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Edited Transcript of DGLY earnings conference call or presentation 20-Aug-18 3:15pm GMT

Q2 2018 Digital Ally Inc Earnings Call

Overland Park Aug 21, 2018 (Thomson StreetEvents) -- Edited Transcript of Digital Ally Inc earnings conference call or presentation Monday, August 20, 2018 at 3:15:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Stanton E. Ross

Digital Ally, Inc. - Chairman, CEO & President

* Thomas J. Heckman

Digital Ally, Inc. - CFO, VP, Treasurer & Secretary

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Conference Call Participants

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* Bryan Lubitz

* Ishfaque Ahmed Faruk

WestPark Capital, Inc., Research Division - Technology, Media and Telecom Analyst

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Presentation

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Operator [1]

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This conference call may contain forward-looking statements within the meaning of the 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 indicate future events and trends and that do not relate to historical matters identify forward-looking statements. These forward-looking statements are basically -- based largely on our expectation or forecast of future events, can be affected by inadequate assumptions and are subject to various business risks and known and unknown uncertainties, a number of which are beyond our control. Therefore, actual results could differ materially from the forward-looking statements contained in this document, and readers are cautioned not to place undue reliance on such forward-looking statements.

Digital Ally will undertake no obligation to publicly update or revise any forward-looking statements whether as a result of new information, future events or otherwise. A wide variety of factors could cause or contribute to such differences and could adversely impact revenues, profitability, cash flows and capital needs. There can be no assurance that the forward-looking statements contained in this document will, in fact, transpire or prove to be accurate.

Good morning, my name is [Chalon,] and I'll be your conference operator today. At this time, I would like to welcome everyone to the 2018 second quarter results conference call. (Operator Instructions)

Thank you. I will now like to turn the conference over to CEO, Stan Ross. Please go ahead.

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Stanton E. Ross, Digital Ally, Inc. - Chairman, CEO & President [2]

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Thank you, everybody, for joining us today. I have Tom Heckman, the company's CFO, with me today. Tom will do a little in-depth dive into the numbers and give you a little understanding how the quarter turned out. We're very pleased with some of the headway we've made in a lot of the different areas, especially the cost control areas. And then I'll touch on the current status of our litigation with Axon and WatchGuard and what our future plans look like in those matters. Tom?

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Thomas J. Heckman, Digital Ally, Inc. - CFO, VP, Treasurer & Secretary [3]

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Thank you, Stan, and welcome, everyone. I appreciate you joining us this morning. As you might have seen, we have filed our Form 10-Q this morning, so I do suggest that you refer to that for a more in-depth dive into the numbers and what's going on within the company. You might have also recognized that we did file an extension for the quarter. It's a 5-day extension, so we are a little late here, but we are filing on time according to the extension. And the reason for the extension was nothing more than, we've recently finalized a financing with Brickell Financial, or Brickell Key Asset Management, at least tranche 1 of financing, and we wanted some time to step back and take a look at things and make sure we had it fully disclosed in the financial statement. So nothing other than that. We just wanted a couple of extra days to catch our breath and look at things.

So now let's swing to the quarter. And I guess what I would say is, progress sometimes takes smaller steps to -- but in the right direction. And that's really what we saw in the second quarter here. We've reversed some bad trends, and we've continued with some good trends in that, and we're taking the steps necessary to reach, first of all, breakeven EBITDA and hopefully, positive EBITDA here in the near term. If you look at the numbers for the quarter, our revenues reached roughly $3.6 million for the quarter. That is our best revenue figure since Q1 of 2017. So that's certainly a nice step in the right direction for us, and we hope that, that continues. And we've got some good things to talk about little later on here that I think will tend to improve our revenues for the balance of 2018 on into 2019.

It is a -- over $1 million higher than what we recorded in Q1. So sequentially, it was a big step. Year-over-year, it was a good step, and obviously, our best showing in revenue since Q1 of 2017. Also importantly, our gross margins improved to 45.4%. That is our best gross margins recorded since Q3 of 2016. So again, that's a very important metric for us and showing good progress, and we're taking steps in the right way to reach some profitability here.

More importantly, or as importantly, our cost trends are continuing to look very good, particularly in SG&A. As you might recall, we did a major look at our SG&A, including a headcount reduction and cost-containment and minimization around the 1st of the year, actually started implementing it in Q4 and then finalized in Q1 of 2018. We are seeing the fruits of that right now. If you pull out the noncash expenses, which, depreciation and stock-based compensation, we are well over $1.1 million better year-over-year in our total SG&A spend. So that's a huge improvement, and we do expect that to continue throughout 2018. We're keeping the pedal -- the foot on the pedal and trying to keep cost contained, and we're seeing some very good improvement there. And we've forecast that we thought we'd run about $4 million, roughly $1 million per quarter less than last year, on our cash SG&A spend. And obviously, we made that improvement in Q2 and also in Q1. So a good trend there, and we expect that to continue.

We also are continuing to push into our nonlaw enforcement revenues, especially those recurring nature. I'm talking, principally, the fleetvu.com area. And we're also branching out into some new areas that, hopefully, we'll be able to share here soon. In that regard, we did announce the zTrip contract. A very important contract, a very large contract, potentially with a large -- well, a large and very much growing company that we want to be partners with, and they've been a very good partner so far. So we're very pleased with that contract.

The NASCAR affiliation continues to yield benefits way beyond what I had even imagined. Now maybe notwithstanding that, way beyond what I imagined for sure. So it's been a very good situation for us, very good affiliation, and we do plan to continue that for sure.

Cruise ships are coming back to life. As you might recall, we are the provider for Royal Caribbean cruise lines, and we're also trying to make inroads into others. So we hope to have some good results there. We also have some pilots with several well-known unnamed but established organizations that if these things come to fruition, and we should know here shortly, it will very much accelerate the trend into nonlaw enforcement recurring revenue. So we're happy with our push there, and we think that will continue.

I'll speak just briefly about the litigation with Axon and WatchGuard. Obviously, it's progressing very nicely. We've had nothing but a series of whitewash wins in the courtroom against both Axon and WatchGuard, which, quite frankly, we've been waiting years for this type of action. And in talking with the magistrate and that, it's clear, certainly to us and hopefully, to Axon and WatchGuard that delays will not stand anymore. This thing is going to trial, that we're moving forward, and there won't be any sidetracking of the progress of this case. As you know, both cases have been lifted, the stay on both cases have been lifted, Axon fact discovery closes in mid-September. So we're talking a month away, less than a month away, fact discovery closes. WatchGuard closes later this year, so both of those lawsuits are moving swiftly to trial and hopefully, in early 2019. So it's a fast track at this point.

What I'd like to do now is, since we're progressing nicely, and the litigation is to clarify what the company wants out of this litigation. What -- if you look back 3, 4 years ago, when the unfortunate events happened in Ferguson, we were probably as big as anybody in the body-cam business. It was a small business at that time prior to Ferguson, but we were right there, and we were making our wins, getting our market -- our fair market share, based on our good technology. We did have the auto-activation patent that came out, I think, in 2014, which really put us way ahead of anybody else in the marketplace in terms of the technology that we were offering the police. And obviously, at that point, a number of competitors including Axon and WatchGuard copied our auto-activation technology, regardless of the issued patent that everybody knew that was out there. So at that point, they took off, and we were left to fight in court. So here's basically what I understand the board's direction is on this. We want to stop the infringing activity. We want an injunction against all competitors, and especially Axon and WatchGuard, for using our patented technology. We should not have to compete against our own technology out in the marketplace. And that's exactly what we've had to do over the last 3 or 4 years. And Axon and WatchGuard, both being bigger than us, have had their way with it. But at this point, the litigation is proceeding and hopefully, that will stop. So we're moving to stop the infringing activities as it sits today. And we believe if we do that, the marketplace will adjust and recognize who is the rightful owner of this technology. And then, obviously, we think we'll at least have a level playing field, and if not, tilted playing field towards our side because of our superior technology in the auto-activation feature.

So -- and then obviously, ultimately, we want to be awarded appropriate damages for the infringing contract to-date. There's been a lot of ranges and numbers and a lot of discussions of that, both internally and externally, but I will assure you that the numbers get stupid big as to what the potential damages and -- of this infringing activity could be. So we're excited. First, cleaning up the marketplace, making it very clear who owns the technology and then receiving damages for the willful infringement that's already occurred.

So I guess, overall, guys, this quarter was a good step in the right direction. We're not satisfied with the bottom line. You never are when you have a loss. But we do see some very good steps, very good trends in the numbers. And obviously, the pilots that are going on could really swing things our way very quickly. And hopefully, the litigation will also help swing our numbers as well.

So with that, Stan, I will turn it back to you.

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Stanton E. Ross, Digital Ally, Inc. - Chairman, CEO & President [4]

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Sounds good, thanks a lot, Tom. Yes, I just want to sort of add a little bit with regards to the litigation side of things. I think Tom did a great job of sort of giving you an idea of where the company is at and what our expectations are and where we're going. But the significance that we've seen since maybe our last call is, a lot of the announcements that we've made have been announcements from our success in the patent office. And just recently, we're really starting to see more of the announcements and our wins that we're seeing in the courtroom. And so we've been very pleased with the fact that the courts are saying, enough's enough. They're stepping up their timelines. As Tom said, we've got discovery on the Axon to be completed, I think, by September 14 -- I'm sorry, 17. You have another 60 days from that point to get all your depositions and your duction line in regards to your expert witnesses and have that submitted. And then we actually have a pretrial that is scheduled, which will actually be a face-to-face in the courtroom, on January 16. This will be a conference that we'll make sure there's no additional outstanding issues and be able to start moving forward and talking seriously about a trial date and the picking of a jury. So we're pretty excited about the fact that we do see the light at the end of the tunnel. We also like the fact that we would be putting ourselves in a position to where, if the company would elect, we could possibly file for summary judgment. If we feel that we've got all the evidence that we need, and that's where the court could recognize it as well to where all would be left then would be a jury being selected in regards to the damages. But as Tom said, we want to get this back to an even playing field or much like Axon or formerly known as Taser, they had a real clear advantage with their electronic weapons, and because they have the patents in place. And so while those tried to walk on their patents, they got their hands slapped and had to move on. And this was no different. If you're going to play that game, you've got to play from both sides. So we're pretty pleased with our position, real excited of the fact that even though we've been challenged approximately 7 times by these 2 companies in the patent office, and odds were against us, we won all 7 times, and we had a real clear win in the courtroom during our last announcement -- or I guess, 2 announcements ago that puts a real wrinkle in regards to some of that -- defenses that they were trying to get the court accept in regards to some language. And so -- and not only did that ruling affect Axon, but WatchGuard agreed to be bound by it as well. So that's why we're talking about the claims construction ruling that ruled in our favor.

So we're thrilled about the core business, I mean, it continues to look, as I mentioned that both sides are starting to improve. We have had some law enforcement departments that are starting to see and understand who the rightful owners are. And therefore, we have been awarded some contracts that maybe we were right there and may not have been the ideal candidate as they were heading down that path. But now that they understand who the owners are, they did elect to go with us. So we're pleased on that. And then the commercial division continues to grow very strongly.

So we'll go ahead and open it up for Q&A and see if we can address any questions that you have out there.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from Ishfaque Faruk.

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Ishfaque Ahmed Faruk, WestPark Capital, Inc., Research Division - Technology, Media and Telecom Analyst [2]

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In your prepared remarks, you mentioned a little bit about the VIEVU contract termination. Is there -- what was the premise behind the contract termination since Axon acquired them earlier this year?

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Stanton E. Ross, Digital Ally, Inc. - Chairman, CEO & President [3]

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Well, I think you sort of answered the question. I mean, one of the things is that we were interested in working with VIEVU and some of the larger contracts they had throughout the country. Axon acquired them. So there was a little bit of a wrinkle into our willingness to be in there alongside of them. But it's one of those things that both sides looked at it and decided that it's probably in both's best interest to just walk away and tear up the documents.

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Ishfaque Ahmed Faruk, WestPark Capital, Inc., Research Division - Technology, Media and Telecom Analyst [4]

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Okay. And in terms of the 2 trials, as it looks like the trials are both headed -- both the lawsuits are headed for trial as opposed to one or either of the parties settling in advance. So your legal expenses are supposed to move higher in the second half of the year?

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Stanton E. Ross, Digital Ally, Inc. - Chairman, CEO & President [5]

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Yes, they'll get a little higher in second half of the year. And Ish, you've got to -- look, you've got to look at this from both sides of the table, and I've tried to look at it from both sides of the table. They have been doing everything they can to stretch this thing out to wear us out to hope that at some point in time, we wouldn't have the staying power to be where we're at today. And they've been unsuccessful to date. They probably both -- and all of them are listening in on this call, they're probably going to want to get a pretty good understanding of the discovery and the status of discovery and some of the things that they may learn over the next less than 30 days as far as discovery. And then you've got crucial events getting ready to occur. We have the IACP, which is the biggest trade show of the year, coming up here in October. So it'll be interesting to see how that plays out in the public perception because we would clearly be there, making sure the industry knows that we are the rightful owners of this technology. So that event will be coming up here in October. And then, as I mentioned, even the expert witnesses, at least on the Axon case, need to be completed approximately 60 days from the discovery side of things. So you've got a lot of information that's going to be coming at you. And so if I'm sitting on the other side of the table, I think that I'm going to want to have as much knowledge as I can before, and if, I want to try to make a-- go talk to Digital Ally. But at the same time, we're very happy to keep moving down the direction we're going and just looking forward to, hopefully, the court's ruling in our favor to where an injunction comes out against them utilizing our technologies. The WatchGuard case 2 is about 60 days behind the Axon. So again, very close timelines. But as Axon has probably already seen and is experiencing -- I'm sorry, WatchGuard has seen and is experiencing, a lot of the possible rulings that may be handed down in the Axon case will set a precedent in regards to their case. So they may not have the ability to fight as strongly as what Axon has been able to. So it's going to be interesting few months here.

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Ishfaque Ahmed Faruk, WestPark Capital, Inc., Research Division - Technology, Media and Telecom Analyst [6]

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Okay. And the pretrial conference date has been set for Jan 2019. When do you reasonably expect this thing to go to trial if it proceeds to the trial?

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Stanton E. Ross, Digital Ally, Inc. - Chairman, CEO & President [7]

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All I can tell you is what the magistrate said and as you can see, the tight, tight scheduling guidelines that she'd laid down already that her comments were, "This has been going on long enough". And so I anticipate they will move rather quickly. But you've got to remember, we're going to be then in a position too, as I stated, that if we feel strong enough about everything, it's very possible we may go straight to asking for a summary judgment. And so far, you've had 7 wins in the patent office and so far, the rulings in the courtroom have sort of -- the courts have recognized our position. So I don't know. I don't know that I'd be willing to take that chance. If a judge sits there and rules in our favor and then all you're doing is going to a jury trial to figure out damages. So there's a lot going to happen at the end of January.

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Ishfaque Ahmed Faruk, WestPark Capital, Inc., Research Division - Technology, Media and Telecom Analyst [8]

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Okay, okay. And yes, and my last question. So the Brickell financing that you did, what was the premise behind that? Are you -- is it like a investor investing in the patent, or is it to raise additional financing?

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Stanton E. Ross, Digital Ally, Inc. - Chairman, CEO & President [9]

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Yes, it was sort of a consolidation of financing. As you know, we've got a note out there. We needed some additional working capital. So working with them and having them fund that first tranche was good timing for us. They're continuing, also, to do some due diligence. But they seem to be an investment fund that would be someone that we good to have as a partner throughout the finish of this.

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Operator [10]

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Your next question comes from the line of Bryan Luby.

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Bryan Lubitz, [11]

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I wanted to just piggyback the list that Ish made in regards to BKI. Obviously, they stepped in for $0.5 million on the first tranche and this is second tranche, possibly, for $9.5 million. I'm assuming, if this will also work with us in regards to any type of legal fees, et cetera, moving toward the proceeding of the trial. Is that kind of what that financing was used for?

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Stanton E. Ross, Digital Ally, Inc. - Chairman, CEO & President [12]

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We will sit there, if they'd like to go ahead and move forward on that second tranche, obviously, we'll take out the first note holders and get that whole consolidated. And then we'd be able to utilize the additional proceeds for all sorts of working capital including the litigation, don't get me wrong. But it would be a nice shot in the arm in regards to the working capital to see us through not only the transition we're making with the company and the growth of the company but also assisting in the litigation.

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Bryan Lubitz, [13]

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Okay. And it obviously, kind of, gives us that position of strength, I would say, in terms of cash versus Taser not negotiating if we do negotiate out of weakness.

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Stanton E. Ross, Digital Ally, Inc. - Chairman, CEO & President [14]

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Correct.

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Bryan Lubitz, [15]

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Okay. Wanted to stay with the court case. I saw in November on the 29th settlement talks, I haven't seen you guys mentioned it, but mediation to be held with the court as well, is that correct?

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Stanton E. Ross, Digital Ally, Inc. - Chairman, CEO & President [16]

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Yes, yes, Brian, that's a good point. I should've touched on that in my opening remarks. But that is one of the things. I mean, obviously, we'll have the discovery done here in less than 30 days, and then the expert witnesses will have all presented their findings for both sides 60 days following that. So call it 90 days from now. So the courts felt that at least at that point in time, it made more sense for us to get around the table and see if we could resolve this and not bring it to the courtroom at that point in time. And we sort of agreed, because originally, they had it scheduled prior to -- at an earlier date. But I don't think both sides understood each other's position well enough to really have some substance behind why we're asking for the number we're asking for and why they believe that the number should be what they would be saying it may be worth. So with this, discovery and expert witnesses, information available to both parties, they went ahead, and they did schedule that. So again, November 29, I think, is the date. And -- so we will be around the table at that point in time and see how far apart we are.

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Bryan Lubitz, [17]

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So less than 2% of these cases ever really see trial. That's kind of the last (inaudible) if we're going to put this thing to bed before we get to the pretrial date? That's what that is?

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Stanton E. Ross, Digital Ally, Inc. - Chairman, CEO & President [18]

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Possible. I mean, I don't know. They may wait till you're walking into the courtroom. And I think it's closer to 5%. But anyway, 2%, 5%, its a real small number, and we'll get there because there is tremendous amount of risk that I would think that a company that is infringing on someone's patent is taking, especially when you've attempted in virtually every fashion you can and have been unsuccessful in the patent office, thinking that now, all of a sudden, you're going to go a courtroom and have the courtroom say "Well, the patent office doesn't know what the heck they're doing". And so I would -- I understand why that number is now so small. So they may play the game a little bit longer. But look, we've been -- we feel that we have been damaged greatly. And as Tom did a great job of explaining. I mean, we clearly were one of the largest, clearly had superior technology, advanced technology with auto-activation. And again, stressing, I mean, it's one thing for a department not to be able to own and have their officers having a body camera. It's another thing for that officer to have a body camera and forgot to turn it on for whatever reason. And there's an incident that goes down. And all sorts of stuff comes out of the woodworks in regards to, what was he thinking by not activating that? So it's -- it could get quite exciting. And don't get me wrong, you're talking about -- so far, we mentioned the 2 people that we have litigation with. You've got to realize, Panasonic, Motorola, L3, there are some other substantial names in our industry that, I'm sure, are also becoming very much aware of what's going on because they -- they're in this market for -- to make money as well and to get their foot in the door. So we're keeping our ears open and talking to a lot of people.

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Bryan Lubitz, [19]

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Okay. So I've got 2 things that I'll get to if you will -- 2 questions left. First and foremost, in looking at Axon or Taser's reports in regards to the amount of body cameras that they have sold since this case has begun, am I right? It's over $0.75 billion? It's $750 million that they've sold in product so far in body cameras?

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Stanton E. Ross, Digital Ally, Inc. - Chairman, CEO & President [20]

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Well, they've -- I've heard them throw out those kind of numbers in regards to the bookings. So they'll have a 3-year, 4-year, 5-year contracts, a 1-year contract. So in regards to the contracts that they booked, which is future revenue that they were anticipating, they've thrown out those kind of numbers, yes.

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Bryan Lubitz, [21]

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Okay. And now they also have just won a case themselves against PhaZZer the royalty rate, Stan, was that 40%?

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Stanton E. Ross, Digital Ally, Inc. - Chairman, CEO & President [22]

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Yes, it was.

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Bryan Lubitz, [23]

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Okay. So this is their own precedent, that 40%, and they've at least booked $0.75 billion. Will you guys be going for treble damages. I know you're going for the injunction. Is that something else that you guys can put forth to the judge that you're requesting?

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Stanton E. Ross, Digital Ally, Inc. - Chairman, CEO & President [24]

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I think so. I mean -- and I think they have a hard argument against it. I mean, if you didn't think you violate -- violated our patent, why the hell you tried it to invalidate it so strongly and for so long? If you don't violate it, what's the big deal? So they clearly knew -- in our opinion, they clearly knew what they were doing, and they were just -- after trying to buy the business, they didn't care. They're the big boys. They could be the bully in the playground.

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Bryan Lubitz, [25]

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Now -- and this is the last thing I'll get at. And so simple math is, if you're looking at future or booked or whatever it is, 40% of that number is roughly $300 million. I know you guys have hired Roth Capital for strategic exploration. When you guys told Roth or you go to the potential people that are having conversations with you, is that a real number? I mean, is $300 million a realistic number that you guys are fighting for? And that's without the treble damages. I just want to make sure I'm in the right ballpark here.

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Stanton E. Ross, Digital Ally, Inc. - Chairman, CEO & President [26]

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So we're not allowed to disclose any kind of numbers as such that we're looking for as of yet. The only thing I could tell you is that, obviously, the board is very much aware of what we believe, potential damages could be in the number associated with -- again, we're talking about the damages. And so if someone came to us, the board would at least be well informed on whether or not it was a solid deal or a deal that we would -- we should entertain.

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Thomas J. Heckman, Digital Ally, Inc. - CFO, VP, Treasurer & Secretary [27]

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Yes, Brian, this is Tom. The numbers are quite large. And I think I called them stupid-big before. But in reality, that's our damages. I mean, we should have won those contracts, and if we were not having to compete against our own technology in the marketplace, those would've been our revenues. No doubt about it. I mean, the marketplace has dictated auto-activation as a standard feature for quite some time. So you look at Axon and Taser, and what are they going to do? I mean, they were backed in the corner. They didn't have the technology, so they stole it from us. So the numbers are quite large, but that is our damages.

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Bryan Lubitz, [28]

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Okay. And obviously, they have to decide whether or not they want to go against you guys in court, with USPTO ruling in your favor twice. I just don't see the logic of a multibillion-dollar company not just trying to pay you guys to make it go away. Again, I don't see that logic. I'm sure you guys don't see it. Who knows what they are thinking. I know -- it's the last thing. This is my last thing. So margins have gone up. You guys -- you touched on earlier, Tom, in terms of SG&A is down, margins up, revenues up. I know we're at 45. I know we've said in the past we want to be close to the 50. Do you guys attribute that to the rest of the industry sort of being put on warning not to take bids if they are in potential litigation and the word getting out with the patent wins for us? Is that one of the reasons why you attribute those numbers going up?

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Stanton E. Ross, Digital Ally, Inc. - Chairman, CEO & President [29]

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We have seen improvements on all levels. I'm not going to go as far as the statement that you're making there. I think that a lot of the margins and stuff have been because of the efforts that we've done in our cost containments along those lines. We'll tell you though that we are very aggressively stressing to the industry, and I could watch right now and see some of the people that are on this call and recognize certain chiefs that are listening in from different departments and recognize that the industry is wanting to know more and understand more so they make an educated decision, especially with us aggressively looking at an injunction on these products. And secondly, these are taxpayers' money. And we hear all this stuff about China stealing our technology. Why don't we look here and look closer to home and deal with that as well? So -- anyways, we are getting the word out. We feel that it's starting to get some traction out there. Again, some of that these things are long-lead items. So we're just now starting to see some of the bids like recently, Phoenix, right, in Axon's backyard, put in there a bullet that said do not be submitting products that violate U.S. copyright and patent laws. So appreciate them taking the right stance, and hopefully all departments will take that stance as well.

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Operator [30]

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The next question comes from the line of [Steve Takasanian.]

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Unidentified Analyst, [31]

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I was going to touch on that Phoenix thing. You kind of answered it. But is there any evidence that Axon got shut out of the bidding process yet because of it?

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Stanton E. Ross, Digital Ally, Inc. - Chairman, CEO & President [32]

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Not that I'm aware of. Again, I don't have that package in front of me. So I forget what the crucial timelines were. But let's be realistic, I don't know that they care. They're probably still going to submit and leave it up to the departments to be the ones that decide whether or not they're going to throw them out or just go with another company. They've had have been out there indemnifying these agencies for some time. And therefore, they may still take that stance. But I don't know. I mean, departments are getting smarter. And again, like I said, they could read the press releases. They could see that these patents have been challenged 7 times and each time, the patent offices stood behind them. And so now you've got a courtroom that even ruled very, very strongly in our favor in regards to the claims construction. So more the writing should be continuing to be in our favor, and they've got to make those decisions. But some of them may just -- the fact that they're so large, and if they are getting indemnified, they may say "How, what the heck? What's the worst case?" They got a -- buying back. I mean, I don't know what the worst case would be. But -- I have no evidence as of yet.

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Unidentified Analyst, [33]

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And one more quick one, please. Is any more vigorous we'll say NDAs coming in the last couple months or (inaudible)?

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Stanton E. Ross, Digital Ally, Inc. - Chairman, CEO & President [34]

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I'm sorry, could you repeat that?

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Unidentified Analyst, [35]

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I know you had a bunch of NDAs in March, April come in, people looking at the company more closely. Anyone...

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Thomas J. Heckman, Digital Ally, Inc. - CFO, VP, Treasurer & Secretary [36]

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Oh...

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Stanton E. Ross, Digital Ally, Inc. - Chairman, CEO & President [37]

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Oh, oh, oh. The majority of that's being handled by Roth. And they have been letting us and they are even helping us with NDAs. They know that we want to continue to get a couple more things underneath our belt. But anything that's substance to bringing forth to the board. So I don't know of any -- I know there's been trickle in that I'm aware of from talking to them. But I answered on the what number is up to right now.

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Unidentified Analyst, [38]

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Okay. And please just one more. Could an injunction happen at any time? Or has it been filed in? Or are you just waiting until to get more into the meet of the case?

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Stanton E. Ross, Digital Ally, Inc. - Chairman, CEO & President [39]

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Steve, I -- again, I'm not an attorney. I don't think you've got to wait till the meet of the case. I think we're going to have to wait until that January date before we could attempt something like that unless maybe there's something that's really significant that would pop up in discovery. But I don't think that's how it works. I think we've got to wait until the end -- in January sometime.

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Operator [40]

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Your next question comes from the line of Stuart Goldberg.

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Unidentified Analyst, [41]

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Just a quick question. I was a little confused on VIEVU. So with that agreement, were you be being paid a royalty by VIEVU for your technology?

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Stanton E. Ross, Digital Ally, Inc. - Chairman, CEO & President [42]

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No, no, nothing like that. There were actually just -- it was more of a distribution agreement. So we agreed to sell them a product that would work with their device in regards to assisting them with auto-activation. But no license or anything along those lines or royalty.

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Unidentified Analyst, [43]

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Okay. And so that means that Axon now has that product in the field and that they are -- and they're -- obviously, they're using it and that -- is there any...

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Stanton E. Ross, Digital Ally, Inc. - Chairman, CEO & President [44]

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No.

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Thomas J. Heckman, Digital Ally, Inc. - CFO, VP, Treasurer & Secretary [45]

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No. The termination, Stuart, they agreed to stop selling marketing and using our product as of the date of the agreement, which I think was July 29, as I recall. So they've stopped that. The confidentiality provisions survive and are part of the termination. So they're going to return to all are proprietary literature, products, everything. And we're returning there's as well. But in reality, they -- we cut that off. Taser/Axon/VIEVU no longer has access to sell our VuLink product.

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Unidentified Analyst, [46]

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But does that -- but what's your product deployed in any of the contracts that VIEVU had?

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Stanton E. Ross, Digital Ally, Inc. - Chairman, CEO & President [47]

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Yes, I don't know that we really can cover that based upon the termination agreement on that. But did one thing. They -- you may have seen an article that just was printed in Wired magazine the other day. And I think even Axon commented on it. But they had a gentleman that looked at 5 different companies, and he didn't look at Axon or WatchGuard, but he looked at VIEVU and Digital Ally and 3 other companies. And 4 of the 5, he was able to hack into their equipment and even manipulate the video. Digital Ally was the only one that he could not. And so it -- if we know that they had been continuing to look at improvements on their product and therefore -- but I just don't know what they tried to deploy and not to deploy.

Listen, I want to thank everyone for their time today. Really appreciate it. Really appreciate your interest in our company and the patience you had with us as we've had a tough, tough road to fight. But it looks like it's getting real close to paying some real nice dividends. We're very excited about the growth in both sectors that we have and we're looking forward to the next few months. And we'll keep you abreast of continued improvements, not only from the patent office, if there is additional awards coming down through them but also the courtrooms and any significant orders that we would be landing as well. So thank you all so much for your time.

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Operator [48]

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This concludes today's conference. You may now disconnect.