Filed
Pursuant to Rule 424(b)(5)
Registration
No. 333-239419
PROSPECTUS
SUPPLEMENT
(To
Prospectus dated July 2, 2020)
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DIGITAL
ALLY, INC.
3,250,000 Shares of Common
Stock
Prefunded
Common Stock Purchase Warrants to purchase up to 11,050,000 Shares of Common Stock
Common
Stock Purchase Warrants to purchase up to 14,300,000 Shares of Common Stock
Digital Ally, Inc. (the “Company”,
“our”, “we” and “us”) is offering 3,250,000 shares of our common stock (“Shares”),
par value $0.001 per share (“Common Stock”), and common stock purchase warrants to purchase up to an aggregate of
14,300,000 shares of Common Stock (the “Warrants”) (and the shares of Common Stock that are issuable from time
to time upon exercise of the Warrants (the “Warrant Shares”)). We are also offering to purchasers whose purchase of
shares of Common Stock in this offering would otherwise result in the purchaser, together with its affiliates and certain related
parties, beneficially owning more than 4.99% (or, at the election of the holder, 9.99%) of our outstanding shares of Common Stock
immediately following the consummation of this offering, prefunded common stock purchase warrants to purchase up to 11,050,000
shares of Common Stock (the “Pre-Funded Warrants”), in lieu of shares of Common Stock.
The purchase price of each Pre-Funded Warrant
will equal the price per share at which the Shares are being sold to the public in this offering, minus $0.01, and the exercise
price of each Pre-Funded Warrant will be $0.01 per share. Each Pre-Funded Warrant is exercisable for one (1) share of Common Stock.
The Pre-Funded Warrants will be immediately exercisable and may be exercised at any time until all of the Pre-Funded Warrants
are exercised in full. This prospectus supplement also relates to the Warrant Shares and the shares of Common Stock issuable
upon exercise of any Pre-Funded Warrants sold in this offering (the “Pre-Funded Warrant Shares”). Each share of Common
Stock and Pre-Funded Warrant is being sold together with a Warrant to purchase one (1) share of our Common Stock, at an exercise
price of $3.25 per share. The Warrants will be exercisable immediately and will expire five (5) years from the date of issuance.
The shares of Common Stock or Pre-Funded Warrants, and the accompanying Warrants, can only be purchased together in this offering
but will be issued separately and will be immediately separable upon issuance.
We will sell to the investors in this offering
(i) the shares of Common Stock and accompanying Warrants at a combined public offering price of $2.80 per share of Common
Stock and accompanying Warrant and (ii) the Pre-Funded Warrants and accompanying Warrants at a combined public offering price
of $2.79 per Pre-Funded Warrant and accompanying Warrant. We will pay all of the expenses incident to the registration,
offering and sale of such securities under this prospectus supplement and the accompanying base prospectus.
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Per
Share and
Accompanying
Warrant
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Per
Pre-
Funded
Warrant and
Accompanying
Warrant
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Total(1)
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Combined public offering
price(2)
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$
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2.80
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$
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2.79
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$
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39,929,500
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Placement agent discounts and commissions(3)
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$
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0.168
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$
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0.1674
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$
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2,395,770
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Proceeds, before expenses, to us
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$
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2.632
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$
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2.6226
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$
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37,533,730
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(1)
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Total
excludes exercise of the Pre-Funded Warrants. Upon exercise of the Pre-Funded Warrants,
gross proceeds received would equal $40,040,000.
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(2)
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The
public offering price is $2.799 per share of Common Stock and $0.001 per accompanying Warrant and $2.789 per
Pre-Funded Warrant and $0.001 per accompanying Warrant.
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(3)
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The
placement agent will receive a placement agent discount equal to 6.0% of the gross proceeds in this offering. In addition,
we have agreed to reimburse the placement agent for certain expenses. See the section entitled “Plan of Distribution”
beginning on page S-29 of this prospectus supplement for a description of the compensation payable to the placement agent.
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Our
Common Stock is listed on The Nasdaq Capital Market (“Nasdaq”) under the symbol “DGLY.” The last reported
sale price for our Common Stock on Nasdaq on January 26, 2021 was $2.75 per share. There
is no established trading market for the Warrants or the Pre-Funded Warrants, and we do not expect a market to develop. In addition,
we do not intend to apply for the listing of the Warrants or the Pre-Funded Warrants on any national securities exchange or other
trading market. Without an active trading market, the liquidity of the Warrants and the Pre-Funded Warrants will be limited.
As
of the date of this prospectus supplement, we are not subject to the sale limitations described in General Instruction I.B.6 to
Form S-3 because the “public float” (the market value of our Common Stock held by non-affiliates) was greater than
$75,0000,000 on the date on which the accompanying base prospectus forming a part of the registration statement of which this
prospectus supplement and such base prospectus form a part. In the event that any time during the effectiveness of the registration
statement of which this prospectus supplement and accompanying base prospectus forms a part, we become subject to such sale limitations,
as a result of the public float becoming less that $75,000,000 during any applicable 12-month period, we will not sell securities
in a public primary offering with a value exceeding more than one-third of our public float.
You
should read carefully this prospectus supplement, the accompanying base prospectus and the documents incorporated by reference
into this prospectus supplement and the accompanying base prospectus before you invest.
Our
business and an investment in our shares of Common Stock involve a high degree of risk. See “Risk Factors” beginning
on page S-12 of this prospectus supplement, on page 11 of the accompanying base prospectus and the risk factors described in the
documents incorporated by reference into this prospectus supplement and the accompanying base prospectus for more information.
Neither
the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or
determined if this prospectus supplement and accompanying base prospectus is truthful or complete. Any representation to the contrary
is a criminal offense.
The
Company expects to deliver the shares of Common Stock, the Pre-Funded Warrants and the Warrants to the purchasers on or about
February 1, 2021.
Sole
Placement Agent
KINGSWOOD
CAPITAL MARKETS
division
of Benchmark Investments, Inc.
The
date of this Prospectus Supplement is January 27, 2021
TABLE
OF CONTENTS
ABOUT
THIS PROSPECTUS SUPPLEMENT
This
document is in two parts, this prospectus supplement and the accompanying base prospectus, both of which are part of a registration
statement on Form S-3 that we filed with the U.S. Securities and Exchange Commission (the “SEC”) using a “shelf”
registration process.
The
two parts of this document include: (1) this prospectus supplement, which describes the specific details regarding this offering
of securities; and (2) the accompanying base prospectus, which provides a general description of the securities that we
may offer, some of which may not apply to this offering. Generally, when we refer to this “prospectus,” we are referring
to both documents combined. If information in this prospectus supplement is inconsistent with the accompanying base prospectus,
you should rely on this prospectus supplement. You should read this prospectus supplement together with the additional information
described below under the heading “Where You Can Find More Information” and “Incorporation of Documents by Reference.”
Any
statement made in this prospectus supplement or in a document incorporated or deemed to be incorporated by reference into this
prospectus supplement will be deemed to be modified or superseded for purposes of this prospectus supplement to the extent that
a statement contained in this prospectus supplement or in any other subsequently filed document that is also incorporated by reference
into this prospectus supplement modifies or supersedes that statement. Any statements so modified or superseded will be deemed
not to constitute a part of this prospectus supplement except as so modified or superseded. In addition, to the extent of any
inconsistencies between the statements in this prospectus supplement and similar statements in any previously filed report incorporated
by reference into this prospectus supplement, the statements in this prospectus supplement will be deemed to modify and supersede
such prior statements.
The
registration statement that contains this prospectus supplement, including the exhibits to the registration statement and the
information incorporated by reference, contains additional information about the securities offered under this prospectus supplement.
That registration statement can be read on the SEC website or at the SEC offices mentioned below under the heading “Where
You Can Find More Information.”
We
are responsible for the information contained and incorporated by reference in this prospectus supplement, the accompanying base
prospectus and any related free writing prospectus that we prepare or authorize. We have not authorized anyone to provide you
with different or additional information, and we take no responsibility for any other information that others may give you. If
you receive any other information, you should not rely on it.
This
prospectus supplement and the accompanying base prospectus do not constitute an offer to sell or the solicitation of an offer
to buy any securities other than the registered securities to which this prospectus supplement relates, nor do this prospectus
supplement and the accompanying base prospectus constitute an offer to sell or the solicitation of an offer to buy securities
in any jurisdiction to any person to whom it is unlawful to make such offer or solicitation in such jurisdiction.
You
should not assume that the information in this prospectus supplement and the accompanying base prospectus is accurate at any date
other than the date indicated on the cover page of this prospectus supplement or that any information we have incorporated by
reference is correct on any date subsequent to the date of the document incorporated by reference. Our business, financial condition,
results of operations or prospects may have changed since that date.
You
should not rely on or assume the accuracy of any representation or warranty in any agreement that we have filed in connection
with this offering or that we may otherwise publicly file in the future because any such representation or warranty may be subject
to exceptions and qualifications contained in separate disclosure schedules, may represent the parties’ risk allocation
in the particular transaction, may be qualified by materiality standards that differ from what may be viewed as material for securities
law purposes or may no longer continue to be true as of any given date.
We
are not offering to sell or seeking offers to purchase these securities in any jurisdiction where the offer or sale is not permitted.
We have not done anything that would permit this offering or possession or distribution of this prospectus supplement and accompanying
base prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside
the United States who come into possession of this prospectus supplement and accompanying base prospectus must inform themselves
about, and observe any restrictions relating to, the offering of the securities as to distribution of the prospectus supplement
and accompanying base prospectus outside of the United States.
Solely
for convenience, our trademarks and tradenames referred to in this prospectus supplement, including the information in the accompanying
base prospectus and the documents incorporated by reference herein and therein, may appear without the ® or ™ symbols,
but such references are not intended to indicate in any way that we will not assert, to the fullest extent under applicable law,
our rights to these trademarks and tradenames.
Information
contained in, and that can be accessed through our website, www.digitalallyinc.com, does not constitute part of this prospectus
supplement, including the information in the accompanying base prospectus and the documents incorporated by reference herein and
therein.
This
prospectus supplement, including the information in the accompanying base prospectus and the documents incorporated by reference
herein and therein, includes market and industry data that has been obtained from third party sources, including industry publications,
as well as industry data prepared by our management on the basis of its knowledge of and experience in the industries in which
we operate (including our management’s estimates and assumptions relating to such industries based on that knowledge). Management’s
knowledge of such industries has been developed through its experience and participation in these industries. While our management
believes the third-party sources referred to in this prospectus supplement, the accompanying base prospectus and such other documents
are reliable, neither we nor our management have independently verified any of the data from such sources referred to in this
prospectus supplement, the accompanying base prospectus and such other documents or ascertained the underlying economic assumptions
relied upon by such sources. Internally prepared and third-party market forecasts, in particular, are estimates only and may be
inaccurate, especially over long periods of time. Furthermore, references in this prospectus supplement, the accompanying base
prospectus and such other documents to any publications, reports, surveys or articles prepared by third parties should not be
construed as depicting the complete findings of the entire publication, report, survey or article. The information in any such
publication, report, survey or article is not incorporated by reference in this prospectus supplement, the accompanying base prospectus
and such other documents.
PROSPECTUS
SUPPLEMENT SUMMARY
This
summary highlights certain information about us, this offering and selected information contained or incorporated by reference
in this prospectus supplement and the accompanying base prospectus. This summary is not complete and does not contain all the
information that you should consider before deciding whether to invest in our securities. For a more complete understanding of
Digital Ally, Inc. and this offering, we encourage you to read and consider carefully this entire prospectus supplement, including
the information the accompanying base prospectus and the documents incorporated by reference herein and therein, as well as any
free writing prospectus that we have authorized for use in connection with this offering, including the information set forth
in the section titled “Risk Factors” in this prospectus supplement beginning on page S-12. Unless the context provides
otherwise, all references herein to “Digital Ally”, “the “Company”, “we”, “our”
and “us” refer to Digital Ally, Inc.
Company
Overview
We
produce digital video imaging, storage products and disinfectant and related safety products for use in law enforcement, security
and commercial applications. Our products include, among others: in-car digital video/audio recorders contained in a rear-view
mirror for use in law enforcement and commercial fleets; a system that provides our law enforcement customers with audio/video
surveillance from multiple vantage points and hands-free automatic activation of body-worn cameras and in-car video systems; a
miniature digital video system designed to be worn on an individual’s body; and cloud storage solutions. We have recently
added two new lines of branded products: (1) the ThermoVu™ line, which is a line of self-contained temperature monitoring
stations that provides alerts and controls facility access when an individual’s temperature exceeds a pre-set threshold
and (2) the Shield™ disinfectant and cleanser line, which is for use against viruses and bacteria and which we began offering
to our law enforcement and commercials customers beginning late in the second quarter of 2020. Both product lines are manufactured
by third parties. In addition, we have active research and development programs to adapt our technologies to other applications.
We can integrate electronic, radio, computer, mechanical, and multi-media technologies to create unique solutions to address needs
in a variety of other industries and markets, including mass transit, school bus, taxicab and the military. We sell our products
to law enforcement agencies, private security customers and organizations, and consumer and commercial fleet operators through
direct sales domestically and third-party distributors internationally.
COVID-19
Pandemic
The
consolidated financial statements incorporated by reference into this prospectus supplement and accompanying base prospectus as
well as the description of our business contained herein, unless otherwise indicated, principally reflect the status of our business
and the results of our operations as of September 30, 2020. Since that date, economies throughout the world have continued to
be severely disrupted by the effects of the quarantines, business closures and the reluctance of individuals to leave their homes
as a result of the outbreak of the coronavirus (“COVID-19”). Although we remain open as an “essential business,”
our supply chain has been disrupted and our customers, in particular our commercial customers, have been significantly impacted
which has, in turn, reduced our level of operations and activities. In addition, the capital markets have been disrupted and our
efforts to raise necessary capital will likely be adversely impacted by the outbreak of the virus and we cannot forecast with
any certainty when the disruptions caused by it will cease to impact our business and the results of our operations. In reading
this prospectus supplement and accompanying base prospectus forming a part of this registration statement, including the related
exhibits, the information incorporated by reference herein and therein and our discussion of our ability to continue as a going
concern set forth in our Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2020, filed with the SEC on
November 12, 2020, and in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, filed with the SEC on April
6, 2020 (the “Form 10-K”), and amended in our Annual Report on Form 10-K/A, filed with the SEC on April 29, 2020,
including the notes to the consolidated financial statements contained therein, in each case, consider the additional uncertainties
caused by the outbreak of COVID-19.
Our
Products
We
supply technology-based products utilizing our portable digital video and audio recording capabilities for the law enforcement
and security industries and for the commercial fleet and mass transit markets. We have the ability to integrate electronic, radio,
computer, mechanical, and multi-media technologies to create positive solutions to our customers’ requests. Our products
include: the DVM-800 and DVM-800 Lite, in-car digital video mirror systems for law enforcement; the FirstVU and the FirstVU HD,
body-worn cameras, our patented and revolutionary VuLink product, which integrates our body-worn cameras with our in-car systems
by providing hands-free automatic activation for both law enforcement and commercial markets; the DVM-250 and DVM-250 Plus, a
commercial line of digital video mirrors that serve as “event recorders” for the commercial fleet and mass transit
markets; and FleetVU and VuLink, our cloud-based evidence management systems. We introduced the EVO-HD product in the second quarter
of 2019 and began full-scale deliveries in the third quarter of 2019. The EVO-HD is designed and built on a new and highly advanced
technology platform that we expect to become the platform for a new family of in-car video solution products for the law enforcement
and commercial markets. We believe that the launch of these new products will help to reinvigorate our in-car and body-worn systems
revenues while diversifying and broadening the market for our product offerings. Recently, we launched a new line of branded disinfectant
and related safety products, which will be marketed to our law enforcement and commercial customers. The following describes our
product portfolio:
In-Car
Digital Video Mirror System for Law Enforcement – EVO-HD, DVM-800 and DVM-800 Lite
In-car
video systems for patrol cars are now a necessity and have generally become standard. Current systems are primarily digital based
systems with cameras mounted on the windshield and the recording device generally in the trunk, headliner, dashboard, console
or under the seat of the vehicle. Most manufacturers have already developed and transitioned completely to digital video, and
some have offered full high definition (“HD”) level recordings which is currently state-of-art for the industry.
Our
digital video rear-view mirror unit is a self-contained video recorder, microphone and digital storage system that is integrated
into a rear-view mirror, with a monitor, global positioning system (“GPS”) and 900 megahertz (“MHz”) audio
transceiver. Our system is more compact and unobtrusive than certain of our competitors because it requires no recording equipment
to be located in other parts of the vehicle.
Our
in-car digital video rear-view mirror has the following features:
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wide
angle zoom color camera;
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standards-based
video and audio compression and recording;
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system
is concealed in the rear-view mirror, replacing factory rear-view mirror;
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monitor
in rear-view mirror is invisible when not activated;
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easily
installs in any vehicle;
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ability
to integrate with body-worn cameras including auto-activation of either system;
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archives
audio/video data to the cloud, computers (wirelessly) and to compact flash memory, or file servers;
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900
MHz audio transceiver with automatic activation;
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marks
exact location of incident with integrated GPS;
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playback
using Windows Media Player;
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optional
wireless download of stored video evidence;
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proprietary
software protects the chain of custody; and
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records
to rugged and durable solid-state memory.
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We
have completed development of a new in-car digital video platform under the name EVO-HD which it launched during the second quarter
of 2019. The EVO-HD is a next generation system that offers a multiple HD in-car camera solution system with built-in patented
VuLink auto-activation technology. The EVO-HD is built on an entirely new and highly advanced technology platform that enables
many new and revolutionary features, including auto activation beyond the car and body camera. No other provider can offer built-in
patented VuLink auto-activation technology.
The
EVO-HD provides law enforcement officers with an easier to use, faster and more advanced system for capturing video evidence and
uploading than similar products sold by the Company’s competitors. Additional features include:
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a
remote cloud trigger feature that allows dispatchers to remotely start recordings;
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simultaneous
audio/video play back;
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cloud
connectivity via cell modem, including the planned deployment of the new 5G network;
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near
real-time mapping and system health monitoring;
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body-camera
connectivity with built-in auto activation technology; and
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128
gigabyte internal storage, up to 2 terabyte external solid-state drive storage.
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The
EVO-HD is designed and built on a new and highly advanced technology platform that will become the platform for a whole new family
of in-car video solution products for the law enforcement. The innovative EVO-HD technology replaces the current in-car mirror-based
systems with a miniaturized system that can be custom-mounted in the vehicle while offering numerous hardware configurations to
meet the varied needs and requirements of its law enforcement customers. The EVO-HD can support up to four HD cameras, with two
cameras having pre-event and evidence capture assurance (“ECA”) capabilities to allow agencies to review entire shifts.
An internal cell modem will allow for connectivity to the VuVault.net cloud, powered by Amazon Web Services (“AWS”)
and real time metadata when in the field.
In-Car
Digital Video “Event Recorder” System – DVM-250 Plus for Commercial Fleets
Digital
Ally provides commercial fleets and commercial fleet managers with the digital video tools that they need to increase driver safety
and track assets in real-time and minimize the company’s
liability risk, all while enabling fleet managers to operate the fleet at an optimal level. We market a product designed to address
these commercial fleet markets with our DVM-250 Plus event recorders that provide all types of commercial fleets with features
and capabilities which are fully-customizable, consistent with their specific application and inherent risks. The DVM-250 Plus
is a rear-view mirror based digital audio and video recording system with many, but not all of, the features of our
DVM-800 law enforcement mirror systems, which we sell at a lower price point. The DVM-250 Plus is designed to capture “events,” such
as wrecks and erratic driving or other abnormal occurrences, for evidentiary or training purposes. The commercial fleet markets
may find our units attractive from both a feature and a cost perspective compared to other providers. We believe that due to our
marketing efforts, commercial fleets are adopting this technology, in particular the ambulance and taxi-cab markets. During
the first quarter of 2021, the Company intends to launch the DVM-250 FLT, which is the basic DVM-250 with a monitor that can be
located outside of the rear-view mirror. The DVM-250 FLT is expected to be attractive to customers in the over-the-road trucking
and similar industries that typically do not have rear view mirrors.
Digital
Ally offers a suite of data management web-based tools to assist fleet managers in the organization, archival, and management
of videos and telematics information. Within the suite, there are powerful mapping and reporting tools that are intended to optimize
efficiency, serve as excellent training tools for teams on safety and ultimately generate a significant return on investment for
the organization.
The
EVO-HD described above will also become the platform for a whole new family of in-car video solution products for the commercial
markets. The innovative EVO-HD technology will replace the current in-car mirror-based systems with a miniaturized system that
can be custom-mounted in the vehicle while offering numerous hardware configurations to meet the varied needs and requirements
of its commercial customers. In its commercial market application, the EVO-HD can support up to four HD cameras, with two cameras
having pre-event and ECA capabilities to allow customers to review entire shifts. An internal cell modem will allow for connectivity
to the FleetVU Manager cloud-based system for commercial fleet tracking and monitoring, powered by AWS and real time metadata
when in the field.
Miniature
Body-Worn Digital Video System – FirstVU HD for Law Enforcement and Private Security
This
system is also a derivative of our in-car video systems, but is much smaller and lighter and more rugged and water-resistant to
handle a hostile outdoor environment. These systems can be used in many applications in addition to law enforcement and private
security and are designed specifically to be clipped to an individual’s pocket or other outer clothing. The unit is self-contained
and requires no external battery or storage devices. Current systems offered by competitors are digital based, but generally require
a battery pack and/or storage device to be connected to the camera by wire or other means. We believe that our FirstVU HD product
is more desirable for potential users than our competitors’ offerings because of its video quality, small size, shape and
lightweight characteristics. Our FirstVU HD integrates with our in-car video systems through our patented VuLink system
allowing for automatic activation of both systems.
Auto-activation
and Interconnectivity Between In-Car Video Systems and FirstVU HD Body Worn Camera Products – VuLink for Law Enforcement
Applications
Recognizing
a critical limitation in law enforcement camera technology, we pioneered the development of our VuLink ecosystem that provides
intuitive auto-activation functionality as well as coordination between multiple recording devices. The United States Patent and
Trademark Office (the “USPTO”) has recognized these pioneering efforts by granting us multiple patents with claims
covering numerous features, such as automatically activating an officer’s cameras when the light bar is activated or when
a data-recording device such as a smart weapon is activated. Additionally, the awarded patent claims cover automatic coordination
between multiple recording devices. Prior to this work, officers were forced to manually activate each device while responding
to emergency scenarios, a requirement that both decreased the usefulness of the existing camera systems and diverted officers’
attention during critical moments. Our FirstVU HD integrates with our in-car video systems through our patented VuLink system
allowing for automatic activation of both systems.
This
feature is becoming a standard feature required by many law agencies. Unfortunately, certain of our competitors have chosen to
infringe our patent and develop products that provide the same or similar features as our VuLink system. We filed lawsuits against
two competitors – Axon Enterprises, Inc. (“Axon,” formerly known as Taser International, Inc.) and Enforcement
Video, LLC d/b/a WatchGuard Video (“WatchGuard”) – which challenge Axon’s and WatchGuard’s infringing
products. On May 13, 2019, WatchGuard and the Company resolved the dispute and executed a settlement agreement in the form of
a Release and License Agreement. The litigation has been dismissed as a result of this settlement.
Axon
– On June 17, 2019, the U.S. District Court for the District of Kansas (the “U.S. District Court”)
granted Axon’s motion for summary judgment that Axon did not infringe on the Company’s patent and dismissed the case.
Importantly, the U.S. District Court’s ruling did not find that the Company’s ‘452 Patent was invalid. It also
did not address any other issue, such as whether the Company’s requested damages were appropriate, and it does not impact
the Company’s ability to file additional lawsuits to hold other competitors accountable for patent infringement. This ruling
solely related to an interpretation of the Company’s claims as they relate to Axon and was unrelated to the supplemental
briefing the Company filed on its damages claim and the WatchGuard settlement. Those issues are separate and the U.S. District
Court’s ruling on the motion for summary judgment had nothing to do with the Company’s damages request.
We
filed an opening appeal brief on August 26, 2019 with the U.S. Court of Appeals for the Tenth Circuit (the “Court of Appeals”),
appealing the U.S. District Court’s granting of Axon’s motion for summary judgment. Axon responded by filing a responsive
brief on November 6, 2019 and we then filed a reply brief responding to Axon on November 27, 2019. The Court of Appeals scheduled
oral arguments on our appeal of the U.S. District Court’s summary judgment ruling on April 6, 2020. This appeal was intended
to address the Company’s position that the U.S. District Court incorrectly dismissed our claims against Axon. If the Court
of Appeals overturns the ruling of the U.S. District Court, the case will be remanded to the U.S District Court before a new judge.
On March 12, 2020, the panel of judges for the Court of Appeals issued an order cancelling the oral arguments previously set for
April 6, 2020, having determined that the appeal will be decided solely based on the parties’ briefs. On April 22, 2020,
a three-judge panel of the United States Court of Appeals denied our appeal and affirmed the District Court’s previous decision
to grant Axon summary judgment. On May 22, 2020, we filed a petition for panel rehearing requesting that we be granted a rehearing
of our appeal of the U.S. District Court’s summary judgment ruling. Furthermore, we requested that we be given an opportunity
to make our case through oral argument in front of the three-judge panel of the Court of Appeals, which was also denied. The Company
has abandoned its right to any further appeals.
WatchGuard
– On May 27, 2016, the Company filed suit against WatchGuard alleging patent infringement based on WatchGuard’s
VISTA Wifi and 4RE In-Car product lines. On May 13, 2019, the parties resolved the dispute and executed a settlement agreement
in the form of a Release and License Agreement. The litigation has been dismissed as a result of this settlement. The Release
and License Agreement contains the following key terms:
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WatchGuard
paid Digital Ally a one-time, lump settlement payment of $6,000,000.
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Digital
Ally has granted WatchGuard a perpetual covenant not to sue if WatchGuard’s products
incorporate agreed-upon modified recording functionality. Digital Ally has also granted
WatchGuard a license to the ‘292 Patent and the ‘452 Patent (and related
patents, now existing and yet-to-issue) through December 31, 2023. The parties have agreed
to negotiate in good faith to attempt to resolve any alleged infringement that occurs
after
the license period expires.
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The
parties have further agreed to release each other from all claims or liabilities pre-existing the settlement.
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As
part of the settlement, the parties agreed that WatchGuard is making no admission that
it has infringed
any
of Digital Ally’s patents.
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Upon
receipt of the $6,000,000, the parties filed a joint motion to dismiss the lawsuit with the court, which was granted.
We
believe that the outcome of the Axon lawsuit will largely define the competitive landscape for the body-worn and in-car video
market for the foreseeable future. We expect that our VuLink product and its related patents will be recognized as the revolutionary
and pioneering invention by the U.S. courts.
VuVault.net
and FleetVU Manager
VuVault.net
is a cost-effective, fully expandable, law enforcement cloud storage solution powered by AWS that provides redundant and security-enhanced
storage of all uploaded videos that comply with the United States Federal Bureau of Investigation’s Criminal Justice Information
Services Division requirements.
FleetVU
Manager is our web-based software for commercial fleet tracking and monitoring that features and manages video captured by our
video event data recorders of incidents requiring attention, such as accidents. This software solution features our cloud-based
web portal that utilizes many of the features of our VuVault.net law-enforcement cloud-based storage solution.
Disinfectant
Line and Related Safety Products
On
June 2, 2020, the Company announced that it was launching its branded ThermoVu™ product line. ThermoVu is a non-contact
temperature-measuring instrument that measures temperature through the wrist. ThermoVu has optional features such as facial recognition
to improve facility security by restricting access based on temperature and/or facial recognition parameters. ThermoVu provides
an instant pass/fail audible tone with its temperature display and controls access to facilities based on such results. The Company
believes this product can be applied in schools, office buildings, subway stations, airports and other public venues.
On
June 2, 2020, the Company also announced the launch of its branded Shield™ Disinfectant/Sanitizer and several related products
to fulfill demand by current customers and others for a disinfectant and sanitizer that is less harsh than many of the traditional
products now widely distributed. The Shield™ product line contains a cleaner with no harsh chemicals or fumes. Hypochlorous
acid (“HOCL”), the active ingredient of the Company’s Shield products, falls under category IV of the United
States Environmental Protection Agency’s (“EPA”) toxicity categories, the least toxic category. Cleaning crews
are not required to wear personal protective equipment when applying and reapplying HOCL. The Shield™ Disinfectant/Sanitizer
has been listed on the EPA’s List N: Disinfectants for Use Against SARS-CoV-2, the virus that causes COVID-19.
The
Company is also distributing other personal protective equipment (“PPE”) such as nitrile gloves and masks which is
used by many different customers who wish to reduce transmission of SARS-CoV-2, the virus that causes COVID-19, and other viruses.
The Company is purchasing such PPE from international vendors on a wholesale basis.
Other
Products
During
the last year, we focused our research and development efforts to meet the varying needs of our customers, enhance our existing
products and commence development of new products and product categories. Our research and development efforts are intended to
maintain and enhance our competitiveness in the market niche we have carved out, as well as positioning us to compete in diverse
markets outside of law enforcement. In December 2019, the Company announced a partnership with Pivot International for design
and manufacture of a new and innovative Breathalyzer Device utilizing the Company’s recently issued patent. With this new
technology, when an officer is conducting a field sobriety test and the breathalyzer is activated, the digital video recording
device will automatically start a recording, later embedding the meta-data captured onto the recorded video. The ‘732 Patent
was granted by the U.S. Patent Office in August 2019 and is an expansion of Digital Ally’s patented VuLink automatic activation
technology.
Corporate
Information
We
were incorporated in Nevada on December 13, 2000 as Vegas Petra, Inc. From that date until November 30, 2004, when we entered
into a Plan of Merger with Digital Ally, Inc., a Nevada corporation, which was formerly known as Trophy Tech Corporation (the
“Acquired Company”), we had not conducted any operations and were a closely-held company. In conjunction with the
merger, we were renamed Digital Ally, Inc.
The
Acquired Company, which was incorporated on May 16, 2003, engaged in the design, development, marketing and sale of bow hunting-related
products. Its principal product was a digital video recording system for use in the bow hunting industry. It changed its business
plan in 2004 to adapt its digital video recording system for use in the law enforcement and security markets. We began shipments
of our in-car digital video rear view mirrors in March 2006.
On
January 2, 2008, we commenced trading on Nasdaq under the symbol “DGLY.” We conduct our business from 15612 College
Boulevard, Lenexa, Kansas 66219. Our website address is www.digitalallyinc.com. Information contained on our website does
not form part of this prospectus supplement and accompanying base prospectus and is intended for informational purposes only.
Recent
Developments
Advancement
of Funds
In
October 2020, the Company advanced a total of $500,000 to American Rebel Holdings, Inc. (“AREB”) under two separate
secured promissory notes. The CEO, President and Chairman of AREB is the brother of the Company’s CEO, President and Chairman.
Such notes bear interest at 8%, mature on April 21, 2021 and are secured by substantially all tangible and intangible assets
of AREB. The Company also received warrants to purchase 2,500,000 shares of AREB common stock at an exercise price of $0.10 per
share.
Promissory
Note Under the Paycheck Protection Program
On
April 4, 2020, the Company entered into a promissory
note which provides for a loan in the amount of $1,418,900 (the “PPP Loan”) pursuant to the Paycheck Protection Program
under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”).
The PPP Loan has a two-year term and bears interest at a rate of 0.98% per annum. Monthly principal and interest payments are
deferred for six months after the date of disbursement. The PPP Loan may be prepaid at any time prior to maturity with no prepayment
penalties. The promissory note contains events of default and other provisions customary for a loan of this type. The Paycheck
Protection Program provides that the PPP Loan may be partially or wholly forgiven if the funds are used for certain qualifying
expenses as described in the CARES Act. The Company used the majority of the PPP Loan amount for qualifying expenses and
applied for forgiveness of the loan in accordance with the terms of the CARES Act.
On
December 10, 2020, the Company received notification from First-Citizens Bank & Trust Company (“First-Citizens”)
of partial forgiveness of the PPP Loan that it had obtained under the U.S. Small Business Administration (“SBA”) Paycheck
Protection Program in the amount of $1,418,900 after the Company previously applied for forgiveness of the PPP Loan. The amount
of forgiveness remitted to First-Citizens by the SBA was $1,418,900, which was reduced by a $10,000 Economic Injury Disaster Loan
advance that the Company received and which is the remaining balance of the PPP Loan.
Salaries
Payable and Option Awards Granted to Executive Officers in 2021
On
January 7, 2021, the Compensation Committee of the Company’s
board of directors (the “Committee”) set the annual base salaries of Stanton E. Ross, the Company’s President
and Chief Executive Officer, and Thomas J. Heckman, the Company’s Chief Financial Officer, Treasurer and Secretary, at $250,000
and $230,000, respectively for 2021. The Committee determined that Mr. Ross will be eligible for bonuses of up to a total of $250,000
in 2021 and Mr. Heckman will be eligible for bonuses of up to a total of $230,000 in 2021 based on each person’s performance
during the year. The Committee will review each executive officer’s performance on a periodic basis during 2021 and determine
what, if any, portion of the bonus he has earned and will be paid as of such point.
The
Committee also awarded Mr. Ross 300,000 shares of restricted Common Stock and Mr. Heckman 150,000 shares of restricted Common
Stock, effective January 7, 2021. Half of such shares awarded will vest for each person on January 6, 2022 and the other half
will vest on January 6, 2023, provided that such person remains an officer on such dates.
January
14, 2021 Registered Direct Offering
On
January 14, 2021, pursuant a securities purchase agreement
with two investors, we closed a registered direct offering of (i) 2,800,000
shares of Common Stock; (ii) pre-funded warrants to purchase up to 7,200,000 shares of Common Stock at an exercise price of $0.01
per share; and (iii) common stock purchase warrants to purchase up to an aggregate of 10,000,000 shares of Common Stock, which
are exercisable for a period of five years after issuance at an initial exercise price $3.25 per share, subject to certain adjustments,
as provided in such warrants. Such shares of Common Stock or pre-funded warrants, and the accompanying warrants, were only purchasable
together, but were issued separately and were immediately separable upon issuance. Each share of Common Stock and accompanying
warrant in such offering was offered at a combined offering price of $3.095 per share and accompanying warrant, and each pre-funded
warrant and accompanying warrant in such offering was offered at a combined offering price of $3.085 per pre-funded warrant and
accompanying warrant.
We
received gross proceeds of approximately $30,950,000, before deducting discounts, commissions
and other offering expenses, which we intend to use for working capital, product development, order fulfillment and for general
corporate purposes. The exclusive placement agent for this offering of Common Stock, Kingswood Capital Markets, division
of Benchmark Investments, Inc. (“Kingswood”), also acted as the exclusive placement agent in connection with such
offering pursuant to a placement agency agreement, dated January 11, 2021. We agreed to pay Kingswood a fee equal to 6% of the
aggregate purchase price paid by investors placed by Kingswood and certain expenses. Such
shares, pre-funded warrants, and warrants, as well as the shares of Common Stock underlying such pre-funded warrants and warrants,
were registered under the Securities Act of 1933, as amended (the “Securities Act”), pursuant to a prospectus supplement
to our currently effective shelf registration statement, which was initially filed with the SEC on June 25, 2020,
and was declared effective on July 2, 2020, and the related base prospectus included in such registration statement, as supplemented
by the prospectus supplement, dated January 11, 2021.
THE
OFFERING
Shares
of Common Stock Offered
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We
are offering 3,250,000 shares of Common Stock.
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Pre-Funded
Warrants offered by us
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We
are also offering Pre-Funded Warrants to purchase up to 11,050,000 shares of Common Stock to purchasers whose purchase
of shares of Common Stock in this offering would otherwise result in any such purchaser, together with its affiliates and
certain related parties, beneficially owning more than 4.99% (or, at the election of the purchaser, 9.99%) of our outstanding
Common Stock immediately following the consummation of this offering, the opportunity to purchase, if any such purchaser so
chooses, Pre-Funded Warrants, in lieu of shares of Common Stock that would otherwise result in such purchaser’s beneficial
ownership exceeding 4.99% (or, at the election of the purchaser, 9.99%) of our outstanding Common Stock. Each Pre-Funded Warrant
will be exercisable for one share of Common Stock. The combined purchase price of each Pre-Funded Warrant with accompanying
Warrant will be equal to the combined purchase price at which each share of Common Stock and accompanying Warrant are sold
to the public in this offering, minus $0.01, and the exercise price of each Pre-Funded Warrant will be $0.01 per share. This
offering also relates to the shares of Common Stock issuable upon exercise of any Pre-Funded Warrant sold in this offering.
The Pre-Funded Warrants will be exercisable immediately and may be exercised at any time until all of the Pre-Funded Warrants
are exercised in full.
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Warrants
offered by us
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We
are also offering Warrants to purchase up to an aggregate of 14,300,000 shares of Common Stock. Each share of Common
Stock and each Pre-Funded Warrant is being sold together with a Warrant to purchase one (1) share of Common Stock. Warrants
will be exercisable at an exercise price of $3.25 per share for each share of Common Stock issuable, will be exercisable immediately
upon issuance by paying the aggregate exercise price for the Warrants being exercised and, in the event there is, at any time,
no effective registration statement registering the Warrant Shares, or the prospectus contained therein is not available for
the issuance of the Warrant Shares, then the Warrants may also be exercised on a cashless basis for a net number of shares,
as provided in the formula in the Warrant. In either case, the Warrants will expire on the fifth anniversary of their original
issuance date. This offering also relates to the shares of Common Stock issuable upon exercise of the Warrants.
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Common
Stock outstanding before this offering (1)
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37,284,709
shares of Common
Stock, as of January 27, 2021.
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Common
Stock to be outstanding after this offering (1)
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40,534,709
shares, assuming no exercise
of any of the Pre-Funded Warrants or Warrants issued in this offering.
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Use
of proceeds
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We
estimate that the net proceeds from this offering will be approximately $37,447,100, excluding any exercise of the
Pre-Funded Warrants or Warrants, and after deducting the placement agent discounts and commissions and estimated offering
expenses payable by us. We intend to use the net proceeds from this offering for working capital, product development, potential
acquisitions, order fulfillment and for general corporate purposes. See “Use of Proceeds” on page S-21 of
this prospectus supplement.
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Risk
factors
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Investing
in our securities involves a high degree of risk. You should read the “Risk Factors” section on page S-12 of this
prospectus supplement for a discussion of factors to consider before deciding to invest in the securities offered hereby.
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Nasdaq
symbol and trading
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Our
Common Stock is listed on Nasdaq under the symbol “DGLY”. There is no established trading market for the Warrants
or the Pre-Funded Warrants, and we do not expect a trading market for such securities to develop. We do not intend to list
the Warrants or the Pre-Funded Warrants on any securities exchange or other trading market. Without a trading market, the
liquidity of the Warrants or the Pre-Funded Warrants will be extremely limited.
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Except
as otherwise indicated herein, the number of shares of Common Stock to be outstanding immediately after this offering is based
on 37,284,709 shares of our Common Stock outstanding as of January 27, 2021, and:
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excludes up to 838,313
shares of our Common Stock issuable upon exercise of outstanding options with a weighted average exercise price of $3.20 per
share as of January 27, 2021;
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includes 704,000
shares of our Common Stock subject to forfeiture pursuant to outstanding non-vested restricted stock grants as of January
27, 2021;
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excludes 613,846
shares of our Common Stock as of January 27, 2021 reserved for future issuance pursuant to our existing stock incentive
plans;
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excludes up to 12,508,598
shares of our Common Stock issuable upon exercise of warrants outstanding as of January 27, 2021 having a weighted
average exercise price of $3.34 per share;
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includes
63,518 shares of our Common Stock held as treasury stock as of January 27, 2021;
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excludes
up to 11,050,000 shares of our Common Stock issuable pursuant to the exercise of the
Pre-Funded Warrants; and
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excludes up to 14,300,000
shares of our Common Stock issuable pursuant to the exercise of the Warrants.
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RISK
FACTORS
Investing
in in our securities involves a high degree of risk. You should carefully consider and evaluate all of the information contained
in this prospectus supplement, the accompanying base prospectus and in the documents that we incorporate by reference into this
prospectus supplement and the accompanying base prospectus deciding to invest in our securities. In particular, you should carefully
consider and evaluate the risks and uncertainties described under the heading “Risk Factors” in this prospectus supplement.
Any of the risks and uncertainties set forth in this prospectus supplement, the accompanying base prospectus and in the documents
that we incorporate by reference herein and therein, as updated by annual, quarterly and other reports and documents that we file
with the SEC and incorporate by reference into this prospectus supplement could materially and adversely affect our business,
results of operations and financial condition, which in turn could materially and adversely affect the value of our securities.
The risks described in this prospectus supplement, the accompanying base prospectus and in the documents that we incorporate by
reference herein and therein are not the only ones facing us. Additional risks not currently known to us or that we currently
deem immaterial may also adversely affect us. As a result, you could lose all or part of your investment.
Risks
Related to this Offering of Securities
Our
insiders and affiliated parties beneficially own a significant portion of our Common Stock.
As
of the date of this prospectus supplement, our executive officers, directors, and affiliated parties beneficially own approximately
8.8% of our Common Stock, including options vested or to vest within sixty (60) days. As a result, our executive officers,
directors and affiliated parties will have significant influence to:
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elect
or defeat the election of our directors;
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amend
or prevent amendment of our articles of incorporation or bylaws;
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effect
or prevent a merger, sale of assets, change of control or other corporate transaction; and
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affect
the outcome of any other matter submitted to the stockholders for vote.
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In
addition, any sale of a significant amount of our Common Stock held by our directors and executive officers, or the possibility
of such sales, could adversely affect the market price of our Common Stock. Management’s stock ownership may discourage
a potential acquirer from making a tender offer or otherwise attempting to obtain control of us, which in turn could reduce our
stock price or prevent our stockholders from realizing any gains from our Common Stock. Furthermore, the interests of this concentration
of ownership may not always coincide with our interests or the interests of other stockholders. Accordingly, these stockholders
could cause us to enter into transactions or agreements that we would not otherwise consider.
The
market price for our Common Stock is particularly volatile given our status as a relatively unknown company with a small and thinly
traded public float, and lack of profits, which could lead to wide fluctuations in the share price of our Common Stock. You may
be unable to sell any shares of Common Stock that you hold at or above your purchase price, which may result in substantial losses
to you.
The
market for our Common Stock is characterized by significant price volatility when compared to the shares of larger, more established
companies that trade on a national securities exchange and have large public floats, and we expect that the share price of our
Common Stock will continue to be more volatile than the shares of such larger, more established companies for the indefinite future.
The volatility in the share price of our Common Stock is attributable to a number of factors. First, as noted above, our Common
Stock is, compared to the shares of such larger, more established companies, sporadically and thinly traded. The price for our
shares of share price of our Common Stock could, for example, decline precipitously in the event that a large number of shares
of our Common Stock is sold on the market without commensurate demand. Secondly, an investment in our securities is a speculative
or “risky” investment due to our lack of profits to date. As a consequence of this enhanced risk, more risk-adverse
investors may, under the fear of losing all or most of their investment in the event of negative news or lack of progress, be
more inclined to sell their shares of share price of our Common Stock on the market more quickly and at greater discounts than
would be the case with the stock of a larger, more established company that trades on a national securities exchange and has a
large public float. Many of these factors are beyond our control and may decrease the market price of our Common Stock regardless
of our operating performance.
If
and when a larger trading market for our Common Stock develops, the market price of our Common Stock is still likely to be highly
volatile and subject to wide fluctuations, and you may be unable to resell your shares at or above the price at which you acquired
them.
The
market price of our Common Stock may be highly volatile and could be subject to wide fluctuations in response to a number of factors
that are beyond our control, including, but not limited to:
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variations
in our revenues and operating expenses;
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actual
or anticipated changes in the estimates of our operating results or changes in stock market analyst recommendations regarding
our Common Stock, other comparable companies or our industry generally;
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market
conditions in our industry, the industries of our customers and the economy as a whole;
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actual
or expected changes in our growth rates or our competitors’ growth rates;
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developments
in the financial markets and worldwide or regional economies;
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announcements
of innovations or new products or services by us or our competitors;
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announcements
by the government relating to regulations that govern our industry;
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sales
of our Common Stock or other securities by us or in the open market;
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changes
in the market valuations of other comparable companies; and
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other
events or factors, many of which are beyond our control, including those resulting from such events, or the prospect of such
events, including war, terrorism and other international conflicts, public health issues including health epidemics or pandemics,
such as the recent outbreak of COVID-19, and natural disasters such as fire, hurricanes, earthquakes, tornados or other adverse
weather and climate conditions, whether occurring in the United States or elsewhere, could disrupt our operations, disrupt
the operations of our suppliers or result in political or economic instability.
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In
addition, if the market for technology stocks or the stock market in general experiences loss of investor confidence, the trading
price of our Common Stock could decline for reasons unrelated to our business, financial condition or operating results. The trading
price of our shares of Common Stock might also decline in reaction to events that affect other companies in our industry, even
if these events do not directly affect us. Each of these factors, among others, could harm the value of your investment in our
securities. In the past, following periods of volatility in the market, securities class-action litigation has often been instituted
against companies. Such litigation, if instituted against us, could result in substantial costs and diversion of management’s
attention and resources, which could materially and adversely affect our business, operating results and financial condition.
We
do not anticipate paying dividends on our Common Stock in the foreseeable future; you should not buy our securities if you expect
dividends.
The
payment of dividends on our Common Stock will depend on earnings, financial condition and other business and economic factors
affecting us at such time as our board of directors (“Board of Directors”) may consider relevant. If we do not pay
dividends, our Common Stock may be less valuable because a return on your investment will only occur if our stock price appreciates.
We
currently intend to retain our future earnings to support operations and to finance expansion and, therefore, we do not anticipate
paying any cash dividends on our Common Stock in the foreseeable future.
Purchasers
in this offering will experience immediate and substantial dilution in the book value of their investment .
The
public offering price of our Common Stock and accompanying Warrants in this offering will exceed the net tangible book value
per share of our Common Stock outstanding prior to this offering. Therefore, if you purchase shares of Common Stock and
accompanying Warrants in this offering at a public offering price of $2.80 per share and accompanying Warrant,
you will experience immediate dilution of $0.81 per share, or approximately 28.9% of the public offering
price of such shares and accompanying Warrants, representing the difference between our pro forma as adjusted net tangible
book value per share as of September 30, 2020, after giving effect to the issuance of Common Stock and accompanying Warrants
in this offering and on a pro forma basis all other issuances/redemptions subsequent to September 30, 2020 as if they had
occurred as of September 30, 2020. This dilution is due in large part to the fact that the Company has a substantial
accumulated stockholder’s deficit at September 30, 2020. In addition, on a pro forma as adjusted basis, purchasers in
this offering will have contributed approximately 22.8% of the aggregate price paid by all purchasers of our
Common Stock and will own approximately 8.0% of our Common Stock outstanding after this offering, based on the
public offering price of $2.80 per share of Common Stock and accompanying Warrant. The exercise of outstanding
stock options and warrants will result in further dilution of your investment. See the section entitled
“Dilution” on page S-23 of this prospectus supplement.
Exercise
of options or warrants may have a dilutive effect on your percentage ownership of Common Stock, and may result in a dilution of
your voting power and an increase in the number of shares of Common Stock eligible for future resale in the public market, which
may negatively impact the trading price of our shares of Common Stock.
The
exercise of some or all of our outstanding warrants or options could result in significant dilution in the percentage ownership
interest of investors in this offering and in the percentage ownership interest of our existing common stockholders and in a significant
dilution of voting rights and earnings per share.
As of
January 27, 2021, we have warrants outstanding to purchase 12,508,598 shares of Common Stock. The warrants have
a weighted average exercise price of $3.34 and a weighted average years to maturity of approximately 4.3 years.
In addition, as of such date, we have options to purchase 838,313 shares of our Common
Stock outstanding and exercisable at an average price of $3.20 per share.
Subject
to lock-up provisions described under “Plan of Distribution,” we are generally not restricted from issuing additional
securities, including shares of Common Stock, securities that are convertible into or exchangeable for, or that represent the
right to receive, Common Stock or substantially similar securities. In addition to the dilutive effects described above, the exercise,
conversion or repayment, as applicable, of those securities would lead to an increase in the number of shares of Common Stock
eligible for resale in the public market. Sales of substantial numbers of such shares of Common Stock in the public market could
adversely affect the market price of our shares of Common Stock. Substantial dilution and/or a substantial increase in the number
of shares of Common Stock available for future resale may negatively impact the trading price of our shares of Common Stock.
We
may seek to raise additional funds, finance acquisitions or develop strategic relationships by issuing securities that would dilute
the ownership of the Common Stock. Depending on the terms available to us, if these activities result in significant dilution,
it may negatively impact the trading price of our shares of Common Stock.
We
may acquire other technologies or finance strategic alliances by issuing our equity or equity-linked securities, which may result
in additional dilution to our stockholders. We have financed our operations, and we expect to continue to finance our operations,
acquisitions, if any, and the development of strategic relationships by issuing equity and/or convertible securities, which could
significantly reduce the percentage ownership of our existing stockholders. Further, any additional financing that we secure may
require the granting of rights, preferences or privileges senior to, or pari passu with, those of our Common Stock. Any issuances
by us of equity securities may be at or below the prevailing market price of our Common Stock and in any event may have a dilutive
impact on your ownership interest, which could cause the market price of our Common Stock to decline. We may also raise additional
funds through the incurrence of debt or the issuance or sale of other securities or instruments senior to our shares of Common
Stock. The holders of any securities or instruments we may issue may have rights superior to the rights of our common stockholders.
If we experience dilution from issuance of additional securities and we grant superior rights to new securities over common stockholders,
it may negatively impact the trading price of our shares of Common Stock.
We
may not be able to maintain an active, liquid trading market for our Common Stock, which may cause our Common Stock to trade at
a discount and make it difficult for you to sell the Common Stock you hold.
Our
Common Stock is currently listed on Nasdaq. However, there can be no assurance that we will be able to maintain an active market
for our Common Stock either now or in the future. If an active and liquid trading market cannot be sustained, you may have difficulty
selling any of our Common Stock that you hold. The market price of our Common Stock may decline below the applicable public offering
price that you paid in this offering, and you may not be able to sell your shares of our Common Stock at or above the price that
you paid, or at all.
Because
our management will have broad discretion and flexibility in how the net proceeds from this offering are used, our management
may use the net proceeds in ways with which you disagree or which may not prove effective.
We
currently intend to use the net proceeds from this offering as discussed under “Use of Proceeds” in this prospectus
supplement. We have not allocated specific amounts of the net proceeds from this offering for any of the foregoing purposes. Accordingly,
our management will have significant discretion and flexibility in applying the net proceeds of this offering. You will be relying
on the judgment of our management with regard to the use of these net proceeds, and you will not have the opportunity, as part
of your investment decision, to assess whether the net proceeds are being used appropriately. It is possible that the net proceeds
will be invested in a way that does not yield a favorable, or any, return for us. The failure of our management to use such funds
effectively could have a material adverse effect on our business, financial condition, operating results and cash flow.
In
making your investment decision, you should understand that we and the placement agent have not authorized any other party to
provide you with information concerning us or this offering.
You
should carefully evaluate all of the information in this prospectus supplement and accompanying base prospectus before investing
in our securities. We may receive media coverage regarding our Company, including coverage that is not directly attributable to
statements made by our officers, that incorrectly reports on statements made by our officers or employees, or that is misleading
as a result of omitting information provided by us, our officers or employees. We and the placement agent have not authorized
any other party to provide you with information concerning us or this offering, and you should not rely on this information in
making an investment decision.
There
is no public market for the Pre-Funded Warrants or the Warrants being offered in this offering.
There
is no established public trading market for the Pre-Funded Warrants or the Warrants being offered in this offering, and we do
not expect a market to develop. In addition, we do not intend to apply to list the Pre-Funded Warrants or the Warrants on any
securities exchange or nationally recognized trading system, including Nasdaq. Without an active market, the liquidity of the
Pre-Funded Warrants and the Warrants will be limited.
The
Pre-Funded Warrants and the Warrants are speculative in nature.
The
Pre-Funded Warrants and the Warrants offered hereby do not confer any rights of Common Stock ownership on their respective holders,
such as voting rights or the right to receive dividends, but rather merely represent the right to acquire shares of Common Stock
at a fixed price. Specifically, commencing on the date of issuance, (i) holders of the Pre-Funded Warrants may exercise their
right to acquire the Common Stock and pay an exercise price of $0.01 per share and (ii) holders of the Warrants may exercise their
right to acquire the Common Stock and pay an exercise price of $3.25 per share. Moreover, following this offering, the market
value of the Pre-Funded Warrants and the Warrants is uncertain and there can be no assurance that the market value of the Pre-Funded
Warrants and the Warrants will equal or exceed their public offering price.
Furthermore,
each Pre-Funded Warrant will expire once exercised in full and each Warrant will expire five years from its initial exercise date.
In the event that our Common Stock price does not exceed the exercise price of the Pre-Funded Warrants or the Warrants during
the period when the Pre-Funded Warrants and the Warrants are exercisable, as applicable, such Warrants may not have any value.
Holders
of the Pre-Funded Warrants and the Warrants purchased in this offering will have no rights as common stockholders until such holders
exercise such warrants and acquire our Common Stock.
Until
holders of the Pre-Funded Warrants and the Warrants acquire shares of our Common Stock upon exercise thereof, holders of such
Pre-Funded Warrants and Warrants will have no rights with respect to the shares of our Common Stock underlying such Pre-Funded
Warrants and Warrants. Upon exercise of the Pre-Funded Warrants or the Warrants, such holders will be entitled to exercise the
rights of a common stockholder only as to matters for which the record date occurs after the exercise date.
Risks
Related to our Business
We
have incurred losses in recent years.
We
have had net losses for several years and had an accumulated deficit of $87,388,619 at December 31, 2019, which includes our net
losses of $10,005,713 for the year ended December 31, 2019, as compared to $15,544,551 for the year ended December 31, 2018. As
of September 30, 2020, we had an accumulated deficit of $89,693,181, which includes net losses of $2,304,562 and for the nine
months ended September 30, 2020. We have included disclosure of our liquidity plan and the substantial doubt about our ability
to continue as a going concern in our Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2020. Furthermore,
the report of our independent registered public accounting firm in our Form 10-K included an explanatory paragraph regarding the
substantial doubt about our ability to continue as a going concern. We have implemented several initiatives intended to improve
our revenues and reduce our operating costs with a goal of restoring profitability. If we are unsuccessful in this regard, it
will have a material adverse impact on our business, prospects, operating results and financial condition.
If
we are unable to manage our current business activities, our prospects may be limited and our future profitability may be adversely
affected.
We
experienced a decline in our operating results from 2009 to 2019 and for the nine months ended September 30, 2020. Our revenues
have been unpredictable, which poses significant burdens on us to be proactive in managing production, personnel levels and related
costs. We will need to improve our revenues, operations, financial and other systems to manage our business effectively, and any
failure to do so may lead to inefficiencies and redundancies which reduce our prospects to return to profitability.
We
face risks related to health epidemics and other outbreaks, which could significantly disrupt our operations and could have a
material adverse impact on us, and the recent coronavirus outbreak could materially and adversely affect our business .
An
outbreak of a new respiratory illness caused by COVID-19 has resulted in millions of infections and hundreds of thousands of deaths
worldwide, as of the date of filing of this registration statement, and continues to spread across the globe, including throughout
the law enforcement and commercial fleets channels in the United States, the major market in which we operate. The outbreak of
COVID-19 or by other epidemics could materially and adversely affect our business, financial condition and results of operations.
If COVID-19 worsens in the United States and Asia, or in any other regions in which we have material operations or sales, our
business activities originating from affected areas, including sales, manufacturing and supply chain related activities, could
be adversely affected. Although we have been deemed by the State of Kansas to be an “essential business”, our supply
chain has been and continues to be disrupted and our customers, in particular our commercial customers, have been and continue
to be significantly impacted, which has in turn reduced our operations and activities. Disruptive activities from COVID-19 could
still include the temporary closure of our manufacturing facilities and those used in our supply chain processes, restrictions
on the export or shipment of our products, significant cutback of ocean container delivery from Asia, business closures in impacted
areas, and restrictions on our employees’ and consultants’ ability to travel and to meet with customers. The extent
to which COVID-19 impacts our results will depend on future developments, which are highly uncertain and cannot be predicted,
including new information which may emerge concerning the severity of the virus and the actions to contain it or treat its impact,
among others. COVID-19 could also result in social, economic and labor instability in the countries in which we or our customers
and suppliers operate.
If
workers at one or more of our offices or the offices of our suppliers or manufacturers become ill or are quarantined and in either
or both events are therefore unable to work, our operations could be subject to disruption. Further, if our manufacturers become
unable to obtain necessary raw materials or components, we may incur higher supply costs or our manufacturers may be required
to reduce production levels, either of which may negatively affect our financial condition or results of operations. In addition,
the capital markets have been disrupted and our efforts to raise necessary capital will likely be adversely impacted by the outbreak
of COVID-19. As a result, we cannot forecast with any certainty when the disruptions caused by such outbreak will cease to impact
our business and the results of our operations. In reviewing our consolidated financial statements for the year ended December
31, 2019 and the quarterly period ended September 30, 2020, as well as the notes to such financial statements, including our discussion
of our ability to continue as a going concern set forth therein, which financial statements and notes are incorporated by reference
to this reoffer prospectus and any supplement or amendment hereto, consider the additional uncertainties caused by the outbreak
of COVID-19. The extent to which COVID-19 affects our results will depend on future developments that are highly uncertain and
cannot be predicted, including actions to contain COVID-19 or address and treat its effects, among others.
Although
we received notification of partial forgiveness of our recently received PPP Loan, our application for the PPP Loan could in the
future be determined to have been impermissible or could result in damage to our reputation.
In
April 2020, we received proceeds of approximately $1.4 million from a loan under the CARES Act, a portion of which may be forgiven,
which we used to retain employees, maintain payroll and make lease and utility payments. Under the CARES Act, loan forgiveness
is available for the sum of documented payroll costs, covered rent payments, covered mortgage interest and covered utilities during
the eight-week period beginning on the date of loan approval. Not more than 25% of the forgiven amount may be for non-payroll
costs. We will be required to repay any portion of the outstanding principal that is not forgiven, along with accrued interest,
and we cannot provide any assurance that we will be eligible for full forgiveness of the PPP Loan. On December 10, 2020, the Company
received notification from First-Citizens Bank & Trust Company (“First-Citizens”) of partial forgiveness of the
PPP Loan in the amount of $1,418,900 after the Company previously applied for forgiveness of the PPP Loan. The amount of forgiveness
remitted to First-Citizens by the SBA was $1,418,900, which was reduced by a $10,000 Economic Injury Disaster Loan advance that
the Company received and which is the remaining balance of the PPP Loan.
In
order to apply for the PPP Loan, we were required to certify, among other things, that the current economic uncertainty made the
PPP Loan request necessary to support our ongoing operations. We made this certification in good faith after analyzing, among
other things, our financial situation and access to alternative forms of capital, and believe that we satisfied all eligibility
criteria for the PPP Loan, and that our receipt of the PPP Loan was consistent with the broad objectives of the CARES Act. At
the time that we had made such certification, we could not predict with any certainty whether we would be able to obtain the necessary
financing to support our operations. Our situation has subsequently improved, as a result of, among other things, our closing
of two registered direct offerings in June 2020, and as a result of the funds that we received from the PPP Loan. The certification
described above that we were required to provide in connection with our application for the PPP Loan did not contain any objective
criteria and was subject to interpretation. However, on April 23, 2020, the SBA issued guidance stating that it is unlikely that
a public company with substantial market value and access to capital markets will be able to make the required certification in
good faith. The lack of clarity regarding loan eligibility under the CARES Act has resulted in significant media coverage and
controversy with respect to public companies applying for and receiving loans. If, despite our good-faith belief that we satisfied
all eligible requirements for the PPP Loan, we are later determined to have violated any of the laws or governmental regulations
that apply to us in connection with the PPP Loan, such as the False Claims Act, or it is otherwise determined that we were ineligible
to receive the PPP Loan, we may be subject to penalties, including significant civil, criminal and administrative penalties, and
could be required to repay the PPP Loan in its entirety. In addition, our receipt of the PPP Loan may result in adverse publicity
and damage to our reputation, and a review or audit by the SBA or other government entity or claims under the False Claims Act
could consume significant financial and management resources.
We
depend on sales from our in-car video products and body-worn cameras and if these products become obsolete or not widely accepted,
our growth prospects will be diminished.
We
derived our revenues in 2019, 2020 and to date in 2021 predominantly from sales of our in-car video systems, including
the DVM-800, our largest selling product, and the FirstVU HD body-worn camera, our second largest selling product. We expect to
continue to depend on sales of these products during 2020 and 2021, although we do expect our newly launched EVO-HD in-car system
to gain traction in 2021. A decrease in the prices of, or the demand for our in-car video products, or the failure to achieve
broad market acceptance of our new product offerings, would significantly harm our growth prospects, operating results and financial
condition.
We
substantially depend on our research and development activities to design new products and upgrades to existing products and if
these products are not widely accepted, or we encounter difficulties and delays in launching these new products, our growth prospects
will be diminished.
We
have a number of active research and development projects underway that are intended to launch new products or upgrades to existing
products. We may incur substantial costs and/or delays in completion of these activities that may not result in viable products
or may not be received well by our potential customers. We incurred $1,250,528 and $1,562,086 in research and development expenses
during the nine months ended September 30, 2020 and 2019, respectively, which represent a substantial expense in relation to our
total revenues and net losses. If we are unsuccessful in bringing these products from the engineering prototype phase to commercial
production, we could incur additional expenses (in addition to those already spent) without receiving revenues from the new products.
Also, these new products may fail to achieve broad market acceptance and may not generate revenue to cover expenses incurred to
design, develop, produce and market the new product offerings. Substantial delays in the launch of one or more products could
negatively impact our revenues and increase our costs, which could significantly harm our growth prospects, operating results
and financial condition.
We
are uncertain of our ability to protect technology through patents.
Our
ability to compete effectively will depend on our success in protecting our proprietary technology, both in the United States
and abroad. We have filed for at least 40 patents for protection in the United States and certain other countries to cover certain
design aspects of our products.
We
have been issued at least 25 patents to date by the USPTO. In addition, we have at least 17 patent
applications that are still under review by the U.S. Patent Office and, therefore, we have not yet been issued all the patents
that we applied for in the United States. No assurance can be given that any patents relating to our existing technology will
be issued from the United States or any foreign patent offices, that we will receive any patents in the future based on our continued
development of our technology, or that our patent protection within and/or outside of the United States will be sufficient to
deter others, legally or otherwise, from developing or marketing competitive products utilizing our technologies.
If
our patents were to be denied as filed, we would seek to obtain different patents for other parts of our technology. If our main
patent, which relates to the placement of the in-car video system in a rear-view mirror, were to be challenged and denied, it
could potentially allow our competitors to build very similar devices. Currently, this patent is not being challenged. However,
we believe that very few of our competitors would be capable of this because of the level of technical sophistication and level
of miniaturization required. Even if we obtain patents, there can be no assurance that they will be enforceable to prevent others
from developing and marketing competitive products or methods. If we bring an infringement action relating to any future patents,
it may require the diversion of substantial funds from our operations and may require management to expend efforts that might
otherwise be devoted to our operations. Furthermore, there can be no assurance that we will be successful in enforcing our patent
rights.
Further,
if any patents are issued there can be no assurance that patent infringement claims in the United States or in other countries
will not be asserted against us by a competitor or others, or if asserted, that we will be successful in defending against such
claims. If one of our products is adjudged to infringe patents of others with the likely consequence of a damage award, we may
be enjoined from using and selling such product or be required to obtain a royalty-bearing license, if available on acceptable
terms. Alternatively, if a license is not offered, we might be required, if possible, to redesign those aspects of the product
held to infringe to avoid infringement liability. Any redesign efforts we undertake might be expensive, could delay the introduction
or the re-introduction of our products into certain markets, or may be so significant as to be impractical.
We
are involved in litigation relating to our intellectual property.
We
are subject to various legal proceedings arising from normal business operations. Although there can be no assurances, based on
the information currently available, management believes that it is probable that the ultimate outcome of each of the actions
will not have a material adverse effect on our consolidated financial statements. However, an adverse outcome in certain of the
actions could have a material adverse effect on our financial results in the period in which it is recorded.
Axon
Enterprises, Inc. (Formerly Taser International, Inc.). The Company owns U.S. Patent No. 9,253,452 (the “452 Patent”),
which generally covers the automatic activation and coordination of multiple recording devices in response to a triggering event,
such as a law enforcement officer activating the light bar on the vehicle.
The
Company filed suit on January 15, 2016 with the U.S. District Court (Case No: 2:16-cv-02032) against Axon, alleging willful patent
infringement against Axon’s
body camera product line and signal auto-activation product. On June 17, 2019, the U.S. District Court granted Axon’s motion
for summary judgment that Axon did not infringe on the Company’s patent and dismissed the case. The Company filed an appeal
brief on August 26, 2019 with the Court of Appeals, appealing the U.S. District Court’s granting of Axon’s motion
for summary judgment. On April 22, 2020, a three-judge panel of the United States Court of Appeals denied our appeal and affirmed
the District Court’s previous decision to grant Axon summary judgment. On May 22, 2020, we filed a petition for panel rehearing
requesting that we be granted a rehearing of our appeal of the U.S. District Court’s summary judgment ruling. Furthermore,
we requested that we be given an opportunity to make our case through oral argument in front of the three-judge panel of the Court
of Appeals, which was also denied. The Company has abandoned its right to any further appeals. See “Our Business —
Our Products” in our Form 10-K for additional information.
Enforcement
Video, LLC d/b/a WatchGuard Video. On May
27, 2016, the Company filed suit against WatchGuard, in the U.S. District Court for the District of Kansas (Case No. 2:16-cv-02349-JTM-JPO)
alleging patent infringement based on WatchGuard’s VISTA Wifi and 4RE In-Car
product lines. See “Our Business — Our Products” in our Form 10-K for additional information.
The
Company is not involved as
a plaintiff and defendant in any other litigation or administrative proceedings for which the Company believes the likely outcome
of such cases and proceedings will be material to its business or its financial condition.
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
prospectus supplement, the accompanying base prospectus and the documents incorporated by reference herein and therein, including
the sections entitled “Risk Factors”, contain “forward-looking statements” within the meaning of Section
21(E) of the Exchange Act and Section 27A of the Securities Act. These
forward-looking statements include, without limitation: statements regarding proposed new products or services; statements concerning
litigation or other matters; statements concerning projections, predictions, expectations, estimates or forecasts for our business,
financial and operating results and future economic performance; statements of management’s goals and objectives; statements
concerning our competitive environment, availability of resources and regulation; trends affecting our financial condition, results
of operations or future prospects; our financing plans or growth strategies; and other similar expressions concerning matters
that are not historical facts. Words such as “may”, “will”, “should”, “could”,
“would”, “predicts”, “potential”, “continue”, “expects”, “anticipates”,
“future”, “intends”, “plans”, “believes” and “estimates,” and variations
of such terms or similar expressions, are intended to identify such forward-looking statements.
Forward-looking
statements should not be read as a guarantee of future performance or results and will not necessarily be accurate indications
of the times at, or by which, that performance or those results will be achieved. Forward-looking statements are based on information
available at the time they are made and/or management’s good faith belief as of that time with respect to future events
and are subject to risks and uncertainties that could cause actual performance or results to differ materially from what is expressed
in or suggested by the forward-looking statements.
Forward-looking
statements speak only as of the date they are made. You should not put undue reliance on any forward-looking statements. We assume
no obligation to update forward-looking statements to reflect actual results, changes in assumptions or changes in other factors
affecting forward-looking information, except to the extent required by applicable securities laws. If we do update one or more
forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking
statements. Investors should review our subsequent reports filed with the SEC described in the sections of this prospectus supplement
entitled “Where You Can Find More Information” and “Incorporation of Documents by Reference,” all of which
are accessible on the SEC’s website at www.sec.gov.
USE
OF PROCEEDS
We estimate that the net proceeds to us from
the sale of the securities offered by this prospectus supplement in this offering will be $37,447,100, excluding any exercise
of the Pre-Funded Warrants or Warrants, and after deducting commissions and estimated offering expenses payable by us.
We
currently intend to use the net proceeds from this offering for working capital, product development, potential acquisitions,
order fulfillment and for general corporate purposes. We may also use a portion of the net proceeds for the acquisitions of
businesses, products, technologies or licenses that are complementary to our business, although we have no present commitments
or agreements to do so.
The
allocation of the net proceeds of the offering set forth above is based upon our current plans and assumptions regarding industry
and general economic conditions, our future revenues and expenditures.
The
amounts and timing of our actual expenditures may vary significantly and will depend on numerous factors, including market conditions,
cash generated or used by our operations, business developments and opportunities that may arise and related rate of growth. We
may find it necessary or advisable to use portions of the proceeds from this offering for other purposes.
Circumstances
that may give rise to a change in the use of proceeds and the alternate purposes for which the proceeds may be used include:
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the
existence of other opportunities or the need to take advantage of changes in timing of our existing activities;
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●
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the
need or desire on our part to accelerate, increase or eliminate existing initiatives due to, among other things, changing
market conditions and competitive developments; and/or
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|
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●
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if
strategic opportunities present themselves (including acquisitions, joint ventures, licensing and other similar transactions).
|
From
time to time, we evaluate these factors and other factors and we anticipate continuing to make such evaluations to determine if
the existing allocation of resources, including the proceeds of this offering, is being optimized.
We
believe that the net proceeds of this offering, together with the net proceeds from the offering of our securities received in
connection with the Securities Purchase Agreement and cash on hand, will be sufficient to fund our operations through the balance
of 2021 and for the foreseeable future. Should we find it necessary to raise additional funding, additional capital may
not be available on terms favorable to us, or at all. If we raise additional funds by issuing equity securities, our stockholders
may experience dilution. Debt financing, if available, may involve restrictive covenants or additional security interests in our
assets. Any additional debt or equity financing that we complete may contain terms that are not favorable to us or our stockholders.
If we raise additional funds through collaboration and licensing arrangements with third parties, it may be necessary to relinquish
some rights to our technologies or products or grant licenses on terms that are not favorable to us. If we are unable to raise
adequate funds, we may have to delay, reduce the scope of, or eliminate some or all of, our development programs or liquidate
some or all of our assets.
CAPITALIZATION
The
following table sets forth our actual cash and cash equivalents and our capitalization as of September 30, 2020:
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on
an actual basis;
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●
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pro
forma basis to give effect to the (i) issuance of 2,800,000 shares of Common Stock,
pre-funded warrants to purchase up to an aggregate of 7,200,000 shares of Common Stock
and warrants to purchase up to an aggregate of 10,000,000 shares of Common Stock pursuant
to a registered direct offering that we closed on January 14, 2021, and the full exercise
of all of the pre-funded warrants issued in such registered direct offering, (ii) the forgiveness of $1,418,900 of indebtedness by the SBA under the Paycheck Protection Program, which occurred
on December 10, 2020, (iii) the
issuance of 450,000 restricted shares of Common Stock, (iv) the forfeiture
of 1,500 restricted shares of Common Stock and (v) any other issuances/redemptions
after September 30, 2020; and
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●
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on
a pro forma as adjusted basis to give further effect to the issuance and sale of (i) 3,250,000 shares of our Common
Stock and accompanying Warrants at a combined public offering price of $2.80 per share and
accompanying Warrant and (ii) Pre-Funded Warrants to purchase up to 11,050,000 shares of Common Stock and
accompanying Warrants at a combined public offering price of $2.79 per Pre-Funded Warrant and
accompanying Warrant, after deducting commissions and estimated offering expenses payable by us.
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You
should read this information in conjunction with “Management’s Discussion and Analysis of Financial Condition and
Results of Operations” and our consolidated financial statements and related notes appearing in our Quarterly Report on
Form 10-Q for the quarter ended September 30, 2020, which is incorporated by reference in this prospectus supplement and accompanying
base prospectus. The information below has also been provided on an as adjusted basis to give further effect to this current offering.
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As of September 30, 2020
|
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Actual
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Pro Forma
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Pro Forma As Adjusted
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Cash and cash equivalents
|
|
$
|
8,130,331
|
|
|
$
|
37,075,651
|
|
|
$
|
74,633,251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Long and short-term promissory notes payable
|
|
$
|
1,568,900
|
|
|
$
|
150,000
|
|
|
$
|
150,000
|
|
|
|
|
|
|
|
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Stockholders’ equity:
|
|
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|
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Common stock, par value $0.001 per share; 100,000,000 shares authorized, 26,836,209, 37,284,709 and 40,534,709
shares issued – actual, pro forma and pro forma as adjusted as of September 30, 2020
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$
|
26,836
|
|
|
$
|
37,285
|
|
|
$
|
40,535
|
|
Additional paid-in capital
|
|
|
106,225,896
|
|
|
|
135,160,768
|
|
|
|
172,715,118
|
|
Treasury stock, at cost (63,518 shares)
|
|
|
(2,157,226
|
)
|
|
|
(2,157,226
|
)
|
|
|
(2,157,226
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)
|
Accumulated deficit
|
|
|
(89,693,181
|
)
|
|
|
(89,693,181
|
)
|
|
|
(89,693,181
|
)
|
Total stockholders’ equity
|
|
$
|
14,402,325
|
|
|
$
|
43,347,645
|
|
|
$
|
80,905,345
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|
The
pro forma column above reflects (i) the issuance and sale of 2,800,000 shares of Common Stock, pre-funded warrants to purchase
up to an aggregate of 7,200,000 shares of Common Stock and warrants to purchase up to an aggregate of 10,000,000 shares of Common
Stock pursuant to a registered direct offering that we closed on January 14, 2021, and the full exercise of all of the pre-funded warrants issued in
such registered direct offering, (ii) the forgiveness of $1,418,900 of indebtedness by the SBA under the
Paycheck Protection Program, which occurred on December 10, 2020, (iii) the issuance of 450,000 restricted
shares of Common Stock, (iv) the forfeiture of 1,500 restricted shares of Common Stock and (v) any other issuances/redemptions
that have occurred as if they had occurred subsequent to September 30, 2020.
The
pro forma as adjusted column above reflects our sale of Common Stock and accompanying Warrants in this offering at a combined
public offering price of $2.80 per share
and accompanying Warrant and of Pre-Funded Warrants and accompanying Warrants at a combined public offering price of $2.79
per Pre-Funded Warrant and accompanying Warrant.
The above discussion and table are based on 26,836,209 shares of Common Stock outstanding
as of September 30, 2020 and includes or excludes the following as of such date:
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excludes 838,313
shares of our Common Stock issuable upon exercise of outstanding options with a weighted average exercise price of $3.20
per share as of September 30, 2020;
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●
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includes 734,750
shares of our Common Stock subject to forfeiture pursuant to outstanding non-vested restricted stock grants as of September
30, 2020;
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●
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excludes 1,062,846
shares of our Common Stock as of September 30, 2020 reserved for future issuance pursuant to our existing stock incentive
plans;
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●
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excludes 3,388,364
shares of our Common Stock issuable upon exercise of warrants outstanding as of September 30, 2020 having a weighted average
exercise price of 6.24 per share;
|
|
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●
|
includes
63,518 shares of our Common Stock held as treasury stock, as of September 30, 2020;
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|
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●
|
includes the issuance of 2,800,000 shares of Common Stock and 7,200,000 shares of Common
Stock issued pursuant to the full exercise of all of the pre-funded warrants issued pursuant to a registered direct offering
that we closed on January 14, 2021;
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|
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●
|
excludes the exercise of warrants to purchase up to an aggregate of 10,000,000 shares of
Common Stock issued pursuant to a registered direct offering that we closed on January 14, 2021;
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|
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●
|
reflects
the sale of the 3,250,000 shares of Common Stock offered hereby; and
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●
|
excludes the exercise
of any Warrants or Pre-Funded Warrants issued in connection with this offering.
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DILUTION
A
purchaser of securities in this offering will be diluted to the extent of the difference between the price paid for each share
of our Common Stock and the net tangible book value per share of our Common Stock after this offering. Our net tangible book value
as of September 30, 2020 was approximately $14,022,974, or $0.52 per share of our Common Stock. Net tangible book
value per share is equal to our total tangible assets minus total liabilities, all divided by 26,836,209 shares of Common
Stock outstanding at September 30, 2020.
After
giving effect to the pro forma effect of (i) the issuance and sale of 2,800,000 shares of Common Stock, pre-funded warrants
to purchase up to an aggregate of 7,200,000 shares of Common Stock and warrants to purchase up to an aggregate of 10,000,000 shares
of Common Stock pursuant to a registered direct offering that we closed on January 14, 2021, and the full exercise of all of the
pre-funded warrants issued in such registered direct offering, (ii) the issuance of 450,000 restricted shares of Common Stock,
(iii) the forfeiture of 1,500 restricted shares of Common Stock and (iv) all other issuances that have occurred
subsequent to September 30, 2020 as if they had occurred as of September 30, 2020, and to our sale in this offering of (x)
3,250,000 shares of Common Stock and accompanying Warrants offered by this prospectus supplement at a combined public offering
price of $2.80 per share of Common Stock and accompanying Warrant, and (y) Pre-Funded Warrants to purchase up to 11,050,000
shares of Common Stock and accompanying Warrants offered by this prospectus supplement at a combined public offering price
of $2.79 per Pre-Funded Warrant and accompanying Warrant, and after deducting the estimated placement agent discount,
commissions and our estimated offering expenses, our pro forma as adjusted net tangible book value as of September 30, 2020 would
have been approximately $80,525,894 or approximately $1.99 per share. This represents an immediate increase in pro
forma as adjusted net tangible book value of approximately $0.84 per share to our existing stockholders and an immediate
dilution in pro forma as adjusted net tangible book value of approximately $0.81 per share to purchasers of our securities
in this offering, as illustrated by the following table:
Combined
public offering price per share of Common Stock and accompanying Warrant
|
|
|
|
|
|
$
|
2.80
|
|
Historical
net tangible book value per share at September 30, 2020, before giving effect to this offering
|
|
$
|
0.52
|
|
|
|
|
|
Increase
in pro forma net tangible book value per share at September 30, 2020, attributable to current shareholders before giving effect
to this offering
|
|
$
|
0.63
|
|
|
|
|
|
Pro
forma net tangible book value per share at September 30, 2020, before giving effect to this offering
|
|
$
|
1.15
|
|
|
|
|
|
Increase
in pro forma as adjusted net tangible per share attributable to investors in this offering
|
|
$
|
0.84
|
|
|
|
|
|
Pro
forma as adjusted net tangible book value per share, as adjusted to give effect to this offering
|
|
$
|
1.99
|
|
|
|
|
|
Dilution
to pro forma as adjusted net tangible book value per share to investors in this offering
|
|
|
|
|
|
$
|
0.81
|
|
The following table summarizes as of September
30, 2020, on a pro forma as adjusted basis, as described above, the number of shares of our Common Stock, the total consideration
and the average price per share (i) paid to us by our existing stockholders and (ii) to be paid by investors purchasing
3,250,000 shares of our Common Stock and accompanying Warrants in this offering at a combined public offering price of
$2.80 per share and accompanying Warrant and Pre-Funded Warrants to purchase up to 11,050,000 shares
of Common Stock and accompanying Warrants in this offering at a combined public
offering price of $2.79 per Pre-Funded Warrant and accompanying Warrant,
before deducting placement agent discounts and commissions and estimated offering expenses payable by us:
|
|
Shares
Purchased
|
|
|
Total
Consideration
|
|
|
Average
Price
|
|
|
|
Number
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
Per
Share
|
|
Existing stockholders (pro
forma, as adjusted)
|
|
|
37,284,709
|
|
|
|
92.0
|
%
|
|
$
|
135,198,053
|
|
|
|
77.2
|
%
|
|
$
|
3.62
|
|
New investors
|
|
|
3,250,000
|
|
|
|
8.0
|
%
|
|
$
|
39,929,500
|
|
|
|
22.8
|
%
|
|
$
|
2.80
|
|
Total
|
|
|
40,534,709
|
|
|
|
100.0
|
%
|
|
$
|
175,127,553
|
|
|
|
100.0
|
%
|
|
$
|
3.40
|
|
The
above discussion and table are based on 26,836,209 shares of Common Stock outstanding as of September 30, 2020 and includes or
excludes the following as of such date:
|
●
|
excludes 838,313
shares of our Common Stock issuable upon exercise of outstanding options with a weighted average exercise price of $3.20
per share as of September 30, 2020;
|
|
|
|
|
●
|
includes 734,750
shares of our Common Stock subject to forfeiture pursuant to outstanding non-vested restricted stock grants as of September
30, 2020;
|
|
|
|
|
●
|
excludes 1,062,846
shares of our Common Stock as of September 30, 2020 reserved for future issuance pursuant to our existing stock incentive
plans;
|
|
|
|
|
●
|
excludes 3,388,364
shares of our Common Stock issuable upon exercise of warrants outstanding as of September 30, 2020 having a weighted average
exercise price of 6.24 per share;
|
|
|
|
|
●
|
includes
63,518 shares of our Common Stock held as treasury stock, as of September 30, 2020;
|
|
|
|
|
●
|
includes the issuance of 2,800,000 shares of Common Stock and 7,200,000 shares of Common
Stock issued pursuant to the full exercise of all of the pre-funded warrants issued pursuant to a registered direct offering
that we closed on January 14, 2021;
|
|
|
|
|
●
|
excludes the exercise of warrants to purchase up to an aggregate of 10,000,000 shares of
Common Stock issued pursuant to a registered direct offering that we closed on January 14, 2021;
|
|
|
|
|
●
|
reflects
the sale of the 3,250,000 shares of Common Stock offered hereby; and
|
|
|
|
|
●
|
excludes the exercise
of any Warrants or Pre-Funded Warrants issued in connection with this offering.
|
To
the extent that our outstanding options or warrants are exercised, you could experience further dilution. To the extent that we
raise additional capital through the sale of additional equity, the issuance of any of our shares of Common Stock could result
in further dilution to our stockholders.
DESCRIPTION
OF SECURITIES THAT WE ARE OFFERING
Capital
Stock
The
following description of our capital stock summarizes general terms and provisions that apply to our capital stock. Since this
is only a summary, it does not contain all the information that may be important to you. The summary is subject to and qualified
in its entirety by reference to our articles of incorporation, as amended, and our bylaws, as amended, which are filed as exhibits
to the registration statement of which the accompanying base prospectus is a part and incorporated by reference herein and therein.
See “Where You Can Find More Information.”
Our
authorized capital consists of 100,000,000 shares of Common Stock, $0.001 par value per share. As of January 27, 2021,
we had 37,284,709 shares of our Common Stock issued and outstanding, which excludes 63,518 shares held in treasury.
Common
Stock
Voting
Rights
Each
share of our Common Stock entitles the owner to one vote. There is no cumulative voting. A simple majority can elect all of the
directors at a given meeting, and the minority would not be able to elect any director at that meeting.
Dividends
Each
share of our Common Stock is entitled to receive an equal dividend, if one is declared. We cannot provide any assurance that we
will declare or pay cash dividends on our Common Stock in the future. Any future determination to declare cash dividends will
be made at the discretion of our Board of Directors, subject to applicable laws, and will depend on our financial condition, results
of operations, capital requirements, general business conditions and other factors that our Board of Directors may deem relevant.
Our Board of Directors may determine it to be necessary to retain future earnings (if any) to finance our growth. See “Risk
Factors” and “Dividend Policy.”
Liquidation
If
the Company is liquidated, then assets that remain (if any) after the creditors are paid and the owners of any securities with
liquidation preferences senior to the Common Stock are paid will be distributed to the owners of our Common Stock pro rata.
Preemptive
Rights
Owners
of our Common Stock have no preemptive rights. We may sell shares of our Common Stock to third parties without first offering
such shares to current stockholders.
Redemption
Rights
We
do not have the right to buy back shares of our Common Stock except in extraordinary transactions, such as mergers and court approved
bankruptcy reorganizations. Owners of our Common Stock do not ordinarily have the right to require us to buy their Common Stock.
We do not have a sinking fund to provide assets for any buy back.
Conversion
Rights
Shares
of our Common Stock cannot be converted into any other kind of stock except in extraordinary transactions, such as mergers and
court approved bankruptcy reorganizations.
Nonassessability
All
outstanding shares of our Common Stock are fully paid and nonassessable.
Listing
Our
Common Stock trades on Nasdaq under the symbol “DGLY.”
Pre-Funded
Warrants
The
following summary of certain terms and provisions of Pre-Funded Warrants that are being offered hereby is not complete and is
subject to, and qualified in its entirety by, the provisions of the Pre-Funded Warrant, the form of which is filed as an exhibit
to our Current Report on Form 8-K that we filed with the SEC on January 28, 2021 (the “Form 8-K”). Prospective
investors should carefully review the Form 8-K and the terms and provisions of the form of Pre-Funded Warrant for a complete description
of the terms and conditions of the Pre-Funded Warrants.
Duration
and Exercise Price
Each
Pre-Funded Warrant offered hereby will have an initial exercise price per share equal to $0.01. The Pre-Funded Warrants will be
exercisable immediately upon issuance if exercised by paying the aggregate exercise price for the shares of Common Stock being
exercised or exercised on a cashless basis for a net number of shares of Common Stock, as provided in the formula in the Pre-Funded
Warrants, and in either case, may be exercised at any time until the Pre-Funded Warrants are exercised in full. The exercise price
and number of shares of Common Stock issuable upon exercise is subject to appropriate adjustment in the event of stock dividends,
stock splits, reorganizations or similar events affecting our Common Stock and the exercise price.
Exercisability
The
Pre-Funded Warrants will be exercisable, at the option of each holder, in whole or in part, by delivering to us a duly executed
exercise notice accompanied by payment in full for the number of shares of our Common Stock purchased upon such exercise (except
in the case of a cashless exercise as discussed below). A holder (together with its affiliates) may not exercise any portion of
the Pre-Funded Warrant to the extent that the holder would own more than 4.99% (or at the election of the holder, 9.99%) of the
outstanding Common Stock immediately after exercise, except that upon at least 61 days’ prior notice from the holder to
us, the holder may increase the amount of ownership of outstanding stock after exercising the holder’s Pre-Funded Warrants.
No fractional shares of Common Stock will be issued in connection with the exercise of a Pre-Funded Warrant. In lieu of fractional
shares, we will, at our election, either pay the holder an amount in cash equal to the fractional amount multiplied by the exercise
price or round up to the next whole share.
Cashless
Exercise
In
lieu of making the cash payment otherwise contemplated to be made to us upon such exercise in payment of the aggregate exercise
price, the holder may elect instead to receive upon such exercise (either in whole or in part) the net number of shares of Common
Stock determined according to a formula set forth in the Pre-Funded Warrants.
Fundamental
Transaction
In
the event of a fundamental transaction, as described in the Pre-Funded Warrants and generally including any reorganization, recapitalization
or reclassification of our Common Stock, the sale, transfer or other disposition of all or substantially all of our properties
or assets, our consolidation or merger with or into another person, the acquisition of more than 50% of our outstanding Common
Stock, or any person or group becoming the beneficial owner of 50% of the voting power represented by our outstanding Common Stock,
the holders of the Pre-Funded Warrants will be entitled to receive upon exercise of the Pre-Funded Warrants the kind and amount
of securities, cash or other property that the holders would have received had they exercised the Pre-Funded Warrants immediately
prior to such fundamental transaction. Notwithstanding the foregoing, in the event of such a fundamental transaction, the holders
will have the option, which may be exercised within 30 days after the consummation of the fundamental transaction, to require
the company or the successor entity purchase the Pre-Funded Warrant from the holder by paying to the holder an amount of cash
equal to the Black Scholes Value (as defined in the Pre-Funded Warrant) of the remaining unexercised portion of the Pre-Funded
Warrant on the date of the consummation of such transaction. However, if such fundamental transaction is not within the Company’s
control, including not approved by the Board of Directors, the holder will only be entitled to receive from the Company or any
successor entity, as of the date of consummation of such fundamental transaction, the same type or form of consideration (and
in the same proportion), at the Black Scholes Value of the unexercised portion of the Pre-Funded Warrant, that is being offered
and paid to the holders of Common Stock in connection with the fundamental transaction, whether that consideration be in the form
of cash, stock or any combination thereof, or whether the holders of Common Stock are given the choice to receive from among alternative
forms of consideration in connection with the fundamental transaction.
Transferability
Subject
to applicable laws, a Pre-Funded Warrant may be transferred at the option of the holder upon surrender of the Pre-Funded Warrant
to us together with the appropriate instruments of transfer.
Exchange
Listing
There is no established public trading
market for the Pre-Funded Warrants, and we do not expect a market to develop. We do not intend to list the Pre-Funded Warrants
on any securities exchange or nationally recognized trading system. Without an active trading market, the liquidity of the
Pre-Funded Warrants will be limited.
Rights
as a Stockholder
Except
as otherwise provided in the Pre-Funded Warrants or by virtue of such holder’s ownership of shares of our Common Stock,
the holders of the Pre-Funded Warrants do not have the rights or privileges of holders of our Common Stock, including any voting
rights, until they exercise their Pre-Funded Warrants. The Pre-Funded Warrants will provide that holders have the right
to participate in distributions or dividends paid on our shares of Common Stock.
Amendment and Waiver
A Pre-Funded Warrant may be modified or amended or the provisions
thereof waived with the written consent of our company and the holder of the Pre-Funded Warrant.
Warrants
The
following summary of certain terms and provisions of the Warrants that are being offered hereby is not complete and is subject
to, and qualified in its entirety by, the provisions of the Warrants, the form of which is filed as an exhibit to the Form 8-K.
Prospective investors should carefully review the Form 8-K and the terms and provisions of the form of Warrant for a complete
description of the terms and conditions of the Warrants.
Duration
and Exercise Price
Each
Warrant offered hereby will have an initial exercise price per share equal to $3.25 per share. The Warrants will be exercisable
immediately upon issuance if exercised by paying the aggregate exercise price for the shares of Common Stock being exercised or
exercised on a cashless basis for a net number of shares of Common Stock, as provided in the formula in the Warrants, and in either
case, will expire on the fifth anniversary of the original issuance date. The exercise price and number of shares of Common Stock
issuable upon exercise is subject to appropriate adjustment in the event of stock dividends, stock splits, reorganizations or
similar events affecting our Common Stock and the exercise price. The Warrants will be issued separately from the shares of Common
Stock and Pre-Funded Warrants offered hereby, and may be transferred separately immediately thereafter. A Warrant to purchase
one (1) share of our Common Stock will be issued for every one (1) share of Common Stock (or Pre-Funded Warrant, as applicable)
purchased in this offering.
Exercisability
The
Warrants will be exercisable, at the option of each holder, in whole or in part, by delivering a duly executed exercise notice
accompanied by payment in full for the number of shares of our Common Stock purchased upon such exercise (except in the case of
a cashless exercise as discussed below). A holder (together with its affiliates) may not exercise any portion of the Warrant to
the extent that the holder would own more than 4.99% (or at the election of the holder, 9.99%) of the outstanding Common Stock
immediately after exercise, except that upon at least 61 days’ prior notice from the holder to us, the holder may increase
the amount of ownership of outstanding stock after exercising the holder’s Warrants. No fractional shares of Common Stock
will be issued in connection with the exercise of a Warrant. In lieu of fractional shares, we will, at our election, either pay
the holder an amount in cash equal to the fractional amount multiplied by the exercise price or round up to the next whole share.
Cashless
Exercise
If,
at the time a holder exercises its Warrants, a registration statement registering the issuance of the shares of Common Stock underlying
the Warrants under the Securities Act is not then effective or available, then in lieu of making the cash payment otherwise contemplated
to be made to us upon such exercise in payment of the aggregate exercise price, the holder may elect instead to receive upon such
exercise (either in whole or in part) the net number of shares of Common Stock determined according to a formula set forth in
the Warrants.
Fundamental
Transaction
In
the event of a fundamental transaction, as described in the Warrants and generally including any reorganization, recapitalization
or reclassification of our Common Stock, the sale, transfer or other disposition of all or substantially all of our properties
or assets, our consolidation or merger with or into another person, the acquisition of more than 50% of our outstanding Common
Stock, or any person or group becoming the beneficial owner of 50% of the voting power represented by our outstanding Common Stock,
the holders of the Warrants will be entitled to receive upon exercise of the Warrants the kind and amount of securities, cash
or other property that the holders would have received had they exercised the Warrants immediately prior to such fundamental transaction.
Notwithstanding the foregoing, in the event of such a fundamental transaction, the holders will have the option, which may be
exercised within 30 days after the consummation of the fundamental transaction, to require the company or the successor entity
purchase the Warrant from the holder by paying to the holder an amount of cash equal to the Black Scholes Value (as defined in
the Warrant) of the remaining unexercised portion of the Warrant on the date of the consummation of such transaction. However,
if such fundamental transaction is not within the Company’s control, including not approved by the Board of Directors, the
holder will only be entitled to receive from the Company or any successor entity, as of the date of consummation of such fundamental
transaction, the same type or form of consideration (and in the same proportion), at the Black Scholes Value of the unexercised
portion of the Warrant, that is being offered and paid to the holders of Common Stock in connection with the fundamental transaction,
whether that consideration be in the form of cash, stock or any combination thereof, or whether the holders of Common Stock are
given the choice to receive from among alternative forms of consideration in connection with the fundamental transaction.
Transferability
Subject
to applicable laws, a Warrant may be transferred at the option of the holder upon surrender of the Warrant together with the appropriate
instruments of transfer.
Exchange
Listing
There is no established public trading
market for the Warrants, and we do not expect a market to develop. We do not intend to list the Warrants on any securities
exchange or nationally recognized trading system. Without an active trading market, the liquidity of the Warrants will be limited.
Right
as a Stockholder
Except
as otherwise provided in the Warrants or by virtue of such holder’s ownership of shares of our Common Stock, the holders
of the Warrants do not have the rights or privileges of holders of our Common Stock, including any voting rights, until they exercise
their Warrants.
Amendment and Waiver
The Warrants may be modified or amended or the provisions thereof
waived with the written consent of the Company and the holders of at least fifty five (55%) of the shares Common Stock issuable
upon the exercise of the then-outstanding Warrants (determined without giving effect to the exercise limitation provisions of
the Warrants); provided such modification, amendment or waiver applies to all of the then-outstanding Warrants.
Options
and Warrants
As of January 27, 2021, there were
outstanding Common Stock options entitling the holders to purchase 838,313 shares of Common Stock at a weighted average exercise
price of $3.20 per share with a weighted average remaining contractual life of 7.3 years and warrants entitling the holders to
purchase up to 12,508,598 shares of Common Stock at a weighted average exercise price of $3.34 per share with a
weighted average remaining contractual life of 4.3 years.
Nevada
Anti-Takeover Statutes
Nevada
law provides that an acquiring person who acquires a controlling interest in a corporation may only exercise the voting rights
of control shares if those voting rights are conferred by a majority vote of the corporation’s disinterested stockholders
at a special meeting held upon the request of the acquiring person. If the acquiring person is accorded full voting rights and
acquires control shares with at least a majority of all the voting power, then stockholders who did not vote in favor of authorizing
voting rights for those control shares are entitled to payment for the fair value of such stockholders’ shares. A “controlling
interest” is an interest that is sufficient to enable the acquiring person to exercise at least one-fifth of the voting
power of the corporation in the election of directors. “Control shares” are outstanding voting shares that an acquiring
person or associated persons acquire or offer to acquire in an acquisition and those shares acquired during the 90-day period
before the person involved became an acquiring person.
These
provisions of Nevada law apply only to “issuing corporations” as defined therein. An “issuing corporation”
is a Nevada corporation that (a) has 200 or more stockholders, with at least 100 of such stockholders being both stockholders
of record and residents of Nevada, and (b) does business in Nevada directly or through an affiliated corporation. As of the date
of this prospectus supplement, we do not have 100 stockholders of record that are residents of Nevada. Therefore, these provisions
of Nevada law do not apply to acquisitions of our shares and will not so apply until such time as both of the foregoing conditions
are satisfied. At such time as these provisions of Nevada law may apply to us, they may discourage companies or persons interested
in acquiring a significant interest in or control of our company, regardless of whether such acquisition may be in the interest
of our stockholders.
Nevada
law also restricts the ability of a corporation to engage in any combination with an interested stockholder for three years from
when the interested stockholder acquires shares that cause the stockholder to become an interested stockholder, unless the combination
or purchase of shares by the interested stockholder is approved by the Board of Directors before the stockholder became an interested
stockholder. If the combination was not previously approved, then the interested stockholder may only effect a combination after
the three-year period if the stockholder receives approval from a majority of the disinterested shares or the offer satisfies
certain fair price criteria.
An
“interested stockholder” is a person who is:
|
●
|
the
beneficial owner, directly or indirectly, of 10% or more of the voting power of the outstanding voting shares of the corporation;
or
|
|
●
|
an
affiliate or associate of the corporation and, at any time within three years immediately before the date in question, was
the beneficial owner, directly or indirectly of 10% or more of the voting power of the then outstanding shares of the corporation.
|
Our
articles of incorporation, as amended, and bylaws, as amended, do not exclude us from these restrictions.
These
provisions are intended to enhance the likelihood of continuity and stability in the composition of the Board of Directors and
in the policies formulated by the Board of Directors and to discourage some types of transactions that may involve the actual
or threatened change of control of our company. These provisions are designed to reduce our vulnerability to an unsolicited proposal
for the potential restructuring or sale of all or a part of our company. However, these provisions could discourage potential
acquisition proposals and could delay or prevent a change in control of our company. They also may have the effect of preventing
changes in our management.
Transfer
Agent
The
transfer agent for our Common Stock is Action Stock Transfer Corporation, located at 2469 E. Fort Union Blvd., Salt Lake City,
UT 84122. Its telephone number is (801) 274-1088.
PLAN
OF DISTRIBUTION
We have retained Kingswood Capital Markets,
division of Benchmark Investments, Inc. (“Kingswood” or the “placement agent”), pursuant to the placement
agency agreement dated January 27, 2021, to act as our sole placement agent to solicit offers to purchase the securities
offered by this prospectus supplement. Kingswood is not purchasing or selling any securities, nor are they required to arrange
for the purchase and sale of any specific number or dollar amount of securities, other than to use their “reasonable best
efforts” to arrange for the sale of shares of Common Stock, Pre-Funded Warrants and accompanying Warrants offered by us.
Therefore, we may not sell the entire amount of such shares of Common Stock, Pre-Funded Warrants and Warrants being offered.
The
placement agent proposes to arrange for the sale of the securities that we are offering pursuant to this prospectus supplement
and the accompanying base prospectus to institutional accredited investors through a securities purchase agreement, dated January
27, 2021, directly between the purchasers and us. The terms of this offering were subject to market conditions and negotiations
between us, the placement agent and purchasers.
We
expect to deliver the shares of Common Stock, Pre-Funded Warrants and accompanying Warrants being offered pursuant to this
prospectus supplement on or about February 1, 2021.
We
have agreed to indemnify the placement agent against specified liabilities, including liabilities under the Securities Act, and
to contribute to payments the placement agent may be required to make in respect thereof.
Fees
and Expenses
We
have agreed to pay the placement agent a fee equal to six percent (6.0%) of the gross proceeds raised in the offering. The
following table shows the per share of Common Stock and Warrant, per Pre-Funded Warrant and Warrant and total cash
placement agent’s fees we will pay to the placement agent in connection with the sale of our securities offered
pursuant to this prospectus supplement and the accompanying base prospectus.
|
|
Per
Share and
Accompanying
Warrant
|
|
|
Per
Pre-
Funded
Warrant and
Accompanying
Warrant
|
|
|
Total(1)
|
|
Combined public offering
price
|
|
$
|
2.80
|
|
|
$
|
2.79
|
|
|
$
|
39,929,500
|
|
Placement agent discounts and commissions
|
|
$
|
0.168
|
|
|
$
|
0.1674
|
|
|
$
|
2,395,770
|
|
Proceeds, before expenses, to us
|
|
$
|
2.632
|
|
|
$
|
2.6226
|
|
|
$
|
37,533,730
|
|
(1)
Total excludes exercise of the Pre-Funded Warrants. Upon exercise of the Pre-Funded Warrants, gross proceeds received would equal
$40,040,000.
In addition,
we have agreed to reimburse the placement agent for actual out-of-pocket accountable expenses of $50,000, including the placement
agent’s attorneys’ fees.
We
estimate that the total expenses of this offering payable by us, excluding placement agent fees, will be approximately
$80,000. Additionally, in the placement agency agreement that we have entered into with Kingswood (the “Placement
Agency Agreement”), we have committed, with certain exceptions, unless it has obtained the prior written consent of Kingswood,
not to issue additional securities for a period of 90 days from the execution of the Placement Agency Agreement. The Placement
Agency Agreement provides that the obligations of the placement agent are subject to certain conditions precedent, including the
absence of any material adverse changes in our business and the receipt of customary legal opinions, letters and certificates.
This is a brief summary of the material provisions of the Placement Agency Agreement and does not purport to be a complete statement
of its terms and conditions. A copy of the Placement Agency Agreement has been filed as an exhibit to the Form 8-K and is incorporated
by reference into the registration statement of which this prospectus supplement forms a part. See “Where You Can Find More
Information” on page S-31 of this prospectus supplement.
Each
of our directors and officers have agreed not to offer, sell, agree to sell, directly or indirectly, or otherwise dispose of any
shares of Common Stock or any securities convertible into or exchangeable for shares of Common Stock without the prior written
consent of the placement agent for a period of 90 days after the date of the Placement Agency Agreement. These lock-up agreements
provide limited exceptions and their restrictions may be waived at any time by the placement agent.
Kingswood
may be deemed to be an underwriter within the meaning of Section 2(a)(11) of the Securities Act, and any commissions received
by it and any profit realized on the resale of the securities sold by it while acting as principal might be deemed to be underwriting
discounts or commissions under the Securities Act. As an underwriter, Kingswood would be required to comply with the requirements
of the Securities Act and the Exchange Act, including, without limitation, Rule 415(a)(4) under the Securities Act and Rule 10b-5
and Regulation M under the Exchange Act. These rules and regulations may limit the timing of purchases and sales of share of common
stock by Kingswood acting as principal. Under these rules and regulations, Kingswood:
|
●
|
may
not engage in any stabilization activity in connection with our securities; and
|
|
|
|
|
●
|
may
not bid for or purchase any of our securities or attempt to induce any person to purchase any of our securities, other than
as permitted under the Exchange Act, until it has completed its participation in the distribution.
|
In
connection with this offering, the placement agent or certain of the securities dealers may distribute prospectuses by electronic
means, such as e-mail. In addition, the placement agent may facilitate Internet distribution for this offering to investors. An
electronic prospectus supplement and accompanying base prospectus is available on the Internet websites maintained by the Company
and the placement agent. Other than the prospectus supplement and accompanying base prospectus in electronic format, the information
on the websites of the placement agent is not part of this prospectus supplement or the accompanying base prospectus.
No action has been or will be
taken in any jurisdiction (except in the United States) that would permit a public offering of the securities offered by this
prospectus supplement and accompanying base prospectus, or the possession, circulation or distribution of this prospectus supplement
and accompanying base prospectus or any other material relating to us or the securities offered hereby in any jurisdiction where
action for that purpose is required. Accordingly, the securities offered hereby may not be offered or sold, directly or indirectly,
and neither of this prospectus supplement and accompanying base prospectus nor any other offering material or advertisements in
connection with the securities offered hereby may be distributed or published, in or from any country or jurisdiction except in
compliance with any applicable rules and regulations of any such country or jurisdiction. The placement agent may arrange to sell
securities offered by this prospectus supplement and accompanying base prospectus in certain jurisdictions outside the United
States, either directly or through affiliates, where they are permitted to do so.
From time to time, the placement agent may provide in the future
various advisory, investment and commercial banking and other services to us in the ordinary course of business, for which they
have received and may continue to receive customary fees and commissions. However, except as disclosed in this prospectus, we
have no present arrangements with the placement agent for any further services.
Listing
Our
common stock is listed on the Nasdaq under the symbol “DGLY.”
Transfer
Agent and Registrar
The
transfer agent and registrar for our Common Stock is Action Stock Transfer Corporation, located at 2469 E. Fort Union Blvd., Salt
Lake City, UT 84122. Its telephone number is (801) 274-1088.
LEGAL
MATTERS
Sullivan
& Worcester LLP, New York, New York, will render a legal opinion as to the validity of the securities to be registered hereby.
Ellenoff Grossman & Schole LLP, New York, New York, is acting as counsel for the placement agent in connection with this offering.
EXPERTS
The
consolidated financial statements of Digital Ally, Inc. as of December 31, 2019 and for the year ended December 31, 2019 incorporated
in this prospectus supplement by reference from the Digital Ally, Inc. Annual Report on Form 10-K for the year ended December
31, 2019 have been audited by RBSM LLP, an independent registered public accounting firm, as stated in their report thereon, incorporated
herein by reference, and have been incorporated in this registration statement of which this prospectus supplement forms a part
in reliance upon such report and upon the authority of such firm as experts in accounting and auditing.
The
consolidated financial statements of Digital Ally, Inc. as of December 31, 2018 and for the year then ended incorporated in this
prospectus supplement by reference from the Digital Ally, Inc. Annual Report on Form 10-K for the year ended December 31, 2019
have been audited by RSM US LLP, an independent registered public accounting firm, as stated in their report thereon, incorporated
herein by reference, and have been incorporated in this registration statement of which this prospectus supplement forms a part
in reliance upon such report and upon the authority of such firm as experts in accounting and auditing.
WHERE
YOU CAN FIND MORE INFORMATION
This
prospectus supplement constitutes a part of a registration statement on Form S-3 filed under the Securities Act. As permitted
by the SEC’s rules, this prospectus supplement and the accompanying base prospectus, which form a part of the registration
statement, do not contain all the information that is included in the registration statement. You will find additional information
about us in the registration statement. Any statements made in this prospectus supplement concerning legal documents are not necessarily
complete and you should read the documents that are filed as exhibits to the registration statement or otherwise filed with the
SEC for a more complete understanding of the document or matter.
We
file annual, quarterly and current reports, proxy statements and other information with the SEC. Our SEC filings are available
to the public at no cost from the SEC’s website at www.sec.gov. Our corporate website is www.digitalallyinc.com.
The information on our corporate website is not incorporated by reference in this prospectus supplement, the accompanying base
prospectus and the documents incorporated by reference herein and therein, and you should not consider it a part of this prospectus
supplement, accompanying base prospectus or such documents.
INCORPORATION
OF DOCUMENTS BY REFERENCE
We
incorporate by reference the filed documents listed below (excluding those portions of any Current Report on Form 8-K that are
not deemed “filed” pursuant to the General Instructions of Form 8-K), except as superseded, supplemented or modified
by this prospectus supplement or any subsequently filed document incorporated by reference herein as described below:
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our
Annual Report on Form 10-K for the year ended December 31, 2019 and its amendment on Form 10-K/A, filed with the SEC on April
6, 2020 and April 29, 2020, respectively;
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our
Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, filed with the SEC on May 20, 2020;
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our
Quarterly Report on Form 10-Q for the quarter ended June 30, 2020, filed with the SEC on August 13, 2020
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our
Quarterly Report on Form 10-Q for the quarter ended September 30, 2020, filed with the SEC on November 12, 2020;
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our
Current Reports on Form 8-K filed with the Commission on January 9, 2020, January 14, 2020, March 3, 2020, March 9, 2020,
April 8, 2020, April 20, 2020, April 21, 2020, April 24, 2020, June 4, 2020, June 9, 2020 (2), June 16, 2020; September 9,
2020; December 14, 2020, January 8, 2021, January 12, 2021, January 15, 2021 and January 28, 2021;
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Our
Definitive Proxy Statement on Schedule 14A for our annual meeting of stockholders held on September 9, 2020, as filed with
the Commission on July 24, 2020 (File No. 001-33899); and
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the
description of our Common Stock contained in our Registration Statement on 8-A filed with the SEC on December 28, 2007, including
all amendments and reports filed for the purpose of updating such description.
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We
also incorporate by reference into this prospectus supplement additional documents that we may file with the SEC under Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date hereof but before the completion or termination of this offering
(excluding any information not deemed “filed” with the SEC). Any statement contained in a previously filed document
is deemed to be modified or superseded for purposes of this prospectus supplement to the extent that a statement contained in
this prospectus supplement or in a subsequently filed document incorporated by reference herein modifies or supersedes the statement,
and any statement contained in this prospectus supplement is deemed to be modified or superseded for purposes of this prospectus
supplement to the extent that a statement contained in a subsequently filed document incorporated by reference herein modifies
or supersedes the statement.
We
will provide, without charge, to each person to whom a copy of this prospectus supplement is delivered, including any beneficial
owner, upon the written or oral request of such person, a copy of any or all of the documents incorporated by reference herein,
including exhibits. Requests should be directed to:
Digital
Ally, Inc.
9705
Loiret Blvd.
Lenexa,
KS 66219
(913)
814-7774
corporate@digitalallyinc.com
Copies
of these filings are also available on our website at www.digitalallyinc.com. For other ways to obtain a copy of these
filings, please refer to “Where You Can Find More Information” above.
PROSPECTUS
DIGITAL
ALLY, INC.
$125,000,000
Common
Stock
Debt
Securities
Convertible
Debt Securities
Rights
Warrants
Units
Digital
Ally, Inc. (the “Company”, “we”, “us” or “our”) may offer and sell, from time
to time in one or more offerings, any combination of our common stock, par value $0.001 per share (the “Common Stock”),
debt securities, debt securities convertible into Common Stock or other securities in any combination thereof, rights to purchase
shares of Common Stock or other securities in any combination thereof, warrants to purchase shares of Common Stock or other securities
in any combination thereof or units consisting of Common Stock or other securities in any combination thereof having an aggregate
initial offering price not exceeding $125,000,000. Our warrants, convertible debt securities, rights and units may be convertible
or exercisable or exchangeable for Common Stock or other of our securities, and such securities have not been approved for listing
on any market or exchange, and we have not made any application for such listing.
Each
time we sell a particular class or series of our securities, we will provide specific terms of such securities offered in a supplement
to this prospectus. Such prospectus supplement may also add, update or change information in this prospectus. You should read
this prospectus and any prospectus supplement, as well as the documents incorporated by reference or deemed to be incorporated
by reference into this prospectus, carefully before you invest in any securities.
This
prospectus may not be used to offer or sell our securities unless accompanied by a prospectus supplement relating to the offered
securities.
Our
Common Stock is presently listed on The Nasdaq Capital Market (“Nasdaq”) under the symbol “DGLY”. On June
23, 2020, the last reported sale price of our Common Stock was $3.77. Each prospectus supplement will indicate if our securities
offered thereby will be listed on any securities exchange.
As
of the date of this prospectus, the aggregate market value of our outstanding Common Stock held by non-affiliates was approximately
$91,080,425, based on 26,581,600 shares of outstanding Common Stock, of which 2,422,336 shares were held by affiliates, and a
per share price of $3.77, which represents the closing sale price of our Common Stock on June 23, 2020. As of the date of this
prospectus, we are not subject to the sale limitations described in General Instruction I.B.6 to Form S-3 because the “public
float” (the market value of our Common Stock held by non-affiliates) is greater than $75,0000,000. In the event that any
time during the effectiveness of the registration statement of which this prospectus and any prospectus supplement forms a part,
we become subject to such sale limitations, as a result of the public float becoming less that $75,000,000, during any applicable
12-month period, we will not sell securities in a public primary offering with a value exceeding more than one-third of our public
float.
Our
securities may be sold directly by us, through dealers or agents designated from time to time, to or through underwriters or dealers
or through a combination of these methods on a continuous or delayed basis. See “Plan of Distribution” in this prospectus.
We may also describe the plan of distribution for any particular offering of our securities in a prospectus supplement. If any
agents, underwriters or dealers are involved in the sale of any of our securities in respect of which this prospectus is being
delivered, we will disclose their names and the nature of our arrangements with them in a prospectus supplement. The net proceeds
that we expect to receive from any such sale will also be included in a prospectus supplement.
Investing
in our securities involves various risks. See “Risk Factors” beginning on page 11 of this prospectus and in the applicable
prospectus supplement, and in the risks discussed in the documents incorporated by reference in this prospectus and in the applicable
prospectus supplement, as they may be amended, updated or modified periodically in our reports filed with the Securities and Exchange
Commission. You should carefully read and consider these risk factors before you invest in our securities.
Neither
the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or
determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
This
prospectus is dated July 2, 2020
TABLE
OF CONTENTS
ABOUT
THIS PROSPECTUS
This
prospectus is part of a shelf registration statement on Form S-3 that we filed with the U.S. Securities and Exchange Commission
(the “SEC”) using a “shelf” registration process. Under this shelf registration process, we may sell any
combination of the securities described in this prospectus in one or more offerings from time to time having an aggregate initial
offering price of $125,000,000. This prospectus provides you with a general description of the securities that we may offer. Each
time that we offer securities, we will provide you with a prospectus supplement that describes the specific amounts, prices and
terms of the securities that we offer. The prospectus supplement also may add, update or change information contained in this
prospectus. You should read carefully both this prospectus and any prospectus supplement, together with additional information
described below under the caption “Where You Can Find More Information.”
This
prospectus does not contain all of the information provided in the registration statement that we filed with the SEC. You should
read both this prospectus, including the section titled “Risk Factors,” and the accompanying prospectus supplement,
together with the additional information described under the heading “Where You Can Find More Information.”
THIS
PROSPECTUS MAY NOT BE USED TO CONSUMMATE A SALE OF SECURITIES UNLESS IT IS ACCOMPANIED BY A PROSPECTUS SUPPLEMENT.
You
should rely only on the information contained or incorporated by reference in this prospectus or a prospectus supplement. We have
not authorized any other person to provide you with different information. If anyone provides you with different or inconsistent
information, you should not rely on it. This prospectus is not an offer to sell securities, and it is not soliciting an offer
to buy securities, in any jurisdiction where such offer or sale is not permitted. You should assume that the information appearing
in this prospectus or any prospectus supplement, as well as information that we have previously filed with the SEC and incorporated
by reference, is accurate as of the date on the front of those documents only. Our business, financial condition, results of operations
and prospects may have changed since those dates.
This
prospectus contains summaries of certain provisions contained in some of the documents described herein, but reference is made
to the actual documents for complete information. All of the summaries are qualified in their entirety by the actual documents.
Copies of some of the documents referred to herein have been filed, will be filed or will be incorporated by reference as exhibits
to the registration statement of which this prospectus is a part, and you may obtain copies of those documents as described below
under the section entitled “Where You Can Find More Information.”
OUR
BUSINESS
Except
where the context otherwise requires, the terms, “we,” “us,” “our” or “the Company,”
refer to the business of Digital Ally, Inc., a Nevada corporation, and its wholly-owned subsidiaries.
Company
Overview
We
produce digital video imaging and storage products for use in law enforcement, security and commercial applications. Our current
products are an in-car digital video/audio recorder contained in a rear-view mirror for use in law enforcement and commercial
fleets; a system that provides its law enforcement customers with audio/video surveillance from multiple vantage points and hands-free
automatic activation of body-worn cameras and in-car video systems; a miniature digital video system designed to be worn on an
individual’s body; and cloud storage solutions. We have active research and development programs to adapt our technologies
to other applications. We can integrate electronic, radio, computer, mechanical, and multi-media technologies to create unique
solutions to address needs in a variety of other industries and markets, including mass transit, school bus, taxicab and the military.
We sell our products to law enforcement agencies, private security customers and organizations and consumer and commercial fleet
operators through direct sales domestically and third-party distributors internationally. Recently, we launched a new line of
branded disinfectant and related safety products, which will be marketed to our law enforcement and commercial customers.
COVID-19
Pandemic
The
consolidated financial statements incorporated by reference into
this prospectus and any prospectus supplement which form a part of this registration statement,
as well as the description of our business contained herein and therein, unless otherwise indicated, principally reflect the status
of our business and the results of our operations as of March 31, 2020. Since that date, economies throughout the world have continued
to be severely disrupted by the effects of the quarantines, business closures and the reluctance of individuals to leave their
homes as a result of the outbreak of the coronavirus (“COVID-19”). Although we remain open as an “essential
business,” our supply chain has been disrupted and our customers, in particular our
commercial customers, have been significantly impacted which has, in turn, reduced our level of operations and activities. In
addition, the capital markets have been disrupted and our efforts to raise necessary capital will likely be adversely impacted
by the outbreak of the virus and we cannot forecast with any certainty when the disruptions caused by it will cease to impact
our business and the results of our operations. In reading this prospectus and any prospectus supplement, which form a part of
this registration statement, including the related exhibits, the information incorporated by reference herewith and our discussion
of our ability to continue as a going concern set forth in our Quarterly Report on Form 10-Q for the three months ended
March 31, 2020 filed with the U.S. Securities and Exchange Commission (the “SEC”)
on May 20, 2020, and in the Annual Report on Form 10-K for the fiscal year ended December 31, 2019 filed with the SEC on April
6, 2020, including the notes to the consolidated financial statements contained therein, in each case, consider the additional
uncertainties caused by the outbreak of COVID-19.
Our
Products
We
supply technology-based products utilizing our portable digital video and audio recording capabilities for the law enforcement
and security industries and for the commercial fleet and mass transit markets. We have the ability to integrate electronic, radio,
computer, mechanical, and multi-media technologies to create positive solutions to our customers’ requests. Our products
include: the DVM-800 and DVM-800 Lite, in-car digital video mirror systems for law enforcement; the FirstVU and the FirstVU HD,
body-worn cameras, our patented and revolutionary VuLink product, which integrates our body-worn cameras with our in-car systems
by providing hands-free automatic activation
for both law enforcement and commercial markets; the DVM-250 and DVM-250 Plus, a commercial line of digital video mirrors that
serve as “event recorders” for the commercial fleet and mass transit markets; and FleetVU and VuLink, our cloud-based
evidence management systems. We introduced the EVO-HD product in the second quarter of 2019 and began full-scale deliveries in
the third quarter of 2019. The EVO-HD is designed and built on a new and highly advanced technology platform that we expect to
become the platform for a new family of in-car video solution products for the law enforcement and commercial markets. We believe
that the launch of these new products will help to reinvigorate our in-car and body-worn systems revenues while diversifying and
broadening the market for our product offerings. Recently, we launched a new line of branded
disinfectant and related safety products, which will be marketed to our law enforcement and commercial customers. The following
describes our product portfolio:
In-Car
Digital Video Mirror System for Law Enforcement – EVO-HD, DVM-800 and DVM-800 Lite
In-car
video systems for patrol cars are now a necessity and have generally become standard. Current systems are primarily digital based
systems with cameras mounted on the windshield and the recording device
generally in the trunk, headliner, dashboard, console or under the seat of the vehicle. Most manufacturers have already developed
and transitioned completely to digital video, and some have offered full high definition (“HD”)
level recordings which is currently state-of-art for the industry.
Our
digital video rear-view mirror unit is a self-contained video recorder, microphone and digital storage system that is integrated
into a rear-view mirror, with a monitor, global positioning system (“GPS”) and
900 megahertz (“MHz”) audio transceiver. Our system is more compact and
unobtrusive than certain of our competitors because it requires no recording equipment to be located in other parts of the vehicle.
Our
in-car digital video rear-view mirror has the following features:
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wide
angle zoom color camera;
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standards-based
video and audio compression and recording;
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system
is concealed in the rear-view mirror, replacing factory rear-view mirror;
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monitor
in rear-view mirror is invisible when not activated;
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easily
installs in any vehicle;
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ability
to integrate with body-worn cameras including auto-activation of either system;
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archives
audio/video data to the cloud, computers (wirelessly) and to compact flash memory, or file servers;
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900
MHz audio transceiver with automatic activation;
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marks
exact location of incident with integrated GPS;
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playback
using Windows Media Player;
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optional
wireless download of stored video evidence;
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proprietary
software protects the chain of custody; and
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records
to rugged and durable solid-state memory.
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We
have completed development of a new in-car digital video platform under the name EVO-HD which it launched during the second quarter
of 2019. The EVO-HD is a next generation system that offers a multiple HD in-car camera solution system with built-in patented
VuLink auto-activation technology. The EVO-HD is built on an entirely new and highly advanced technology platform that enables
many new and revolutionary features, including auto activation beyond the car and body camera. No other provider can offer built-in
patented VuLink auto-activation technology.
The
EVO-HD provides law enforcement officers with an easier to use, faster and more advanced system for capturing video evidence and
uploading than similar products sold by the Company’s competitors. Additional features include:
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a
remote cloud trigger feature that allows dispatchers to remotely start recordings;
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simultaneous
audio/video play back;
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cloud
connectivity via cell modem, including the planned deployment of the new 5G network;
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near
real-time mapping and system health monitoring;
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body-camera
connectivity with built-in auto activation technology; and
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128
gigabyte internal storage, up to 2 terabyte external solid-state drive storage.
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The
EVO-HD is designed and built on a new and highly advanced technology platform that will become the platform for a whole new family
of in-car video solution products for the law enforcement. The innovative EVO-HD technology replaces the current in-car mirror-based
systems with a miniaturized system that can be custom-mounted in the vehicle while offering numerous hardware configurations to
meet the varied needs and requirements of its law enforcement customers. The EVO-HD can support up to four HD cameras, with two
cameras having pre-event and evidence capture assurance (“ECA”) capabilities to allow agencies to review entire shifts.
An internal cell modem will allow for connectivity to the VuVault.net cloud, powered by Amazon Web Services (“AWS”)
and real time metadata when in the field.
In-Car
Digital Video “Event Recorder” System – DVM-250 Plus for Commercial Fleets
Digital
Ally provides commercial fleets and commercial fleet managers with the digital video tools that they need to increase driver safety
and track assets in real-time and minimize the company’s
liability risk, all while enabling fleet managers to operate the fleet at an optimal level. We market a product designed to address
these commercial fleet markets with our DVM-250 Plus event recorders that provide all types of commercial fleets with features
and capabilities which are fully-customizable, consistent with their specific application and inherent risks. The DVM-250 Plus
is a rear-view mirror based digital audio and video recording system with many, but not all of, the features of our DVM-800
law enforcement mirror systems, which we sell at a lower price point. The DVM-250 Plus is designed to capture “events,”
such as wrecks and erratic driving or other abnormal occurrences, for evidentiary or training
purposes. The commercial fleet markets may find our units attractive from both a feature and a cost perspective compared to other
providers. We believe that due to our marketing efforts, commercial fleets are adopting this technology, in particular the ambulance
and taxi-cab markets.
Digital
Ally offers a suite of data management web-based tools to assist fleet managers in the organization, archival, and management
of videos and telematics information. Within the suite, there are powerful mapping and reporting tools that are intended to optimize
efficiency, serve as excellent training tools for teams on safety and ultimately generate a significant return on investment for
the organization.
The
EVO-HD described above will also become the platform for a whole new family of in-car video solution products for the commercial
markets. The innovative EVO-HD technology will replace the current in-car mirror-based systems with a miniaturized system that
can be custom-mounted in the vehicle while offering numerous hardware configurations to meet the varied needs and requirements
of its commercial customers. In its commercial market application, the EVO-HD can support up to four HD cameras, with two cameras
having pre-event and ECA capabilities to allow customers to review entire shifts. An internal cell modem will allow for connectivity
to the FleetVU Manager cloud-based system for commercial fleet tracking and monitoring, powered by AWS and real time metadata
when in the field.
Miniature
Body-Worn Digital Video System – FirstVU HD for Law Enforcement and Private Security
This
system is also a derivative of our in-car video systems, but is much smaller and lighter and more rugged and water-resistant to
handle a hostile outdoor environment. These systems can be used in many applications in addition to law enforcement and private
security and are designed specifically to be clipped to an individual’s
pocket or other outer clothing. The unit is self-contained and requires no external battery or storage devices. Current systems
offered by competitors are digital based, but generally require a battery pack and/or storage device to be connected to the camera
by wire or other means. We believe that our FirstVU HD product is more desirable for potential users than our competitors’
offerings because of its video quality, small size, shape and lightweight characteristics.
Our FirstVU HD integrates with our in-car video systems through our patented VuLink
system allowing for automatic activation of both systems.
Auto-activation
and Interconnectivity Between In-Car Video Systems and FirstVU HD Body Worn Camera Products – VuLink for Law Enforcement
Applications
Recognizing
a critical limitation in law enforcement camera technology, we pioneered the development
of our VuLink ecosystem that provides intuitive auto-activation functionality as well as coordination between multiple recording
devices. The United States Patent and Trademark Office (the “USPTO”) has recognized
these pioneering efforts by granting us multiple patents with claims covering numerous features, such as automatically activating
an officer’s cameras when the light bar is activated or when a data-recording
device such as a smart weapon is activated. Additionally, the awarded patent claims cover automatic coordination between multiple
recording devices. Prior to this work, officers were forced to manually activate each device while responding to emergency scenarios,
a requirement that both decreased the usefulness of the existing camera systems and diverted officers’ attention
during critical moments. Our FirstVU HD integrates with our in-car video systems through our patented VuLink system allowing for
automatic activation of both systems.
This
feature is becoming a standard feature required by many law agencies. Unfortunately, certain of our competitors have chosen to
infringe our patent and develop products that provide the same or similar features as our VuLink system. We filed lawsuits against
two competitors – Axon Enterprises, Inc. (“Axon,” formerly known as Taser International, Inc.) and Enforcement
Video, LLC d/b/a WatchGuard Video (“WatchGuard”) – which challenge Axon’s and WatchGuard’s infringing
products. On May 13, 2019, WatchGuard and the Company resolved the dispute and executed a settlement agreement in the form of
a Release and License Agreement. The litigation has been dismissed as a result of this settlement.
Axon
– On June 17, 2019, the U.S. District Court for the District of Kansas
(the “U.S. District Court”) granted Axon’s motion for summary judgment that Axon did not infringe on the Company’s
patent and dismissed the case. Importantly, the U.S. District Court’s ruling did not find that the Company’s ‘452
Patent was invalid. It also did not address any other issue, such as whether the Company’s requested damages were appropriate,
and it does not impact the Company’s ability to file additional lawsuits to hold other competitors accountable for patent
infringement. This ruling solely related to an interpretation of the Company’s claims as they relate to Axon and was unrelated
to the supplemental briefing the Company filed on its damages claim and the WatchGuard settlement. Those issues are separate and
the U.S. District Court’s ruling on the motion for summary judgment had nothing to do with the Company’s damages request.
We
filed an opening appeal brief on August 26, 2019 with the U.S. Court of Appeals for the Tenth Circuit (the “Court of Appeals”),
appealing the U.S. District Court’s granting of Axon’s motion for summary judgment. Axon responded by filing a responsive
brief on November 6, 2019 and we then filed a reply brief responding to Axon on November 27, 2019. The Court of Appeals scheduled
oral arguments on our appeal of the U.S. District Court’s summary judgment ruling on April 6, 2020. This appeal was intended
to address the Company’s position that the U.S. District Court incorrectly dismissed our claims against Axon. If the Court
of Appeals overturns the ruling of the U.S. District Court, the case will be remanded to the U.S District Court before a new judge.
On March 12, 2020, the panel of judges for the Court of Appeals issued an order cancelling the oral arguments previously set for
April 6, 2020, having determined that the appeal will be decided solely based on the parties’ briefs. On April 22, 2020,
a three-judge panel of the United States Court of Appeals denied our appeal and affirmed the District Court’s
previous decision to grant Axon summary judgment. On May 22, 2020, we filed a petition for panel rehearing requesting that we
be granted a rehearing of our appeal of the U.S. District Court’s summary judgment ruling. Furthermore, we requested that
we be given an opportunity to make our case through oral argument in front of the three-judge panel of the Court of Appeals, which
was also denied. The Company is reviewing its alternatives at this point.
WatchGuard
– On May 27, 2016, the Company filed suit against WatchGuard alleging patent
infringement based on WatchGuard’s VISTA Wifi and 4RE In-Car product lines. On May 13, 2019, the parties resolved the dispute
and executed a settlement agreement in the form of a Release and License Agreement. The litigation has been dismissed as a result
of this settlement. The Release and License Agreement contains the following key terms:
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WatchGuard
paid Digital Ally a one-time, lump settlement payment of $6,000,000.
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Digital
Ally has granted WatchGuard a perpetual covenant not to sue if WatchGuard’s products incorporate agreed-upon modified
recording functionality. Digital Ally has also granted WatchGuard a license to the ‘292 Patent and the ‘452 Patent
(and related patents, now existing and yet-to-issue) through December 31, 2023. The parties have agreed to negotiate in good
faith to attempt to resolve any alleged infringement that occurs after the license period expires.
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The
parties have further agreed to release each other from all claims or liabilities pre-existing the settlement.
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As
part of the settlement, the parties agreed that WatchGuard is making no admission that it has infringed any of Digital Ally’s
patents.
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Upon
receipt of the $6,000,000, the parties filed a joint motion to dismiss the lawsuit with the court, which was granted.
We
believe that the outcome of the Axon lawsuit will largely define the competitive landscape for the body-worn and in-car video
market for the foreseeable future. We expect that our VuLink product and its related patents will be recognized as the revolutionary
and pioneering invention by the U.S. courts.
VuVault.net
and FleetVU Manager
VuVault.net
is a cost-effective, fully expandable, law enforcement cloud storage solution powered by AWS that provides redundant and security-enhanced
storage of all uploaded videos that comply with the United States Federal Bureau of Investigation’s
Criminal Justice Information Services Division requirements.
FleetVU
Manager is our web-based software for commercial fleet tracking and monitoring that features and manages video captured by our
video event data recorders of incidents requiring attention, such as accidents. This software solution features our cloud-based
web portal that utilizes many of the features of our VuVault.net law-enforcement cloud-based storage solution.
Disinfectant
Line and Related Safety Products
Effective
April 3, 2020, the Company entered into a wholesale distribution agreement (the “Wholesale Agreement”) with Trust
Think, LLC (“Trust Think”). Pursuant to the terms of the Wholesale Agreement, the Company has been engaged to service,
promote, and sell certain Danolyte®
disinfecting products, which are manufactured and distributed by Trust Think to certain
first responder and commercial customers with whom the Company has existing relationships. Danolyte® has
been listed on the United States Environmental Protection Agency’s (“EPA”)
List N: Disinfectants for Use Against SARS-CoV-2, the virus that causes COVID-19. The Company will receive a percentage of the
sales sold through the Company’s distribution channels.
The
Company will offer the disinfecting products to its first responder customers including police, fire and paramedics. Commercial
customers such as cruise lines, taxi-cab and para transit may also be good candidates for the products. The Company is considering
enhancing the line of disinfectant products for additional related products including hardware to efficiently and effectively
dispense the disinfectants and temperature measuring devices.
On
June 2, 2020, the Company announced that it was launching its branded ThermoVu™ product line. ThermoVu is a non-contact
temperature-measuring instrument that measures temperature through the wrist. ThermoVu has optional features such as facial recognition
to improve facility security by restricting access based on temperature and/or facial recognition parameters. ThermoVu provides
an instant pass/fail audible tone with its temperature display and controls access to facilities based on such results. It can
be applied in schools, office buildings, subway stations, airports and other public venues.
On
June 2, 2020, the Company also announced the launch of its branded Shield™ Disinfectant/Sanitizer and several related products
to fulfill demand by current customers and others for a disinfectant and sanitizer that is less harsh than many of the traditional
products now widely distributed. The Shield™ product line contains a cleaner with no harsh chemicals or fumes. Hypochlorous
acid (“HOCL”), the active ingredient of the Company’s Shield products, falls under category IV of the EPA’s
toxicity categories, the least toxic category. Cleaning crews are not required to wear personal protective equipment when applying
and reapplying HOCL.
Other
Products
During
the last year, we focused our research and development efforts to meet the varying needs of our customers, enhance our existing
products and commence development of new products and product categories. Our research and development efforts are intended to
maintain and enhance our competitiveness in the market niche we have carved out, as well as positioning us to compete in diverse
markets outside of law enforcement. In December 2019, the Company announced a partnership with Pivot International for design
and manufacture of a new and innovative Breathalyzer Device utilizing the Company’s recently issued patent. With this new
technology, when an officer is conducting a field sobriety test and the breathalyzer is activated, the digital video recording
device will automatically start a recording, later embedding the meta-data captured onto the recorded video. The ‘732 Patent
was granted by the U.S. Patent Office in August 2019 and is an expansion of Digital Ally’s patented VuLink automatic activation
technology.
Corporate
Information
We
were incorporated in Nevada on December 13, 2000 as Vegas Petra, Inc. From that date
until November 30, 2004, when we entered into a Plan of Merger with Digital Ally, Inc., a Nevada corporation, which was formerly
known as Trophy Tech Corporation (the “Acquired Company”), we had not conducted
any operations and were a closely-held company. In conjunction with the merger, we were renamed Digital Ally, Inc.
The
Acquired Company, which was incorporated on May 16, 2003, engaged in the design, development, marketing and sale of bow hunting-related
products. Its principal product was a digital video recording system for use in the bow hunting industry. It changed its business
plan in 2004 to adapt its digital video recording system for use in the law enforcement and security markets. We began shipments
of our in-car digital video rear view mirrors in March 2006.
On
January 2, 2008, we commenced trading on Nasdaq under the symbol “DGLY.” We
conduct our business from 15612 College Boulevard, Lenexa, Kansas 66219. Our website address is www.digitalallyinc.com.
Information contained on our website does not form part of this prospectus and any prospectus supplement, which form a part of
this registration statement, and is intended for informational purposes only.
Risks
Associated with Our Business and this Offering
An
investment in our securities involves a high degree of risk. You should carefully consider the risks summarized below. The risks
are discussed more fully in the “Risk Factors” section of this prospectus immediately following this prospectus summary.
These
risks include, but are not limited to:
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we
have a history of operating losses and we may continue to realize net losses for at least the next 12 months;
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we
may not be able to continue as a going concern and may not be able to operate in the future;
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our
business depends upon our ability to generate sustained sales of our products and technology;
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our
business depends on our ability to continually develop and commercialize new products and technologies and penetrate new markets;
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we
need to obtain or maintain patents or other appropriate protection for the intellectual property utilized in our technologies;
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our
industry is highly competitive and we may not be able to compete with companies with larger resources than we have;
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we
may require additional capital to develop new products;
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new
regulations or standards or changes in existing regulations or standards related to our products may result in unanticipated
costs or liabilities;
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we
may fail to meet publicly announced financial guidance or other expectations about our business;
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our
inability to continue to comply with the continued listing requirements of The Nasdaq Stock Market LLC; and
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the
effects of outbreaks of pandemic or contagious diseases, including the length and severity of the recent worldwide outbreak
of COVID-19, including its impact on our business.
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Recent
Developments
Nasdaq
Continued Listing Rule Compliance
On
July 11, 2019, we were officially notified by The Nasdaq Stock Market LLC that, for the previous
30 consecutive business days, the minimum Market Value of Listed Securities (the “MVLS”) for our Common Stock was
below the $35 million minimum MVLS requirement for continued listing on Nasdaq under Nasdaq Listing Rule 5550(b)(2) (the “MVLS
Rule”). In accordance with Nasdaq Listing Rule 5810(c)(3)(C), we had 180 calendar
days, or until January 7, 2020, to regain compliance with the MVLS Rule, or in the alternative, the minimum stockholders’
equity requirement of $2,500,000. To regain compliance with the MVLS Rule, the minimum MVLS for our Common Stock must have been
at least $35 million for a minimum of 10 consecutive business days at any time during this 180-day period. If we failed to regain
compliance with either the MVLS Rule or the minimum stockholders’ equity requirement by January 7, 2020, we could have been
delisted from Nasdaq.
On
January 8, 2020, we received a determination letter (the “Letter”) from the staff of The
Nasdaq Stock Market LLC (the “Staff”) stating that we had not regained
compliance with the MVLS Standard, since our Common Stock was below the $35 million minimum MVLS requirement for continued listing
on Nasdaq under the MLVS Rule and had not been at least $35 million for a minimum of 10 consecutive business days at any time
during the 180-day grace period granted to us. Pursuant to the Letter, unless we requested a hearing to appeal this determination
by 4:00 p.m. Eastern Time on January 15, 2020, our Common Stock would have been delisted from Nasdaq, trading of our Common Stock
would have been suspended at the opening of business on January 17, 2020, and a Form 25-NSE would have been filed with the SEC,
which would have removed our Common Stock from listing and registration on Nasdaq.
On
January 13, 2020, we requested a hearing before the Nasdaq Hearings Panel (the “Panel”)
to appeal the Letter and a hearing was set for February 20, 2020 at 11:00 a.m. Eastern Time. In anticipation of such hearing,
we were asked to provide the Panel with a plan to regain compliance with the minimum MLVS requirement under the MLVS Rule, which
needed to include a discussion of the events that we believe will enable us to timely regain compliance with the minimum MLVS
requirement, or in the alternative, the minimum shareholders’ equity requirement. On January 21, 2020, we submitted a compliance
plan that we believed was sufficient to permit us to regain compliance with the minimum stockholders’ equity requirement.
On February 20, 2020, we appeared before the Panel to discuss our plan to regain compliance, including, but not limited to, complying
with Nasdaq Listing Rule 5550(b)(1), which is the minimum stockholders’ equity
standard for continued listing, which requires that companies listed on Nasdaq maintain a minimum of $2,500,000 in stockholders’
equity (“Rule 5550(b)(1)”). On March 6, 2020, we received written notice from
the Panel indicating that, based on the plan of compliance that we had presented at such hearing, the Panel granted our request
for the continued listing of our Common Stock on Nasdaq, subject to, among other things, us keeping the Staff updated on the progress
of our compliance plan and ultimately being able to evidence shareholder equity in an amount greater than or equal to $2,500,000
in accordance with Rule 5550(b)(1) no later than June 30, 2020. During this time, our Common Stock remained listed and trading
on Nasdaq. On June 4, 2020 and June 10, 2020, we consummated underwritten public offerings, pursuant to underwriting agreements
with Aegis Capital Corp. (“Aegis”), as representative of the underwriters for such offerings, and raised aggregate
gross proceeds of approximately $11.3 million, before underwriting discounts and commissions and other estimated expenses of such
offerings. See “Recent Developments — June 2020 Public Offerings”. As a result of such offerings, we are now
in compliance with Rule 5550(b)(1) and on June 18, 2020 we received written notice
from the Staff stating that the Company has regained compliance with such rule and the matter is now closed.
On
April 22, 2020, we received a written notification from the Nasdaq Stock Market LLC indicating that we were not in compliance
with Nasdaq Listing Rule 5550(a)(2), as the closing bid price for our Common Stock was below $1.00 per share for the last thirty
(30) consecutive business days. Pursuant to Nasdaq Listing Rule 5810(c)(3)(A), we were granted a 180-calendar day compliance period
to regain compliance with the minimum bid price requirement. Subsequently, the 180-day grace period to regain compliance with
such minimum bid price requirement under applicable Nasdaq Stock Market LLC rules was extended due to the global market impact
caused by COVID-19. More specifically, the Nasdaq Stock Market LLC has stated that the compliance periods for any company previously
notified about non-compliance will be suspended effective April 16, 2020, through June 30, 2020. On July 1, 2020, companies would
receive the balance of any pending compliance period exception to come back into compliance with such minimum bid price requirement.
As a result of this extension, we had until December 28, 2020, to regain compliance with such minimum bid price requirement. During
the compliance period, our Common Stock would still continue to be listed and traded on Nasdaq. To regain compliance, the closing
bid price of the Common Stock had to have met or exceeded $1.00 per share for at least ten (10) consecutive business days by December
28, 2020. On June 11, 2020,
our Common Stock met such minimum bid price requirement, as the closing sale price of our Common Stock had equaled or exceeded
$1.00 per share on Nasdaq at the close of each trading day since May 29, 2020, and we received written notice from the Staff stating
that the Company regained compliance with such requirement and the matter is now closed.
Wholesale
Agreement
Effective
April 3, 2020, we entered into the Wholesale Distribution Agreement with Trust Think. Pursuant to the terms of the Wholesale Agreement,
we have been engaged to service, promote, and sell certain Danolyte® disinfecting products, which are manufactured and distributed
by Trust Think, to certain first responder and commercial customers with whom we have relationships. The
Wholesale Agreement has an initial term beginning on April 3, 2020 and ends one (1) year thereafter. Thereafter, the Wholesale
Agreement renews automatically for successive additional terms of one (1) year each unless we or Think Tank provide written notice
of non-renewal at least thirty (30) days prior to the expiration of the then current term. Either party may terminate the Wholesale
Agreement at any time, effective immediately upon written notice if it has good cause for termination, as defined in the Wholesale
Agreement. On June 2, 2020, we announced the launch of our own branded disinfectant and related safety products and intend to
discontinue the Wholesale Distribution Agreement.
Executive
Pay Reduction
Our
compensation committee of our board of directors (the “Committee”) determined
that the cash portion of the annual base salaries of Stanton E. Ross, the Company’s
President and Chief Executive Officer, and Thomas J. Heckman, the Company’s
Chief Financial Officer, Treasurer and Secretary, shall be reduced to annual rates of $150,000 each for the balance of 2020, commencing
May 1, 2020. The Committee also decided that the balance of the annual salaries of Messrs. Ross and Heckman for 2020, which are
$69,230.76 and $55,384.00, respectively, as of May 1, 2020, will be paid through the issuance of shares of restricted Common Stock
under the Company’s 2018 Stock Option and Restricted Stock Plan, with the Company
paying the applicable federal and state taxes on such amounts. We issued Messrs. Ross and Heckman 75,250 shares of such Common
Stock and 60,200 shares of such Common Stock, respectively, effective April 17, 2020, based on a closing price of $0.92 per share
on such date.
Promissory
Note Under the Paycheck Protection Program
On
April 4, 2020, the Company entered into a promissory
note which provides for a loan in the amount of $1,418,900 (the “PPP Loan”) pursuant to the Paycheck Protection Program
under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”).
The PPP Loan has a two-year term and bears interest at a rate of 1% per annum. Monthly principal and interest payments are deferred
for six months after the date of disbursement. The PPP Loan may be prepaid at any time prior to maturity with no prepayment penalties.
The promissory note contains events of default and other provisions customary for a loan of this type. The Paycheck Protection
Program provides that the PPP Loan may be partially or wholly forgiven if the funds are used for certain qualifying expenses as
described in the CARES Act. The Company has been utilizing and intends to continue to use the majority of the PPP Loan amount
for qualifying expenses and to apply for forgiveness of the loan in accordance with the terms of the CARES Act.
April
2020 Registered Offering and Concurrent Private Placement
On
April 17, 2020, we entered into a securities purchase agreement (the “Purchase Agreement”) with certain institutional
investors (the “Institutional Investors”), providing for the issuance of (i) our 8% Senior Secured Convertible Promissory
Notes due April 16, 2021 with an aggregate principal face amount of $1,666,666 (the “April 2020 Notes”), which April
2020 Notes were, subject to certain conditions, convertible into an aggregate of 1,650,164 shares of the Common Stock (the “Conversion
Shares”), at a price per share of $1.01 and (ii) five-year warrants (the “April 2020 Warrants”) to purchase
an aggregate of up to 1,237,624 shares of Common Stock (the “April 2020 Warrant Shares”) at an exercise price of $1.31
per share, subject to customary adjustments, which April 2020 Warrants were immediately exercisable upon issuance and on a cashless
basis if the April 2020 Warrant Shares were not registered 180 days after the date of issuance (the “April 2020 Offering”).
The April 2020 Warrant Shares were registered for resale pursuant to a prospectus, dated May 13, 2020, to our currently effective
registration statement on Form S-1 (File No. 333-238035), which was initially filed on May 6, 2020 and declared effective on May
13, 2020 (the “May 2020 Resale Registration Statement”). The closing of the April 2020 Offering occurred simultaneously
with the execution and delivery of the Purchase Agreement and related transaction documents, pursuant to which the Institutional
Investors purchased the April 2020 Notes and the April 2020 Warrants for an aggregate purchase price of $1,500,000.
On
June 1, 2020 and June 8, 2020, the Institutional Investors converted an aggregate of $1,665,666 in principal amount of April 2020
Notes into an aggregate of 1,664,679 shares of Common Stock (including accrued interest) and exercised all of the April 2020 Warrants,
resulting in the issuance to the Institutional Investors of an aggregate of 1,567,481 shares of Common Stock.
Pursuant
to the Purchase Agreement, an aggregate of $500,000 in principal amount of the
April 2020 Notes (the “April 2020 Registered Notes”), and the shares of Common
Stock underlying the April 2020 Registered Notes, were issued to the Institutional
Investors in an offering that was registered pursuant to a prospectus supplement, dated April 20, 2020, to our currently
effective registration statement on Form S-3 (File No. 333-225227), which was initially filed with the SEC on May 25, 2018, and
was declared effective on June 6, 2018.
Pursuant
to the Purchase Agreement, we issued to the Institutional Investors in a private placement, the remaining aggregate of $1,166,666
in principal amount of April 2020 Notes,
the Conversion Shares, the April 2020 Warrants and the April 2020 Warrant
Shares. We also entered into a Registration Rights Side Letter, dated April 17, 2020, with the Institutional Investors agreeing
to use our best efforts to file, within 30 days after the closing of the April 2020 Offering,
a resale registration statement on Form S-1 to
register the applicable Conversion Shares and the April 2020 Warrant Shares, and
to use our commercially reasonable efforts to have such registration statement declared
effective within 90 days after the closing date of the April 2020 Offering to permit
the resale of the Conversion Shares and the April 2020 Warrant Shares by the Institutional
Investors. Such remaining aggregate of $1,166,666 in principal amount of April 2020 Notes, the Conversion Shares, the April
2020 Warrants and the April 2020 Warrant Shares were registered under the May Resale Registration Statement.
In
connection with the Purchase Agreement, we and our subsidiary entered into a security agreement, dated
as of April 17, 2020, with the Institutional Investors (the “Security Agreement”),
pursuant to which we and our subsidiary granted to the Institutional Investors a security interest in, among other items, we and
our subsidiary’s accounts, chattel paper, documents, equipment, general intangibles,
instruments and inventory, and all proceeds, as set forth in the Security Agreement. In addition, pursuant to an intellectual
property security agreement, dated as of April 17, 2020, we granted to the Institutional Investors a continuing security interest
in all of our right, title and interest in, to and under certain of our trademarks, copyrights and patents. In addition, our subsidiary
agreed to guarantee and act as surety for our obligation to repay all of the April
2020 Notes issued in connection with the April 2020 Offering pursuant
to a subsidiary guarantee.
June
2020 Public Offerings
On
June 4, 2020, we consummated an underwritten public offering (the “June 2, 2020 Offering”) of 3,090,909 shares of
Common Stock. The June 2, 2020 Offering was conducted pursuant to an underwriting agreement, dated June 2, 2020 (the “June
2, 2020 Underwriting Agreement”), between the Company and Aegis, as representative of the underwriters (the “June
2, 2020 Underwriters”). The gross proceeds to us from the June 2, 2020 Offering, before deducting underwriting discounts
and commissions and other estimated expenses of such offering, which included the full exercise by the June 2, 2020 Underwriters
of their over-allotment option to purchase an additional 463,636 shares of Common Stock, was approximately $5.86 million.
On
June 10, 2020, we consummated an underwritten public offering (the “June 8, 2020 Offering”) of 2,325,581 shares of
Common Stock. The June 8, 2020 Offering was conducted pursuant to an underwriting agreement, dated June 8, 2020 (the “June
8, 2020 Underwriting Agreement”), between the Company and Aegis, the representative of the underwriters (the “June
8, 2020 Underwriters”). The gross proceeds to us from the June 8, 2020 Offering, before deducting underwriting discounts
and commissions and other estimated expenses of such offering, which included the exercise by the June 8, 2020 Underwriters of
their over-allotment option to purchase an additional 213,953 shares of Common Stock, was approximately $5.46 million.
RISK
FACTORS
An
investment in our securities involves a high degree of risk. You should consider and read carefully all of the risks and uncertainties
described below, together with all of the other information contained or incorporated by reference into this prospectus and in
any prospectus supplement or free writing prospectus or in the documents incorporated by reference herein and therein before deciding
to invest in such securities. If any of the following risks, or any risk described elsewhere in this prospectus and in any prospectus
supplement or free writing prospectus or in the documents incorporated by reference herein and therein, occurs, our business,
business prospects, financial condition, results of operations or cash flows could be materially adversely affected. In any such
case, the trading price of our Common Stock could decline, and you could lose all or part of your investment. The risks described
below and in any prospectus supplement or free writing prospectus and in the documents incorporated by reference herein and therein
are not the only ones facing us. Additional risks not currently known to us or that we currently deem immaterial may also adversely
affect us. This prospectus also contains forward-looking statements, estimates and projections that involve risks and uncertainties.
Our actual results could differ materially from those anticipated in the forward-looking statements because of specific factors,
including the risks described below and in the documents incorporated by reference herein.
You
should carefully consider the following risk factors in evaluating our business and us. The factors listed below and in the prospectus
and in any prospectus supplement or free writing prospectus represent certain important factors that we believe could cause our
business results to differ. These factors are not intended to represent a complete list of the general or specific risks that
may affect us. It should be recognized that other risks may be significant, presently or in the future, and the risks set forth
below may affect us to a greater extent than indicated. If any of the following risks occur, our business, financial condition
or results of operations could be materially and adversely affected. You should also consider the other information included in
our most recent Annual Report on Form 10-K (the “Form 10-K”) and subsequent quarterly reports filed with the SEC,
which are incorporated herein by reference into this registration statement, as well as in any applicable prospectus supplement
and contained or to be contained in our filings with the SEC and incorporated by reference in this prospectus, together with all
of the other information contained in this prospectus, or any applicable prospectus supplement. For a description of these reports
and documents, and information about where you can find them, see “Where You Can Find More Information” and “Incorporation
of Certain Information by Reference.” If any of the risks or uncertainties described in our SEC filings or any prospectus
supplement or any additional risks and uncertainties actually occur, our business, financial condition and results of operations
could be materially and adversely affected.
Risks
Related to our Business
We
have incurred losses in recent years.
We
have had net losses for several years and had an accumulated deficit of $87,388,619 at December 31, 2019, which includes our net
losses of $10,005,713 for the year ended December 31, 2019, as compared to $15,544,551 for the year ended December 31, 2018. As
of March 31, 2020, we had
an accumulated deficit of $89,722,729, which includes net losses of $2,334,110 for the three months ended March 31, 2020. We have
included disclosure of our liquidity plan and the substantial doubt about our ability to continue as a going concern in our
Quarterly Report on Form 10-Q for the three months ended March 31, 2020. Furthermore, the
report of our independent registered public accounting firm in our Annual Report
on Form 10-K for the year ended December 31, 2019 included an explanatory paragraph regarding the substantial doubt about our
ability to continue as a going concern. We have implemented several initiatives intended
to improve our revenues and reduce our operating costs with a goal of restoring profitability. If we are unsuccessful in this
regard, it will have a material adverse impact on our business, prospects, operating results and financial condition.
We
do not have any revolving credit facilities and it may be difficult for us to enter into one.
We
have no revolving credit facility to fund our operating needs should it become necessary. It will be difficult to obtain an institutional
line of credit facility given our recent operating losses and the current banking environment, which may adversely affect our
ability to finance our business, grow or be profitable. Further, even if we could obtain a new credit facility, in all likelihood
it would not be on terms favorable to us.
If
we are unable to manage our current business activities, our prospects may be limited and our future profitability may be adversely
affected.
We
experienced a decline in our operating results from 2009 to 2019 and to date in 2020. Our revenues have been unpredictable, which
poses significant burdens on us to be proactive in managing production, personnel levels and related costs. We will need to improve
our revenues, operations, financial and other systems to manage our business effectively, and any failure to do so may lead to
inefficiencies and redundancies which reduce our prospects to return to profitability.
We
face risks related to health epidemics and other outbreaks, which could significantly disrupt our operations and could have a
material adverse impact on us, and the recent coronavirus outbreak could materially and adversely affect our business.
An
outbreak of a new respiratory illness caused by COVID-19 has resulted in millions of infections and hundreds of thousands of deaths
worldwide, as of the date of filing of this registration statement, and continues to spread across the globe, including throughout
the law enforcement and commercial fleets channels in the United States, the major market in which we operate. The outbreak of
COVID-19 or by other epidemics could materially and adversely affect our business, financial condition and results of operations.
If COVID-19 worsens in the United States and Asia, or in any other regions in which we have material operations or sales, our
business activities originating from affected areas, including sales, manufacturing and supply chain related activities, could
be adversely affected. Although we have been
deemed by the State of Kansas to be an “essential business”, our supply chain
has been disrupted and our customers, in particular our commercial customers, have been significantly impacted, which has in turn
reduced our operations and activities. Disruptive activities from COVID-19 could still include the temporary closure of our manufacturing
facilities and those used in our supply chain processes, restrictions on the export or shipment of our products, significant cutback
of ocean container delivery from Asia, business closures in impacted areas, and restrictions on our employees’ and
consultants’ ability to travel and to meet with customers. The extent to which
COVID-19 impacts our results will depend on future developments, which are highly uncertain and cannot be predicted, including
new information which may emerge concerning the severity of the virus and the actions to contain it or treat its impact, among
others. COVID-19 could also result in social, economic and labor instability in the countries in which we or our customers and
suppliers operate.
If
workers at one or more of our offices or the offices of our suppliers or manufacturers become ill or are quarantined and in either
or both events are therefore unable to work, our operations could be subject to disruption. Further, if our manufacturers become
unable to obtain necessary raw materials or components, we may incur higher supply costs or our manufacturers may be required
to reduce production levels, either of which may negatively affect our financial condition or results of operations. In addition,
the capital markets have been disrupted and our efforts to raise necessary capital will likely be adversely impacted by the outbreak
of COVID-19. As a result, we cannot forecast with any certainty when the disruptions caused by such outbreak will cease to impact
our business and the results of our operations. In reviewing our consolidated financial statements for the year ended December
31, 2019 and the quarterly period ended March
31, 2020, as well as the notes to such financial statements, including our discussion of
our ability to continue as a going concern set forth therein, which financial statements and notes are incorporated by reference
to this prospectus and any prospectus supplement, which form a part of this registration statement, consider the additional uncertainties
caused by the outbreak of COVID-19. The extent to which COVID-19 affects our results will depend on future developments that are
highly uncertain and cannot be predicted, including actions to contain COVID-19 or address and treat its effects, among others.
We
may not be entitled to forgiveness of our recently received the PPP Loan, and our application for the PPP Loan could in the future
be determined to have been impermissible or could result in damage to our reputation.
In
April 2020, we received proceeds of approximately $1.4 million from a loan under the CARES Act, a portion of which may be forgiven,
which we intend to use to retain employees, maintain payroll and make lease and utility payments. A portion of the PPP Loan may
be forgiven by the Small Business Administration (“SBA”) upon our application beginning 60 days but not later than
120 days after loan approval and upon documentation of expenditures in accordance with the SBA requirements. Under the CARES Act,
loan forgiveness is available for the sum of documented payroll costs, covered rent payments, covered mortgage interest and covered
utilities during the eight week period beginning on the date of loan approval. Not more than 25% of the forgiven amount may be
for non-payroll costs. We will be required to repay any portion of the outstanding principal that is not forgiven, along with
accrued interest, and we cannot provide any assurance that we will be eligible for loan forgiveness or that any amount of the
PPP Loan will ultimately be forgiven by the SBA.
In
order to apply for the PPP Loan, we were required to certify, among other things, that the current economic uncertainty made the
PPP Loan request necessary to support our ongoing operations. We made this certification in good faith after analyzing, among
other things, our financial situation and access to alternative forms of capital, and believe that we satisfied all eligibility
criteria for the PPP Loan, and that our receipt of the PPP Loan was consistent with the broad objectives of the CARES Act. At
the time that we had made such certification, we could not predict with any certainty whether we would be able to obtain the necessary
financing to support our operations. Our situation has subsequently improved, as a result of, among other things, our closing
of two registered direct offerings in June 2020, and as a result of the funds that we received from the PPP Loan. The certification
described above that we were required to provide in connection with our application for the PPP Loan did not contain any objective
criteria and was subject to interpretation. However, on April 23, 2020, the SBA issued guidance stating that it is unlikely that
a public company with substantial market value and access to capital markets will be able to make the required certification in
good faith. The lack of clarity regarding loan eligibility under the CARES Act has resulted in significant media coverage and
controversy with respect to public companies applying for and receiving loans. If, despite our good-faith belief that we satisfied
all eligible requirements for the PPP Loan, we are later determined to have violated any of the laws or governmental regulations
that apply to us in connection with the PPP Loan, such as the False Claims Act, or it is otherwise determined that we were ineligible
to receive the PPP Loan, we may be subject to penalties, including significant civil, criminal and administrative penalties, and
could be required to repay the PPP Loan in its entirety. In addition, our receipt of the PPP Loan may result in adverse publicity
and damage to our reputation, and a review or audit by the SBA or other government entity or claims under the False Claims Act
could consume significant financial and management resources.
There
are risks related to dealing with domestic governmental entities as customers.
One
of the principal target markets for our products is the law enforcement community. In this market, the sale of products will be
subject to budget constraints of governmental agencies purchasing these products, which could result in a significant reduction
in our anticipated revenues. Such governmental agencies have experienced budgetary pressures because of the recent recession and
its impact on local sales, property and income taxes that provide funding for purchasing our products. These agencies also may
experience political pressure that dictates the way they spend money. Thus, even if an agency wants to acquire our products, it
may be unable to purchase them due to budgetary or political constraints, even if such agencies have the necessary funds, we may
experience delays and relatively long sales cycles due to their internal decision-making policies and procedures.
There
are risks related to dealing with foreign governmental entities as customers.
We
target the law enforcement community in foreign countries for the sale of many of our products. While foreign countries vary,
generally the sale of our products will be subject to political and budgetary constraints of foreign governments and agencies
purchasing these products, which could result in a significant reduction in our anticipated revenues. Some foreign governments
are experiencing budgetary pressures because of various reasons specific to them and their impact on taxes and tariffs that in
many cases provide funding for purchasing our products. Law enforcement agencies within these countries also may experience political
pressure that dictates the way they spend money. Thus, even if a foreign country or its law enforcement agencies want to acquire
our products, it may be unable to purchase them due to budgetary or political constraints. We cannot assure investors that such
governmental agencies will have the necessary funds to purchase our products even though they may want to do so. Further, even
if such agencies have the necessary funds, we may experience delays and relatively long sales cycles due to their internal decision-making
policies and procedures.
International
law enforcement and other agencies that may consider using our products must analyze a wide range of issues before committing
to purchase products like ours, including training costs, product reliability and budgetary constraints. The length of our sales
cycle may range from a few months to a year or more. We may incur substantial selling costs and expend significant effort in connection
with the evaluation of our products by potential customers before they place an order. Initial orders by foreign governments and
agencies typically are for a small number of units that are used to evaluate the products. If these potential customers do not
purchase our products, we will have expended significant resources and receive no revenue in return. In addition, we may be selected
as the vendor of choice by these foreign customers but never receive the funding necessary to purchase our product due to political
or economic reasons.
We
are marketing our DVM-250, DVM-250 Plus event recorder and FirstVU HD products to commercial customers, which is a relatively
new sales channel for us and we may experience problems in gaining acceptance.
The
principal target commercial market for our event recorder products is commercial fleet operators, such as taxi cabs, limousine
services, transit buses, ambulance services and a variety of delivery services. In addition, we are marketing our FirstVU HD to
commercial customers. These are relatively new sales channels for us and we may experience difficulty gaining acceptance of our
other products by the targeted customers. Our sales of such products will be subject to budget constraints of both the large and
small prospective customers, which could result in a significant reduction in our anticipated revenues. Certain of such companies
have experienced budgetary and financial pressures for various reasons specific to them or the industry in which they operate,
which may negatively impact their ability to purchase our products. Thus, even if prospective customers want to acquire our products,
they may be unable to do so because of such factors. Further, even if such companies have the necessary funds, we may experience
delays and relatively long sales cycles due to their internal decision-making policies and procedures.
We
are operating in a developing market and there is uncertainty as to market acceptance of our technology and products.
The
markets for our new and enhanced products and technology are developing and rapidly evolving. They are characterized by an increasing
number of market entrants who have developed or are developing a wide variety of products and technologies, a number of which
offer certain of the features that our products offer. Because of these factors, demand and market acceptance for new products
are subject to a high level of uncertainty. There can be no assurance that our technology and products will become widely accepted.
It is also difficult to predict with any assurance the future growth rate, if any, and size of the market. If a substantial market
fails to develop, develops more slowly than expected or becomes saturated with competitors or if our products do not achieve or
continue to achieve market acceptance, our business, operating results and financial condition will be materially and adversely
affected.
Our
technology may also be marketed and licensed to device manufacturers for inclusion in the products and equipment they market and
sell as an embedded solution. As with other new products and technologies designed to enhance or replace existing products or
technologies or change product designs, these potential partners may be reluctant to integrate our digital video recording technology
into their systems unless the technology and products are proven to be both reliable and available at a competitive price. Even
assuming product acceptance, our potential partners may be required to redesign their systems to effectively use our digital video
recording technology. The time and costs necessary for such redesign could delay or prevent market acceptance of our technology
and products. A lack of, or delay in, market acceptance of our digital video recording technology and products would adversely
affect our operations. There can be no assurance that we will be able to market our technology and products successfully or that
any of our technology or products will be accepted in the marketplace.
We
expend significant resources in anticipation of a sale due to our lengthy sales cycle and may receive no revenue in return.
Generally,
law enforcement and other agencies and commercial fleet and mass transit operators that may consider using our products must analyze
a wide range of issues before committing to purchase products like ours, including training costs, product reliability and budgetary
constraints. The length of our sales cycle may range from several months to a year or more. We may incur substantial selling costs
and expend significant effort in connection with the evaluation of our products by potential customers before they place an order.
Initial orders by agencies typically are for a small number of units that are used to evaluate the products. If these potential
customers do not purchase our products, we will have expended significant resources and have received no revenue in return.
Our
market is characterized by new products and rapid technological change.
The
market for our products is characterized by rapidly changing technology and frequent new product introductions. Our future success
will depend in part on our ability to enhance our existing technologies and products and to introduce new products and technologies
to meet changing customer requirements. We are currently devoting, and intend to continue to devote, significant resources toward
the development of new digital video recording technology and products both as stand-alone products and embedded solutions in
third party products and systems. There can be no assurance that we will successfully complete the development of these technologies
and related products in a timely fashion or that our current or future products will satisfy the needs of the digital video recording
market. There can also be no assurance that digital video recording products and technologies developed by others will not adversely
affect our competitive position or render our products or technologies non-competitive or obsolete.
We
depend on sales from our in-car video products and body-worn cameras and if these products become obsolete or not widely accepted,
our growth prospects will be diminished.
We
derived our revenues in 2018, 2019 and to date in 2020 predominantly from sales of our in-car video systems, including the DVM-800,
our largest selling product, and the FirstVU HD body-worn camera, our second largest selling product. We expect to continue to
depend on sales of these products during 2020, although we do expect our newly launched EVO-HD in-car system to gain traction
in 2020. A decrease in the prices of, or the demand for our in-car video products, or the failure to achieve broad market acceptance
of our new product offerings, would significantly harm our growth prospects, operating results and financial condition.
We
substantially depend on our research and development activities to design new products and upgrades to existing products and if
these products are not widely accepted, or we encounter difficulties and delays in launching these new products, our growth prospects
will be diminished.
We
have a number of active research and development projects underway that are intended to launch new products or upgrades to existing
products. We may incur substantial costs and/or delays in completion of these activities that may not result in viable products
or may not be received well by our potential customers. We incurred $485,748 and $462,171 in research and development expenses
during the three months ended March 31, 2020 and 2019, respectively, which represent a substantial expense in relation to our
total revenues and net losses. If we are unsuccessful in bringing these products from the engineering prototype phase to commercial
production, we could incur additional expenses (in addition to those already spent) without receiving revenues from the new products.
Also, these new products may fail to achieve broad market acceptance and may not generate revenue to cover expenses incurred to
design, develop, produce and market the new product offerings. Substantial delays in the launch of one or more products could
negatively impact our revenues and increase our costs, which could significantly harm our growth prospects, operating results
and financial condition.
If
we are unable to compete in our market, you may lose all or part of your investment in our securities.
The
law enforcement and security surveillance markets are extremely competitive. Competitive factors in these industries include ease
of use, quality, portability, versatility, reliability, accuracy and cost. There are companies with direct competitive technology
and products in the law enforcement and surveillance markets for all our products and those we have in development. Many of these
competitors have significant advantages over us, including greater financial, technical, marketing and manufacturing resources,
more extensive distribution channels, larger customer bases and faster response times to adapt new or emerging technologies and
changes in customer requirements. Our primary competitors include L-3 Mobile-Vision, Inc., Coban Technologies, Inc., WatchGuard,
Kustom Signals, Panasonic System Communications Company, International Police Technologies, Inc. and a number of other competitors
who sell or may in the future sell in-car video systems to law enforcement agencies. Our primary competitors in the body-worn
camera market include Axon, Reveal Media and WatchGuard. We face similar and intense competitive factors for our event recorders
in the mass transit markets as we do in the law enforcement and security surveillance markets. We will also compete with any company
making surveillance devices for commercial use. Many of our competitors have greater financial, technical marketing, and manufacturing
resources than we do. Our primary competitors in the commercial fleet sector include Lytx, Inc. (previously DriveCam, Inc.) and
SmartDrive Systems.
There
can be no assurance that we will be able to compete successfully in these markets. Further, there can be no assurance that new
and existing companies will not enter the law enforcement and security surveillance markets in the future.
Although
we believe that our products will be distinguishable from those of our competitors based on their technological features and functionality
at an attractive value proposition, there can be no assurance that we will be able to penetrate any of our anticipated competitors’
portions of the market. Many of our anticipated competitors may have existing relationships
with equipment or device manufacturers that may impede our ability to market our technology to those potential customers and build
market share. There can be no assurance that we will be able to compete successfully against current or future competitors or
that competitive pressures will not have a material adverse effect on our business, operating results and financial condition.
If we are not successful in competing against our current and future competitors, you could lose your entire investment in our
securities. See “Business – Competition” in our Annual Report on Form 10-K for the fiscal year ended December
31, 2019 that we filed with the SEC on April 6, 2020 for additional information.
Defects
in our products could impair our ability to sell our products or could result in litigation and other significant costs.
Any
significant defects in our products may result in, among other things, delay in time-to-market, loss of market acceptance and
sales of our products, diversion of development resources, and injury to our reputation, or increased warranty costs. Because
our products are technologically complex, they may contain defects that cannot be detected prior to shipment. These defects could
harm our reputation and impair our ability to sell our products. The costs we may incur in correcting any product defects may
be substantial and could decrease our profit margins. In 2018 and 2017, we had certain product quality issues with the DVM-800
and FirstVU HD, which adversely affected our revenues and operating results however, these issues have been successfully mitigated
at this time.
In
addition, errors, defects or other performance problems could result in financial or other damages to our customers, which could
result in litigation. Product liability litigation, even if we prevail, would be time consuming and costly to defend. Our product
liability insurance may not be adequate to cover claims. Our product liability insurance coverage per occurrence is $1,000,000,
with a $2,000,000 aggregate for our general business liability coverage and an additional $1,000,000 per occurrence. Our excess
or umbrella liability coverage per occurrence and in aggregate is $5,000,000.
Product
defects can be caused by design errors, programming bugs, or defects in component parts or raw materials. This is common to every
product manufactured which is based on modern electronic and computer technology. Because of the extreme complexity of digital
in-car video systems, one of the key concerns
is operating software robustness. Some of the software modules are provided to us by outside vendors under license agreements,
while other portions are developed by our own software engineers. As with any software-dependent product, “bugs”
can occur, even with rigorous testing before release of the product. The software included in our digital video rear view mirror
products is designed to be “field upgradeable” so that changes or fixes can
be made by the end user by downloading new software through the internet. We intend to incorporate this technology into any future
products as well, providing a quick resolution to potential software issues that may arise over time.
As
with all electronic devices, hardware issues can arise from many sources. The component electronic parts that we utilize come
from many sources around the world. We attempt to mitigate the possibility of shipping defective products by fully testing sub-assemblies
and thoroughly testing assembled units before they are shipped out to our customers. Because of the nature and complexity of some
of the electronic components used, such as microprocessor chips, memory systems, and zoom video camera modules, it is not technically
or financially realistic to attempt to test every single aspect of every single component and their potential interactions. By
using components from reputable and reliable sources, and by using professional engineering, assembly, and testing methods, we
seek to limit the possibility of defects slipping through. In addition to internal testing, we now have thousands of units in
the hands of law enforcement departments and in use every day. Over the past years of field use, we have addressed a number of
subtle issues and made refinements requested by the end-user.
We
are dependent on key personnel.
Our
success will be largely dependent upon the efforts of our executive officers, Stanton E. Ross and Thomas J. Heckman. We do not
have employment agreements with Messrs. Ross or Heckman, although we entered into retention agreements with such officers on December
23, 2008, which were amended in April 2018. The loss of the services of either of these individuals could have a material adverse
effect on our business and prospects. There can be no assurance that we will be able to retain the services of such individuals
in the future. We have not obtained key-man life insurance policies on these individuals. We are also dependent to a substantial
degree on our technical, research and development staff. Our success will be dependent upon our ability to hire and retain additional
qualified technical, research, management, marketing and financial personnel. We will compete with other companies with greater
financial and other resources for such personnel. Although we have not had trouble in attracting qualified personnel to date,
there can be no assurance that we will be able to retain our present personnel or acquire additional qualified personnel as and
when needed.
We
are dependent on manufacturers and suppliers.
We
purchase, and intend to continue to purchase, substantially all the components for our products and some entire products, from
a limited number of manufacturers and suppliers, most of whom are located outside the United States. Our internal process is principally
to assemble the various components and subassemblies manufactured by our suppliers and test the assembled product prior to shipping
to our customers. We do not intend to directly manufacture any of the equipment or parts to be used in our products. Our reliance
upon outside manufacturers and suppliers, including foreign suppliers, is expected to continue, increase in scope and involves
several risks, including limited control over the availability of components, and products themselves and related delivery schedules,
pricing and product quality. We may be subject to political and social risks associated with specific regions of the world including
those that may be subject to changes in tariffs that may have substantial effects on our product costs and supply chain reliability
and availability. We may experience delays, additional expenses and lost sales if we are required to locate and qualify alternative
manufacturers and suppliers.
A
few of the semiconductor chip components for our products are produced by a very small number of specialized manufacturers. Currently,
we purchase one essential semiconductor chip from a single manufacturer who currently sources such chipsets from the Philippines,
China, Taiwan and South Korea, among other countries. While we believe that there are alternative sources of supply, if, for any
reason, we are precluded from obtaining such a semiconductor chip from this manufacturer, we may experience long delays in product
delivery due to the difficulty and complexity involved in producing the required component and we may also be required to pay
higher costs for our components.
While
we do the final assembly, testing, packaging, and shipment of certain of our products in-house, a number of our component parts
are manufactured by subcontractors. These subcontractors include: raw circuit board manufacturers; circuit board assembly houses;
injection plastic molders; metal parts fabricators; and other custom component providers. While we are dependent upon these subcontractors
to the extent that they are producing custom subassemblies and components necessary for manufacturing our products, we still own
the designs and intellectual property involved. This means that the failure of any one contractor to perform may cause delays
in production. However, we can mitigate potential interruptions by maintaining “buffer stocks” of
critical parts and subassemblies and by using multiple sources for critical components. We also can move our subcontracting to
alternate providers. Being forced to use a different subcontractor could cause production interruptions ranging from negligible,
such as a few weeks, to very costly, such as four to six months. Further, the failure of a foreign manufacturer to deliver products
to us timely, in sufficient quantities and with the requisite quality would have a material adverse impact on our business, operations
and financial condition.
The
only components that would require a complete redesign of our digital video electronics package are the chips manufactured
by Texas Instruments Incorporated (“Texas Instruments”). While there are competitive
products available, each chip has unique characteristics that would require extensive tailoring of product designs to use it.
The Texas Instruments chip is the heart of our video processing system. If Texas Instruments became unwilling or unable to provide
us with these chips, we would be forced to redesign our digital video encoder and decoder systems. Such a complete redesign could
take substantial time (over six months) to complete. We attempt to mitigate the potential for interruption by maintaining continuous
stocks of these chips to support several months’ worth of production. In addition,
we regularly check on the end-of-life status of these parts to make sure that we will know well in advance of any decisions by
Texas Instruments to discontinue these parts. There are other semiconductors that are integral to our product design and which
could cause delays if discontinued, but not to the same scale as the Texas Instruments chips.
Although
we have not historically had significant supply chain issues with these manufacturers, suppliers, and subcontractors, there can
be no assurance that we will be able to retain our present relationships and should we lose these manufacturers, suppliers, and
subcontractors, our business would be adversely affected.
The
requirements of being a U.S. public company may strain our resources and divert management’s attention.
As
a U.S. public company, we are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), the Sarbanes-Oxley Act, the Dodd-Frank Act, the listing requirements of The Nasdaq Stock Market LLC, and other applicable
securities rules and regulations. Compliance with these rules and regulations will increase our legal and financial compliance
costs, make some activities more difficult, time-consuming, or costly, and increase demand on our systems and resources. The Exchange
Act requires, among other things, that we file annual and current reports with respect to our business and operating results.
As
a result of disclosure of information in this prospectus and any prospectus supplement, which form a part of this registration
statement, and in the documents that we incorporate by reference herein and therein, as well as in filings required of a public
company, our business and financial condition is more visible, which we believe may result in threatened or actual litigation,
including by competitors and other third parties. If such claims are successful, our business and operating results could be harmed,
and even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary
to resolve them, could divert resources of our management and harm our business and operating results.
If
we are not able to comply with the applicable continued listing requirements or standards of The Nasdaq Stock Market LLC, our
Common Stock could be delisted from Nasdaq.
Our
Common Stock is currently listed on Nasdaq. In order to maintain that listing, we must satisfy minimum financial and other continued
listing requirements and standards, including those regarding director independence and independent committee requirements, minimum
stockholders’ equity, minimum share price, and certain corporate governance requirements. There can be no assurances that
we will be able to comply with the applicable listing standards of The Nasdaq Stock Market LLC.
In
the event that our Common Stock is delisted from Nasdaq and is not eligible for quotation on another market or exchange, trading
of our Common Stock could be conducted in the over-the-counter market or on an electronic bulletin board established for unlisted
securities such as the Pink Sheets or the OTC Bulletin Board. In such event, it could become more difficult to dispose of, or
obtain accurate price quotations for, our Common Stock, and there would likely also be a reduction in our coverage by securities
analysts and the news media, which could cause the price of our Common Stock to decline further. Also, it may be difficult for
us to raise additional capital if we are not listed on a major exchange.
In
the event that our Common Stock is delisted from Nasdaq, U.S. broker-dealers may be discouraged from effecting transactions in
shares of our Common Stock because they may be considered penny stocks and thus be subject to the penny stock rules.
The
SEC has adopted a number of rules to regulate a “penny stock” that restricts
transactions involving stock which is deemed to be a penny stock. Such rules include Rules 3a51-1, 15g-1, 15g-2, 15g-3,
15g-4, 15g-5, 15g-6, 15g-7, and 15g-9 under the Exchange Act. These rules may have the effect of reducing the liquidity of penny
stocks. “Penny stocks” generally
are equity securities with a price of less than $5.00 per share (other than securities registered on certain national securities
exchanges or traded on Nasdaq if current price and volume information with respect to transactions in such securities is provided
by the exchange or system). Our shares of Common Stock have in the past constituted, and may again in the future constitute, a
“penny stock” within the meaning of the rules. The additional sales practice and disclosure requirements imposed upon
U.S. broker-dealers may discourage such broker-dealers from effecting transactions in shares of our Common Stock, which could
severely limit the market liquidity of such shares of Common Stock and impede their sale in the secondary market.
A
U.S. broker-dealer selling a penny stock to anyone
other than an established customer or “accredited investor” (generally, an individual
with a net worth in excess of $1,000,000 or an annual income exceeding $200,000, or $300,000 together with his or her spouse)
must make a special suitability determination for the purchaser and must receive the purchaser’s written consent
to the transaction prior to sale, unless the broker-dealer or the transaction is otherwise exempt. In addition, the “penny
stock” regulations require the U.S. broker-dealer to deliver, prior to any
transaction involving a “penny stock”, a disclosure schedule prepared in accordance with SEC standards relating to
the “penny stock” market, unless the broker-dealer or the transaction is otherwise
exempt. A U.S. broker-dealer is also required to disclose commissions payable to the U.S. broker-dealer and the registered representative
and current quotations for the securities. Finally, a U.S. broker-dealer is required to submit monthly statements disclosing
recent price information with respect to any “penny stock” held in a customer’s
account and information with respect to the limited market in “penny stocks”.
You
should be aware that, according to the SEC, the market for “penny stocks” has
suffered in recent years from patterns of fraud and abuse. Such patterns include (i) control of the market for the security by
one or a few broker-dealers that are often related to the promoter or issuer; (ii) manipulation of prices through prearranged
matching of purchases and sales and false and misleading press releases; (iii) “boiler room” practices
involving high-pressure sales tactics and unrealistic price projections by inexperienced sales persons; (iv) excessive and undisclosed
bid-ask differentials and markups by selling broker-dealers; and (v) the wholesale dumping of the same securities by promoters
and broker-dealers after prices have been manipulated to a desired level, resulting in investor losses. Our management is aware
of the abuses that have occurred historically in the penny stock market. Although we do not expect to be in a position to dictate
the behavior of the market or of broker-dealers who participate in the market, management will strive within the confines of practical
limitations to prevent the described patterns from being established with respect to our securities.
Our
charter documents and Nevada law could prevent a takeover that stockholders consider favorable and could also reduce the market
price of our Common Stock.
Provisions
of the anti-takeover law of the Nevada Revised
Statutes (“NRS”) (NRS 78.378 et seq.)
could have the effect of delaying or preventing a third-party from acquiring us, even if the acquisition arguably could benefit
our stockholders. Various provisions of our amended and restated bylaws (“Bylaws”) may delay, defer or prevent a tender
offer or takeover attempt of us that a stockholder might consider in his or her best interest. Our Bylaws may be adopted, amended
or repealed by the affirmative vote of the holders of at least a majority of our outstanding shares of capital stock entitled
to vote for the election of directors, and except as provided by Nevada law, our board of directors shall have the power to adopt,
amend or repeal the Bylaws by a vote of not less than a majority of our directors. The interests of these stockholders and directors
may not be consistent with your interests, and they may make changes to the Bylaws that are not in line with your concerns.
Subject
to applicable rules of The Nasdaq Stock Market LLC regarding the issuance of 20% or more of our Common Stock, our authorized but
unissued shares of Common Stock are available for our Board or Directors to issue without stockholder approval. We may use these
additional shares for a variety of corporate purposes, however, faced with an attempt to obtain control of us by means of a proxy
context, tender offer, merger or other transaction our board of directors acting alone and without approval of our stockholders
can issue large amounts of capital stock as part of a defense to a take-over challenge.
The
existence of the foregoing provisions and other potential anti-takeover measures could limit the price that investors might be
willing to pay in the future for shares of our Common Stock. They could also deter potential acquirers of our company, thereby
reducing the likelihood that you could receive a premium for your Common Stock in an acquisition.
If
securities or industry analysts do not publish or cease publishing research or reports about us, our business or our market, or
if they change their recommendations regarding our Common Stock adversely, our Common Stock price and trading volume could decline.
The
trading market for our shares of Common Stock will be influenced by the research and reports that industry or securities analysts
may publish about us, our business, our market or our competitors. If any of the analysts who may cover us change their recommendation
regarding our Common Stock adversely, or provide more favorable relative recommendations about our competitors, our share price
would likely decline. If any analyst who may cover us were to cease coverage of our company or fail to regularly publish reports
on us, we could lose visibility in the financial markets, which in turn could cause our Common Stock price or trading volume to
decline.
Our
ability to use our net operating loss carry-forwards and certain other tax attributes may be limited.
Under
Section 382 of the Internal Revenue Code of 1986,
as amended, if a corporation undergoes an “ownership change” (generally defined
as a greater than 50% change (by value) in its equity ownership over a three-year period), the corporation’s
ability to use its pre-change net operating loss carry-forwards and other pre-change tax attributes (such as research tax credits)
to offset its post-change income may be limited. We may experience ownership changes in the future as a result of subsequent shifts
in our stock ownership, including as a result of the completion of this offering when it is taken together with other transactions
we may consummate in the succeeding three-year period. As a result, if we earn net taxable income, our ability to use our pre-change
net operating loss carry-forwards to offset U.S. federal taxable income may be subject to limitations, which potentially could
result in increased future tax liability to us.
We
are uncertain of our ability to protect technology through patents.
Our
ability to compete effectively will depend on our success in protecting our proprietary technology, both in the United States
and abroad. We have filed for at least 37 patents for protection in the United States and certain other countries to cover certain
design aspects of our products.
We
have been issued at least 22 patents to date by the USPTO. In addition, we have at least 15 patent applications that are still
under review by the U.S. Patent Office and, therefore, we have not yet been issued all the patents that we applied for in the
United States. No assurance can be given that any patents relating to our existing technology will be issued from the United States
or any foreign patent offices, that we will receive any patents in the future based on our continued development of our technology,
or that our patent protection within and/or outside of the United States will be sufficient to deter others, legally or otherwise,
from developing or marketing competitive products utilizing our technologies.
If
our patents were to be denied as filed, we would seek to obtain different patents for other parts of our technology. If our main
patent, which relates to the placement of the in-car video system in a rear-view mirror, were to be challenged and denied, it
could potentially allow our competitors to build very similar devices. Currently, this patent is not being challenged. However,
we believe that very few of our competitors would be capable of this because of the level of technical sophistication and level
of miniaturization required. Even if we obtain patents, there can be no assurance that they will be enforceable to prevent others
from developing and marketing competitive products or methods. If we bring an infringement action relating to any future patents,
it may require the diversion of substantial funds from our operations and may require management to expend efforts that might
otherwise be devoted to our operations. Furthermore, there can be no assurance that we will be successful in enforcing our patent
rights.
Further,
if any patents are issued there can be no assurance that patent infringement claims in the United States or in other countries
will not be asserted against us by a competitor or others, or if asserted, that we will be successful in defending against such
claims. If one of our products is adjudged to infringe patents of others with the likely consequence of a damage award, we may
be enjoined from using and selling such product or be required to obtain a royalty-bearing license, if available on acceptable
terms. Alternatively, if a license is not offered, we might be required, if possible, to redesign those aspects of the product
held to infringe to avoid infringement liability. Any redesign efforts we undertake might be expensive, could delay the introduction
or the re-introduction of our products into certain markets, or may be so significant as to be impractical.
We
are involved in litigation relating to our intellectual property.
We
are subject to various legal proceedings arising from normal business operations. Although there can be no assurances, based on
the information currently available, management believes that it is probable that the ultimate outcome of each of the actions
will not have a material adverse effect on our consolidated financial statements. However, an adverse outcome in certain of the
actions could have a material adverse effect on our financial results in the period in which it is recorded.
Axon
Enterprises, Inc. (Formerly Taser International, Inc.). The Company owns U.S. Patent No. 9,253,452 (the “452 Patent”),
which generally covers the automatic activation and coordination of multiple recording devices in response to a triggering event,
such as a law enforcement officer activating the light bar on the vehicle.
The
Company filed suit on January 15, 2016 with the U.S. District Court (Case No: 2:16-cv-02032) against Axon, alleging willful patent
infringement against Axon’s
body camera product line and signal auto-activation product. The Company is seeking both monetary damages and a permanent injunction
against Axon for infringement of the ‘452 Patent. See “Our Business —
Our Products.”
Enforcement
Video, LLC d/b/a WatchGuard Video. On May
27, 2016, the Company filed suit against WatchGuard, in the U.S. District Court for the District of Kansas (Case No. 2:16-cv-02349-JTM-JPO)
alleging patent infringement based on WatchGuard’s VISTA Wifi and 4RE In-Car
product lines. See “Our Business — Our Products.”
PGA
Tour, Inc. On January 22, 2019 the PGA Tour, Inc. (the “PGA”)
filed suit against the Company in the Federal District Court for the District of Kansas (Case No. 2:19-cv-0033-CM-KGG) alleging
breach of contract and breach of implied covenant of good faith and fair dealing relating to the Web.com Tour Title Sponsor
Agreement (the “Agreement”). The contract was executed on April 16, 2015 by
and between the parties. Under the Agreement, the Company would be a title sponsor of and receive certain naming and other rights
and benefits associated with the Web.com Tour for 2015 through 2019 in exchange for the Company’s
payment to the PGA of annual sponsorship fees. The suit has been resolved and the case has been dismissed with prejudice on April
17, 2019.
The
Company is also involved as a plaintiff and defendant in ordinary, routine litigation and administrative proceedings incidental
to its business from time to time, including customer collections, vendor and employment-related matters. The Company believes
the likely outcome of any other pending cases and proceedings will not be material to its business or its financial condition.
We
are uncertain of our ability to protect our proprietary technology and information.
In
addition to seeking patent protection, we rely on trade secrets, know-how and continuing technological advancement to seek to
achieve and thereafter maintain a competitive advantage. Although we have entered into or intend to enter into confidentiality
and invention agreements with our employees, consultants and advisors, no assurance can be given that such agreements will be
honored or that we will be able to effectively protect our rights to our unpatented trade secrets and know-how. Moreover, no assurance
can be given that others will not independently develop substantially equivalent proprietary information and techniques or otherwise
gain access to our trade secrets and know-how.
Foreign
currency fluctuations may affect our competitiveness and sales in foreign markets.
The
relative change in currency values creates fluctuations in our product pricing for potential international customers. These changes
in foreign end-user costs may result in lost orders and reduce the competitiveness of our products in certain foreign markets.
These changes may also negatively affect the financial condition of some existing or potential foreign customers and reduce or
eliminate their future orders of our products. We also import selected components which are used in the manufacturing of some
of our products. Although our purchase orders are in the United States dollar, weakness in the United States dollar could lead
to price increases for the components.
Our
revenues and operating results may fluctuate unexpectedly from quarter to quarter, which may cause our stock price to decline.
Our
revenues and operating results have varied significantly in the past and may continue to fluctuate significantly in the future
due to various factors that are both in and outside our control. Thus, we believe that period-to-period comparisons of our operating
results may not be meaningful in the short-term, and our performance in a particular period may not be indicative of our performance
in any future period.
We
are a party to several lawsuits both as a plaintiff and as a defendant in which we may ultimately not prevail, resulting in losses
and which may cause our stock price to decline.
We
are involved as a plaintiff and defendant in routine litigation and administrative proceedings incidental to our business from
time to time, including customer collections,
vendor and employment-related matters. See “Our Business — Our Products”
for additional information. We believe that the likely outcome of any other pending cases and proceedings will not be material
to our business or financial condition. However, there can be no assurance that we will prevail in the litigation or proceedings
or that we may not have to pay damages or other awards to the other party.
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
prospectus and the documents incorporated by reference into this prospectus and any accompanying prospectus supplement, and the
documents that we reference herein and therein and have filed as exhibits to the registration statement, including the sections
entitled “Risk Factors”, contain “forward-looking statements” within the meaning of Section 21(E) of the
Exchange Act and Section 27A of the Securities Act. These forward-looking statements include, without limitation: statements regarding
proposed new products or services; statements concerning litigation or other matters; statements concerning projections, predictions,
expectations, estimates or forecasts for our business, financial and operating results and future economic performance; statements
of management’s goals and objectives; statements concerning our competitive environment, availability of resources and regulation;
trends affecting our financial condition, results of operations or future prospects; our financing plans or growth strategies;
and other similar expressions concerning matters that are not historical facts. Words such as “may”, “will”,
“should”, “could”, “would”, “predicts”, “potential”, “continue”,
“expects”, “anticipates”, “future”, “intends”, “plans”, “believes”
and “estimates,” and variations of such terms or similar expressions, are intended to identify such forward-looking
statements.
Forward-looking
statements should not be read as a guarantee of future performance or results and will not necessarily be accurate indications
of the times at, or by which, that performance or those results will be achieved. Forward-looking statements are based on information
available at the time they are made and/or management’s good faith belief as of that time with respect to future events
and are subject to risks and uncertainties that could cause actual performance or results to differ materially from what is expressed
in or suggested by the forward-looking statements. The section in this prospectus entitled “Risk Factors” and
the sections in our periodic reports, including the sections entitled “Business” in our recent Annual Report on Form
10-K and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our recent
Annual Report on Form 10-K and subsequent quarterly reports filed with the SEC, as well as other sections in this prospectus and
the documents or reports incorporated by reference into this prospectus, and any accompanying prospectus supplement and the documents
that we reference herein and therein and have filed as exhibits to the registration statement, discuss some of the factors that
could contribute to these differences.
Forward-looking
statements speak only as of the date they are made. You should not put undue reliance on any forward-looking statements. We assume
no obligation to update forward-looking statements to reflect actual results, changes in assumptions or changes in other factors
affecting forward-looking information, except to the extent required by applicable securities laws. If we do update one or more
forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking
statements. Investors should review our subsequent reports filed with the SEC described in the sections entitled “Where
You Can Find More Information” and “Incorporation of Certain Information by Reference” of this prospectus and
incorporated by reference into this prospectus and any accompanying prospectus supplement and the documents that we reference
herein and therein and have filed as exhibits to the registration statement, all of which are accessible on the SEC’s website
at www.sec.gov.
USE
OF PROCEEDS
Except
as otherwise provided in the applicable prospectus supplement, we intend to use the net proceeds from the sale of the securities
offered by this prospectus for working capital and general corporate purposes.
The
intended application of the proceeds from the sale of any particular offering of securities using this prospectus will be described
in the accompanying prospectus supplement relating to such offering. The precise amount and timing of the application of these
proceeds will depend on our funding requirements and the availability and costs of other funds.
THE
SECURITIES THAT WE MAY OFFER
The
descriptions of our securities contained in this prospectus, together with the applicable prospectus supplements, summarize all
of the material terms and provisions of the various types of securities that we may offer. We will describe in the applicable
prospectus supplement relating to any securities the particular terms of such securities offered by that prospectus supplement.
If we indicate in the applicable prospectus supplement, the terms of such securities may differ from the terms that we have summarized
below. We will also include in the prospectus supplement information, where applicable, about material United States federal income
tax considerations relating to such securities, and the securities exchange, if any, on which such securities will be listed.
We
may sell from time to time, in one or more offerings, either individually or in any combination:
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shares
of our Common Stock;
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warrants
to purchase shares of our Common Stock and/or other securities described in this prospectus;
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debt
securities consisting of notes, debentures or other evidences of indebtedness;
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convertible
debt securities consisting of notes, debentures or other evidences of indebtedness;
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rights
to purchase shares of our Common Stock and/or other securities described in this prospectus; and/or
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units
consisting of a combination of the foregoing.
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The
terms of any securities that we offer will be determined at the time of sale. We may issue securities that are exercisable, exchangeable
for or convertible into Common Stock. When particular securities are offered, a supplement to this prospectus will be filed with
the SEC, which will describe the terms of the offering and sale of the offered securities.
DESCRIPTION
OF COMMON STOCK
The
following description of our Common Stock and certain provisions of our articles of incorporation, as amended (“Articles
of Incorporation”), and our Bylaws are summaries and are qualified by reference to our Articles of Incorporation and Bylaws.
Such summaries do not purport to be complete and are qualified in their entirety by reference to Nevada law, including the NRS,
as well as copies of our Articles of Incorporation and Bylaws, which have been filed as exhibits to prior reports filed by us
with the SEC and are incorporated by reference as exhibits to the registration statement of which this prospectus forms a part.
See “Where You Can Find More Information.”
Common
Stock
Our
authorized Common Stock consists of 50,000,000 shares of Common Stock, $0.001 par value per share. As of June 23, 2020, we had
26,581,600 shares of our Common Stock issued and outstanding, which excludes 63,518 shares held in treasury.
Voting
Rights
Each
share of our Common Stock entitles the owner to one vote. There is no cumulative voting. A simple majority can elect all of the
directors at a given meeting, and the minority would not be able to elect any director at that meeting.
Dividends
Each
share of our Common Stock is entitled to receive an equal dividend, if one is declared. We cannot provide any assurance that we
will declare or pay cash dividends on our Common Stock in the future. Any future determination to declare cash dividends will
be made at the discretion of our board of directors, subject to applicable laws, and will depend on our financial condition, results
of operations, capital requirements, general business conditions and other factors that our board of directors may deem relevant.
Our board of directors may determine it to be necessary to retain future earnings (if any) to finance our growth. See “Risk
Factors” and “Dividend Policy.”
Liquidation
If
the Company is liquidated, then assets that remain (if any) after the creditors are paid and the owners of any securities with
liquidation preferences senior to the Common Stock are paid will be distributed to the owners of our Common Stock pro rata.
Preemptive
Rights
Owners
of our Common Stock have no preemptive rights. We may sell shares of our Common Stock to third parties without first offering
such shares to current stockholders.
Redemption
Rights
We
do not have the right to buy back shares of our Common Stock except in extraordinary transactions, such as mergers and court approved
bankruptcy reorganizations. Owners of our Common Stock do not ordinarily have the right to require us to buy their Common Stock.
We do not have a sinking fund to provide assets for any buy back.
Conversion
Rights
Shares
of our Common Stock cannot be converted into any other kind of stock except in extraordinary transactions, such as mergers and
court approved bankruptcy reorganizations.
Nonassessability
All
outstanding shares of our Common Stock are fully paid and nonassessable.
Listing
Our
Common Stock trades on Nasdaq under the symbol “DGLY.”
Transfer
Agent and Registrar
Our
transfer agent and registrar for our Common Stock in the United States is Action Stock Transfer Corporation, located at 2469 E.
Fort Union Blvd., Salt Lake City, UT 84122. Its telephone number is (801) 274-1088.
DESCRIPTION
OF WARRANTS
The
following description, together with the additional information that we may include in any applicable prospectus supplements,
summarizes the material terms and provisions of the warrants that we may offer under this prospectus and the related warrant agreements
and warrant certificates. While the terms summarized below will apply generally to any warrants that we may offer, we will describe
the particular terms of any series of warrants in more detail in the applicable prospectus supplement. If we indicate in the prospectus
supplement, the terms of any warrants offered under that prospectus supplement may differ from the terms described below. If there
are differences between that prospectus supplement and this prospectus, the prospectus supplement will control. Thus, the statements
we make in this section may not apply to a particular series of warrants. Specific warrant agreements will contain additional
important terms and provisions and will be incorporated by reference as an exhibit to the registration statement which includes
this prospectus.
General
We
may issue warrants for the purchase of Common Stock and/or other securities described in this prospectus. We may issue warrants
independently or together with Common Stock and/or such other securities, and the warrants may be attached to or separate from
any such offered securities.
We
will evidence each series of warrants by warrant certificates that we may issue under a separate agreement. We may enter into
the warrant agreement with a warrant agent. Each warrant agent may be a bank that we select which has its principal office in
the United States and a combined capital and surplus of at least $125,000,000. We may also choose to act as our own warrant agent.
We will indicate the name and address of any such warrant agent in the applicable prospectus supplement relating to a particular
series of warrants.
We
will describe in the applicable prospectus supplement the terms of the series of warrants, including:
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the
offering price and aggregate number of warrants offered;
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the
currency for which the warrants may be purchased;
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if
applicable, the designation and terms of the securities with which the warrants are issued and the number of warrants issued
with each such security or each principal amount of such security;
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if
applicable, the date on and after which the warrants and the related securities will be separately transferable;
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the
number of shares of Common Stock or other securities purchasable upon the exercise of one warrant and the price at which such
shares or other securities may be purchased upon such exercise;
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the
warrant agreement under which the warrants will be issued;
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the
effect of any merger, consolidation, sale or other disposition of our business on the warrant agreement and the warrants;
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anti-dilution
provisions of the warrants, if any;
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the
terms of any rights to redeem or call the warrants;
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any
provisions for changes to or adjustments in the exercise price or number of securities issuable upon exercising the warrants;
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the
manner in which the warrant agreement and warrants may be modified;
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the
identities of the warrant agent and any calculation or other agent for the warrants;
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federal
income tax consequences of holding or exercising the warrants;
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the
terms of the securities issuable upon exercise of the warrants;
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any
securities exchange or quotation system on which the warrants or any securities deliverable upon exercise of the warrants
may be listed; and
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any
other specific terms, preferences, rights or limitations of or restrictions on the warrants.
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Before
exercising their warrants, holders of warrants will not have any of the rights of holders of Common Stock purchasable upon such
exercise, including the right to receive dividends, if any, or, payments upon our liquidation, dissolution or winding up or to
exercise voting rights, if any.
Exercise
of Warrants
Each
warrant will entitle the holder to purchase the securities that we specify in the applicable prospectus supplement at the exercise
price that we describe in the applicable prospectus supplement. Unless we otherwise specify in the applicable prospectus supplement,
holders of the warrants may exercise the warrants at any time up to 5:00 p.m. Eastern Time on the expiration date that we set
forth in the applicable prospectus supplement. After the close of business on the expiration date, unexercised warrants will become
void.
Holders
of the warrants may exercise the warrants by delivering the warrant certificate representing the warrants to be exercised together
with specified information, and paying the required amount to the warrant agent in immediately available funds, as provided in
the applicable prospectus supplement. We will set forth on the reverse side of the warrant certificate, and in the applicable
prospectus supplement, the information that the holder of the warrant will be required to deliver to the warrant agent.
Until
the warrant is properly exercised, no holder of any warrant will be entitled to any rights of a holder of the securities purchasable
upon exercise of the warrant.
Upon
receipt of the required payment and the warrant certificate properly completed and duly executed at the corporate trust office
of the warrant agent or any other office indicated in the applicable prospectus supplement, we will issue and deliver the securities
purchasable upon such exercise. If fewer than all of the warrants represented by the warrant certificate are exercised, then we
will issue a new warrant certificate for the remaining amount of warrants. If we so indicate in the applicable prospectus supplement,
holders of the warrants may surrender securities as all or part of the exercise price for warrants.
Enforceability
of Rights By Holders of Warrants
Any
warrant agent will act solely as our agent under the applicable warrant agreement and will not assume any obligation or relationship
of agency or trust with any holder of any warrant. A single bank or trust company may act as warrant agent for more than one issue
of warrants. A warrant agent will have no duty or responsibility in case of any default by us under the applicable warrant agreement
or warrant, including any duty or responsibility to initiate any proceedings at law or otherwise, or to make any demand upon us.
Any holder of a warrant may, without the consent of the related warrant agent or the holder of any other warrant, enforce by appropriate
legal action its right to exercise, and receive the securities purchasable upon exercise of, its warrants in accordance with their
terms.
Calculation
Agent
Calculations
relating to warrants may be made by a calculation agent, an institution that we appoint as our agent for this purpose. The prospectus
supplement for a particular warrant will name the institution that we have appointed to act as the calculation agent for that
warrant as of the original issue date for that warrant. We may appoint a different institution to serve as calculation agent from
time to time after the original issue date without the consent or notification of the holders.
The
calculation agent’s determination of any amount of money payable or securities deliverable with respect to a warrant will
be final and binding in the absence of manifest error.
Governing
Law
Unless
we provide otherwise in the applicable prospectus supplement, the warrants and warrant agreements, and any claim, controversy
or dispute arising under or related to the warrants or warrant agreements, will be governed by and construed in accordance with
the laws of the State of New York.
DESCRIPTION
OF DEBT SECURITIES AND CONVERTIBLE DEBT SECURITIES
The
following description, together with the additional information that we include in any applicable prospectus supplement, summarizes
the material terms and provisions of the debt securities that may be offered from time to time under this prospectus. We may issue
debt securities, in one or more series, as either senior or subordinated debt or as senior or subordinated convertible debt. While
the terms we have summarized below will generally apply to any future debt securities that may be offered under this prospectus,
we will describe the particular terms of any debt securities that may be offered in more detail in the applicable prospectus supplement.
The terms of any debt securities offered under a prospectus supplement may differ from the terms we describe below.
We
may issue secured or unsecured debt securities offered under this prospectus, which may be senior, subordinated or junior subordinated,
and/or convertible and which may be issued in one or more series. We will issue any new senior debt securities under a senior
indenture that we will enter into with a trustee named in such senior indenture. We will issue any subordinated debt securities
under a subordinated indenture that we will enter into with a trustee named in such subordinated indenture. We will have filed
forms of these documents as exhibits to the registration statement, of which this prospectus is a part. The terms of the debt
securities will include those set forth in the applicable indenture, any related supplemental indenture and any related securities
documents that are made a part of the indenture by the Trust Indenture Act of 1939, as amended (the “Trust Indenture Act”).
You should read the summary below, the applicable prospectus supplement and the provisions of the applicable indenture, any supplemental
indenture and any related security documents, if any, in their entirety before investing in our debt securities. We use the term
“indentures” to refer to both the senior indentures and the subordinated indentures.
The
indentures will be qualified under the Trust Indenture Act. We use the term “trustee” to refer to either a trustee
under the senior indenture or a trustee under the subordinated indenture, as applicable.
The
following summaries of material provisions of any senior debt securities, any subordinated debt securities and the related indentures
are subject to, and qualified in their entirety by reference to, all the provisions of the indentures and any supplemental indenture
or related document applicable to a particular series of debt securities. We urge you to read the applicable prospectus supplements
related to the debt securities that are offered under this prospectus, as well as the complete indentures, that contains the terms
of the debt securities. See the information under the heading “Where You Can Find More Information” for information
on how to obtain a copy of the appropriate indenture. Except as we may otherwise indicate, the terms of any senior indenture and
any subordinated indenture will be identical.
In
addition, the material specific financial, legal and other terms as well as any material U.S. federal income tax consequences
particular to securities of each series will be described in the prospectus supplement relating to the securities of that series.
The prospectus supplement may or may not modify the general terms found in this prospectus and will be filed with the SEC. For
a complete description of the terms of a particular series of debt securities, you should read both this prospectus and the prospectus
supplement relating to that particular series.
We
will describe in the applicable prospectus supplement the terms relating to a series of debt securities, including:
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title;
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principal
amount being offered, and, if a series, the total amount authorized and the total amount outstanding;
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any
limit on the amount that may be issued;
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whether
or not we will issue the series of debt securities in global form and, if so, the terms and who the depositary will be;
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the
maturity date;
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the
principal amount due at maturity, and whether the debt securities will be issued with any original issue discount;
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whether
and under what circumstances, if any, we will pay additional amounts on any debt securities held by a person who is not a
United States person for tax purposes, and whether we can redeem the debt securities if we have to pay such additional amounts;
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the
annual interest rate, which may be fixed or variable, or the method for determining the rate, the date interest will begin
to accrue, the dates interest will be payable and the regular record dates for interest payment dates or the method for determining
such dates;
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whether
or not the debt securities will be secured or unsecured, and the terms of any secured debt;
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the
terms of the subordination of any series of subordinated debt;
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the
place where payments will be payable;
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restrictions
on transfer, sale or other assignment, if any;
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our
right, if any, to defer payment of interest and the maximum length of any such deferral period;
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the
date, if any, after which, the conditions upon which, and the price at which we may, at our option, redeem the series of debt
securities pursuant to any optional or provisional redemption provisions, and any other applicable terms of those redemption
provisions;
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provisions
for a sinking fund, purchase or other analogous fund, if any;
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the
date, if any, on which, and the price at which we are obligated, pursuant to any mandatory sinking fund or analogous fund
provisions or otherwise, to redeem, or at the holder’s option to purchase, the series of debt securities;
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whether
the indenture will restrict our ability and/or the ability of our subsidiaries to:
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incur
additional indebtedness;
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issue
additional securities;
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issue
guarantees;
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create
liens;
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pay
dividends and make distributions in respect of our capital stock and the capital stock of our subsidiaries;
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redeem
capital stock;
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place
restrictions on our subsidiaries’ ability to pay dividends, make distributions or transfer assets;
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make
investments or other restricted payments;
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sell
or otherwise dispose of assets;
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enter
into sale-leaseback transactions;
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engage
in transactions with stockholders and affiliates;
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issue
or sell stock of or sell assets of our subsidiaries; or
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effect
a consolidation or merger;
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whether
the indenture will require us to maintain any interest coverage, fixed charge, cash flow-based, asset-based or other financial
ratios;
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a
discussion of any material or special United States federal income tax considerations applicable to the debt securities;
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information
describing any book-entry features;
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the
procedures for any auction and remarketing, if any;
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the
denominations in which we will issue the series of debt securities, if other than denominations of $1,000 and any integral
multiple thereof;
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if
other than U.S. dollars, the currency in which the series of debt securities will be denominated and the currency in which
principal, premium, if any, and interest will be paid; and
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any
other specific terms, preferences, rights or limitations of, or restrictions on, the debt securities, including any events
of default that are in addition to or different than those described in this prospectus or any covenants provided with respect
to the debt securities that are in addition to those described above, and any terms which may be required by us or advisable
under applicable laws or regulations or advisable in connection with the marketing of the debt securities.
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In
addition to the debt securities that may be offered pursuant to this prospectus, we may issue other debt securities in public
or private offerings from time to time. These other debt securities may be issued under other indentures or documentation that
are not described in this prospectus, and those debt securities may contain provisions materially different from the provisions
applicable to one or more issues of debt securities offered pursuant to this prospectus.
Original
Issue Discount
One
or more series of debt securities offered under this prospectus may be sold at a substantial discount below their stated principal
amount, bearing no interest or interest at a rate that at the time of issuance is below market rates. The federal income tax consequences
and special considerations applicable to any series of debt securities generally will be described in the applicable prospectus
supplement.
Senior
Debt Securities
Payment
of the principal or premium, if any, and interest on senior debt securities will rank on a parity with all of our other indebtedness
that is not subordinated.
Subordination
of Subordinated Debt Securities
The
subordinated debt securities will be subordinate and junior in priority of payment to certain of our other indebtedness to the
extent described in a prospectus supplement. The indentures in the forms initially filed as exhibits to the registration statement
of which this prospectus is a part do not limit the amount of indebtedness which we may incur, including senior indebtedness or
subordinated indebtedness, and do not limit us from issuing any other debt, including secured debt or unsecured debt.
Conversion
or Exchange Rights
We
will set forth in the applicable prospectus supplement the terms on which a series of debt securities may be convertible into
or exchangeable for our Common Stock or other securities, including the conversion or exchange rate, as applicable, or how it
will be calculated, and the applicable conversion or exchange period. We will include provisions as to whether conversion or exchange
is mandatory, at the option of the holder or at our option. We may include provisions pursuant to which the number of securities
that the holders of the series of debt securities receive upon conversion or exchange would, under the circumstance described
in those provisions, be subject to adjustment, or pursuant to which those holders would, under those circumstances, receive other
property upon conversion or exchange, for example in the event of our merger or consolidation with another entity.
Consolidation,
Merger or Sale
The
indentures in the forms initially filed as exhibits to the registration statement of which this prospectus is a part do not contain
any covenant that restricts our ability to merge or consolidate, or sell, convey, transfer or otherwise dispose of all or substantially
all of our assets. However, any successor of ours or acquirer of such assets must assume all of our obligations under the indentures
and the debt securities.
If
the debt securities are convertible for our other securities, the person with whom we consolidate or merge or to whom we sell
all of our property must make provisions for the conversion of the debt securities into securities which the holders of the debt
securities would have received if they had converted the debt securities before the consolidation, merger or sale.
Events
of Default under the Indentures
Except
as otherwise set forth in an applicable prospectus supplement, the following are events of default under the indentures with respect
to any series of debt securities that we may issue:
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if
we fail to pay interest when due and payable and our failure continues for 30 days and the time for payment has not been extended
or deferred;
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if
we fail to pay the principal, or premium, if any, when due and payable and the time for payment has not been extended or delayed;
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if
we fail to observe or perform any other covenant contained in the debt securities or the indentures, other than a covenant
solely for the benefit of another series of debt securities, and our failure continues for 90 days after we receive notice
from the trustee or holders of a to-be-determined percentage in aggregate principal amount of the outstanding debt securities
of the applicable series; and
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if
specified events of bankruptcy, insolvency or reorganization occur.
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If
an event of default with respect to debt securities of any series occurs and is continuing, other than an event of default specified
in the last bullet point above under “— Events of Default Under the Indentures,” the trustee or the holders
of a to-be-determined percentage in aggregate principal amount of the outstanding debt securities of that series, by notice to
us in writing, and to the trustee if notice is given by such holders, may declare the unpaid principal of, premium, if any, and
accrued interest, if any, due and payable immediately. If an event of default specified in the last bullet point above “—
Events of Default Under the Indentures” occurs with respect to us, the principal amount of and accrued interest, if any,
of each series of debt securities then outstanding shall be due and payable without any notice or other action on the part of
the trustee or any holder.
The
holders of a majority in aggregate principal amount of the outstanding debt securities of an affected series may waive any default
or event of default with respect to the series and its consequences (other than bankruptcy defaults), except there may be no waiver
of defaults or events of default regarding payment of principal, premium, if any, or interest, unless we have cured the default
or event of default in accordance with the applicable indenture.
Subject
to the terms of the indentures, if an event of default under an indenture shall occur and be continuing, the trustee will be under
no obligation to exercise any of its rights or powers under such indenture at the request or direction of any of the holders of
the applicable series of debt securities, unless such holders have offered the trustee indemnity satisfactory to it. The holders
of a majority in principal amount of the outstanding debt securities of any series will have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the trustee, or exercising any trust or power conferred on
the trustee, with respect to the debt securities of that series, provided that:
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the
direction so given by the holder is not in conflict with any law or the applicable indenture; and
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subject
to its duties under the Trust Indenture Act, the trustee need not take any action that might involve it in personal liability
or might be unduly prejudicial to the holders not involved in the proceeding.
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A
holder of the debt securities of any series will only have the right to institute a proceeding under the indentures or to appoint
a receiver or trustee, or to seek other remedies if:
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the
holder has given written notice to the trustee of a continuing event of default with respect to that series;
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the
holders of a to-be-determined percentage in aggregate principal amount of the outstanding debt securities of that series have
made written request to the trustee, and such holders have offered indemnity satisfactory to the trustee, to institute the
proceeding as trustee; and
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the
trustee does not institute the proceeding, and does not receive from the holders of a majority in aggregate principal amount
of the outstanding debt securities of that series other conflicting directions, within 90 days after the notice, request and
offer.
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These
limitations do not apply to a suit instituted by a holder of debt securities if we default in the payment of the principal, premium,
if any, or interest on, the debt securities.
We
will periodically file statements with the trustee regarding our compliance with the covenants in the indentures.
Modification
of Indenture; Waiver
We
and the trustee may modify an indenture or enter into or modify any supplemental indenture without the consent of any holders
of the debt securities with respect to specific matters, including:
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to
fix any ambiguity, defect or inconsistency in the indenture;
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to
comply with the provisions described above under “—Consolidation, Merger or Sale;”
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to
comply with any requirements of the SEC in connection with the qualification of any indenture under the Trust Indenture Act;
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to
evidence and provide for the acceptance of appointment hereunder by a successor trustee;
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to
provide for uncertificated debt securities and to make any appropriate changes for such purpose;
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to
add to, delete from, or revise the conditions, limitations and restrictions on the authorized amount, terms or purposes of
issuance, authorization and delivery of debt securities of any unissued series;
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to
add to our covenants such new covenants, restrictions, conditions or provisions for the protection of the holders, to make
the occurrence, or the occurrence and the continuance, of a default in any such additional covenants, restrictions, conditions
or provisions an event of default, or to surrender any of our rights or powers under the indenture; or
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to
change anything that does not materially adversely affect the legal rights of any holder of debt securities of any series.
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In
addition, under the indentures, the rights of holders of a series of debt securities may be changed by us and the trustee with
the written consent of the holders of at least a majority in aggregate principal amount of the outstanding debt securities of
each series that is affected. However, we and the trustee may only make the following changes with the consent of each holder
of any outstanding debt securities affected:
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extending
the fixed maturity of the series of debt securities;
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reducing
the principal amount, reducing the rate of or extending the time of payment of interest, or reducing any premium payable upon
the redemption of any debt securities; or
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reducing
the percentage of debt securities, the holders of which are required to consent to any supplemental indenture.
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Discharge
Each
indenture provides that, subject to the terms of the indenture and any limitation otherwise provided in the prospectus supplement
applicable to a particular series of debt securities, we can elect to be discharged from our obligations with respect to one or
more series of debt securities, except for specified obligations, including obligations to:
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register
the transfer or exchange of debt securities of the series;
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replace
stolen, lost or mutilated debt securities of the series;
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maintain
paying agents and agencies for payment, registration of transfer and exchange and service of notices and demands;
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recover
excess money held by the trustee;
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compensate
and indemnify the trustee; and
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appoint
any successor trustee.
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In
order to exercise our rights to be discharged, we must deposit with the trustee money or government obligations sufficient to
pay all the principal of, any premium and interest on, the debt securities of the series on the date payments are due.
“Street
Name” and Other Indirect Holders
Investors
who hold securities in accounts at banks or brokers generally will not be recognized by us as legal holders of debt securities.
This manner of holding securities is called holding in “street name.” Instead, we would recognize only the bank or
broker, or the financial institution that the bank or broker uses to hold its securities. These intermediary banks, brokers and
other financial institutions pass along principal, interest and other payments on the debt securities, either because they agree
to do so in their customer agreements or because they are legally required to do so. If you hold debt securities in “street
name,” you should check with your own institution to find out, among other things:
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how
it handles payments and notices;
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whether
it imposes fees or charges;
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how
it would handle voting if applicable;
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whether
and how you can instruct it to send you debt securities registered in your own name so you can be a direct holder as described
below; and
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if
applicable, how it would pursue rights under your debt securities if there were a default or other event triggering the need
for holders to act to protect their interests.
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Our
obligations, as well as the obligations of the trustee under the indentures and those of any third parties employed by us or the
trustee under either of the indentures, run only to persons who are registered as holders of debt securities issued under the
applicable indenture. As noted above, we do not have obligations to you if you hold in “street name” or other indirect
means, either because you choose to hold debt securities in that manner or because the debt securities are issued in the form
of global securities as described below. For example, once we make payment to the registered holder, we have no further responsibility
for the payment even if that holder is legally required to pass the payment along to you as a “street name” customer
but does not do so.
Form,
Exchange and Transfer
We
may issue debt securities of each series only in fully registered form without coupons and, unless we otherwise specify in the
applicable prospectus supplement, in denominations of $1,000 and any integral multiple thereof. The indentures will provide that
we may issue debt securities of a series in temporary or permanent global form and as book-entry securities that will be deposited
with, or on behalf of, The Depository Trust Company or another depositary named by us and identified in a prospectus supplement
with respect to that series (the “Depository”). See “Book-Entry” below for a further description of the
terms relating to any book-entry securities.
At
the option of the holder, subject to the terms of the indentures and the limitations applicable to global securities described
below or in the applicable prospectus supplement, the holder of the debt securities of any series can exchange the debt securities
for other debt securities of the same series, in any authorized denomination and of like tenor and aggregate principal amount.
Subject
to the terms of the indentures and the limitations applicable to global securities set forth below in the applicable prospectus
supplement, holders of the debt securities may present the debt securities for exchange or for registration of transfer, duly
endorsed or with the form of transfer endorsed thereon duly executed if so required by us or the security registrar, at the office
of the security registrar or at the office of any transfer agent designated by us for this purpose. Unless otherwise provided
in the debt securities that the holder presents for transfer or exchange, we will make no service charge for any registration
of transfer or exchange, but we may require payment of any taxes or other governmental charges.
We
will name in the applicable prospectus supplement the security registrar, and any transfer agent in addition to the security registrar,
that we initially designate for any debt securities. We may at any time designate additional transfer agents or rescind the designation
of any transfer agent or approve a change in the office through which any transfer agent acts, except that we will be required
to maintain a transfer agent in each place of payment for the debt securities of each series.
If
we elect to redeem the debt securities of any series, we will not be required to:
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issue,
register the transfer of, or exchange any debt securities of any series being redeemed in part during a period beginning at
the opening of business 15 days before the day of mailing of a notice of redemption of any debt securities that may be selected
for redemption and ending at the close of business on the day of the mailing; or
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register
the transfer of or exchange any debt securities so selected for redemption, in whole or in part, except the unredeemed portion
of any debt securities we are redeeming in part.
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Book-Entry
Securities
The
following description of book-entry securities will apply to any series of debt securities issued in whole or in part in the form
of one or more global securities, except as otherwise described in a related prospectus supplement.
Book-entry
securities of like tenor and having the same date will be represented by one or more global securities deposited with and registered
in the name of a depositary that is a clearing agent registered under the Exchange Act. Beneficial interests in book-entry securities
will be limited to institutions that have accounts with the depositary, or “participants,” or persons that may hold
interests through participants.
Ownership
of beneficial interests by participants will only be evidenced by, and the transfer of that ownership interest will only be effected
through, records maintained by the depositary. Ownership of beneficial interests by persons that hold through participants will
only be evidenced by, and the transfer of that ownership interest within such participant will only be effected through, records
maintained by the participants. The laws of some jurisdictions require that certain purchasers of securities take physical delivery
of such securities in definitive form. Such laws may impair the ability to transfer beneficial interests in a global security.
Payment
of principal of and any premium and interest on book-entry securities represented by a global security registered in the name
of or held by a depositary will be made to the depositary, as the registered owner of the global security. Neither we, the trustee
nor any agent of ours or the trustee will have any responsibility or liability for any aspect of the depositary’s records
or any participant’s records relating to or payments made on account of beneficial ownership interests in a global security
or for maintaining, supervising or reviewing any of the depositary’s records or any participant’s records relating
to the beneficial ownership interests. Payments by participants to owners of beneficial interests in a global security held through
such participants will be governed by the depositary’s procedures, as is now the case with securities held for the accounts
of customers registered in “street name,” and will be the sole responsibility of such participants.
A
global security representing a book-entry security is exchangeable for definitive debt securities in registered form, of like
tenor and of an equal aggregate principal amount registered in the name of, or is transferable in whole or in part to, a person
other than the depositary for that global security, only if (i) the depositary notifies us that it is unwilling or unable to continue
as depositary for that global security or the depositary ceases to be a clearing agency registered under the Exchange Act, (ii)
there shall have occurred and be continuing an event of default with respect to the debt securities of that series or (iii) other
circumstances exist that have been specified in the terms of the debt securities of that series. Any global security that is exchangeable
pursuant to the preceding sentence shall be registered in the name or names of such person or persons as the depositary shall
instruct the trustee. It is expected that such instructions may be based upon directions received by the depositary from its participants
with respect to ownership of beneficial interests in such global security.
Except
as provided above, owners of beneficial interests in a global security will not be entitled to receive physical delivery of debt
securities in definitive form and will not be considered the holders thereof for any purpose under the indentures, and no global
security shall be exchangeable, except for a security registered in the name of the depositary. This means each person owning
a beneficial interest in such global security must rely on the procedures of the depositary and, if such person is not a participant,
on the procedures of the participant through which such person owns its interest, to exercise any rights of a holder under the
indentures. We understand that under existing industry practices, if we request any action of holders or an owner of a beneficial
interest in such global security desires to give or take any action that a holder is entitled to give or take under the indentures,
the depositary would authorize the participants holding the relevant beneficial interests to give or take such action, and such
participants would authorize beneficial owners owning through such participant to give or take such action or would otherwise
act upon the instructions of beneficial owners owning through them.
Information
Concerning the Trustee
The
trustee, other than during the occurrence and continuance of an event of default under an indenture, undertakes to perform only
those duties as are specifically set forth in the applicable indenture and is under no obligation to exercise any of the powers
given it by the indentures at the request of any holder of debt securities unless it is offered reasonable security and indemnity
against the costs, expenses and liabilities that it might incur. However, upon an event of default under an indenture, the trustee
must use the same degree of care as a prudent person would exercise or use in the conduct of his or her own affairs.
Payment
and Paying Agents
Unless
we otherwise indicate in the applicable prospectus supplement, we will make payment of the interest on any debt securities on
any interest payment date to the person in whose name the debt securities, or one or more predecessor securities, are registered
at the close of business on the regular record date for the interest.
We
will pay principal of and any premium and interest on the debt securities of a particular series at the office of the paying agents
designated by us, except that, unless we otherwise indicate in the applicable prospectus supplement, we may make interest payments
by check which we will mail to the holder or by wire transfer to certain holders. Unless we otherwise indicate in a prospectus
supplement, we will designate an office or agency of the trustee in the City of New York as our paying agent for payments with
respect to debt securities of each series. We will name in the applicable prospectus supplement any other paying agents that we
initially designate for the debt securities of a particular series. We will maintain a paying agent in each place of payment for
the debt securities of a particular series.
All
money we pay to a paying agent or the trustee for the payment of the principal of or any premium or interest on any debt securities
which remains unclaimed at the end of two years after such principal, premium or interest has become due and payable will be repaid
to us, and the holder of the debt security thereafter may look only to us for payment thereof.
Governing
Law
Except
as otherwise specified in the applicable prospectus supplement, the indentures and the debt securities will be governed by and
construed in accordance with the laws of the State of New York, except to the extent that the Trust Indenture Act is applicable.
DESCRIPTION
OF RIGHTS
General
We
may issue rights to our stockholders to purchase shares of our Common Stock or other securities as described in this prospectus.
We may offer rights separately or together with one or more additional rights, Common Stock, other securities described in this
prospectus or any combination of such securities in the form of units, as described in the applicable prospectus supplement. Each
series of rights will be issued under a separate rights agreement to be entered into between us and a bank or trust company, as
rights agent. The rights agent for any rights we offer will be set forth in the applicable prospectus supplement. The rights agent
will act solely as our agent in connection with the certificates relating to the rights of the series of certificates and will
not assume any obligation or relationship of agency or trust for or with any holders of rights certificates or beneficial owners
of rights. The following description sets forth certain general terms and provisions of the rights to which any prospectus supplement
may relate. The particular terms of the rights to which any prospectus supplement may relate and the extent, if any, to which
the general provisions may apply to the rights so offered will be described in the applicable prospectus supplement. To the extent
that any particular terms of the rights, rights agreement or rights certificates described in a prospectus supplement differ from
any of the terms described below, then the terms described below will be deemed to have been superseded by that prospectus supplement.
We encourage you to read the applicable rights agreement and rights certificate for additional information before you decide whether
to purchase any of our rights.
The
prospectus supplement relating to any rights that we offer will include specific terms relating to the offering, including, among
other matters:
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the
date of determining the stockholders entitled to the rights distribution;
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the
aggregate number of shares of Common Stock or other securities purchasable upon exercise of the rights;
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the
exercise price;
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the
aggregate number of rights issued;
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whether
the rights are transferrable and the date, if any, on and after which the rights may be separately transferred;
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the
date on which the right to exercise the rights will commence, and the date on which the right to exercise the rights will
expire;
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the
method by which holders of rights will be entitled to exercise;
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the
conditions to the completion of the offering;
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the
withdrawal, termination and cancellation rights;
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whether
there are any backstop or standby purchaser or purchasers and the terms of their commitment;
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whether
stockholders are entitled to oversubscription rights;
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any
U.S. federal income tax considerations; and
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any
other terms of the rights, including terms, procedures and limitations relating to the distribution, exchange and exercise
of the rights.
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If
less than all of the rights issued in any rights offering are exercised, we may offer any unsubscribed securities directly to
persons other than stockholders, to or through agents, underwriters or dealers or through a combination of such methods, including
pursuant to standby arrangements, as described in the applicable prospectus supplement. In connection with any rights offering,
we may enter into a standby underwriting or other arrangement with one or more underwriters or other persons pursuant to which
such underwriters or other persons would purchase any offered securities remaining unsubscribed for after such rights offering.
DESCRIPTION
OF UNITS
We
may issue units comprising one or more of the other securities described in this prospectus in any combination. Each unit will
be issued so that the holder of the unit is also the holder of each security included in the unit. Thus, the holder of a unit
will have the rights and obligations of a holder of each included security. The unit agreement under which a unit is issued may
provide that the securities included in such unit may not be held or transferred separately, at any time or at any time before
a specified date.
The
applicable prospectus supplement will describe:
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the
designation and terms of the units and of the securities comprising the units, including whether and under what circumstances
those securities may be held or transferred separately;
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any
unit agreement under which the units will be issued;
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any
provisions for the issuance, payment, settlement, transfer or exchange of the units or of the securities comprising the units;
and
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whether
the units will be issued in fully registered or global form.
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The
applicable prospectus supplement will describe the terms of any units. The preceding description and any description of units
in the applicable prospectus supplement does not purport to be complete and is subject to and is qualified in its entirety by
reference to the unit agreement and, if applicable, collateral arrangements and depositary arrangements relating to such units.
PLAN
OF DISTRIBUTION
We
may sell the securities being offered pursuant to this prospectus through underwriters or dealers, through agents, or directly
to one or more purchasers or through a combination of these methods. The applicable prospectus supplement will describe the terms
of the offering of the securities, including:
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the
name or names of any underwriters, if any, and if required, any dealers or agents;
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the
purchase price of the securities and the proceeds that we will receive from the sale;
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any
underwriting discounts and other items constituting underwriters’ compensation;
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any
discounts or concessions allowed or reallowed or paid to dealers; and
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any
securities exchange or market on which the securities may be listed.
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We
may distribute the securities from time to time in one or more transactions at:
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a
fixed price or prices, which may be changed;
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market
prices prevailing at the time of sale;
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prices
related to such prevailing market prices; or
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negotiated
prices.
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Only
underwriters named in the prospectus supplement are underwriters of the securities offered by the prospectus supplement.
If
underwriters are used in an offering, we will execute an underwriting agreement with such underwriters and will specify the name
of each underwriter and the terms of the transaction (including any underwriting discounts and other terms constituting compensation
of the underwriters and any dealers) in a prospectus supplement. The securities may be offered to the public either through underwriting
syndicates represented by managing underwriters or directly by one or more investment banking firms or others, as designated.
If an underwriting syndicate is used, the managing underwriter(s) will be specified on the cover of the prospectus supplement.
If underwriters are used in the sale, the offered securities will be acquired by the underwriters for their own accounts and may
be resold from time to time in one or more transactions, including negotiated transactions, at a fixed public offering price or
at varying prices determined at the time of sale. Any public offering price and any discounts or concessions allowed or reallowed
or paid to dealers may be changed from time to time. Unless otherwise set forth in the prospectus supplement, the obligations
of the underwriters to purchase the offered securities will be subject to conditions precedent and the underwriters will be obligated
to purchase all of the offered securities if any are purchased.
We
may grant to the underwriters options to purchase additional securities to cover over-allotments, if any, at the public offering
price, with additional underwriting commissions or discounts, as may be set forth in a related prospectus supplement. The terms
of any over-allotment option will be set forth in the prospectus supplement for those securities.
If
we use a dealer in the sale of the securities being offered pursuant to this prospectus or any prospectus supplement, we will
sell the securities to the dealer, as principal. The dealer may then resell the securities to the public at varying prices to
be determined by the dealer at the time of resale. The names of the dealers and the terms of the transaction will be specified
in a prospectus supplement.
We
may sell the securities directly or through agents we designate from time to time. We will name any agent involved in the offering
and sale of securities and we will describe any commissions we will pay the agent in the prospectus supplement. Unless the prospectus
supplement states otherwise, any agent will act on a best-efforts basis for the period of its appointment.
We
may authorize agents or underwriters to solicit offers by institutional investors to purchase securities from us at the public
offering price set forth in the prospectus supplement pursuant to delayed delivery contracts providing for payment and delivery
on a specified date in the future. We will describe the conditions to these contracts and the commissions we must pay for solicitation
of these contracts in the prospectus supplement.
We
may also sell equity securities covered by this registration statement in an “at the market” offering as defined in
Rule 415(a)(4) under the Securities Act. Such offering may be made into an existing trading market for such securities in transactions
at other than a fixed price on or through the facilities of Nasdaq or any other securities exchange or quotation or trading service
on which such securities may be listed, quoted or traded at the time of sale.
Such
at the market offerings, if any, may be conducted by underwriters acting as principal or agent.
In
connection with the sale of the securities, underwriters, dealers or agents may receive compensation from us or from purchasers
of the securities for whom they act as agents in the form of discounts, concessions or commissions. Underwriters may sell the
securities to or through dealers, and those dealers may receive compensation in the form of discounts, concessions or commissions
from the underwriters or commissions from the purchasers for whom they may act as agents. Underwriters, dealers and agents that
participate in the distribution of the securities, and any institutional investors or others that purchase securities directly
and then resell the securities, may be deemed to be underwriters, and any discounts or commissions received by them from us and
any profit on the resale of the securities by them may be deemed to be underwriting discounts and commissions under the Securities
Act.
We
may provide agents and underwriters with indemnification against particular civil liabilities, including liabilities under the
Securities Act, or contribution with respect to payments that the agents or underwriters may make with respect to such liabilities.
Agents and underwriters may engage in transactions with, or perform services for, us in the ordinary course of business.
In
addition, we may enter into derivative transactions with third parties (including the writing of options) in privately negotiated
transactions. If the applicable prospectus supplement indicates, in connection with such a transaction, the third parties may,
pursuant to this prospectus and the applicable prospectus supplement, sell securities covered by this prospectus and the applicable
prospectus supplement. If so, the third party may use securities borrowed from us or others to settle such sales and may use securities
received from us to close out any related short positions. We may also loan or pledge securities covered by this prospectus and
the applicable prospectus supplement to third parties, who may sell the loaned securities or, in an event of default in the case
of a pledge, sell the pledged securities pursuant to this prospectus and the applicable prospectus supplement. The third party
in such sale transactions will be an underwriter and will be identified in the applicable prospectus supplement or in a post-effective
amendment.
To
facilitate an offering of a series of securities, persons participating in the offering may engage in transactions that stabilize,
maintain, or otherwise affect the market price of the securities. This may include over-allotments or short sales of the securities,
which involves the sale by persons participating in the offering of more securities than have been sold to them by us. In those
circumstances, such persons would cover such over-allotments or short positions by purchasing in the open market or by exercising
the over-allotment option granted to those persons. In addition, those persons may stabilize or maintain the price of the securities
by bidding for or purchasing securities in the open market or by imposing penalty bids, whereby selling concessions allowed to
underwriters or dealers participating in any such offering may be reclaimed if securities sold by them are repurchased in connection
with stabilization transactions. The effect of these transactions may be to stabilize or maintain the market price of the securities
at a level above that which might otherwise prevail in the open market. Such transactions, if commenced, may be discontinued at
any time. We make no representation or prediction as to the direction or magnitude of any effect that the transactions described
above, if implemented, may have on the price of our securities.
All
securities we may offer, other than Common Stock, will be new issues of securities with no established trading market. Any agents
or underwriters may make a market in these securities, but will not be obligated to do so and may discontinue any market making
at any time without notice. We cannot guarantee the liquidity of the trading markets for any securities. There is currently no
market for any of the offered securities, other than our Common Stock which is listed on Nasdaq. We have no current plans for
listing of warrants, units or subscription rights on any securities exchange or quotation system; any such listing with respect
to any particular warrants, units or subscription rights will be described in the applicable prospectus supplement or other offering
materials, as the case may be. Any underwriters to whom securities are sold by us for public offering and sale may make a market
in the securities, but such underwriters will not be obligated to do so and may discontinue any market making at any time without
notice.
In
order to comply with the securities laws of some states, if applicable, the securities offered pursuant to this prospectus will
be sold in those states only through registered or licensed brokers or dealers. In addition, in some states securities may not
be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or
qualification requirement is available and complied with.
LEGAL
MATTERS
The
validity of the issuance of the securities offered hereby will be passed upon for us by Sullivan &Worcester LLP, New York,
New York.
EXPERTS
The
consolidated financial statements of Digital Ally, Inc. as of December 31, 2019 and for the year ended December 31, 2019 incorporated
in this prospectus and any prospectus supplement, which form a part of the registration statement, by
reference from the Digital Ally, Inc. Annual Report on Form 10-K for the year ended December 31, 2019 have been audited by RBSM
LLP, an independent registered public accounting firm, as stated in their report thereon, incorporated herein by reference, and
have been incorporated in this registration statement of which this prospectus and any prospectus supplement that forms a part
in reliance upon such report and upon the authority of such firm as experts in accounting and auditing.
The
consolidated financial statements of Digital Ally, Inc. as of December 31, 2018 and for the year then ended incorporated
in this prospectus and any prospectus supplement, which form a part of the registration statement by
reference from the Digital Ally, Inc. Annual Report on Form 10-K for the year ended December 31, 2019 have been audited by RSM
US LLP, an independent registered public accounting firm, as stated in their report thereon, incorporated herein by reference,
and have been incorporated in this registration statement of which this prospectus and any prospectus supplement that forms a
part in reliance upon such report and upon the authority of such firm as experts in accounting and auditing.
WHERE
YOU CAN FIND MORE INFORMATION
This
prospectus constitutes a part of a registration statement on Form S-3 filed under the Securities Act. As permitted by the SEC’s
rules, this prospectus and any prospectus supplement, which form a part of the registration statement, do not contain all of the
information that is included in the registration statement. You will find additional information about us in the registration
statement. Any statements made in this prospectus or any prospectus supplement concerning legal documents are not necessarily
complete and you should read the documents that are filed as exhibits to the registration statement or otherwise filed with the
SEC for a more complete understanding of the document or matter.
We
file annual, quarterly and current reports, proxy statements and other information with the SEC. Our SEC filings are available
to the public at no cost from the SEC’s website at http://www.sec.gov. Our corporate website is www.digitalallyinc.com.
The information on our corporate website is not incorporated by reference in this prospectus and any prospectus supplement, which
form a part of the registration statement, and the documents incorporated by reference herein and therein, and you should not
consider it a part of this prospectus and any prospectus supplement or such documents.
INCORPORATION
OF DOCUMENTS BY REFERENCE
We
have filed a registration statement on Form S-3 with the SEC under the Securities Act. This prospectus is part of the registration
statement, but the registration statement includes and incorporates by reference additional information and exhibits. The SEC
permits us to “incorporate by reference” the information contained in documents that we file with the SEC, which means
that we can disclose important information to you by referring you to those documents rather than by including them in this prospectus.
Information that is incorporated by reference is considered to be part of this prospectus and you should read it with the same
care that you read this prospectus. Information that we file later with the SEC will automatically update and supersede the information
that is either contained, or incorporated by reference, in this prospectus, and will be considered to be a part of this prospectus
from the date those documents are filed. We have filed with the SEC, and incorporate by reference in this prospectus:
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our
Annual Report on Form 10-K for the year ended December 31, 2019 and its amendment on Form 10-K/A, filed with the SEC on April
6, 2020 and April 29, 2020, respectively;
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our
Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, filed with the SEC on May 20, 2020;
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our
Current Reports on Form 8-K filed with the SEC on January 9, 2020, January 14, 2020, March 3, 2020, March 9, 2020, April 8,
2020, April 20, 2020, April 21, 2020, April 24, 2020, June 4, 2020, June 9, 2020 and June 16, 2020; and
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the
description of our Common Stock contained in our Registration Statement on 8-A filed with the SEC on December 28, 2007, including
all amendments and reports filed for the purpose of updating such description.
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We
also incorporate by reference all additional documents that we file with the SEC under the terms of Sections 13(a), 13(c), 14
or 15(d) of the Exchange Act that are made after the initial filing of the registration statement of which this prospectus forms
a part and prior to effectiveness of the registration statement and after the initial filing date of the registration statement
of which this prospectus is a part until the offering of the particular securities covered by a prospectus supplement or term
sheet has been completed. We are not, however, incorporating, in each case, any documents or information that we are deemed to
furnish and not file in accordance with SEC rules.
We
will provide, without charge, to each person to whom a copy of this prospectus any prospectus supplement forming a part of the
registration statement is delivered, including any beneficial owner, upon the written or oral request of such person, a copy of
any or all of the documents incorporated by reference herein, including exhibits. Requests should be directed to:
Digital
Ally, Inc.
15612
College Blvd.
Lenexa,
KS 66219
(913)
814-7774
corporate@digitalallyinc.com
Copies
of these filings are also available on our website at www.digitalallyinc.com. For other ways to obtain a copy of these
filings, please refer to “Where You Can Find More Information” above.
Digital
Ally, Inc.
3,250,000 Shares of Common
Stock
Prefunded Common Stock Purchase Warrants
to purchase up to 11,050,000 Shares of Common Stock
Common Stock Purchase Warrants to purchase
up to 14,300,000 Shares of Common Stock
PROSPECTUS
SUPPLEMENT
Sole
Placement Agent
KINGSWOOD
CAPITAL MARKETS
division
of Benchmark Investments, Inc.
January
27, 2021
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