Digital Ally, Inc Announces 2023 Operating Results

Digital Ally, Inc. (Nasdaq: DGLY) (the “Company” or “our”), today announced its operating results for fiscal year 2023. An investor conference call is scheduled for 11:15 a.m. EDT on Tuesday, April 2, 2024 (see details below).

Highlights for the year ended December 31, 2023

● Overall gross profits for the year ended December 31, 2023 were $5,762,484, an increase of $3,440,543, or 148%, as compared to $2,321,941 for the year ended December 31, 2022. The overall increase is attributable to the consistent focus on the cost of goods sold, particularly surrounding the Entertainment Segment, as well as the enhanced margins within the video solutions segment, with its new and expanded product offerings. Our goal is to continue to improve our margins over the longer term based on the expected margins generated by our new operating segments together with continued enhancements within our video solutions segment and its expected margins from our EVO-Fleet, EVO-HD, DVM-800, VuLink, FirstVu Pro, FirstVu II, InterVu Room, Shield disinfectants and our cloud evidence storage and management offerings, as they gain traction in the marketplace. In addition, if revenues from the video solutions segment increase, we will seek to further improve our margins from this segment through expansion and increased efficiency utilizing fixed manufacturing overhead components. We plan to continue our initiative for more efficient management of our supply chain through outsourcing production, quantity purchases and more effective purchasing practices.

● Total revenues decreased in 2023 to $28,248,344 from $37,009,895 in 2022 a deterioration of $8,761,551 (24%). The primary reason for the overall revenue decrease is a decrease of $6,253,892 (41%) in service revenues from 2022 levels at the entertainment operating segment. Service and other revenues experienced a significant decrease during the year ended December 31, 2023, in comparison to the same period in 2022, due to the Company’s focus to work towards profitability and focus on cash flow during the year ended December 31, 2023. Additionally, the Company’s subscription plan model continues to gain traction in the marketplace, resulting in the Company building and recognizing its recurring revenues.

● On September 1, 2021, the Company formed a wholly-owned subsidiary, TicketSmarter, Inc., through which the Company completed the acquisition of Goody Tickets, LLC (“Goody Tickets”) and TicketSmarter, LLC (“TicketSmarter”) (collectively the “TicketSmarter Acquisition”). Goody Tickets and TicketSmarter®, are ticket resale marketplaces with seats offered at over 125,000 live events, offering over 48 million tickets for sale through its TicketSmarter.com platform. Within this Entertainment Segment, the Company also formed Kustom 440, Inc. (“Kustom 440”) in late 2022 to create unique entertainment experiences through concerts, festivals, and private experiences. This segment generated revenues totaling $14,063,381 in service and product revenues for the year ended December 31, 2023, a decrease of $6,808,119, or (33%), as compared to $20,871,500 in service and product revenues for the year ended December 31, 2022. The decrease is largely due to management’s focus on right-sizing the entertainment segment, and working towards profitability; thus, decreasing marketing expenses, directly correlating to a decrease in revenues.

● We remain in the revenue cycle management business through the formation of our wholly owned subsidiary, Digital Ally Healthcare, Inc. and its majority-owned subsidiary Nobility Healthcare, LLC (“Nobility Healthcare”). Nobility Healthcare completed its first acquisition on June 30, 2021, when it acquired a private medical billing company, and a second acquisition on August 31, 2021 upon the completion of its acquisition of another private medical billing company. On January 1, 2022, Nobility Healthcare completed the acquisition of 100% of the capital stock of a private dental billing company. Additionally, on February 1, 2022, Nobility Healthcare also completed an asset purchase for a portfolio of a medical billing company. These acquisitions further enhanced the Company’s revenue cycle management operating segment, which provides revenue cycle management solutions to medium to large healthcare organizations throughout the country. The compilation of acquisitions generated service revenues for the year ended December 31, 2023 of $6,713,678, a decrease of $1,172,429, or (15%), as compared to $7,886,107 for the year ended December 31, 2022.

● Selling, general and administrative expenses for the year ended December 31, 2023 were $28,003,037, a decrease of $4,052,162, or (13%), as compared to $32,055,199 for the year ended December 31, 2022. The decrease was primarily attributable to the reduction in new sponsorships being entered into by the Company.

Recent Developments

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

In February 2024, Kustom Entertainment and Clover Leaf announced the filing of Amendment No. 2 to a Registration Statement on Form S-4 by Clover Leaf with the SEC on February 5, 2024, relating to the previously announced proposed business combination between Kustom Entertainment and Clover Leaf.

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

● On March 1, 2024, the Company entered into a Note Purchase Agreement (the “Note Agreement”), by and between the Company, Kustom Entertainment (together with the Company, the “Borrowers”), and Mosh Man, LLC, a New Jersey limited liability company (the “Purchaser”), pursuant to which the Borrowers issued to the Purchaser a Senior Secured Promissory Note (the “Note”) with a principal amount of $1,425,000. In connection with the Agreement, the Borrowers entered into a Security Agreement (the “Security Agreement”) by and between the Borrowers, as grantor, and the Purchaser, as grantee. The gross proceeds to the Company are $1,000,000, before paying customary fees and expenses.

Pursuant to the Note, the Borrowers shall repay the Note, in full, on the earlier of (i) November 1, 2024, and (ii) the consummation of the merger between Kustom Entertainment and Clover Leaf pursuant to the Merger Agreement among the Company, Kustom Entertainment, Clover Leaf, Yntegra Capital Investments LLC and Merger Sub, dated as of June 1, 2023. The Borrowers shall pay in arrears in cash an amount equal to 50% of revenues from all ticket sales generated by Kustom Entertainment, up nine thousand tickets sold, and thereafter equal to 10% of all revenues from all ticket sales until the earlier of the date on which the Note is repaid in full or the Maturity Date. The Note bears interest at a rate of 1.58% per month. The Borrowers have the right, but not the obligation, under the Note to prepay the Note, upon written notice to the Purchaser, by payment in full of the entire outstanding principal balance plus interest. Upon a change of control of either Borrower or a sale or all or substantially all of either Borrower’s assets, the Purchaser may require the Borrowers to repay the Note, upon written notice to the Borrowers, by payment in full of the entire outstanding principal balance plus interest. In addition, upon the receipt of proceeds from any financing or extraordinary receipts, the Borrowers are required to repay the Note as follows: (A) if the aggregate proceeds of all such financings and extraordinary receipts are less than $3,000,000, the Borrowers shall prepay an amount equaling to 50% of the outstanding principal of the Note, and (B) if the aggregate proceeds of all such financings and extraordinary receipts are equal to or greater than $3,000,000, the Borrowers shall prepay the Note in full.

Pursuant to the Security Agreement, the Borrowers’ obligations under the Note and Agreement are secured by substantially all of the assets of the Borrowers, other than any real property.

● On March 14, 2024, the Nasdaq Listing Qualifications staff notified the Company, that due to resignation of Mr. Michael J. Caulfield from the Company’s board of directors (the “Board”) effective on January 31, 2024, the Company no longer complies with the audit committee and compensation committee requirements as set forth in Listing Rule 5605 of The Nasdaq Stock Market LLC (“Nasdaq”), including the requirements that there are at least three independent directors on the Company’s audit committee and at least two independent directors on the Company’s compensation committee.

The notification has no immediate effect on the Company’s listing on the Nasdaq Capital Market. In accordance with Nasdaq Listing Rules, the Company is provided a cure period until the earlier of the Company’s next annual shareholders’ meeting (or July 29, 2024 if the next shareholders’ meeting will be held before July 29, 2024) or January 31, 2025 (the “Cure Period”). If the Company does not regain compliance by within the Cure Period, Nasdaq will provide written notice that the Company’s common stock, par value $0.001 per share, will be subject to delisting from the Nasdaq Capital Market, at which time, the Company may appeal the delisting determination to a Hearings Panel.

The management of the Company has resolved to take commercially reasonable steps to fill the vacancy on the Board with a new director who qualifies as independent under the Nasdaq Listing Rules as soon as is practical and anticipates regaining compliance during the Cure Period. However, there can be no assurance that the Company will be able to satisfy Nasdaq Listing Rule 5605 or will otherwise be in compliance with other Nasdaq listing criteria.

Management Comments

Stanton E. Ross, Chief Executive Officer of the Company, stated,

“We are very pleased to close out another great year in 2023, with greatly improved gross profits compared to 2022, showing the success of our focus of margins and working towards profitability. We are pleased to see the continued success and traction in the marketplace with our new video products, particularly the EVO-HD, FirstVu Pro, and QuickVu docking stations, which are continuing to build upon our existing subscription plans and deferred revenue. It is exciting to see our deferred revenue balance reach $10.3 million, as our balance grew dramatically by about $2.3 million from less than $8.0 million at December 31, 2022. There is additional excitement about new upcoming product releases and additional patent filings that will continue to display our commitment to innovation and success within our video solutions operating segment. We continue to see continued success in our Digital Ally Healthcare venture, as Nobility Healthcare, LLC continues to right-size and maintain profitability of the four completed acquisitions.”

Ross added:

“Additionally, we are very excited about the 2022 filing of a Registration Statement on Form S-4 by Clover Leaf with the SEC relating to the proposed business combination between Kustom Entertainment and Clover Leaf Capital Corp. to create Kustom Entertainment, Inc., a company with a focus and mission to own and produce events, festivals, and entertainment alongside its evolving primary and secondary ticketing technologies. We expect that this business combination will provide clarity to both shareholder as well as the marketplace, showing two distinct, stand-alone entities, Digital Ally and Kustom Entertainment, Further, we remain excited about the organic growth opportunities with the Kustom 440 subsidiary. Kustom 440 hosted its first festival during 2023, in Kansas City at Legends Field, headlining Chris Young and Gabby Barrett. We are also thrilled about the recent launch of KustomTicket.com, an advanced online ticketing platform, right alongside our recently completed acquisition of Country Stampede that marks a significant milestone for Kustom Entertainment, solidifying its presence and influence in the entertainment industry. We will continue to inform our investors as we move forward with the business combination, alongside our continuous efforts to take advantage of new business opportunities and to maximize our existing business lines to benefit the Company and its shareholders through 2024 and beyond.”