Hey all, I was thethrill009 on here ages ago. I'm trying to recover the pw but hello to any old school HL limit holdem guys if u remember me. I've been occasionally lurking for yrs on here...

A few of you mentioned DGLY in the stock-picking thread and I've been holding a decent amount for a while now.

Here's the situation:
I have about 30k shares, which I believe is .03% of the float. It's only 100k, but still significant for a rather illiquid stock.
Charles Schwab called me last week offering me lending rates of 14%/yr. 2 Days ago it changed to 45%/yr. I believe they split the commissions on this, so that means a borrower should be paying around 90%/yr to cover those costs.

If DGLY wins in the summary judgement, or it goes to trial by jury and they kill it/treble/blah blah, I want to call my lender up at an ideal time and demand my shares back right away. CS told me that they will get the shares back within a few minutes, which means that if someone has paid that money to short, they will either a) have to find 30,000 shares available from another firm or b) liquidate on the open market.

(Obviously, if DGLY somehow loses the trial, all this is irrelevant.)

I have no way of knowing how likely either of these 2 options are. All I know is that 90% borrowing costs mean it's pretty illiquid, combined with .03% of the float. I also know that shorts will immediately liquidate if DGLY wins big and more shares will become available quickly. I guess my idea would be to demand back those 30,000 shares immediately to start the day in the hope that it could help generate an even more vicious short squeeze or help me exit at a higher price.

Does anyone have any info that could help me with this or thoughts as to how realistic this is?

In addition, if anyone wants to discuss this stock in more detail I guess this is the place. I may add a few other q's about expected stock movement depending on lawsuit results.


Thanks.

That is actually the scenario that I am hoping for, and yes I think it is very likely if DGLY wins. Plus, getting such high interest from lending the shares out helps a bit in the EV calculation too.

Kudos for joining me on the crazy train, but man, even I wouldn't sink 6 figs into this . It is a binary lotto ticket after all.

Against those shorts you have $60 million worth of warrants and options given to people who funded the continuation of the lawsuit, more than the market cap. They're more of a drag than the shorts will push the price up imo.

1. Any specific comment about how effective the plan of lending our shares to short and then voiding the agreement will be to cause buying in the open market?

2. Does anyone know how to access information about the liquidity of the OTC borrowing market for such shares?




MS, I was actually in the stock prior to your posts. I laughed when I saw that. I think a lot of poker types are attracted to high R/R situations like this, just depends on which ones we stumble upon first.

I also disagree somewhat that it's binary. The other lawsuit is different in nature and DGLY isn't going straight to 0 if it loses to AAXN. But I'd imagine -66%ish the next day for sure. Still sucks but it's not zero. Think otherwise?

And yeah 100k is pretty sick, but it's basically freerolling a sick run in SGMS from 15 to 25. (Sadly, the market reaching 275 scared me away but the train never stopped there.) Def risky, but in the meantime the 4k/month lending will help as long as that lasts.

I am assuming most of those guys will not be able to exit their positions immediately after news breaks, unlike the shorts. I imagine most of that will be addressed once all the dust settles and the company is just a normal company with a few 100mil in cash with some degree of new exposure to its market.

Ideally, my goal is to make the most of a short squeeze and exit within 2 weeks depending on price movement.

Do you disagree with this premise?

Some updates:

AAXN has officially been denied its final of 4 appeals at the USPTO. Now only 2 steps left: hopefully the judge siding with the USPTO and then seeing how much a jury awards if DGLY isn't bought out beforehand.

http://globenewswire.com/news-releas...NT-OFFICE.html


In addition, AAXN claimed in it's 10K that it expects the summary judgment in March, and if there is a trial (7 days long) it will be either q4 2019 or q12020.

Updates:

1. March 15 is when final responses to motions are due, and only thing left is for Judge to rule in Summary Judgment.


2. Lending my shares in Schwab now pays 92.5% annually.

3. It is unclear when the SJ will occur. AAXN said in their 10-K that they expected it in March. In a PR they just sent out they said they expect it by fall. Although waiting can be nervewracking, I'll gladly take my 7.5%+ per month to sit patiently.

4. I now have 31,000 shares.

Given the high short interest at this point I could envision a squeeze into double digits post SJ. Hopefully it's good news.

That's not the right way to look at this; the only things that the SJ resolves for DGLY is that there is no inequitable conduct and that the patent isn't invalid under AAXN's last minute attempt at invalidity. Even if DGLY wins on this, all that happens is that the trial will proceed and that AAXN can't assert those things during trial.

AAXN's motion of SJ is really just standard procedure of trying to win instantly on non-infringement; very unlikely that they will get it, but it would cause the stock to drastically drop if they did get it.

Most likely is that the trial simply proceeds. There is still the whole issue of infringement, non-infringement defenses, damages and so on to litigate out. This is going to take at least a year.

As the guy who originally mentioned about watching DGLY for the pending lawsuits on these boards (you're welcome!), this is a really dumb assumption imo. This is what I see:

- DGLY are worthless/have no business. Their entire worth is as a patent case.
- Upon winning the case they will instantly spike to their cash value of settlement + future payouts from the lawsuit win minus a discount
- After this instant spike there is little possible upside as there's no business
- In contrast to the view that the shorts will liquidate right away, it is in fact the longs (including the massive 2x the float in warrants and options) who will be a mad scramble to liquidate at the highest price possible (there instantly being no further upside and potential downside).

The liquidity crisis will be on the long side, trying to find buyers for a suddenly capped-value stock with substantial downside (who knows what happens to the settlement money/if shareholders ever see it/if there's an appeal).

Speaking of the last - mori****a, is there a potential appeal should AAXN lose?

I'm sure they will appeal if they lose, but while the appeal process is going they would not be allowed to sell their product and they would also have to post the damages as a bond. More likely, the appeal would just be a vehicle to start settlement talks instead at that point.

Also, appealing such cases tends not to work very well unless clear error was made as a matter of law. It's possible that they could reduce the damages if the damages are unreasonable, but that would be all I would expect.

Ballpark guess at most likely damages?

DGLY asked for 60m and up to 200m if willfulness is found, and I think they will end up with something within that range.

That was the only mistake on the part of DGLY's counsel imo; they should've asked for the moon Carnegie Mellon style instead of being reasonable people.

what odds do you guys estimate they win the case?

I totally agree with everything you said about the law/court proceedings. But we disagree on conclusions re stock price short-mid term.
You seem to think shorts would hold from now until the trial if the SJ goes against AAXN. What short would want to hold another year through the trial paying 100-200% annually? I'm certainly not promising 10+, but I'd be very surprised if the stock doesn't see 6+ with a win in the next few months.


1. Already said that I was invested before it was mentioned here. Anyone paying attention to the space post ferguson would know about taser vs dgly. but nice post, i agree with you.

2. As I said above, why would shorts hold for a year paying such crazy amounts? Because unless shorts cover at some point, that will continue to be paid. I assume more longs are prepared to hold until trial than shorts. It's not like TSLA, where it is at least plausible that the stock could crater at any time. If they win SJ, DGLY will definitely survive until trial or be bought out. Why not reenter your short before the trial? If a bull is holding now, knowing that SJ or prior patent cases would destroy the stock, I think it goes against their thesis to exit before the trial unless the stock price increases substantially from current prices. Remember, there are many bag holders over the past 4 years at higher prices. Imagine you are them and the stock finally pops over 5. Many are still under water or breakeven. I think this group mainly holds because why would they exit at breakeven and 3 years wasted of time when there is now less legal risk. If someone wanted to sell because of their garbage sales/earnings, they would have sold by now.

3. You keep mentioning the warrants/options etc. You are referring to the deal with the lawfirm representing them correct? If so, I'm not sure if they are even allowed to exercise them before the trial. But in any event I imagine they would want to hold until the conclusion of their own trial. The $10 mil investment by BKI seems to be exercisable only post judgement.

https://www.bizjournals.com/kansasci...vestments.html

Let me know if someone knows/thinks differently on this.


4. I think everyone is discounting the possibility of a settlement BEFORE trial. If DGLY wins, there will be a stay on MOST major products produced by AAXN during the appeal process. AAXN is basically screwed then and there is no way they are going to find a way to squeeze DGLY into less from that position unless somehow they bite the bullet AND actually win the appeals case.

5. DGLY is horrible at sales currently, but post trial, I can imagine a situation where they pick up market share due to friendlier competitive situation, massive influx of money, and no life-or-death ligitation distractions. But I'd prefer being bought out by AAXN.



6. $68-204m only accounts for damages up until August 2018. It doesn't include the following year nor future continued use of said patents. I don't know how much "suplimental damages" will add up to but AAXN has had its best sales year yet so far! I have guesses, but do you have any thoughts on these?

This is my question for Mori****a. If DGLY wins does that shut AAXN down or does DGLY have to pursue a separate case with the Patent Office? Or is DGLY still effectively dead as a business as Tooth claims?

If this is just a matter of calculating odds of winning and weighted range of damages its not very interesting with the market cap already at $40 million and likely a year+ until verdict.

The details are all in their filings, I read them a while ago and the sheer magnitude of the warrants/options exercisable at a low price is a big chunk out of the bull thesis. I don't have to time to look through their filings again now but here for example is a press release from a while back where they give out 10% of their float exercisable at any time, in return for a few million dollars to stay alive. Yet others have a straight cut of the proceeds (20-30 million depending on the date, increasing as time goes by) plus warrants for that deal (another 5% I think). So there's maybe $50 million cash that comes straight off the top of any settlement, then a huge number of warrant holders wanting to cash out. Many of which can do so any time, some as low as $2.50.

If you have $100K in this it is REALLY worth piecing this all together and knowing exactly what you're dealing with.

The simplification of all this for me is that you're playing for the big one (trebled damages) and are drawing thinly otherwise.

That would be reasonable royalties, the rate of which will be litigated out. So it will be some percentage of the revenue from then to now, and subsequent yearly revenues as well.

I have no idea what that rate would be; if I were DGLY's counsel I would hang them on the AAXN CEO's words that reasonable royalty is 40%. More likely it will be single digits to 10ish% so no more than +15m per year when all is said and done.


It does shut down AAXN's product line in that AAXN will have to discontinue the product or pay yearly royalties until they design something that doesn't infringe. So I wouldn't say that it is dead (DGLY does have a product after all). A victory does gives them chances to come back into the game.

It was more interesting when the stock was at 2.50 (my cost basis); at $4 I agree it's a little harder to make that gamble.

Come back into the game how? Taser have a fully integrated system and strong relationships set up with all the key police departments, with backend to to frontend tracking, auditing, security procedures, legal precedents, known reliability metrics, equipment synergies...I don't see how DGLY enters this space as a standalone viable business.

I guess you could argue that the most likely result is a buyout after a payout. It's kind of bizarre they're not doing it now actually. $100 million this all done and settled and they own the patents. Do they think they have a decent chance of success? Interested in your take on what the AAXN lawyers are thinking if they're acting ethically.

Yeah, and DGLY gets royalties from that or they get to shut the whole thing down through an injunction if AAXN refuses to pay.

At the minimum it will force a redesign in the AAXN product line, which will be disruptive.

My guess is that AAXN outside counsel probably suggested settling or buying them out long before, but the in-house counsel and/or the AAXN management simply don't want to; it's very unusual to initiate 6 IPRs and then do a crash 2000 billable hours in one month prior art search to conduct a last minute invalidation try. If the first one or two IPRs didn't take, the subsequent ones were not going to change things. This reeks of emotional decision making to me. At this point, outside counsel and possibly in-house counsel are doing the wishes of management, so there is nothing wrong from an ethical standpoint.

It reminds me of the Carnegie Mellon/Marvell nonsense when Carnegie Mellon was initially only asking for 150k a year in royalties as a settlement, and then they went into litigation that ultimately cost Marvell 700m (reduced from a jury reward of 1.2b).

Did this thread singlehandedly tank dgly today?

Sadly, the lending agreement was cancelled, it doesn't appear there was significant short covering so somehow significantly more shares became available. So now a short seller pays only 85%/yr to borrow the shares as opposed to 185%/yr last week. Still not viable long term.

TS, you inspired me. I'm pretty confident in my sense of the numbers, but just to make sure I left a voicemail for Ross to get Digital Ally's comprehensive list of outstanding warrants, etc. All this is publically available info, but hopefully I can get a better sense of timing conditions, how much if any has been redeemed at various prices, and it will clarify the accuracy of the opinions in this thread.

AAXN aint shutting down lol, even if DGLY pulls out a big win on this.

You should definitely check this out for yourself if you have >100K in. So good stuff. Some of the warrants expired last month, some may have been force exercised or paid off, etc, so an accurate total is essential.

DGLY options now available

Seems that they have settled their smaller lawsuit against WatchGuard.
2 weeks ago both sides filed a joint motion, which was approved by the judge, to delay all court procedings since they had agreed to terms and needed to hash out details. The due date is today.

DGLY just announced that they are reporting their Q1 Earnings and providing updates on the litigation.

It's either a settlement or reverse IPO with WatchGuard. We'll have to see the details to really know how good it is. Either way DGLY will have enough cash to make it to the finish line with AAXN.

I personally think it's a steal right now at 4.60.