Digital Ally, Inc Announces First Quarter 2024 Operating Results

Digital Ally, Inc. (Nasdaq: DGLY) (the “Company” or “our”), today announced its operating results for the first quarter of 2024. An investor conference call is scheduled for 11:15 a.m. EDT on Tuesday, May 21, 2024 (see details below).

Highlights for the first quarter ended March 31, 2024

● Overall gross profits for the three months ended March 31, 2024 were $1,523,699, a slight decrease of $21,093, or 1%, as compared to $1,544,792 for the three months ended March 31, 2023. The overall decrease is attributable to the decrease in revenues for the three months ended March 31, 2024 and a decrease in the overall cost of sales as a percentage of overall revenues to 72% for the three months ended March 31, 2024 from 80% for the three months ended March 31, 2023. Our goal is to improve our margins over the longer term based on the expected margins generated by our new recent revenue cycle management and entertainment operating segments together with our video solutions operating segment and its expected margins from our EVO-HD, DVM-800, VuLink, FirstVu Pro, FirstVu II, ShieldTM disinfectants and our cloud evidence storage and management offering, provided that they gain traction in the marketplace. In addition, if revenues from the video solutions segment increase, we will seek to further improve our margins from this segment through expansion and increased efficiency utilizing fixed manufacturing overhead components. We plan to continue our initiative to more efficient management of our supply chain through outsourcing production, quantity purchases and more effective purchasing practices.

● Total revenues decreased during the three months ended March 31, 2024 to $5,529,351 from $7,697,190 during the three months ended March 31, 2023 a deterioration of $2,167,839 (28%). The primary reason for the overall revenue decrease is a decrease of $1,223,646 (44%) in service revenues in the first quarter of 2024 compared to the first quarter of 2023 at the entertainment operating segment. Service and other revenues experienced a significant decrease during the three months ended March 31, 2024, in comparison to the same period in 2023, due to the Company’s focus to work towards profitability and focus on cash flow during the period. Additionally, the Company’s subscription plan model continues to gain traction in the marketplace, resulting in the Company building and recognizing its recurring revenues.

● On September 1, 2021, the Company formed a wholly-owned subsidiary, TicketSmarter, Inc., through which the Company completed the acquisition of Goody Tickets, LLC (“Goody Tickets”) and TicketSmarter, LLC (“TicketSmarter”) (collectively the “TicketSmarter Acquisition”). Goody Tickets and TicketSmarter®, are ticket resale marketplaces with seats offered at over 125,000 live events, offering over 48 million tickets for sale through its TicketSmarter.com platform. Within this entertainment segment, the Company also formed Kustom 440, Inc. (“Kustom 440”) in late 2022 to create unique entertainment experiences through concerts, festivals, and private experiences. This segment generated revenues totaling $2,376,460 in service and product revenues for the three months ended March 31, 2024, a decrease of $1,8639,776, or (41%), as compared to $4,016,236 in service and product revenues for the three months ended March 31, 2023. The decrease is largely due to management’s focus on right-sizing the entertainment segment, and working towards profitability; thus, decreasing marketing expenses, directly correlating to a decrease in revenues.

● We remain in the revenue cycle management business through the formation of our wholly owned subsidiary, Digital Ally Healthcare, Inc. and its majority-owned subsidiary Nobility Healthcare, LLC (“Nobility Healthcare”). Nobility Healthcare completed its first acquisition on June 30, 2021, when it acquired a private medical billing company, and a second acquisition on August 31, 2021 upon the completion of its acquisition of another private medical billing company. On January 1, 2022, Nobility Healthcare completed the acquisition of 100% of the capital stock of a private dental billing company. Additionally, on February 1, 2022, Nobility Healthcare also completed an asset purchase for a portfolio of a medical billing company. These acquisitions further enhanced the Company’s revenue cycle management operating segment, which provides revenue cycle management solutions to medium to large healthcare organizations throughout the country. The compilation of acquisitions generated service revenues for the three months ended March 31, 2024 of $1,434,598, a decrease of $346,992, or (19%), as compared to $1,781,590 for the three months ended March 31, 2023.

● Selling, general and administrative expenses for the three months ended March 31, 2024 were $5,162,733, a decrease of $2,554,865, or (33%), as compared to $7,717,598 for the three months ended March 31, 2023. The decrease was primarily attributable to the reduction in new sponsorships being entered into by the Company.

● On March 1, 2024, Kustom 440, entered into an Asset Purchase Agreement (the “Acquisition Agreement”) with JC Entertainment, LLC, a Kansas limited liability company (“JC Entertainment”). Pursuant to the Acquisition Agreement, Kustom 440 acquired certain assets associated with a music entertainment event (“Country Stampede”), including all intellectual property arising out of and relating to Country Stampede and certain contracts in which JC Entertainment is a party to host and operate the 2024 Country Stampede.

Recent Developments

● In June 2023, the Company, entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Clover Leaf Capital Corp., a Delaware corporation (Nasdaq: CLOE) (“Clover Leaf”), CL Merger Sub, Inc., a Nevada corporation and a wholly owned subsidiary of Clover Leaf (“Merger Sub”), Yntegra Capital Investments LLC, a Delaware limited liability company, in the capacity as the representative from and after the Effective Time (as defined in the Merger Agreement) for the stockholders of Clover Leaf in accordance with the terms and conditions of the Merger Agreement, and Kustom Entertainment, Inc., a Nevada corporation, a wholly owned subsidiary of the Company, with a focus and mission to own and produce events, festivals, and entertainment alongside its evolving primary and secondary ticketing technologies (“Kustom Entertainment”). Pursuant to the Merger Agreement, subject to the terms and conditions set forth therein upon the consummation of the transactions contemplated by the Merger Agreement (the “Closing”), Merger Sub will merge with and into Kustom Entertainment, with Kustom Entertainment continuing as the surviving corporation in the Merger and a wholly owned subsidiary of Clover Leaf. Upon the Closing, which is subject to the satisfaction or waiver of certain other customary closing conditions (including the approval of Clover Leaf’s shareholders), the common stock of the combined company is expected to be listed on Nasdaq under a mutually agreed new ticker symbol that reflects the name “Kustom Entertainment.”

In May 2024, Kustom Entertainment and Clover Leaf announced the filing of Amendment No. 4 to a Registration Statement on Form S-4 by Clover Leaf with the SEC on May 13, 2024, relating to the previously announced proposed business combination between Kustom Entertainment and Clover Leaf.

● On April 5, 2024, the “Company, filed with the Secretary of State of the State of Nevada an Elimination of Certificate of Designations of the Preferences, Rights and Limitations of the Series A Convertible Redeemable Preferred Stock (the “Series A Elimination Certificate”) and Elimination of Certificate of Designations of the Preferences, Rights and Limitations of the Series B Convertible Redeemable Preferred Stock (the “Series B Elimination Certificate”) in order to eliminate and cancel all designations, rights, preferences and limitations of the shares of the Company’s Series A Convertible Redeemable Preferred Stock, par value $0.001 per share (the “Series A Preferred Stock”) and Series B Convertible Redeemable Preferred Stock, par value $0.001 per share (the “Series B Preferred Stock”). In December 2022, all 1,400,000 shares of Series A Preferred Stock that had originally been issued pursuant to the Certificate of Designations of the Preferences, Rights and Limitations of the Series A Preferred Stock of the Company (the “Series A Certificate of Designations”) and all 100,000 shares of Series B Preferred Stock that had originally been issued pursuant to the Certificate of Designations of the Preferences, Rights and Limitations of the Series B Preferred Stock of the Company (the “Series B Certificate of Designations”) were exchanged for shares of the Company’s common stock and warrants to purchase shares of the Company’s common stock. Such shares of Series A Preferred Stock and Series B Preferred Stock have resumed the status of authorized but unissued shares of preferred stock of the Company.

Prior to the filing of the Series A Elimination Certificate, none of the 1,400,000 authorized shares of Series A Preferred Stock or 100,000 authorized shares of Series B Preferred Stock were issued and outstanding, and no shares of Series A Preferred Stock or Series B Preferred Stock were to be issued subject to the Series A Certificate of Designations or Series B Certificate of Designations. The Series A Elimination Certificate and Series B Elimination Certificate became effective upon their filing with the Secretary of State of the State of Nevada

● In April 2024, the Company received additional advances of $444,000 from the lender and agreed to new terms where total proceeds received since inception totaled $2,144,000. The Company will repay an aggregate of $2,880,000 to the lender. The advances remain secured by expected future sales of the Company with payments on a weekly basis and the full amount is expected to be repaid in 2024.

Management Comments

Stanton E. Ross, Chief Executive Officer of the Company, stated, “We are very pleased to keep our momentum from the end of 2023 into the first quarter of 2024, with greatly improved gross profits compared to the first quarter of 2023, showing the continued success of our focus on margins and working towards profitability. We are pleased to see the continued success and traction in the marketplace with our new video products, particularly the EVO-HD, FirstVu Pro, and QuickVu docking stations, which are continuing to build upon our existing subscription plans and deferred revenue. It is exciting to see our deferred revenue balance reach $10.6 million at March 31, 2024, as our balance grew considerably by about $1.7 million from $8.9 million at March 31, 2023. There is additional excitement about new upcoming product releases and additional patent filings that will continue to display our commitment to innovation and success within our video solutions operating segment. We continue to see continued success in our Digital Ally Healthcare venture, as Nobility Healthcare, LLC continues to right-size and maintain profitability throughout that segment.”

Ross added: “Additionally, we are very excited about the latest filing of a Registration Statement on Form S-4/A by Clover Leaf with the SEC relating to the proposed business combination between Kustom Entertainment and Clover Leaf Capital Corp. to create Kustom Entertainment, Inc., a company with a focus and mission to own and produce events, festivals, and entertainment alongside its evolving primary and secondary ticketing technologies. We expect that this business combination will provide clarity to both shareholder as well as the marketplace, showing two distinct, stand-alone entities, Digital Ally and Kustom Entertainment, further, we remain excited about the organic growth opportunities with the Kustom 440 subsidiary along with the recent acquisition of Country Stampede, a prestigious festival within the Midwest. Country Stampede will host headliners Chris Jansen, Riley Green, and Jon Pardi at Azura Amphitheater in Bonner Springs, June 27th through 29th. We are also thrilled about the recent launch of KustomTickets.com, an advanced online ticketing platform, that marks a significant milestone for Kustom Entertainment, solidifying its presence and influence in the entertainment industry. We will continue to inform our investors as we move forward with the business combination, alongside our continuous efforts to take advantage of new business opportunities and to maximize our existing business lines to benefit the Company and its shareholders throughout the remainder of 2024 and beyond.”

First Quarter 2024 Operating Results

Overall gross profit for the three months ended March 31, 2024 and 2023 was $1,523,699 and $1,544,792, respectively, a decrease of $21,093 (1%). The video solution operating segment’s gross profits for the three months ended March 31, 2024 and 2023 were $565,694 and $534,195, respectively, an improvement of $31,499 (6%). The entertainment operating segment’s gross profits for the three months ended March 31, 2024 and 2023 were $494,274 and $234,663, respectively, an improvement of $259,611 (111%). The revenue cycle management operating segment’s gross profits for the three months ended March 31, 2024 and 2023 were $463,731 and $775,934, respectively, a deterioration of $312,203 (40%).

Total revenues for the three months ended March 31, 2024 and 2023 were $5,529,351 and $7,697,190, respectively, a decrease of $2,167,839 (28%).

Selling, general and administrative expenses for the three months ended March 31, 2024 and 2023 were $5,162,733 and $7,717,598, respectively, a decrease of $2,554,865 (33%). The decrease was primarily attributable to the reduction in new sponsorships being entered into by the Company.

Operating losses for the year ended three months ended March 31, 2024 and 2023 were $3,639,034 and $6,172,806, respectively, an improvement of $2,533,772 (41%). Operating loss as a percentage of revenues improved to 66% in the three months ended March 31, 2024 from 80% in the same period in 2023.

Net loss attributable to common stockholders for the three months ended March 31, 2024 and 2023 were $3,943,268, or $1.37 per share, and $5,979,579, or $2.22 per share, respectively. No income tax provision or benefit was recorded in either 2024 or 2023 as the Company has maintained a full valuation reserve on its deferred tax assets.

Investor Conference Call

The Company will host an investor conference call at 11:15 a.m. EDT on Tuesday, May 21, 2024, to discuss its first quarter 2024 financial results, corporate and individual subsidiary outlook, and previously announced corporate separation. Shareholders and other interested parties may participate in the conference call by dialing 800-717-1738 and entering conference ID #16084 a few minutes before 11:15 a.m. Eastern on Tuesday, May 21, 2024.