This conference call may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, and 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 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 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 differ materially from the forward-looking statements and contained in this document and readers are cautioned not to place undue reliance on such forward-looking statements. Digital Ally will undertake no obligations 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. I will now turn the call over to Mr. Stan Ross, CEO of Digital Ally. Please go ahead.

Thanks Stephanie. Thanks everybody for joining us today for our 2019 First Quarter Call. I have with me Tom Heckman, who will go over the numbers here shortly and we will look at trying to address a number of issues, but probably the one that's on most people's mind and we will be glad to elaborate on was the successful negotiations that we had with one of the companies that we have alleged patent infringement with that entered into a very nice settlement agreement for us. We'll spend quite a bit of time on that as that particular settlement agreement has - I think a very nice - has positioned us very nicely for what we anticipate to play out for the remainder of this year and maybe going into early next year and well into the future. So - but with that being said, I'd like to introduce you all to Tom Heckman, the Company's CFO and allow him to elaborate on our numbers.

Thank you Stan and welcome everyone. I appreciate you joining us today. I do want to remind you that we did file our Form 10-Q with the SEC this morning and I would hopefully refer you to that document for a more complete discussion of the quarter and what's going on with us. I don't intend to go through line-by-line that the numbers in that today I know that the WatchGuard settlement is really overshadowing this meeting and the thoughts of a lot of investors. But I do want to point out a few good trends that I see in the first quarter numbers. First of all, our revenue numbers have bottomed out and have gone up ever since we announced the launch of the EVO, our revenue numbers, certainly on the product side have been challenged, people are waiting for that new product. And fortunately that new product is going very well, we're in beta test with it. And we do believe that we will launch it commercially. Certainly by the third quarter this year, if not late second quarter. So we're very happy with that we've weathered the storm, if you will, on the revenue side, on the product revenue side. And we're starting to see both sequential over Q4 2018 and as well as year-over-year first quarter 2018 we're seeing a small, but very noticeable increase in revenues from that standpoint. And even more importantly, the revenue composition is encouraging for us. It's moving more to a service based revenue model which is recurring, which is very important. If you look at the gross margins on the service side, it reached 83% in the first quarter of 2019 versus 77% in a year ago quarter. So obviously, that's very important to us with those high margin dollars and high margin revenue, we want to encourage that. And we're seeing a very nice uptick in that. We do believe that we'll continue because, we're in a renewal cycle on some of our service contracts. And our renewal rates are very high, very good, I am very happy with them today, and hopefully they may maintain that and we continue to see the growth on the service side that we've already experienced year to date. The other thing we talked about is EVO-HD. It's in beta test at a number of units, a number of customers or potential customers were reporting good results there. The features that we've previously announced or in that - in the EVO model and I think that our customers will certainly enjoy the features and the reliability of this new platform that we're coming out with. If you look at the SG&A expenses, we - they did increase about $1.2 million year-over-year, but if you look at the composition of that. First of all, the research and development costs only went up about $20,000 and understand that we developed a whole new platform, the EVO-HD and still maintained very good levels of R&D expenditures, only a $20,000 increase over the prior year. Stock-based compensation increase, which is non-cash obviously increased about $230,000 year-over-year. As we've gone to a more of a stock comp based raise system with our employees. We did do a graph that went down to many levels that we haven't gone to before in terms of our employee base, so that you are seeing an uptick in the stock based compensation from that standpoint. The general and administrative amounts increased about $850,000 year-over-year that is almost predominantly litigation based, it's both legal fees and settlement fees in that number and we will talk a little bit about what's expected on an ongoing basis a little later in this discussion. If you look at the rest of 2019, obviously we're excited about the EVO launch that should improve revenues. So I started in third quarter and then fourth quarter 2019 and hopefully we will get it out sometime in the second quarter, service revenues continue to improve and again our renewal rates are coming up, our renewal cycles coming up so we think that that will continue. Litigation costs should abate somewhat, now we have settled WatchGuard litigation that certainly will be ongoing cost. We settled the PGA dispute so we won't have an ongoing cost there. And the Axon matter, Axon/Taser matter is not fully briefed from the judge and were just awaiting rulings from the judge. So we believe that those costs will start to decline as well. Although they are high year-to-date I think for the remainder of the year there will be much more under control from that standpoint. If you look at the second quarter, now that we have the WatchGuard settlement. One thing that we will record in the second quarter is a $6 million gain from the settlement of that litigation. That will be an important factor in our 10-Q and what to expect for in the second quarter. The unknown thing is what effect that will have on our obligation to BKI. Remember we did do a litigation proceeds agreement with BKI. Those proceeds will be paid to BKI and reduce the obligation that we owe them. We do have that evaluated by evaluation firm in terms what their remaining obligations is to BKI and hopefully that will be reduced and will the full $6 million of income come through at the bottom line. So that's something exciting that we're looking forward to in 2019. Okay. Let's look a little bit at the WatchGuard settlement. Now understand that there is confidentiality provisions in the settlement document. So there's just things we cannot share and talk about as much as we like to. We are very happy with economics of that settlement, on our books and where it's going. It's basically three year license agreement for WatchGuard after three years if they have not discontinued selling that product with those infringing features in there then we can go back to litigation with them if we need to. But hopefully that's not necessary. We can - if they are not able to pull all that equipment off the market then we will negotiate another royalty from that point forward. Our legal expenses, obviously like we just talked. It also kind of gives us a template as to what we can do with others in the industry. Now bear mind that auto-activation which is the basic premise of the patents that we have that we will serve against both Axon and WatchGuard is the auto-activation. It is a standard for the industry. I would say I don't have a specific numbers, but predominant majority of RFPs that come out now either ask about or require auto-activations as a feature in responding to those bids. So we have not looked at other in the industry in detail, but I would think that those would be, we would look at those and then use that template that we use with WatchGuard to do the settlement to approach them about doing the similar license. So anyway that's exciting. We should be able to monetize the patent from here forward using that template with the smaller players and the other one outside of Axon. Now Axon obviously the market leader in this area, we believe that our situation with them is much enhanced now and we're looking forward to the judge's rulings that he has in front of them right now. So with that I will turn it back to Stan, I know you guys probably want to talk more in detail about the WatchGuard settlement and where we are headed with monetizing our patents.

Yeah. Thanks Tom. And a lot of that that Tom was talking about in regards to this WatchGuard settlement. It was interesting yesterday that the amount of calls I got from people saying, well, how are you going to pay $6 million in damages, I am like, what are you talking about, we are the ones that won. To others that thought that this was the big litigation that we've been talking about. And as you all know that, Axon using our August date last year, we're looking to them in excess of $200 million in damages. And obviously, those damages continue to grow, before we get in front of the judge and jury here in Kansas. So, this was just as Tom said, sort of all the template of one of the many industry players that we can go talk to. And I will let you know that the economics involved with this transaction, we would not have done if we felt that there was any way shape or form that these would have hurt us in regards to the valuations that we are looking at, pursuant after far as Axon's concerned. So, just to give you an idea of what this could mean to the Company and the industry. I've met with our bid department yesterday and talked to them a little bit about who was out there and who was bidding on RFPs that deal with auto-activation and how many companies are out there that say they can meet these demands. And so there's a good additional 15 to 20 different companies that are out there. They claim in - that their products have auto-activation, and are out there doing bids. So what I want to say, our checklist of people to be able to reach out and talk to and say, look, it's obvious we have no reservations or concerns or need to where we won't, come after you and enforce, our patents if you're violating them. So we will start looking at the all the parties that are out there. Again, the significance of this is looking at it two ways. One is the fact that earlier you seen a sign in agreement with a company called VIEVU. VIEVU was a body-camera company that had the contract in New York, Miami, I think they had Phoenix. Matter of fact, as you know, Axon came along and bought them. But VIEVU set there and looked at our patent, the strength of our patent, even had patent personnel look at it. And they're the ones that first came to us and said, we believe your patent is strong, we do not want to sit there and run the risk of violating it. We'd rather go ahead and work out a licensing agreement or a distribution agreement and you just sell us the product and we'll buy it from you. So there's a number one, very, very reputable; very, very successful and winning some very large municipality contracts. Now you've got WatchGuard, again, another player, very well respected in our industry, good people, but they do recognize that this doesn't need to go any further. It's not going to probably turn out well, let's just work out a licensing agreement and give us enough time to try to modify our equipment and/or design this particular feature out of our current products that are out there. So $6 million on, 3.5 year deal is going to fly by. And if they are unsuccessful and/or the industry does not like the modification for not having the capability of auto-activation, then I'm sure they'll be coming back. And we want to talk about extending the license for some sort of fee. But meanwhile, people in our industry, we have companies that are much larger than the WatchGuard's of the world. I mean, Motorola's out there, Panasonic's out there, L3 is out there. There are numerous companies that are out there that we will be contacting. And, I'm sure, after what all they've seen, especially with VIEVU and WatchGuard, coming to the table, that we will be able to visit with them, utilizing this template so that we don't do anything to jeopardize the economics of our Axon interest. And that should start to come together immediately. I would imagine that these people will start being contacted early next week. So we're very excited about the recognition that we're getting in and the acknowledgement that we're getting from being able to resolve this matter. And I will applaud WatchGuard for actually recognizing it and negotiating in good faith to come to the resolution that we did. So very excited about that. Touching on the new product, the EVO product, we do anticipate this launch in late in the second quarter and I do not think it'll have any kind of major impact in the second quarter. But our official launch date is June 24. And as Tom mentioned we do have products after already at several different potential customers doing beta test and we're seeing really-really good results and really good significant what I'll say feedback and we've actually had departments already been placed in orders because of what they've seen in regards to some of our presentations that we've done. So glad to see that we feel like we've gotten through a real good level for as our current revenues, excited about the additional revenues through licenses and/or royalty agreements that we will be pursuing immediately and can't wait for the launch of the EVO product here next month. So with that being said I'll go ahead and open up the floor for any Q&A.

[Operator Instructions] Your first question comes from the line of Nathan Weinstein with Aegis Capital.

Hi guys. How are you doing?

Doing good Nathan. Good morning.

Okay, great. So just a few questions here, firstly one just thinking about the income statement and just to be clear what you said the $6 million settlement with WatchGuard, would that run through the income statement?

Yeah. We're in discussions with our auditors on exactly how to present it. But as I understand and based on my understanding of gap in that area it will come through probably as a credit in the SG&A expense as a litigation settlement. So it won't be revenue but it will be a counter SG&A expense of $6 million. Now the offset to that though Nathan is that the $6 million will go the pay down the litigation proceeds agreement with BKI. That's on the books for roughly $9,280,000 at the end of the first quarter. So that $6 million we assume will go and pay that down and then unless the evaluation firm believes that because of the settlement occurring that it's much more likely that we'll be settling for more dollars against Axon and others in the industry and paying more dollars to BKI in settlement, believe me, we'd like to do that and these things are going well on the monetization. So the unknown piece of it is what effects it will have on the evaluation of the obligation.

Okay. Yeah. Thanks for explaining that. So actually just want to switch gears. I'm sure you will get more questions on litigation. And I actually just want to talk about the market and product. So firstly on the EVO-HD you guys are looking at a 2Q/3Q launch. And typically with the new product do you see an initial stocking bomb that was like as it goes out to the channel and then like how long does it take to kind of get your sales force and channel partners up to speed on the new product?

So we've been I would say laying the ground work for the EVO-HD for several months now. I mean I'm real confident that our sales team is up to speed and ready to hit the ground running. We also believe that we have done a pretty good job of our timeline in regards to what we have seen in the past for certain agencies that are at a point where they want to upgrade their product, they've already given us some indications, if the EVO is going to be ready, we'd love to talk to you about, if it's is not we'd like to still talk about the DVM-800 or some of the other products. So I think we've got a pretty smooth, hopefully very smooth transition into the EVO. And again like I said that you should see some decent impact in the third quarter and clearly the fourth quarter, know what I know that the production runs are and delivery schedule is.

Yeah. Nathan, what I would add to that is remember that we really have not introduced a new platform such as EVO-HD since I think 2012 or '13 as when we came out with 800 HD module or the 800 model. So this was exciting for us. It is exciting for our salesmen. And we think it's exciting for our customers to see this new technology is holding platform and the advanced features that it's going to bring with it.

Yeah. On the core thing Nathan again I'll quickly elaborate on this. But the product actually had its first real public - I guess presentation win. It was either the Washington State or Seattle, but they had basically conducted their own trade show. And they invited, there's between 8 and 10 different vendors in there in which we were one of them and we actually took our EVO product there. And it was a small room that they put everybody in. So you could hear what others were saying and get a good understanding of seeing what other products are out there. This is clearly a very unique product with capabilities that I've yet to see in the industry. I've always tried to pride ourselves on being innovative and groundbreaking with new technologies, much like our VuLink, our auto-activation devices. And I think we have, again cleared that hurdle and are going to be disruptive in the industry and when it comes to, who has the best in car system. But the uniqueness about this is the EVO actually runs on over into our commercial and our body cameras. So it is a very, very unique and I would say groundbreaking or leading edge design that's going to hit the market.

Okay. Thanks folks for the explanation. And it must be nice to have a warm reception on a beta product like this. So we'll be watching to see what happens with it - as you move toward the full launch. Just one more question for me. We know that the police departments are smart, they're watching what's going on. Have they shown any interest in potentially switching away from products and services that have perhaps been shown to be patent infringing, such that they have a greater inbound call volume to you guys for your products which obviously have the patents?

So as you know and you can read, again, Axon's is going to swear it down. They don't infringe on the patent, because they don't believe the patent should exist. And they only tried that half a dozen times or more to get the patents invalidated and which were unsuccessful. So now they've got to convince a judge and jury that they're still smarter than the patent office and the patent office should have never issued these, even though they made all their attempts. That being said, they have been beating their drums and been going with that type of stands for years now. And WatchGuard's very respected, I mean, a very respected company. I mean I like to - look they're very good competitor, they got a good product there, so you can't really say much bad about them. Unfortunately, they cross the line in regards about our activation patent, but they too may have been drinking the Kool Aid that Axon was serving to the point that they were buying in to it as well. The industry should clearly, clearly wake up after they see that the fact that VIEVU and WatchGuard have recognized that Digital Ally is the rightful owner of auto-activations. So I would be really surprised if this doesn't wake up the industry and we do start seeing much like you're seeing or you said is that, that people that want auto-activation are going to go ahead and give Digital Ally much a stronger look than they have in the past and start less believing in the bs that Axon is throwing around.

Thanks a lot guys.

Thank you.

Your next question comes from the line of Bryan Lubitz from Aegis.

Good morning, guys.

Good morning, Brian.

Couple of things I want to get to right away in terms of you guys mentioning other people in the industry and up to 15 different companies right now. Have you already been contacted by guys, Panasonic, Motorola, et cetera in advance of this settlement with WatchGuard to gauge interest or is this something you guys just feel the week from now, knowing the industry you're going to be able to capitalize off of?

So Brian, the - I can tell you this, there's a couple things. Several of them we put on notice way back probably two years to three years ago, we put them on notice that we believe that they're violating our technology, so a lot of them already know about this. But far as the level of interest from the suppliers, last month, Greg Dyer was at a body camera conference. And it was a conference in which they had guest speakers up there. And one of the scenarios was that they had a speaker get sick or cancel one, I'm not sure what happened. So they asked Greg Dyer to get up there as one of the speakers and the panel. And so he got up there and they all gave a little presentation. And then someone from the audience asked about auto-activation and our lawsuit against Axon and WatchGuard. Greg took the high roads and, look, I don't think that's appropriate to address at this point in time, because that's not what this what this conference is all about, but if you like to talk to me, come back to our booth and I'll elaborate on it. That person sits down. A girl from Panasonic stands up. They point to let her talk. She basically said, look, we know about this little lawsuit, it is for real, we're all watching to see what the outcome is going to be. I mean, she didn't have a question. She just answered Greg's, what he was asked. So, two things, a lot of them have already been put on notice, one. Two, I don't know that there's too many suppliers manufacturers out there that are not aware of this. And it won't take - they're not - this is not going to be new news to them when they get the phone call.

Alright. So to piggyback off of that, Taser's got a market capital; Axon, if you will, has a market cap of under $4 billion; and both Motorola and Panasonic, are market caps over $20 billion. Why is it that you think they haven't really jumped into the fray to bid for these contracts or to put a product out there, et cetera?

So you have to look at it this way. I mean, if you're looking at it from just a black and white perspective, there is yet to be a judge that's actually came down with the girl and said, Axon, you're violating this patent and you are and then coming up with damages. I mean, that hasn't happened. What's happened and this is typical, is enough evidence has surfaced in regards to the, let's say, the litigation against WatchGuard, that you know how it's going to play out. And it is not going to play out well. So you decided, let's go ahead, and do the right thing and enter into a licensing agreement. That's how that's played out. Taser, or Axon on whatever you want to call. They may fight this to the end and they may have to pay in a big, big, big way. You just don't know. But I'm telling you that there are others out there that will look at this and look at the risk reward, and I don't believe they're going to be - and respond like Axon is responding.

Okay. That's all I have. And one other thing, Stan, I know who Greg Dyer is. Well, I don't know if many other people do. Can you just say his title, please?

Yeah, I'm sorry about that. Greg is the Vice President of our Law Enforcement division.

All right. Now a couple of other things just to tie in with that. So, WatchGuard, you guys settle for $6 million as a lump sum payment and your licensing the agreement to them, however, they are private. So on the Street here, we really aren't privy to their retail sales numbers in terms of what they infringed upon. And you guys keep talking about using this agreement as a template. We're going after Taser for 20% in royalties, even though they've won against face off of 40%. When you say you wouldn't sign a deal with WatchGuard that would hurt what we're doing with Taser, are you attributing that royalty percentage in as well?

Without going into the details, I mean, you just have to understand that there's a little bit difference between the companies in regards to the fact that WatchGuard is more of a hardware company. They don't have the big subscription agreements and everything. They're not the razor in the blade type of package, they actually have their auto-activation designed into their product. So it's a little different scenario there. But the economics if you look at them, and we looked at, how many units they may have sold and how many we anticipate them selling, we're very comfortable with the $6 million figure we were able to get for a 3.5 year contract.

Okay. Are you able to share with - what their product actually costs per unit?

I don't know. They can …

Yeah…

They've package. And again, like a lot of us, I mean, you throwing a bunch of the stuffs, so what are they really consider the hardware costs, but I don't know that will affect Bryan.

Yeah. And Bryan, I will reiterate that this is for a three year agreement basically. And they ever to pull the product in the infringing product off the market at the end of three years or have a new workaround or whatever. And if they don't then we can refile and go back after them. But more logically we will just - we will negotiate a royalty agreement. If you do that its $2 million a year for a three-year contract.

Yes, and that's just one of them. And again, you got - we will get it this way too Brian, if they were easy to design around this, we been having this spike for well over three years. I mean Taser challenged this back in 2016 till we filed in '16. So the challenges I think in '15 and we filed once we went on patent authors, I think we filed against them in '16. So they even got plenty of time to sit there if it was able to be done easily they would have predicted to do it. It's not as easy to get around as people may think.

With that being said you guys have got VIEVU to sign a licensing agreement with you. You have gotten WatchGuard to sign a licensing agreement with you. Are these agreements something that you plan on sending, I'm sure that the judge already has the VIEVU, but is this WatchGuard agreements something you plan on sending to the judge being that he hasn't filed for summary judgment yet?

I don't know what the status will be on that. We haven't really had a chance to talk our counsel about it far as the next steps. We really, I want to say that the deal that we completed with WatchGuard was completed, it would have been honestly I think papers were going back and forward at 11:50 Monday night. And so again we haven't had a lot of time to sit there and talk our counsel, okay - we know obviously we start contacting people, but we don't know what their thoughts are in regards to this information getting in front of the judge that channel on the Axon do.

Okay. And in the past Axon has bought VIEVU, are you worried that, because what they said everyone is speculated on whether they would just buy you out right. Are you worried of them trying to buy WatchGuard to then again get access to your patents or do you have a provision in your deal that if WatchGuard is acquired by Axon or another competitor that they can't use your product?

All that I can tell you is when Axon bought VIEVU we were able to discontinue our relationship with VIEVU.

Okay. So my thinking is that they would try workaround again anyway to cut that hands when you attack us. You said it's been three years and no one is been able to get a workaround yet. So, alright, but realistically you're looking at this deal as a template. This is what you guys expect to kind of sign across the board with other competitors in the future.

Yeah. Something along those is just plug and play type of numbers. I mean as they sell in - again realize we still going to be going after damages for those that are out there that have been violated. So we had damages and then there will be an ongoing license role to whatever you can to call it. And so we will be getting in touch with these industry players right away and we will continue to very diligent in regards to not upsetting the economics that support our ability to go after the $200 plus million that we have identified against Axon.

Okay. Well that's all I have, guys. Thank you very much. And congrats on the quarter and the margins going up. And I guess if you guys strip out the SG&A you're pretty much close to breaking a profit, correct?

Yes, absolutely. And we see some great trends on the revenue side, Bryan. The new EVO product I think is going to have a big, big impact and the trends in the service side are outstanding. We have got a lot of things going on the commercial side that I think will extend the trend on the service revenues that will make everybody happy.

Super. Well, again guys thank you and congrats on the quarter.

Thanks, Bryan.

Your next question comes from the line of Donald D'filipo [ph], private investor.

Hello Mr. Ross. You know me from previous conversations.

How are you doing today?

All right. On April 1, 2019 in conference call you have quoted as saying we're looking at $200 million that we're going after Axon for and there is nothing out there on the WatchGuard front, but it is a large number as well, not to that extent, but very big number. Now many of us who own Digital Ally for quite a while are a little bit disappointed. Now we feel in light of your statements that the court awarded settlement would be roughly $30 million to $35 million or approximately one-tenth of the expected Axon award. With a $30 million settlement I was going to suggest that Digital Ally assigned development engineers to work on a facial recognition feature built into our cameras that would include the criminal database from the Department of Homeland Security. This database could be local, state or national depending on each police jurisdiction. It requires a license, royalty or any other payment and would be worth it to alert the police officer of any possible danger and also alert others due to the auto-activation feature. Now once court has been granted this license, did they have to pay our legal fees? And if so, how much?

Yeah. When you involved in the patent litigation, legal fees don't come into play. So that's one. But probably the more to address your artificial intelligence that you're referring to far as facial recognition and other artificial technology that's out there, we're clearly headed beyond that path. And again what you're seeing with the our new EVO product and the platform and that it's capable of in the processing power that it has, facial recognition and many other features such as the commercial division when someone may not be wearing their safety belt, in other words they have connected it behind them where the wives isn't going to office, if it's unconnected, but they clearly could see that even going as far as seeing that they have a cell phone to their face that they're talking on the phone versus hands-free that maybe required by a company. So there's a lot of artificial intelligence that's coming into our industry. We're very active in that. We're also very active in regards to looking at other ways, features that would allow us to utilize Amazon's web service far as the cloud management, storage and search engines that they have. So the technology side, you're right, we're throwing still a lot of capital at it. And even if we did have the kind of one that you are elaborating to. And again I want to discuss this to people. Again it's a $6 million deal for 3.5 years, I think we've got another - I think our patents are good for another 15 years. So the patent value is very strong for us in this industry for some time to come and we hope to be able to really monetize all that. So thanks for your question appreciate it.

The next question comes from the line of Mark Culbury [ph], investor.

Hi there, Stan and Tom. Thanks for taking my call. I was on the call, conference call last time as well. First - I have a couple of questions. The first one being in your press release on the settlement with WatchGuard you had mentioned that you'd like to elaborate on the strategic alternatives that the Board has recently initiated. Can you please elaborate on that please?

Say that one more, we will make sure.

Yeah. You mentioned in your press release on the settlement with WatchGaurd that you'd like to elaborate on the strategic alternatives that the Board has initiated recently? We all know from the previous conversations that we've been having that the strategic alternatives in initiatives…

I got it. Yeah, our strategic - yeah, okay. So, we still have actively been building calls, people that have shown levels of interest. And I think a lot of them have still been sort of wanting to see what the outcome of these latest, what I want to say, the cases both in Axon and WatchGuard, how they play out. So we're still there. We're still fielding calls. We're still receptive, obviously, on behalf of our shareholders of entertaining different strategic opportunities. But I think the focus still needs to be pushing forward, monetizing our IP portfolio and also the continued development of our new products. If someone, gives us a call and it's more than kicking tires, we're prepared to listen.

Okay. So thanks. And second question is, regarding this WatchGuard settlement. Has there ever been a thought that might have been brought about during the settlement or the negotiation with WatchGuard about reverse IPO where WatchGuard would buy you guys out and then become public? Because we all know they have been looking at trying to go out and become a public company and they put that out earlier this year.

I think through reversal process, we explored all options that were out there and what parties both thought would be best for them. So, I don't want to get into any of the details of any particular direction that we were thinking about going. But, we didn't - we did explore all options.

Okay. Last one would be, in the most recent conference call that Axon's earnings call related to 10-Q filing. They had gone into a little bit more detail about the case that is currently being fought with Digital Ally, where they seem to be obviously confident that they have not infringed on any patent [ph]. Now in the context of what their stance is and with the history that WatchGuard had previously said that they would comply with what Axon's timelines were and what Axon's stance is and the fact that they have actually done a 180 degree turn around, apparently and decided to settle with you guys. So how does this all play out eventually, I mean, obviously time will tell, but they should definitely be sending an alarm to Axon, given the fact that WatchGuard has decided to go ahead and settle whereas previously they were saying that they're going to follow Axon's timelines.

I agree with you. I don't know how to answer that other than I agree with you. I mean, it's - I don't understand it. Again, the company that they acquired, obviously did not want to run the risk of violating our patents, therefore, entered into an agreement with us. So and now you have another very respected company in our industry that has entered into a licensing agreement. So I'm sure they're - they've got people on this call as well. And then I'm sure that these discussions will be at - they should be having internally and with their group, but I agree with you. I mean, these are smart companies, both VIEVU and WatchGuard. And like I said, WatchGuard I have a lot of respect for them as a competitor in our industry. And I think that the licensing agreement was the right way to go and obviously they did too.

Alright. And I think like one of the analysts was saying earlier, the market caps of either Motorola, Panasonic or Axon for that matter is extremely large compared to what is Digital Ally's is. And so had they approached you guys in trying to just buy you guys out so that way, I think there is none of this patent litigation that they would have to deal with?

I think Axon still want to see - once down the road a little further before they would possibly. And then who knows what they - I mean, you just don't know what kind of stance they may take. And then obviously the others, like said, I mean, this is just occurred. So the others will be obviously very possibly saying, okay, now there's again a second endorsement surrounding our technology to - with the fact that entered into an agreement that they may take a hard look at us as well.

So last question. So this whole concept of auto-activation, right? I think if it were so inseparable from a requirement that most police departments are now requiring. And if it's the technology the Digital Ally has patents for, this should be a no brainer, right? Or is there any other kind of an auto-activation technology that can be presented where other companies cannot actually have to pay you guys the royalties or the infringements and still be able to actually get this done, auto-activation? But I know you've mentioned that it's not as easy and that's why they haven't been able to do it yet. But would there be a circumvention of the auto-activation itself that would still give them that capability?

All the - I don't want to call them workarounds, but all of the things that I - in my wildest imagination can come up with, do not still give them a true auto-activation feature. I mean, well, I guess turn on your unit all the time, just have it running 24x7. I don't know that's a real good answer. I mean it still does - I mean granted your units on all the time, but battery life, equipment life and let alone the other titles fit you better, hope you turned it off. So I don't know, I just about ran across anyone else that has anything similar that would give them these features.

Okay. Lastly, are you guys up for sale or not?

We're publicly held, so I guess we're always up for sale.

Okay. All right. Thanks again.

Thank you.

Your next question comes from the line of Jerry Faulkner with R J Faulkner & Company.

Thanks Stan.

Hey, Jerry.

Can you hear me okay?

Yes, we got you.

Okay. Question for - I guess question for Tom. Tom on this $6 million upfront royalty that you're paying? I mean, that's it, they're going to pay you, it is - are those funds going to be available for you 100% for your operations or are you going to have to share some of that payment with the company that loaned your money some time ago on the lawsuits?

Yes. Very good question. Yeah. The agreement is that settlements and royalties and what have you that are generated by the patents and suit do go to BKI to pay down their obligation first. So the obligation at the end of March 31st was $9.279 million. So obviously, that $6 million will be going to be BKI.

Okay, okay. So could we - given that your cash balance, I think at the end of the first quarter was below $3 million that would suggest, I guess that we're probably looking at some sort of a capital raise in the next few months?

Yeah. Jerry, we - again, the bulk of the burn has been surrounding a lot of this litigation. And so where we're at now and we obviously will be - we've - it's pretty much completed what we need to do in regards to WatchGuard. And all the - the majority of the discovery expert witnesses, all the things necessary for us to get ready to go to court with Axon have been accomplished as well. So we see those numbers dropping dramatically. Meanwhile, as Bryan said earlier, I mean, if you sit there and look at getting that sort out of the equation. We're right there close to cash flow positive. So…

Yeah.

Yes. Okay. Well, I appreciate it. Congratulations on that development.

Thanks Jerry.

Your next question comes from the line of Patrick Aderck [ph], stockholder.

Good morning. How you doing?

Good morning.

Question I have on this, on the litigation the $9.27 million there. How much of that do you have an idea was spent in litigation costs with WatchGuard? And also after the three years is up with WatchGuard, are you going to incur litigation expenses again or do you think a settlement will just automatically be made?

So couple things. We utilize both - the law firm that we utilize that handles both cases and I don't know that we have that detail in front of us on how much was spent towards WatchGuard, how much was spent towards Axon. And then, much like it's stated, in the press release they have basically 3.5 years to implement a change in their products, either modify it to take it out or if they figure out a way to do something around it, but they cannot continue to moving forward and doing what we believe would be infringing on, on our patents. So we would have the door wide open to go back into the courtroom with them if they continue to do so. The significance to this would be if they did continue to try to utilize, the license past what the 3.5 years. And again, it was shown that they were violating the patents, it would be willful, so the damages would be triple because they clearly know about it, and clearly have an understanding of it. So it's quite a risk that I don't know that they would take. They've approached this, on an agreement, licensing agreement in a timeline. And, I don't work there, but I've been in the industry enough to know that, the pipeline of products that we've already established for the next six to nine year is already in our pipeline far as components and stuff like that; and also know that you don't design a product overnight that doesn't have a few hiccups. So it's more of a year to 18 months before you really have a product out there that's solid that you can launch. So the 3.5 years will go by rather quickly, even if they get started today on being able to do a work around.

I see, but since they did not admit any guilt of infringement. So that means that we have to go through the litigation costs again and start all over again in the future?

You wouldn't have to start all over, but you're right, they didn't admit any guilt. And, they just went ahead and decided to enter into a licensing agreement. And then I guess, we all just sit here and say, well, if I'm not violating it, why would I go that route. But anyways, they are not admitting to any guilt. And at this point, we're fine and very happy with the contract we have with him.

Your next question comes from the line of Sam Schwartz [ph] from Caliber Management.

Hi. Good morning.

Good morning, Sam.

Hi. I am pleased you made the settlement. I'm wondering, having listened and talked to Axon's personnel and a couple of their financial analysts, they really pull through this overall case. In spite of the many successful appeals on your part, and defenses, I should say. So I'm wondering now that you have a significant settlement or maybe not significant but at least a settlement. Why or have you, better said, contacted the media and/or reached out to some of Axon's financial analysts to explain in detail what has occurred here, the prospects for EVO, the potential damages based on some sort of a formulation and maybe even investigatory story, if you reached out to like Barron's who is always looking for these kinds of stories, and that will then get Axon's and/or Motorola's attention, that you are professionally going to pursue this to a meaningful result.

So appreciate those comments. And just trying to give you a little bit of an idea of a timeline like we said Monday night at 11:50 we sort of finalized everything and then of course we had our quarterly calls coming up here for today and trying to make sure we have got everything prepared for that. But I will be presenting at LD Micro here first part of June. We clearly intend to do everything we can to make the industry aware and the financial community aware of what is occurred. And much like you said the more publicity we can get out of it and tell our story, the better do for us. And then I absolutely plan on exploring all of it.

I would add that Taser/Axon is pretty much battle weary, they face litigation on their conducting electrical weapons every day, just read there litigation section in their 10-Ks and Qs. so they are used to stay on these big of numbers. So good or bad they are used to this and they are playing the game like they would. I think that the analysts in that do the same thing to a certain degree that they always faced these kind of suits and all that and somehow someway they get through them. I'm sure there is insurance involved and all that kind of stuff. But this is a different animal for them. They've always been on the other side as a plaintiff in patent suits that I've seen for the most part, it made them successful on those. Look at what they enforced against Taser like a 40% world against a company that infringed on their conducted electrical weapons. So this is putting the shoe on the other foot so they are not used to this type of litigation. And I think it's similar for their analysts and people that are following them from an investor standpoint.

I still strongly suggests if you reach out you will find an audience that is willing to write a David Goliath story and do so to the New York Times, this won't be fake news.

I appreciate it and assure you I will be reaching out to the media.

It needs to be said and that will strengthen your position greatly. And if one of their analysts catches this story and reaches out and says what's this all about and why are not you guys just settling this for look at balance sheet that you have and/or even make an offer than they can't refuse, meaning you and put this behind you and let's move on, alright, that's how corporate - big companies work. But you have to take the initiative. Now that you have this, I know it's been a long, painful, tiring, exhausting experience as all litigation is.

We absolutely, we hear you loud and clear.

Okay. That's all I got.

Thank you so much.

Okay. Good luck with it. Hope we read about it soon.

Okay.

Your next question comes from the line of Will Goldberg with Goldberg Partners.

Hi, guys. Thanks for taking my call. Can you hear me?

We got you, Will.

Okay. Two questions here. My [indiscernible], so my apologies if someone asked these questions already. The first is earlier this week there was WatchGuard filed that they weren't able to get in touch with your lawyers, there was some miscommunication, they have extension, at the end of the day when they were settling for $6 million, it seem there is a pretty clear cut issue, you guys to provide some color what exactly was happening in those conversations.

So we were all in Kansas City and even talking to our attorneys, I don't know what the folks were thinking were there. So I really don't have any input on that. I just - I know that the documents started flying around later late that night and so we were done.

But the settlement agreement say nothing fundamental fundamentally changed between now or I guess before Sunday and after Sunday, correct?

Correct. Yeah. I mean that was - look one of the things and we didn't get there at the last where we're arguing a little bit about each other's quotes in the press release and I not only said look neither one of us say anything, just make it black and white; here's the permanent bullet points and there you go, and just leave it at that. So we had - I would say the real deal terms changed for quite a while. I mean it was we've had that, there were just sort of the development details so that's basically where it was.

Okay. Thank you. The second question is, I think Stan, the last conference call you had mentioned at one point you did give a number for WatchGuard, but you we found it very optimistic and after speaking about Axon you said something in the call the WatchGaurd number was significant. So I'm assuming that had you guys gone trial, you would have gone for you would have been seeking something way more than signaling maybe that's correct, certainly since they are the private company, we don't know exactly what their revenue stream is. But what I'm looking for is I want to understand why exactly you guys decided to set off at all, certainly for that number. But last call you had said that things were moving ahead, so rather quickly you would expect to maybe in the next six months you can get to a conclusion of that. So should any way of the $6 million that you're getting and it's going to BKI, it sounds like in the meantime it's not actually usable funds. So what exactly was the greatness of the fact insight that cut off right now the products are just taking us to the court?

Yeah. So I think I'm understanding it. A couple of things that we like about it is that the fact that we've got a clear cut deadline of someone at least, in our belief again everything is alleged infringed, until the judge says infringed. But anyways we've got a clear cut, in our opinion situation someone is no longer going to be utilizing our technology and they have to walk away here in 3.5 years or meet us back at the table again to continue these negotiations, which obviously again I think our patent has a little of a 15 years of life to it. So that's one. Two, we believe that the economics of this fill in and supported position that we have against Axon which is the $200 plus million bogey that we're chasing. So we probably gave us two things, one it put a situation where our competitors clearly going to get out of our way in regards to what we believe is using - utilizing our technology and into the fact that it sort of paints the tape as you would say in our industry in regards to establishing and supporting the valuations towards Axon. I'm pretty confident that if we ended up continuing to go down the path of - and again and this the problem you just don't have all that information yet because the discovery had not been completed and set back yet. But I think that would have been - both sides I think would have been a lot angrier at each other this would have continued much longer because it would be a tremendous lot of expense to both parties would have had to face.

Okay. I know that the settlement is done now. So just I guess one other follow up more on that point is that given the fact that - can you remind that were there any sort of discount been given just get the money in the bank and also have their meaning as a company that was willing to [indiscernible] other companies. I am trying to get a sense of whether or not or to what degree you guys give them a discount in terms of the royalty rate come down to I guess $1.5 million per year. So I'm just trying to get a sense of….

Yeah. I don't mean to interrupt. That this is really hard for me to comment on that because I mean, obviously, I haven't had access to all their numbers and everything else. A lot of this was attorneys' eyes only. And we have a lot of competence in our patent attorneys and they've had - if you read the Kansas City papers, you'll see, some very, very high profile wins that they've had. But we're very confident in them and their abilities and when they gave us the indication that from everything that they know can see and believe that this was a very fair deal for both sides, nobody is going to feel good about it, which is the way it's supposed to be. But it's a good deal. And it doesn't do anything to hurt us in regards to Axon. So, you know, we just weren't into discovery enough to where I could have even if I was even if I was allowed, I would be able to really elaborate on that.

Okay. Thank you. The final question is what money would go to BKI, is that - does that change, assuming you guys go to court and are successful and your litigation against Axon. So that money that $6 million you're paying, you mentioned $9 million plus that you're done. And does that mean that the whatever the wins you get from a litigation is the greatest percentage of that go to you or that amount set regardless of what's the $6 million?

So yeah, so we capped it. I mean, we didn't do a percentage with BKI, we did a flat cap. And so this would go towards the overall number and therefore, it's actually, if the number's greater, we will have already paid down $6 million of it, so it's not on a percentage basis.

Okay, great. Okay. Yeah. Thanks for the time and congratulations on settlement.

Thank you very much.

And your next question comes from the line of James McGuire [ph], investor.

Hi, can you hear me?

We got you James.

Great. Thank you. Real quick, pointed questions, what are the auto-activation exploration date or year, the one that we've that you're presumably going after Axon and get started with WatchGuard?

Yeah. I think those patents run almost 20 years. So, you know, we probably got a good well over 15 years, I would believe. I don't have the exact date in front of me. But I think there's good 15 years still behind them.

That's fair. Great. Thank you. Second question, I've heard thrown around a number of 20% royalty license agreement. Can you confirm that, or is that's something you can't discuss.

So the 20% that everyone's referring to is the number that's thrown out there in the Axon agreement. And that now…

Is that not necessarily to WatchGuard?

WatchGuard, there's no numbers that have been talked about far as on a percentage or royalties or anything along those lines.

Let me clarify a little bit. If there's no agreement with Axon this, that was the financial impact that was filed with the court in terms of determining damages. So we have no agreement with Axon, if we had we would be talking about it. But that's where we believe the damages to be at our financial expert believe the damages to be.

And that's the damages are at we're, as of August came in at $204 million roughly with an ongoing royalty of the 20%. Yeah, because of the travel damages.

So I guess that leads to a follow up question on which is then, so WatchGuard percentage royalty, which I guess cannot be discussed the concept of confidentiality reasons. But can that play a role in the Axon one. So let's say if it's less than the 20% can Axon say, well, hey, 12% to WatchGuard or whatever, and then modified their future liability. So based on precedence.

Yeah. So, we're on the same page in regards to that's something that I have talked about and had wondered as well, but again, I'm not privy to a lot of the stuff that that the attorneys' eyes only were able to see. All I can tell you is that our counsel was very pleased with if this does become knowledge or is asked about it maybe again or attorneys' eyes only in the courtroom, that it didn't have an impact on us. We felt very - they felt very good about it. We - I just think - Tom, I just didn't get access to that mean, so I couldn't do it back of an envelope even number for you.

Got it. And then Tom, my last question upon, the $6 million being sent to BKI to fulfill the obligation as for the litigation agreement. Is that - was that a onetime loan or was that like a revolving line of credit, is there any more cash develops? I'm kind of concerned with the burn rate and the - well I'm just - I think Axon position was a kind of wait you guys out and hope you went bankrupt. And so when BKI infuse you with cash that really got everyone excited because there's a lot of you don't put $10 million on to something else you've really done your homework. And so now that there's $9 million, presumably over $10 million already spoken for. Do you have any more ability to get additional financing, should you need it? Should this litigation to go longer than expected, which it seems like it always seems to go longer than expected?

Yeah. I'll tell you BKI is obviously very pleased with us. And, but even before this occurred, they wanted to make sure and have the ability to come to us if we did look for additional litigation financing mostly.

So I think we've got - I've made comment earlier. So I think we've got a friendly banker there, if we wouldn't see that we would need to go to them for additional capital for our litigation purposes.

So as I would like to have a lot of course refusals, what you're saying or you are just saying we need to feel comfortable going back to them if you need more money, because let's say this gets pushed another year with Axon, hopefully not?

Yeah. I think it's just more of a first look, they have a right to participate type of deal.

All right. That's all I have. Thank you.

Thank you.

There are no further questions in the queue.

Fantastic. Thanks, everybody, for joining us today. And again, we couldn't be more pleased with the quarterly results, the outcome for us the settlement with WatchGuard. And we look forward to an exciting remainder to the 2019 year. And I'm sure we'll be all talking here in about 90 days, if not sooner. Thank you now.

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