Digital Ally, Inc. (Nasdaq: DGLY), which develops, manufactures and
markets advanced video surveillance products for law enforcement,
homeland security and commercial applications, today announced its
operating results for 2019. An investor conference call is
scheduled for 11:15 a.m. EDT on Monday, April 6, 2020 (see details
below).
Highlights for the Year Ended December 31,
2019
- Total revenues decreased in 2019 to
$10,441,364 from $11,291,409 in 2018. The primary reason for the
overall revenue decrease is a decline of $1,398,115 (15%), in
product revenues, offset by an increase in service and other
revenue of $548,070,(25%), from 2018 levels. Product sales continue
to face challenges for our in-car and body-worn systems because our
competitors have released new products with advanced features and
have maintained their product price cuts. Our law enforcement
product sale revenues declined over the prior period due to
price-cutting, willful infringement of our patents and other
actions by our competitors and adverse marketplace effects related
to the patent litigation.
- We introduced a new product
platform, the EVO-HD, specifically for in-car systems for law
enforcement late in June 2019 to address our competitors’ new
product features and we experienced positive traction in the second
half of 2019; however, we expect potential customers to review and
test the EVO-HD prior to adopting the new platform for deployment.
This new product platform utilizes advanced chipsets that will
generate new and highly advanced products for our law enforcement
and commercial customers. We believe the EVO-HD will improve
product revenues in future quarters as customers become aware of
and commit to it.
- Our objective is to expand our
recurring service revenue to help stabilize our revenues on a
quarterly basis. Overall our service and other revenues improved to
$2,708,568 in 2019, an increase of $548,070 (25%), with higher
revenues in every service category. Revenues from extended
warranties have been increasing and were approximately $1,414,308
for 2019, an increase of $308,019 (28%) over 2018. Revenues from
product installations have increased steadily in recent quarters
and reached $259,249 for 2019, an increase of $168,738 (186%) over
2018. Additionally, revenues from cloud storage has been increasing
in recent quarters and reached $749,713 in 2019, an increase of
$31,827 (4%) over 2018. Other service revenues including event
security, schools, software and non-warranty repair has been
increasing in recent quarters and reached $285,298 in 2019, an
increase of $39,486 (16%) over 2018. We are pursuing several new
market channels that do not involve our traditional law enforcement
and private security customers, such as our NASCAR affiliation,
which we believe will help expand the appeal of our products and
service capabilities to new commercial markets. If successful, we
believe that these new market channels could yield recurring
service revenues for us in the future.
- We asserted two significant patent
infringement lawsuits involving Axon and WatchGuard that have had
significant impacts on our quarterly results primarily due to the
timing and amount of legal fees expended on such lawsuits. We
settled the WatchGuard lawsuit in May 2019 for $6.0 million. In
June 2019 the District Court granted Axon’s Motion for Summary
Judgment, accepted Axon’s position that it did not infringe on our
patents and dismissed the lawsuit. We appealed the Court’s ruling
and the oral argument on the Company’s appeal was set for April 6,
2020. However, on March 12, 2020, the panel of judges for the
United States Court of Appeals issued an order cancelling the oral
argument and stating that they will decide the appeal based on the
parties’ briefs without oral argument. If the Court of Appeals
overturns the summary judgment ruling, a new judge will be assigned
to handle the litigation with Axon due to the recent resignation of
Judge Murguia, the District Court judge who issued the summary
judgment order. Future quarterly results during 2019 and beyond
will continue to be impacted as this appeal is decided and if the
case moves to trial. If we win the appeal and the case moves to
trial, the jury will determine whether Axon infringed our
patents.
Recent
Developments
- On March 3, 2020, we consummated an
underwritten public offering of 2,521,740 shares of common stock at
a price of $1.15 per share. The net proceeds, after deducting
underwriting discounts and commissions but before deducting other
expenses in connection with the offering, and assuming the
underwriters do not exercise their option to purchase up 378,261
shares at the public offering price within 45 days of the offering,
are approximately $2.67 million. We are using the net proceeds from
this offering to repay debt and for general corporate
purposes.
- On March 6, 2020, we received
notice from the NASDAQ hearing panel that we have been granted an
extension until June 30, 2020 to regain compliance with Rule
5550(b), which requires us to have at least i) $2.5 million in
shareholder equity; or ii) $35 million in market value of listed
securities, or iii) net income from continuing operations of at
least $500,000 in the most recently completed fiscal year or in two
of the last three fiscal years. Our goal is to meet the $2.5
million minimum shareholder equity requirement for continued
listing on NASDAQ. There can be no assurance that the Company’s
will regain compliance with the NASDAQ’s Listing Rule on or prior
to the June 30, 2020 required date. Furthermore, even if we regain
compliance on or prior to such date, we must continue to maintain
compliance thereafter with such Rule.
- Subsequent to December 31, 2019
economies throughout the world have been severely disrupted by the
effects of the quarantines, business closures and the reluctance of
individuals to leave their homes as a result of the outbreak of the
coronavirus (COVID-19). Although we remain open as an “essential
business,” our supply chain has been disrupted and our customers
and in particular our commercial customers have been significantly
impacted, which has in turn reduced our operations and activities.
In addition the capital markets have been disrupted and our efforts
to raise necessary capital will likely be adversely impacted by the
outbreak of the virus. We cannot forecast with any certainty when
the disruptions caused by the virus will cease to impact our
business and the results of our operations.
- Revenues for the first quarter 2020
are consistent with revenues reported during the first quarter of
2019 based on preliminary financial information. Management was
expecting a substantial increase in first quarter 2020 revenues
given contracts that had been awarded and the traction of new
products. Several contracts were delayed as a result of the
coronavirus and therefore did not ship in the first quarter of 2020
as originally expected. We continue to develop new products from
our robust patent portfolio and are considering acquiring the
distribution rights for several products all of which we expect to
improve revenues during the balance of 2020. However, there can be
no assurance that revenues from these new products and distribution
agreements will materialize in 2020, in particular when considering
the disruptions caused by the COVID-19 virus.
Management Comments
“In June 2019 we introduced the EVO-HD, an
important and revolutionary new product platform. The EVO-HD is
designed specifically for law enforcement in-car systems to address
our customers’ needs and competitors’ new product features. We
believe the flexibility of our new modular design, which is
cloud-based and comes with embedded VuLink technology, will be
attractive to customers and help us regain market share. Although
customers evaluate and our new EVO-HD systems, we continue to face
challenges for our existing in-car and body-worn systems due to our
competitors releasing new products with advanced features,
maintaining their product price cuts and, in some cases, infringing
on our patents,” stated Stanton E. Ross, Chief Executive Officer of
Digital Ally. “We continue to expand our recurring service-based
revenue to help stabilize and grow our revenues on a quarterly
basis. We are also pursuing several new market channels that do not
involve our traditional law enforcement and private security
customers, including our technology partner affiliation with
NASCAR, MetLife Stadium, KMC Brands and the Kansas City Chiefs,
which we believe will help expand the appeal of our products and
service capabilities to new commercial markets. If successful,
these new market channels could yield recurring service revenues in
the future.”
“We are pleased that we have settled our lawsuit
with WatchGuard. The settlement should serve notice to the industry
that we are the rightful owner of ‘auto-activation’ patents and
that we intend to defend our patents and to hold infringing parties
responsible for their actions,” concluded Ross.
2019 Operating Results
For the year ended December 31, 2019, our total
revenue decreased by 7.5% to approximately $10.4 million, compared
with revenue of approximately $11.3 million for the year ended
December 31, 2018.
Gross profit decreased 18% to $3,232,629 for the
year ended December 31, 2019 versus $3,961,808 in 2018. Our gross
margin decrease is primarily attributable to the 7.5% decrease in
revenues and the cost of sales as percentage of revenues increasing
to 69% for the year ended December 31, 2019 from 65% for the year
ended December 31, 2018.
Selling, General and Administrative (“SG&A”)
expenses decreased approximately 36% to $9,265,410 in the year
ended December 31, 2019 versus $14,517,865 in 2018. The significant
decrease was attributable to the patent litigation settlement of
$6.0 million that we received during 2019. Exclusive of such
settlement, overall selling, general and administrative expenses as
a percentage of sales increased to 146% for the year ended December
31, 2019 compared to 129% in 2018.
We reported an operating loss of $6,032,781 for
the year ended December 31, 2019, compared to an operating loss of
$10,556,057 in 2018.
We elected to record the obligation related to
the proceeds investment agreement (“PIA”) at fair-value.
Accordingly, the estimated fair value of the obligation increased
as a result of the $6.0 million litigation settlement with
WatchGuard and the delay in the Axon patent litigation caused by
the unfortunate District Court ruling on the motion for summary
judgment. We will now have to wait as the Appellate Court considers
and rules on our appeal. The increase in fair value of the PIA
resulted in a non-cash charge of $3,358,000 for the year ended
December 31, 2019 compared to $74,487 in 2018.
We elected to account for the secured
convertible notes that were issued in August of 2019 on their fair
value. Therefore, we determined the fair value of the secured
convertible notes as of their issuance date and as of December 31,
2019 to be $1,845,512 and $1,593,809, respectively. During the year
ended December 31, 2019, the holders converted an aggregate of
$648,067 of convertible note principal to equity. The change in
fair value from the issuance date of August 5, 2019 and December
31, 2019 was $519,821, which was recorded as a non-cash charge
during the year ended December 31, 2019.
We reported a net loss of ($10,005,713), or
($0.87) per share, in the year ended December 31, 2019 compared to
a prior-year net loss of $15,544,551 or ($1.93) per share. No
income tax provision or benefit was recorded in the either 2019 or
2018 as the Company has maintained a full valuation reserve on its
deferred tax assets.
Investor Conference Call
The Company will host an investor
conference call at 11:15 a.m. EDT on Monday, April 6, 2020, to
discuss its operating results for 2019 and the status of its patent
infringement litigation against Axon Enterprise, Inc. and insight
into 2020. Shareholders and other interested
parties may participate in the conference call by dialing
844-761-0863 and entering conference
ID# 3474957 a few minutes before
11:15 a.m. EDT on Monday April 6, 2020.
A replay of the conference call will be
available two hours after its completion, from April 6, 2020 until
11:59 p.m. on June 6, 2020 by dialing 855-859-2056 and entering the
conference ID #
3474957.
For additional news and information please visit or follow
us on Twitter @digitalallyinc and
Facebook www.facebook.com/DigitalAllyInc
Follow additional Digital Ally Inc. social media channels
here:
Facebook I Instagram I Linkedin I Twitter
This press release contains forward-looking
statements within the meaning of Section 27A of the Securities Act
of 1933 and Section 21E of the Securities Act of 1934. These
forward-looking statements are based largely on the expectations or
forecasts of future events, can be affected by inaccurate
assumptions, and are subject to various business risks and known
and unknown uncertainties, a number of which are beyond the control
of management. Therefore, actual results could differ materially
from the forward-looking statements contained in this press
release. A wide variety of factors that may cause actual results to
differ from the forward-looking statements include, but are not
limited to, the following: whether the Company will be able to
improve its revenue and operating results; whether it will be able
to resolve its liquidity and operational issues; whether it will be
able to achieve improved production and other efficiencies to
restore its gross and operating margins in the future; whether the
Company will be able to continue to expand into non-law enforcement
markets and increase its service based revenue; whether the Company
has resolved its product quality and supply chain issues; whether
the EVO-HD will help the Company increase its product revenues;
whether the Company will achieve positive outcomes in its
litigation with Axon, including whether the Appeals Court will rule
in its favor; whether and the extent to which the US Patent and
Trademark Office (USPTO) rulings will curtail, eliminate or
otherwise have an effect on the actions of Axon and others in the
marketplace respecting the Company, its products and customers; its
ability to deliver its newer product offerings as scheduled, and in
particular the new EVO-HD product platform, obtain the required
components and products on a timely basis, and have them perform as
planned; whether the partnerships with NASCAR, KMC Brands and the
Kansas City Chiefs will help expand the appeal for the Company’s
products and services; its ability to maintain or expand its share
of the markets in which it competes, including those outside the
law enforcement industry; whether it will be able to adapt its
technology to new and different uses, including being able to
introduce new products; competition from larger, more established
companies with far greater economic and human resources; its
ability to attract and retain customers and quality employees; the
effect of changing economic conditions; and changes in government
regulations, tax rates and similar matters. These cautionary
statements should not be construed as exhaustive or as any
admission as to the adequacy of the Company’s disclosures. The
Company cannot predict or determine after the fact what factors
would cause actual results to differ materially from those
indicated by the forward-looking statements or other statements.
The reader should consider statements that include the words
“believes,” “expects,” “anticipates,” “intends,” “estimates,”
“plans,” “projects,” “should,” or other expressions that are
predictions of or indicate future events or trends, to be uncertain
and forward-looking. It does not undertake to publicly update or
revise forward-looking statements, whether because of new
information, future events or otherwise. Additional information
respecting factors that could materially affect the Company and its
operations are contained in its annual report on Form 10-K for the
year ended December 31, 2019, filed with the Securities and
Exchange Commission.
For Additional Information, Please
Contact:Stanton E. Ross, CEO, at (913) 814-7774
or Thomas J. Heckman, CFO, at (913)
814-7774(Financial Highlights Follow)
DIGITAL ALLY,
INC.CONSOLIDATED BALANCE
SHEETSDECEMBER 31, 2019 AND 2018
|
|
2019 |
|
|
2018 |
|
Assets |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
359,685 |
|
|
$ |
3,598,807 |
|
Accounts receivable-trade, less allowance for doubtful accounts of
$123,224 – 2019 and $70,000 – 2018 |
|
|
1,071,018 |
|
|
|
1,847,886 |
|
Accounts receivable-other |
|
|
514,730 |
|
|
|
382,412 |
|
Inventories, net |
|
|
5,280,412 |
|
|
|
6,999,060 |
|
Income tax refund receivable, current |
|
|
44,650 |
|
|
|
44,603 |
|
Prepaid expenses |
|
|
381,090 |
|
|
|
429,403 |
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
7,651,585 |
|
|
|
13,302,171 |
|
|
|
|
|
|
|
|
|
|
Furniture, fixtures and
equipment, net |
|
|
197,063 |
|
|
|
247,541 |
|
Intangible assets, net |
|
|
413,268 |
|
|
|
486,797 |
|
Operating lease right of use
assets |
|
|
122,459 |
|
|
|
— |
|
Income tax refund
receivable |
|
|
— |
|
|
|
45,397 |
|
Other assets |
|
|
532,500 |
|
|
|
256,749 |
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
8,916,875 |
|
|
$ |
14,338,655 |
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Deficit |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
2,339,985 |
|
|
$ |
784,599 |
|
Accrued expenses |
|
|
845,881 |
|
|
|
2,080,667 |
|
Current portion of operating lease obligations |
|
|
159,160 |
|
|
|
— |
|
Contract liabilities-current |
|
|
1,707,943 |
|
|
|
1,748,789 |
|
Unsecured promissory note payable, net of unamortized discount of
$66,061 |
|
|
233,939 |
|
|
|
— |
|
Secured convertible notes at fair value – current portion |
|
|
1,593,809 |
|
|
|
— |
|
Income taxes payable |
|
|
5,934 |
|
|
|
3,689 |
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
6,886,651 |
|
|
|
4,617,744 |
|
|
|
|
|
|
|
|
|
|
Long-term liabilities: |
|
|
|
|
|
|
|
|
Proceeds investment agreement, at fair value |
|
|
6,500,000 |
|
|
|
9,142,000 |
|
Operating lease obligation, long term |
|
|
44,460 |
|
|
|
— |
|
Contract liabilities-long term |
|
|
1,803,143 |
|
|
|
1,991,091 |
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
15,234,254 |
|
|
|
15,750,835 |
|
|
|
|
|
|
|
|
|
|
Commitments and
contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Equity
(Deficit): |
|
|
|
|
|
|
|
|
Common stock, $0.001 par value; 50,000,000 shares authorized;
shares issued: 12,079,095 – 2019 and 10,445,445 – 2018 |
|
|
12,079 |
|
|
|
10,445 |
|
Additional paid in capital |
|
|
83,216,387 |
|
|
|
78,117,507 |
|
Treasury stock, at cost (63,518 shares) |
|
|
(2,157,226 |
) |
|
|
(2,157,226 |
) |
Accumulated deficit |
|
|
(87,388,619 |
) |
|
|
(77,382,906 |
) |
|
|
|
|
|
|
|
|
|
Total stockholders’ deficit |
|
|
(6,317,379 |
) |
|
|
(1,412,180 |
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ deficit |
|
$ |
8,916,875 |
|
|
$ |
14,338,655 |
|
(FOR ADDITIONAL INFORMATION, PLEASE REFER TO THE
COMPANY’S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER
31, 2019 FILED WITH THE SEC)
DIGITAL ALLY,
INC.CONSOLIDATED STATEMENTS OF
OPERATIONSFOR THE YEARS
ENDEDDECEMBER 31, 2019 AND 2018
|
|
2019 |
|
|
2018 |
|
Revenue: |
|
|
|
|
|
|
|
|
Product |
|
$ |
7,732,796 |
|
|
$ |
9,130,911 |
|
Service and other |
|
|
2,708,568 |
|
|
|
2,160,498 |
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
|
10,441,364 |
|
|
|
11,291,409 |
|
|
|
|
|
|
|
|
|
|
Cost of revenue: |
|
|
|
|
|
|
|
|
Product |
|
|
6,577,347 |
|
|
|
6,805,897 |
|
Service and other |
|
|
631,388 |
|
|
|
523,704 |
|
|
|
|
|
|
|
|
|
|
Total cost of revenue |
|
|
7,208,735 |
|
|
|
7,329,601 |
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
3,232,629 |
|
|
|
3,961,808 |
|
Selling, general and
administrative expenses: |
|
|
|
|
|
|
|
|
Research and development expense |
|
|
2,005,717 |
|
|
|
1,444,063 |
|
Selling, advertising and promotional expense |
|
|
3,652,434 |
|
|
|
2,797,793 |
|
Stock-based compensation expense |
|
|
2,112,090 |
|
|
|
2,272,656 |
|
General and administrative expense |
|
|
7,495,169 |
|
|
|
8,003,353 |
|
Patent litigation settlement |
|
|
(6,000,000 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
Total selling, general and
administrative expenses |
|
|
9,265,410 |
|
|
|
14,517,865 |
|
|
|
|
|
|
|
|
|
|
Operating loss |
|
|
(6,032,781 |
) |
|
|
(10,556,057 |
) |
|
|
|
|
|
|
|
|
|
Other income (expense) |
|
|
|
|
|
|
|
|
Interest income |
|
|
37,410 |
|
|
|
19,524 |
|
Interest expense |
|
|
(43,373 |
) |
|
|
(1,366,520 |
) |
Change in warrant derivative
liabilities |
|
|
— |
|
|
|
(319,105 |
) |
Change in fair value of
secured convertible notes |
|
|
(519,821 |
) |
|
|
— |
|
Change in fair value of
secured convertible debentures |
|
|
— |
|
|
|
(2,296,444 |
) |
Change in fair value of
proceeds investment agreement |
|
|
(3,358,000 |
) |
|
|
(74,487 |
) |
Loss on the extinguishment of
secured convertible debentures |
|
|
— |
|
|
|
(600,000 |
) |
Secured convertible notes
issuance expense |
|
|
(89,148 |
) |
|
|
(351,462 |
) |
|
|
|
|
|
|
|
|
|
Total other income
(expense) |
|
|
(3,972,932 |
) |
|
|
(4,988,494 |
) |
|
|
|
|
|
|
|
|
|
Loss before income tax
(benefit) |
|
|
(10,005,713 |
) |
|
|
(15,544,551 |
) |
Income tax (benefit) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(10,005,713 |
) |
|
$ |
(15,544,551 |
) |
|
|
|
|
|
|
|
|
|
Net loss per share
information: |
|
|
|
|
|
|
|
|
Basic |
|
$ |
(0.87 |
) |
|
$ |
(1.93 |
) |
Diluted |
|
$ |
(0.87 |
) |
|
$ |
(1.93 |
) |
|
|
|
|
|
|
|
|
|
Weighted average shares
outstanding: |
|
|
|
|
|
|
|
|
Basic |
|
|
11,478,618 |
|
|
|
8,073,257 |
|
Diluted |
|
|
11,478,618 |
|
|
|
8,073,257 |
|
(FOR ADDITIONAL INFORMATION, PLEASE REFER TO THE
COMPANY’S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER
31, 2019 FILED WITH THE SEC)
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