This conference call may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and the Section 21E of the Securities Exchange Act of 1934. The words believe, expect, anticipate, intend, estimate, may, should, could, will, plan, future, continue and other expressions that are predictions of or indicate future events and trends and that do not relate to historical matters identify forward-looking statements. These forward-looking statements are based largely on our expectations or forecasts 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 differ materially from the forward-looking statements contained in this document, and readers are cautioned not to place undue reliance on such forward-looking statements. Digital Ally will undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. A wide variety of factors could cause or contribute to such differences and could adversely impact revenues, profitability, cash flows and capital needs. There can be no assurance that the forward-looking statements contained in this document will, in fact, transpire or prove to be accurate. Good morning. My name is Sia, and I will be the conference operator today. At this time, I would like to welcome everyone to the 2020 Fourth Quarter and Year-End Operating Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. At this time, I would like to turn the conference over to Stan Ross. Please go ahead.

Thanks, everybody, for joining us today. I’m excited to recap a little bit of 2020 as much as that’s been a tough year for a lot of us individually and personally and corporation wise, I couldn’t be -- we’re proud of the Digital Ally team and the way they were able to adapt and really pull of some really amazing things during 2020. On top of that, we also will be elaborating a little bit on some recent activities that we’ve had in the first quarter, which have been pretty exciting and give you some insight on what we see the future of Digital looking like coming through 2021 and beyond. But again, I just can’t thank everybody enough for all the things that they’ve done and sacrifices they made to have 2020 be a much better year than what was originally thought it could be when the pandemic struck. So, today, I have Tom Heckman, the CFO, with me. Tom is going to recap the 2020 numbers and even give you some insight on the status of where we’re at going into 2021, recent activities that will be mentioned in the 10-K that will be filed shortly. But Tom, I’ll turn it over to you.

Thank you, Stan, and I appreciate everybody joining us this morning. I do want to make you aware that we are going to file the Form 10-K this afternoon. There has been some SEC connectivity issues, and I hope don’t delay it too long. But in any event, please take a look at the Form 10-K. It’s a more full view of what happened during 2020 and where we’re sitting at, at the end of 2020. If you look back, we entered the year 2020 with a lot of challenges. Quite frankly, one of the biggest challenges we had was the NASDAQ deficiency letter that we have received regarding our share price as well as our net equity position. And they gave us a certain deadline to meet those continued listing provisions in order to stay listed on the NASDAQ. So, obviously, that was priority number one that we had to get to. Also, we had what I would call a difficult liquidity position. We entered 2020 with less than $1 million of cash and working capital combined. We had a net stockholders’ deficit of $6.3 million. And on top of that, we really didn’t even realize COVID was around the corner. It hit us in the March-April time frame. And before we knew it, we were in the depths of the COVID pandemic and the crisis. And that obviously changed the dynamics of the business and how we were going to try and grow the business. And we were, at that time, looking for new revenue channels. And we thought that our new situational security involving NFL teams and baseball teams and basketball teams and whatever was going to be a rich source of new revenues for us. And of course, COVID pretty much shut that down. So, 2020,…

Yes. Thanks a lot, Tom. And again, I think -- like I said, 2020, while there was -- early on, everyone was quite, I guess, nervous and unsure what -- how 2020 was going to play out, but turned out to work out pretty good for us with some of the moves that we made. And again, I think, as Tom said, the Shield product line will continue to expand. We continue to get a tremendous amount of traction there and continue to be excited about the future that it holds. A couple of the acquisitions and stuff that we’ve looked at, while Tom said, we definitely do not want to be foolish, we want to make sure that it’s strategic, it brings immediate value to the Company. So, those that we’ve looked at. We’ve talked about pricing. Sometimes some people are drinking their own Kool-Aid, not only their own Kool-Aid, but it may be spiked, the valuations just aren’t realistic. And at the same time, the opportunities continue to pop up. A lot of good companies out there because of COVID and the climate are unable to have access to some of the capital that we were fortunate to have. And so, we often get to look at some very nice opportunities that as things continue to progress back to a little bit normalcy would be really good opportunities for Digital Ally. The other thing that I want to not lose sight on is our law enforcement. We have had a tremendous amount of positive reception to the subscription model that we’re going with, with a lot of the law enforcement agencies and first responders. Tax rolls are down for a lot of communities. And that being said, not a lot of money is flowing for upgrades in police…

[Operator Instructions] And the first question will come from Rommel Dionisio with Aegis Capital. Please go ahead.

Good morning, gentlemen. Thanks for taking my questions. So, I think, in prior conference calls, Stan, you’ve talked about some of the impact, obviously, of the COVID on the commercial side, like taxi cabs. We’re starting to hear some data points now, like American Airlines, for example, talked about their first quarter being better than expected. Are you seeing any of that -- those data points coming in that line of the business with -- not that tourism is dramatically picking up, but at least maybe bouncing off the lows? Are you seeing any of that? I wonder if you could just add some color there.

Yes. Great question. And yes, I mean, when COVID stepped in, we had a tremendous amount of a client base out there that were on either monthly subscriptions or annual subscriptions, and I think you’ve all heard us mention before that some of the customers that we have in the cruise industry. And so, as well as we did in 2020, we actually had very little contribution from the tourist industry for sure, but that also clearly impacted the thousands of taxi cabs that we have our equipment in and other areas, as Tom mentioned earlier, far as this morning events. Now, that being said, we are seeing that pick back up. We know even the -- some of the cruise lines are starting to sell again. Clearly, the taxi cabs has started picking up for us again. We’re seeing the overall commercial side of our industry picking up. So, I’m glad you brought up that question. We really didn’t address it. But yes, we -- that was majorly impacted in 2020, and we have seen it started to revive itself, and we’re working very hard on continuing to grow that area as well.

Great. And maybe a follow-up question on Shield and -- boy, kudos to you guys for just responding to need and just rapidly addressing it and driving, and I think you said $1.6 million in revenues for the year from that. So, as we look at that business going forward, we did -- I guess, there was a bit of a drop-off from Q3 to Q4. Was that just your initial sell-in to your customer base in Q3, and so just you’re getting more of those replenishment orders in Q4? I just wanted to clarify that. It doesn’t seem like demand for that product would be declining in any way. I wonder if you could just touch on that.

Yes. Again, you’re right. I mean, we were able to fill the immediate channels that we had. We found ourselves in a little bit of a, what you want to say, bandwidth problem, in regards to the fact that we need to bring on additional salesmen and reach out there. A lot of this stuff that we’re doing were going to some end users because our margins are so much greater. But, the demand for the product, I think, and the volumes that we’re going to start to do will allow us to maybe go ahead and go into some very large distribution channels that should increase the top line, now granted cut into the margins a little bit. But, we feel pretty confident we’re going to be able to make up for that with the quantities that we’re going to be able to manufacture in and just our buying power being much stronger. But, you’re right, in the -- very early on, we filled the gap that we could fill, and were sitting there with very little inventory at the time. Now, we’ve got the supply chain, our inventory, I think, under control and continue to interview almost daily for -- the people to bring on to continue to expand the line and major accounts. I think I’m not going to be surprised, and I don’t think anyone on this call should be, if you don’t see some nice announcements possibly even at the consumer level, which I do believe that’s where it’s headed, with the Shield products, in the Shield line. We really continue to refine what all we are capable of offering to where hopefully some national chains, let’s say, the Home Depots of the world or whatever you want to say, start picking up this particular product line, and they’ll be in the stores very soon. So, very optimistic about Shield going into 2021.

Great. And maybe just one last quick one for me. I obviously see the language you put in about -- in the press release about the major contract for the foreign national police was of the 5,000 cameras. And just any color you can add there, Stan? I mean, you can only say so much, I’m sure. But, is that looking like just -- I don’t know, just anything you can add that you feel comfortable adding?

Yes. I mean, it’s one of those that we continue to have talks, continue to be on the doorstep, we continue to be there for when they’re ready. Obviously, the product that they were interested in almost well over a year ago clearly is -- I think the new product lines will even be more attractive to them. So, I think, it’s just -- unfortunately, it’s -- the ball is in their core. I mean, we’ve got the product that they need at the price they need it, with the features that over and above what they’re asking for. Just got to see if they can get all their capital and feel comfortable in pulling the trigger. And I think that’ll happen when they also start seeing a lot more tourism picking up. I think, it’s very important to them for that. So, I just think it’s a matter of time, but it -- I still believe it’s going to happen.

The next question will come from Bryan Lubitz with Aegis Capital.

Good morning, guys. So, a couple of things I want to touch base on, and Tom, you mentioned earlier in the call, SG&A. If you guys strip out the $6 million charge that you had for, I guess, litigation in the past with the connection of the financing, does that come down to roughly 40% in year-over-year decreasing? Is my numbers right there?

Well, remember, that was a patent litigation settlement. That was with WatchGuard. That wasn’t necessarily the PIA. But that -- let me check here. Yes. SG&A was down $5.7 million, if you exclude that onetime credit that occurred in 2019. So, $5.7 million, yes. And it’s well over half, put it that away from the year before.

Awesome. And then, going towards your cash position. You guys mentioned that you had $14 million at the end of 2020. We all saw the raises that you did this year so far, the $30 million and then the $40 million direct offering, which, Tom, you said the proceeds were roughly $66 million. So, you guys are sitting on roughly $80 million cash right now?

Well, actually, we’ve got 4 -- we had $4 million at the end of the year, not $14 million. And then, we’ve raised $66 million net, as I recall. And that’s about what we have on the balance sheet as we sit today.

Yes. One of the things we did, Bryan, as you know, with that capital, obviously, that gave us a tremendous amount of strength in regards to our buying power. And so, instead of having it sitting in some banker on the sidelines, getting 0.5 from a bank, we were aggressive in being able to buy and schedule some components that probably saved us 35%, 40% off of the original cost that we were having to pay because of the smaller quantities. So, we put that money to real good use but still just sitting on a real nice amount of cash for those opportunities that we’re looking at.

All right. So that leads me to where I am now is roughly $65 million in cash if we strip out those numbers. What are your guys’ thoughts on the fact that your market cap is, almost identical that, you’re trading at cash?

Yes. You’re the broker. Bryan, yes, I don’t get it. Yes, I don’t get it. I mean I know there’s a lot of value in all the divisions that we have right now, whether it be law enforcement, commercial or the Shield product line. And to be trading close to what’s the equivalent of our cash balance, we just got to -- we have definitely got to do a better job of getting the word out there concerning the potential that Digital Ally has. And hopefully, that appreciates greatly in the value of the Company.

Okay. Yes, it’s mindboggling to me. So, I just wanted to know what you guys’ thoughts were on that. Now you mentioned earlier the electrostatic sprayer that you guys are in development on. Is that for a service part of the Shield product line? Are you guys looking to utilize that in other areas?

Yes. So, there’s a couple of things, not only on the service side, obviously, for when we’re doing special advance, whether it be football or whatever we can go in there and assist in the disinfecting. The product that we designed, the electrostatic sprayer is really designed for the Shield product. It’s very robust. It’s also very, very -- I would say, compared to what the industry utilizes as far as the amount of power necessary to operate it to get the maximum effect, it’s a lot safer. And also, it’s very adaptable. And what I mean by that is that our design can be utilized in a number of different, let’s say, battery-operated pumps. So, we don’t have to be having the ground floor up. It’s more the actual hose connected to the tank and the pump that actually then goes ahead and pushes it on, and the electrostatic side of it is happening right there at the end of the hose. So, it’s a lot safer that way as well where it’s not part of the overall package. Really excited about that, but we do look at possibly going to box stores with it once we get it really defined. We finished the soft tooling. We’ve got 100 units that have already come off the line, getting built. We’re going to hard tooling. We should be able to do -- I think it was 250,000. It’s a big number as far as the capabilities of that particular tool. And that will help us a lot on pricing. And we -- again, it too will have a nice impact here in 2021.

All right. So, I have two more. And thank you guys very much for your time. Obviously, that sounds exciting. It’s another new line, which obviously coupled with the Shield. The other line that you guys came out with last year, which was exciting for us was ThermoVu with the distribution deals with ThinkEquity. Where are you guys with that? Because we didn’t really see much of an update here on the ThermoVu in any of these press releases.

Yes. Still very good demand for the product. I think, people are starting to also understand the capabilities of that product, whether it be -- being able to connect up to certain doors, whether it be to even the -- one of the models will sit there and do facial recognition, whether it’s facial recognition or just wanting to identify whether not an individual has their mask on. And then, you also have the top-of-the-line unit in which you can put in a school hallway. And as kids are going from class to class or to lunch, it can identify if someone’s running the fever. So, I think we’re still going to see good demand on that particular product and don’t anticipate it tapering off very much at all. Again, it’s just a matter of -- I’m not going to say people are putting their guards down, but they do believe a little bit in the vaccination in regards to COVID. And we clearly believe this is a product that will last, and the Shield products, will last way past COVID, and that’s surpass because the bottom line is if you’re running the fever, there’s something wrong. And so, it may be just a common flu, but you don’t want that individual coming and infecting a whole bunch of kids and/or coworkers or going into a restaurant. So, we’re seeing all avenues, everything from, I think, maybe say it from hair salons to restaurants to -- we had to go to Children’s Mercy a while back, and sure enough, there’s our device at Children’s Mercy Hospital. I know that some very big names, corporations that have them at their corporate headquarters. So, ThermoVu has lived up to expectations, and I believe it will continue to do so.

Awesome. All right. So, listen, I lied. I actually have two more, but I’ll do it in one question, and I’ll do it as two parts. Your guys’ bread and butter for the last seven, eight years I’ve been dealing with you has been with the surveillance cameras inside of the in-car dash and as well as the body cameras. Last year, obviously, we saw a major spike in our stock coinciding with what took place with George Floyd, and we’ve been hearing for a long time that there’s going to be the Police Reform Act. First part of the question is, obviously, we’ve seen the Police Reform Act passed in the Senate, and we’re hearing the President’s tweet about it as well as hopefully getting it passed in the House. What are your guys’ thoughts on that and where we can make traction moving forward if that is enacted? And then my last question is kind of a piggyback from what we talked about earlier in terms of your capital on hand as well as your market cap. Are you guys looking to put into effect some type of a poison pill to protect us at our cash position that we have here right now in the future? I know we tried last year. Is that something you guys going to look to do this year as well?

I think we’ve got to try again. I mean -- and that’s going to come down to the shareholders allowing us to authorize a preferred series of stock. That’s really the only way that we really can get creative in regards to having the capability of putting in some type of poison pill. So, it’s definitely on our minds. I mean you would hate someone to come along and buy you with your own cash. And unfortunately, trading where we’re trading at, I mean, that’s about what they could do. I mean, smallest amount of leverage and you’re sitting there with the amount of cash that we have. So, it’s concerning to us, Bryan. We’re going to do the best we can to get out there, make sure The Street knows that -- we’ve got a lot of stuff going on, very positive and a strong balance sheet. I mean, it continues to make us, I think, attractive but sometimes attractive for the wrong reasons for some coming in and not letting this finish what we’ve got started here. In regards to law enforcement, again, we really do believe that that part of our business is going to continue to see some real growth, whether it be finally from a national level. I mean, they’ve always had grant money, but I mean now some of this stuff is just flat getting mandated. And I think it was Illinois that passed some regulations at absolutely body cameras everywhere. Unfortunately, there’s some other things in there that -- there’s we’re getting a little pushback on. I mean, it’s a typical thing, Bryan. They can’t just have black and white cut from the four corners of a piece of paper. Here’s what we’re going to do. They always throw in something else there to try to find a vote for your deal, but you got to put this in there for me. And so they cluttered it up a little bit. But I do think that you’re really going to see that getting straightened out. The boys on blue, women on blue, they do so much worse every day, and they got to get the tools and equipment and respect to do their job and do it right. And so, yes, money is going to flow. It’s just -- it’s going -- I mean, we still talk to people about different legislation all the time and how we believe that we can contribute and help. So, I still think that’s going to be a big piece of our growth. But again, I can’t say enough about the Shield products and what I think that’s going to do in ‘21.

Well, guys, congrats on the solid turnaround and your cash position. And we’re all looking forward to 2021. Thanks for your time.

Thank you, Bryan.

The final question is from Charles Rosero [ph] with GTM Capital [ph]. Please go ahead.

Yes. Gentlemen, thank you for taking the call. I appreciate it. Excellent job and everything across the board. I just got two, couple of simple questions. Hopefully, you can just give me some color on this. The first one would be about your cash and your raises. Do you know exactly how many of the prefunded warrants have been exercised? And what you told share count is at the moment right now?

Yes. Right now, all of the prefunded warrants have been issued.

Okay. And what is your current share count out right now? Do you have a number on that off hand?

The exact number I don’t have in front of me, but it’s roughly 53 million.

Okay. Because I know I had 40 million. So, they…

All the prefunded warrants have been exercised. Yes.

Yes, because I think that was a big drag on your stock. A lot of the people were thinking that it was pulling it down. Obviously, you’re definitely under an area where you stand from a cash point of view and also from a product point of view. But another simple question is, I noticed that you probably know better than I do, a lot of your products on your website have been out of stock on the Shield products. Is there any specific reason? Is that the reason why you guys went out and picked up some warehouses to actually add to the fact that you need more inventory?

Yes. I mean, it’s sort of a timing situation, what we’re looking at. I mean one of the things we’re looking at right now is actually looking at some facilities that will allow us to accommodate a little bit larger inventory. And therefore, we will hopefully not -- well, I mean, we’ll be able to do much larger quantities and have larger quantities on hand. But, it is more of a supply and demand. We want to make sure we run a good amount of the products, so that we’re getting the quantity breaks. And luckily, a lot of these products that we have, have a pretty good shelf life. And so, we can afford to sit there and say, okay -- and they know that it’s coming, and it may be 30 days before they’re going to get it. But then, they’ve got the supply they need to handle for a quarter or better.

Okay. Great, great. And another one, the acquisitions you guys are speaking about, I know it’s preliminary, it’s early stage. Any kind on the side you’re looking at? And would it be a cash in stock offer, or would it be just a straight cash you guys are looking to build?

I think, we’re open-minded about it. I mean, obviously, right now, we would be very leery of utilizing our stock, I mean, because it’s like so right at equivalent of cash. But, we’re going to be flexible to trying to make a deal that makes sense, work. And if someone that we’re looking at acquiring recognizes that maybe we’re -- the stock is valued quite low, they may want to go that route, and we’ll make sure that we do something but probably have some real caveats in there in regards to earnout. I mean, then they’ve got a prove themselves, sit there will be coming in and getting a bunch of stock at the same time. But, I think we’re open-minded.

Okay. Now, the question is, obviously, your ThermoVu -- I noticed that your ThermoVu unit actually takes a temperature by the hand. Correct me if I’m wrong. Is that as accurate as taking the forehead? And it seems to me you have an advantage -- a competitive advantage over a competitor because it’s -- it would be a lot faster to get someone throw a line by checking the hand and the face. Is that correct or is that false?

No, no, you’re correct. I mean, not only is it faster, but you’re not violating their -- a lot of them have the handheld machine or devices. And so, you’re sort of violating the six-foot rule that everyone’s throwing out there. But the thing about the risk, you can sit there and put it up to the machine. It’s much more accurate. Your forehead, depending on if you’re been outside, you have a stocking cap on, you didn’t have one on. I mean, it’d be all over the board. So, in our opinion, it’s not nearly as accurate than what the rest is.

Excellent. Now, this is my last and final question. Now, Motorola just took out one of your competitors, I know that you guys had some sort of a lawsuit going on with them. Can you give us a little bit more color on actually the lawsuit? I know you settle it and everything. And as far as your new version of EV HD coming out, are you guys going to upgrade to anywhere near, like 2K or even go into that to be out the competitors? I know right now it’s a rush to who’s going to get there first. Any color on that?

Yes. I’m really excited about the next version of the body camera that we have and its capabilities. It is going to have the capability of streaming. It has capability of 5G. There’s just a tremendous amount of features that it has, and also the clarity of the picture is top notch. But absolutely positively, capital, energy, all the above is being put into developing what we believe will be one of the finest body cameras out on the market. And it also ties in with our EVO system, our in-car system, very, very well. Again, I get so frustrated when I hear of situations where the body camera was not turned on. And when you got a company like Digital Ally who pioneered and has a patent on surrounding auto activation or -- our device. That should just never happen. So anyways, the new devices are going to be such that they may even be able to be able -- to be activated from headquarters, if need be. We’re spending the money. It’s going to be top notch.

Have you considered offering upgrades to current customers right now that have the old versions, a couple of years back now that maybe given some sort of movement to the newer product on the subscription side?

Yes. We have -- we started, I would say, looking at our database and see who have some of the older models out there, and they clearly will be some of the very first that we reach out to and try to put together a package for them. Meanwhile, the products that we could take is on trade-in still will have a very attractive market, maybe internationally or to lesser capitalized entities. But, absolutely, they would. Because of the products and the connectivity, they will mesh together real well. So, when they get rid of the older version or the newer version, they’ll be very compatible.

Excellent. And one, my final question would be the Shield product. I know you guys went into a decent-sized restaurant chain. Is that you guys -- one of your major corporations you guys are looking to get into was a restaurant field?

Well, it’s clearly a good market. I mean, that whole food industry, we’ve been into several, I want to say, national chains, more of them are sort of franchisees that recognize the importance of -- and so that has happened. So, it’s clearly a very attractive market for us. But, I think, what you’re going to see for as the Shield products, you’re going to see some very large chains utilizing both the liquids and some of the other products that we have coming out.

Well, excellent job, guys. I think, you did a great turnaround, A plus. And obviously, the Shield product, it seems like it’s a natural product. And I think one of the main competitive advantages is it doesn’t have an order, which a lot of the comments online have said. Congratulations. And thanks for taking my call. I appreciate it.

Well, thank you. We appreciate it very much. And I know we sort of ran out of time here. I’ve tried to -- ran a little long, but wrap it up. And again, I’m just, first of all, very thankful that -- to all my employees and all the things that they’ve done to help us achieve some of these benchmarks that we’ve had. And we’re going to do our best for you, our shareholders, to maximize your investment in us and believe in us, and we will push hard. So, thank you all very much. We’ll be talking again soon.

Ladies and gentlemen, thank you for participating in today’s conference call. You may now disconnect.