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Digital Ally(DGLY) - 2021 Q4 - Annual Report
2022-04-14 16:00
Part I [Business](index=5&type=section&id=Item%201.%20Business.) Digital Ally, Inc. diversified into Revenue Cycle Management and Ticketing segments in 2021, significantly increasing revenue while continuing its legacy Video Solutions business - The company expanded into **Revenue Cycle Management** and **Ticketing** as new operating segments, alongside its legacy Video Solutions business[21](index=21&type=chunk) Net Revenues by Segment (2021 vs. 2020) | Segment | 2021 Net Revenues ($) | 2020 Net Revenues ($) | | :--- | :--- | :--- | | Video Solutions | $9,073,626 | $10,514,868 | | Revenue Cycle Management | $1,630,048 | — | | Ticketing | $10,709,760 | — | | **Total Net Revenues** | **$21,413,434** | **$10,514,868** | - The Video Solutions segment offers **in-car video systems**, **body-worn cameras**, the **VuLink auto-activation system**, and **health safety products**[22](index=22&type=chunk) - The **Revenue Cycle Management** segment, established in Q2 2021 through acquisitions, provides **billing and back-office services** to healthcare organizations[23](index=23&type=chunk)[24](index=24&type=chunk) - The **Ticketing** segment, formed in Q3 2021 via the **TicketSmarter acquisition**, operates an online marketplace for **over 125,000 live events** with **over 48 million tickets** for sale[26](index=26&type=chunk)[28](index=28&type=chunk) - As of December 31, 2021, the company had approximately **146 full-time employees** across its segments[80](index=80&type=chunk)[84](index=84&type=chunk) - In December 2021, the company formed **Worldwide Reinsurance Ltd.**, a Bermuda-based captive insurance subsidiary for liability coverage[70](index=70&type=chunk) [Risk Factors](index=16&type=section&id=Item%201A.%20Risk%20Factors.) This section is not applicable - Not applicable[92](index=92&type=chunk) [Unresolved Staff Comments](index=16&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments.) The company reports no unresolved staff comments - None[94](index=94&type=chunk) [Properties](index=16&type=section&id=Item%202.%20Properties.) In 2021, the company acquired a **71,361 sq. ft. commercial building** for **$5.3 million** in Lenexa, Kansas, for its future headquarters, and assumed operating leases from recent acquisitions - On April 30, 2021, the company purchased a **71,361 sq. ft. commercial office building** in Lenexa, Kansas, for approximately **$5.3 million** in cash[97](index=97&type=chunk) - The company assumed operating leases for office spaces from recent acquisitions, with terms ending between **December 2022 and July 2024**[98](index=98&type=chunk)[99](index=99&type=chunk)[100](index=100&type=chunk) [Legal Proceedings](index=16&type=section&id=Item%203.%20Legal%20Proceedings.) The company's primary legal proceeding, a patent infringement lawsuit against Axon, concluded with appeals denied and no material adverse effect expected from ongoing litigation - The company's patent infringement suit against Axon, filed in January 2016, resulted in a summary judgment for Axon in June 2019[104](index=104&type=chunk)[107](index=107&type=chunk) - Appeals to the U.S. Court of Appeals were denied in April 2020, and the company has abandoned further appeal rights[108](index=108&type=chunk) - The company records legal liabilities when probable and estimable, with no material adverse effect expected from current proceedings[109](index=109&type=chunk)[110](index=110&type=chunk) [Mine Safety Disclosures](index=18&type=section&id=Item%204.%20Mine%20Safety%20Disclosures.) This section is not applicable - Not applicable[112](index=112&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=19&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities.) The company's common stock trades on Nasdaq under 'DGLY', initiated a **$10 million** share repurchase program in Q4 2021, has not paid dividends, and maintains equity compensation plans Quarterly Stock Price Range (High/Low) | Period | 2021 High ($) | 2021 Low ($) | 2020 High ($) | 2020 Low ($) | | :--- | :--- | :--- | :--- | :--- | | 1st Quarter | $3.98 | $1.51 | $2.02 | $0.64 | | 2nd Quarter | $2.24 | $1.56 | $7.10 | $0.67 | | 3rd Quarter | $1.83 | $1.17 | $4.43 | $1.80 | | 4th Quarter | $1.60 | $0.97 | $3.19 | $1.91 | - On December 6, 2021, the Board approved a share repurchase program for up to **$10 million** of common stock, expiring December 31, 2022[119](index=119&type=chunk) Share Repurchases in Q4 2021 | Period | Total Shares Purchased | Average Price Paid ($) | Approx. Dollar Value Remaining in Program ($) | | :--- | :--- | :--- | :--- | | December 2021 | 1,734,838 | $1.14 | $8,024,921 | - The company has not declared or paid cash dividends and intends to retain future earnings for business operations[120](index=120&type=chunk) Equity Compensation Plan Information (as of Dec 31, 2021) | Plan category | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | Weighted-average exercise price of outstanding options, warrants and rights ($) (b) | Number of securities remaining available for future issuance (c) | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by stockholders | 1,086,064 | $2.37 | 915,845 | [Reserved](index=21&type=section&id=Item%206.%20%5BReserved%5D.) This section is reserved [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=22&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operation.) In 2021, total revenue more than doubled to **$21.4 million** driven by new segments, leading to a **$25.5 million** net income primarily from non-cash gains on warrant derivatives, and significantly improved liquidity to **$32.0 million** cash from **$66.4 million** in offerings Consolidated Results of Operations Summary | Metric | 2021 ($) | 2020 ($) | | :--- | :--- | :--- | | Total Revenue | $21,413,434 | $10,514,868 | | Gross Profit | $5,663,775 | $4,062,594 | | Operating Loss | ($14,760,910) | ($7,663,651) | | Net Income (Loss) | $25,530,961 | ($2,625,881) | | Basic and Diluted EPS | $0.51 | ($0.12) | - The significant increase in total revenue was driven by the new **Ticketing** and **Revenue Cycle Management** segments, established through acquisitions in the second half of 2021[162](index=162&type=chunk) - Net income resulted primarily from a **$36.7 million** non-cash gain on warrant derivative liabilities and a **$3.7 million** gain on contingent consideration from acquisitions[230](index=230&type=chunk)[231](index=231&type=chunk) - SG&A expenses increased **74.2%** to **$20.4 million** in 2021, driven by new acquisitions, increased promotional activities, and higher professional fees[213](index=213&type=chunk)[214](index=214&type=chunk)[215](index=215&type=chunk)[216](index=216&type=chunk) - The company raised approximately **$66.4 million** in net proceeds from two registered direct offerings in Q1 2021, significantly strengthening liquidity[247](index=247&type=chunk)[251](index=251&type=chunk)[255](index=255&type=chunk) - Cash and cash equivalents increased to **$32.0 million** at year-end 2021 from **$4.4 million** in 2020, primarily due to financing activities[265](index=265&type=chunk) [Results of Operations (2021 vs. 2020)](index=24&type=section&id=Results%20of%20Operations) Total revenues surged **103.6%** to **$21.4 million** in 2021, driven by new segments, resulting in a **$25.5 million** net income despite increased operating loss and SG&A, primarily due to non-cash gains Revenue by Type and Segment (2021 vs. 2020) | Revenue Type / Segment | 2021 ($) | 2020 ($) | % Change | | :--- | :--- | :--- | :--- | | **Product Revenues** | | | | | Video Solutions | $6,393,050 | $8,029,457 | (20.4)% | | Ticketing | $2,787,237 | — | 100% | | *Total Product Revenues* | *$9,180,287* | *$8,029,457* | *14.3%* | | **Service & Other Revenues** | | | | | Video Solutions | $2,680,576 | $2,485,411 | 7.9% | | Ticketing | $7,922,523 | — | 100% | | Revenue Cycle Management | $1,630,048 | — | 100% | | *Total Service Revenues* | *$12,233,147* | *$2,485,411* | *392.2%* | | **Total Revenues** | **$21,413,434** | **$10,514,868** | **103.6%** | Gross Profit by Segment (2021 vs. 2020) | Segment | 2021 Gross Profit ($) | 2020 Gross Profit ($) | | :--- | :--- | :--- | | Video Solutions | $2,002,345 | $4,062,594 | | Revenue Cycle Management | $521,047 | — | | Ticketing | $3,140,383 | — | | **Total Gross Profit** | **$5,663,775** | **$4,062,594** | - SG&A expenses increased by **$8.7 million (74.2%)** to **$20.4 million**, driven by new acquisitions, increased promotional expenses, and higher payroll[213](index=213&type=chunk) - A non-cash gain of **$36,664,907** from the change in fair value of warrant derivative liabilities was the primary driver of net income[230](index=230&type=chunk) - A gain of **$3,732,789** was recognized from the change in fair value of contingent consideration related to acquisitions[231](index=231&type=chunk)[232](index=232&type=chunk) [Liquidity and Capital Resources](index=41&type=section&id=Liquidity%20and%20Capital%20Resources) The company's liquidity significantly improved in 2021, with cash increasing to **$32.0 million** from **$4.4 million**, primarily due to **$66.4 million** in net proceeds from direct offerings, despite substantial cash usage in operating and investing activities - The company raised approximately **$66.4 million** in net proceeds from two registered direct offerings in Q1 2021, providing adequate liquidity for the foreseeable future[247](index=247&type=chunk) Summary of Cash Flows (2021 vs. 2020) | Cash Flow Activity | 2021 ($) | 2020 ($) | | :--- | :--- | :--- | | Net Cash Used in Operating Activities | ($17,825,108) | ($13,274,715) | | Net Cash Used in Investing Activities | ($19,124,379) | ($1,499,189) | | Net Cash Provided by Financing Activities | $64,595,521 | $18,775,977 | - Investing activities in 2021 included approximately **$5.3 million** for a new building and cash payments for three acquisitions[269](index=269&type=chunk)[270](index=270&type=chunk)[271](index=271&type=chunk)[272](index=272&type=chunk) - Financing activities in 2021 were dominated by **$66.6 million** gross proceeds from two public offerings, offset by approximately **$2.0 million** in share repurchases[263](index=263&type=chunk) - As of December 31, 2021, the company had net working capital of **$33.1 million**, a significant improvement from the prior year[264](index=264&type=chunk) [Critical Accounting Policies](index=48&type=section&id=Critical%20Accounting%20Policies) The company's critical accounting policies involve significant judgment, including Revenue Recognition, Allowance for Excess and Obsolete Inventory (**$3.9 million** reserve), Goodwill and Intangible Asset impairment, Warranty Reserves, Stock-based Compensation, and Income Taxes with a full valuation allowance against deferred tax assets - Key critical accounting policies include **Revenue Recognition**, **Allowance for Excess and Obsolete Inventory**, **Goodwill and other intangible assets**, **Warranty Reserves**, **Stock-based Compensation Expense**, **Fair value of warrants**, **Fair value of assets and liabilities acquired in business combinations**, and **Accounting for Income Taxes**[289](index=289&type=chunk) - Revenue for the ticketing segment is recorded on a **gross basis** for inventory sales and a **net basis** for marketplace transactions[298](index=298&type=chunk)[299](index=299&type=chunk)[300](index=300&type=chunk) - The reserve for excess and obsolete inventory was **$3.9 million** as of December 31, 2021, up from **$2.0 million** in 2020, primarily due to older product obsolescence and new ticketing segment reserves[312](index=312&type=chunk) - The company maintains a full valuation allowance of **$17.0 million** against its net deferred tax assets as of December 31, 2021, due to recurring operating losses[327](index=327&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=53&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk.) This section is not applicable - Not applicable[332](index=332&type=chunk) [Financial Statements and Supplementary Data](index=53&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data.) This section presents the consolidated financial statements for 2021 and 2020, along with RBSM LLP's unqualified audit opinion, which highlights critical audit matters regarding **goodwill and intangible valuation** and **inventory reserves** - The independent auditor, **RBSM LLP**, issued an unqualified opinion on the consolidated financial statements[387](index=387&type=chunk) - Critical Audit Matters included the valuation of **goodwill and intangibles** from the TicketSmarter acquisition and the valuation of **inventory reserves** due to estimation uncertainty and complex judgment[392](index=392&type=chunk)[399](index=399&type=chunk) Consolidated Balance Sheet Highlights (As of Dec 31) | Account | 2021 ($) | 2020 ($) | | :--- | :--- | :--- | | Total Assets | $82,989,197 | $20,797,527 | | Total Liabilities | $27,125,958 | $6,441,021 | | Total Equity | $55,863,239 | $14,356,506 | - **Warrant derivative liabilities** of **$14.8 million** were recorded as a current liability in 2021, not present in 2020[410](index=410&type=chunk) [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=53&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure.) The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[336](index=336&type=chunk) [Controls and Procedures](index=54&type=section&id=Item%209A.%20Controls%20and%20Procedures.) Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2021, excluding recently acquired businesses, with integration ongoing - Management concluded that **disclosure controls and procedures** were effective as of December 31, 2021[338](index=338&type=chunk) - Management's report on **internal control over financial reporting** concluded that controls were effective as of December 31, 2021[342](index=342&type=chunk) - The evaluation of internal control over financial reporting excluded the **TicketSmarter** and **Goody Tickets** acquisitions from September 2021[341](index=341&type=chunk) [Other Information](index=54&type=section&id=Item%209B.%20Other%20Information.) The company reports no other information - None[345](index=345&type=chunk) [Disclosure Regarding Foreign Jurisdictions that Prevent Inspections](index=55&type=section&id=Item%209C.%20Disclosure%20Regarding%20Foreign%20Jurisdictions%20that%20Prevent%20Inspections.) This section is not applicable - Not applicable[347](index=347&type=chunk) Part III [Directors, Executive Officers and Corporate Governance](index=56&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance.) Information for this item is incorporated by reference from the company's definitive proxy statement - Information is incorporated by reference to the **2022 Proxy Statement**[350](index=350&type=chunk) [Executive Compensation](index=56&type=section&id=Item%2011.%20Executive%20Compensation.) Information for this item is incorporated by reference from the company's definitive proxy statement - Information is incorporated by reference to the **2022 Proxy Statement**[352](index=352&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=56&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters.) Information for this item, including equity compensation plans, is incorporated by reference from the company's definitive proxy statement and Part II, Item 5 of this report - Information is incorporated by reference to the **2022 Proxy Statement**[354](index=354&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=56&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence.) Information for this item is incorporated by reference from the company's definitive proxy statement - Information is incorporated by reference to the **2022 Proxy Statement**[357](index=357&type=chunk) [Principal Accountant Fees and Services](index=56&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services.) Information for this item is incorporated by reference from the company's definitive proxy statement - Information is incorporated by reference to the **2022 Proxy Statement**[359](index=359&type=chunk) Part IV [Exhibits and Financial Statement Schedules](index=57&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules.) This section lists documents filed with the Annual Report on Form 10-K, including consolidated financial statements starting on page F-1, omitted schedules, and a comprehensive list of exhibits - The consolidated financial statements required by Item 8 are included starting on **page F-1**[362](index=362&type=chunk) - All financial statement schedules have been omitted as not applicable or included elsewhere[363](index=363&type=chunk) - Key exhibits include **stock option plans**, **placement agency agreements**, the **real estate sales contract**, and agreements for the **Nobility and TicketSmarter acquisitions**[364](index=364&type=chunk)[365](index=365&type=chunk)
Digital Ally(DGLY) - 2021 Q3 - Quarterly Report
2021-11-18 16:00
UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Title of each class Trading Symbol(s) Name of exchange on which registered Common stock, $0.001 par value per share DGLY the Nasdaq Capital Market LLC FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2021. or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ t ...
Digital Ally(DGLY) - 2021 Q3 - Earnings Call Transcript
2021-11-17 20:44
Digital Ally, Inc. (NASDAQ:DGLY) Q3 2021 Earnings Conference Call November 17, 2021 11:15 AM ET Company Participants Stanton Ross - Chief Executive Officer Tom Heckman - Chief Financial Officer Conference Call Participants Rommel Dionisio - Aegis Capital Bryan Lubitz - Aegis Capital Patrick McGrady - Stonefish Capital Operator This conference call contains forward-looking statements within the meaning of Section 27E of the Securities Exchange Act of 1934 as amended relating to Digital Ally's future business ...
Digital Ally(DGLY) - 2021 Q2 - Earnings Call Transcript
2021-08-18 20:26
Financial Data and Key Metrics Changes - Total revenues increased by 44% year-over-year and 21% year-to-date [8] - Gross margins improved to 51% from 23% in the prior year [9] - SG&A expenses increased by 53% year-over-year and 32% year-to-date [9] Business Line Data and Key Metrics Changes - Product revenues rose by 63% year-over-year, with the EVO-HD system accounting for 25% of total revenues compared to 9% last year [10] - DVM-800 maintained a steady contribution of about 18% of revenues [11] - FirstVU body cameras contributed approximately 12% of total revenues, with a new version expected to launch soon [12] - DVM-250 commercial product dropped to about 2% of revenues due to COVID-19 impacts [13] - Service revenues increased by 14% year-over-year, while cloud revenues faced challenges [16] Market Data and Key Metrics Changes - Rental revenues increased significantly due to a sublease on a newly acquired building [17] - Overall gross margins increased primarily due to a shift towards higher-margin EVO products [18] Company Strategy and Development Direction - The company is pursuing a roll-up strategy in the medical billing industry, with the recent acquisition of Elite Medical [28] - Plans to close additional acquisitions in the medical billing sector and other areas by the end of Q3 [30] - The company aims to enhance EBITDA through strategic acquisitions and leverage existing relationships in law enforcement and commercial sectors [35] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about growth opportunities as schools reopen and COVID-19 vaccinations progress [36] - The company anticipates continued demand for ThermoVu and Shield products in various sectors [36] Other Important Information - The company reported a strong balance sheet with $58 million in cash and minimal debt [27] - SG&A expenses were driven by professional fees related to acquisitions and increased insurance costs due to COVID-19 [19][24] Q&A Session Summary Question: Impact of FirstVU product on margins - Management confirmed that FirstVU is a high-margin product, typically sold on a subscription basis [37] Question: Opportunities for ThermoVu in large gatherings - Management acknowledged potential for ThermoVu in theaters and workplaces as they reopen [39] Question: Growth of recurring revenue - Recurring revenue has faced challenges due to commercial clients not ramping up post-COVID, but law enforcement side has continued to grow [45] Question: Medical billing acquisition's role in growth - The acquisition is expected to open doors for ThermoVu and Shield products in hospitals and clinics [48] Question: SG&A charges and future expectations - Management indicated that some SG&A increases are nonrecurring, but ongoing acquisitions will lead to continued professional fees [51] Question: Marketing efforts for product awareness - The company is increasing visibility through various marketing strategies, including branding in videos [53] Question: Future roadshows and investor outreach - Management confirmed plans for roadshows to increase awareness and communicate the company's story [69]
Digital Ally(DGLY) - 2021 Q2 - Quarterly Report
2021-08-17 16:00
PART I – FINANCIAL INFORMATION [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements.) The company's liquidity improved dramatically from financing activities, though it reported a Q2 net loss while initiating a new healthcare venture [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The balance sheet reflects a surge in assets and liabilities, driven by significant financing activities and new warrant derivative liabilities Balance Sheet Comparison (Unaudited) | Financial Metric | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $58,276,178 | $4,361,758 | | Total current assets | $72,997,645 | $17,830,106 | | Total assets | $83,099,135 | $20,797,527 | | **Liabilities & Equity** | | | | Warrant derivative liabilities | $29,527,224 | $0 | | Total current liabilities | $32,787,911 | $3,720,608 | | Total liabilities | $36,392,340 | $6,441,022 | | Total stockholders' equity | $46,706,795 | $14,356,505 | - Total assets surged to **$83.1 million** from $20.8 million, primarily driven by a more than **13-fold increase in cash** and cash equivalents resulting from financing activities[14](index=14&type=chunk) - A new significant liability, **Warrant derivative liabilities**, was recorded at **$29.5 million** as of June 30, 2021, contributing to a substantial increase in total liabilities[14](index=14&type=chunk) [Condensed Consolidated Statements of Operations](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Revenue and gross profit grew, but a Q2 net loss widened while H1 net income was achieved due to a large non-cash gain Three Months Ended June 30 (Unaudited) | Metric | 2021 | 2020 | Change | | :--- | :--- | :--- | :--- | | Total revenue | $2,493,671 | $1,732,192 | +44.0% | | Gross profit | $1,260,800 | $392,758 | +221.0% | | Operating loss | ($2,616,884) | ($2,143,154) | +22.1% | | Net loss | ($5,382,487) | ($497,894) | +981.0% | | Diluted EPS | ($0.10) | ($0.03) | - | Six Months Ended June 30 (Unaudited) | Metric | 2021 | 2020 | Change | | :--- | :--- | :--- | :--- | | Total revenue | $5,029,501 | $4,157,936 | +21.0% | | Gross profit | $2,072,683 | $1,657,788 | +25.0% | | Operating loss | ($5,482,578) | ($4,070,519) | +34.7% | | Net income (loss) | $16,339,371 | ($2,832,004) | - | | Diluted EPS | $0.34 | ($0.17) | - | - For the six months ended June 30, 2021, the company reported a **net income of $16.3 million**, primarily driven by a non-cash gain of **$21.7 million** from the change in fair value of warrant derivative liabilities[17](index=17&type=chunk) [Condensed Consolidated Statements of Stockholders' Equity (Deficit)](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity%20(Deficit)) Stockholders' equity increased substantially, primarily due to direct offerings, warrant exercises, and net income for the period - Total stockholders' equity increased significantly from **$14.4 million** at December 31, 2020, to **$46.7 million** at June 30, 2021[19](index=19&type=chunk)[21](index=21&type=chunk) - The increase in equity was primarily driven by **registered direct offerings**, the exercise of pre-funded common stock purchase warrants, and a **net income of $16.3 million** for the six-month period[19](index=19&type=chunk)[20](index=20&type=chunk)[21](index=21&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) A significant net increase in cash was driven by strong financing activities, which offset cash used in operations and investments Cash Flow Summary for Six Months Ended June 30 (Unaudited) | Cash Flow Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash used in operating activities | ($6,149,773) | ($4,057,003) | | Net cash used in investing activities | ($6,506,407) | ($163,109) | | Net cash provided by financing activities | $66,570,600 | $20,025,977 | | **Net increase in cash** | **$53,914,420** | **$15,805,865** | - Financing activities provided **$66.6 million in cash**, primarily from registered direct offerings ($13.3M) and the exercise of pre-funded warrants ($53.2M)[24](index=24&type=chunk) - Investing activities used **$6.5 million**, including **$5.5 million** for purchases of property, plant, and equipment and **$1.0 million** for a business acquisition[24](index=24&type=chunk) [Notes to the Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) Notes detail significant financing events, the accounting for warrant liabilities, a new healthcare venture, and the conclusion of patent litigation - The company formed **Digital Ally Healthcare, LLC** in June 2021 to enter the medical billing market and subsequently acquired Elite Medical Billing Specialists[44](index=44&type=chunk)[147](index=147&type=chunk) - Warrants issued in Q1 2021 are classified as **derivative liabilities** and measured at fair value, with changes reported in earnings, due to a net cash settlement provision[68](index=68&type=chunk)[124](index=124&type=chunk) - The company's appeal in its patent infringement lawsuit against Axon was denied, and the company has **abandoned any further appeals**[111](index=111&type=chunk) - In Q1 2021, the company completed two registered direct offerings, raising combined net proceeds of approximately **$66.4 million** through the sale of common stock, pre-funded warrants, and common stock purchase warrants[134](index=134&type=chunk)[140](index=140&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=35&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations.) Management discusses revenue growth, wider operating losses, strategic expansion into healthcare, and a significantly improved liquidity position [Results of Operations for the Three Months Ended June 30, 2021 and 2020](index=38&type=section&id=Results%20of%20Operations%20for%20the%20Three%20Months%20Ended%20June%2030,%202021%20and%202020) Q2 2021 revenue grew 44% and gross margin improved to 51%, but higher SG&A expenses and a large non-cash loss widened the net loss Q2 2021 vs Q2 2020 Performance | Metric | Q2 2021 | Q2 2020 | | :--- | :--- | :--- | | Total Revenue | $2,493,671 | $1,732,192 | | Gross Profit | $1,260,800 | $392,758 | | Gross Margin | 51% | 23% | | Operating Loss | ($2,616,884) | ($2,143,154) | | Net Loss | ($5,382,487) | ($497,894) | - Product revenues increased by **63% ($665,751)**, partly due to the launch of new product lines (ThermoVu™ and Shield™) in response to the COVID-19 pandemic[173](index=173&type=chunk) - Selling, general and administrative (SG&A) expenses rose by **53% ($1,341,772)**, driven by increased travel, promotional activities, and higher legal and professional fees as business activities resumed post-COVID restrictions[192](index=192&type=chunk) [Results of Operations for the Six Months Ended June 30, 2021 and 2020](index=45&type=section&id=Results%20of%20Operations%20for%20the%20Six%20Months%20Ended%20June%2030,%202021%20and%202020) H1 2021 revenue grew 21%, but a significant non-cash gain on warrant liabilities turned an operating loss into a $16.3 million net income H1 2021 vs H1 2020 Performance | Metric | H1 2021 | H1 2020 | | :--- | :--- | :--- | | Total Revenue | $5,029,501 | $4,157,936 | | Gross Profit | $2,072,683 | $1,657,788 | | Gross Margin | 41% | 40% | | Operating Loss | ($5,482,578) | ($4,070,519) | | Net Income/(Loss) | $16,339,371 | ($2,832,004) | - The company achieved a **net income of $16.3 million** for the six-month period, reversing a $2.8 million loss from the prior year, primarily due to a **$21.7 million gain** on the change in fair value of warrant derivative liabilities[261](index=261&type=chunk)[264](index=264&type=chunk) - SG&A expenses increased by **32% ($1,826,954)**, fueled by higher promotional costs as NASCAR/IndyCar seasons resumed, and increased legal fees related to offerings and acquisitions[241](index=241&type=chunk)[244](index=244&type=chunk)[245](index=245&type=chunk) [Liquidity and Capital Resources](index=52&type=section&id=Liquidity%20and%20Capital%20Resources) Liquidity improved dramatically, with cash rising to $58.3 million after raising $66.4 million from offerings to fund operations and acquisitions - Cash and cash equivalents increased by **$53.9 million** during the six months ended June 30, 2021, reaching a balance of **$58.3 million**[270](index=270&type=chunk)[273](index=273&type=chunk) - The company raised approximately **$66.4 million in net proceeds** from two registered direct offerings of common stock and warrants in Q1 2021[266](index=266&type=chunk)[272](index=272&type=chunk) - Significant capital expenditures included the acquisition of a new **$5.3 million commercial office/warehouse building** and the acquisition of Elite Medical Billing for approximately **$1.4 million**[275](index=275&type=chunk)[276](index=276&type=chunk) [Critical Accounting Policies](index=55&type=section&id=Critical%20Accounting%20Policies) Key policies require significant judgment, particularly for warrant derivative liabilities, while a full valuation allowance is maintained for deferred tax assets - Key critical accounting policies involve significant estimates for **revenue recognition, inventory and warranty reserves, stock-based compensation, and income taxes**[291](index=291&type=chunk)[292](index=292&type=chunk) - The valuation of **warrant derivative liabilities** is a new critical policy, requiring the use of a Black-Scholes model with subjective inputs like stock volatility[309](index=309&type=chunk)[310](index=310&type=chunk) - The company maintains a **full valuation allowance of $24.6 million** against its net deferred tax assets, as it has not yet demonstrated a sustained level of profitability to ensure their realization[315](index=315&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=60&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk.) The company has indicated that this section is not applicable - Not Applicable[320](index=320&type=chunk) [Item 4. Controls and Procedures](index=60&type=section&id=Item%204.%20Controls%20and%20Procedures.) Management concluded that disclosure controls and procedures were effective, with no material changes to internal controls during the quarter - The CEO and CFO concluded that the company's **disclosure controls and procedures were effective** as of June 30, 2021[322](index=322&type=chunk) - **No changes in internal control** over financial reporting occurred during the last fiscal quarter that materially affected, or are reasonably likely to materially affect, internal controls[324](index=324&type=chunk) PART II - OTHER INFORMATION [Item 1. Legal Proceedings](index=61&type=section&id=Item%201.%20Legal%20Proceedings.) The company has abandoned its patent infringement appeal against Axon and expects no other material impact from legal matters - The company's appeal in its patent infringement lawsuit against Axon Enterprise, Inc. was denied, and the company has **abandoned its right to any further appeals**[111](index=111&type=chunk) - Management believes that the final outcome of other various claims and legal proceedings will **not have a material adverse effect** on the company's consolidated financial condition, results of operations, or cash flows[327](index=327&type=chunk) [Item 1A. Risk Factors](index=61&type=section&id=Item%201A.%20Risk%20Factors.) As a smaller reporting company, Digital Ally, Inc is not required to provide the information for this item - As a smaller reporting company, **this section is not required**[328](index=328&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=61&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds.) The company has indicated that this section is not applicable - Not applicable[330](index=330&type=chunk) [Item 3. Defaults Upon Senior Securities](index=61&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company has indicated that this section is not applicable - Not applicable[332](index=332&type=chunk) [Item 4. Mine Safety Disclosures](index=61&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) The company has indicated that this section is not applicable - Not applicable[334](index=334&type=chunk) [Item 5. Other Information](index=61&type=section&id=Item%205.%20Other%20Information.) The company has indicated that this section is not applicable - Not applicable[336](index=336&type=chunk) [Item 6. Exhibits](index=62&type=section&id=Item%206.%20Exhibits.) This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications and Interactive Data Files (XBRL) - The report includes **CEO and CFO certifications** pursuant to Rule 13a-14(a) and 13a-14(b) of the Securities and Exchange Act of 1934, as well as Interactive Data Files[339](index=339&type=chunk)
Digital Ally(DGLY) - 2021 Q1 - Earnings Call Transcript
2021-05-18 19:39
Financial Data and Key Metrics Changes - Overall revenues increased by approximately $110,000 or 5% year-over-year [8] - Product revenues increased by 8% year-over-year, driven by the success of the subscription program [9] - Service revenues decreased by 5% year-over-year, primarily due to COVID-19 related travel restrictions [9] - Operating income dropped by $938,000 year-over-year, with a $450,000 drop in gross margins despite a 5% increase in revenues [15] - Net income was $21.7 million for the quarter, or $0.49 per share, compared to a loss of $2.3 million or $0.17 per share a year ago [19] - Cash balance improved significantly to $67.6 million from $4.3 million a year ago [21] Business Line Data and Key Metrics Changes - Service costs of sales remained steady at 26%, while product costs of sales increased from 56% to 82% year-over-year [10] - SG&A expenses increased by $485,000, attributed to higher insurance costs and inflationary wage increases [13] Market Data and Key Metrics Changes - The company is experiencing inflationary pressures affecting gross margins, particularly in shipping and component costs [11][12] - The demand for newer components in high demand across various industries is impacting the company's ability to pass on costs [36] Company Strategy and Development Direction - The company is looking to enhance core product lines and explore potential acquisitions to provide more value to investors [23][24] - A new office and warehouse building was acquired to support growth and expansion of product lines [22] - The company is focusing on organic growth through product improvements and exploring adjacent market opportunities [26][30] Management's Comments on Operating Environment and Future Outlook - Management noted that the inflationary trends in costs are expected to be transitory [11][12] - The law enforcement sector is anticipated to continue growing, with positive reception of new products like the Evo HD system and body cameras [30][31] - Management expressed optimism about the recovery from COVID-19 and the potential for increased market share due to unique product offerings [31][32] Other Important Information - The balance sheet has improved dramatically due to $66.5 million raised in public offerings [20] - The company is cautious about insurance costs and is exploring different ways to manage insurance programs [14] Q&A Session Summary Question: How do you plan to pass on inflationary cost increases? - Management indicated that inflationary pressures have been building and they are attempting to pass on costs, but competitive pressures limit their ability to do so effectively [36] Question: Update on foreign law enforcement agency opportunity? - Management confirmed that the deal is delayed but not canceled, as the agency is dealing with its own COVID-related priorities [40] Question: Are customers shifting to subscription models? - Management noted a significant shift towards subscription models, with 15% to 20% quarter-over-quarter growth in that area [48][49] Question: Interest in thermal systems for events? - Management reported an increase in inquiries for situational security products as events begin to reopen [51] Question: Is the current cash sufficient for future plans? - Management confirmed that the current cash position is sufficient for their needs [52] Question: Plans for marketing and product launches? - Management is focused on increasing visibility and marketing efforts, particularly in the commercial fleet market [76][78] Question: Discussion on poison pill strategy? - Management explained that the Blank Check Preferred is intended to protect against unsolicited takeover attempts, but achieving shareholder approval has been challenging [82][84]
Digital Ally(DGLY) - 2021 Q1 - Quarterly Report
2021-05-16 16:00
Financial Performance - Total revenue for Q1 2021 was $2,535,829, a decrease from $2,798,291 in Q4 2020, reflecting a decline of approximately 9.4%[153] - Gross profit for Q1 2021 was $811,882, resulting in a gross profit margin of 32.0%, down from 43.0% in Q4 2020[153] - The company reported an operating loss of $2,865,693 for Q1 2021, compared to a loss of $1,749,174 in Q4 2020, indicating a worsening of operating performance[153] - Net income for Q1 2021 was $21,721,858, a significant improvement from a net loss of $321,318 in Q4 2020[153] - Total revenues for Q1 2021 were $2,535,829, an increase of $110,084 (5%) compared to $2,425,745 in Q1 2020[176] - Product revenues for Q1 2021 were $1,912,577, up $146,041 (8%) from $1,766,536 in Q1 2020, driven by new product lines generating over $141,309 in revenue[176] - Cloud service revenue increased to $241,653 in Q1 2021, a rise of $14,529 (6%) from $227,124 in Q1 2020[172] - Extended warranty service revenues decreased by $78,676 (24%) to $254,692 in Q1 2021 from $333,368 in Q1 2020[173] - Gross profit for Q1 2021 was $811,882, down $453,146 (36%) from $1,265,028 in Q1 2020, primarily due to increased inbound freight costs[182] - Operating loss increased by $938,325 (49%) to $2,865,693, with operating loss as a percentage of revenues worsening to 113% from 80%[190] - Net income improved by $24,055,968 (1,031%) to $21,721,858 for the three months ended March 31, 2021[197] Expenses and Costs - Total selling, general, and administrative expenses for Q1 2021 were $3,677,575, representing 145% of total revenues, an increase from 132% in Q1 2020[158] - Selling, general and administrative expenses rose to $3,677,575 in Q1 2021, an increase of $485,179 (15%) from $3,192,396 in Q1 2020[183] - Research and development expenses totaled $448,965 in Q1 2021, a decrease of $36,783 (8%) from $485,748 in Q1 2020[183] - Cost of product revenue increased by $572,063 (58%) to $1,561,310 in Q1 2021 from $989,247 in Q1 2020, attributed to higher inbound freight costs[177] - Total cost of sales as a percentage of revenues was 68% in Q1 2021, compared to 48% in Q1 2020, indicating a decline in gross margins[179] - Other selling, general, and administrative expenses increased by $751,222 (78%) to $1,715,119, mainly due to increased travel costs and insurance expenses related to COVID-19[189] - Professional fees and expenses decreased by $107,015 (32%) to $232,577 for the three months ended March 31, 2021, primarily due to the termination of the Axon lawsuit[187] - Executive, sales, and administrative staff payroll expenses decreased by $36,619 (5%) to $684,159, attributed to a reduction in technical support staffing due to the COVID-19 pandemic[188] Cash and Debt Management - The company has no off-balance sheet debt and recently acquired a commercial office building for approximately $5.3 million to support future operations[155] - Interest income rose to $41,686 from $6,263, reflecting increased cash levels and net proceeds of approximately $66.4 million from registered direct offerings[191] - Interest expense decreased significantly to $1,427 from $307,560, due to the elimination of most interest-bearing debt using proceeds from registered direct offerings[192] - Cash and cash equivalents increased to $67,626,240, up from $4,361,758 at December 31, 2020, with a net increase of $63,264,482 during the three months[203] - The company has outstanding debt obligations totaling $160,000, with maturities spread across 2021 to 2026 and beyond[215] Inventory and Reserves - As of March 31, 2021, the company had a reserve for excess and obsolete inventory of $2,388,256, representing 21.2% of the gross inventory balance[232] - The company reported a decrease in warranty reserves to $9,243 as of March 31, 2021, down from $31,845 as of December 31, 2020[237] - The company’s finished goods inventory increased by 17% to $8,128,666 as of March 31, 2021, compared to $6,974,291 at December 31, 2020[232] - The company’s total raw materials and component parts decreased by 1% to $3,141,836 as of March 31, 2021[232] Future Outlook and Strategy - The introduction of the EVO-HD, ThermoVU™, and Shield™ product lines is expected to help diversify and increase revenues in the law enforcement and commercial markets[152] - The company aims to increase recurring cloud and service revenues as part of its growth strategy[150] - Total revenue for 2022 was $184,145, an increase from $133,260 in 2021, while revenue for 2023 is projected at $184,241[215] - The company expects to maintain a full valuation allowance on net deferred tax assets until it can demonstrate a sustainable level of profitability[244] - The realization of deferred income tax assets is contingent upon generating sufficient taxable income in future periods[247] Market and Economic Conditions - The COVID-19 pandemic negatively impacted revenues from legacy products, particularly the DVM-250 Plus and DVM-800, while positively affecting sales of the Shield disinfectant and ThermoVU product lines[162] - Inflation has not materially affected the company during the past fiscal year[248] - The company typically generates higher revenues in the second half of the calendar year compared to the first half[248]
Digital Ally(DGLY) - 2020 Q4 - Earnings Call Transcript
2021-03-31 18:28
Financial Data and Key Metrics Changes - The company reported a net loss improvement of $7.3 million year-over-year, representing a 74% improvement from 2019 to 2020 [17] - Cash balance at the end of 2020 was $4 million compared to $350,000 in 2019, and stockholders' equity increased to $14 million from a deficit of $6 million, marking a $20 million turnaround year-over-year [18] - Gross margin increased by 26% year-over-year due to reduced cost of sales and improved product mix [16] Business Line Data and Key Metrics Changes - Product revenues increased by approximately $300,000 or roughly 4% year-over-year, largely driven by the new Shield product line, which contributed about $1.6 million in 2020 [14] - Service revenues declined due to a decrease in extended warranty revenues as the company shifted to a subscription model [14] - Installation revenues also decreased due to travel restrictions imposed by the COVID-19 pandemic [15] Market Data and Key Metrics Changes - The company experienced a significant impact from COVID-19 on its commercial business, particularly in sectors like tourism and transportation, but has started to see a revival in these areas [30][31] - The demand for the Shield product line is expected to continue growing, with plans to expand into larger distribution channels [33] Company Strategy and Development Direction - The company plans to invest in both organic growth and acquisitions, with a focus on expanding the Shield product line and exploring new PPE offerings [19][21] - There is an emphasis on strategic acquisitions that complement the current product line, with ongoing discussions with multiple candidates [20] - The company aims to leverage its improved cash position to enhance its market presence and shareholder value [22] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the company's stronger position entering 2021, despite the challenges faced in 2020 [22] - The company is looking forward to potential national funding for law enforcement, which could drive growth in that segment [26] - Management is excited about the upcoming launch of a new version of body cameras, which will feature advanced capabilities [27][62] Other Important Information - The company raised approximately $22 million in cash through various offerings in 2020, which helped address NASDAQ listing deficiencies and improve liquidity [9] - The company successfully terminated a litigation financing obligation, resulting in a $5 million gain during 2020 [12] Q&A Session Summary Question: Impact of COVID on commercial business - Management acknowledged significant impacts from COVID-19 but noted signs of recovery in the commercial sector, including taxi services and cruise lines [30][31] Question: Demand for Shield products - Management confirmed that initial sales filled immediate demand, and they are now focusing on expanding sales channels to meet growing demand [33] Question: Cash position and market cap - Management clarified that the company has approximately $66 million in cash after recent capital raises, expressing confusion over the market cap being close to cash levels [39][41] Question: Acquisitions and stock usage - Management is open to various deal structures for acquisitions but is cautious about using stock due to current valuations [59] Question: ThermoVu product demand - Management reported strong ongoing demand for the ThermoVu product, which is expected to remain relevant beyond the pandemic [46] Question: Police Reform Act and growth potential - Management believes the Police Reform Act will drive growth in the law enforcement segment, with anticipated funding for body cameras [52]
Digital Ally(DGLY) - 2020 Q4 - Annual Report
2021-03-30 16:00
Part I [Business](index=4&type=section&id=Item%201.%20Business) Digital Ally, Inc. designs and manufactures digital video imaging and storage products for law enforcement, security, and commercial sectors, expanding into new product lines like ThermoVu™ and Shield™ in response to the COVID-19 pandemic [Overview and COVID-19 Pandemic Impact](index=4&type=section&id=Overview%20and%20COVID-19%20Pandemic%20Impact) Digital Ally produces digital video products for law enforcement and commercial use, and recently introduced ThermoVu™ temperature monitors and Shield™ disinfectants in response to market needs, while implementing cost-saving measures due to decreased demand from the COVID-19 pandemic - The company's core business is digital video imaging and storage for law enforcement and commercial applications[15](index=15&type=chunk) - In response to the COVID-19 pandemic, the company launched two new product lines in Q2 2020: ThermoVu™ temperature monitoring stations and Shield™ disinfectants and cleansers[15](index=15&type=chunk) - The pandemic led to decreased demand from law enforcement and commercial customers during 2020[21](index=21&type=chunk)[22](index=22&type=chunk) - The company implemented a COVID-19 mitigation plan in April 2020, including work hour and salary reductions for senior management, to reduce operating expenses[28](index=28&type=chunk) [Our Products](index=6&type=section&id=Our%20Products) The company's product portfolio includes in-car digital video systems, body-worn cameras, commercial fleet event recorders, and cloud-based evidence management solutions, with new additions like ThermoVu and Shield addressing pandemic-related safety needs - The EVO-HD, launched in Q2 2019, is the company's next-generation in-car video platform, offering multiple HD cameras and built-in patented VuLink auto-activation technology[29](index=29&type=chunk)[34](index=34&type=chunk)[36](index=36&type=chunk) - The FirstVU HD is a miniature, rugged, and water-resistant body-worn camera that integrates with in-car systems via the patented VuLink ecosystem for automatic, coordinated recording[40](index=40&type=chunk)[42](index=42&type=chunk) - The company offers cloud storage solutions powered by Amazon Web Services (AWS): VuVault.net for law enforcement and FleetVU Manager for commercial fleets[43](index=43&type=chunk)[44](index=44&type=chunk) - New products launched in 2020 include ThermoVu, a non-contact temperature screening instrument, and Shield, a line of disinfectants and cleansers[45](index=45&type=chunk)[46](index=46&type=chunk) [Market, Manufacturing, and Sales](index=10&type=section&id=Market%2C%20Manufacturing%2C%20and%20Sales) Digital Ally's primary market is law enforcement, but it is expanding into commercial fleets, event security, and schools, with manufacturing outsourced to contract partners globally and sales conducted through a direct force domestically and distributors internationally - The company's primary market is law enforcement, but it is actively expanding into commercial, event security, school, and private security sectors[49](index=49&type=chunk)[57](index=57&type=chunk) - Manufacturing of key components and products is outsourced to contract manufacturers in the US, Philippines, and South Korea, with final assembly and quality control in Lenexa, Kansas[59](index=59&type=chunk)[60](index=60&type=chunk) - The sales strategy utilizes a direct employee sales force for domestic markets and independent distributors for international sales[61](index=61&type=chunk) [Competition, Intellectual Property, and Human Capital](index=12&type=section&id=Competition%2C%20Intellectual%20Property%2C%20and%20Human%20Capital) The company operates in a highly competitive market, facing larger competitors like Axon Enterprises, and relies heavily on protecting its proprietary technology through patents, notably for its VuLink auto-activation technology, while employing 86 full-time staff as of December 31, 2020 - Primary competitors in the law enforcement market include Axon Enterprises, Inc. and WatchGuard Video. In the commercial fleet sector, competitors include Lytx, Inc. and SmartDrive Systems[64](index=64&type=chunk)[65](index=65&type=chunk) - The company relies on patent protection, particularly for its VuLink product, as well as trade secrets and know-how to compete[66](index=66&type=chunk)[68](index=68&type=chunk)[70](index=70&type=chunk) - As of December 31, 2020, the company had approximately **86 full-time employees**[71](index=71&type=chunk) [Risk Factors](index=14&type=section&id=Item%201A.%20Risk%20Factors) The company has indicated that this section is not applicable as per the filing - The company has indicated that this section is not applicable[75](index=75&type=chunk) [Properties](index=14&type=section&id=Item%202.%20Properties) As of June 2020, the company's principal executive office is a 16,531 square foot leased facility in Lenexa, Kansas, with plans to purchase a 71,361 square foot building in the same city for approximately $5.3 million by May 2021 - The company leases its principal executive office, a **16,531 sq. ft. facility** in Lenexa, KS, with the lease ending in December 2026[78](index=78&type=chunk) - On February 24, 2021, the company contracted to purchase a **71,361 sq. ft. building** in Lenexa, KS for approximately **$5.3 million**, intended to serve future office and warehouse needs[79](index=79&type=chunk) [Legal Proceedings](index=14&type=section&id=Item%203.%20Legal%20Proceedings) The company is involved in various legal proceedings, including the dismissal of a patent infringement lawsuit against Axon and a settlement with WatchGuard in May 2019, which included a $6.0 million payment and a patent license grant - The patent infringement lawsuit against Axon was dismissed by the U.S. District Court. The company's appeal was denied in April 2020, and it has abandoned any further appeals in this matter[86](index=86&type=chunk)[87](index=87&type=chunk) - In May 2019, the company settled its patent infringement lawsuit against WatchGuard. As part of the settlement, Digital Ally received a one-time payment of **$6,000,000**[88](index=88&type=chunk)[89](index=89&type=chunk) - As part of the WatchGuard settlement, Digital Ally granted WatchGuard a license to the '292 and '452 patents through December 31, 2023[90](index=90&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=17&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common stock trades on the Nasdaq Capital Market under "DGLY", with approximately 158 shareholders of record as of March 31, 2021, and no cash dividends anticipated as earnings are retained for operations, while equity compensation plans authorize 5,675,000 shares for issuance - The company's common stock trades on the Nasdaq Capital Market under the symbol **"DGLY"**[101](index=101&type=chunk) - The company has never declared or paid cash dividends and intends to retain future earnings for business operations[102](index=102&type=chunk) - Equity Compensation Plan Information | Plan category | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | Weighted-average exercise price of outstanding options, warrants and rights (b) | Number of securities remaining available for future issuance under equity compensation plans (c) | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by stockholders | 833,313 | $3.15 | 1,064,346 | | Equity compensation plans not approved by stockholders | 5,000 | $11.36 | — | | Total all plans | 838,313 | $3.20 | 1,064,346 | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=19&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) In fiscal year 2020, Digital Ally's total revenue remained flat at $10.5 million, with new product lines offsetting declines in legacy sales, leading to a 26% increase in gross profit and a significantly reduced net loss of $2.6 million, while liquidity improved with $4.4 million in cash and an additional $66.5 million raised in early 2021 [Overview and Recent Developments](index=20&type=section&id=Overview%20and%20Recent%20Developments) The company experienced operating losses in most quarters of 2019 and 2020, with exceptions due to a patent litigation settlement and new product launches, while focusing on expanding recurring service revenue and leveraging partnerships, despite a decline in international revenues - The company experienced operating losses for all quarters in 2020 and 2019, except for Q3 2020 (aided by new product launches) and Q2 2019 (aided by a patent litigation settlement)[131](index=131&type=chunk) - A Proceeds Investment Agreement with Brickell Key Investments was terminated in July 2020, resulting in a **$5.25 million positive change in fair value** for the year[134](index=134&type=chunk) - Recurring cloud storage revenue increased by **25%** in 2020, reaching approximately **$937,000**, up from **$750,000** in 2019[136](index=136&type=chunk) - International revenues decreased from approximately **2% of total revenues** in 2019 to **less than 1%** in 2020[139](index=139&type=chunk) [Results of Operations (2020 vs. 2019)](index=23&type=section&id=Results%20of%20Operations%20(2020%20vs.%202019)) For the year ended December 31, 2020, total revenues increased slightly by 1% to $10.5 million, driven by new product lines, leading to a 26% rise in gross profit and a significant 74% reduction in net loss to $2.6 million, primarily due to non-operating gains - Financial Performance Summary | Financial Metric | 2020 | 2019 | Change | | :--- | :--- | :--- | :--- | | **Total Revenue** | **$10,514,868** | **$10,441,364** | **+1%** | | Product Revenue | $8,029,457 | $7,732,796 | +3% | | Service Revenue | $2,485,411 | $2,708,568 | -8% | | **Gross Profit** | **$4,062,594** | **$3,232,629** | **+26%** | | Gross Margin | 39% | 31% | +8 p.p. | | **Operating Loss** | **($7,663,651)** | **($6,032,781)** | **+27%** | | **Net Loss** | **($2,625,881)** | **($10,005,713)** | **-74%** | | **Loss Per Share (Basic & Diluted)** | **($0.12)** | **($0.87)** | **-86%** | - New product lines (ThermoVu and Shield) generated over **$1.64 million in revenue** in 2020, offsetting declines in legacy products impacted by COVID-19 and competition[151](index=151&type=chunk) - The improvement in net loss was primarily driven by a **$5.25 million gain** from the change in fair value of the proceeds investment agreement and a **$1.42 million gain** on the extinguishment of a PPP loan[187](index=187&type=chunk)[194](index=194&type=chunk)[195](index=195&type=chunk) [Liquidity and Capital Resources](index=33&type=section&id=Liquidity%20and%20Capital%20Resources) The company significantly improved its liquidity, ending 2020 with $4.4 million in cash after raising $18.8 million from financing activities, and further strengthening its position with approximately $66.5 million in net proceeds from offerings in early 2021, which management believes provides adequate funding for the foreseeable future - Cash and cash equivalents increased from **$359,685** at year-end 2019 to **$4,361,758** at year-end 2020[221](index=221&type=chunk) - In 2020, the company raised **$18.8 million** from financing activities, including **$12.8 million** from underwritten public offerings and **$5.2 million** from the exercise of common stock purchase warrants[202](index=202&type=chunk)[223](index=223&type=chunk) - Subsequent to year-end, in January and February 2021, the company raised approximately **$29.0 million** and **$37.4 million** in net proceeds, respectively, from two registered direct offerings[206](index=206&type=chunk)[209](index=209&type=chunk) - Management believes it has adequate funding for the foreseeable future as a result of the capital raised in early 2021[211](index=211&type=chunk) - The company successfully regained compliance with Nasdaq's minimum stockholders' equity and minimum bid price requirements during 2020[242](index=242&type=chunk)[243](index=243&type=chunk) [Critical Accounting Policies](index=41&type=section&id=Critical%20Accounting%20Policies) The company's critical accounting policies involve significant management judgment and estimates, including Revenue Recognition, Allowance for Excess and Obsolete Inventory, Warranty Reserves, Stock-based Compensation, and Accounting for Income Taxes, with a full valuation allowance maintained against deferred tax assets due to recurring operating losses - Key critical accounting policies include Revenue Recognition, Allowance for Excess and Obsolete Inventory, Warranty Reserves, Stock-based Compensation Expense, and Accounting for Income Taxes[248](index=248&type=chunk)[253](index=253&type=chunk) - The reserve for excess and obsolete inventory was **$1.96 million** at year-end 2020, down from **$4.14 million** in 2019, primarily due to scrapping older inventory during a warehouse move[261](index=261&type=chunk)[263](index=263&type=chunk) - Due to a history of operating losses, the company maintained a full valuation allowance of **$24.6 million** against its net deferred tax assets as of December 31, 2020[270](index=270&type=chunk) [Controls and Procedures](index=45&type=section&id=Item%209A.%20Controls%20and%20Procedures) Based on evaluations as of December 31, 2020, the company's principal executive and financial officers concluded that disclosure controls and procedures were effective, and management assessed internal control over financial reporting as effective, with no material changes reported during the year - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of December 31, 2020[281](index=281&type=chunk) - Management assessed internal control over financial reporting using the 2013 COSO framework and concluded it was effective as of December 31, 2020[284](index=284&type=chunk) Part III [Directors, Executive Compensation, Security Ownership, and Principal Accountant Fees](index=46&type=section&id=Item%2010%2C%2011%2C%2012%2C%2013%2C%20and%2014) Information required for Items 10 through 14, covering Directors, Executive Officers, Corporate Governance, Executive Compensation, Security Ownership, Certain Relationships and Related Transactions, Director Independence, and Principal Accountant Fees and Services, is incorporated by reference from the company's definitive proxy statement, expected to be filed within 120 days of the fiscal year-end - Information regarding directors, executive officers, corporate governance, executive compensation, security ownership, and principal accountant fees is incorporated by reference from the company's 2021 Proxy Statement[290](index=290&type=chunk)[292](index=292&type=chunk)[293](index=293&type=chunk)[295](index=295&type=chunk)[296](index=296&type=chunk) Part IV [Exhibits and Financial Statement Schedules](index=47&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists the documents filed as part of the Annual Report on Form 10-K, including consolidated financial statements and a comprehensive list of exhibits such as corporate governance documents, material contracts, and officer certifications, with financial statement schedules omitted as they are not applicable or included elsewhere - This section provides a list of all exhibits filed with the Form 10-K, including corporate governance documents, material contracts, equity plans, and officer certifications[301](index=301&type=chunk) - All financial statement schedules were omitted because they were not applicable or the required information was included within the consolidated financial statements or notes[300](index=300&type=chunk) Financial Statements and Notes [Report of Independent Registered Public Accounting Firm](index=52&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) The independent auditor, RBSM LLP, issued an unqualified opinion on the consolidated financial statements for 2020 and 2019, affirming fair presentation in conformity with U.S. GAAP, while identifying the valuation of inventories as a critical audit matter due to significant management estimates - The auditor issued an unqualified opinion, stating the financial statements are presented fairly in accordance with U.S. GAAP[317](index=317&type=chunk) - A Critical Audit Matter was identified related to the valuation of inventories, specifically the reserve for excess and obsolete inventory, due to the high degree of subjective judgment required[322](index=322&type=chunk)[323](index=323&type=chunk) [Consolidated Financial Statements](index=54&type=section&id=Consolidated%20Financial%20Statements) The consolidated financial statements present the company's financial position and performance for fiscal years 2020 and 2019, showing a significant increase in total assets and a shift to stockholders' equity, a reduced net loss, and a net increase in cash from financing activities despite cash used in operations - Balance Sheet (Year-End) | Balance Sheet (Year-End) | 2020 | 2019 | | :--- | :--- | :--- | | Total Assets | $20,797,527 | $8,916,875 | | Total Liabilities | $6,441,021 | $15,234,254 | | Total Stockholders' Equity (Deficit) | $14,356,506 | ($6,317,379) | - Statement of Operations (Year Ended) | Statement of Operations (Year Ended) | 2020 | 2019 | | :--- | :--- | :--- | | Total Revenue | $10,514,868 | $10,441,364 | | Gross Profit | $4,062,594 | $3,232,629 | | Operating Loss | ($7,663,651) | ($6,032,781) | | Net Loss | ($2,625,881) | ($10,005,713) | - Statement of Cash Flows (Year Ended) | Statement of Cash Flows (Year Ended) | 2020 | 2019 | | :--- | :--- | :--- | | Net Cash Used in Operating Activities | ($13,284,715) | ($1,124,373) | | Net Cash Used in Investing Activities | ($1,499,189) | ($266,144) | | Net Cash Provided by (Used in) Financing Activities | $18,775,977 | ($1,848,605) | [Notes to Consolidated Financial Statements](index=61&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes provide detailed explanations of the company's accounting policies and financial data, including the adoption of new accounting standards, details on debt obligations like the forgiven PPP loan and terminated Proceeds Investment Agreement, legal proceedings, stock-based compensation, and significant capital raises in early 2021 - The company adopted new accounting standards for revenue recognition (ASC 606) and leases (ASC 842)[346](index=346&type=chunk)[397](index=397&type=chunk) - In 2020, the company received a **$1.4 million PPP loan** which was fully forgiven, resulting in a gain on extinguishment of debt[419](index=419&type=chunk) - The Proceeds Investment Agreement (PIA) was terminated in July 2020 upon a payment of **$1.25 million**, extinguishing a liability carried at **$6.5 million** at the end of 2019[443](index=443&type=chunk)[446](index=446&type=chunk) - Subsequent to year-end, the company raised approximately **$29.0 million** (January 2021) and **$37.6 million** (February 2021) in net proceeds from underwritten public offerings[547](index=547&type=chunk)[553](index=553&type=chunk)
Digital Ally(DGLY) - 2020 Q3 - Earnings Call Transcript
2020-11-13 00:12
Digital Ally, Inc. (NASDAQ:DGLY) Q3 2020 Earnings Conference Call November 12, 2020 11:15 AM ET Company Participants Stan Ross - Chief Executive Officer Tom Heckman - Chief Financial Officer Conference Call Participants Bryan Lubitz - Aegis Capital Rommel Dionisio - Aegis Capital Operator Ladies and gentlemen, thank you for standing by and welcome to the 2020 Third Quarter Operating Results Conference Call. At this time all participants are in a listen-only mode. After the speakers’ presentation, there will ...