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Digital Ally Blames TASER International for Disappointing Q3

Digital Ally Inc. 's DGLY shares plunged 24.8% after the company reported disappointing third-quarter 2015 results. The company alleged that TASER International Inc.TASR had challenged its VULink patent, thereby leading to confusion and concern among existing and prospective customers. The company believes that these actions caused delays in product purchases that would otherwise have occurred in the third quarter of 2015.

The concerned patent is related to an automatic trigger that enables body cameras and in-car video systems to start recording on their own without any manual assistance.

In Sep 2015, TASER declared that the United States Patent and Trademark Office ("USPTO") had rejected all 20 claims made in Digital Ally's '292 Patent, which was awarded in 2014. According to the company, the technology and all the products were originally invented by TASER and were thus, "unpatentable".

In response, Digital Ally reminded TASER that the USPTO was yet to come to a final verdict and that it had only made "an initial, non-final" decision regarding the patent.

Many similarities have been found between TASER's Axon Signal product and Digital Ally's '292 Patent. This led Digital Ally to assume that TASER had filed the reexamination because its Axon Signal product infringes the '292 Patent. As a result, TASER attempted to eliminate a threat in the marketplace that might prevent it from selling its Axon Signal product.

These events however point to TASER's success, which created a major setback for Digital Ally on a patent as well as technology that the latter had believed to be secure for the year. Legal difficulties resulting from a final invalidation of the patent could substantially hurt Digital Ally's top-line growth.

However, Digital Ally believes that features of the technology revealed in the VULink patent will eventually be considered patentable and that new patents may be issued for other aspects of its VULink product. Digital Ally's top line is expected remain under pressure until the reexamination process is completed and final results are declared.

Digital Ally reported third-quarter net loss of 32 cents per share compared to a loss of 23 cents per share in the year-ago quarter. Total revenue during the quarter was $5.1 million, up 9% from $4.7 million a year ago. International revenues, however, decreased to $3,151, which represents less than 1% of total revenue. Gross margin for the quarter was 40% of total revenue, down from 52.8% in the prior-year quarter. The decrease was due to an increase in total selling, general and administrative expenses.

Zacks Rank

TASER International and Digital Ally both carry a Zacks Rank #3 (Hold). Some better-ranked stocks in the same industry include Lakeland Industries Inc. LAKE with a Zacks Rank #1 (Strong Buy), and Alarm.Com Holdings, Inc. ALRM with a Zacks Rank #2 (Buy).

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DIGITAL ALLY IN (DGLY): Free Stock Analysis Report

ALARM.COM HLDGS (ALRM): Free Stock Analysis Report

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LAKELAND INDS (LAKE): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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