[Call Starts Abruptly] 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 of or indicated 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 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. Now, I would like to turn the call over to Stan Ross.

Thanks everybody for joining us today. I got with me Tom Heckman Company's CFO. Tom will do a quick recap of last year's numbers and four quarter numbers and then we will probably run rather quickly on into visiting about what we still believe 2020 looks like in regards to our existing products and also touch on our most recent press release that we announced today concerning the disinfectant that we will now be marketing to our First Responders as well. So Tom I will let you do a quick recap and then we will get into the forward-looking stuff.

Thank you, Stan and welcome everyone, I appreciate you joining us today. I do want to let you know that we have filed our Form 10-K with the SEC this morning. And it is a full recap of the year 2019 versus 2018 and I certainly refer you [Technical Difficulty] any significant details. I will try and hit some of the high points and I know with the current environment and everything that's going on, 2019 seems like ancient history with what we are dealing with right now. So I won't spend a lot of time with it. We'll talk about what's happened recently, including in the first quarter here and where we sit today. So with that in mind, I will tell you that 2019 on a bottom-line, we were about 5.5 million [Technical Difficulty] and that was primarily due to the patent litigation settlement that we entered into with WatchGuard, we gained $6 million in funding through that offset by a $3.3 million increase in our patent litigation liability, the fair value of that. So, in essence that contributed about three -- little less than $3 million to our bottom-line. So we had good improvement elsewhere. If you look at the top-line, really, I think it's more indicative of two factors. Number one, we're trying to move people more to a service plan and platform rather than a product sale hardware sale program. In that regard, our overall sales declined 15% but our service and other income increased by 25% not income, I mean revenue. And it's clear why we're doing that. Our gross margins on service hit 77% in 2019 versus 76% in 2018. So our overall plan seems to be working from that standpoint, we are shifting more sales to the service channel rather than the hardware sales. And the second reason for that is, we did introduce EVO-HD in the middle point last year. And as expected, our customers took a pause to look [Technical Difficulty]. It is a revolutionary new platform that we're very proud of. But it has taken some time for our customers to review it, test it and adopt it. And in that regard, we did do a press release, I think last week about pretty nice order we got for EVOs. I will tell you also domestic order that we got for EVOs. I will tell you that we had a rather large international order in the hopper to ship in March of 2020 that was and is delayed because of the corona virus outbreak. Countries and certainly foreign countries have their hands full with the corona virus. So, I think the line here is that we are seeing some very good traction. Customers are very receptive of the EVO- HD in the new platform and I believe it'll be the bellwether for years to come. With that in mind, it did hamper our hardware sales in 2019 as well. So let's talk about a few other things that have happened more recently. We did complete a $2.5 million underwritten public offering in March at $1.15 per share; gross proceeds of roughly $3 million. We're very happy to get that done before the corona virus epidemic really became problematic in the capital markets. So we got that done in early March and we're glad we did that. Our first quarter revenues, I will say are very similar to last year, which I think given the situation most people would be pretty happy with that. Speaking for myself and I think even Stan, we're both very disappointed in that. We started the year January, February with double-digit increases over prior year revenues. We were seeing good traction. The EVO was starting to hit a little bit. And in March, we had several large international orders as well as domestic orders that were set to go out. We even had them on pallets ready to ship at one time. That got delayed because of the impact of the corona virus. So, although first quarter is going to be very similar to last year, we're disappointed in that we did not get the opportunity to ship orders that that should have been shipped, given normal times rather than what we're currently experiencing. So also, I would tell you that the Axon litigation, we did a press release that announced the oral arguments were supposed to happen today. And because of the corona virus thing and other factors the appellate court issued a order that they were not going to do oral arguments that they were going to rule upon the briefs as submitted by the two parties. Stan and I really looking through the tea leaves, it's only our judgment is, we believe that's good news, but we don't know until they actually issue and quite frankly, we don't know when they're going to issue with what's going on, when they're going to meet and go over the [Technical Difficulty] an outcome for that appellate hearing so.

It's my understanding Tom that the briefs will be submitted today. So that's still taking place. And in talking to our litigation team, we believe that maybe because of the fact that they're not now going through the trouble of oral arguments that are ruling, based upon just the briefs that they may be able to actually move a little quicker. So we still think at least from [Technical Difficulty] completely shut the courts down and don't allow them to make any kind of rulings that we should see something, I would say within the next 45 days, so it could be rather quickly is they're not having people walking through and in and out of the courtroom. They could be sitting around the table right now and all parties looking at it and saying what's your thoughts on it? So, but we do know, [Technical Difficulty] the fact that they did not and they did elect to go ahead and instead of postponing it, went ahead and did a -- what do you want to say just said, "Hey, guys, you don't need to come here, we've got enough or believe that our position, we can get to a position to rule on it by just using the briefs." We look upon that as somewhat favorable. We would have thought that if, for some reason they weren't interested in hearing our side of it, as we're the ones that actually filed they would at least postpone and given us our day in court. So we're hopeful that it'll continue to move forward and we'll get something on that in the next 45 days.

Okay. Thank you, Stan. And I just got a couple other things I'll mention. We were deficient with the NASDAQ listing requirements -- continued listing requirements. We've filed several 8-Ks and releases that describe that event. Stan and I met with the NASDAQ board in February and presented our compliance plan which we're happy to announce or I think we have announced already that the NASDAQ was very receptive and approved our plan and gave us until June 30, 2020 to achieve that plan. Now with the current environment, we kind of expect that will be delayed because of everything that's going on with the Corona virus and I think companies with deficiency issues, as well as us that the NASDAQ is dealing with. So I hope that that gets delayed but I don't know that it'll get delayed. We don't and we will certainly apprise the market when and if we hear from the NASDAQ on the exact date if that's going to be delayed at all. I will tell you from a corona virus perspective, we have made some changes in our operating plans including having people work from home. If you guys have seen hopefully you've seen the press release this morning, we've taken on a new line of products to help our First Responders deal with the corona virus onset to disinfect cars, any kind of surface [indiscernible], tables, whatever it is, the product that I'm sure you guys will want [Technical Difficulty] for a number of years, we have a distributorship for that and we're going to hit our customer base with an email blast today and we expect and we hope that we'll get a very good response from that because this was an exciting product. It's non-toxic, and it's approved by the EPA to fight the corona virus as well as a number of other contaminants and bacteria and viruses including HIV, MRSA, C diff, Salmonella, listeria….

If you go to our website and again bear with us that it's getting more and more information put on it, virtually every hour but you could get on there and get a pretty good understanding and there's some links that take you to the -- I think is the FDA and the EPA or the appropriate government sites to give you a little more understanding and just touching on Tom's right now. The product itself -- we've been knowledgeable about it in and did a little bit of preliminary. I would say marketing and talking to a few of our key customers if they would have a level of interest in the product and we were overwhelmed with those that clearly said they have an interest and in talking to our team and we realized this was [Technical Difficulty] important as the sanitation, the cleanliness, on and on, that is going to be looked at scrutinized, even our government, have said that, they're concerned about if we get past these next month or so that still need to be on high alert and go into the flu season later this year. Then it could come back around and until we really get a vaccine for it, it's going to be with us. So with the thousands of departments that currently buy from us that could utilize it; the amount of taxi, cabs, just there are multiple customers that we have and it also very strong levels of interest in the product. We just literally launched it today and told [Technical Difficulty] in a few hours, but just really surprised by the amount of interest and those that are already placing orders for shipments that will go out later this week. We have a very good relationship with the bottling company or let's say the master distributor that we work very closely with and I've had a relationship with for some time. So we are excited about it. We think that this is an area that really could have an impact in our 2020 numbers. And we will update you in the form of a press release. As we see how things play out for let's say the month of April. We'll give you an update. We will let you know how many gallons or thousands of gallons or whatever the magic number may be, we'll let you know. But we are very excited about this product.

Yes. I would just add a couple of comments and then turn it back to Stan. I'm sure you guys have many comments and questions about where we're headed. But, we're looking at this as a new channel for Digital Ally to help First Responders, not only First Responders, but it really fits in well with the rest of our businesses. We had ambulances, so it really fits like a glove with our customer lesson. Obviously, we're going to exploit that but we believe it's going to bring in new channels as well and give us avenues to also sell them hardware and services surrounding our recording products. So anyway, we're excited about it, we're looking for other ones too. I mean there is other products that we're looking at that that we may take on in a similar process to try and improve revenues through other channels as well. So with that, I'll turn it back to Stan. And I'm sure you guys have more questions for us.

Yes, Tom, as everybody should know, that's on the call that we also have been making quite a bit of headway in regards to our new Breathalyser that has our patent associated with it. That continues to come along real nicely [Technical Difficulty] enabled to have that out later this year. So yes, we will continue to look at mainly different products. I don't know if I want to say channels with different products that can really easily fit into the existing distribution channels that we have. And then that will have a ripple effect leading into other areas, obviously with our relationship [Technical Difficulty]. A lot of the entities from football to NASCAR those are avenues that we'll continue to -- we'll be able to expand on with some of our products. And we also will be actually bringing in sub-distributors in regards to a couple of our products that have their own channels and network in place too. So excited about what we have ahead of [Technical Difficulty] like all of us things get back to normalcy, so that we can all be shaking hands again at some point in time and being able to talk business across from the table versus over the phone. So anyways, we'll go ahead and open this up for the Q&A side of our call.

[Operator Instructions] The first question will come from Brian Kinstlinger with Alliance Global Partners. Please go ahead.

Hey guys, hope you're doing well.

Thank you, Brian.

With the current revenue base, how are you addressing overhead? And can you talk about with your business being essential or volumes down where you can take operating expenses? It looks like you're at about 15 million in 2019, which I assume includes the 3 million in litigation expense are discussed. So what can we take that to right now?

Yes. Overhead wise we've pared down, I wouldn't say substantially, but we've pared down in the areas that really are flat or are actually non-existent in this economy right now with corona virus. I'm thinking like event solutions and likewise. So we've made cutbacks, both employees and overhead in those areas that that makes sense. But I will tell you that certain areas of commercial is revving up. Private security seems to be doing real well as well as our regular law enforcement business. So there's areas that we have cut back in because those areas are dead in the water right now until the economy really opens back up. [Technical Difficulty] go down but I cannot tell you how much depending on where else we cut and what else we do, but we're looking at every overhead expense obviously and trying to make it right versus what kind of revenues we're generating from those channels.

Yes. A lot of it, some of the expenses as you can imagine, instead of us going to trade shows and other events. I mean, even all our outside reps are basically considered inside reps. I mean, there happened to keep the relationships by phone. We do a tremendous amount of webinars to try to keep everyone educated and get new business through those means. But the expenses of being out on the road is non-existent pretty much right now. So, there are a lot of areas that the expenses have came down dramatically, let alone the areas where we really did have to pare back as Tom was saying that because of the opportunities are non-existent for a while.

Okay. And then in terms of the disrupted supply chain, what supplies are you having trouble procuring, where are they procured from? And is there any communication from suppliers as to when this might improve?

Yes. As you might expect, we do get some of our camera products from the Orient specific [Technical Difficulty] South Korea. Those suppliers obviously have been affected. But it really hasn't hurt us that bad. We've had some delays, but we've eventually got the ordered quantities and products. So, yes, we have been affected and slowed down. But, we are getting products from those companies and suppliers and we don't think that that will be an ongoing problem, once the corona virus thing kind of passes.

Great. And then last question, can you expand on the press release comment that you are evaluating acquiring distribution rights for several products? Just some more detail on what this might mean?

Yes. As we look at and I'm seeing the level of interest in the current products that we're out there with, it's clear really opened our eyes up to other potential [Technical Difficulty] we have the capability of being able to produce and could implement and sell through our existing channels. So we're looking at one all, not only the current product, but additional ones along this line, how we can expand on that. And again, as I mentioned, we're still excited about our Breathalyser hitting the marketplace. We do have a next generation body camera that we have not pumped the brakes on at all, we're still going full speed ahead for it to development. We have the -- what we call the 250 and a box or the 250 fleet. That's for over the road truckers, and that product too is right around the corner. So there's several additional products that we have been working on and others that we believe now with sort of the changing environment that we clearly have the capabilities to get into. And again, I just need to wait a little longer and explain on but there are some even medical devices that we have the capability of design and producing.

Okay, great. Thank you.

Thank you.

The next question is from Bryan Lubitz with Aegis. Please go ahead.

[Technical difficulty] family and all the friends out there being safe and everyone is healthy. As you know, I'm on the island and we're becoming the hotspot so my thoughts and prayers are out to you guys and your families put it that way.

Yes and in your way as well Bryan.

All right. So first thing I want to touch base one. And then I'll segue back to obviously COVID, but for the quarter and obviously for the full year going up substantially from last year as you guys are segeuing from being more of a product based sales company to having that residual sticky business, if you will. Can you guys give us a mix of how much of that is actually from generating off of the data plans, monthly storage fees and how much of it is actually from [Technical Difficulty]?

Yes. The lion share of that Bryan is from extended warranty services and installation services, if you will. The data plans as you might expect, they're covered over three to five years. So it's a much smaller number, but there's really no cost associated with it. So if you look at sheer numbers, the warranty revenue -- the extended warranty revenue is [Technical Difficulty] larger installation revenues larger, but there's virtually no cost very little cost on the data plans. So it's a little misleading from that standpoint.

Okay. So now off of that, in regards to gross margins and being that there's very little cost in the data, how do we get that number up? Is it just by you guys signing new contracts or, is that three year deal does a kind of preclude you even with new contracts getting that number higher and higher?

No. I think the major effect on this year and even last year's gross margin numbers is some reserves we took against inventory of the older product. We're introducing the EVO-HD and so we knew that the older product lines which really dissipate [technical difficulty] were in line with bringing on this new EVO business. So that's really what's affecting that. I think, now that we've pretty much got that behind us, we know where we're headed there. I think you're going to see some growth in the gross margins just from the standpoint that we've already taken our hits on obsolete and excess inventory.

Okay. As far as your sales team, is it -- I don't want to say a mandate, but is it of utmost importance that they sign up customers with the data program being that the margins are so good there?

Yes. This new EVO-HD platform is a connected platform, Bryan. So by definition, you sell an EVO-HD you're generally selling a connected program, a cloud based program. We're also moving full speed ahead on our body cameras. [Technical Difficulty] plenty on the hardware for body camera, the real money is in the data plan and the storage. So we're moving headlong into that and we're trying to phase out the older storage requirements which would be local in nature. So we're moving [post-haste] [ph] into that type of scenario.

Okay, super. Now, I also want to touch base with Stan, I believe you mentioned that you guys even had product on the skids to go out on the pallets and then, yes, you kind of had to pull it back. Is that based upon international orders where our borders are being shut down, their borders being shut down? What's the reason why that order didn't actually get shipped out?

It was Bryan. I mean, because of the virus they said, look, we want to put everything on hold, you might just hold that until we see where you're going to have the product sitting on our dock versus sitting on theirs because they still need to have us come over and assist in the deployment and get them all set up. And so, it's not that the opportunity or the orders are going away. It's just a matter of timing when the travel opens back up for us all. Just to give an example Bryan, unfortunately, we had one of our key employees was out in Colorado and just made a quick trip and while they're out there, our Governor said anyone that's traveling from Colorado to Kansas has to be self quarantined for 14 days. So, it's just one of those that stay at home is even though we're -- someone exempt and have the ability to come into the office we're still trying to do the best we can to keep those people that can work from home at home and safe. So it just got pushed back a little bit.

Okay. So I just want to be clear, no orders been cancelled. They've just been delayed.

Yes. So here's where I'm at. I mean, one of the things is, we gave guidance, so the 13.5 and I know that a lot of people have been pulling their guidance. We are still seeing law enforcement to be somewhat strong. We also realize with some of the new products that we have coming in and the strength that they could add to our overall numbers. I'm reluctant to pool our guidance at this point, as I believe that we still clearly have the capabilities of hitting our number and that's going to be a big year-over-year number as you can tell. I mean we're still saying that we'll have to 13.5 now. You let me get another 30, 60, 90 days down the road and we continue to see things put on hold, then I may on our next call be a little different. But at this point in time I'm pretty excited about -- still very excited about 2020.

Okay. So you're still confidence in the numbers. And that's good and obviously, you guys are essential. One of the things I can tell you, it's just as a fact, it's being reported here in New York by the Wall Street Journal that over 1500 police officers actually have the virus. So I don't know, obviously, they're still working, they're still out there as a whole, but those 1500 at home. The 5000 body camera ordered that you guys got from the police force down, I believe in South America is that something whereas we're seeing a disruption with them as well being that they're international or is that something that's moving full speed ahead?

No. With being international, it's slowed up a little bit.

Okay, so that is for that, okay.

Again, that one was never in the Q in regards to our numbers. We never had that one in. And that wasn't even on the radar in regards to our 13.5 number by the way.

Yes. When you guys gave guidance in October of last year, what you're saying is that guidance with 13.5 million does not include the 5000 body cameras.

Yes. We didn't know how that was going to play out.

Okay. And one other thing, Stan, you had mentioned back in the third quarter when you gave guidance and I've also seen you on Bloomberg and given some interviews and radio dial-ins and things of that nature that you guys are -- the expected first quarter to be really big with new contracts. Obviously, we've had some, but you guys really close to a nationwide fleet in terms of a trucking company can you elaborate on that a little?

So that still in the works. Still looks like it's coming together and what we did and have been doing is working with a couple of companies one in particular that really has I would say the last ingredients that we need to finalize the recipe we're putting together for the over the road industry. We have pretty much everything and they're actually missing what we have and so we look to try to get that still finalized right away. And then, that would be a very big launch that we would anticipate because of our partnerships in a lot of areas would have very good and quick significance to our numbers this year.

These specifics, Stan, is that related to the partnership? You guys announced with mobile insight data?

That is absolutely one of them. Absolutely.

Okay. And now that guidance, that guidance came before that announcement of that contract. So obviously, if you announce something with the partnership with them that would be in addition to the 13 million as well?

We knew this was coming into play. We just don't know how big it is. So, we've been working on this for some time. So we just want to see -- let me have a good quarter of being able to be out on the streets and then I'll have a better sense of how to give some guidance.

Okay. The last thing I would say to you is, with your press release today, again, everyone's being affected by corona virus. Obviously, you guys are moving into a new revenue stream potentially with -- you've the partnership and distributing of the Dynalite solution. Are you guys going to just be a distributor and you using your channels that you already have with your customers either the ambulances and the police stations and taxis et cetera. Are you actually going to be sending in crews to do the disinfecting and all of the work related to that product as well?

Right. At this time, we're just being what I would call more of a master distributor. We have relationships with others that will be sub-distributors that have different marketing channels that could utilize the product as well. But we clearly have a very nice [Technical Difficulty] and with room to bring on some additional sub-distributors and at that point in time that that will be our role. Now, some of these end users would be those that would be utilizing or cleaning facilities and as such. We don't see us walking in there, doing that at this point.

So you don't have to worry about obviously getting your workforce suited up and masked up and actually flying around the country, you just got to ship the product via your partnership with the solution Dynalite.

Right. I think what we'll do is continue to provide the product and then those that have a lot more experience at it than us, let them go ahead and do the actual applications.

Okay. And now as far as that market being concerned, obviously here again, Long Island, New York were kind of a epicenter. We're all kind of getting -- it's very fluid let's put it that way. The whole situation of the corona virus but you don't have to be a rocket scientist to figure out two things that America needs to get back to work is going to be testing and obviously cleaning. How big do you see this market being for this type of a product? I mean, do you guys see it moving into schools and hospitals or is it just going to be police and ambulances?

Bryan we've had numbers that -- we've had numbers that we believe if they play out because you do know that we do have relationships with schools, taxicabs, ambulances, police, cruise ships on and on and on. That I don't I don't say something after that. That just was crazy. But I mean, you guys can put two and two together. I mean, it may -- you may see it, at least for 2020 reinvent the company in some fashion. And I'd hate to say this, but to where you guys are calling up and saying how many tens of thousands, hundred thousands gallons did you sell this quarter versus how many body cameras. I mean it's the hot item right now and some of the preliminary numbers that we hear that some of our end users are going through and would like to give us a shot or just mind boggling how big they could be. Right, I really don't want to touch it. You guys get two to two together on that. I will make sure and again, I'll try to give an update at the end of the month when I've got the numbers and just do something in form of a press release that says to everyone that, we've been very pleased with the launch. To-date we have seen orders and shipments in excess of X whatever that may be, so that'll give you as much visibility as I can give you.

The next question is from [indiscernible] Venture Capital. Please go ahead.

Okay. Thanks. Hi, Stan. Glad to hear you guys are all safe and healthy at this terrible time for sure. The question I had, I noticed you have 4.8 million warrants outstanding. Assuming you can, have you given any consideration to reduce the exit price for one month and the people exercise it, say the current price they can do it and if they don't, it reverts back to the original terms.

Some of that's been thrown around as an option and instead of doing anything new and additional dilution for something new coming off the table. I think what sort of where we're postured right now is just really want to see how a couple of events play out. I mean, let's just say that we are fortunate enough to have ruling and fortunate enough that the ruling goes in our favor in regards to the appeal. I would think it have a very, very, very strong impact on the stock and so a lot of those warrants would be getting exercised at I believe at full price. So we have taken into consideration what you're saying and thought about it would just and so much going on right now that we're trying to figure out how to play the cards every day, but that's a great comment that you made there.

I understand. You don't want to do it prematurely, but obviously, cash is king here. And depending how these turn out you don't know. So, I'm glad you're thinking about it. That's for you guys.

Thank you very much. Appreciate it.

All right. Stay safe.

Thank you. You too.

Listen, I want to thank everybody for calling in today and all the great questions. We have Digital Ally and all of our employees we to wish everyone the best and to be safe and can't thank our First Responders and all our health care workers and so many people that are still out there on the frontlines doing what they can for the betterment of us all. So, we appreciate everybody's effort and we'll do our best to keep everyone informed on how we're doing. And everybody be safe. We'll talk to you soon. Thank you.

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