Nevada
|
20-0064269
|
|
(State or other jurisdiction of incorporation or organization)
|
(I.R.S. Employer Identification No.)
|
|
7311 W. 130th, Suite 170, Overland Park, KS 66213
|
||
(Address of principal executive offices) (Zip Code)
|
||
Registrant’s telephone, including area code:
(913) 814-7774
|
PART I
|
Page | |
Item 1a. | Risk Factors | 8 |
PART II
|
PART III
|
PART IV
|
·
|
An in-car digital audio/video system that is integrated into a rear view mirror. These products are marketing under the DVM-500, DVM-500 Plus and DVM-750 series.
|
·
|
An all-weather mobile digital audio/video system that is designed for motorcycle, ATV and boat uses. This product is marketed as our DVM-500 Ultra system.
|
·
|
A miniature body-worn digital audio/video camera. This product is marketed as our FirstVU system.
|
·
|
A digital audio / video system that is integrated into a large law-enforcement style flashlight. This product is marketed as our DVF-500 system.
|
·
|
wide angle zoom color camera;
|
·
|
standards-based video and audio compression and recording;
|
·
|
system is concealed in the rear view mirror, replacing factory rear view mirror;
|
·
|
monitor in rear-view mirror is invisible when not activated;
|
·
|
eliminates need for analog tapes to store and catalogue;
|
·
|
easily installs in any vehicle;
|
·
|
archives to computers (wirelessly) and to DVDs, CD-ROMs, or file servers;
|
·
|
900 MHz audio transceiver with automatic activation;
|
·
|
marks exact location of incident with integrated GPS;
|
·
|
playback using Windows Media Player;
|
·
|
proprietary software protects the chain of custody; and
|
·
|
records to rugged and durable solid state memory.
|
·
|
virtually the same size and shape as a traditional flashlight;
|
·
|
easy to use, requiring one button to start and stop recording;
|
·
|
on-board flash memory card;
|
·
|
extra-wide field of view for digital video and audio recording;
|
·
|
each frame of video can be date and time stamped;
|
·
|
LED flashlight bulb is an improvement over conventional bulbs; and
|
·
|
proprietary chain of custody software to protect delivery of data back to the police station.
|
License Type
|
Effective
Date
|
Expiration
Date
|
Terms
|
Production software license agreement
|
April, 2005
|
April, 2010
|
Automatically renews for one year periods unless terminated by either party.
|
Software sublicense agreement
|
October, 2007
|
October, 2010
|
Automatically renews for one year periods unless terminated by either party.
|
Technology license agreement
|
July, 2007
|
July, 2010
|
Automatically renews for one year periods unless terminated by either party.
|
Limited license agreement
|
August, 2008
|
Perpetual
|
May be terminated by either party.
|
·
|
attendance at industry trade shows and conventions;
|
·
|
use of a cut-away police car model to demonstrate the digital video rear view mirror product at trade shows, conventions and other marketing venues;
|
·
|
direct sales, with a force of industry-specific sales individuals who identify, call upon and build on-going relationships with key purchasers and targeted industries;
|
·
|
support of our direct sales with passive sales systems, including inside sales and e-commerce;
|
·
|
print advertising in journals with specialized industry focus;
|
·
|
direct mail campaigns targeted to potential customers;
|
·
|
web advertising, including supportive search engines and website and registration with appropriate sourcing entities;
|
·
|
public relations, industry-specific venues, as well as general media, to create awareness of our brand and our products, including membership in appropriate trade organizations; and
|
·
|
brand identification through trade names associated with us and our products.
|
·
|
digital video in-car recording products not being accepted by the law enforcement industry or digital video recording not being accepted as evidence in criminal proceedings;
|
·
|
actual or anticipated fluctuations in our operating results;
|
·
|
the potential absence of securities analysts covering us and distributing research and recommendations about us;
|
·
|
we expect our actual operating results to fluctuate widely as we increase our sales and production capabilities and other operations;
|
·
|
we may have a low trading volume for a number of reasons, including that a large amount of our stock is closely held;
|
·
|
overall stock market fluctuations;
|
·
|
economic conditions generally and in the law enforcement and security industries in particular;
|
·
|
announcements concerning our business or those of our competitors or customers;
|
·
|
our ability to raise capital when we require it, and to raise such capital on favorable terms;
|
·
|
changes in financial estimates by securities analysts or our failure to perform as anticipated by the analysts;
|
·
|
announcements of technological innovations;
|
·
|
conditions or trends in the industry;
|
·
|
litigation;
|
·
|
changes in market valuations of other similar companies;
|
·
|
announcements by us or our competitors of new products or of significant technical innovations, contracts, acquisitions, strategic partnerships or joint ventures;
|
·
|
future sales of common stock;
|
·
|
actions initiated by the SEC or other regulatory bodies;
|
·
|
existence or lack of patents or proprietary rights;
|
·
|
departure of key personnel or failure to hire key personnel; and
|
·
|
general market conditions.
|
High Close
|
Low Close
|
|||||||
Year Ended December 31, 2009
|
||||||||
1st Quarter
|
$ | 3.86 | $ | 1.54 | ||||
2nd Quarter
|
$ | 2.52 | $ | 1.60 | ||||
3rd Quarter
|
$ | 3.10 | $ | 2.34 | ||||
4th Quarter
|
$ | 2.47 | $ | 1.50 | ||||
Year Ended December 31, 2008
|
||||||||
1st Quarter
|
$ | 7.41 | $ | 6.91 | ||||
2nd Quarter
|
$ | 9.84 | $ | 6.80 | ||||
3rd Quarter
|
$ | 9.10 | $ | 6.72 | ||||
4th Quarter
|
$ | 6.90 | $ | 2.61 |
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
(excluding securities
reflected in column (a)
(c)
|
||||
Equity compensation plans approved by stockholders
|
3,495,587
|
|
$ |
2.82
|
|
429,527
|
|
Equity compensation plans not approved by stockholders
|
1,173,139
|
|
$ |
2.37
|
|
170,785
|
|
Total
|
4,668,726
|
$ |
2.71
|
600,312
|
·
|
We experienced a decrease in revenues during the fourth quarter 2008 and first quarter 2009 due in part to the challenging economy, which has negatively impacted state, county and municipal budgets. We expect that the current economic downturn will continue to depress certain state and local tax bases, and continue to make 2010 a challenging
business environment. Our revenues in the second, third and fourth quarters of 2009 improved over the first quarter 2009 and we expect that our sales for 2010 will improve if these conditions begin to abate. We had record revenues for the fourth quarter 2009.
|
·
|
We believe that delays in the introduction of our DVM-750 resulted in significant lost revenues in 2009 and contributed to our decreased revenues and operating losses in 2009, along with the economic recession. We were not able to compete for several large contracts that required the specifications of the DVM-750. In addition, we
bought substantial quantities of component parts in the fourth quarter 2008 and first quarter 2009 in anticipation of commencing commercial production of the DVM-750 beginning in the fourth quarter 2008, which increased our inventory balances. Commercial deliveries of the DVM-750 commenced in the second quarter 2009, which were a prime component of our improved sales for the second, third and fourth quarters of 2009 over the first quarter of
2009. We
expect that our current order backlog for the DVM-750 and continued acceptance of this new product will help to improve our revenues in 2010 over 2009, despite the current economic recession.
|
·
|
We anticipated that the assembly line changeover to the new DVM-500 Plus and DVM-750 products would occur during the fourth quarter 2008. We built significant quantities of the legacy DVM-500 model in October and November 2008 to handle anticipated product demand during the conversion period. As a result we held approximately 1,150
DVM-500 units in finished goods inventory at December 31, 2008. The number of these units has been reduced to less than 10 units at December 31, 2009 though sales activities in 2009. We are planning to build 300 to 500 additional DVM-500 units during the first quarter of 2010 to handle current customer demands for this legacy product. We have not found it necessary to offer any significant discounts to sell the DVM-500 units because their retail price point is below both
the DVM-500 Plus and the DVM-750. In addition, we need to maintain a minimal quantity of these units for warranty and service purposes.
|
·
|
We believe that current and potential customers may be delaying orders due to a number of factors, including budget reductions and anticipation of receiving the federal government’s stimulus funds in order to preserve their currently available funding and budgets. In light of the historically high levels of federal funding, estimated at
over $4 billion, allocated to Law Enforcement under the American Recovery and Reinvestment Act, the Omnibus Appropriations Act of 2009, and other programs
,
we expect that law enforcement agencies will have access to federal funding which has not been available to them in the past. We believe that such funding could have a positive impact on our revenues in the future, but cannot predict the amount of the funds
that will be used for products such as ours or the timing of the release of such funds. We were able to reduce our inventory levels substantially during the fourth quarter of 2009 and we anticipate that our inventory balances will continue to decline in 2010 as our sales increase and as we continue to maintain stricter inventory control.
|
·
|
Our international revenues decreased substantially during the fourth quarter 2008 and the first three quarters of 2009. Sales to certain countries that were strong revenue sources for us historically have been negatively impacted by political and social unrest, economic recession and a weakening of their currency exchange rates versus the US
dollar. We have focused on our international business by hiring an international sales manager in January 2009, hiring a European-based sales manager in November 2009 and by appointing international distributers in new countries during 2009. We expect that international sales will improve during 2010, based on an easing of economic, political and social conditions affecting certain of our key international customers and as initial sales to new countries occur, although we can make no assurances
in this regard. In addition, we believe that the availability of the DVM-750 will help to improve our international revenues. During October 2009, we received an international order from Turkey for DVM-750 units valued in excess of $3.3 million. This order represented our largest single international or domestic order for 2009 and was shipped during the fourth quarter 2009. We are encouraged by this shipment because it illustrates the potential popularity of our new DVM-750 product.
|
·
|
Our recent operating losses and increases in inventory levels led to deterioration in our cash levels and liquidity in 2009 compared to fiscal 2008. We have an unused $2.5 million revolving line-of-credit which would provide us short-term liquidity should the need arise, provided that we continue to satisfy the facility’s covenants, one
of which is maintaining a $15.0 million minimum tangible net worth. Currently, we have no long or short-term debt outstanding and have approximately $14.5 million in working capital. Management is focusing on reducing inventory and accounts receivable levels to generate additional liquidity and improve our cash position. We believe that our liquidity trends will continue to improve during 2010 if our revenues and profitability increase and that our current credit facility
will be sufficient to meet our operating needs for the reasonably foreseeable future.
|
·
|
We experienced a decrease in revenues due to the challenging economy that negatively impacted state, county and municipal budgets. We believe that current and potential customers may have delayed their orders due to a number of factors, including their local budget reductions and anticipation of receiving the federal government’s stimulus
funds in order to preserve their currently available funding and budgets. Our average order size decreased from approximately $11,200 in fiscal 2008 to $10,700 during fiscal 2009. We shipped 24 individual orders in excess of $100,000 each for an aggregate of $7.4 million in revenue in 2009 compared to 24 orders individually in excess of $100,000 for total revenue aggregate of approximately $8.8 million in 2008. We believe that this is indicative of reduced law enforcement
budgets where the customers are covering only the minimum required needs rather than full fleet deployments. However, during the fourth quarter 2009 we shipped nine individual orders in excess of $100,000, a quarterly record for us. We are hopeful that this may indicate an easing of such budgetary constraints and that a normal purchasing pattern will return during 2010, although we can make no assurances in this regard.
|
·
|
Our international revenues decreased substantially to $3,971,297, representing 15% of total revenues during fiscal 2009 compared to $8,588,335, representing 26% of total revenues during fiscal 2008. Sales to certain countries that were strong revenue sources for us on an historical basis were negatively impacted by political and social unrest,
economic recession and a weakening of their currency exchange rate versus the US dollar. We have focused on improving our international business by hiring an international sales manager in January 2009, hiring a salesman to cover Europe and the Middle-East territories and appointing international distribution agents in 11 new countries since January 1, 2009, which brings our total to 36 agents representing our products in various countries throughout the world. We experienced an increase
in inquiries and bid activity from international customers in the fourth quarter 2009. However, international sale cycles generally take longer than domestic business. During October 2009, we were awarded a $3 million plus contract for our DVM-750 product from a customer in Turkey that shipped in the fourth quarter2009.
|
Year Ended December 31,
|
||||||||
2009
|
2008
|
|||||||
Research and development expense
|
$ | 3,603,696 | $ | 3,171,721 | ||||
Selling, advertising and promotional expense
|
3,411,693 | 3,341,985 | ||||||
Stock-based compensation expense
|
1,399,879 | 1,599,264 | ||||||
Charge related to purchase and cancellation of employee stock options
|
358,104 | — | ||||||
Vendor settlements and credits
|
(278,173 | ) | — | |||||
Professional fees and expense
|
1,118,771 | 1,165,111 | ||||||
Executive, sales and administrative staff payroll
|
3,016,035 | 2,217,402 | ||||||
Other
|
2,592,706 | 3,049,276 | ||||||
Total
|
$ | 15,222,711 | $ | 14,544,759 |
·
|
Operating
activities
:
$210,237
of net
cash used in
operating activities, primarily from our net loss, an increase in accounts receivable
and a decrease in accounts payable. Non-cash charges to income, such as
|
·
|
depreciation and amortization and stock-based compensation offset the net cash used in operating activities. In addition, our cash flow from operating activities was negatively affected by non-cash deferred tax benefits during the period
|
·
|
Investing
activities
:
$570,847
of net
cash used
in
investing activities,
primarily to acquire equipment to expand our research, development and production capabilities and the costs to acquire patents on our proprietary technology utilized in our products.
|
·
|
Financing
activities
:
$241,713
of net
cash used in
financing activities, representing the purchase of common shares for
treasury, the repurchase of outstanding stock options and the related deficiency in tax benefit offset by the proceeds from stock options and the purchase of common shares for treasury.
|
Year ending December 31:
|
|
|||
2010
|
$ | 265,565 | ||
2011
|
169,086 | |||
2012
|
126,815 | |||
2013
|
— | |||
2014 and thereafter
|
— | |||
|
$ | 561,466 |
License Type
|
Effective
Date
|
Expiration
Date
|
Terms
|
Production software license agreement
|
April, 2005
|
April, 2010
|
Automatically renews for one year periods unless terminated by either party.
|
Software sublicense agreement
|
October, 2007
|
October, 2010
|
Automatically renews for one year periods unless terminated by either party.
|
Technology license agreement
|
July, 2007
|
July, 2010
|
Automatically renews for one year periods unless terminated by either party.
|
Limited license agreement
|
August, 2008
|
Perpetual
|
May be terminated by either party.
|
·
|
Revenue Recognition/ Allowance for Doubtful Accounts;
|
·
|
Allowance for Excess and Obsolete Inventory;
|
·
|
Warranty Reserves;
|
·
|
Stock-based Compensation Expense; and
|
·
|
Accounting for Income Taxes.
|
(i)
|
Persuasive evidence of an arrangement exists;
|
(ii)
|
Delivery has occurred;
|
(iii)
|
The price is fixed or determinable; and
|
(iv)
|
Collectibility is reasonably assured.
|
December 31,
2009
|
December 31,
2008
|
|||||||
Raw material and component parts
|
$ | 3,915,440 | $ | 4,783,730 | ||||
Work-in-process
|
487,266 | 1,282,140 | ||||||
Finished goods
|
3,528,225 | 2,823,212 | ||||||
Subtotal
|
7,930,931 | 8,889,082 | ||||||
Reserve for excess and obsolete inventory
|
(560,426 | ) | (529,121 | ) | ||||
Total
|
$ | 7,370,505 | $ | 8,359,961 |
·
|
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;
|
·
|
Provide reasonable assurance that the transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
|
·
|
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
|
Name
|
Age
|
Position
|
||
Stanton E. Ross
|
48
|
President and Chief Executive Officer; Chairman of the
Board of Directors
|
||
Thomas J. Heckman
|
50
|
Vice President, Chief Financial Officer, Treasurer and Secretary
|
||
Kenneth McCoy
|
64
|
Vice President of Sales and Marketing
|
||
Steven Phillips
|
60
|
Vice President of Engineering
|
||
Edward Smith
|
58
|
Vice President of Operations
|
||
Michael Caulfield
|
54
|
Vice President of Strategic Development
|
||
Leroy C. Richie (1)(2)(3)
|
68
|
Lead Outside Director
|
||
Daniel F. Hutchins (1)(4)
|
54
|
Director, Chairman of Audit Committee
|
||
Edward S. Juchniewicz (1)(3)
|
79
|
Director, Chairman of the Nominating and Governance Committee
|
||
Elliot M. Kaplan (2)(3)(4)
|
59
|
Director, Chairman of the Compensation Committee,
|
||
Bernard A. Bianchino(2)(4)
|
61
|
Director, Chairman of the Strategic Planning Committee,
|
·
|
determines the criteria for the selection of prospective directors and committee members;
|
·
|
reviews the composition and size of the Board and its committees to ensure proper expertise and diversity among its members;
|
·
|
evaluates the performance and contributions of directors eligible for re-election;
|
·
|
determine the desired qualifications for individual directors and desired skills and characteristics for the Board;
|
·
|
identifies persons who can provide needed skills and characteristics;
|
·
|
screens possible candidates for Board membership;
|
·
|
reviews any potential conflicts of interests between such candidates and the Company’s interests; and
|
·
|
shares information concerning the candidates with the Board, and solicit input from other directors.
|
Name
|
Year
|
Salary ($)
|
Bonus ($)
|
Option
awards
($) (1)
|
All
other compensation
($) (2)
|
Total ($)
|
Stanton E. Ross
Chairman, CEO
and President
|
2009
|
$ 322,837
|
$ 150,000
|
$ 29,404
|
$ 25,856 (3)
|
$ 528,097
|
2008
|
$ 425,000
|
$ -0-
|
$1,233,107
|
$ 15,621 (3)
|
$1,673,728
|
|
Robert D. Haler - Former
Executive Vice President and
Director of Product
Development
|
2009
|
$ 64,904
|
$ -0-
|
$ -0-
|
$ 139,219 (4)
|
$ 204,123
|
2008
|
$ 250,000
|
$ -0-
|
$ 616,554
|
$ 5,963 (4)
|
$ 872,517
|
|
Kenneth L. McCoy
Vice President
- Marketing
|
2009
|
$ 188,561
|
$ -0-
|
$ 42,094
|
$ 27,769 (5)
|
$ 258,424
|
2008
|
$ 250,000
|
$ -0-
|
$ 616,554
|
$ 18,295 (5)
|
$ 884,849
|
|
Thomas J. Heckman
Vice President, Chief Financial
Officer,
Treasurer
and Secretary
|
2009
|
$ 187,302
|
$ -0-
|
$ 101,490
|
$ 15,799 (6)
|
$ 304,591
|
2008
|
$ 204,166
|
$ -0-
|
$ 411,036
|
$ 8,668 (6)
|
$ 623,870
|
|
Steven Phillips
Vice President
- Engineering
|
2009
|
$ 137,018
|
$ -0-
|
$ 165,788
|
$ 9,851 (7)
|
$ 312,657
|
2008
|
$ -0-
|
$ -0-
|
$ -0-
|
$ -0-
|
$ -0-
|
|
Edward Smith
Vice President
- Operations
|
2009
|
$ 171,166
|
$ -0-
|
$ 94,466
|
$ 12,043 (8)
|
$ 277,675
|
2008
|
$ 80,165
|
$ -0-
|
$ 58,300
|
$ 1,249 (8)
|
$ 139,714
|
|
Michael Caulfield
Vice President
- Strategic Development
|
2009
|
$ 103,566
|
$ -0-
|
$ 223,966
|
$ 7,584 (9)
|
$ 335,116
|
2008
|
$ -0-
|
$ -0-
|
$ -0-
|
$ -0-
|
$ -0-
|
|
(1)
|
Represents aggregate grant date fair value pursuant to ASC Topic 718 for the respective year for stock options granted. Please refer to Note 10 to the financial statements for further description of the awards and the underlying assumptions utilized to determine the amount of grant date fair value related to such grants.
|
(2)
|
Amounts included in all other compensation include the following items: i) The employer contribution to the Company’s 401(k) Retirement Savings Plan (the “401(k) Plan”) on behalf of the named executive. The Company is required to provide a 100% matching contribution for all who elect to contribute up to 3% of their
compensation to the plan and a 50% matching contribution for all employees’ elective deferral between 4% and 5%. The employee is 100% vested at all times in the employee contributions and employer matching contributions; ii) Company paid healthcare insurance; and ii) Company paid housing.
|
(3)
|
Other compensation amounts for Mr. Ross include: i) Company contribution to 401 (k) Plan totaled $12,855 for 2009 and $7,872 for 2008; and ii) Company paid healthcare insurance totaled $13,001 for 2009 and $7,749 for 2008.
|
(4)
|
Other compensation amounts for Mr. Haler include: i) Company contribution to 401 (k) Plan totaled $2,695 for 2009 and $2,966 for 2008; ii) Company paid healthcare insurance totaled $3,408 for 2009 and $2,997 for 2008; and 3) payments due under Mr. Haler’s separation agreement totaling $133,116 in 2009. Mr. Haler resigned effective
April 23, 2009. The Company entered into a separation agreement with Mr. Haler that required the Company to continue his compensation for eighteen months. Mr. Haler was paid a total $64,904 through his resignation date and the remaining $133,116 subsequent to his resignation.
|
(5)
|
Other compensation amounts for Mr. McCoy include: i) Company paid housing allowance of $12,000 per year for 2009 and 2008; ii) Company contribution to 401 (k) Plan totaled $7,635 for 2009; and iii) Company paid healthcare insurance totaled $8,134 for 2009 and $6,295 for 2008.
|
(6)
|
Other compensation amounts for Mr. Heckman include: i) Company contribution to 401 (k) Plan totaled $7,665 for 2009 and $2,373 for 2008; and ii) Company paid healthcare insurance totaled $8,134 for 2009 and $6,295 for 2008.
|
(7)
|
Other compensation amounts for Mr. Phillips include: i) Company contribution to 401 (k) Plan totaled $3,750 for 2009; and ii) Company paid healthcare insurance totaled $6,101 for 2009.
|
(8)
|
Other compensation amounts for Mr. Smith include: i) Company contribution to 401 (k) Plan totaled $5,942 for 2009; and ii) Company paid healthcare insurance totaled $6,101 for 2009 and $1,249 for 2008.
|
(9)
|
Other compensation amount for Mr. Caulfield includes Company paid healthcare insurance of $7,584 for 2009.
|
Name
|
Grant
date
|
Date
approved by compensation
committee
|
All other
option awards:
number of securities
under-lying
options (#)
|
Exercise
or base
price of
option awards
($/Sh)
|
Grant date
fair value of
stock option
awards
|
Stanton E. Ross
Chairman, CEO and President
|
May 4, 2009
|
May 4, 2009
|
30,000
|
$1.78
|
$ 29,404
|
Stanton E. Ross
Chairman, CEO and President
|
May 4, 2009
|
May 4, 2009
|
30,000
|
$1.78
|
$ 29,404
|
Thomas J. Heckman
Vice President CFO, Treasurer and Secretary
|
March 30, 2009
|
March 30, 2009
|
20,000
|
$1.59
|
$ 17,303
|
May 4, 2009
|
May 4, 2009
|
30,000
|
$1.78
|
$ 29,404
|
|
July 30, 2009
|
July 30, 2009
|
30,000
|
$3.10
|
$ 54,783
|
|
Kenneth L. McCoy
Vice President — Marketing
|
May 4, 2009
|
May 4, 2009
|
15,000
|
$1.78
|
$ 14,702
|
July 30, 2009
|
July 30, 2009
|
15,000
|
$3.10
|
$ 27,392
|
|
Steven Phillips
Vice President — Engineering
|
March 30, 2009
|
March 30,2009
|
75,000
|
$1.59
|
$ 64,886
|
May 4, 2009
|
May 4, 2009
|
75,000
|
$1.78
|
$ 73,510
|
|
July 30, 2009
|
July 30, 2009
|
15,000
|
$3.10
|
$ 27,392
|
|
Edward Smith
Vice President — Operations
|
March 30, 2009
|
March 30,2009
|
20,000
|
$1.59
|
$ 17,303
|
May 4, 2009
|
May 4, 2009
|
75,000
|
$1.78
|
$ 73,510
|
|
July 30, 2009
|
July 30, 2009
|
2,000
|
$3.10
|
$ 3,653
|
|
Michael Caulfield
Vice President — Strategic Development
|
June 2, 2009
|
June 2, 2009
|
75,000
|
$2.04
|
$ 87,005
|
July 30, 2009
|
July 30, 2009
|
75,000
|
$3.10
|
$ 136,959
|
(i)
|
These awards were all made pursuant to the Digital Ally, Inc. Stock Option and Restricted Stock Plans and vest over a graduated four-year vesting period with 10% vesting on their one-year anniversary; 20% on their two-year anniversary; 30% on their three-year anniversary; and 40% on their four-year anniversary.
|
(ii)
|
Option awards noted represent the aggregate amount of grant date fair value as determined under ASC Topic 718. Please refer to Note 10 to the financial statements for further description of the awards and the underlying assumptions utilized to determine the amount of grant date fair value related to such grants.
|
Name
|
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
|
Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
|
Equity Incentive
Plan Awards:
Number of
Securities
Underlying
Unexercised
Unearned Options
|
Option
Exercise
Price ($)
|
Option
Expiration
Date
|
Stanton E. Ross
Chairman, CEO and President
|
—
|
30,000
|
—
|
$1.78
|
5/5/2019
|
30,000
|
270,000
|
—
|
$6.80
|
1/2/2018
|
|
175,000
|
—
|
—
|
$4.05
|
10/15/2017
|
|
200,000
|
—
|
—
|
$1.60
|
3/1/2017
|
|
303,488
|
—
|
—
|
$2.15
|
9/25/2011
|
|
193,823
|
—
|
—
|
$1.00
|
8/31/2015
|
|
Kenneth L. McCoy
Vice President — Marketing
|
—
|
15,000
|
—
|
$3.10
|
5/5/2019
|
—
|
15,000
|
—
|
$1.78
|
7/30/2019
|
|
15,000
|
135,000
|
—
|
$6.80
|
1/2/2018
|
|
100,000
|
—
|
—
|
$1.60
|
3/1/2017
|
|
200,000
|
—
|
—
|
$2.15
|
9/25/2011
|
|
500,000
|
—
|
—
|
$1.00
|
8/31/2015
|
|
Thomas J. Heckman
CFO, Treasurer and Secretary
|
—
|
30,000
|
—
|
$3.10
|
7/30/2019
|
—
|
30,000
|
—
|
$1.78
|
5/5/2019
|
|
—
|
20,000
|
—
|
$1.59
|
3/30/2019
|
|
10,000
|
90,000
|
—
|
$6.80
|
1/2/2018
|
|
20,000
|
—
|
—
|
$4.05
|
10/15/2017
|
|
Steven Phillips
Vice President — Engineering
|
—
|
15,000
|
—
|
$3.10
|
7/30/2019
|
—
|
75,000
|
—
|
$1.78
|
5/4/2019
|
|
—
|
75,000
|
—
|
$1.59
|
3/30/2019
|
|
Edward Smith
Vice President — Operations
|
—
|
2,000
|
—
|
$3.10
|
7/30/2019
|
—
|
75,000
|
—
|
$1.78
|
5/4/2019
|
|
—
|
20,000
|
—
|
$1.59
|
3/30/2019
|
|
5,000
|
—
|
—
|
$3.15
|
11/08/2018
|
|
20,000
|
—
|
$8.92
|
4/30/2018
|
||
Michael Caulfeld
Vice President — Strategic Development
|
—
|
75,000
|
—
|
$3.10
|
7/30/2019
|
—
|
75,000
|
—
|
$2.04
|
6/2/2019
|
Option Awards
|
Stock Awards
|
|||||||
Name
|
Number of
Shares acquired
on exercise (#)
|
Value realized
on exercise ($)
|
Number of
Shares acquired
on vesting (#)
|
Value
realized on
vesting ($)
|
||||
Stanton E. Ross
Chairman, CEO and President
|
—
|
$ —
|
—
|
$ —
|
||||
Kenneth L. McCoy
Vice President — Marketing
|
—
|
$ —
|
—
|
$ —
|
||||
Thomas J. Heckman
CFO, Treasurer and Secretary
|
—
|
$ —
|
—
|
$ —
|
||||
Steven Phillips
Vice President — Engineering
|
—
|
$ —
|
—
|
$ —
|
||||
Edward Smith
Vice President — Operations
|
—
|
$ —
|
—
|
$ —
|
||||
Michael Caulfeld
Vice President — Strategic Development
|
—
|
$ —
|
—
|
$ —
|
Name
|
Fees earned or
paid in cash ($)
|
Stock awards ($)
|
Option awards ($) (2)
|
Total ($)
|
||||||||||||
Stanton E. Ross, Chairman of the Board (1)
|
$ | -0- | $ | -0- | $ | -0- | $ | -0- | ||||||||
Leroy C. Richie
|
$ | 35,813 | $ | -0- | $ | 4,901 | $ | 40,714 | ||||||||
Edward S. Juchniewicz
|
$ | 34,313 | $ | -0- | $ | 4,901 | $ | 39,313 | ||||||||
Elliot M. Kaplan
|
$ | 34,313 | $ | -0- | $ | 4,901 | $ | 39,214 | ||||||||
Daniel F. Hutchins
|
$ | 35,625 | $ | -0- | $ | 26,529 | $ | 62,154 | ||||||||
Bernard A. Bianchino
|
$ | 13,313 | $ | 58,750 | $ | -0- | $ | 72,063 |
(1)
|
Mr. Ross’ compensation and option awards are noted in the Executive Compensation table because he did not receive compensation or stock options for his services as a director.
|
(2)
|
Mr. Bianchino was appointed to the board during 2009 and received a grant of 25,000 shares of restricted common stock subject to four-year graduated vesting. The restricted shares were valued at $2.35 per share which represented the closing price of on the date of grant.
|
(3)
|
Represents aggregate grant date fair value pursuant to ASC Topic 718 for the respective year for stock options granted. Please refer to Note 10 to the financial statements for further description of the awards and the underlying assumptions utilized to determine the amount of grant date fair value related to such grants.
|
Name of Individual
|
Number of
Restricted Shares of
Common Stock Granted
|
Number of
Options Granted
|
Average per Share
Exercise Price
|
||||
Stanton E. Ross (1)
|
-0-
|
-0-
|
$ -0-
|
||||
Leroy C. Richie
|
-0-
|
5,000
|
$ 1.78
|
||||
Edward S. Juchniewicz
|
-0-
|
5,000
|
$ 1.78
|
||||
Elliot M. Kaplan
|
-0-
|
5,000
|
$ 1.78
|
||||
Daniel F. Hutchins
|
-0-
|
30,000
|
$ 1.62
|
||||
Bernard A. Bianchino
|
25,000
|
-0-
|
$ -0-
|
_________________
|
|||||||
(1)
|
Mr. Ross’ compensation and option awards are noted in the Executive Compensation table because he did not receive compensation or stock options for his services as a director.
|
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
(excluding securities
reflected in column (a)
(c)
|
||||
Equity compensation plans approved by
stockholders
|
3,495,587
|
|
$ |
2.82
|
|
429,527
|
|
Equity compensation plans not approved by
stockholders
|
1,173,139
|
|
$ |
2.37
|
|
170,785
|
|
Total
|
4,668,726
|
|
$ |
2.71
|
|
600,312
|
Name of each Beneficial Owner
|
Amount and
Nature of
Beneficial Ownership
|
Percent
of
Class
|
||||||
5% Shareholders (excluding executive officers and directors):
|
||||||||
None (1)
|
||||||||
Executive Officers & Directors:
(2)
|
||||||||
Stanton E. Ross (3)
|
1,628,858 | 8.5 | % | |||||
Leroy C. Richie (4)
|
516,035 | 2.7 | % | |||||
Elliot M. Kaplan (5)
|
358,027 | 1.9 | % | |||||
Edward S. Juchniewicz (6)
|
408,429 | 2.1 | % | |||||
Daniel F. Hutchins (7)
|
46,495 | 0.2 | % | |||||
Bernard A. Bianchino (8)
|
38,495 | 0.2 | % | |||||
Steven Phillips (9)
|
16,634 | 0.1 | % | |||||
Kenneth L. McCoy (10)
|
856,780 | 4.5 | % | |||||
Thomas J. Heckman (11)
|
69,109 | 0.4 | % | |||||
Edward Smith (12)
|
37,237 | 0.2 | % | |||||
Michael Caulfield
|
— | — | % | |||||
All officers and directors as a group (11 individuals)
|
3,976,099 | 20.7 | % |
(1)
|
Based on information provided by in Schedule 13D filed in February 2010, there are no 5% shareholders other than Mr. Stanton E. Ross.
|
(2)
|
The address of these persons is c/o 7311 West 130th Street, Suite 170, Overland Park, KS 66213.
|
(3)
|
Mr. Ross’ total shares include: i) vested options to purchase 962,311 shares of common stock; and ii) 3,000 options that will vest within sixty days. Mr. Ross has pledged 656,600 common shares and all of his outstanding options to purchase common stock to financial institutions as collateral for personal loans.
|
(4)
|
Mr. Richie’s total shares include: i) vested options to purchase 370,782 shares of common stock; and ii) 500 options and 13,495 shares of restricted common stock that will vest within sixty days.
|
(5)
|
Mr. Kaplan’s total shares include: i) vested options to purchase 209,032 shares of common stock; and ii) 500 options and 13,495 shares of restricted common stock that will vest within sixty days. Mr. Kaplan has pledged 125,000 common shares to financial institutions as collateral for personal loans.
|
(6)
|
Mr. Juchniewicz’ total shares include: i) vested options to purchase 335,000 shares of common stock; and ii) 500 options and 13,495 shares of restricted common stock that will vest within sixty days.
|
(7)
|
Mr. Hutchins’ total shares include: i) vested options to purchase 25,000 shares of common stock; and ii) 3,000 options and 13,495 shares of restricted common stock that will vest within sixty days.
|
(8)
|
Mr. Bianchino’s total shares include: 13,495 shares of restricted common stock that will vest within sixty days.
|
(9)
|
Mr. Phillips’ total shares include: 15,000 options to purchase common stock that will vest within sixty days.
|
(10)
|
Mr. McCoy’s total shares include: i) vested options to purchase 845,000 shares of common stock; and ii) 1,500 options that will vest within sixty days.
|
(11)
|
Mr. Heckman’s total shares include: i) vested options to purchase 50,000 shares of common stock; and ii) 5,000 options that will vest within sixty days.
|
(12)
|
Mr. Smith’s total shares include: i) vested options to purchase 25,000 shares of common stock; and ii) 9,500 options that will vest within sixty days.
|
Fee Category:
|
Fiscal
2009 Fees
|
Fiscal
2008 Fees
|
||||||
Audit Fees
|
$ | 114,000 | $ | 178,855 | ||||
Audit-Related Fees
|
3,530 | 2,634 | ||||||
Tax Fees
|
— | 20,515 | ||||||
All Other Fees
|
— | — | ||||||
Total Fees
|
$ | 117,530 | $ | 202,004 |
Exhibit
Number
|
Description
|
Incorporated by Reference to:
|
Filed
Herewith
|
2.1
|
Plan of Merger among Vegas Petra, Inc., a Nevada corporation, and Digital Ally, Inc., a Nevada corporation, and its stockholders, dated November 30, 2004.
|
Exhibit 2.1 of the Company’s Form SB-2, filed October 16, 2006, No. 333-138025 (the “October 2006 Form SB-2).
|
|
3.1
|
Amended and Restated Articles of Incorporation of Registrant, dated December 13, 2004.
|
Exhibit 3.1 of the October 2006 Form SB-2.
|
|
3.2
|
Amended and Restated By-laws of Registrant.
|
Exhibit 3.2 of the October 2006 Form SB-2.
|
|
3.3
|
Audit Committee Charter, dated September 22, 2005.
|
Exhibit 3.3 of the October 2006 Form SB-2.
|
|
3.4
|
Compensation Committee Charter, dated September 22, 2005
|
Exhibit 3.4 of the October 2006 Form SB-2.
|
|
3.5
|
Nominating Committee Charter dated December 27, 2007.
|
Exhibit 3.5 of the Annual Report on Form 10KSB for the Year ending December 31, 2007.
|
|
3.6
|
Corporate Governance Guidelines.
|
Exhibit 99.1 of the Current Report on Form 8-K dated November 20, 2009.
|
|
3.7
|
Nominating and Governance Charter, Amended and Restated
as of February 25, 2010.
|
X
|
|
3.8
|
Strategic Planning Committee Charter, dated June 28, 2009.
|
X
|
|
4.1
|
Form of Common Stock Certificate.
|
Exhibit 4.1 of the October 2006 Form SB-2.
|
|
4.2
|
Form of Common Stock Purchase Warrant.
|
Exhibit 4.2 of the October 2006 Form SB-2.
|
|
5.1
|
Opinion of Quarles & Brady LLP as to the legality of securities being registered (includes consent).
|
Exhibit 5.1 of the October 2006 Form SB-2.
|
|
10.1
|
2005 Stock Option and Restricted Stock Plan.
|
Exhibit 10.1 of the October 2006 Form SB-2.
|
|
10.2
|
2006 Stock Option and Restricted Stock Plan.
|
Exhibit 10.2 of the October 2006 Form SB-2.
|
10.3
|
Form of Stock Option Agreement (ISO and Non-Qualified) 2005 Stock Option Plan.
|
Exhibit 10.3 of the October 2006 Form SB-2.
|
|
10.4
|
Form of Stock Option Agreement (ISO and Non-Qualified) 2006 Stock Option Plan.
|
Exhibit 10.4 of the October 2006 Form SB-2.
|
|
10.5
|
Promissory Note Extension between Registrant and Acme Resources, LLC, dated May 4, 2006, in the principal amount of $500,000.
|
Exhibit 10.5 of the October 2006 Form SB-2.
|
|
10.6
|
Promissory Note between Registrant and Acme Resources, LLC, dated September 1, 2004, in the principal amount of $500,000.
|
Exhibit 10.6 of the Company’s Amendment No. 1 to Form SB-2, filed January 31, 2007, No. 333-138025 (“Amendment No. 1 to Form SB-2”)
|
|
10.7
|
Promissory Note Extension between Registrant and Acme Resources, LLC, dated October 31, 2006.
|
Exhibit 10.7 of Amendment No. 1 to Form SB-2.
|
|
10.8
|
Software License Agreement with Ingenient Technologies, Inc., dated March 15, 2004.*
|
Exhibit 10.8 of Amendment No. 1 to Form SB-2.
|
|
10.9
|
Software License Agreement with Ingenient Technologies, Inc., dated April 5, 2005.*
|
Exhibit 10.9 of Amendment No. 1 to Form SB-2.
|
|
10.10
|
Stock Option Agreement with Daniels & Kaplan, P.C., dated September 25, 2006.
|
Exhibit 10.10 of Amendment No. 1 to Form SB-2.
|
|
10.11
|
Memorandum of Understanding with Tri Square Communications (Hong Kong) Co., Ltd. dated November 29, 2005.
|
Exhibit 10.11 of Amendment No. 1 to Form SB-2.
|
|
10.12
|
2007 Stock Option and Restricted Stock Plan.
|
Exhibit 10.3 of the Company’s Form S-8, filed October 23, 2007, No. 333-146874.
|
|
10.13
|
Form of Stock Option Agreement (ISO and Non-Qualified) 2007 Stock Option Plan.
|
Exhibit 10.13 of the Annual Report on Form 10KSB for the Year ending December 31, 2007.
|
|
10.14
|
Amendment to 2007 Stock Option and Restricted Stock Plan.
|
Exhibit 10.14 of the Annual Report on Form 10KSB for the Year ending December 31, 2007.
|
|
10.15
|
2008 Stock Option and Restricted Stock Plan.
|
Exhibit 10.15 of the Annual Report on Form 10KSB for the Year ending December 31, 2007.
|
|
10.16
|
Form of Stock Option Agreement (ISO and Non-Qualified) 2008 Stock Option Plan.
|
Exhibit 10.16 of the Annual Report on Form 10KSB for the Year ending December 31, 2007.
|
|
10.17
|
Promissory Note with Enterprise Bank dated February 13, 2009.
|
Exhibit 10.17 of the Annual Report on Form 10KSB for the Year ending December 31, 2007.
|
|
10.18
|
First Amendment to Promissory Note with Enterprise Bank dated February 13, 2009.
|
Exhibit 10.18 of the Annual Report on Form 10K for the Year ending December 31, 2008.
|
|
10.19
|
First Amendment to Promissory Note with Enterprise Bank dated June 30, 2009.
|
Exhibit 10.19 of the Quarterly Report on Form 10Q for the Quarter ending June 30, 2008.
|
|
10.20
|
Modification and Renewal of Promissory Note with Enterprise Bank dated February 1, 2010.
|
X
|
|
10.21
|
Forms of Restricted Stock Agreement for 2005, 2006, 2007 and 2008 Stock Option and Restricted Stock Plans.
|
X
|
|
14.1
|
Code of Ethics and Code of Conduct.
|
Exhibit 3.5 of the Annual Report on Form 10KSB for the Year ending December 31, 2007.
|
|
21.1
|
Subsidiaries of Registrant.
|
X
|
|
23.1
|
Consent of McGladrey & Pullen LLP
|
X
|
|
23.2
|
Consent of Quarles & Brady LLP (Included in 5.1 above)
|
Exhibit 5.1 of the October 2006 Form SB-2.
|
|
24.1
|
Power of Attorney.
|
X
|
|
31.1
|
Certificate of Stanton E. Ross, Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
X
|
|
31.2
|
Certificate of Thomas J. Heckman, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
X
|
|
32.1
|
Certificate of Stanton E. Ross, Chief Executive Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
X
|
|
32.2
|
Certificate of Thomas J. Heckman, Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
X
|
|
99.1
|
Audited Financial Statements of Digital Ally, Inc. as of and for the years ended December 31, 2009 and 2008.
|
X
|
|
* Information marked [*] has been omitted pursuant to a Confidential Treatment Request filed with the Securities and Exchange Commission. Omitted material for which confidential treatment has been granted has been filed separately with the Securities and Exchange Commission.
|
Signature and Title
|
|
Date
|
/s/
Stanton E. Ross
|
|
March 22, 2010
|
Stanton E. Ross, Director and Chief Executive Officer
|
|
|
/s/
Leroy C. Richie
|
|
March 22, 2010
|
Leroy C. Richie, Director
|
|
|
/s/
Edward S. Juchniewicz
|
|
March 22, 2010
|
Edward S. Juchniewicz, Director
|
|
|
/s/
Elliot M. Kaplan
|
|
March 22, 2010
|
Elliot M. Kaplan, Director
|
|
|
/s
/ Daniel F. Hutchins
|
|
March 22, 2010
|
Daniel F. Hutchins, Director
|
|
|
/s/ BERNARD A. BIANCHINO
|
|
March 22, 2010
|
Bernard A. Bianchino, Director
|
|
|
/s/
Thomas J. Heckman
|
|
March 22, 2010
|
Thomas J. Heckman, Chief Financial Officer, Secretary, Treasurer and Principal Accounting Officer
|
|
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
|
Page(s) | |
Consolidated Financial Statements:
|
|
|
|
March 22, 2010
Kansas City, Missouri
|
2009
|
2008
|
|||||||
Assets
|
||||||||
Current assets:
|
|
|
||||||
Cash and cash equivalents
|
$ | 183,150 | $ | 1,205,947 | ||||
Accounts receivable-trade, less allowance for doubtful accounts
of $110,000 - 2009 and $90,000 – 2008
|
8,398,353 | 6,242,306 | ||||||
Accounts receivable-other
|
476,049 | 414,176 | ||||||
Inventories
|
7,370,505 | 8,359,961 | ||||||
Prepaid income taxes
|
— | 85,943 | ||||||
Prepaid expenses
|
224,923 | 217,916 | ||||||
Deferred taxes
|
1,695,000 | 1,345,000 | ||||||
|
||||||||
Total current assets
|
18,347,980 | 17,871,249 | ||||||
|
||||||||
Furniture, fixtures and equipment
|
3,010,977 | 2,471,205 | ||||||
Less accumulated depreciation and amortization
|
1,592,874 | 738,554 | ||||||
|
||||||||
|
1,418,103 | 1,732,651 | ||||||
|
||||||||
Deferred taxes
|
1,160,000 | 975,000 | ||||||
Intangible assets, net
|
336,182 | 365,643 | ||||||
Other assets
|
135,674 | 149,066 | ||||||
|
||||||||
Total assets
|
$ | 21,397,939 | $ | 21,093,609 | ||||
|
||||||||
Liabilities and Stockholders’ Equity
|
||||||||
Current liabilities:
|
||||||||
Accounts payable
|
$ | 2,000,541 | $ | 2,791,565 | ||||
Accrued expenses
|
1,781,969 | 1,053,624 | ||||||
Income taxes payable
|
9,171 | — | ||||||
Customer deposits
|
39,924 | 84,039 | ||||||
|
||||||||
Total current liabilities
|
3,831,605 | 3,929,228 | ||||||
|
||||||||
Commitments and contingencies
|
||||||||
Stockholders’ equity:
|
||||||||
Common stock, $0.001 par value; 75,000,000 shares authorized; Shares
issued: 16,169,739 – 2009 and 15,926,077 – 2008
|
16,170 | 15,926 | ||||||
Additional paid in capital
|
20,007,430 | 18,428,292 | ||||||
Treasury stock, at cost (shares: 248,610 – 2009 and 210,360 - 2008)
|
(1,687,465 | ) | (1,624,353 | ) | ||||
Retained earnings (deficit)
|
(769,801 | ) | 344,516 | |||||
|
||||||||
Total stockholders’ equity
|
17,566,334 | 17,164,381 | ||||||
|
||||||||
Total liabilities and stockholders’ equity
|
$ | 21,397,939 | $ | 21,093,609 |
2009
|
2008
|
|||||||
Product revenue
|
$ | 25,318,294 | $ | 32,324,678 | ||||
Other revenue
|
1,047,959 | 300,799 | ||||||
|
||||||||
Total revenue
|
26,366,253 | 32,625,477 | ||||||
Cost of revenue
|
12,933,209 | 12,980,683 | ||||||
|
||||||||
Gross profit
|
13,433,044 | 19,644,794 | ||||||
|
||||||||
Selling, general and administrative expenses:
|
||||||||
Research and development expense
|
3,603,696 | 3,171,721 | ||||||
Selling, advertising and promotional expense
|
3,411,693 | 3,341,985 | ||||||
Stock-based compensation expense
|
1,399,879 | 1,599,264 | ||||||
Charges related to purchase and cancellation of employee stock options
|
358,104 | — | ||||||
Vendor settlements and credits
|
(278,173 | ) | — | |||||
General and administrative expense
|
6,727,512 | 6,431,789 | ||||||
|
||||||||
Total selling, general and administrative expenses
|
15,222,711 | 14,544,759 | ||||||
|
||||||||
Operating income (loss)
|
(1,789,667 | ) | 5,100,035 | |||||
|
||||||||
Interest income
|
35,350 | 78,595 | ||||||
|
||||||||
Income (loss) before income tax benefit (provision)
|
(1,754,317 | ) | 5,178,630 | |||||
Income tax benefit (provision)
|
640,000 | (1,825,000 | ) | |||||
|
||||||||
Net income (loss)
|
$ | (1,114,317 | ) | $ | 3,353,630 | |||
|
||||||||
Net income (loss) per share information:
|
||||||||
Basic
|
$ | (0.07 | ) | $ | 0.22 | |||
Diluted
|
$ | (0.07 | ) | $ | 0.19 | |||
Weighted average shares outstanding:
|
||||||||
Basic
|
15,797,991 | 15,319,257 | ||||||
Diluted
|
15,797,991 | 17,509,091 |
Common Stock
|
||||||||||||||||||||||||
Shares
|
Amount
|
Additional
Paid In
Capital
|
Treasury
stock
|
Retained
earnings
(deficit)
|
Total
|
|||||||||||||||||||
Balance, January 1, 2008
|
14,092,260 | $ | 14,092 | $ | 12,110,890 | $ | — | $ | (3,009,514 | ) | $ | 9,115,868 | ||||||||||||
Stock-based compensation
|
— | — | 1,599,264 | — | — | 1,599,264 | ||||||||||||||||||
Excess in tax benefits related to stock-based compensation
|
— | — | 2,345,000 | — | — | 2,345,000 | ||||||||||||||||||
Stock options exercised at:
|
||||||||||||||||||||||||
$1.00 per share
|
800,834 | 801 | 800,033 | — | — | 800,834 | ||||||||||||||||||
$1.20 per share
|
383,500 | 383 | 459,817 | — | — | 460,200 | ||||||||||||||||||
$1.60 per share
|
165,794 | 166 | 265,105 | — | — | 228,271 | ||||||||||||||||||
$2.15 per share
|
230,079 | 230 | 494,440 | — | — | 494,670 | ||||||||||||||||||
$2.30 per share
|
50,000 | 50 | 114,950 | — | — | 115,000 | ||||||||||||||||||
$2.50 per share
|
25,000 | 25 | 62,475 | — | — | 62,500 | ||||||||||||||||||
$2.65 per share
|
40,000 | 40 | 105,960 | — | — | 106,000 | ||||||||||||||||||
$2.75 per share
|
199,750 | 200 | 549,113 | — | — | 549,313 | ||||||||||||||||||
$4.05 per share
|
15,000 | 15 | 60,735 | — | — | 60,750 | ||||||||||||||||||
Common stock surrendered as consideration for cashless exercise of stock options
|
(76,140 | ) | (76 | ) | (539,490 | ) | — | — | (539,566 | ) | ||||||||||||||
Purchase of 38,250 common shares for treasury
|
— | — | — | (1,624,353 | ) | — | (1,624,353 | ) | ||||||||||||||||
Net income
|
— | — | — | — | 3,353,630 | 3,353,630 | ||||||||||||||||||
|
||||||||||||||||||||||||
Balance, January 1, 2009
|
15,926,077 | 15,926 | 18,428,292 | (1,624,353 | ) | 344,516 | 17,164,381 | |||||||||||||||||
Stock-based compensation
|
— | — | 1,757,983 | — | — | 1,757,983 | ||||||||||||||||||
Excess (deficiency) in tax benefits related to stock-based compensation
|
— | — | (120,000 | ) | — | — | (120,000 | ) | ||||||||||||||||
Restricted common stock grant
|
25,000 | 25 | (25 | ) | — | — | — | |||||||||||||||||
Stock options exercised at:
|
||||||||||||||||||||||||
$1.00 per share
|
100,000 | 100 | 99,900 | — | — | 100,000 | ||||||||||||||||||
$1.60 per share
|
142,901 | 143 | 228,499 | — | — | 228,642 | ||||||||||||||||||
$1.95 per share
|
125,000 | 125 | 243,625 | — | — | 243,750 | ||||||||||||||||||
$2.15 per share
|
5,000 | 5 | 10,745 | — | — | 10,750 | ||||||||||||||||||
Common stock surrendered as consideration for cashless exercise of stock options
|
(154,239 | ) | (154 | ) | (321,589 | ) | — | — | (321,743 | ) | ||||||||||||||
Purchase of 38,250 common shares for treasury
|
— | — | — | (63,112 | ) | — | (63,112 | ) | ||||||||||||||||
Purchase and cancellation of employee stock options
|
— | — | (320,000 | ) | — | — | (320,000 | ) | ||||||||||||||||
Net (loss)
|
— | — | — | — | (1,114,317 | ) | (1,114,317 | ) | ||||||||||||||||
|
||||||||||||||||||||||||
Balance, December 31, 2009
|
16,169,739 | $ | 16,170 | $ | 20,007,430 | $ | (1,687,465 | ) | $ | (769,801 | ) | $ | 17,566,334 |
2009
|
2008
|
|||||||
Cash Flows From Operating Activities:
|
||||||||
Net income (loss)
|
$ | (1,114,317 | ) | $ | 3,353,630 | |||
Adjustments to reconcile net income (loss) to net cash flows
used in operating activities:
|
||||||||
Depreciation and amortization
|
914,856 | 455,255 | ||||||
Stock based compensation
|
1,757,983 | 1,599,264 | ||||||
Reserve for inventory obsolescence
|
31,304 | 332,793 | ||||||
Reserve for bad debt allowance
|
34,066 | 61,776 | ||||||
Deferred tax (benefit) provision
|
(535,000 | ) | (545,000 | ) | ||||
Change in assets and liabilities:
|
||||||||
(Increase) decrease in:
|
||||||||
Accounts receivable - trade
|
(2,190,113 | ) | (5,781,071 | ) | ||||
Accounts receivable - other
|
(61,873 | ) | (202,489 | ) | ||||
Inventories
|
958,152 | (5,728,656 | ) | |||||
Prepaid income taxes
|
85,943 | (85,943 | ) | |||||
Prepaid expenses
|
(7,007 | ) | 14,985 | |||||
Other assets
|
13,392 | (84,059 | ) | |||||
Increase (decrease) in:
|
||||||||
Accounts payable
|
(791,024 | ) | 1,782,734 | |||||
Accrued expenses
|
728,345 | 545,929 | ||||||
Income taxes payable
|
9,171 | (26,000 | ) | |||||
Customer deposits
|
(44,115 | ) | (159,132 | ) | ||||
Unearned income
|
— | (3,864 | ) | |||||
Net cash used in operating activities
|
(210,237 | ) | (4,469,848 | ) | ||||
|
||||||||
Cash Flows from Investing Activities:
|
||||||||
Purchases of furniture, fixtures and equipment
|
(539,772 | ) | (1,290,887 | ) | ||||
Additions to intangible assets
|
(31,075 | ) | (383,976 | ) | ||||
Net cash (used in) investing activities
|
(570,847 | ) | (1,674,863 | ) | ||||
|
||||||||
Cash Flows from Financing Activities:
|
||||||||
Proceeds from exercise of stock options and warrants
|
261,399 | 2,374,972 | ||||||
Excess (deficiency) in tax benefits related to stock-based compensation
|
(120,000 | ) | 2,345,000 | |||||
Purchase of common shares for treasury
|
(63,112 | ) | (1,624,353 | ) | ||||
Purchase of employee stock options
|
(320,000 | ) | — | |||||
Net cash provided by (used in) financing activities
|
(241,713 | ) | 3,095,619 | |||||
Decrease in cash and cash equivalents
|
(1,022,797 | ) | (3,049,092 | ) | ||||
Cash and cash equivalents, beginning of period
|
1,205,947 | 4,255,039 | ||||||
Cash and cash equivalents, end of period
|
$ | 183,150 | $ | 1,205,947 | ||||
|
||||||||
Supplemental disclosures of cash flow information:
|
||||||||
Cash payments for interest
|
$ | — | $ | — | ||||
Cash payments for income taxes
|
$ | 21,811 | $ | 136,943 | ||||
|
||||||||
Supplemental disclosures of non-cash investing and financing activities:
|
||||||||
Restricted common stock grant
|
$ | 58,750 | $ | — | ||||
|
||||||||
Common stock surrendered as consideration for exercise of stock options
|
$ | 321,743 | $ | 539,566 |
·
|
Sales to domestic customers are generally made direct to the end customer (typically a law enforcement agency) through commissioned third-party sales agents. Revenue is recorded when the product is shipped to the end customer.
|
·
|
Sales to international customers are generally made through independent distributors who purchase the product from
the Company
at a wholesale price and sell to the end user (typically law enforcement agencies) at a retail price. The international distributor retains the margin as their compensation. The
international distributor maintains product inventory, customer receivables and all related risks and rewards of ownership. Revenue is recorded when the product is shipped to the international distributor.
|
December 31,
2009
|
December 31,
2008
|
||||||||
Beginning balance
|
$ | 90,000 | $ | 28,224 | |||||
Provision for bad debts
|
34,066 | 61,776 | |||||||
Charges-offs applied to allowance
|
(14,066 | ) | -0- | ||||||
Ending balance
|
$ | 110,000 | $ | 90,000 |
|
•
|
Expected term is determined using the contractual term and vesting period of the award;
|
|
•
|
Expected volatility of award grants made in the Company’s plan is measured using the weighted average of historical daily changes in the market price of the Company’s common stock over the period equal to the expected term of the award;
|
|
•
|
Expected dividend rate is determined based on expected dividends to be declared;
|
|
•
|
Risk-free interest rate is equivalent to the implied yield on zero-coupon U.S. Treasury bonds with a maturity equal to the expected term of the awards; and
|
|
•
|
Forfeitures are based on the history of cancellations of awards granted and management’s analysis of potential forfeitures.
|
Year Ended
December 31,
|
||||||||
2009
|
2008
|
|||||||
Sales by geographic area:
|
|
|
||||||
United States of America
|
$ | 22,394,326 | $ | 24,037,142 | ||||
Foreign
|
3,971,297 | 8,588,335 | ||||||
$ | 26,366,253 | $ | 32,625,477 |
December 31,
2009
|
December 31,
2008
|
|||||||
Raw material and component parts
|
$ | 3,915,440 | $ | 4,783,730 | ||||
Work-in-process
|
487,266 | 1,282,140 | ||||||
Finished goods
|
3,528,225 | 2,823,212 | ||||||
|
||||||||
Subtotal
|
7,930,931 | 8,889,082 | ||||||
Reserve for excess and obsolete inventory
|
(560,426 | ) | (529,121 | ) | ||||
Total
|
$ | 7,370,505 | $ | 8,359,961 |
Estimated
Useful Life
|
2009
|
2008
|
|||||||
Office furniture, fixtures and equipment
|
3-10 years
|
$ | 1,594,568 | $ | 1,409,787 | ||||
Warehouse and production equipment
|
3-5 years
|
1,129,821 | 814,737 | ||||||
Tradeshow equipment
|
3-5 years
|
168,450 | 166,292 | ||||||
Leasehold improvements
|
2-5 years
|
74,460 | 55,575 | ||||||
Website development
|
3 years
|
11,178 | 11,178 | ||||||
Rental equipment
|
3 years
|
32,500 | 13,636 | ||||||
Total cost
|
3,010,977 | 2,471,205 | |||||||
Less: accumulated depreciation and amortization
|
(1,592,874 | ) | (738,554 | ) | |||||
Net furniture, fixtures and equipment
|
$ | 1,418,103 | $ | 1,732,651 |
December 31, 2009
|
December 31, 2008
|
|||||||||||||||||||||||
Gross
value
|
Accumulated
amortization
|
Net carrying
value
|
Gross
value
|
Accumulated
amortization
|
Net carrying
value
|
|||||||||||||||||||
Amortized intangible assets:
|
||||||||||||||||||||||||
Licenses
|
$ | 255,000 | $ | 78,869 | $ | 176,131 | $ | 256,000 | $ | 18,333 | $ | 237,667 | ||||||||||||
Unamortized intangible assets:
|
||||||||||||||||||||||||
Patents and trademarks pending
|
160,051 | — | 160,051 | 127,976 | — | 127,976 | ||||||||||||||||||
Total
|
$ | 415,051 | $ | 78,869 | $ | 336,182 | $ | 383,976 | $ | 18,333 | $ | 365,643 |
Year ending December 31:
|
|
|||
2009
|
$ | 85,000 | ||
2010
|
66,667 | |||
2011
|
24,46 4 | |||
2012
|
— | |||
2013
and thereafter
|
— | |||
|
||||
|
$ | 176,131 |
December 31,
2009
|
December 31,
2008
|
|||||||
Accrued warranty expense
|
$ | 277,137 | $ | 271,307 | ||||
Accrued sales commissions
|
933,402 | 197,777 | ||||||
Accrued payroll and related fringes
|
343,046 | 395,635 | ||||||
Employee separation agreement
|
182,661 | — | ||||||
Other
|
45,723 | 188,905 | ||||||
$ | 1,781,969 | $ | 1,053,624 |
December 31,
2009
|
December 31,
2008
|
||||||||
Beginning balance
|
$ | 271,307 | $ | 213,428 | |||||
Provision for warranty expense
|
296,681 | 209,293 | |||||||
Charges applied to warranty reserve
|
(290,851 | ) | (151,414 | ) | |||||
Ending balance
|
$ | 277,137 | $ | 271,307 |
2009
|
2008
|
|||||||
Current taxes:
|
||||||||
Federal
|
$ | 126,500 | $ | (2,180,000 | ) | |||
State
|
(21,500 | ) | (190,000 | ) | ||||
Total current taxes
|
105,000 | (2,370,000 | ) | |||||
Deferred tax (provision) benefit
|
535,000 | 545,000 | ||||||
Income tax (provision) benefit
|
$ | 640,000 | $ | (1,825,000 | ) |
2009
|
2008
|
|||||||
U.S. Statutory tax rate
|
34.0 | % | (34.0 | )% | ||||
State taxes, net of Federal benefit
|
4.0 | % | (4.0 | )% | ||||
Research and development tax credits
|
10.3 | % | 3.2 | % | ||||
Incentive stock option compensation
|
(9.7 | )% | (1.7 | )% | ||||
Other, net
|
(2.1 | )% | 1.3 | % | ||||
Income tax (provision) benefit
|
36.5 | % | (35.2 | )% |
2009
|
2008
|
|||||||
Deferred tax assets:
|
||||||||
Stock-based compensation
|
$ | 1,422,000 | $ | 1,262,000 | ||||
Start-up costs
|
165,000 | 165,000 | ||||||
Inventory reserves
|
211,000 | 196,000 | ||||||
Uniform capitalization of inventory costs
|
18,000 | 31,000 | ||||||
Allowance for doubtful accounts receivable
|
42,000 | 33,000 | ||||||
Other reserves
|
105,000 | — | ||||||
Accrued expenses
|
138,000 | 178,000 | ||||||
Net operating loss carryforward
|
356,000 | 362,000 | ||||||
Research and development tax credit carryforward
|
595,000 | 413,000 | ||||||
Alternative minimum tax credit carryforward
|
92,000 | 90,000 | ||||||
State jobs credit carryforward
|
65,000 | 42,000 | ||||||
Other
|
5,000 | — | ||||||
Total deferred tax assets
|
3,214,000 | 2,772,000 | ||||||
Valuation allowance
|
(165,000 | ) | (165,000 | ) | ||||
Net deferred tax assets
|
3,049,000 | 2,607,000 | ||||||
Deferred tax liabilities:
|
||||||||
Equipment depreciation
|
(194,000 | ) | (287,000 | ) | ||||
|
||||||||
Net deferred tax assets (liability)
|
$ | 2,855,000 | $ | 2,320,000 | ||||
Net deferred tax asset (liability) reported as:
|
||||||||
Current
|
$ | 1,695,000 | $ | 1,345,000 | ||||
Non-current
|
$ | 1,160,000 | $ | 975,000 |
Year ending December 31:
|
|
|||
2010
|
$ | 265,565 | ||
2011
|
169,086 | |||
2012
|
126,815 | |||
2013
|
— | |||
2014 and thereafter
|
— | |||
|
$ | 561,466 |
License Type
|
Effective
Date
|
Expiration
Date
|
Terms
|
Production software license agreement
|
April, 2005
|
April, 2010
|
Automatically renews for one year periods unless terminated by either party.
|
Software sublicense agreement
|
October, 2007
|
October, 2010
|
Automatically renews for one year periods unless terminated by either party.
|
Technology license agreement
|
July, 2007
|
July, 2010
|
Automatically renews for one year periods unless terminated by either party.
|
Limited license agreement
|
August, 2008
|
Perpetual
|
May be terminated by either party.
|
Years ended December 31,
|
||||||||
2009
|
2008
|
|||||||
Expected term of the options in years
|
2-5 years
|
2-6 years
|
||||||
Expected volatility of Company stock
|
76% - 86 | % | 50% - 55 | % | ||||
Expected dividends
|
None
|
None
|
||||||
Risk-free interest rate
|
0.84% - 2.66 | % | 2.37%-3.06 | % | ||||
Expected forfeiture rate
|
5.00 | % | 5.00 | % |
Year Ended
December 31, 2009
|
||||||||
Options
|
Shares
|
Weighted
Average
Exercise Price
|
||||||
Outstanding at January 1, 2009
|
5,369,627 | $ | 2.62 | |||||
Granted
|
695,000 | 2.06 | ||||||
Exercised
|
(218,662 | ) | 1.70 | |||||
Exercised and surrendered/cancelled (cashless exercise)
|
(154,239 | ) | 1.37 | |||||
Forfeited
|
(1,023,000 | ) | 2.22 | |||||
|
||||||||
Outstanding at December 31, 2009
|
4,668,726 | $ | 2.71 | |||||
|
||||||||
Exercisable at December 31, 2009
|
3,334,892 | $ | 2.00 | |||||
|
||||||||
Weighted-average fair value for options granted
during the period at fair value
|
695,000 | $ | 1.15 |
Outstanding options
|
Exercisable options
|
||||||||||||||||
Exercise price range
|
Number of
options
|
Weighted
average
remaining
contractual
life
|
Number of
options
|
Weighted
average
remaining
contractual
life
|
|||||||||||||
$1.00 to $1.99
|
2,272,805 |
6.8 years
|
1,850,471 |
6.1 years
|
|||||||||||||
$2.00 to $2.99
|
1,136,421 |
2.3 years
|
1,053,921 |
1.8 years
|
|||||||||||||
$3.00 to $3.99
|
210,000 |
8.1 years
|
56,000 |
3.9 years
|
|||||||||||||
$4.00 to $4.99
|
254,500 |
7.8 years
|
254,500 |
7.8 years
|
|||||||||||||
$5.00 to $5.99
|
— | — | — | — | |||||||||||||
$6.00 to $6.99
|
755,000 |
8.0 years
|
80,000 |
8.0 years
|
|||||||||||||
$7.00 to $7.99
|
— | — | — | — | |||||||||||||
$8.00 to $8.99
|
30,000 |
6.7 years
|
30,000 |
6.7 years
|
|||||||||||||
$9.00 to $9.99
|
10,000 |
3.6 years
|
10,000 |
3.6 years
|
|||||||||||||
4,668,726 |
6.6 years
|
3,334,892 |
4.9 years
|
Restricted
stock
|
Weighted
average grant
date fair value
|
|||||||
Nonvested balance, January 1, 2009
|
— | $ | — | |||||
Granted
|
25,000 | 2.35 | ||||||
Vested
|
— | — | ||||||
Forfeited
|
— | — | ||||||
Nonvested balance, December 31, 2009
|
25,000 | $ | 2.35 |
Years Ended December 31,
|
||||||||
2009
|
2008
|
|||||||
Numerator for basic and diluted income per share – Net income (loss)
|
$ | (1,114,317 | ) | $ | 3,353,630 | |||
Denominator for basic income (loss) per share – weighted average shares outstanding
|
15,797,991 | 15,319,257 | ||||||
Dilutive effect of shares issuable under stock options and warrants outstanding
|
— | 2,189,834 | ||||||
Denominator for diluted income (loss) per share – adjusted weighted average shares outstanding
|
15,797,991 | 17,509,091 | ||||||
Net income (loss) per share:
|
||||||||
Basic
|
$ | (0.07 | ) | $ | 0.22 | |||
Diluted
|
$ | (0.07 | ) | $ | 0.19 |
·
|
Assist the Company’s Chief Executive Officer and senior executive officers (the “Responsible Officers”) in identifying significant issues and opportunities facing the Company, including, but not limited to, potential acquisitions, joint ventures, dispositions of capital assets, equity and debt funding and modifications of existing capital
structure, dividend policy and stock repurchase programs;
|
·
|
Assist the Responsible Officers in developing and refining a strategic plan (the “Strategic Plan”) that identifies specific long-term goals and business objectives relating to each opportunity determined to be in the Company’s best interests to pursue and approaches or strategies for reaching each goal or objective;
|
·
|
Assist the Responsible Officers in developing and refining an annual business plan (the “Annual Plan,” and together with the Strategic Plan, the “Plans”) that identifies specific short-term goals and business objectives for the Company’s annual performance that are in line with the Strategic Plan;
|
·
|
Advise the Board of Directors regarding its approval of the Plans;
|
·
|
Assist the Responsible Officers in determining the resources that are necessary for implementation of the Plans;
|
·
|
Monitor the progress in the implementation of the Plans;
|
·
|
Review the Company’s performance on a periodic basis against the Annual Plan;
|
·
|
Meet periodically to (i) evaluate the effectiveness of the existing Plans, (ii) make changes to the Plans where necessary or advisable, and (iii) explore additional significant issues or opportunities facing the Company not included in the Plans that might be in the best interests of the Company to pursue; and
|
·
|
Periodically present to the Board of Directors reports that include (i) evaluations of, and recommended revisions to, the Plans or the implementation thereof, and (ii) significant issues and opportunities facing the Company reviewed since the most recent report.
|
II.
|
Organization and Reviews.
|
III.
|
Meetings.
|
IV.
|
Consultants.
|
Date of this Modification/ Renewal:
February 13, 2010
|
Original Note Date:
February 13, 2009
|
|
Original Note Amount:
$2,500,000.00
|
Principal Balance as of this Date:
$0.00
|
Name (s) of Borrower (s): | Digital Ally, Inc. |
Address of Borrower (s): | 7311 W. 130 th Street, Ste 170 |
Overland Park, KS 66213
|
ENTERPRISE BANK & TRUST | DIGITAL ALLY, INC. | ||||
BY: | BY: | ||||
Taylor D. Miller | Stanton E. Ross | ||||
Sr. Vice President | Chairman and CEO |
1.
|
Grant
. The Company hereby makes a Restricted Stock Award (the "Award") of _________________ (_______) shares of its common stock, $0.001 par value (the "Shares"), all in accordance with and subject to the Plan pursuant to which the Shares are being granted and
the following terms and conditions.
|
2.
|
Grant Date; Value
. This Award is made as of ____________________ (the “Date of Grant”). The value of the Award is _______________, calculated as the number of Shares in the Award multiplied by _____________, the closing price per share
on the Date of Grant.
|
3.
|
Custody of Restricted Stock
. Certificates evidencing the Shares shall be issued by the Company and registered in the Recipient’s name on the stock transfer books of the Company promptly after the date hereof, but shall remain in the physical custody of
the Company or its designee at all times prior to the date on which such portion of the Award vests. As a condition to the receipt of this Award, the Recipient shall deliver to the Company a stock power, duly endorsed in blank, relating to the certificates representing the Shares. The certificates will bear an appropriate legend as determined by the Company referring to the applicable restrictions. Upon the vesting of the Shares pursuant to the terms hereof and the satisfaction
of any withholding tax obligations described below, the Company will deliver the certificates evidencing the vested Shares to the Recipient.
|
4.
|
Vesting Requirements
. All Shares in this Award shall vest on ________________, provided that the Recipient is an employee on such date.
|
5.
|
Accelerated Vesting
. Notwithstanding the vesting schedule reflected in the preceding Section 4, in the event of a Change of Control all restrictions imposed on any then-restricted Shares shall terminate immediately prior to any such event and such Shares shall
vest.
|
6.
|
Rights as Shareholder
. The Recipient will have the right to vote and receive cash dividends only with respect to vested Shares. Stock dividends, stock rights or others securities issued with respect to the unvested Shares shall be subject to the vesting
provisions of this Restricted Stock Agreement.
|
7.
|
Termination of Employment
. If the Recipient ceases to be an employee of the Company prior to the date of the vesting of the Award, including, without limitation, death, Disability,
|
termination with or without cause or voluntary resignation, the vesting of the Award shall be governed by the applicable provisions of the Plan.
|
8.
|
No Guarantee of Employment
.
Recipient
acknowledges and agrees that the vesting of shares pursuant to the vesting schedule hereof is earned only by continuing service as an employee at the will of the Company and not through the act of being granted the Award. The Recipient further acknowledges and agrees that this Restricted Stock Agreement, the transactions contemplated hereunder and the vesting schedule set forth herein do not constitute an express or implied promise of continued retention as an employee for the vesting period, for any
period, or at all, and shall not interfere with the Recipient’s right or the Company’s right to terminate the Recipient’s service as an employee at any time, with or without cause.
|
9.
|
Award Not Transferable
. The Award is not transferable except by will or the laws of descent and distribution, and may not be assigned, negotiated, or pledged in any way (whether by operation of law or otherwise), and shall not be subject to execution, attachment
or similar process.
|
10.
|
Conformity to Securities Laws
. The Recipient acknowledges that the Plan is intended to conform, to the extent necessary, with all provisions of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, and any and all regulations
and rules promulgated thereunder by the Securities and Exchange Commission. Notwithstanding anything herein to the contrary, the Plan shall be administered only in such a manner as to conform to such laws, rules and regulations. To the extent permitted by applicable law, the Plan and this Restricted Stock Agreement shall be deemed amended to the extent necessary to conform to such laws, rules and regulations.
|
11.
|
Tax Withholding
. The Company may require, as a condition to the vesting of any of the Shares, that the Recipient concurrently pay to the Company any taxes which the Company is required to withhold by reason of such vesting. In lieu of part or all of
such payment, the Recipient may request, subject to such rules and regulations as the Board of Directors may adopt from time to time, that the Company withhold a portion of the Shares otherwise becoming vested to defray all or a portion of any applicable taxes, or request that the Company withhold the required amounts from other compensation, if any, payable to the Recipient.
|
12.
|
Restricted Stock Legend
.
While the Recipient is an officer or otherwise an Affiliate of the Company, the stock certificates evidencing the Shares shall indicate that the Shares are restricted stock.
|
13. .
|
Entire Agreement; Governing Law
.
The Plan is incorporated herein by reference. The Plan and this Restricted Stock Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior
undertakings and agreements of the Company and Recipient with respect to the subject matter hereof, and may not be modified adversely to the Recipient’s interest except by means of a writing signed by the Company and the Recipient. This Restricted Stock Agreement is governed by Nevada law, except for that body of law pertaining to conflict of laws.
|
RECIPIENT: | DIGITAL ALLY, INC. | ||
By: | |||
Signature | Signature | ||
Print Name | |||
Title: | |||
Residence Address |
Spouse of Recipient |
1.
|
Grant
. The Company hereby makes a Restricted Stock Award (the "Award") of
__________________ (______)
shares of its common stock, $0.001 par value (the "Shares"), all in accordance with and subject to the
Plan pursuant to which the Shares are being granted and the following terms and conditions.
|
2.
|
Grant Date; Value
. This Award is made as of _______________ (the “Date of Grant”). The value of the Award is ___________________, calculated as the number of Shares in the Award multiplied by ____________________, the closing price per
share on the Date of Grant.
|
3.
|
Custody of Restricted Stock
. Certificates evidencing the Shares shall be issued by the Company and registered in the Recipient’s name on the stock transfer books of the Company promptly after the date hereof, but shall remain in the physical custody of
the Company or its designee at all times prior to the date on which such portion of the Award vests. As a condition to the receipt of this Award, the Recipient shall deliver to the Company a stock power, duly endorsed in blank, relating to the certificates representing the Shares. The certificates will bear an appropriate legend as determined by the Company referring to the applicable restrictions. Upon the vesting of the Shares pursuant to the terms hereof and the satisfaction
of any withholding tax obligations described below, the Company will deliver the certificates evidencing the vested Shares to the Recipient.
|
4.
|
Vesting Requirements
. All Shares in this Award shall vest on _____________, provided that the Recipient is a member of the Board of Directors of the Company on such date.
|
5.
|
Accelerated Vesting
. Notwithstanding the vesting schedule reflected in the preceding Section 4, in the event of a Change of Control all restrictions imposed on any then-restricted Shares shall terminate immediately prior to any such event and such Shares shall
vest.
|
6.
|
Rights as Shareholder
. The Recipient will have the right to vote and receive cash dividends only with respect to vested Shares. Stock dividends, stock rights or others securities issued with respect to the unvested Shares shall be subject to the vesting
provisions of this Restricted Stock Agreement.
|
7.
|
Termination of Directorship
. If the Recipient ceases to be a member of the Board of Directors of the Company prior to the date of the vesting of the Award, including, without limitation, death,
|
|
Disability, termination with or without cause or voluntary resignation, the vesting of the Award shall be governed by the applicable provisions of the Plan.
|
8.
|
No Guarantee of Directorship
.
Recipient
acknowledges and agrees that the vesting of shares pursuant to the vesting schedule hereof is earned only by continuing service as a Director at the will of the Company and not through the act of being granted the Award. The Recipient further acknowledges and agrees that this Restricted Stock Agreement, the transactions contemplated hereunder and the vesting schedule set forth herein do not constitute an express or implied promise of continued retention as a Director for the vesting period, for any
period, or at all, and shall not interfere with the Recipient’s right or the Company’s right to terminate the Recipient’s service as a member of the Board of Directors at any time, with or without cause.
|
9.
|
Award Not Transferable
. The Award is not transferable except by will or the laws of descent and distribution, and may not be assigned, negotiated, or pledged in any way (whether by operation of law or otherwise), and shall not be subject to execution, attachment
or similar process.
|
10.
|
Conformity to Securities Laws
. The Recipient acknowledges that the Plan is intended to conform, to the extent necessary, with all provisions of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, and any and all regulations
and rules promulgated thereunder by the Securities and Exchange Commission. Notwithstanding anything herein to the contrary, the Plan shall be administered only in such a manner as to conform to such laws, rules and regulations. To the extent permitted by applicable law, the Plan and this Restricted Stock Agreement shall be deemed amended to the extent necessary to conform to such laws, rules and regulations.
|
11.
|
Tax Withholding
. The Company may require, as a condition to the vesting of any of the Shares, that the Recipient concurrently pay to the Company any taxes which the Company is required to withhold by reason of such vesting. In lieu of part or all of
such payment, the Recipient may request, subject to such rules and regulations as the Board may adopt from time to time, that the Company withhold a portion of the Shares otherwise becoming vested to defray all or a portion of any applicable taxes, or request that the Company withhold the required amounts from other compensation, if any, payable to the Recipient.
|
12.
|
Restricted Stock Legend
.
While the Recipient is a member of the Board of Directors of the Company or otherwise an Affiliate of the Company, the stock certificates evidencing the Shares shall indicate that
the Shares are restricted stock.
|
13.
|
Entire Agreement; Governing Law
.
The Plan incorporated herein by reference. The Plan and this Restricted Stock Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety
all prior undertakings and agreements of the Company and Recipient with respect to the subject matter hereof, and may not be modified adversely to the Recipient’s interest except by means of a writing signed by the Company and the Recipient. This Restricted Stock Agreement is governed by Nevada law, except for that body of law pertaining to conflict of laws.
|
RECIPIENT: | DIGITAL ALLY, INC. | ||
By: | |||
Signature | Signature | ||
Print Name | |||
Title: | |||
Residence Address |
Spouse of Recipient |
DIGITAL ALLY, INC. | ||
SUBSIDIARIES OF REGISTRANT |
Name
|
Date of formation
|
Jurisdiction of
incorporation
|
Percentage
owned
|
Digital Ally International, Inc
|
August 18, 2009
|
Nevada
|
100%
|
Signature and Title
|
Date
|
/s/ Stanton E. Ross
Stanton E. Ross, Director and Chief Executive Officer
|
March 22, 2010
|
/s/ Leroy C. Richie
Leroy C. Richie, Director
|
March 22, 2010
|
/s/ Edward S. Juchniewicz
Edward Juchniewicz, Director
|
March 22, 2010
|
/s/ Elliot M. Kaplan
Elliot M. Kaplan, Director
|
March 22, 2010
|
/s/ Daniel F. Hutchins
Daniel Hutchins, Director
|
March 22, 2010
|
/s/ Bernard A. Bianchino
Bernard A. Bianchino, Director
|
March 22, 2010
|
/s/ Thomas J. Heckman
Thomas J. Heckman, Chief Financial Officer, Secretary and Treasurer
|
March 22, 2010
|
1.
|
I have reviewed this report on Form 10-K for the year ended December 31, 2009 of Digital Ally, Inc.
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report.
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report.
|
4.
|
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
|
(a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
|
(b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
|
(c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
|
(d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
|
5.
|
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
|
|
(a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
|
(b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.
|
/s/ Stanton E. Ross
|
Stanton E. Ross
|
Chief Executive Officer
|
1.
|
I have reviewed this report on Form 10-K for the year ended December 31, 2009 of Digital Ally, Inc.
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report.
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report.
|
4.
|
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
|
(a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
|
(b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
|
(c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
|
(d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
|
5.
|
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
|
|
(a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
|
(b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.
|
/s/ Thomas J. Heckman
|
THOMAS J. HECKMAN
|
Chief Financial Officer
|
|
(1)
|
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
|
(2)
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
/s/ Stanton E. Ross
|
Stanton E. Ross
|
Chief Executive Officer
|
March 22, 2010
|
|
(1)
|
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
|
(2)
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
/s/ Thomas J. Heckman
|
THOMAS J. HECKMAN
|
Chief Financial Officer
|
March 22, 2010
|