Current Trends and Recent Developments for the Company

Digital Ally, Inc. is a diversified technology company that provides a range of products and services across three main operating segments: Video Solutions, Revenue Cycle Management, and Entertainment.

Segment Overview

The Video Solutions segment supplies digital video and audio recording products and services for law enforcement, commercial fleets, and mass transit markets. Key offerings include in-car and body-worn cameras, cloud-based evidence management systems, and temperature monitoring stations.

The Revenue Cycle Management segment provides revenue cycle management solutions and back-office services to healthcare organizations nationwide. This includes insurance verification, medical coding, and collections.

The Entertainment segment operates an online ticketing marketplace and produces live music events through its TicketSmarter subsidiary. It generates revenue from ticket sales, service fees, and event production.

Results of Operations

Digital Ally reported operating losses for the first nine months of 2024 and all quarters of 2023. Quarterly results have fluctuated significantly due to factors like the timing of large orders, product launches, supply chain issues, and litigation expenses.

For the three months ended September 30, 2024, the company reported a net loss of $5.5 million on revenues of $4.1 million. This compares to a net loss of $3.7 million on revenues of $6.3 million in the same period of 2023.

The nine-month results show a net loss of $14.4 million on revenues of $15.2 million in 2024, versus a net loss of $18.0 million on revenues of $22.3 million in 2023.

Revenues by Segment

Video Solutions segment revenues decreased 62% in Q3 2024 compared to Q3 2023, due to lower product sales as the company faces increased competition and supply chain challenges. Service revenues from cloud subscriptions and warranties grew 9% year-over-year.

Revenue Cycle Management segment revenues were relatively flat, declining 2% in Q3 2024 versus Q3 2023 as the company focused on improving profitability over top-line growth.

Entertainment segment revenues declined 58% in Q3 2024 compared to the prior year period, as the company scaled back primary ticket sales to focus on higher-margin events.

Cost of Revenues

Overall cost of product revenues decreased 79% in Q3 2024 versus Q3 2023, driven by lower sales volumes and inventory write-downs in the prior year period. Cost of service revenues decreased 30% as the company implemented cost-cutting measures.

Gross profit margin improved to 43% in Q3 2024 from 19% in Q3 2023, reflecting the shift in revenue mix and cost reduction efforts.

Operating Expenses

Selling, general, and administrative expenses increased 43% in Q3 2024 compared to Q3 2023, primarily due to a $4.8 million goodwill and intangible asset impairment charge. Research and development, and sales and marketing costs declined as the company reduced headcount and discretionary spending.

The company reported an operating loss of $7.4 million in Q3 2024 versus a $5.1 million loss in Q3 2023. For the nine-month period, the operating loss improved to $14.9 million in 2024 from $16.3 million in 2023.

Other Income and Expenses

Other income included a $2.5 million gain from the change in fair value of warrant derivative liabilities and a $0.4 million gain on the sale of the company’s headquarters building. These were offset by a $0.3 million loss on debt extinguishment.

Net Loss and EPS

The net loss attributable to common shareholders was $3.5 million ($0.91 per share) in Q3 2024 compared to $3.7 million ($1.32 per share) in Q3 2023. For the nine-month period, the net loss attributable to common shareholders improved to $12.5 million ($3.90 per share) in 2024 from $18.2 million ($6.55 per share) in 2023.

Liquidity and Capital Resources

As of September 30, 2024, Digital Ally had $415,131 in cash and cash equivalents and negative working capital of $13.2 million. The company used $4.1 million in operating cash flow during the first nine months of 2024, an improvement from $5.8 million used in the prior-year period.

Financing activities provided $3.3 million in net cash, primarily from debt refinancing, merchant advances, and equity issuances. Investing activities generated $0.4 million, mainly from the sale of the company’s headquarters.

Digital Ally has $3.6 million in total debt outstanding as of September 30, 2024, with $3.4 million due within the next 12 months. The company also has $515,537 in operating lease obligations.

Outlook and Risks

Management acknowledges that the company’s recurring losses and cash burn raise substantial doubt about its ability to continue as a going concern. The company is actively seeking additional capital and working to improve operating performance, but there are no guarantees of success.

Factors that could impact the company’s future include:

• Continued competitive pressures and pricing challenges in the video solutions market
• Ability to successfully integrate and grow the revenue cycle management and entertainment businesses
• Ongoing supply chain disruptions and cost inflation
• Potential goodwill and intangible asset impairments
• Uncertainty around the company’s financial condition and ability to access capital

Overall, Digital Ally faces significant headwinds as it works to transform its business and return to profitability. The company’s diversification efforts provide some potential upside, but execution risks remain high. Investors should carefully consider the company’s financial position and outlook before making any decisions.