LENEXA, Kansas, Aug. 20, 2018 (GLOBE NEWSWIRE) -- Digital Ally, Inc. (Nasdaq: DGLY), which develops, manufactures and markets advanced video surveillance products for law enforcement, homeland security and commercial applications, today announced its operating results for the second quarter of 2018. An investor conference call is scheduled for 11:15 a.m. EDT today (see details below).
Highlights for Quarter Ended June 30, 2018
Management Comments
“We were encouraged that our second quarter 2018 revenues increased over our recent quarters,” stated Stanton E. Ross, Chief Executive Officer of Digital Ally Inc. “We are concentrating on expanding our recurring service-based revenue to help stabilize and grow our revenues on a quarterly basis. We are pursuing several new market channels that do not involve our traditional law enforcement and private security customers, including our technology partner affiliation with NASCAR, 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 in 2018 and beyond.”
“We are also very pleased the Court sided with us on all disputes in the Markman Order with Axon and denied their attempts to limit the scope of the claims. We are excited the Court set the remaining deadlines in the both the Axon and WatchGuard cases and are eager to move forward in the trials.
Second Quarter Operating Results
For the three months ended June 30, 2018, our total revenue increased by 2% to approximately $3.6 million, compared with revenue of approximately $3.5 million for the three months June 30, 2017. Our gross margin increased 38% to $1,618,467 for the three months ended June 30, 2018, versus $1,173,216 in 2017.
Our gross margin increase is primarily the result of improvement in our cost of sales as a percentage of revenues which decreased to 55% during the three months ended June 30, 2018 from 66% for the three months ended June 30, 2017.
Selling, General and Administrative (“SG&A”) expenses decreased approximately 17% to $3,055,776 in the three months ended June 30, 2018, versus $3,665,813 a year earlier. We are experiencing the benefits of our cost reduction strategy. We implemented significant reductions in research and development, selling, promotional, general administrative and legal expenses in 2018 compared to 2017. These reductions were accomplished primarily through headcount reductions as well as stringent cost containment measures that will continue in 2018. We had approximately 170 employees at June 30, 2017 compared to approximately 85 at June 30, 2018. The legal fees related to both the Axon and WatchGuard litigation are expected to ramp up later this year because both cases are proceeding to trial. We intend to pursue recovery from Axon, WatchGuard, their insurers and other responsible parties as appropriate.
We reported an operating loss of ($1,437,309) for the three months ended June 30, 2018, compared with an operating loss of ($2,492,597) in the previous year.
We reported a net loss of ($2,962,890), or ($0.42) per share, in the second quarter of 2018, compared with a prior-year net loss of ($2,326,523), or ($0.41) per share. No income tax provision or benefit was recorded in the second quarter of either 2018 or 2017.
We determined that it was appropriate to continue the full valuation allowance on net deferred tax assets as of June 30, 2018 primarily because of the current year operating losses.
Six-Month Operating Results
For the six months ended June 30, 2018, our total revenue decreased by 31% to approximately $6.0 million, compared with revenue of approximately $8.7 million for the six months ended June 30, 2016. Gross profit decreased 21% to $2,727,861 for the six months ended June 30, 2018, versus $3,450,065 in 2017.
Our gross margin decrease is primarily attributable to the 31% decrease in revenues for the six months ended June 30, 2018 compared to 2017 offset by cost of sales as a percentage of revenues decreasing to 55% from 60% for the same periods
Selling, General and Administrative (“SG&A”) expenses decreased approximately 21% to $6,138,486 in the six months ended June 30, 2018, versus $7,744,875 a year earlier.
We reported an operating loss of ($3,410,625) for the six months ended June 30, 2018, compared with an operating loss of ($4,294,810) in the previous year.
We reported a net loss of ($5,551,122), or ($0.78) per share, in the first half of 2017 compared with a prior-year net loss of ($4,359,478), or ($0.77) per share. No income tax provision or benefit was recorded in the first six months of either 2018 or 2017.
Investor Conference Call
The Company will host an investor conference call at 11:15 a.m. EDT on Monday, August 20, 2018, to discuss its operating results for the second quarter and first half of 2018, along with other topics of interest. Shareholders and other interested parties may participate in the conference call by dialing 844-761-0863 and entering conference ID# 42893375 a few minutes before 11:15 a.m. EDT on Monday, August 20, 2018.
A replay of the conference call will be available two hours after its completion, from August 20, 2018 until 11:59 p.m. on October 20, 2018 by dialing 855-859-2056 and entering the conference ID # 42893375.
About Digital Ally, Inc.
Digital Ally, Inc. develops, manufactures and markets advanced technology products for law enforcement, homeland security and commercial applications. The Company's primary focus is digital video imaging and storage. The Company is headquartered in Lenexa, Kansas, and its shares are traded on The Nasdaq Capital Market under the symbol "DGLY."
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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 the Company will be able to resolve its liquidity and operational issues; whether any further financing or strategic or substantial transaction will result from the strategic review process of the Board of Directors, including additional funding from BKI; whether it will be able to achieve improved production and other efficiencies to restore its gross and operating margins in 2018 and beyond; whether the Company will be able to continue to expand into non-law enforcement markets; whether the Company has resolved its product quality and supply chain issues; whether there will be commercial markets, domestically and internationally, for one or more of the Company’s new products; the impact that VuLink may have on future revenues; whether the Company’s “auto-activation” technology is becoming a standard feature for agencies utilizing body-worn cameras; whether the Company will achieve positive outcomes in its litigation with various parties, including Axon and WatchGuard; whether the USPTO rulings will curtail, eliminate or otherwise have an effect on the actions of Axon and WatchGuard respecting the Company, its products and customers; the Company’s ability to deliver its newer product offerings as scheduled, and in particular the new product platform by fourth quarter of 2018, obtain the required components and products on a timely basis, and have them perform as planned; whether the new partnership with NASCAR 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 the Company will be able to adapt its technology to new and different uses, including being able to introduce new products; whether and the extent to which the new patents allowed by the USPTO will give the Company effective, enforceable protection of the intellectual property contained in its products in the marketplace; competition from larger, more established companies with far greater economic and human resources; its ability to attract and retain customers and quality employees; the effect of changing economic conditions; and changes in government regulations, tax rates and similar matters. These cautionary statements should not be construed as exhaustive or as any admission as to the adequacy of the Company’s disclosures. The Company cannot predict or determine after the fact what factors would cause actual results to differ materially from those indicated by the forward-looking statements or other statements. The reader should consider statements that include the words “believes,” “expects,” “anticipates,” “intends,” “estimates,” “plans,” “projects,” “should” or other expressions that are predictions of or indicate future events or trends, to be uncertain and forward-looking. The Company does not undertake to publicly update or revise forward-looking statements, whether because of new information, future events or otherwise. Additional information respecting factors that could materially affect the Company and its operations are contained in its annual report on Form 10-K for the year ended December 31, 2017 and quarterly report on Form 10-Q for the three and six months ended June 30, 2018, filed with the Securities and Exchange Commission.
(Financial Highlights Follow)
DIGITAL ALLY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 2018 AND DECEMBER 31, 2017
(Unaudited) | |||||||
June 30, 2018 | December 31, 2017 | ||||||
Assets | |||||||
Current assets: | |||||||
Cash and cash equivalents..................................................................................................... | $ | 471,840 | $ | 54,712 | |||
Accounts receivable-trade, less allowance for doubtful accounts of $70,000 – 2018 and 2017............................................................................................. | 2,058,511 | 1,978,936 | |||||
Accounts receivable-other..................................................................................................... | 457,079 | 338,618 | |||||
Inventories, net...................................................................................................................... | 7,844,806 | 8,750,713 | |||||
Restricted cash....................................................................................................................... | — | 500,000 | |||||
Prepaid expenses................................................................................................................... | 189,967 | 209,163 | |||||
Total current assets........................................................................................ | 11,022,203 | 11,832,142 | |||||
Furniture, fixtures and equipment, net........................................................................................... | 449,213 | 638,169 | |||||
Intangible assets, net ..................................................................................................................... | 494,645 | 497,180 | |||||
Income tax refund receivable ........................................................................................................ | 90,000 | 90,000 | |||||
Other assets................................................................................................................................... | 169,987 | 115,043 | |||||
Total assets | $ | 12,226,048 | $ | 13,172,534 | |||
Liabilities and Stockholders’ Equity (Deficit) | |||||||
Current liabilities: | |||||||
Accounts payable.................................................................................................................. | $ | 3,025,152 | $ | 3,193,269 | |||
Accrued expenses.................................................................................................................. | 1,097,312 | 1,240,429 | |||||
Derivative liabilities............................................................................................................... | 287,522 | 16,816 | |||||
Capital lease obligation-current.............................................................................................. | — | 8,492 | |||||
Contract liabilities-current...................................................................................................... | 1,541,915 | 1,409,683 | |||||
Subordinated and secured notes payable............................................................................... | 250,000 | 1,008,500 | |||||
Secured convertible debentures, at fair value......................................................................... | 5,354,803 | 3,262,807 | |||||
Income taxes payable............................................................................................................. | 3,756 | 10,141 | |||||
Total current liabilities................................................................................... | 11,560,460 | 10,150,137 | |||||
Long-term liabilities: | |||||||
Contract liabilities-long term.................................................................................................. | 2,227,176 | 2,158,649 | |||||
Total liabilities............................................................................................................................... | 13,787,636 | 12,308,786 | |||||
Commitments and contingencies................................................................................................... | |||||||
Stockholder’s Equity (Deficit): | |||||||
Common stock, $0.001 par value; 25,000,000 shares authorized; shares issued: 7,286,175 – 2018 and 7,037,799 – 2017............................................................... | 7,286 | 7,038 | |||||
Additional paid in capital....................................................................................................... | 67,977,829 | 64,923,735 | |||||
Treasury stock, at cost (63,518 shares)................................................................................. | (2,157,226 | ) | (2,157,226 | ) | |||
Accumulated deficit............................................................................................................... | (67,389,477 | ) | (61,909,799 | ) | |||
Total stockholders’ equity (deficit)................................................................ | (1,561,588 | ) | 863,748 | ||||
Total liabilities and stockholders’ equity (deficit)..................................................... | $ | 12,226,048 | $ | 13,172,534 | |||
(FOR ADDITIONAL INFORMATION, PLEASE REFER TO THE COMPANY’S QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED JUNE 30, 2018 FILED WITH THE SEC)
DIGITAL ALLY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED
JUNE 30, 2018 AND 2017
(Unaudited)
Three months ended June 30, | Six months ended June 30, | |||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||
Revenue: | ||||||||||||
Product.......................................................................................................... | $ | 2,993,700 | $ | 3,056,810 | $ | 4,984,813 | $ | 7,742,170 | ||||
Service and other........................................................................................... | 569,850 | 429,692 | 1,050,250 | 974,192 | ||||||||
Total revenue................................................................................................. | 3,563,550 | 3,486,502 | 6,035,063 | 8,716,362 | ||||||||
Cost of revenue: | ||||||||||||
Product.......................................................................................................... | $ | 1,831,615 | $ | 1,959,274 | $ | 3,080,360 | $ | 4,733,311 | ||||
Service and other........................................................................................... | 113,468 | 354,012 | 226,842 | 532,986 | ||||||||
Total cost of revenue..................................................................................... | 1,945,083 | 2,313,286 | 3,307,202 | 5,266,297 | ||||||||
Gross profit................................................................................................... | 1,618,467 | 1,173,216 | 2,727,861 | 3,450,065 | ||||||||
Selling, general and administrative expenses: | ||||||||||||
Research and development expense.................................................................. | 333,760 | 846,460 | 773,880 | 1,664,351 | ||||||||
Selling, advertising and promotional expense................................................... | 712,008 | 952,312 | 1,386,413 | 1,987,834 | ||||||||
Stock-based compensation expense.................................................................. | 594,228 | 115,756 | 1,087,746 | 502,789 | ||||||||
General and administrative expense.................................................................. | 1,415,780 | 1,751,285 | 2,890,447 | 3,589,901 | ||||||||
Total selling, general and administrative expenses.................................................... | 3,055,776 | 3,665,813 | 6,138,486 | 7,744,875 | ||||||||
Operating loss.................................................................................................. | (1,437,309 | ) | (2,492,597 | ) | (3,410,625 | ) | (4,294,810 | ) | ||||
Interest income......................................................................................................... | 684 | 3,797 | 2,300 | 8,858 | ||||||||
Interest expense........................................................................................................ | (152,975 | ) | (80,436 | ) | (283,203 | ) | (160,987 | ) | ||||
Change in warrant derivative liabilities..................................................................... | (310,195 | ) | 13,114 | (309,306 | ) | 13,719 | ||||||
Secured convertible debentures issuance expense.................................................... | (220,312 | ) | — | (220,312 | ) | — | ||||||
Loss on the extinguishment of secured convertible debentures................................ | — | — | (500,000 | ) | — | |||||||
Change in fair value of secured convertible debentures............................................ | (842,783 | ) | 229,599 | (829,976 | ) | 73,742 | ||||||
Loss before income tax expense............................................................................... | (2,962,890 | ) | (2,326,523 | ) | (5,551,122 | ) | (4,359,478 | ) | ||||
Income tax (expense) benefit ................................................................................... | — | — | — | — | ||||||||
Net loss | $ | (2,962,890 | ) | $ | (2,326,523 | ) | $ | (5,551,122 | ) | $ | (4,359,478 | ) |
Net loss per share information: | ||||||||||||
Basic................................................................................................................. | $ | (0.42 | ) | $ | (0.41 | ) | $ | (0.78 | ) | $ | (0.77 | ) |
Diluted.............................................................................................................. | $ | (0.42 | ) | $ | (0.41 | ) | $ | (0.78 | ) | $ | (0.77 | ) |
Weighted average shares outstanding: | ||||||||||||
Basic................................................................................................................. | 7,129,260 | 5,679,731 | 7,153,219 | 5,654,755 | ||||||||
Diluted.............................................................................................................. | 7,129,260 | 5,679,731 | 7,153,219 | 5,654,755 |
(FOR ADDITIONAL INFORMATION, PLEASE REFER TO THE COMPANY’S QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED JUNE 30, 2018 FILED WITH THE SEC)