LENEXA, Kansas, April 06, 2020 (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 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
Recent Developments
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.
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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 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 SHEETS
DECEMBER 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 OPERATIONS
FOR THE YEARS ENDED
DECEMBER 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)