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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

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 ___________ to __________.

 

Commission File Number: 001-33899

 

Digital Ally, Inc.

(Exact name of registrant as specified in its charter)

 

Nevada   20-0064269

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

14001 Marshall Drive, Lenexa, KS 66219

(Address of principal executive offices) (Zip Code)

 

(913) 814-7774

(Registrant’s telephone number, including area code)

 

 

(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

 

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

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

 

Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule12b-2 of Exchange Act.

 

Large accelerated filer ☐   Accelerated filer ☐
Non-accelerated filer   Smaller reporting company
Emerging growth company    

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

Yes ☐ No

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

 

Class   Outstanding at November 19, 2021
Common Stock, $0.001 par value per share   52,702,947

 

 

 

 

 

 

 

FORM 10-Q

DIGITAL ALLY, INC.

SEPTEMBER 30, 2021

 

TABLE OF CONTENTS   Page(s)
PART I – FINANCIAL INFORMATION    
     
Item 1. Financial Statements.   3
     
Condensed Consolidated Balance Sheets – September 30, 2021 (Unaudited) and December 31, 2020   3
     
Condensed Consolidated Statements of Operations for the Three and Nine months ended September 30, 2021 and 2020 (Unaudited)   4
     
Condensed Consolidated Statements of Stockholders’ Equity (Deficit) for the Three and Nine months ended September 30, 2021 and 2020 (Unaudited)   5
     
Condensed Consolidated Statements of Cash Flows for the Nine months ended September 30, 2021 and 2020 (Unaudited)   6
     
Notes to the Condensed Consolidated Financial Statements (Unaudited)   7-31
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.   32
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk.   58
     
Item 4. Controls and Procedures.   58
     
PART II - OTHER INFORMATION    
     
Item 1. Legal Proceedings.   59
   
Item 1A. Risk Factors   59
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.   59
     
Item 3. Defaults Upon Senior Securities   59
     
Item 4. Mine Safety Disclosures   59
     
Item 5. Other Information.   59
     
Item 6. Exhibits.   59
     
SIGNATURES   60

 

 2 

 

 

PART I – FINANCIAL INFORMATION

 

Item 1 – Financial Statements.

 

DIGITAL ALLY, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

SEPTEMBER 30, 2021 AND DECEMBER 31, 2020

 

  

September 30, 2021

  

December 31, 2020

 
   (Unaudited)     
Assets          
Current assets:          
Cash and cash equivalents  $40,743,057   $4,361,758 
Restricted cash   500,000     
Accounts receivable-trade, less allowance for doubtful accounts
of $123,751
and $123,224 – September 30, 2021 and December 31, 2020, respectively
   2,356,411    1,705,461 
Other receivables   1,621,053    1,529,920 
Inventories, net   11,611,249    8,202,274 
Prepaid expenses and other current assets   9,306,660    2,030,693 
           
Total current assets   66,138,430    17,830,106 
           
Property, plant and equipment, net   6,068,255    666,800 
Goodwill and other intangible assets, net   16,454,946    392,564 
Operating lease right of use assets, net   1,109,463    753,175 
Other assets   2,121,158    1,154,882 
           
Total assets  $91,892,252   $20,797,527 
           
Liabilities and Stockholders’ Equity           
Current liabilities:          
Accounts payable  $5,710,765   $1,144,676 
Accrued expenses   1,218,958    796,094 
Current portion of operating lease obligations   384,222    113,484 
Contract liabilities – current   1,630,529    1,647,469 
Debt obligations – current   4,547,421    11,727 
Warrant derivative liabilities   17,942,020     
Income taxes payable   1,827    7,158 
           
Total current liabilities   31,435,742    3,720,608 
           
Long-term liabilities:          
Debt obligations – long term   846,979    148,273 
Operating lease obligation, long term   795,704    723,272 
Contract liabilities-long term   2,575,786    1,848,869 
           
Total liabilities   35,654,211    6,441,022 
           
Commitments and contingencies          
           
Stockholders’ Equity:          
Common stock, $0.001 par value per share; 100,000,000 shares authorized; shares issued: 52,702,947 – September 30, 2021 and 26,834,709 – December 31, 2020   52,703    26,835 
Additional paid in capital   123,968,757    106,501,396 
Treasury stock, at cost (63,518 shares)   (2,157,226)   (2,157,226)
Noncontrolling interest in consolidated subsidiary   

(19,863

)   

 
Accumulated deficit   (65,606,330)   (90,014,500)
           
Total stockholders’ equity    56,238,041    14,356,505
           
Total liabilities and stockholders’ equity  $91,892,252   $20,797,527 

 

See Notes to the Unaudited Condensed Consolidated Financial Statements.

 

 3 

 

 

DIGITAL ALLY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE AND NINE MONTHS ENDED

SEPTEMBER 30, 2021 AND 2020

(Unaudited)

 

                 
  

Three months ended

September 30,

  

Nine months ended

September 30,

 
   2021   2020   2021   2020 
                 
Revenue:                    
Product  $1,356,454   $2,958,579   $4,988,364   $5,778,695 
Service and other   3,283,368    630,061    4,680,959    1,967,881 
                     
Total revenue   4,639,822    3,588,640    9,669,323    7,746,576 
                     
Cost of revenue:                    
Product   1,197,217    2,177,676    3,776,185    4,332,450 
Service and other   2,042,035    188,316    2,419,884    533,690 
                     
Total cost of revenue   3,239,252    2,365,992    6,196,069    4,866,140 
                     
Gross profit   1,400,570    1,222,648    3,473,254    2,880,436 
Selling, general and administrative expenses:                    
Research and development expense   492,221    405,083    1,402,185    1,250,528 
Selling, advertising and promotional expense   1,511,682    789,854    2,978,620    1,958,884 
General and administrative expense   2,995,640    1,871,668    8,174,002    5,585,500 
                     
Total selling, general and administrative expenses   4,999,543    3,066,605    12,554,807    8,794,912 
                     
Operating loss   (3,598,973)   (1,843,957)   (9,081,553)   (5,914,476)
                     
Other income (expense):                    
Interest income   90,036    11,339    222,497    33,208 
Interest expense   (5,675)   (4,940)   (8,466)   (338,136)
Secured convertible notes issuance expense               (34,906)
Change in fair value of proceeds investment agreement       2,365,000        5,250,000 
Change in fair value of secured convertible notes               (1,300,252)
Change in fair value of short-term investments   (21,656)       (28,210)    
Change in fair value of warrant derivative liabilities   11,585,204        33,274,039     
Gain on extinguishment of debt           10,000     
Total other income   11,647,909    2,371,399    33,469,860    3,609,914
                     
Income (loss) before income tax benefit   8,048,936    527,442    24,388,307    (2,304,562)
Income tax benefit (expense)                
                     
Net income (loss)   8,048,936   527,442   24,388,307   (2,304,562)
                     
Net loss attributable to noncontrolling interests of consolidated subsidiary   19,863        19,863     
                     
Net income (loss) attributable to common stockholders  $8,068,799   $527,442   $24,408,170   $(2,304,562)
                     
Net income (loss) per share attributable to common stockholders’ information:                    
Basic  $0.16   $0.02   $0.49   $(0.12)
Diluted  $0.16   $0.02   $0.49   $(0.12)
                     
Weighted average shares outstanding:                    
Basic   51,809,435    26,613,109    49,404,794    19,861,694 
Diluted   51,809,435    26,627,941    49,404,794    19,861,694 

 

See Notes to the Unaudited Condensed Consolidated Financial Statements.

 

 4 

 

 

DIGITAL ALLY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

(Unaudited)

 

                      
   Common Stock   Additional
Paid In
   Treasury  

Noncontrolling

interest in consolidated

     Accumulated   Total
Stockholders’

Equity
 
   Shares   Amount   Capital   stock   subsidiary   deficit   (Deficit) 
Balance, December 31, 2019   12,079,095   $12,079   $83,216,387   $(2,157,226)  $            $(87,388,619)  $(6,317,379)
Stock-based compensation           311,677                  311,677 
Restricted common stock grant   530,050    530    (530)                  
Restricted common stock forfeitures   (22,500)   (23)   23                   
Issuance of common stock upon conversion of secured convertible notes and interest   959,543    960    1,342,400                  1,343,360 
Issuance of common stock through underwritten public offering at $1.15 per share (net of offering expenses and underwriters’ discount)   2,521,740    2,522    2,499,614                  2,502,136 
Issuance of common stock purchase warrants in connection with issuance of unsecured promissory note payable           20,806                  20,806 
Net loss                         (2,334,110)   (2,334,110)
                                       
Balance, March 31, 2020   16,067,928    16,068    87,390,377    (2,157,226)         (89,722,729)   (4,473,510)
                                       
Stock-based compensation           376,738                  376,738 
Restricted common stock grant   135,450    135    (135)                  
Restricted common stock forfeitures   (12,750)   (13)   13                   
Issuance of common stock upon conversion of secured convertible notes and interest   1,664,669    1,665    1,679,660                  1,681,325 
Issuance of common stock through underwritten public offering at $1.65 per share (net of offering expenses and underwriters’ discount)   3,554,545    3,554    5,346,859                  5,350,413 
Issuance of common stock through underwritten public offering at $2.15 per share (net of offering expenses and underwriters’ discount)   2,539,534    2,540    4,974,152                  4,976,692 
Issuance of common stock upon exercise of common stock purchase warrants   2,693,867    2,694    5,200,428                  5,203,122 
Issuance of common stock upon exercise of stock options   1,875    2    7,798                      7,800 
Issuance of common stock purchase warrants in connection with issuance of secured convertible notes           721,141                  721,141 
                                       
Net loss                         (497,894)   (497,894)
                                       
Balance, June 30, 2020   26,645,118    26,645    105,697,031    (2,157,226)         (90,220,623)   13,345,827 
                                       
Stock-based compensation           498,356                  498,356 
Restricted common stock grant   181,091    181    (181)                  
Issuance of common stock for services rendered   10,000    10    30,690                  30,700 
Net income                         527,442    527,442 
                                       
Balance, September 30, 2020   26,836,209   $26,836   $106,225,896   $(2,157,226)  $     $(89,693,181)  $14,402,325 
                                       
Balance, December 31, 2020   26,834,709   $26,835   $106,501,396   $(2,157,226)  $     $(90,014,500)  $14,356,505 
Stock-based compensation           326,164                  326,164 
Restricted common stock grant   450,000    450    (450)                  
Restricted common stock forfeitures   (7,500)   (8)   8                   
Issuance of common stock through registered direct offering at $3.095 per share and accompanying warrants (net of offering expenses and placement agent discount)   2,800,000    2,800    6,726,200                  6,729,000 
Issuance of common stock through registered direct offering at $2.80 per share and accompanying warrants (net of offering expenses and placement agent discount)   3,250,000    3,250    6,614,350                  6,617,600 
Exercise of pre-funded common stock purchase warrants at $3.095 per share   7,200,000    7,200    22,276,800                  22,284,000 
Exercise of pre-funded common stock purchase warrants at $2.80 per share   11,050,000    11,050    30,928,950                  30,940,000 
Issuance of pre-funded common stock purchase warrants in connection with the registered direct offerings           (1,817,548)                 (1,817,548)
Issuance of common stock purchase warrants at exercise price of $3.25 per share in connection with the registered direct offerings           (49,398,510)                 (49,398,510)
Net income                         21,721,858    21,721,858 
                                       
Balance, March 31, 2021   51,577,209    51,577    122,157,360    (2,157,226)         (68,292,642)   51,759,069 
                                       
Stock-based compensation           330,213                  330,213 
Net loss                         (5,382,487)   (5,382,487)
                                       
Balance, June 30, 2021   51,577,209   51,577   122,487,573   (2,157,226)        (73,675,129)  46,706,795 
                                       
Stock-based compensation           491,950                  491,950 
Issuance of common stock as consideration for acquisition   

719,738

    720    989,640                    990,360 
Restricted common stock grant   406,000    406    (406)                     
Net income                              (19,863 )    8,068,799    8,048,936 
                                       
Balance, September 30, 2021   52,702,947   $52,703   $  123,968,757   $  (2,157,226)  $ (19,863 )   $(65,606,330)  $56,238,041 

 

See Notes to the Unaudited Condensed Consolidated Financial Statements.

 

 5 

 

 

DIGITAL ALLY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

(Unaudited)

 

   2021   2020 
Cash Flows from Operating Activities:              
Net income (loss)  $      24,388,307   $ (2,304,562 )
Adjustments to reconcile net income (loss) to net cash flows used in by operating activities:              
Depreciation and amortization    239,630      189,390  
Gain on extinguishment of debt    (10,000 )     
Stock based compensation    1,148,327      1,186,771  
Change in fair value of warrant derivative liabilities    (33,274,039 )     
Provision for inventory obsolescence    339,668      254,109  
Amortization of discount on unsecured promissory notes         86,867  
Change in fair value of short-term investments    28,210       
Change in fair value of secured convertible notes         1,300,252  
Change in fair value of proceeds investment agreement        (5,250,000 )
Provision for doubtful accounts receivable    (527      
Issuance of common stock for services rendered         30,700  
Debt issuance costs         34,906  
               
Change in operating assets and liabilities:              
(Increase) decrease in:              
Accounts receivable – trade    337,364     (728,917
Accounts receivable – other    111,768     (370,123 )
Inventories    (1,767,724 )    (967,324
Income tax refund receivable         44,650  
Prepaid expenses    (3,445,546 )    (1,914,855 )
Operating lease right of use assets    (27,875 )    (669,662
Other assets    (752,324 )    (110,679 )
               
Increase (decrease) in:              
Accounts payable   

(475,256

)    (1,281,246
Accrued expenses    209,833     (129,593 )
Income taxes payable    (5,331 )    (4,776
Operating lease obligations    14,757      633,505 )
Contract liabilities    709,977     (145,018 )
               
Net cash used in operating activities    (12,230,781 )    (10,115,605 )
               
Cash Flows from Investing Activities:              
Purchases of property, building and equipment    (5,575,021 )    (599,449 )
Additions to other intangible assets    (239,139 )    (40,277 )
Additions to investments        (250,000
Cash paid for Nobility Healthcare Division acquisition, net of cash acquired    (1,012,552 )      
Cash paid for Nobility Healthcare Division acquisition, net of cash acquired    (2,270,000 )      
Cash paid for TicketSmarter acquisition, net of cash acquired    (8,361,808 )     
Restricted cash related to TicketSmarter acquisition    (500,000 )     
               
Net cash used in investing activities    (17,958,520 )    (889,726 )
               
Cash Flows from Financing Activities:              
Proceeds from issuance of common stock upon exercise of pre-funded warrants    53,224,000       
Net proceeds from sale of common stock in registered direct offerings   

13,346,600

    

 
Proceeds from unsecured promissory note payable, related party   

    

319,000

 
Proceeds from unsecured promissory note payable         100,000  
Proceeds from promissory notes payable         1,568,900  
Proceeds from issuance of common stock upon exercise of warrants         5,203,122  
Proceeds from issuance of secured convertible notes payable         1,500,000  
Proceeds from sale of common stock in underwritten public offering         12,829,241  
Proceeds from exercise of stock options         7,800  
Principal payment on subordinated notes payable        (400,000
Principal payment on secured convertible notes        (748,180
Principal payments on unsecured promissory note payable, related party        (319,000
Debt issuance costs        (34,906 )
Principal payment on proceeds investment agreement        (1,250,000 )
               
 Net cash provided by financing activities    66,570,600      18,775,977  
               
Net increase in cash and cash equivalents    36,381,299      7,770,646
Cash and cash equivalents, beginning of period    4,361,758      359,685