LENEXA, Kansas, Aug. 13, 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 second quarter 2020 operating results. An investor conference call is scheduled for 4:00 p.m. EDT on Thursday, August 13, 2020 (see details below).Highlights for the Second Quarter Ended June 30, 2020


Recent DevelopmentsWarehouse Building Acquisition. On July 13, 2020, the Company entered into a Commercial and Industrial Real Estate Sale Contract whereby it will purchase new warehouse space which will serve as the company’s warehouse and distribution location for its new branded temperature screening device ThermoVU™ and its Shield™ line of disinfectant/cleanser products. The terms of the Contract include a total purchase price of $420,000 with the closing expected to occur on or before August 21, 2020. The Company will use available cash to close the purchase of the building.Proceeds Investment Agreement Termination Agreement. – On July 20, 2020, the Company and Brickell Key Investments LP (“BKI”) executed a Termination Agreement and Mutual Release (the “Termination Agreement”). Under the terms of the Termination Agreement the parties agreed to terminate the Proceeds Investment Agreement (“PIA”) and to release one another from any further liability under the PIA obligation.Under the terms of the Termination Agreement, and upon the payment of $1,250,000 by the Company to BKI, both parties agreed to terminate the PIA and to release each other from any further liability thereunder. Such $1,250,000 payment was made on July 22, 2020. In addition to the $1,250,000 payment, the Company further agreed to pay BKI the following: (a) a contingent payment in the amount of $2,750,000 following the closing of an asset purchase, membership interest purchase, or similar transaction between the Company and a specified third-party (the “Purchase Transaction”) and (b) any and all future proceeds received from Watchguard and its successors and assigns by the Company for Watchguard’s use of U.S. Patent Nos. 8,781,292 and 9,253,452. For clarity, the Company and BKI further agreed that the payment of the contingent payment would only be due and payable upon the closing of the specified Purchase Transaction. Furthermore, the relevant contingent payment portion of the Termination Agreement, and any obligations stemming therefrom, would automatically terminate if the specified Purchase Transaction is abandoned prior to its closing, including its failure to close within three years from the date of the Termination Agreement. The specified Purchase Transaction has not yet occurred and there is no binding agreement to complete such Purchase Transaction.Shelf Registration Statement on Form S-3. On July 2, 2020 the SEC declared the Company’s shelf registration statement on Form S-3 effective. The Shelf Registration Statement allows the Company to offer and sell, from time to time in one or more offerings, any combination of our common stock, debt securities, debt securities convertible into common stock or other securities in any combination thereof, rights to purchase shares of common stock or other securities in any combination thereof, warrants to purchase shares of common stock or other securities in any combination thereof or units consisting of common stock or other securities in any combination thereof having an aggregate initial offering price not exceeding $125,000,000.Covid-19 Pandemic. Subsequent to June 30, 2020 economies throughout the world have continued to be severely disrupted by the effects of the quarantines, business closures and the reluctance of individuals to leave their homes as a result of the outbreak of the coronavirus (Covid-19). Although we remain open as an “essential business,” our supply chain has been disrupted and our customers, and in particular our commercial customers, have been significantly impacted, which has in turn reduced our operations and activities. In addition, the capital markets have been disrupted and our efforts to raise necessary capital will likely be adversely impacted by the outbreak of the virus. We cannot forecast with any certainty when the disruptions caused by the virus will cease to impact our business and the results of our operations.Management CommentsStanton E. Ross, Chief Executive Officer of Digital Ally, stated, “The disruptions cause by the Covid-19 pandemic adversely affected our second quarter 2020 operations as many of our law enforcement customers delayed purchasing decisions and many of our commercial customers were shut-down by governmental mandates. We expanded our product offerings to include our Shield™ brand line of disinfectants/sanitizers to provide our customers with an eco-friendly product for use against SARS-CoV-2, the virus that causes COVID-19 and the ThermoVu™ brand line of self-contained temperature screening systems that provides alerts and controls facility access when an individual’s temperature exceeds a pre-set threshold. We introduced our branded Shield™ and ThermoVu™ products to our first-responder customers and many of our commercial customers during the second quarter 2020 and are very excited about the prospects of these new products. We also reduced our SG&A expenses by reducing staffing levels, limiting travel and reducing many advertising and promotional activities. In addition, we moved to a new, smaller office and warehouse space in June 2020 that will dramatically reduce our occupancy costs for the balance of 2020 and beyond.”Second quarter 2020 Operating ResultsTotal revenues decreased in the second quarter 2020 to $1,732,192 from $2,546,983 in 2019. The primary reason for the overall revenue decrease is a decline of $892,143 (46%), in 2020 product revenues, offset by an increase in service and other revenue of $77,352 (13%), from 2019 levels.Gross profit declined 59% to $392,758 for the second quarter 2020 versus $950,812 in 2019. Our gross margin decrease is primarily attributable to the 46% decrease in sales and our cost of sales as percentage of revenues increasing to 77% for the second quarter 2020 from 63% for 2019.Selling, General and Administrative (“SG&A”) expenses increased approximately 257% to $2,535,396 in the second quarter 2020 versus $(1,616,830) in 2019. The significant increase was attributable to the patent litigation settlement of $6.0 million that we received in the second quarter 2019. Exclusive of the patent litigation settlement, overall selling, general and administrative expenses would have decreased by $1,847,258 (42%) in the second quarter 2020 compared to the same period in 2019. The significant decrease was the result of sales and support staff headcount reductions and we reduced overall travel in response to the impact of the Covid-19 pandemic during the second quarter 2020.We reported an operating loss of $2,143,154 for the second quarter 2020, compared to operating income of $2,567,642 in 2019. This represents a deterioration of $4,710,796 or 183% in 2020 compared to 2019. Exclusive of the patent litigation settlement, operating loss would have improved by $1,289,204 (38%) in the second quarter 2020 compared to the same period in 2019.We incurred $25,636 in interest expense during the second quarter 2020 which is primarily attributable to the secured convertible notes that were partially outstanding during the second quarter 2020.We elected to account for the secured convertible notes that were issued in April of 2020 on their fair value. These secured convertible notes were fully converted and/or paid off in the second quarter 2020. The change in fair value from their April 2020 issuance date through their pay-off date was $887,807, which was recorded as a non-cash charge during the second quarter 2020.We elected to record the obligation related to the PIA at fair-value. Accordingly, the estimated fair value of the obligation decreased as a result of the District Court ruling on the Axon’s motion for summary judgment on the patent litigation and its confirmation by the Appellate Court. The decrease in fair value of the PIA resulted in a non-cash credit of $2,587,000 for the second quarter 2020 compared to a non-cash charge of $2,961,000 in 2019.We reported a net loss of $497,894, or ($0.03) per share, in the second quarter ended June 30, 2020 compared to a prior-year net loss of $387,730, or ($0.03) per share. No income tax provision or benefit was recorded in the either 2020 or 2019 as the Company has maintained a full valuation reserve on its deferred tax assets.Investor Conference CallThe Company will host an investor conference call at 4:00 p.m. EDT on Thursday, August 13, 2020, to discuss its operating results for the second quarter 2020, the status of its patent infringement litigation against Axon, developments related to its disinfectant and safety products, the impact of the Covid-19 pandemic and other topics of interest. Shareholders and other interested parties may participate in the conference call by dialing 844-761-0863 and entering conference ID# 3376759 a few minutes before 4:00 p.m. EDT on Thursday August 13, 2020.A replay of the conference call will be available two hours after its completion, from August 13, 2020 until 11:59 p.m. on October 13, 2020 by dialing 855-859-2056 and entering the conference ID # 3376759.For additional news and information please visit or follow us on Twitter @digitalallyinc and Facebook www.facebook.com/DigitalAllyInc
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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, especially in light of the adverse effects of the Covid-19 pandemic on our customers, suppliers and employees; whether it will be able to resolve its liquidity and operational issues and raise sufficient capital given the impact of the Covid-19 pandemic; whether it will be able to achieve improved production and other efficiencies to restore its gross and operating margins in the future; whether the Company will be able to continue to expand into non-law enforcement markets, including disinfectant/sanitizer and temperature screening products, 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 patent litigation; 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 competitors and others in the marketplace respecting the Company, its products and customers; its ability to deliver its newer product offerings as scheduled, and in particular the new EVO-HD product platform, obtain the required components and products on a timely basis, and have them perform as planned; its ability to maintain or expand its share of the markets in which it competes, including those outside the law enforcement industry; whether it will be able to adapt its technology to new and different uses, including being able to introduce new products; competition from larger, more established companies with far greater economic and human resources; its ability to attract and retain customers and quality employees; the effect of changing economic conditions; and changes in government regulations, tax rates and similar matters. These cautionary statements should not be construed as exhaustive or as any admission as to the adequacy of the Company’s disclosures. The Company cannot predict or determine after the fact what factors would cause actual results to differ materially from those indicated by the forward-looking statements or other statements. The reader should consider statements that include the words “believes,” “expects,” “anticipates,” “intends,” “estimates,” “plans,” “projects,” “should,” or other expressions that are predictions of or indicate future events or trends, to be uncertain and forward-looking. It does not undertake to publicly update or revise forward-looking statements, whether because of new information, future events or otherwise. Additional information respecting factors that could materially affect the Company and its operations are contained in its Quarterly Report on Form 10-Q for the three and six months ended June 30, 2020 and in its annual report on Form 10-K for the year ended December 31, 2019, filed with the Securities and Exchange Commission.For Additional Information, Please Contact:
Stanton E. Ross, CEO, at (913) 814-7774 or
Thomas J. Heckman, CFO, at (913) 814-7774
(Financial Highlights Follow) DIGITAL ALLY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 2020 AND DECEMBER 31, 2019(FOR ADDITIONAL INFORMATION, PLEASE REFER TO THE COMPANY’S QUARTERLY REPORT ON FORM 10-Q FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020 FILED WITH THE SEC) DIGITAL ALLY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED
JUNE 30, 2020 AND 2019
(Unaudited)(FOR ADDITIONAL INFORMATION, PLEASE REFER TO THE COMPANY’S QUARTERLY REPORT ON FORM 10-Q FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020 FILED WITH THE SEC)

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