Digital Ally, Inc.

Good morning, ladies and gentlemen, and welcome to the Digital Ally Second Quarter Earnings Conference Call. At this time, all lines are in a listen-only mode. Following presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press dial 0 for the operator. This call is being recorded on August 19, 2024. This conference call may contain forelooking statements. within the meeting of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. We may use words and other expressions that are predictions of or indicate future events and trends and that do not relate to historical matters, rather, they represent forelooking statements. These forward-looking statements are based largely on our expectations or forecast of future events, can be affected by inaccurate assumptions, and are subject to various business risks and known and unknown uncertainties, a number of which are beyond our control. Therefore, actual results could affirmatively from the forward-looking statements expressed in this conference call, and readers are cautioned not to place undue reliance on such forward-looking statements. We generally do not publicly update or revise any forward-looking statements expressed in this conference call, whether as a result of new information, future events, or otherwise. There can be no assurance that forward-looking statements contained in this document will, in fact, transfer or prove to be accurate. I will now like to turn the conference over to Stan Russ. CEO, please go ahead.

Thank you. Thanks, everybody, for joining us today. With me is Brody Green, the company's president. He'll do a high-level overview of our numbers, and then we'll start getting into answering a lot of the e-mails and text messages we've had over the last several weeks concerning the status of the merger of Custom Entertainment with Cloverleaf Group. And so a lot's happened on that that we'd like to share with you and some timing issues concerning the first round of dividends and then the second round of stock dividends as well. And maybe give you just some insight on an associated value that this entails in regards to Digital Ally and its shareholders. So with that being said, I will pass the call over to Brody.

Thanks, Dan. Like you said, I'll just do a brief overview of the financials. Greater detail will be in the form 10Q up on the SEC's website. Feel free to take a deep dive in there just for further details. I think the more pressing conversation is going to be regarding the business combination, so we'll get to that as soon as we can. So the current assets of the company at June 30th, 2024 were $14.2 million, down about $1.3 from year end. Similarly, with total assets, that was at $43.3 million compared to $47 million on December 31st. Total current liabilities bumped up to $27.6 million on the Chunk of that is about a little less than $4 million attributable to the warrant derivative liabilities, which is just the Black-Scholes value of the warrants, some from earlier transactions and some from the June 25th transaction as well. That's a non-cash liability, but nonetheless liability on the books. Total liabilities is $40.3 million. Now, you can see our contract liabilities sitting on the balance sheet. We're $3.1 million in this current portion and about $7 million for long-term. That's our deferred revenue for our three and five-year contracts. So those are really going to find their way up to the P&L as those mature and come due. Total stockholders' equity at the end of Q2 was a little over $3 million. So that wraps up the balance sheet. Again, further details you'll find on the Q. And then for the P&L side, our total revenue for the quarter was $5.6 million with a total gross profit of $242,000. We had an operating loss of $3.9 million. with a net loss of $5 million, and then a net loss per share of $1.74. And then our current, at the end of Q2, our current shares outstanding were $3.5 million. I think that's really a summary. One good thing to call out is our deferred revenue continues to grow. I think it's up to, it's a little over 10 and a half million at this point, I believe. So again, continuing to grow quarter over quarter, and it'll continue to be recognized in the quarter in which it's renewed. So let's continue to grow and hit the P&L just every year moving forward. And as that balance increases, that's pretty much the goal of what we're trying to do with the subscription model. So it continues to work. And I know we had a few big events this quarter on the, uh, entertainment side as well with them having their festival at the end of June. And I'll let Stan touch on that along with a few other items. So I'll turn it back over to Stan.

Good. Thanks Brody. Yeah. Much, a lot of the, uh, the calls and emails, even text messages have been around, uh, the business combination agreement where Digital Ally is selling one of its subsidiaries, which is Custom Entertainment, to Cloverleaf Capital. They are currently a NASDAQ company. I just looked up their stock. It's still trading nicely, $12.40. We've already done the record date for the first round of dividends. So there will be approximately almost 2.3 million shares of Clover that will be sent out to the DigiAlly shareholders. That's the equivalent of, you know, just using today's price. Let's just say after the... the merger is completed and the price, let's say, stays where it's at, that'd be almost a $7.70 stock dividend that those shareholders of record will be getting. And the shareholders of record were those that were shareholders at the end of business on August the 12th, so last week. So that should be happening. What will also transpire is Digital Ally itself will then be receiving and holding on to almost 7.6 million shares. And so you can do the back of the envelope math on that. It's an astronomical number and a lot of value that comes into Digital Ally, especially if the stock holds strong where it's at. And eventually the goal is to go ahead and dividend out those shares as well. There'll be a new record date established, and those will be sent out in about a six-month period of time as well. So now the timing, those who've been following closely know that Clover got their SEC approval of the registration, so it's active. They are now having their shareholder vote to complete this transaction. I want to say it's at 10 o'clock Eastern time this coming Friday. Once that is completed and we continue to move forward on cross the T's and dot and I's and making sure all the things that have been agreed upon in the business combination agreement are there, then we will move forward the following week into completing that transaction. So while this has been a very, very, very long haul process, As you recall, we sort of announced this project back in December of 22 and then started going down this path and negotiating in about March of 23, actually entered into an agreement. I want to say it was in June of 23. So it's just been a long, long road. But I'm excited about the prospects here. and the value that it brings into DigiAlly and, you know, for its shareholders and the opportunity for clarity on the companies as well. So, you know, it puts a situation where one of the ticketing platform and the festival platform is now out there on its own. So you essentially have now Video Solutions and the medical billing company that are a part of DigiAlly. and it makes it a little clearer to define Digital Ally and who they are by getting custom entertainment moved out. So excited about that, excited for the value. I'm sure that both companies will be reporting the outcome of the votes. We'll probably, you know, it's not always... Good to be doing news releases on a Friday, but the importance of this clearly will have us running something as soon as we know what the outcome of that vote was. And at that point in time, I'm sure we'll be trying to establish a closing date that we will try to include in that release as well. So it's been a long time coming. Excited it's here for, again, like I said, all the Digital Ally shareholders, Digital Ally. and also the new custom entertainment. With that being said, we'll touch real quickly on our festival. It was our first year that we acquired Country Stampede. We were in a new location. We had a lineup that was very good, and we're excited about the future that Country Stampede holds. It's a 28-year-old Country Festival, one of the largest, if not the largest, in the state of Kansas and probably throughout the Midwest. We look to up our game a little bit next year. We've already got offers in to a new lineup for 2025 and looking at multiple festivals that we'll be doing under the custom 440 as part of the custom entertainment spinoff. So with that being said, Why don't we go ahead and open up the lines for Q&A, please?

Thank you. Ladies and gentlemen, if you'd like to ask a question, please press star 1 on your telephone keypad. To withdraw your question, press star 2. One moment, please, for your first question. Your first question comes from Romel Dionisio from Aegis Capital. Please go ahead.

Good morning. Thanks for taking my question. The first is just a housekeeping question. Could you guys just clarify, please, shares outstanding? It's showing 3.5, but I thought you had 2.8, and there's 1.2 from the offering. Where's my math off on that? I thought it would be more like 4.0, and I see 3.0. Thanks.

Yeah, so it was 3.5 at quarter end because the pre-funded warrants had yet to be exercised from the deal. So now it is up to... I believe you're, I think it's, yeah, it's a little less than 3.7 now, but at quarter end, it was three, it was, it was 3.5 at quarter end. And then now let me just double check the face of you, but it shouldn't be. A little less than 3.9 at this point after all the warrants were exercised.

Great. Perfect. Thanks. Okay. And just more of a fundamental question. I wonder if you could just give us an update on the first few crores and some of these models that you've launched over the years. It sounds like the deferred revenue number is really growing. So, please comment on the execution of that strategy that you've been laying out the last few quarters and how that's all going. Thank you.

Yeah, we continue, you know, that first U Pro out and all the docking stations, they have 8,024. It's kind of a, I mean, it's, we did a subscription model more for financing purposes, you know, instead of a massive capex for these municipalities, cities, and especially the commercial side, too. It kind of, it gives them time to, you know, it's more of an annual fee rather than, you know, a massive undertaking in year one than they used for five years. So it's worked well on our, you know, the sports teams. They've enjoyed the subscription model as well as, you know, the Royal Caribbean Cruise Lines and several other, you know, colleges and whatnot outside of just law enforcement as well that they sign up to these three or five year contracts in which they can pay off cash flow rather than off of, you know, big cap expense throughout the You don't have to make a massive investment. So, yeah, we're happy with that balance continuing to grow, and we hope for it to just continue to compile and then obviously be recurring revenue for us year over year, not just from a financial reporting standpoint, but also from a cash flow standpoint.

Great. Thanks very much.

Thank you, Ramon.

Ladies and gentlemen, as a reminder, if you'd like to ask a question, please press star 1. And there are no further questions at this time. I will turn the call back over to Stan Ross for closing remarks.

Well, again, thanks, everybody, for jumping on real quick. And I also want to, again, point out that both Digital Ally currently has a shareholder vote coming up here this Friday, and Cloverleaf is Capital also has one on Friday concerning the business combination agreement. And so we will keep you posted through both the press release and 8K as soon as we have the outcome of those numbers. So thanks, everybody. Have a great week, and we'll talk soon.

Ladies and gentlemen, this concludes your conference call for today. You may now disconnect. Thank you.