Filed
Pursuant to Rule 424(b)(5)
Registration
No. 333-225227
PROSPECTUS
SUPPLEMENT
To
Prospectus dated June 7, 2018
DIGITAL
ALLY, INC.
2,521,740 Shares
of Common Stock
Digital
Ally, Inc. (the “Company”, “our”, “we” and “us”) is offering, pursuant to this
prospectus supplement and the accompanying base prospectus, up to an aggregate of 2,521,740 shares of common stock, par
value $0.001 per share (the “Common Stock”).
We
will sell to the investors the shares of Common Stock at a public offering price of $1.15 per share. We will pay all of
the expenses incident to the registration, offering and sale of such shares under this prospectus supplement and the accompanying
base prospectus.
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Per Share
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Total
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Public offering price
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$
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1.15
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$
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2,900,001.00
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Underwriting discounts and commissions(1)
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$
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0.0805
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$
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203,000.07
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Offering proceeds to us, before expenses
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$
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1.0695
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$
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2,697,000.93
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(1)
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See
“Underwriting” for additional information regarding total compensation payable to the underwriters, including
expenses for which we have agreed to reimburse the underwriters.
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We
have granted the underwriters an option to purchase from us up to (i) 378,261 additional shares of our common stock at
the public offering price, less underwriting discounts and commissions, within 45 days from the date of this prospectus supplement
(provided that in no event may the aggregate market value of securities sold in the offering, including from the over-allotment
option, exceed the limitations set forth in Rule I.B.6 of Form S-3). If the underwriters exercise this option in full, the total
underwriting discounts and commissions will be $233,450 and the total proceeds, before expenses, to us will be $3,335,001.15.
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 February 27, 2020 was $1.30 per share.
As
of the date of this prospectus supplement, the aggregate market value of our outstanding voting and non-voting common equity held
by non-affiliates was $14,326,823 based on 13,505,170 shares of outstanding Common Stock, of which 11,020,633 shares were held
by non-affiliates, and the last reported sale price of our Common Stock of $1.30 per share on February 27, 2020. Pursuant to General
Instruction I.B.6 of Form S-3, in no event will we sell securities in a public primary offering with a value exceeding more than
one-third of our public float in any 12-month period so long as our public float remains below $75,000,000. During the previous
12 calendar months prior to and including the date of this prospectus supplement, we have $1,179,228.43 of our securities pursuant
to General Instruction I.B.6 of Form S-3.
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-9 of this prospectus supplement, on page 2 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 is truthful or complete. Any representation to the contrary is a criminal offense.
The
underwriters expect to deliver the shares of common stock to the purchasers on or about March 1, 2020.
AEGIS
CAPITAL CORP.
The
date of this Prospectus is February 27, 2020
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 the Common Stock; 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 we prepare or authorize. Neither we nor the underwriters have 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.
Neither
we nor the underwriters are offering to sell or seeking offers to purchase these securities in any jurisdiction where the offer
or sale is not permitted. Neither we, nor the underwriters, have done anything that would permit this offering or possession or
distribution of this 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 must inform themselves about, and observe any restrictions
relating to, the offering of the securities as to distribution of the prospectus outside of the United States.
Solely
for convenience, our trademarks and tradenames referred to in this prospectus supplement, including the information 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 the accompanying base prospectus and the documents incorporated by reference herein and
therein.
This
prospectus supplement, including the information 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. In addition, the underwriters have not independently verified any of the industry
data prepared by management or ascertained the underlying estimates and assumptions relied upon by management. Furthermore, references
in this 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 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 the securities covered by this prospectus supplement.
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-9.
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 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.
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 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. 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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eliminates
need for analog tapes to store and catalogue;
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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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The
Company has 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 granted Axon’s motion for summary
judgment that Axon did not infringe on the Company’s patent and dismissed the case. Importantly, the Court’s ruling
did not find that Digital’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 recently filed on its damages claim and
the WatchGuard settlement. Those issues are separate and the judge’s ruling on summary judgment had nothing to do with the
Company’s damages request. The Company has filed an appeal to this ruling and has asked the appellate court to reverse this
decision. The Company filed its Opening Appeal Brief on August 26, 2019 and Axon filed its Responsive Brief on November 6, 2019.
The Company filed its Reply Brief responding to Axon on November 27, 2019. The Company expects oral arguments to occur in April
2020 and a decision later in the second or third quarter 2020.
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 which the Judge 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.
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 of 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 9705 Loiret
Boulevard, Lenexa, Kansas 66219. Our website address is www.digitalallyinc.com. Information contained on our website does
not form part of this prospectus and is intended for informational purposes only.
Recent
Developments
On
July 11, 2019, the Company was officially notified by The Nasdaq Stock Market LLC (“Nasdaq”) 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 The Nasdaq Capital
Market 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. 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 such rule by January 7, 2020, we may be delisted
from The Nasdaq Capital Market. In the event of such notification, the Nasdaq rules
permit us an opportunity to appeal Nasdaq’s determination. In the event we are delisted from The
Nasdaq Capital Market, our Common Stock may lose liquidity, increase volatility, and lose market maker support.
On
January 8, 2020, we received a determination letter (the “Letter”) from the staff (the “Staff”) of Nasdaq
stating that the Company has not regained compliance with the MVLS Standard, since our Common Stock was below the $35 million
minimum MVLS requirement for continued listing on The Nasdaq Capital Market 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 the Company. Pursuant
to the Letter, unless the Company requested a hearing to appeal this determination by 4:00 p.m. Eastern Time on January 15, 2020,
the Company’s Common Stock will be delisted from The Nasdaq Capital Market, trading of the Company’s Common Stock
would be suspended at the opening of business on January 17, 2020, and a Form 25-NSE will be filed with the SEC, which will remove
the Company’s securities from listing and registration on The Nasdaq Capital Market.
On
January 13, 2020, the Company requested a hearing before the Nasdaq Hearings Panel (the “Panel”) to appeal the Letter
and the Staff of Nasdaq notified the Company that a hearing was scheduled for February 20, 2020 at 11:00 a.m. Eastern Time. The
Company was 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 the Company believes will enable it to timely regain compliance with the
minimum MLVS requirement. On January 21, 2020, the Company submitted a compliance plan that it believed was sufficient to permit
the Company to regain compliance with the minimum MLVS requirement. On February 20, 2020, the Company appeared before the Panel
to discuss its 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 the Nasdaq Capital Market maintain a minimum of $2,500,000 in stockholder’s equity. The Company is currently awaiting
the Panel’s decision after appearing at such hearing.
While
the appeal process is pending, the suspension of trading of the Company’s Common Stock is stayed, and the Company’s
Common Stock will continue to trade on The Nasdaq Capital Market until the hearing process concludes and the Panel issues a written
decision.
There
can be no assurance that the Panel will grant the Company’s request for a suspension of delisting or continued listing on
The Nasdaq Capital Market. However, in the event that this offering is successful and the Company is able to raise all of the
proceeds associated with this offering, the Company expects that it will be in compliance with Nasdaq Listing Rule 5550(b)(1).
In such event, the Company will be in compliance with Nasdaq’s continued listing standards, as required under Nasdaq Listing
Rule 5550(b). However, there can be no assurance that this offering will be successful and that the Company will be able to raise
adequate proceeds to enable it to regain compliance with Nasdaq’s continued listing standards. If the Company’s Common
Stock ceases to be listed for trading on The Nasdaq Capital Market, the Company would expect that its Common Stock would be traded
on one of the three tiered marketplaces of the OTC Markets Group.
THE
OFFERING
Shares
of Common Stock Offered
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We
are offering 2,521,740 shares of Common Stock.
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Common
Stock outstanding before this offering (1)
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13,505,170
shares of Common Stock, as of February 27, 2020.
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Common
Stock to be outstanding after this offering (1)
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16,026,910 shares
of Common Stock (based on a public offering price of $1.15 and assuming no exercise of the underwriters’ over-allotment
option).
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Over-allotment
option
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We
have granted the underwriters an option to purchase from us up to (i) 378,261 additional shares of our common stock
at the public offering price, less underwriting discounts and commissions, within 45 days from the date of this prospectus
supplement (provided that in no event may the aggregate market value of securities sold in the offering, including from the
over-allotment option, exceed the limitations set forth in Rule I.B.6 of Form S-3).
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Use
of proceeds
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We
intend to use the net proceeds of this offering for the repayment of debt as well as for general corporate purposes, including
for continued investments in our commercialization efforts. See “Use of Proceeds” herein.
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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-9 of this
prospectus for a discussion of factors to consider before deciding to invest in the units.
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Nasdaq
symbol
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DGLY
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(1)
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The
number of shares of our Common Stock outstanding prior to and to be outstanding immediately after this offering, as set forth
in the table above, is based on 13,505,170 outstanding as of February 27, 2020, and includes or excludes the following as
of such date:
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excludes
589,125 shares of our Common Stock issuable upon exercise of outstanding options with a weighted average exercise price of
$3.74 per share as of February 27, 2020;
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includes
770,000 shares of our Common Stock subject to forfeiture pursuant to outstanding non-vested Restricted Stock grants as of
February 27, 2020;
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excludes
99,136 shares of our Common Stock as of February 27, 2020 reserved for future issuance pursuant to our existing stock incentive
plans;
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excludes
4,860,323 shares of our Common Stock issuable upon exercise of warrants outstanding as of February 27, 2020, having a weighted
average exercise price of $5.12 per share;
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excludes
the issuance of up to 410,244 shares of our Common Stock issuable from time to time upon conversion of $574,341 principal
balance as of February 27, 2020 of outstanding 8% Senior Secured Convertible Promissory Notes issued on August 5, 2019; and
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excludes
63,518 shares of our Common Stock held as treasury stock as of February 27, 2020.
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RISK
FACTORS
Investing
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 before you decide to purchase 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. 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
21.0% 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.
In
the event that the mandatory prepayment provision under our 8% Senior Secured Convertible Promissory Notes due August 4, 2020
(each, a “Note,” and, collectively, the “Notes”) is triggered, servicing such debt will require a significant
amount of cash, and we may not have sufficient cash flow from our business to make payments on our debt, and such prepayment,
if triggered, may adversely affect our financial condition and operating results.
Our
ability to make scheduled payments of the principal of, to pay interest on or to refinance our indebtedness, including the Notes,
depends on our future performance, which is subject to economic, financial, competitive and other factors that may be beyond our
control. Our business may not continue to generate cash flow from operations in the future sufficient to service our debt and
make necessary capital expenditures. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives,
such as selling assets, restructuring debt or obtaining additional debt financing or equity capital on terms that may be onerous
or highly dilutive. Our ability to refinance our indebtedness will depend on the capital markets and our financial condition at
such time. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could
result in a default on our debt obligations, including the Notes. In addition, any of our future debt agreements may contain restrictive
covenants that may prohibit us from adopting any of these alternatives. Our failure to comply with these covenants could result
in an event of default which, if not cured or waived, could result in the acceleration of our debt.
If
we are not able to comply with the applicable continued listing requirements or standards of Nasdaq, Nasdaq could delist our Common
Stock.
Our
Common Stock is currently listed on The Nasdaq Capital Market. 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.
In
the event that our Common Stock is delisted from The Nasdaq Capital Market 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. On July 11, 2019, the Company was officially notified by The Nasdaq Stock Market LLC (“Nasdaq”) 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 The Nasdaq
Capital Market 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. 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 such rule by January 7, 2020, we
may be delisted from The Nasdaq Capital Market. In the event of such notification,
the Nasdaq rules permit us an opportunity to appeal Nasdaq’s determination. In the event we are delisted from The
Nasdaq Capital Market, our Common Stock may lose liquidity, increase volatility, and lose market maker support.
On
January 8, 2020, we received a determination letter (the “Letter”) from the staff (the “Staff”) of Nasdaq
stating that the Company has not regained compliance with the MVLS Standard, since our Common Stock was below the $35 million
minimum MVLS requirement for continued listing on The Nasdaq Capital Market 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 the Company. Pursuant
to the Letter, unless the Company requests a hearing to appeal this determination by 4:00 p.m. Eastern Time on January 15, 2020,
the Company’s Common Stock will be delisted from The Nasdaq Capital Market, trading of the Company’s Common Stock
will be suspended at the opening of business on January 17, 2020, and a Form 25-NSE will be filed with the SEC, which will remove
the Company’s securities from listing and registration on The Nasdaq Capital Market.
On
January 13, 2020, the Company requested a hearing before the Nasdaq Hearings Panel (the “Panel”) to appeal the Letter
and the Staff of Nasdaq notified the Company that a hearing was scheduled for February 20, 2020 at 11:00 a.m. Eastern Time. The
Company was 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 the Company believes will enable it to timely regain compliance with the
minimum MLVS requirement. On January 21, 2020, the Company submitted a compliance plan that it believed was sufficient to permit
the Company to regain compliance with the minimum MLVS requirement. On February 20, 2020, the Company appeared before the Panel
to discuss its 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 the Nasdaq Capital Market maintain a minimum of $2,500,000 in stockholder’s equity. The Company is currently awaiting
the Panel’s decision after appearing at such hearing.
While
the appeal process is pending, the suspension of trading of the Company’s Common Stock is stayed, and the Company’s
Common Stock will continue to trade on The Nasdaq Capital Market until the hearing process concludes and the Panel issues a written
decision.
There
can be no assurance that the Panel will grant the Company’s request for a suspension of delisting or continued listing on
The Nasdaq Capital Market. However, in the event that this offering is successful and the Company is able to raise all of the
proceeds associated with this offering, the Company expects that it will be in compliance with Nasdaq Listing Rule 5550(b)(1).
In such event, the Company will be in compliance with Nasdaq’s continued listing standards, as required under Nasdaq Listing
Rule 5550(b). However, there can be no assurance that this offering will be successful and that the Company will be able to raise
adequate proceeds to enable it to regain compliance with Nasdaq’s continued listing standards. If the Company’s Common
Stock ceases to be listed for trading on The Nasdaq Capital Market, the Company would expect that its Common Stock would be traded
on one of the three tiered marketplaces of the OTC Markets Group.
In
the event that our Common Stock is delisted from The Nasdaq Capital Market, 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 Securities Exchange Act of 1934, as amended (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.
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; and
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changes
in the market valuations of other comparable companies.
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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.
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
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 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.
Exercise
of options or warrants or conversion of other convertible securities 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 or conversion of some or all of our outstanding warrants or convertible securities 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 the date of this prospectus supplement, we have warrants outstanding to purchase 4,860,323 shares of Common Stock. The warrants
have a weighted average exercise price of $5.12 and a weighted average years to maturity of approximately 2.6 years. In
addition, we have options to purchase 589,125 shares of our Common Stock outstanding and exercisable at an average price of $3.74
per share.
In
addition to the dilutive effects described above, the exercise 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.
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 Nevada anti-takeover law (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 by-laws 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 by-laws 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 by-laws that are not in line with your concerns.
Subject
to applicable Nasdaq rules 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.
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 Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank
Act, the listing requirements of Nasdaq, 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 supplement, the accompanying base prospectus 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.
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 you paid in this offering, and you may not be able to sell your shares of our Common Stock at or above the price you paid,
or at all.
Risks
Related to the Offering
If
you purchase shares of Common Stock in this offering, you will incur immediate and substantial dilution in the as adjusted net
tangible book value of your investment.
The public offering price of the shares of
Common Stock will be substantially higher than the as adjusted net tangible book value per share of our Common Stock outstanding
immediately following the completion of this offering. Therefore, if you purchase shares of Common Stock in this offering at a
public offering price of $1.15 per share, you will experience immediate and substantial dilution of $1.23 per
share, or approximately 107% of the public offering price of such shares, which is the difference between the price per
share you pay for our Common Stock and our as adjusted net tangible book value per share as of September 30, 2019, after giving
effect to the issuance of shares of Common Stock in this offering. In addition, purchasers of the shares of Common Stock in this
offering will have contributed approximately 3% of the aggregate price paid by all purchasers of our Common Stock and will
own approximately 17% of our Common Stock outstanding after this offering, based on a public offering price of $1.15
per share. See “Dilution.”
As
a result of the dilution to investors purchasing shares in this offering, investors may receive significantly less than the purchase
price paid in this offering, if anything, in the event of a liquidation of our Company.
Purchasers
in this offering may experience additional dilution of their investment in the future.
Subject
to lock-up provisions described under “Underwriting,” 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. The issuance of securities may cause further dilution to our stockholders, including
investors in this offering. In order to raise additional capital, such securities may be at prices that are not the same as the
price per share in this offering. We cannot assure you that we will be able to sell shares or other securities in any other offering
at a price per share that is equal to or greater than the price per share paid by investors in this offering, and investors purchasing
shares or other securities in the future could have rights superior to existing stockholders, including investors who purchase
securities in this offering. The price per share at which we sell additional shares of our Common Stock or securities convertible
into Common Stock in future transactions may be higher or lower than the price per share in this offering. The exercise of outstanding
stock options or warrants and the vesting of outstanding restricted stock units may also result in further dilution of your investment.
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.
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 $83,961,635 at September 30, 2019, which includes our
net losses of $2,985,825 for the three months ended September 30, 2019, as compared to $4,665,580 for the three months ended September
30, 2018. 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.
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 $517,010 and $323,981 in research and development expenses
during the three months ended September 30, 2019 and 2018, 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.
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. See “Prospectus Summary” 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.
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.
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 license the critical technology on which our products are based from Sasken-Ingenient, Inc.
(“Sasken”) and Lead Technologies, Inc. (“Lead”) pursuant to license agreements. However, the technology
licensed from Sasken and Lead is critical because it is the basis of our current product design. We may choose to use other video
encoding and decoding technology in future products, thus lessening our dependence on our licenses with these companies.
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 in the U.S. District Court for the District of Kansas (Case No: 2:16-cv-02032) against
Axon, alleging willful patent infringement against Axon’s body camera product line and signal auto-activation product. The
Company is seeking both monetary damages and a permanent injunction against Axon for infringement of the ’452 Patent.
In
addition to the infringement claims, the Company brought claims alleging that Axon conspired to keep the Company out of the marketplace
by engaging in improper, unethical and unfair competition. The amended lawsuit alleges that Axon bribed officials and otherwise
conspired to secure no-bid contracts for its products in violation of both state law and federal antitrust law. The Company’s
lawsuit also seeks monetary and injunctive relief, including treble damages, for these alleged violations.
Axon
filed an answer, which denied the Company’s patent infringement allegations on April 1, 2016. In addition, Axon filed a
motion to dismiss all such allegations in the complaint on March 4, 2016, for which the Company filed an amended complaint on
March 18, 2016 to address certain technical deficiencies in the pleadings. The Company amended its complaint and Axon renewed
its motion to seek dismissal of the allegations that it had bribed officials and otherwise conspired to secure no-bid contracts
for its products in violation of both state law and federal antitrust law on April 1, 2016. Formal discovery commenced on April
12, 2016 with respect to the patent related claims. In January 2017, the District Court granted Axon’s motion to dismiss
the portion of the lawsuit regarding claims that it had bribed officials and otherwise conspired to secure no-bid contracts for
its products in violation of both state law and federal antitrust law. On May 2, 2018, the Federal Circuit Court affirmed the
District Court’s ruling relative to the antitrust portion of the lawsuit and on October 1, 2018 the Supreme Court denied
the Company’s petition for review.
In
December 2016 and January 2017, Axon filed two petitions for inter partes review (“IPR”) against the ’452 Patent.
The USPTO rejected both of Axon’s petitions. Axon is now statutorily precluded from filing any more IPR petitions against
the ’452 Patent.
The
District Court litigation in Kansas was temporarily stayed following the filing of the petitions for IPR. However, on November
17, 2017, the Federal District Court of Kansas rejected Axon’s request to maintain the stay. With this significant ruling,
the parties will now proceed towards trial. Since litigation has resumed, the Court has issued a claim construction order (also
called a Markman Order) where it sided with the Company on all disputes and denied Axon’s attempts to limit the scope of
the claims. Following the Markman Order, the Court set all remaining deadlines in the case. Fact discovery closed on October 8,
2018, and a Final Pretrial Conference took place on January 16, 2019. The parties filed motions for summary judgment on January
31, 2019, and the Court granted Axon’s motion for summary judgment in June 2019. The Company has appealed this decision
with the Court of Appeals for the Federal Circuit. The Company filed its Opening Appeal Brief on August 26, 2019 and Axon filed
its Responsive Brief on November 6, 2019. The Company filed its Reply Brief responding to Axon on November 27, 2019. The Company
expects oral arguments to occur in April 2020 and a decision later in the second or third quarter 2020.
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.
The
USPTO has granted multiple patents to the Company with claims covering numerous features, such as automatically activating all
deployed cameras in response to the activation of just one camera. Additionally, the Company’s patent claims cover automatic
coordination as well as digital synchronization between multiple recording devices. The Company also has patent coverage directed
to the coordination between a multi-camera system and an officer’s smartphone, which allows an officer to more readily assess
an event on the scene while an event is taking place or immediately after it has occurred.
The
Company’s lawsuit alleged that WatchGuard incorporated this patented technology into its VISTA Wifi and 4RE In-Car
product lines without the Company’s permission. Specifically, the Company accused WatchGuard of infringing three
patents: the U.S. Patent No. 8,781,292 (the “’292 Patent”, the ’452 Patent and U.S. Patent No.
9,325,950 (the “’950 Patent”). The Company aggressively challenged WatchGuard’s infringing conduct,
seeking both monetary damages, as well as seeking a permanent injunction preventing WatchGuard from continuing to sell its
VISTA Wifi and 4RE In-Car product lines using the Company’s own technology to compete against it. On May 8, 2017,
WatchGuard filed a petition seeking IPR of the ’950 Patent. The Company opposed that petition and on December 4, 2017,
The Patent Trial and Appeal Board (“PTAB”) rejected WatchGuard’s request to institute an IPR on the
’950 Patent. The lawsuit also involved the ’292 Patent and the ’452 Patent, the ’452 Patent being the
same patent involved in the Company’s claims asserted against Axon. The ’292 Patent previously was subject to the
IPR process with the USPTO, but in June 2018, the USPTO rejected Axon’s arguments and did not invalidate the ’292
Patent. WatchGuard had previously agreed to be bound by Axon’s IPRs and, as such, WatchGuard is now statutorily barred
from any further IPR challenges with respect to the ’950 Patent, ’452 Patent, and ’292 Patent. Since the
defeat of Axon’s ’292 Patent IPR, the Court has lifted the stay and set a schedule which had moved the case
towards trial. 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
resolution of the dispute centers includes the following key terms:
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WatchGuard
will pay the Company a one-time, lump sum settlement payment of $6 million.
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The
Company has granted WatchGuard a perpetual covenant not to sue if WatchGuard’s products incorporate agreed-upon modified
recording functionality.
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The
Company 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 the Company’s
patents.
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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.
Risks
related to our license arrangements.
We
have licensing agreements with Sasken and Lead regarding certain software used as the platform for the proprietary software we
have developed for use in our products. These licensing agreements have specified terms and are renewable on an annual basis unless
both parties determine not to renew them and provided the parties are in compliance with the agreements. If we fail to make the
payments under these licenses or if these licenses are not renewed for any reason, it would cause us significant time and expense
to redevelop our software on a different software platform, which would have a material adverse effect on our business, operating
results and financial condition.
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 “Prospectus Supplement Summary”
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 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 Certain Information 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 $2,622,001 (or $3,026,551 if the underwriters fully exercise their over-allotment option) after
deducting commissions and estimated offering expenses payable by us.
We
currently intend to use the net proceeds from this offering for the repayment of debt as well as for general corporate purposes,
including for continued investments in our commercialization efforts. We plan to use the proceeds of this offering, net of expenses,
to repay an aggregate of approximately $1,193,341 to holders of (i) outstanding convertible notes issued in August 2019, which
notes mature on August 4, 2020 and accrue interest on the aggregate unconverted and then outstanding principal amount at a rate
of 8% per annum, 12 months of which is guaranteed, (ii) a short-term promissory note issued on February 5, 2020, which matures
on April 17, 2020 and accrues interest at a rate of 6% per annum and (iii) two short-term promissory notes issued in December
2019 and January 2020, which mature in March 2020 and April 2020, respectively, and each accrue interest at a rate of 8% per annum.
The proceeds received in connection with such indebtedness was used for our general working capital purposes and to pay for the
expenses of the August 2019 offering. 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 represents our estimates 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:
|
●
|
the
existence of other opportunities or the need to take advantage of changes in timing of our existing activities;
|
|
|
|
|
●
|
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
|
|
|
|
|
●
|
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. Pending the application of
the net proceeds as described above, we will hold the net proceeds from this offering in short-term, interest-bearing, securities.
We
believe that the net proceeds of this offering, together with cash on hand, will be sufficient to fund our operations through
2020, and we believe that we will need to raise additional capital to fund our operations thereafter if warrant exercises for
cash do not materialize. 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, 2019 and on an adjusted
basis to give effect to the sale of the securities offered hereby and the use of proceeds, as described in the section entitled
“Use of Proceeds.”
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, 2019, which is incorporated by reference in this prospectus. The information below
has also been provided on an as adjusted basis to give further effect to this current offering.
The
as adjusted information set forth in the table below is illustrative only and will be adjusted based on the actual public offering
price and other terms of this offering determined at pricing.
|
|
As of September 30, 2019
|
|
|
|
Actual
|
|
|
As
Adjusted
|
|
Cash and cash equivalents
|
|
$
|
1,272,935
|
|
|
$
|
2,701,595
|
|
Long and short-term promissory notes payable
|
|
$
|
1,606,305
|
|
|
$
|
412,964
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, par value $0.001 per share; 50,000,000 shares authorized, 12,079,095 and 16,026,910 shares issued
and outstanding – actual as of September 30, 2019 and as adjusted
|
|
|
12,079
|
|
|
|
14,601
|
|
Additional paid-in capital
|
|
|
82,748,400
|
|
|
|
85,367,879
|
|
Treasury stock, 63,518 shares at cost
|
|
|
(2,157,226
|
)
|
|
|
(2,157,226
|
)
|
Accumulated deficit
|
|
|
(83,961,635
|
)
|
|
|
(83,961,635
|
)
|
Total stockholders’ equity/deficit
|
|
$
|
(3,358,382
|
)
|
|
$
|
(736,381
|
)
|
The as adjusted column above reflects our
sale of all shares of Common Stock in this offering at a public offering price of $1.15, resulting in gross proceeds of
$2,900,001 and net proceeds of $2,622,001, assuming no exercise of the underwriters’ over-allotment option
and after deducting underwriting discounts and commissions and other estimated offering expenses payable by us. The as adjusted
column assumes the application of the net proceeds as described in the Use of Proceeds section including the repayment of $1,193,341
of debt. The above discussion and table are based on 12,079,095 shares of Common Stock outstanding as of September 30, 2019
and includes or excludes the following:
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●
|
includes
the issuance of 2,521,740 shares of Common Stock in this offering at a public
offering price of $1.15, after deducting underwriting discounts and commissions
and other estimated offering expenses payable by us and assuming no exercise of the
underwriters’ over-allotment option;
|
|
|
|
|
●
|
excludes
589,125 shares of our Common Stock issuable upon exercise of outstanding options with a weighted average exercise price of
$3.74 per share as of September 30, 2019;
|
|
|
|
|
●
|
includes
891,100 shares of our Common Stock subject to forfeiture pursuant to outstanding non-vested Restricted Stock grants as of
September 30, 2019;
|
|
|
|
|
●
|
excludes
629,186 shares of our Common Stock as of September 30, 2019 reserved for future issuance pursuant to our existing stock incentive
plans;
|
|
|
|
|
●
|
excludes
4,717,573 shares of our Common Stock issuable upon exercise of warrants outstanding as of September 30, 2019 having a weighted
average exercise price of $5.23 per share;
|
|
|
|
|
●
|
excludes
the issuance of up to 1,521,222 shares of our Common Stock issuable from time to time upon conversion of $2,129,711 principal
balance as of September 30, 2019 of outstanding 8% Senior Secured Convertible Promissory Notes issued on August 5, 2019; and
|
|
|
|
|
●
|
excludes
63,518 shares of our Common Stock held as treasury stock, as of September 30, 2019.
|
DILUTION
A
purchaser of our securities in this offering will be diluted to the extent of the difference between the price you pay 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, 2019 was approximately $(3,793,315), or $(0.31) 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 12,079,095 shares of Common Stock
outstanding at September 30, 2019.
After giving effect to our sale in this offering
of 2,521,740 shares of Common Stock offered by this prospectus supplement and after
deducting the estimated underwriting discount, commissions and our estimated offering expenses, our as adjusted net tangible book
value as of September 30, 2019 would have been approximately $(0.08) or
approximately $(1,171,314) per share. This represents an immediate increase in net tangible book value of approximately
$0.23 per share to our existing stockholders and an immediate dilution
in as adjusted net tangible book value of approximately $1.23 per share to purchasers of our Common Stock in this offering,
as illustrated by the following table:
Public offering price per share of Common Stock
|
|
$
|
1.15
|
|
Historical net tangible book value per share at September 30, 2019
|
|
$
|
(0.31
|
)
|
Increase per share attributable to investors in this offering
|
|
$
|
0.23
|
|
Net tangible book value per share, as adjusted to give effect to this offering
|
|
$
|
(0.08
|
)
|
Dilution per share to investors in this offering
|
|
$
|
1.23
|
|
The
information above is illustrative only and will change based on actual pricing and other terms of this offering determined at
pricing.
The
above discussion and table are based on 12,079,095 shares of Common Stock outstanding as of September 30, 2019 and includes or
excludes the following:
|
●
|
includes
the issuance of 2,521,740 shares of Common Stock in this offering at a public offering price of $1.15;
|
|
|
|
|
●
|
excludes
589,125 shares of our Common Stock issuable upon exercise of outstanding options with a weighted average exercise price of
$3.74 per share as of September 30, 2019;
|
|
|
|
|
●
|
includes
891,100 shares of our Common Stock subject to forfeiture pursuant to outstanding non-vested Restricted Stock grants as of
September 30, 2019;
|
|
|
|
|
●
|
excludes
629,186 shares of our Common Stock as of September 30, 2019 reserved for future issuance pursuant to our existing stock incentive
plans;
|
|
|
|
|
●
|
excludes
4,717,573 shares of our Common Stock issuable upon exercise of warrants outstanding as of September 30, 2019 having a weighted
average exercise price of $5.23 per share;
|
|
|
|
|
●
|
excludes
the issuance of up to 1,521,222 shares of our Common Stock issuable from time to time upon conversion of $2,129,711 principal
balance of outstanding 8% Senior Secured Convertible Promissory Notes issued on August 5, 2019; and
|
|
|
|
|
●
|
excludes
63,518 shares of our Common Stock held as treasury stock, as of September 30, 2019.
|
To
the extent that outstanding options or warrants are converted or exercised, you could experience further dilution. In addition,
we may choose to raise additional capital due to market conditions or strategic considerations even if we believe we have sufficient
funds for our current or future operating plans. To the extent that additional capital is raised through the sale of additional
equity, the issuance of these shares 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 50,000,000 shares of Common Stock, $0.001 par value per share. As of February 27, 2020, we had
13.505,170 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.”
Options
and Warrants
As
of February 27, 2020, there were outstanding Common Stock options entitling the holders to purchase 589,125 shares of Common Stock
at a weighted average exercise price of $3.74 per share with a weighted average remaining contractual life of 7.1 years and warrants
entitling the holders to purchase up to 4,860,323 shares of Common Stock at a weighted average exercise price of $5.12 per share
with a weighted average remaining contractual life of 2.6 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.
UNDERWRITING
Aegis
Capital Corp. is acting as the representative of the underwriters of the offering. We have entered into an underwriting agreement
dated February 27, 2020 with the representative. Subject to the terms and conditions of the underwriting agreement, we
have agreed to sell to the underwriters named below and the underwriters named below have severally agreed to purchase, at the
public offering price less the underwriting discounts and commissions set forth on the cover page of this prospectus, the following
respective number of shares of our common stock:
Underwriter
|
|
Number of Shares
|
|
Aegis Capital Corp.
|
|
|
2,521,740
|
|
The
underwriters are committed to purchase all the shares of common stock offered by us other than those covered by the option to
purchase additional shares described below, if they purchase any shares. The obligations of the underwriters may be terminated
upon the occurrence of certain events specified in the underwriting agreement. Furthermore, pursuant to the underwriting agreement,
the underwriters’ obligations are subject to customary conditions, representations and warranties contained in the underwriting
agreement, such as receipt by the underwriters of officers’ certificates and legal opinions.
We
have agreed to indemnify the underwriters against specified liabilities, including liabilities under the Securities Act of 1933,
as amended, and to contribute to payments the underwriters may be required to make in respect thereof.
The
underwriters are offering the common stock, subject to prior sale, when, as and if issued to and accepted by them, subject to
approval of legal matters by their counsel and other conditions specified in the underwriting agreement. The underwriters reserve
the right to withdraw, cancel or modify offers to the public and to reject orders in whole or in part.
The
underwriters propose to offer the common stock offered by us to the public at the public offering price set forth on the cover
of this prospectus supplement. In addition, the underwriters may offer some of the common stock to other securities dealers at
such price less a concession of $0.0483 per share. After the initial offering, the public offering price and concession
to dealers may be changed.
We
have granted the underwriters an over-allotment option. This option, which is exercisable for up to 45 days after the date of
this prospectus, permits the underwriters to purchase a maximum of 378,261 additional shares of common stock from us to
cover over-allotments. If the underwriters exercise all or part of this option, they will purchase shares of common stock covered
by the option at the public offering price that appears on the cover page of this prospectus supplement, less the underwriting
discount. If this option is exercised in full, the total price to the public will be $3,335,001 and the total proceeds
to us will be $3,068,201.
Discounts
and Commissions. The following table shows the public offering price, underwriting discount and proceeds, before expenses,
to us. The information assumes either no exercise or full exercise by the underwriters of their over-allotment option.
|
|
|
|
|
Total
|
|
|
|
Per Share
|
|
|
Without
Over-Allotment
|
|
|
With Over-Allotment
|
|
Public offering price
|
|
$
|
1.15
|
|
|
$
|
2,900,001
|
|
|
$
|
3,335,001.15
|
|
Underwriting discount (7%)
|
|
$
|
0.0805
|
|
|
$
|
203,000.07
|
|
|
$
|
233,450.0805
|
|
Non-allocable expense allowance (1%)
|
|
$
|
0.01
|
|
|
$
|
29,000
|
|
|
$
|
33,350
|
|
Proceeds, before expenses, to us
|
|
$
|
1.058
|
|
|
$
|
2,668,000.93
|
|
|
$
|
3,068,201.07
|
|
In addition, we have agreed to pay the
representative of the underwriters a non-accountable expense reimbursement of 1% of the gross proceeds received at the closing
of the offering. We have also agreed to pay all
expenses relating to the offering, including (a) all filing fees and expenses relating to the registration of the shares to be
sold in the offering (including shares sold upon exercise of the underwriters’ over-allotment option) with the Securities
and Exchange Commission; (b) all fees associated with the review of the offering by FINRA and all fees and expenses relating to
the listing of such shares on the NASDAQ Capital Market; (c) all fees, expenses and disbursements relating to the registration,
qualification or exemption of securities offered under the “blue sky” securities laws designated by the underwriters;
(d) all fees, expenses and disbursements relating to the registration, qualification or exemption of securities offered under
the securities laws of foreign jurisdictions designated by the underwriters; (e) transfer and/or stamp taxes, if any, payable
upon the transfer of the shares from the Company to the representative; (f) fees and expenses of our legal counsel and accountants;
and (g) “road show” expenses, diligence fees and the fees and expenses of the representative’s legal counsel
not to exceed $50,000.
We
estimate that the total expenses of the offering, excluding the underwriting discount, will be approximately $75,000.
Discretionary
Accounts. The underwriters do not intend to confirm sales of the securities offered hereby to any accounts over which they
have discretionary authority.
Lock-Up
Agreements. Pursuant to certain “lock-up” agreements, (a) our executive officers and directors as of the pricing
date of the offering, have agreed, subject to certain exceptions, not to offer, issue, sell, contract to sell, encumber, grant
any option for the sale of or otherwise dispose of any securities of the company without the prior written consent of the representative,
for a period of 45 days from the date of the offering, and (b) we, and any successor, have agreed, subject to certain exceptions,
not to for a period of 45 days from the date of the pricing of the offering (1) offer, sell or otherwise transfer or dispose
of, directly or indirectly, any shares of capital stock of the Company or (2) file or caused to be filed any registration statement
with the SEC relating to the offering of any shares of our capital stock or any securities convertible into or exercisable or
exchangeable for shares of our capital stock.
This
lock-up provision applies to common stock and to securities convertible into or exchangeable or exercisable for common stock.
It also applies to common stock owned now or acquired later by the person executing the agreement or for which the person executing
the agreement later acquires the power of disposition. The exceptions permit, among other things and subject to restrictions,
the issuance of common stock upon the exercise of outstanding stock options and warrants or other outstanding convertible securities.
Electronic
Offer, Sale and Distribution of Shares. A prospectus supplement in electronic format may be made available on the websites
maintained by one or more of the underwriters or selling group members, if any, participating in this offering and one or more
of the underwriters participating in this offering may distribute prospectus supplements electronically. The representative may
agree to allocate a number of shares to underwriters and selling group members for sale to their online brokerage account holders.
Internet distributions will be allocated by the underwriters and selling group members that will make internet distributions on
the same basis as other allocations. Other than the prospectus supplement in electronic format, the information on these websites
is not part of this prospectus supplement or the registration statement of which this prospectus supplement forms a part, has
not been approved or endorsed by us or any underwriter in its capacity as underwriter, and should not be relied upon by investors.
Other
Relationships. Certain of the underwriters and their affiliates may in the future provide various investment banking, commercial
banking and other financial services for us and our affiliates for which they may receive customary fees; however, except as disclosed
in this prospectus supplement, we have no present arrangements with any of the underwriters for any further services.
Stabilization.
In connection with this offering, the underwriters may engage in stabilizing transactions, overallotment transactions, syndicate
covering transactions, penalty bids and purchases to cover positions created by short sales.
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Stabilizing
transactions permit bids to purchase shares so long as the stabilizing bids do not exceed a specified maximum, and are engaged
in for the purpose of preventing or retarding a decline in the market price of the shares while the offering is in progress.
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Overallotment
transactions involve sales by the underwriters of shares in excess of the number of shares the underwriters are obligated
to purchase. This creates a syndicate short position which may be either a covered short position or a naked short position.
In a covered short position, the number of shares over-allotted by the underwriters is not greater than the number of shares
that they may purchase in the overallotment option. In a naked short position, the number of shares involved is greater than
the number of shares in the overallotment option. The underwriters may close out any short position by exercising their overallotment
option and/or purchasing shares in the open market.
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Syndicate
covering transactions involve purchases of shares in the open market after the distribution has been completed in order to
cover syndicate short positions. In determining the source of shares to close out the short position, the underwriters will
consider, among other things, the price of shares available for purchase in the open market as compared with the price at
which they may purchase shares through exercise of the overallotment option. If the underwriters sell more shares than could
be covered by exercise of the overallotment option and, therefore, have a naked short position, the position can be closed
out only by buying shares in the open market. A naked short position is more likely to be created if the underwriters are
concerned that after pricing there could be downward pressure on the price of the shares in the open market that could adversely
affect investors who purchase in the offering.
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Penalty
bids permit the representative to reclaim a selling concession from a syndicate member when the shares originally sold by
that syndicate member are purchased in stabilizing or syndicate covering transactions to cover syndicate short positions.
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These
stabilizing transactions, syndicate covering transactions and penalty bids may have the effect of raising or maintaining the market
price of our shares or common stock or preventing or retarding a decline in the market price of our shares or common stock. As
a result, the price of our common stock in the open market may be higher than it would otherwise be in the absence of these transactions.
Neither we nor the underwriters make any representation or prediction as to the effect that the transactions described above may
have on the price of our common stock. These transactions may be effected on the NASDAQ Capital Market.
Passive
market making. In connection with this offering, underwriters and selling group members may engage in passive market making
transactions in our common stock in accordance with Rule 103 of Regulation M under the Exchange Act, during a period before the
commencement of offers or sales of the shares and extending through the completion of the distribution. A passive market maker
must display its bid at a price not in excess of the highest independent bid of that security. However, if all independent bids
are lowered below the passive market maker’s bid, that bid must then be lowered when specified purchase limits are exceeded.
Offer
restrictions outside the United States
Other
than in the United States, no action has been taken by us or the underwriters that would permit a public offering of the securities
offered by this prospectus supplement in any jurisdiction where action for that purpose is required. The securities offered by
this prospectus supplement may not be offered or sold, directly or indirectly, nor may this prospectus supplement or any other
offering material or advertisements in connection with the offer and sale of any such securities be distributed or published in
any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of that
jurisdiction. Persons into whose possession this prospectus supplement comes are advised to inform themselves about and to observe
any restrictions relating to the offering and the distribution of this prospectus supplement. This prospectus supplement does
not constitute an offer to sell or a solicitation of an offer to buy any securities offered by this prospectus supplement in any
jurisdiction in which such an offer or a solicitation is unlawful.
Listing
Our
common stock is listed on the NASDAQ Capital Market 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.
Sichenzia Ross Ference LLP, New York, New York, is acting as counsel for the underwriters in connection with certain legal matters
in connection with this offering.
EXPERTS
The
consolidated financial statements of Digital Ally, Inc. as of December 31, 2018 and 2017 and for each of the years in the two-year
period ended December 31, 2018 incorporated in this prospectus supplement by reference from the Digital Ally, Inc. Annual Report
on Form 10-K for the year ended December 31, 2018 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 prospectus supplement,
accompanying base prospectus and registration statement 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. You may read, without charge,
and copy the documents we file at the SEC’s public reference room at 100 F Street, NE, Room 1580, Washington, D.C. 20549.
You can request copies of these documents by writing to the SEC and paying a fee for the copying cost. Please call the SEC at
1-800-SEC-0330 for further information on the public reference room. Our SEC filings are also 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
prospectus or such documents.
INCORPORATION
OF CERTAIN INFORMATION 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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Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC on March 29, 2019;
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Quarterly Report on Form 10-Q for the quarter ended March 31, 2019, filed with the SEC on May 15, 2019;
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our
Quarterly Report on Form 10-Q for the quarter ended June 30, 2019, filed with the SEC on August 14, 2019;
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our
Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, filed with the SEC on November 14, 2019;
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Our
Definitive Proxy Statement on Schedule 14A for our annual meeting of stockholders held on May 21, 2019, filed with the SEC
on April 1, 2019, as supplemented by Definitive Additional Materials, filed with the SEC on April 4, 2019; and
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our
Current Reports on Form 8-K filed with the SEC on January 4, 2019, March 29, 2019, May 15, 2019, May 24, 2019, June 21, 2019,
July 16, 2019, August 5, 2019, August 14, 2019, November 14, 2019, January 9, 2020 and January 14, 2020.
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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.
Digital
Ally, Inc.
2,521,740
Shares of Common Stock
February
27, 2020
PROSPECTUS
DIGITAL
ALLY, INC.
$25,000,000
Shares
of Common Stock
Warrants
Debt
Securities
Convertible
Debt Securities
Rights
Units
We
may offer to the public from time to time in one or more series or issuances at prices and on terms that we will determine at
the time of each offering, shares of our common stock, warrants to purchase shares of our common stock, debt securities, convertible
debt securities, rights and/or units consisting of a combination of the foregoing securities, or any combination of these securities.
The aggregate initial offering price of all securities sold by us pursuant to this prospectus will not exceed $25,000,000.
This
prospectus describes the general manner in which our securities may be offered using this prospectus. Each time we offer and sell
securities, we will provide you with a prospectus supplement that will contain specific information about the terms of that offering.
Any prospectus supplement may also add, update, or change information contained in this prospectus. You should carefully read
this prospectus and the applicable prospectus supplement as well as the documents incorporated or deemed to be incorporated by
reference in this prospectus before you purchase any of the securities offered hereby. This prospectus may not be used to offer
and sell securities unless accompanied by a prospectus supplement.
We
may offer the securities directly or through agents or to or through underwriters or dealers. If any agents or underwriters are
involved in the sale of the securities their names, and any applicable purchase price, fee, commission or discount arrangement
between or among them, will be set forth, or will be calculable from the information set forth, in an accompanying prospectus
supplement. The securities may be offered and sold through public or private transactions at market prices prevailing at the time
of sale, at a fixed price or fixed prices, at negotiated prices, at various prices determined at the time of sale or at prices
related to prevailing market prices. We can sell the securities through agents, underwriters or dealers only with delivery of
a prospectus supplement describing the method and terms of the offering of such securities. In addition, shares of our common
stock may be offered from time to time through ordinary brokerage transactions on the Nasdaq Capital Market. See “Plan of
Distribution.”
Before
purchasing any of the shares covered by this prospectus, carefully read and consider the risk factors in the section entitled
“Risk Factors.”
Our common stock is currently quoted on the
Nasdaq Capital Market under the symbol “DGLY.” On June 7, 2018 the last reported sales price of our common stock was
$2.55 per share.
Investing
in our common stock involves a high degree of risk. You should carefully consider the matters discussed under the section entitled
“Risk Factors” in this prospectus and included in our periodic reports and other information filed with the Securities
and Exchange Commission before investing in our common stock.
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.
The date of this Prospectus is June 7, 2018
TABLE
OF CONTENTS
The
registration statement, including the exhibits and the documents incorporated herein by reference, can be read on the Securities
and Exchange Commission website are at the Securities and Exchange Commission offices mentioned under the heading “Where
You Can Find More Information.”
Until
____________, all dealers that effect transactions in these securities, whether or not participating in this offering, may be
required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
About
this Prospectus
You
should rely only on the information contained or incorporated by reference in this prospectus. We have not authorized anyone 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 these securities and it is not soliciting an offer to buy these securities in any
jurisdiction where the offer or sale is not permitted. You should not assume that the information in this prospectus is accurate
as of any date other than the date on the front cover of this prospectus. You should not assume that the information incorporated
by reference in this prospectus is accurate as of any date other than the date the respective information was filed with the Securities
and Exchange Commission. Our business, financial condition, results of operations and prospects may have changed since those dates.
This
prospectus is part of a registration statement that we filed with the Securities and Exchange Commission, or SEC, using a “shelf”
registration process. Under this shelf registration process, we may sell any of the securities, or any combination of the securities,
described in this prospectus, in each case in one of more offerings up to a total dollar amount of proceeds of $25,000,000. This
prospectus describes the general manner in which our securities may be offered by this prospectus. Each time we sell securities,
we will provide a prospectus supplement that will contain specific information about the terms of those securities and terms of
that offering. The prospectus supplement may also add, update or change information contained in this prospectus or in documents
incorporated by reference in this prospectus. To the extent that any statement that we make in a prospectus supplement is inconsistent
with statements made in this prospectus or in documents incorporated by reference in this prospectus, you should rely on the information
in the prospectus supplement. You should carefully read both this prospectus and any prospectus supplement together with the additional
information described under “Where You Can Find More Information” before buying any securities in this offering.
As of June 7, 2018, the aggregate market value
of our outstanding common stock held by non-affiliates, or public float, was approximately $14.95 million based on 7,152,607
total shares of outstanding common stock, at a price of $2.55 per share, which was the last reported sale price of our
common stock on the Nasdaq Capital Market on June 7, 2018. We have offered approximately $3.8 million of securities pursuant
to General Instruction I.B.6. of Form S-3 during the prior 12 calendar month period that ends on and includes the date of this
prospectus. Pursuant to General Instruction I.B.6. of Form S-3, in no event will we sell securities registered on this registration
statement in a public primary offering with a value exceeding more than one-third of our public float in any 12-month period so
long as our public float remains below $75.0 million.
Offerings Under This Prospectus
Under this prospectus,
we may offer shares of our common stock and preferred stock, various series of debt securities and/or warrants or rights to purchase
any of such securities, either individually or in units, with a total value of up to $25,000,000, from time to time at
prices and on terms to be determined by market conditions at the time of the offering. This prospectus provides you with a general
description of the securities we may offer. Each time we offer a type or series of securities under this prospectus, we will provide
a prospectus supplement that will describe the specific amounts, prices and other important terms of the securities, including,
to the extent applicable:
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or classification;
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aggregate
principal amount or aggregate offering price;
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maturity,
if applicable;
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rates
and times of payment of interest or dividends, if any;
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redemption,
conversion or sinking fund terms, if any;
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voting
or other rights, if any; and
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conversion
or exercise prices, if any.
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The
prospectus supplement also may add, update or change information contained in this prospectus or in documents we have incorporated
by reference into this prospectus. However, no prospectus supplement will fundamentally change the terms that are set forth in
this prospectus or offer a security that is not registered and described in this prospectus at the time of its effectiveness.
We
may sell the securities directly to investors or to or through agents, underwriters or dealers. We, and our agents or underwriters,
reserve the right to accept or reject all or part of any proposed purchase of securities. If we offer securities through agents
or underwriters, we will include in the applicable prospectus supplement:
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the
names of those agents or underwriters;
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applicable
fees, discounts and commissions to be paid to them;
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details
regarding over-allotment options, if any; and
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the
net proceeds to us.
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This
prospectus may not be used to consummate a sale of any securities unless it is accompanied by a prospectus supplement.
PROSPECTUS
SUMMARY
This
summary highlights information contained elsewhere in or incorporated by reference into this prospectus. Because this summary
provides only a brief overview of the key aspects of the offering, it does not contain all of the information that you should
consider before investing in our common stock. You should read the entire prospectus carefully, including “Risk
Factors,” and “Cautionary Note Regarding Forward-Looking Statements” and the documents incorporated by
reference, which are described under “Incorporation of Certain Information by Reference” before making
an investment decision. As used in this prospectus, unless otherwise indicated, “we,”
“our,” “us” or similar terms refer collectively to Digital Ally, Inc.
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 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 including cloud-based fleet management and driver monitoring/training applications.
We have active research and development programs to adapt our technologies to other applications. We have the ability to 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, taxi cab and the military. We sell our products to law enforcement
agencies and other security organizations, and consumer and commercial fleet operators through direct sales domestically and third-party
distributors internationally. We have several new and derivative products in research and development that we anticipate will
begin commercial production during the second half of 2018.
Principal
Executive Offices and Additional Information
Our
executive offices are located at 9705 Loiret Boulevard, Lenexa, Kansas 66219, and our telephone number is (913) 814-7774. Our
website address is www.digitalallyinc.com. Information contained on our website does not form part of this prospectus and
is intended for informational purposes only.
RISK
FACTORS
Investing
in our securities involves significant risk. The prospectus supplement applicable to each offering of our securities will contain
a discussion of the risks applicable to an investment in Digital Ally, Inc. Prior to making a decision about investing in our
securities, you should carefully consider the specific factors discussed under the heading “Risk Factors” in the applicable
prospectus supplement, together with all of the other information contained or incorporated by reference in the prospectus supplement
or appearing or incorporated by reference in this prospectus. You should also consider the risks, uncertainties and assumptions
discussed under the heading “Risk Factors” included in our most recent annual report on Form 10-K, as revised or supplemented
by our subsequent quarterly reports on Form 10-Q or our Registration Statement on Form S-1 dated May 23, 2018, or our current
reports on Form 8-K that we have filed with the SEC, all of which are incorporated herein by reference, and which may be amended,
supplemented or superseded from time to time by other reports we file with the SEC in the future. The risks and uncertainties
we have described are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently
deem immaterial may also affect our operations. The occurrence of any of these risks might cause you to lose all or part of your
investment in the offered securities.
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
prospectus, including the sections entitled “Risk Factors”, “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and “Business”, contain forward-looking statements that include information
relating to future events, future financial performance, strategies, expectations, our competitive environment, regulation and
availability of resources. These forward-looking statements include, without limitation, statements regarding: proposed new products
or services; our 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; 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 similar expressions, as well as similar statements in the future tense,
identify 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.
Factors
that could cause or contribute to our actual results differing materially from those discussed herein or for our stock price
to be adversely affected include, but are not limited to: (1) our losses in recent years, including fiscal 2017 and 2016, and
our ability to pay the Notes, June Notes (as defined below) and Secured Note (as defined below) when due; (2) macro-economic
risks from the effects of the decrease in budgets for the law-enforcement community; (3) our ability to increase revenues,
increase our margins and return to consistent profitability in the current economic and competitive environment, including
whether deliveries will resume under the AMR contract; (4) our operation in developing markets and uncertainty as to market
acceptance of our technology and new products; (5) the availability of funding from federal, state and local governments to
facilitate the budgets of law enforcement agencies, including the timing, amount and restrictions on such funding; (6) our
ability to deliver our new product offerings as scheduled in 2018 and have such new products perform as planned or
advertised; (7) whether we will be able to increase the sales, domestically and internationally, for our products, and the
degree to which the interest shown in our products, including the DVM-800 HD, FirstVU HD, VuLink, VuVault.net, FleetVU and
MicroVU HD, in 2018; (8) our ability to maintain or expand our share of the market for our products in the domestic and
international markets in which we compete, including increasing our international revenues to their historical levels; (9)
our ability to produce our products in a cost-effective manner; (10) competition from larger, more established companies with
far greater economic and human resources; (11) our ability to attract and retain quality employees; (12) risks related to
dealing with governmental entities as customers; (13) our expenditure of significant resources in anticipation of sales due
to our lengthy sales cycle and the potential to receive no revenue in return; (14) characterization of our market by new
products and rapid technological change; (15) our dependence on sales of our DVM-800, DVM-800 HD, FirstVU, First VU HD and
DVM-250 products; (16) potential that stockholders may lose all or part of their investment if we are unable to compete in
our markets and return to profitability; (17) defects in our products that could impair our ability to sell our products or
could result in litigation and other significant costs; (18) our dependence on key personnel; (19) our reliance on
third-party distributors and sales representatives for part of our marketing capability; (20) our dependence on a few
manufacturers and suppliers for components of our products and our dependence on domestic and foreign manufacturers for
certain of our products; (21) our ability to protect technology through patents and to protect our proprietary technology and
information as trade secrets and through other similar means; (22) our ability to generate more recurring cloud and service
revenues; (23) risks related to our license arrangements; (24) our revenues and operating results may fluctuate unexpectedly
from quarter to quarter; (25) sufficient voting power by coalitions of a few of our larger stockholders, including directors
and officers, to make corporate governance decisions that could have significant effect on us and the other stockholders;
(26) sale of substantial amounts of our Common Stock that may have a depressive effect on the market price of the outstanding
shares of our Common Stock; (27) possible issuance of Common Stock subject to options and warrants that may dilute the
interest of stockholders; (28) our nonpayment of dividends and lack of plans to pay dividends in the future; (29) future sale
of a substantial number of shares of our Common Stock that could depress the trading price of our Common Stock, lower our
value and make it more difficult for us to raise capital; (30) our additional securities available for issuance, which, if
issued, could adversely affect the rights of the holders of our Common Stock; (31) our stock price is likely to be highly
volatile due to a number of factors, including a relatively limited public float; (32) whether the legal actions that the
Company is taking or has taken against Utility Associates, Axon and WatchGuard will achieve their intended objectives; (33)
whether the USPTO rulings will curtail, eliminate or otherwise have an effect on the actions of Axon Enterprises, Inc. (
“Axon” - formerly known as Taser International, Inc.) and Enforcement Video, LLC dba WatchGuard Video
(“Watchguard”) and Utility Associates respecting us, our products and customers; (34) whether the
remaining two claims under the U.S. Patent No. 6,831,556 (the “ ‘556 Patent”) have applicability to
us or our products; and (35) whether our patented VuLink technology is becoming the de-facto “standard”
for agencies engaged in deploying state-of-the-art body-worn and in-car camera systems; (36) the
United States Patent and Trademark Office (the “USPTO”) decision on WatchGuard’s petition
seeking Inter Partes Review (“IPR”) of the U.S. Patent No. 8,781,292 (‘292 Patent); (37)
whether such technology will have a significant impact on our revenues in the long-term; and (38) indemnification of our
officers and directors.
USE
OF PROCEEDS
Unless
otherwise specified in a prospectus supplement accompanying this prospectus, we expect to use the net proceeds from the sale of
our securities for general corporate purposes, which may include, among other things, the financing of capital expenditures, refinancings
or recapitalization transactions, acquisitions and additions to our working capital. The actual application of proceeds from the
sale of any particular tranche of securities issued hereunder will be described in the applicable prospectus supplement relating
to such tranche of securities. Until we use the net proceeds from the sale of securities for these purposes, we may place the
net proceeds in temporary investments.
We
will retain broad discretion over the use of the net proceeds from the sale of our securities offered by us hereby. Except as
described in any prospectus supplement, we currently intend to use the net proceeds from the sale of securities offered by us
pursuant to this prospectus for working capital, capital expenditures, investments in our subsidiaries, and other general corporate
purposes. We may also use such proceeds to fund acquisitions of businesses, technologies or product lines that complement our
current business or expand our business into new areas. However, we currently have no commitments or agreements for any specific
acquisitions. Pending application of the net proceeds, we intend to invest the net proceeds of the offering of securities by us
in investment-grade, interest-bearing securities.
The
intended application of 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.
See
“Plan of Distribution” elsewhere in this prospectus for more information.
RATIO
OF EARNINGS TO FIXED CHARGES
If
we offer debt securities under this prospectus, then we will, if required at the time, provide a ratio of earnings to fixed charges
in the applicable prospectus supplement for such offering.
PLAN
OF DISTRIBUTION
We
may sell the securities offered through this prospectus (i) to or through underwriters or dealers, (ii) directly to purchasers,
including our affiliates, (iii) through agents, or (iv) through a combination of any these methods. The securities may be distributed
at a fixed price or prices, which may be changed, market prices prevailing at the time of sale, prices related to the prevailing
market prices, or negotiated prices. The prospectus supplement will include the following information:
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the
terms of the offering;
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the
names of any underwriters or agents;
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the
name or names of any managing underwriter or underwriters;
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the
purchase price of the securities;
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any
over-allotment options under which underwriters may purchase additional securities from us;
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the
net proceeds from the sale of the securities;
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any
delayed delivery arrangements;
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any
underwriting discounts, commissions and other items constituting underwriters’ compensation;
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any
initial public offering price;
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any
discounts or concessions allowed or reallowed or paid to dealers;
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any
commissions paid to agents; and
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any
securities exchange or market on which the securities may be listed.
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Sale
Through Underwriters or Dealers
Only
underwriters named in the prospectus supplement are underwriters of the securities offered by the prospectus supplement.
If
underwriters are used in the sale, the underwriters will acquire the securities for their own account, including through underwriting,
purchase, security lending or repurchase agreements with us. The underwriters may resell the securities from time to time in one
or more transactions, including negotiated transactions. Underwriters may sell the securities in order to facilitate transactions
in any of our other securities (described in this prospectus or otherwise), including other public or private transactions and
short sales. Underwriters may offer securities to the public either through underwriting syndicates represented by one or more
managing underwriters or directly by one or more firms acting as underwriters. Unless otherwise indicated in the prospectus supplement,
the obligations of the underwriters to purchase the securities will be subject to certain conditions, and the underwriters will
be obligated to purchase all the offered securities if they purchase any of them. The underwriters may change from time to time
any initial public offering price and any discounts or concessions allowed or reallowed or paid to dealers.
If
dealers are used in the sale of securities offered through this prospectus, we will sell the securities to them as principals.
They may then resell those securities to the public at varying prices determined by the dealers at the time of resale. The prospectus
supplement will include the names of the dealers and the terms of the transaction.
The
maximum compensation or discount to be received by any FINRA member or independent broker-dealer will not be greater than 8% for
the sale of any securities being registered hereunder pursuant to Rule 415 of the Securities Act.
Direct
Sales and Sales Through Agents
We
may sell the securities offered through this prospectus directly. In this case, no underwriters or agents would be involved. Such
securities may also be sold through agents designated from time to time. The prospectus supplement will name any agent involved
in the offer or sale of the offered securities and will describe any commissions payable to the agent. Unless otherwise indicated
in the prospectus supplement, any agent will agree to use its reasonable best efforts to solicit purchases for the period of its
appointment.
We
may sell the securities directly to institutional investors or others who may be deemed to be underwriters within the meaning
of the Securities Act with respect to any sale of those securities. The terms of any such sales will be described in the prospectus
supplement.
Delayed
Delivery Contracts
If
the prospectus supplement indicates, we may authorize agents, underwriters or dealers to solicit offers from certain types of
institutions to purchase securities at the public offering price under delayed delivery contracts. These contracts would provide
for payment and delivery on a specified date in the future. The contracts would be subject only to those conditions described
in the prospectus supplement. The applicable prospectus supplement will describe the commission payable for solicitation of those
contracts.
Market
Making, Stabilization and Other Transactions
We
may elect to list offered securities on an exchange or in the over-the-counter market. Any underwriters that we use in the sale
of offered securities may make a market in such securities, but may discontinue such market making at any time without notice.
Therefore, we cannot assure you that the securities will have a liquid trading market.
Certain
persons participating in an offering may engage in over allotment, stabilizing transactions, syndicate covering transactions and
penalty bids in accordance with rules and regulations under the Exchange Act. Over allotment involves the sale in excess of the
offering size, which create a short position. Stabilizing transactions involve bids to purchase the underlying security in the
open market for the purpose of pegging, fixing or maintaining the price of the securities. Syndicate covering transactions involve
purchases of the securities in the open market after the distribution has been completed in order to cover syndicate short positions.
Penalty
bids permit the underwriters to reclaim a selling concession from a syndicate member when the securities originally sold by the
syndicate member are purchased in a syndicate covering transaction to cover syndicate short positions. Stabilizing transactions,
syndicate covering transactions and penalty bids may cause the price of the securities to be higher than it would be in the absence
of the transactions. The underwriters may, if they commence these transactions, discontinue them at any time.
General
Information
Agents,
underwriters, and dealers may be entitled, under agreements entered into with us, to indemnification by us against certain liabilities,
including liabilities under the Securities Act. Our agents, underwriters, and dealers, or their affiliates, may be customers of,
engage in transactions with or perform services for us, in the ordinary course of business.
GENERAL
DESCRIPTION OF SECURITIES
We
may offer and sell, at any time and from time to time:
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shares
of our common stock;
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warrants
to purchase shares of our common stock and/or debt securities;
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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 debt securities;
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units
consisting of a combination of the foregoing; or
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any
combination of these securities.
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The
terms of any securities we offer will be determined at the time of sale. We may issue debt securities that are exchangeable for
and/or convertible into common stock or any of the other securities that may be sold under this prospectus. 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 CAPITAL STOCK
Capital
Stock
Our authorized capital consists of 25,000,000
shares of Common Stock, $0.001 par value per share. As of June 7, 2018, we had 7,152,607 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 preferred stock receive
liquidation preferences (as applicable) 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.
Options
and Warrants
As of June 7, 2018, there were outstanding
Common Stock options entitling the holders to purchase 274,637 shares of Common Stock at a weighted average exercise price of $4.55
per share and warrants entitling the holders to purchase up to 4,246,133 shares of Common Stock at a weighted average exercise
price of $5.73 per share.
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, 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:
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the
beneficial owner, directly or indirectly, of 10% or more of the voting power of the outstanding voting shares of the corporation;
or
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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
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Our
articles of incorporation and bylaws 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.
DESCRIPTION
OF WARRANTS
We
may issue warrants for the purchase of common stock and/or debt securities. Warrants may be issued independently or together with
common stock and/or debt securities offered by any prospectus supplement and may be attached to or separate from any such offered
securities. We may issue series of warrants under a separate warrant agreement between us and a bank or trust company, as warrant
agent, all as will be set forth in the prospectus supplement relating to the particular issue of warrants. The warrant agent would
act solely as our agent in connection with the warrants and would not assume any obligation or relationship of agency or trust
for or with any holders of warrants or beneficial owners of warrants.
The
following summary of certain provisions of the warrants does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all provisions of the warrant agreements.
Reference
is made to the prospectus supplement relating to the particular issue of warrants offered pursuant to such prospectus supplement
for the terms of and information relating to such warrants, including, where applicable:
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the
specific designation and aggregate number of, and the price at which we will issue, the warrants;
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the
currency or currency units in which the offering price, if any, and the exercise price are payable;
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the
designation, amount and terms of the securities purchasable upon exercise of the warrants;
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the
number of shares of common stock purchasable upon the exercise of warrants to purchase
common stock and the
price at which such number of shares of common stock may be purchased upon such exercise;
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the
date on which the right to exercise such warrants shall commence and the date on which
such right shall expire
or, if the warrants may not be continuously exercised throughout that period, the specific
date or dates on which the warrants may be exercised;
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if
applicable, the exercise price for shares of our common stock and the number of shares
of common stock to be
received upon exercise of the warrants;
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if
applicable, the exercise price for our debt securities, the amount of our debt securities
to be received upon exercise
of the warrants, and a description of that series of debt securities;
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whether
the warrants will be issued in fully registered form or bearer form, in definitive or
global form or in any
combination of these forms, although, in any case, the form of a warrant included in
a unit will correspond to the form of the unit and of any security included in that unit;
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United
States federal income tax consequences applicable to such warrants;
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the
identity of the warrant agent for the warrants and of any other depositaries, execution
or paying agents, transfer
agents, registrars or other agents;
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the
proposed listing, if any, of the warrants or any securities purchasable upon exercise
of the warrants on any
securities exchange or market;
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if
applicable, the date from and after which the warrants and the common stock and/or debt
securities will be separately
transferable;
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if
applicable, the minimum or maximum amount of the warrants that may be exercised at any one time;
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the
anti-dilution provisions of the warrants, if any;
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any
redemption or call provisions, if any;
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whether
the warrants are to be sold separately or with other securities as parts of units
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the
amount of warrants outstanding as of the most recent practicable date; and
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any
additional terms of the warrants, including terms, procedures and limitations relating
to the exchange and exercise
of the warrants.
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The
exercise price for warrants will be subject to adjustment in accordance with the applicable prospectus supplement.
Each
warrant will entitle the holder thereof to purchase such number of shares of common stock at such exercise price as shall in each
case be set forth in, or calculable from, the prospectus supplement relating to the warrants, which exercise price may be subject
to adjustment upon the occurrence of certain events as set forth in such prospectus supplement. After the close of business on
the expiration date, or such later date to which such expiration date may be extended by us, unexercised warrants will become
void. The place or places where, and the manner in which, warrants may be exercised shall be specified in the prospectus supplement
relating to such warrants.
Prior
to the exercise of any warrants to purchase common stock, holders of such warrants will not have any of the rights of holders
of common stock, as the case may be, purchasable upon such exercise, including the right to receive payments of dividends, if
any, on the common stock purchasable upon such exercise, or to exercise any applicable right to vote.
DESCRIPTION
OF DEBT SECURITIES AND CONVERTIBLE DEBT SECURITIES
The
following description, together with the additional information 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. 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 of 1939, as amended (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, our preferred 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 of 1939, 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 Securities and Exchange Commission in connection
with the qualification
of any indenture under the Trust Indenture Act of 1939;
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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 Securities Exchange Act of 1934, as amended, or 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 of 1939 is applicable.
DESCRIPTION
OF RIGHTS
General
We
may issue rights to our stockholders to purchase shares of our common stock described in this prospectus. We may offer rights
separately or together with one or more additional rights, common stock, warrants or any combination of those 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, preferred 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 composed of 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 the unit may not be held or transferred separately, at any time or at any time before
a specified date.
The
applicable prospectus supplement may 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
provisions for the issuance, payment, settlement, transfer or exchange of the units or
of the securities comprising
the units;
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the
terms of the unit agreement governing the units;
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United
States federal income tax considerations relevant to the units; and
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whether
the units will be issued in fully registered or global form.
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the
title of the series of units;
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the
price or prices at which the units will be issued;
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a
discussion of certain United States federal income tax considerations applicable to the units; and
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any
other terms of the units and their constituent securities.
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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.
LEGAL
MATTERS
Robinson
Brog Leinwand Greene Genovese & Gluck P.C. will render a legal opinion as to the validity of the securities to be registered
hereby. The validity of any securities will be passed upon for any underwriters or agents by counsel we will name
in the applicable prospectus supplement.
EXPERTS
The
consolidated financial statements incorporated by reference from Digital Ally, Inc.’s Annual Report on Form 10-K as of December
31, 2017 and 2016 and for each of the years in the two-year period ended December 31, 2017 have been audited by RSM US LLP, independent
registered public accounting firm, as stated in their report which is incorporated herein by reference, and has been so incorporated
in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.
INCORPORATION
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 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 fiscal year ended December 31, 2017, filed with the SEC on April 13, 2018;
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our
Quarterly Report on Form 10-Q for the three months ended March 31, 2018, filed with the SEC on May 15, 2018;
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our
Definitive Proxy Statement on Schedule 14A for our annual meeting of stockholders to be held on June 27, 2018, filed with
the SEC on May 14, 2018; and
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our
Registration Statement on Form S-1 filed with the SEC on May 23, 2018 and the related Prospectus filed with the SEC on
June 6, 2018, pursuant to Rule 424(b)(3); and
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our
Current Reports on Form 8-K filed with the SEC on April 4, 2018, April 13, 2018, April 20, 2018, May 15, 2018, and May 17,
2018.
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We
also incorporate by reference into this prospectus additional documents 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 to the extent that a statement contained in this prospectus or in a
subsequently filed document incorporated by reference herein modifies or supersedes the statement, and any statement contained
in this prospectus is deemed to be modified or superseded for purposes of this prospectus 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 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.
INTERESTS
OF NAMED EXPERTS AND COUNSEL
None.
MATERIAL
CHANGES
None.
WHERE
YOU CAN FIND MORE INFORMATION
We
file annual, quarterly and current reports, proxy statements and other information with the SEC. We have also filed with the SEC
under the Securities Act a registration statement on Form S-1 with respect to the Common Stock offered by this prospectus. This
prospectus, which constitutes part of the registration statement, does not contain all the information set forth in the registration
statement or the exhibits and schedules which are part of the registration statement, portions of which are omitted as permitted
by the rules and regulations of the SEC. Statements made in this prospectus regarding the contents of any contract or other document
are summaries of the material terms of the contract or document. With respect to each contract or document filed as an exhibit
to the registration statement, reference is made to the corresponding exhibit. For further information pertaining to us and the
Common Stock offered by this prospectus, reference is made to the registration statement, including the exhibits and schedules
thereto, copies of which may be inspected without charge at the Public Reference Room of the SEC at 100 F Street, N.E., Washington,
D.C. 20549 on official business days during the hours of 10 a.m. to 3 p.m. Copies of all or any portion of the registration statement
may be obtained from the SEC at prescribed rates. Information on the Public Reference Room may be obtained by calling the SEC
at 1-800-SEC-0330. In addition, the SEC maintains an Internet site that contains reports, proxy and information statements and
other information regarding issuers that file electronically with the SEC. The web site can be accessed at www.sec.gov.
The internet address of Digital Ally is www.digitalallyinc.com. Information contained on our website is not a part of,
and is not incorporated into, this prospectus, and the inclusion of our website address in this prospectus is an inactive textual
reference only.
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