definition video at a cost-effective price point, which
we believe is a competitive market advantage for
us.” “Our international
revenues decreased to $236,524 in third quarter 2017 compared to
$827,452 during 2016. Our third quarter 2017 international revenues
were disappointing; however, the international sales cycle
generally takes longer than domestic business and we have a number
of bids outstanding to international customers.”
“We had approximately $4.7 million in net
working capital available at September 30, 2017, including $1.9
million of accounts receivable and $10.1 million of
inventory. We raised $3.0 million in a registered direct
offering of our common stock and purchase warrants with three
investors on August 23, 2017. We also had $650,000 principal amount
of unsecured subordinated notes with two private, third party
lenders at September 30, 2017. The Secured Convertible
Debentures (the “Debentures”) we issued in December 2016 mature in
March 2018 unless converted by their holders at $5.00 per share
before such date. We made payments of $750,000 against the
Debentures in September 2017. The Debentures and the
outstanding notes in the principal amount of $650,000 represent
current liabilities as of September 30, 2017. Our goal is to reduce
inventory levels in the ensuing quarters to provide additional
working capital and improve our operating results to generate the
funds to retire the subordinated notes and Debentures. We may also
pursue the raise of additional capital if required,” concluded
Ross.
Third Quarter Operating
Results
For the three months ended September 30, 2017,
our total revenue decreased by 31% to approximately $3.0 million,
compared with revenue of approximately $4.3 million for the three
months ended September 30, 2016. The primary reason for the revenue
decrease was the halt of deliveries under the AMR contract, which
was expected to generate significant revenues in the third quarter.
In third quarter 2016, we generated revenues in excess of $760,000
on one international contract that did not recur in 2017.
Additionally, our law enforcement revenues declined over the prior
period due to price-cutting and other actions by our competitors
and adverse marketplace effects related to the patent litigation.
International revenue decreased to $236,524 during third
quarter 2017, versus $827,452 during third quarter 2016.
Gross profit decreased 50% to $1,008,613 for the three months ended
September 30, 2017, versus $2,033,571 in 2016.
Our gross margin decrease is commensurate with
the 31% decrease in revenues for the three months ended June 30,
2017 combined with cost of sales as a percentage of revenues
increasing to 66% during the three months ended September 30, 2017
from 53% for the three months ended September 30, 2016. We believe
that gross margins will improve during the remainder of 2017 and
beyond if we improve revenue levels and continue to reduce product
warranty issues. Our goal is to improve our margins to 60% over the
longer term based on the expected margins of our newer products, in
particular the DVM-800, DVM-800 HD and FirstVU HD, if they gain
traction in the marketplace and we can increase our commercial
market penetration in 2017 and 2018. In addition, as revenues
from these products increase, we will seek to further improve our
margins from them through economies of scale and more efficiently
utilizing fixed manufacturing overhead components. We plan to
continue our initiative on more efficient management of our supply
chain through outsourcing production, quantity purchases and more
effective purchasing practices.
Selling, General and Administrative (“SG&A”)
expenses decreased approximately 22% to $4,125,308 in the three
months ended September 30, 2017, versus $5,275,212 a year
earlier. The primary reason was executive, sales and
administrative payroll decreased to $694,475 for third quarter 2017
from $1,641,014 in 2016. In third quarter 2016 a special bonus of
$630,000 was awarded to our CEO which did not recur in 2017.
Additionally, we have reclassified certain members of our technical
support staff to direct services for product installation and other
services for our customers and their respective payroll related
expenses are now being charged to service cost of sales in 2017
instead of executive, sales and administrative payroll as in 2016.
Promotional expenses totaled $346,935 during the three months ended
September 30, 2017 compared to $615,586 during the three months
ended September 30, 2016. The decrease is primarily attributable
net promotional expenses associated with being the title sponsor of
the Web.com Tour golf tournament being less in 2017 compared to
2016. We incurred net promotional expenses of $263,047 in the
third quarter 2017 relative to this sponsorship compared to
$497,235 for the third quarter of 2016.
We reported an operating loss of ($3,116,695)
for the three months ended September 30, 2017, compared with an
operating loss of ($3,241,641) in the previous year.
Interest income decreased to $1,761 in third
quarter 2017 from $5,913 in 2016.
Non-cash expense totaled $3,324 and $19,075 in
the three months ended September 30, 2017 and 2016, respectively.
Such non-cash expense reflects changes in the fair value of the
Debentures and warrant derivatives. We elected to record the $4.0
million Debentures issued in December 2016 on their fair value
basis and recorded expense of $6,952 due to the change in their
fair value as of September 30, 2017. Warrants to purchase
12,200 common shares remain unexercised at September 30, 2017 and
2016, which were treated as derivative liabilities, and we recorded
income of $3,628 due to the change in their fair value as of
September 30, 2017.
Interest expense totaled $375,048 in the three
months ended September 30, 2017, compared to $776 in the three
months ended September 30, 2016. We issued an aggregate of $4.0
million principal amount of Debentures on December 30, 2016, which
bear interest at the rate of 8% per annum and $3,250,000 remained
outstanding at September 30, 2017. We also issued $700,000 of
subordinated notes payable in June 2017 which bore interest at the
rate of 8% per annum and $650,000 remained outstanding at September
30, 2017. No similar interest-bearing debt was outstanding during
the 2016 period. We amortized the interest expense of
$288,895 and $-0-, representing the discount associated with the
$700,000 subordinated notes during the three months ended September
30, 2017, and 2016 respectively. The discount resulted from the
issuance of detachable common stock purchase warrants together with
the $700,000 subordinated notes, which is recorded as a discount
and amortized to interest expense over the term of the underlying
subordinated notes.
We reported a net loss of ($3,493,306), or
($0.56) per share, in the third quarter of 2017, compared with a
prior-year net loss of ($3,255,579), or ($0.61) per share. No
income tax provision or benefit was recorded in the third quarter
of either 2017 or 2016.
We expect to continue to maintain a full
valuation allowance on our deferred tax assets, including net
operating loss carry forwards, until we determine that we can
sustain a level of profitability that demonstrates our ability to
realize such assets. During 2017, we increased our valuation
reserve on deferred tax assets by approximately $3,080,000.
As of September 30, 2017, we had approximately $46.8 million of net
operating loss carryforwards and $2.1 million of research and
development tax credit carryforwards available to offset future net
taxable income.
On a non-GAAP basis, we reported an adjusted net
loss (before depreciation, amortization, net interest expense,
change in derivative liabilities, change in the fair value of
secured convertible notes, secured convertible debentures issuance
expense, and stock-based compensation), of ($2,456,091), or ($0.39)
per share, for the quarter ended September 30, 2017, versus a
non-GAAP adjusted net loss of ($2,684,671), or ($0.50) per diluted
share, in the third quarter of 2016. (Non-GAAP adjusted net
loss is described in greater detail in a table at the end of this
press release).
Nine-Month Operating
Results
For the nine months ended September 30, 2017,
our total revenue decreased by 11% to approximately $11.7 million,
compared with revenues of approximately $13.1 million for the nine
months ended September 30, 2016. International revenues decreased
to $326,370 during the nine months ended September 30, 2017, versus
$1,154,412 during 2016. Gross profit decreased 13% to
$4,458,678 for the nine months ended September 30, 2017, versus
$5,152,426 in 2016.
Our gross margin decrease is primarily
attributable to the 11% decrease in revenues for the nine months
ended September 30, 2017 and cost of sales as a percentage of
revenues increasing to 62% during the nine months ended September
30, 2017 from 61% for the nine months ended September 30,
2016.
Selling, General and Administrative (“SG&A”) expenses
decreased approximately 13% to $11,870,183 in the nine months ended
September 30, 2017, versus $13,624,619 a year earlier.
We reported an operating loss of ($7,411,505)
for the nine months ended September 30, 2017, compared with an
operating loss of ($8,472,193) in the previous year.
Interest income decreased to $10,619 in the nine
months ended September 30, 2017, from $22,103 in 2016.
Non-cash income totaled $84,137 and $18,740 in
first nine months of 2017 and 2016, respectively. Such non-cash
income reflects changes in the fair value of the Debentures and
warrant derivatives. We elected to record the $4.0 million
Debentures issued in December 2016 on their fair value basis and
recorded income of $66,790 due to the change in their fair value as
of September 30, 2017. Warrants to purchase 12,200 common
shares remain unexercised at September 30, 2017 and 2016, which are
treated as derivative liabilities, and we recorded income of
$17,347 due to the change in their fair value as of September 30,
2017.
Interest expense totaled $536,035 in the nine
months ended September 30, 2017, compared to $2,438 in the year
earlier period. We issued an aggregate of $4.0 million principal
amount of Debentures on December 30, 2016, which bear interest at
the rate of 8% per annum and $3,250,000 remained outstanding at
September 30, 2017. We also issued $700,000 of subordinated
notes payable in June 2017 which bear interest at the rate of 8%
per annum and $650,000 remained outstanding at September 30, 2017.
No similar interest-bearing debt was outstanding during the 2016
period. We amortized to interest expense $288,895 and $-0-,
representing the discount associated with the $650,000 subordinated
notes during the nine months ended September 30, 2017, and 2016
respectively. The discount resulted from the issuance of detachable
common stock purchase warrants together with the $700,000
subordinated notes, which is recorded as a discount and amortized
to interest expense over the term of the underlying subordinated
notes.
We reported a net loss of ($7,852,784), or
($1.34) per share, in the nine months ended September 30, 2017
compared with a prior-year net loss of ($8,433,788), or ($1.59) per
share. No income tax provision or benefit was recorded in the
first nine months of either 2017 or 2016. On a
non-GAAP basis, we reported an adjusted net loss (before
depreciation, amortization, net interest expense, change in
derivative liabilities, change in the fair value of secured
convertible notes, secured convertible debentures issuance expense,
and stock-based compensation), of ($5,922,495), or ($1.01) per
share, for the nine months ended September 30, 2017, versus a
non-GAAP adjusted net loss of ($6,838,344), or ($1.29) per diluted
share, in the nine months ended September 30, 2016. (Non-GAAP
adjusted net loss is described in greater detail in a table at the
end of this press release).
Non-GAAP Financial Measures
Digital Ally, Inc. has provided financial
information in this release that has not been prepared in
accordance with GAAP. This information includes non-GAAP adjusted
EBITDA loss. Digital Ally uses such non-GAAP financial measures
internally in analyzing its financial results and believes they are
useful to investors, as a supplement to GAAP measures, in
evaluating Digital Ally’s ongoing operational performance.
Digital Ally believes that the use of these non-GAAP financial
measures provides an additional tool for investors to evaluate
ongoing operating results and trends and in comparing its financial
measures with other companies in Digital Ally’s industry, many of
which present similar non-GAAP financial measures to
investors. As noted, the non-GAAP financial measures
discussed above exclude certain non-cash and/or non-recurring
expenses/income including: (1) depreciation and amortization
expense, (2) net interest expense, (3) share-based compensation
expense, (4) changes in fair value of secured convertible notes
payable, (5) secured convertible debentures issuance expense, (6)
and changes in warrant derivative valuations.
Non-GAAP financial measures should not be
considered in isolation from, or as a substitute for, financial
information prepared in accordance with GAAP. Investors are
encouraged to review the reconciliation of these non-GAAP measures
to their most directly comparable GAAP financial measure as
detailed above. As previously mentioned, a reconciliation of GAAP
to the non-GAAP financial measures has been provided in the tables
included as part of this press release.
Investor Conference Call
The Company will host an investor
conference call at 11:15 a.m. Eastern Standard Time (EST) on
Wednesday, November 15, 2017, to discuss its operating results for
the third quarter and first nine months of 2017, 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# 8489907 a few minutes before
11:15 a.m. Eastern Standard Time on Wednesday, November 15,
2017.
A replay of the conference call will be
available two hours after its completion, from November 15, 2017
until 11:59 p.m. on February 15, 2018 by dialing 855-859-2056 and
entering the conference ID #
8489907.
About Digital Ally, Inc.
Digital Ally®, headquartered in Lenexa, KS, specializes in the
design and manufacturing of the highest quality video recording
equipment and video analytic software. Digital Ally pushes the
boundaries of technology in industries such as law enforcement,
emergency management, commercial fleets, and consumer use. Digital
Ally’s complete product solutions include in-car and body cameras,
cloud and local management software, and automatic recording
technology. These products work seamlessly together and are simple
to install and operate. Digital Ally products are sold by domestic
direct sales representatives and international distributors
worldwide.
Contact InformationStanton Ross, CEOTom
Heckman, CFODigital Ally,
Inc913-814-7774info@digitalallyinc.com
(Financial Highlights Follow)
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, many 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, including to the
extent necessary to retire the Debentures and the subordinated
notes; whether it will be able to raise capital, and do so on terms
favorable to the Company, to retire such Debentures and notes, if
required; whether deliveries will resume under the AMR contract;
whether it will be able to achieve improved production and other
efficiencies to restore its gross and operating margins to targeted
levels in 2017 and beyond; whether the Company will be able to
continue to expand into non-law enforcement markets; whether the
Company will be successful in pursuing new market channels and
increasing its recurring revenue; whether the Company has resolved
its product quality issues; whether there will be commercial
markets, domestically and internationally, for one or more of the
Company’s newer products, and the degree to which the interest
shown in its newer products, including the FirstVU HD, DVM-800 HD,
VuLink, VuVault.net and FleetVU, translate into sales in
future periods; whether the DVM-800 HD is the new standard in high
definition 1080p in-car video systems for law enforcement and will
gain the attention of our customers and potential customers;
whether the Company will achieve positive outcomes in its
litigation with various parties, including Axon Enterprise, Inc.,
whether the USPTO rulings will curtail, eliminate or
otherwise have an effect on the actions of Axon and others
respecting the Company, its products and customers; the Company’s
ability to deliver its newer product offerings, including the
FirstVU HD and DVM-800 HD, as scheduled, obtain the required
components and products on a timely basis, and have them perform as
planned; whether the Company will be able to adapt its technology
to new and different uses, including being able to introduce new
products; whether and the extent to which the new patents allowed
by the USPTO will give the Company effective, enforceable
protection of the intellectual property contained in its products
in the marketplace; competition from larger, more established
companies with far greater economic and human resources; its
ability to attract and retain customers and quality employees; the
effect of changing economic conditions; and changes in government
regulations, tax rates and similar matters. These cautionary
statements should not be construed as exhaustive or as any
admission as to the adequacy of the Company’s disclosures.
The Company cannot predict or determine after the fact what factors
would cause actual results to differ materially from those
indicated by the forward-looking statements or other
statements. The reader should consider statements that
include the words “believes”, “expects”, “anticipates”, “intends”,
“estimates”, “plans”, “projects”, “should”, or other expressions
that are predictions of or indicate future events or trends, to be
uncertain and forward-looking. The Company does not undertake
to publicly update or revise forward-looking statements, whether
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, 2016 and
quarterly report on Form 10-Q for the three and nine months ended
September 30, 2017, as filed with the Securities and Exchange
Commission.
DIGITAL ALLY, INC. CONDENSED
CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 2017 AND
DECEMBER 31, 2016 |
|
|
|
|
|
(Unaudited) |
|
|
|
September
30,2017 |
|
December 31,2016 |
Assets |
|
|
|
Current assets: |
|
|
|
Cash and
cash equivalents |
$ |
316,174 |
|
|
$ |
3,883,124 |
|
Accounts
receivable-trade, less allowance for doubtful accounts
of $70,000 – 2017 and 2016 |
|
1,861,009 |
|
|
|
2,519,184 |
|
Accounts
receivable-other |
|
434,891 |
|
|
|
341,326 |
|
Inventories, net |
|
10,061,991 |
|
|
|
9,586,311 |
|
Restricted cash |
|
500,000 |
|
|
|
— |
|
Prepaid
expenses |
|
451,787 |
|
|
|
402,158 |
|
|
|
|
|
Total current assets |
|
13,625,852 |
|
|
|
16,732,103 |
|
|
|
|
|
Furniture, fixtures and
equipment, net |
|
778,095 |
|
|
|
873,902 |
|
Restricted cash |
|
— |
|
|
|
500,000 |
|
Intangible assets,
net |
|
511,141 |
|
|
|
467,176 |
|
Other assets |
|
141,853 |
|
|
|
261,915 |
|
|
|
|
|
Total
assets |
$ |
15,056,941 |
|
|
$ |
18,835,096 |
|
|
|
|
|
Liabilities and Stockholders’
Equity |
|
|
|
Current
liabilities: |
|
|
|
Accounts
payable |
$ |
2,732,336 |
|
|
$ |
2,455,579 |
|
Accrued
expenses |
|
1,161,985 |
|
|
|
1,542,729 |
|
Derivative liabilities |
|
15,729 |
|
|
|
33,076 |
|
Capital
lease obligation-current |
|
16,866 |
|
|
|
32,792 |
|
Deferred
revenue-current |
|
1,258,226 |
|
|
|
925,932 |
|
Subordinated notes payable-current, net of discount of
$117,000-2017 and $0-2016 |
|
533,000 |
|
|
|
— |
|
Secured
convertible debentures, at fair value |
|
3,183,210 |
|
|
|
— |
|
Income
taxes payable |
|
10,143 |
|
|
|
7,048 |
|
|
|
|
|
Total current liabilities |
|
8,911,495 |
|
|
|
4,997,156 |
|
|
|
|
|
Long-term
liabilities: |
|
|
|
Secured
convertible debentures, at fair value |
|
— |
|
|
|
4,000,000 |
|
Capital
lease obligation-less current portion |
|
— |
|
|
|
8,492 |
|
Deferred
revenue-long term |
|
2,077,479 |
|
|
|
2,073,176 |
|
|
|
|
|
Total liabilities |
|
10,988,974 |
|
|
|
11,078,824 |
|
|
|
|
|
Commitments and
contingencies |
|
|
|
|
|
|
|
Stockholders’
Equity: |
|
|
|
Common
stock, $0.001 par value; 25,000,000 shares authorized; shares
issued: 7,065,249 – 2017 and 5,552,449 – 2016 |
|
7,065 |
|
|
|
5,552 |
|
Additional paid in capital |
|
63,728,254 |
|
|
|
59,565,288 |
|
Treasury
stock, at cost (63,518 shares) |
|
(2,157,226 |
) |
|
|
(2,157,226 |
) |
Accumulated deficit |
|
(57,510,126 |
) |
|
|
(49,657,342 |
) |
|
|
|
|
Total stockholders’ equity |
|
4,067,967 |
|
|
|
7,756,272 |
|
|
|
|
|
Total liabilities and stockholders’
equity |
$ |
15,056,941 |
|
|
$ |
18,835,096 |
|
|
|
|
|
(FOR ADDITIONAL INFORMATION, PLEASE REFER TO THE
COMPANY’S QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED
SEPTEMBER 30, 2017 FILED WITH THE SEC)
|
DIGITAL ALLY, INC.CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONSFOR THE THREE
AND NINE MONTHS ENDED SEPTEMBER 30, 2017 AND
2016 (Unaudited) |
|
|
|
|
Three months ended
September 30, |
Nine months ended
September 30, |
|
|
2017 |
|
|
2016 |
|
|
2017 |
|
|
2016 |
|
Revenue: |
|
|
|
|
Product |
$ |
2,521,663 |
|
$ |
3,836,691 |
|
$ |
10,263,833 |
|
$ |
11,946,100 |
|
Service
and other |
|
461,914 |
|
|
502,836 |
|
|
1,436,106 |
|
|
1,182,781 |
|
|
|
|
|
|
Total
revenue |
|
2,983,577 |
|
|
4,339,527 |
|
|
11,699,939 |
|
|
13,128,881 |
|
|
|
|
|
|
Cost of
revenue: |
|
|
|
|
Product |
$ |
1,709,046 |
|
$ |
2,235,489 |
|
$ |
6,450,570 |
|
$ |
7,487,747 |
|
Service
and other |
|
265,918 |
|
|
70,467 |
|
|
790,691 |
|
|
488,708 |
|
|
|
|
|
|
Total
cost of revenue |
|
1,974,964 |
|
|
2,305,956 |
|
|
7,241,261 |
|
|
7,976,455 |
|
|
|
|
|
|
Gross
profit |
|
1,008,613 |
|
|
2,033,571 |
|
|
4,458,678 |
|
|
5,152,426 |
|
Selling,
general and administrative expenses: |
|
|
|
|
Research
and development |
|
831,573 |
|
|
731,077 |
|
|
2,495,924 |
|
|
2,353,081 |
|
Selling,
advertising and promotional |
|
1,048,334 |
|
|
1,369,244 |
|
|
3,036,168 |
|
|
3,295,743 |
|
Stock-based compensation |
|
478,863 |
|
|
422,246 |
|
|
981,652 |
|
|
1,203,312 |
|
General
and administrative |
|
1,766,538 |
|
|
2,752,645 |
|
|
5,356,439 |
|
|
6,772,483 |
|
|
|
|
|
|
Total
selling, general and administrative expenses |
|
4,125,308 |
|
|
5,275,212 |
|
|
11,870,183 |
|
|
13,624,619 |
|
|
|
|
|
|
Operating
loss |
|
(3,116,695 |
) |
|
(3,241,641 |
) |
|
(7,411,505 |
) |
|
(8,472,193 |
) |
|
|
|
|
|
|
|
|
|
|
Interest
income |
|
1,761 |
|
|
5,913 |
|
|
10,619 |
|
|
22,103 |
|
Interest
expense |
|
(375,048 |
) |
|
(776 |
) |
|
(536,035 |
) |
|
(2,438 |
) |
Change in
warrant derivative liabilities |
|
3,628 |
|
|
(19,075 |
) |
|
17,347 |
|
|
18,740 |
|
Change in fair
value of secured convertible notes |
|
(6,952 |
) |
|
— |
|
|
66,790 |
|
|
— |
|
payable |
|
|
|
|
|
Loss
before income tax (benefit) |
|
(3,493,306 |
) |
|
(3,255,579 |
) |
|
(7,852,784 |
) |
|
(8,433,788 |
) |
Income
tax (benefit) |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
|
|
Net
loss |
$ |
(3,493,306 |
) |
$ |
(3,255,579 |
) |
$ |
(7,852,784 |
) |
$ |
(8,433,788 |
) |
|
|
|
|
|
Net loss
per share information: |
|
|
|
|
Basic |
$ |
(0.56 |
) |
$ |
(0.61 |
) |
$ |
(1.34 |
) |
$ |
(1.59 |
) |
Diluted |
$ |
(0.56 |
) |
$ |
(0.61 |
) |
$ |
(1.34 |
) |
$ |
(1.59 |
) |
|
|
|
|
|
Weighted
average shares outstanding: |
|
|
|
|
Basic |
|
6,249,116 |
|
|
5,380,855 |
|
|
5,851,428 |
|
|
5,315,646 |
|
Diluted |
|
6,249,116 |
|
|
5,380,855 |
|
|
5,851,428 |
|
|
5,315,646 |
|
(FOR ADDITIONAL INFORMATION, PLEASE REFER TO THE
COMPANY’S QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED
SEPTEMBER 30, 2017 FILED WITH THE SEC)
|
DIGITAL ALLY,
INC.RECONCILIATION OF NET LOSS TO NON-GAAP
ADJUSTED NET LOSSFOR THE THREE AND NINE MONTHS
ENDEDSEPTEMBER 30, 2017 AND
2016(Unaudited) |
|
|
|
|
|
|
|
|
Three months ended
September 30, |
Nine months ended
September 30, |
|
|
|
|
|
|
|
2017 |
|
|
2016 |
|
|
2017 |
|
|
2016 |
|
|
|
|
|
|
Net
loss |
$ |
(3,493,306 |
) |
$ |
(3,255,579 |
) |
$ |
(7,852,784 |
) |
$ |
(8,433,788 |
) |
Non-GAAP
adjustments: |
|
|
|
|
Stock-based compensation |
|
478,863 |
|
|
422,246 |
|
|
981,652 |
|
|
1,203,312 |
|
Depreciation and amortization |
|
181,741 |
|
|
134,724 |
|
|
507,358 |
|
|
430,537 |
|
Change in fair value of secured convertible notes payable |
|
6,952 |
|
|
— |
|
|
(66,790 |
) |
|
— |
|
Change in warrant derivative liabilities |
|
(3,628 |
) |
|
19,075 |
|
|
(17,347 |
) |
|
(18,740 |
) |
Interest (income) expense, net |
|
373,287 |
|
|
(5,137 |
) |
|
525,416 |
|
|
(19,665 |
) |
|
|
|
|
|
Total
Non-GAAP adjustments |
|
1,037,215 |
|
|
570,908 |
|
|
1,930,289 |
|
|
1,595,444 |
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP
adjusted net loss |
$ |
(2,456,091 |
) |
$ |
(2,684,671 |
) |
$ |
(5,922,495 |
) |
$ |
(6,838,344 |
) |
|
|
|
|
|
|
|
|
|
|
Non-GAAP
adjusted net loss per share information: |
|
|
|
|
Basic |
$ |
(0.39 |
) |
$ |
(0.50 |
) |
$ |
(1.01 |
) |
$ |
(1.29 |
) |
Diluted |
$ |
(0.39 |
) |
$ |
(0.50 |
) |
$ |
(1.01 |
) |
$ |
(1.29 |
) |
|
|
|
|
|
GAAP basis
net loss per share information: |
|
|
|
|
Basic |
$ |
(0.56 |
) |
$ |
(0.61 |
) |
$ |
(1.34 |
) |
$ |
(1.59 |
) |
Diluted |
$ |
(0.56 |
) |
$ |
(0.61 |
) |
$ |
(1.34 |
) |
$ |
(1.59 |
) |
|
|
|
|
|
Weighted
average shares outstanding: |
|
|
|
|
Basic |
|
6,249,116 |
|
|
5,380,855 |
|
|
5,851,428 |
|
|
5,315,646 |
|
Diluted |
|
6,249,116 |
|
|
5,380,855 |
|
|
5,851,428 |
|
|
5,315,646 |
|
(FOR ADDITIONAL INFORMATION, PLEASE REFER
TO THE COMPANY’S QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED
SEPTEMBER 30, 2017 FILED WITH THE SEC)
DIGITAL ALLY,
INC.CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER
30, 2017 AND 2016 (Unaudited)
|
|
|
|
|
|
|
2017 |
|
2016 |
|
|
|
|
|
|
|
|
Cash Flows from
Operating Activities: |
|
|
|
|
Net
loss |
$ |
(7,852,784 |
) |
$ |
(8,433,788 |
) |
|
|
Adjustments to reconcile net loss to net cash flows used in
operating activities: |
|
|
|
|
Depreciation and amortization |
|
507,358 |
|
|
430,537 |
|
|
|
Stock
based compensation |
|
981,652 |
|
|
1,203,312 |
|
|
|
Change in
derivative liabilities |
|
(17,347 |
) |
|
(18,740 |
) |
|
|
Change in
fair value of secured convertible debentures |
|
(66,790 |
) |
|
— |
|
|
|
Provision
for inventory obsolescence |
|
417,732 |
|
|
253,048 |
|
|
|
Amortization of discount on subordinated note payable |
|
288,895 |
|
|
— |
|
|
|
Provision
for doubtful accounts receivable |
|
— |
|
|
(4,997 |
) |
|
|
Change in
assets and liabilities: |
|
|
|
|
(Increase) decrease in: |
|
|
|
|
Accounts
receivable - trade |
|
658,175 |
|
|
856,388 |
|
|
|
Accounts
receivable - other |
|
(93,565 |
) |
|
(147,047 |
) |
|
|
Inventories |
|
(893,412 |
) |
|
(3,558 |
) |
|
|
Prepaid
expenses |
|
(49,629 |
) |
|
(47,746 |
) |
|
|
Other
assets |
|
120,062 |
|
|
24,527 |
|
|
|
Increase
(decrease) in: |
|
|
|
|
Accounts
payable |
|
276,757 |
|
|
403,607 |
|
|
|
Accrued
expenses |
|
(380,744 |
) |
|
311,666 |
|
|
|
Income
taxes payable |
|
3,095 |
|
|
(3,091 |
) |
|
|
Deferred
revenue |
|
336,597 |
|
|
449,271 |
|
|
|
Net cash
used in operating activities |
|
(5,763,948 |
) |
|
(4,726,611 |
) |
|
|
|
|
|
|
|
Cash Flows from
Investing Activities: |
|
|
|
|
Purchases
of furniture, fixtures and equipment |
|
(316,751 |
) |
|
(284,644 |
) |
|
|
Additions
to intangible assets |
|
(138,765 |
) |
|
(89,263 |
) |
|
|
Net cash
used in investing activities |
|
(455,516 |
) |
|
(373,907 |
) |
|
|
Cash Flows from
Financing Activities: |
|
|
|
|
Proceeds from
issuance of subordinated notes payable |
|
1,000,000 |
|
|
— |
|
|
|
Proceeds from
issuance of common stock and warrants, net of |
|
2,776,332 |
|
|
— |
|
|
|
issuance
costs |
|
|
Principal
payment on secured convertible debentures |
|
(750,000 |
) |
|
— |
|
|
|
Principal
payment on subordinated notes payable |
|
(350,000 |
) |
|
— |
|
|
|
Proceeds from
exercise of stock options and warrants |
|
600 |
|
|
19,055 |
|
|
|
Principal
payments on capital lease obligation |
|
(24,418 |
) |
|
(26,917 |
) |
|
|
Net cash
provided by (used in) in financing activities |
|
2,652,514 |
|
|
(7,862 |
) |
|
|
|
|
|
|
|
Net decrease in cash
and cash equivalents |
|
(3,566,950 |
) |
|
(5,108,380 |
) |
|
|
Cash and cash
equivalents, beginning of period |
|
3,883,124 |
|
|
6,924,079 |
|
|
|
Cash and cash
equivalents, end of period |
$ |
316,174 |
|
$ |
1,815,699 |
|
|
|
|
|
|
|
|
Supplemental
disclosures of cash flow information: |
|
|
|
|
Cash
payments for interest |
$ |
166,138 |
|
$ |
2,425 |
|
|
|
Cash
payments for income taxes |
$ |
6,906 |
|
$ |
10,591 |
|
|
|
|
|
|
|
|
Supplemental
disclosures of non-cash investing and financing activities: |
|
|
|
|
Restricted
common stock grant |
$ |
522 |
|
$ |
200 |
|
|
|
Restricted
common stock forfeitures |
$ |
9 |
|
$ |
— |
|
|
|
|
|
|
|
(FOR ADDITIONAL INFORMATION, PLEASE REFER TO THE
COMPANY’S QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED
SEPTEMBER 30, 2017 FILED WITH THE SEC)
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