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
first quarter 2020 operating results. An investor conference call
is scheduled for 11:15 a.m. EDT on Wednesday, May 20, 2020 (see
details below).
Highlights for the First Quarter Ended
March 31, 2020
- Total revenues decreased in 2020 to
$2,425,745 from $2,550,796 in 2019. The primary reason for the
overall revenue decrease is a decline of $153,928 (8%), in 2020
product revenues, offset by an increase in service and other
revenue of $28,877,(5%), from 2019 levels. Product sales continue
to face challenges for our in-car and body-worn systems because of
the effects of the Covid-19 pandemic, and our competitors’ actions
of releasing new products with advanced features and maintaining
their product price cuts. In response, we have launched a program
to migrate current and new customers, and in particular our
commercial customers, from a “hardware sale” to a service fee
model. Therefore, we expect a reduction in commercial hardware
sales (principally DVM-250’s and FirstVU’s) as we convert these
customers to a service model under which we provide the hardware as
part of a recurring monthly service fee.
- The Covid-19 pandemic delayed the
shipment of orders late in the first quarter 2020 as police forces
and governments reacted to its impact. Specifically, we were unable
to ship the initial purchase orders under a substantial contract
awarded by the Director of Strategic Procurement of a country for
the expected deployment of body cameras to its entire national
police force. The contract was expected to include up to 5,000 body
cameras with our web-based software infrastructure service over a
three-year period. Contract deliveries were suspended pending the
government’s decision to freeze the planned deployment until such
time as the pandemic is contained within its population. The
initial purchase order was expected to ship during the first
quarter 2020 and would have made a substantial impact to our
product revenues for the quarter. At this point, we are unable to
forecast if and when this major project will be restarted or how it
may be modified as a result of the pandemic. Upon completion, the
original contract would have been the largest body camera
deployment in our history and the largest contract for recurring
service revenues for our web-based software related to the body
cameras.
- 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, market penetration has been slowed by a
combination of the Covid-19 pandemic and the desire of 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.
- Our overall gross margin percentage
improved to 52% in the first quarter 2020 compared to 46% in the
2019 period. The improvement reflects the migration of customers to
the higher-margin recurring service model compared to hardware
sales and the introduction of the EVO-HD in-car system, which is
generating higher margins than our legacy products.
- Selling, general and administrative
expenses were $3,192,396 and $4,267,898 for the first quarter 2020
and 2019, respectively, a decrease of $1,075,502 (25%). The
significant decrease was fueled by the large decrease in
professional fees and expenses attributable to lower legal fees in
our patent litigation with Axon. In addition, we reduced overall
travel and certain support staff in response to the impact of the
Covid-19 pandemic during the first quarter 2020.
- We asserted two significant patent
infringement lawsuit 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 stated that they will decide the appeal based on the
parties’ briefs without oral argument. On April 22, 2020, a
three-judge panel of the United States Court of Appeals denied the
Company’s appeal and affirmed the District Court’s previous
decision to grant Axon summary judgment. The Company is evaluating
its alternatives, including whether to file a motion requesting a
rehearing in front of the three-judge panel or the entire Court of
Appeals. Future quarterly results during 2020 will continue to be
impacted as this appeal is finalized.
Recent Developments
|
Effective April 3, 2020, the Company entered into a distribution
agreement with Trust Think, LLC, under which it has been engaged to
service, promote, and sell certain Danolyte® disinfecting products
that are manufactured and distributed by Trust Think to certain
first responder and commercial customers with whom the Company has
existing relationships. Danolyte® has been listed on the United
States Environmental Protection Agency’s List N: Disinfectants for
Use Against SARS-CoV-2, the virus that causes COVID-19. The Company
will receive a percentage of the sales sold through its
distribution channels. |
|
|
|
The Company will offer the disinfecting products to its first
responder customers including police, fire and paramedics.
Commercial customers such as cruise lines, taxi-cab and para
transit may also be good candidates for the products. The Company
is considering enhancing the line with additional disinfectant
products including hardware to efficiently and effectively dispense
the disinfectants and temperature measuring devices. |
|
|
|
On April 17, 2020, the Company entered into a securities purchase
agreement with two accredited investors providing for the issuance
of (i) the Company’s 8% Senior Secured Convertible Promissory Notes
due April 16, 2021 with an aggregate principal face amount of
$1,666,666, which are, subject to certain conditions, convertible
into an aggregate of 1,650,164 shares of the Company’s common
stock, par value $0.001 per share at a price per share of $1.01 and
(ii) five-year warrants to purchase an aggregate of up to 1,237,624
shares of common stock at an exercise price of $1.31, subject to
customary adjustments. Such warrants are immediately exercisable
upon issuance and on a cashless basis if the warrants have not been
registered 180 days after the date of issuance. The offering closed
on April 17, 2020 whereby the investors purchased the securities
for an aggregate purchase price of $1,500,000. |
|
|
|
On April 4, 2020, the Company entered into a promissory note with a
bank, which provides for a loan in the amount of $1,418,900 (the
“PPP Loan”) pursuant to the Paycheck Protection Program under the
Coronavirus Aid, Relief, and Economic Security Act (the “CARES
Act”). The PPP Loan has a two-year term and bears interest at a
rate of 1% per annum. Monthly principal and interest payments are
deferred for six months after the date of disbursement. The PPP
Loan may be prepaid at any time prior to maturity with no
prepayment penalties. The promissory note contains events of
default and other provisions customary for a loan of this type. The
Paycheck Protection Program provides that the PPP Loan may be
partially or wholly forgiven if the funds are used for certain
qualifying expenses as described in the CARES Act. The Company
intends to use the majority of the PPP Loan amount for qualifying
expenses and to apply for forgiveness of the loan in accordance
with the terms of the CARES Act. |
|
|
|
On April 22, 2020, the Company received a written notification from
the Nasdaq indicating that the Company was not in compliance with
Nasdaq Listing Rule 5550(a)(2), as the Company’s closing bid price
for its common stock, par value $0.001 per share, was below $1.00
per share for the last thirty (30) consecutive business days. The
Company has until December 28, 2020, to regain compliance with the
Minimum Bid Price Requirement. |
|
|
|
During the compliance period, the Company’s shares of common stock
will continue to be listed and traded on the Nasdaq Capital Market.
To regain compliance, the closing bid price of the Company’s shares
of common stock must meet or exceed $1.00 per share for at least
ten consecutive business days during the 180-calendar day
compliance period. Management continues to believe that adherence
to its current operating and business plan will enable the Company
to regain compliance. |
|
|
|
If the Company is not in compliance by December 28, 2020, the
Company may be afforded a second 180-calendar day compliance
period. To qualify for this additional time, the Company will be
required to meet the continued listing requirement for market value
of publicly held shares and all other initial listing standards for
Nasdaq with the exception of the minimum bid price
requirement. |
|
|
|
If the Company does not regain compliance within the allotted
compliance period(s), including any extensions that may be granted,
Nasdaq will provide notice that the Company’s shares of common
stock will be subject to delisting and may potentially be traded on
the OTC market thereafter. |
|
|
|
Subsequent to March 31, 2020 economies throughout the world have
continued to be severely disrupted by the effects of the
quarantines, business closures and the reluctance of individuals to
leave their homes as a result of the outbreak of the coronavirus
(Covid-19). Although we remain open as an “essential business,” our
supply chain has been disrupted and our customers, 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. |
Management Comments
Stanton E. Ross, Chief Executive Officer of
Digital Ally, stated, “The disruptions cause by the Covid-19
pandemic adversely affected our first quarter 2020 operations as
many of our law enforcement customers delayed purchasing decisions
and many of our commercial customers were shut-down by governmental
mandates. We expanded our product offerings to include a line of
disinfectants to provide our customers with an eco-friendly product
for use against SARS-CoV-2, the virus that causes COVID-19. In
April 2020 we introduced the disinfectant line to our
first-responder customers and many of our commercial customers. We
also reduced our SG&A expenses by reducing staffing levels,
limiting travel and reducing many advertising and promotional
activities. In addition, we will move to a new, smaller office and
warehouse space that will dramatically reduce our occupancy costs
for the balance of 2020 and beyond.”
First Quarter 2020 Operating
Results
For the first quarter 2020, our total revenue
decreased by 5% to $2,425,745, compared with revenue of $2,550,796
for the first quarter 2019.
Gross profit improved 18% to $1,265,028 for the
first quarter 2020 versus $1,181,740 in 2019. Our gross margin
improvement is primarily attributable to our cost of sales as
percentage of revenues decreasing to 48% for the first quarter 2020
from 52% for 2019. Selling, General and Administrative (“SG&A”)
expenses decreased approximately 25% to $3,192,396 in the first
quarter 2020 versus $4,267,898 in 2019. The significant decrease
was attributable to a reduction in legal fees related to our patent
litigation coupled with less travel and reduced staffing levels
resulting from the Covid-19 pandemic.
We reported an operating loss of $1,927,368 for
the first quarter 2020, compared to an operating loss of $3,086,158
in 2019. This represents an improvement of $1,158,790 or 38% in
2020 compared to 2019.
We incurred $307,560 in interest expense during
the first quarter 2020 which is attributable primarily to the
secured convertible notes that were outstanding during the first
quarter 2020.
We elected to account for the secured
convertible notes that were issued in August of 2019 on their fair
value. These secured convertible notes were fully converted and/or
paid off in the first quarter 2020. The change in fair value from
December 31, 2019 through their pay-off date was $412,445, which
was recorded as a non-cash charge during the first quarter
2020.
We elected to record the obligation related to
the proceeds investment agreement (“PIA”) at fair-value.
Accordingly, the estimated fair value of the obligation decreased
as a result of the Axon patent litigation status caused by the
unfortunate District Court ruling on the motion for summary
judgment and the initial ruling of the Appellate Court. The
decrease in fair value of the PIA resulted in a non-cash credit of
$307,000 for the first quarter 2020 compared to a non-cash charge
of $137,000 in 2019.
We reported a net loss of ($2,334,110), or
($0.17) per share, in the first quarter ended March 31, 2020
compared to a prior-year net loss of $3,205,174, or ($0.29) per
share. No income tax provision or benefit was recorded in the
either 2020 or 2019 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 Wednesday, May 20, 2020, to
discuss its operating results for the first quarter 2020 and the
status of its patent infringement litigation against Axon
Enterprise, Inc. and the impact of the Covid-19 pandemic.
Shareholders and other interested parties may participate
in the conference call by dialing
844-761-0863 and entering conference ID#
7136016 a few minutes before 11:15 a.m. EDT on
Wednesday May 20, 2020.
A replay of the conference call will be
available two hours after its completion, from May 20, 2020 until
11:59 p.m. on July 20, 2020 by dialing 855-859-2056 and entering
the conference ID #
7136016.
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:
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Pinterest
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, especially in light of
the adverse effects of the Covid-19 pandemic on our customers,
suppliers and employees; whether it will be able to resolve its
liquidity and operational issues and raise sufficient capital given
the impact of the Covid-19 pandemic; 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,
including disinfectants, 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; 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; 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 Quarterly Report on Form 10-Q for
the three months ended March 31, 2020 and 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.CONDENSED CONSOLIDATED BALANCE
SHEETSMARCH 31, 2020 AND DECEMBER 31,
2019
|
|
March 31, 2020 (Unaudited) |
|
|
December 31, 2019 |
|
Assets |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
328,526 |
|
|
$ |
359,685 |
|
Accounts receivable-trade, less allowance for doubtful accounts of
$123,224 – 2020 and 2019 |
|
|
1,538,487 |
|
|
|
1,071,018 |
|
Accounts receivable-other |
|
|
558,763 |
|
|
|
514,730 |
|
Inventories, net |
|
|
5,137,886 |
|
|
|
5,280,412 |
|
Income tax refund receivable, current |
|
|
44,650 |
|
|
|
44,650 |
|
Prepaid expenses |
|
|
420,812 |
|
|
|
381,090 |
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
8,029,124 |
|
|
|
7,651,585 |
|
|
|
|
|
|
|
|
|
|
Furniture, fixtures and
equipment, net |
|
|
150,468 |
|
|
|
197,063 |
|
Intangible assets, net |
|
|
417,585 |
|
|
|
413,268 |
|
Operating lease right of use
assets |
|
|
94,449 |
|
|
|
122,459 |
|
Other assets |
|
|
545,252 |
|
|
|
532,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
9,236,878 |
|
|
$ |
8,916,875 |
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’
Deficit |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
2,305,070 |
|
|
$ |
2,339,985 |
|
Accrued expenses |
|
|
874,364 |
|
|
|
845,881 |
|
Current portion of operating lease obligations |
|
|
49,828 |
|
|
|
159,160 |
|
Contract liabilities-current |
|
|
1,897,502 |
|
|
|
1,707,943 |
|
Unsecured promissory note payable, net of unamortized discount of
$0 – 2020 and $66,061 – 2019 |
|
|
300,000 |
|
|
|
233,939 |
|
Unsecured promissory note payable - related party |
|
|
289,000 |
|
|
|
— |
|
Secured convertible notes at fair value – current portion |
|
|
— |
|
|
|
1,593,809 |
|
Income taxes payable |
|
|
5,934 |
|
|
|
5,934 |
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
5,721,698 |
|
|
|
6,886,651 |
|
|
|
|
|
|
|
|
|
|
Long-term liabilities: |
|
|
|
|
|
|
|
|
Proceeds investment agreement, at fair value |
|
|
6,193,000 |
|
|
|
6,500,000 |
|
Operating lease obligation, long term |
|
|
44,620 |
|
|
|
44,460 |
|
Contract liabilities-long term |
|
|
1,751,070 |
|
|
|
1,803,143 |
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
13,710,388 |
|
|
|
15,234,254 |
|
|
|
|
|
|
|
|
|
|
Commitments and
contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Deficit: |
|
|
|
|
|
|
|
|
Common stock, $0.001 par value; 50,000,000 shares authorized;
shares issued: 16,067,928 – 2020 and 12,079,095 – 2019 |
|
|
16,068 |
|
|
|
12,079 |
|
Additional paid in capital |
|
|
87,390,377 |
|
|
|
83,216,387 |
|
Treasury stock, at cost (63,518 shares) |
|
|
(2,157,226 |
) |
|
|
(2,157,226 |
) |
Accumulated deficit |
|
|
(89,722,729 |
) |
|
|
(87,388,619 |
) |
|
|
|
|
|
|
|
|
|
Total stockholders’ deficit |
|
|
(4,473,510 |
) |
|
|
(6,317,379 |
) |
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ deficit |
|
$ |
9,236,878 |
|
|
$ |
8,916,875 |
|
(FOR ADDITIONAL INFORMATION, PLEASE REFER TO THE
COMPANY’S QUARTERLY REPORT ON FORM 10-K FOR THE THREE MONTHS ENDED
MARCH 31, 2020 FILED WITH THE SEC)
DIGITAL ALLY,
INC.CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONSFOR THE THREE MONTHS
ENDEDMARCH 31, 2020 AND
2019(unaudited)
|
|
2020 |
|
|
2019 |
|
|
Revenue: |
|
|
|
|
|
|
|
|
Product |
|
$ |
1,766,536 |
|
|
$ |
1,920,464 |
|
|
Service and other |
|
|
659,209 |
|
|
|
630,332 |
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
|
2,425,745 |
|
|
|
2,550,796 |
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue: |
|
|
|
|
|
|
|
|
Product |
|
|
989,247 |
|
|
|
1,263,071 |
|
|
Service and other |
|
|
171,470 |
|
|
|
105,985 |
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue |
|
|
1,160,717 |
|
|
|
1,369,056 |
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
1,265,028 |
|
|
|
1,181,740 |
|
|
Selling, general and
administrative expenses: |
|
|
|
|
|
|
|
|
Research and development expense |
|
|
485,748 |
|
|
|
462,171 |
|
|
Selling, advertising and promotional expense |
|
|
682,381 |
|
|
|
755,989 |
|
|
Stock-based compensation expense |
|
|
311,677 |
|
|
|
725,198 |
|
|
General and administrative expense |
|
|
1,712,590 |
|
|
|
2,324,540 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total selling, general and
administrative expenses |
|
|
3,192,396 |
|
|
|
4,267,898 |
|
|
|
|
|
|
|
|
|
|
|
Operating loss |
|
|
(1,927,368 |
) |
|
|
(3,086,158 |
) |
|
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
Interest income |
|
|
6,263 |
|
|
|
17,984 |
|
|
Interest expense |
|
|
(307,560 |
) |
|
|
— |
|
|
Change in fair value of
secured convertible notes |
|
|
(412,445 |
) |
|
|
— |
|
|
Change in fair value of
proceeds investment agreement |
|
|
307,000 |
|
|
|
(137,000 |
) |
|
|
|
|
|
|
|
|
|
|
Total other expense |
|
|
(406,742 |
) |
|
|
(119,016 |
) |
|
|
|
|
|
|
|
|
|
|
Loss before income tax
benefit |
|
|
(2,334,110 |
) |
|
|
(3,205,174 |
) |
|
Income tax benefit |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(2,334,110 |
) |
|
$ |
(3,205,174 |
) |
|
|
|
|
|
|
|
|
|
|
Net loss per share
information: |
|
|
|
|
|
|
|
|
Basic |
|
$ |
(0.17 |
) |
|
$ |
(0.29 |
) |
|
Diluted |
|
$ |
(0.17 |
) |
|
$ |
(0.29 |
) |
|
|
|
|
|
|
|
|
|
|
Weighted average shares
outstanding: |
|
|
|
|
|
|
|
|
Basic |
|
|
13,888,438 |
|
|
|
10,941,856 |
|
|
Diluted |
|
|
13,888,438 |
|
|
|
10,941,856 |
|
|
(FOR ADDITIONAL INFORMATION, PLEASE REFER TO THE
COMPANY’S QUARTERLY REPORT ON FORM 10-K FOR THE THREE MONTHS ENDED
MARCH 31, 2020 FILED WITH THE SEC)
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