2020 first quarter operating results
LENEXA, Kansas (May 20, 2020) – 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 first quarter 2020 operating results. An investor conference call is scheduled for 11:15 a.m. EDT on Wednesday, May 20, 2020 (see details below).
Highlights for the First Quarter Ended March 31, 2020
During the compliance period, the Company’s shares of common stock will continue to be listed and traded on the Nasdaq Capital Market. To regain compliance, the closing bid price of the Company’s shares of common stock must meet or exceed $1.00 per share for at least ten consecutive business days during the 180-calendar day compliance period. Management continues to believe that adherence to its current operating and business plan will enable the Company to regain compliance.
If the Company is not in compliance by December 28, 2020, the Company may be afforded a second 180-calendar day compliance period. To qualify for this additional time, the Company will be required to meet the continued listing requirement for market value of publicly held shares and all other initial listing standards for Nasdaq with the exception of the minimum bid price requirement.
If the Company does not regain compliance within the allotted compliance period(s), including any extensions that may be granted, Nasdaq will provide notice that the Company’s shares of common stock will be subject to delisting and may potentially be traded on the OTC market thereafter.
Stanton E. Ross, Chief Executive Officer of Digital Ally, stated, “The disruptions cause by the Covid-19 pandemic adversely affected our first 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 a line of disinfectants to provide our customers with an eco-friendly product for use against SARS-CoV-2, the virus that causes COVID-19. In April 2020 we introduced the disinfectant line to our first-responder customers and many of our commercial customers. We also reduced our SG&A expenses by reducing staffing levels, limiting travel and reducing many advertising and promotional activities. In addition, we will move to a new, smaller office and warehouse space that will dramatically reduce our occupancy costs for the balance of 2020 and beyond.”
First Quarter 2020 Operating Results
For the first quarter 2020, our total revenue decreased by 5% to $2,425,745, compared with revenue of $2,550,796 for the first quarter 2019.
Gross profit improved 18% to $1,265,028 for the first quarter 2020 versus $1,181,740 in 2019. Our gross margin improvement is primarily attributable to our cost of sales as percentage of revenues decreasing to 48% for the first quarter 2020 from 52% for 2019.
Selling, General and Administrative (“SG&A”) expenses decreased approximately 25% to $3,192,396 in the first quarter 2020 versus $4,267,898 in 2019. The significant decrease was attributable to a reduction in legal fees related to our patent litigation coupled with less travel and reduced staffing levels resulting from the Covid-19 pandemic.
We reported an operating loss of $1,927,368 for the first quarter 2020, compared to an operating loss of $3,086,158 in 2019. This represents an improvement of $1,158,790 or 38% in 2020 compared to 2019.
We incurred $307,560 in interest expense during the first quarter 2020 which is attributable primarily to the secured convertible notes that were outstanding during the first quarter 2020.
We elected to account for the secured convertible notes that were issued in August of 2019 on their fair value. These secured convertible notes were fully converted and/or paid off in the first quarter 2020. The change in fair value from December 31, 2019 through their pay-off date was $412,445, which was recorded as a non-cash charge during the first quarter 2020.
We elected to record the obligation related to the proceeds investment agreement (“PIA”) at fair-value. Accordingly, the estimated fair value of the obligation decreased as a result of the Axon patent litigation status caused by the unfortunate District Court ruling on the motion for summary judgment and the initial ruling of the Appellate Court. The decrease in fair value of the PIA resulted in a non-cash credit of $307,000 for the first quarter 2020 compared to a non-cash charge of $137,000 in 2019.
We reported a net loss of ($2,334,110), or ($0.17) per share, in the first quarter ended March 31, 2020 compared to a prior-year net loss of $3,205,174, or ($0.29) 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 Call
The Company will host an investor conference call at 11:15 a.m. EDT on Wednesday, May 20, 2020, to discuss its operating results for the first quarter 2020 and the status of its patent infringement litigation against Axon Enterprise, Inc. and the impact of the Covid-19 pandemic. Shareholders and other interested parties may participate in the conference call by dialing 844-761-0863 and entering conference ID# 7136016 a few minutes before 11:15 a.m. EDT on Wednesday May 20, 2020.
A replay of the conference call will be available two hours after its completion, from May 20, 2020 until 11:59 p.m. on July 20, 2020 by dialing 855-859-2056 and entering the conference ID # 7136016.
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 disinfectants, and increase its service based revenue; whether the Company has resolved its product quality and supply chain issues; whether the EVO-HD will help the Company increase its product revenues; whether the Company will achieve positive outcomes in its litigation with Axon; whether and the extent to which the US Patent and Trademark Office (USPTO) rulings will curtail, eliminate or otherwise have an effect on the actions of Axon and others in the marketplace respecting the Company, its products and customers; its ability to deliver its newer product offerings as scheduled, and in particular the new EVO-HD product platform, obtain the required components and products on a timely basis, and have them perform as planned; 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 months ended March 31, 2020 and in its annual report on Form 10-K for the year ended December 31, 2019, filed with the Securities and Exchange Commission.