Revenue Performance - Total net revenues for 2022 reached $37,009,895, a significant increase from $21,413,434 in 2021, representing a growth of approximately 73%[109] - Total revenue for the year ended December 31, 2022, was $37,009,895, representing a 72.8% increase from $21,413,434 in 2021[125] - Revenue Cycle Management segment generated $7,886,107 in revenues for 2022, a substantial increase from $1,630,048 in 2021, reflecting a growth of approximately 384%[109] - Entertainment segment revenues surged to $20,871,500 in 2022, compared to $10,709,760 in 2021, marking an increase of around 95%[109] - Product revenues increased by 19.8% to $10,999,892 in 2022, driven by a 100.9% increase in entertainment segment revenues[119] - Service and other revenues surged by 112.6% to $26,010,003 in 2022, compared to $12,233,147 in 2021[119] - Revenue cycle management segment revenues increased by 384.0% to $7,886,107 in 2022, compared to $1,630,048 in 2021[119] Segment Performance - Video Solutions segment reported revenues of $8,252,288 in 2022, down from $9,073,626 in 2021, indicating a decline of about 9%[109] - Video Solutions segment incurred an operating loss of $9,278,721 in 2022, worsening from a loss of $4,497,196 in 2021[109] - Revenue Cycle Management segment achieved an operating income of $357,705 in 2022, up from $93,763 in 2021, showing improvement in profitability[109] - Entertainment segment reported an operating loss of $7,369,241 in 2022, compared to a profit of $235,432 in 2021, indicating a significant decline in performance[109] Profitability and Loss - Total gross profit for 2022 was $2,321,941, down from $5,663,775 in 2021, indicating a decline of approximately 59%[109] - Gross profit margin for 2022 was 6%, down from 26% in 2021, indicating increased cost pressures[116] - Operating loss for the year ended December 31, 2022, was 80% of total revenues, compared to 69% in 2021[116] - Net loss attributable to common stockholders for 2022 was $8.50 per share, compared to a net income of $10.14 per share in 2021[116] - The company reported a net loss of ($18,873,758) for the year ended December 31, 2022, a decline of $44,404,719 (174%) compared to a net income of $25,530,961 in 2021[155] Cash Flow and Working Capital - Cash and cash equivalents decreased to $3,532,199 as of December 31, 2022, down from $32,007,792 in 2021, resulting in a net decrease of $28,475,593 during the year[168] - Net cash used in operating activities was $18,580,385 for the year ended December 31, 2022, a deterioration of $755,277 compared to $17,825,108 in 2021[168] - As of December 31, 2022, the company had $3,532,199 in cash and cash equivalents and net positive working capital of $11,447,313[171] - Accounts receivable and other receivable balances accounted for $6,120,578 of net working capital as of December 31, 2022, with plans to collect outstanding receivables timely[171] - Inventory represented $6,839,406 of net working capital as of December 31, 2022, with a goal to reduce inventory levels through increased sales activities in 2023[171] Expenses and Costs - Overall cost of product revenue sold rose to $14,372,115 in 2022, an increase of $5,737,068 (66%) from $8,635,047 in 2021, with the video solutions segment's cost of goods sold as a percentage of revenue increasing to 154%[127] - Selling, general and administrative expenses increased to $32,055,199 in 2022, an increase of $11,630,514 (57%) from $20,424,685 in 2021, largely due to recent acquisitions[135] - Research and development expenses rose to $2,290,293 in 2022, an increase of $359,509 (19%) from $1,930,784 in 2021, reflecting the company's focus on new product development[136] - Professional fees and expenses surged to $3,297,895 in 2022, up by $1,784,033 (118%) from $1,513,862 in 2021, driven by increased legal and due diligence costs related to strategic transactions[140] Inventory and Reserves - Total inventories as of December 31, 2022, were $6,839,406, down 29.0% from $9,659,536 in 2021, primarily due to declining inventory for the new Shield product line and the entertainment segment[206] - The reserve for excess and obsolete inventory increased to $5,489,541 as of December 31, 2022, compared to $3,915,089 in 2021, representing a 40.2% increase[206] - Inventory reserves represented 44.5% of the gross inventory balance as of December 31, 2022, compared to 28.8% in 2021[206] - Warranty reserves increased to $15,694 as of December 31, 2022, from $13,742 in 2021, indicating a 14.2% increase[217] Acquisitions and Growth Strategy - The company completed its fourth medical billing asset acquisition for approximately $230,000 in cash, with a contingent consideration of $105,000[175] - The revenue cycle management segment completed its third medical billing company acquisition for approximately $1.2 million in cash, with a contingent consideration of $750,000[174] Future Outlook and Challenges - Management anticipates needing to restore positive operating cash flows and/or raise additional capital in the short term to fund operations over the next 12 months[165] - Inflation is expected to significantly impact all operating segments in 2023 and beyond, although it has not materially affected the company in the past fiscal year[226] - The company does not believe its business is seasonal, but generally generates higher revenues in the second half of the calendar year compared to the first half[226]

Digital Ally, Inc. (NASDAQ:DGLY) Q3 2022 Earnings Conference Call November 16, 2022 11:15 AM ET Company Participants Stanton Ross - Chief Executive Officer Tom Heckman - Chief Financial Officer Brody Green - Chief Accounting Officer Conference Call Participants Rommel Dionisio - Aegis Capital Michael Albanese - EF Hutton Operator Good morning, ladies and gentlemen, and welcome to the Digital Ally, Inc. 2022 Third Quarter Operating Results Conference Call. This conference call may contain forward-looking st ...

[PART I – FINANCIAL INFORMATION](index=4&type=section&id=PART%20I%20%E2%80%93%20FINANCIAL%20INFORMATION) This section presents the company's financial statements, management's discussion and analysis, market risk disclosures, and internal controls [Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) The company's financial statements for Q3 and nine months ended September 30, 2022, show decreased cash and assets, substantial revenue growth from acquisitions, and a shift from net income to a net loss [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of September 30, 2022, total assets decreased to **$68,397,464** from **$82,989,197**, primarily due to a sharp reduction in cash and cash equivalents Condensed Consolidated Balance Sheet Highlights (Unaudited) | Balance Sheet Item | Sep 30, 2022 ($) | Dec 31, 2021 ($) | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | 6,295,391 | 32,007,792 | | Total current assets | 34,680,191 | 56,144,975 | | Total assets | 68,397,464 | 82,989,197 | | **Liabilities & Equity** | | | | Warrant derivative liabilities | — | 14,846,932 | | Total current liabilities | 13,935,052 | 23,022,687 | | Total liabilities | 20,352,356 | 27,125,958 | | Total stockholders' equity | 48,045,108 | 55,863,239 | [Condensed Consolidated Statements of Operations](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) For Q3 and the nine months ended September 30, 2022, revenues significantly increased, but the company reported a net loss due to higher costs and a non-cash gain in the prior year Statement of Operations Summary (Unaudited) | Metric | Q3 2022 ($) | Q3 2021 ($) | Nine Months 2022 ($) | Nine Months 2021 ($) | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | 8,484,153 | 4,639,822 | 28,130,392 | 9,669,323 | | Gross Profit | 595,500 | 1,400,570 | 4,254,198 | 3,473,254 | | Operating Loss | (6,567,023) | (3,598,973) | (20,031,610) | (9,081,553) | | Change in fair value of warrant derivative liabilities | 1,164,849 | 11,585,204 | 6,726,638 | 33,274,039 | | Net Income (Loss) | (1,919,071) | 8,048,936 | (9,299,498) | 24,388,307 | | Basic EPS | (0.04) | 0.16 | (0.19) | 0.49 | [Condensed Consolidated Statements of Cash Flows](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the nine months ended September 30, 2022, cash decreased by **$25,712,401** due to significant outflows from operating, investing, and financing activities, including stock repurchases Cash Flow Summary for Nine Months Ended Sep 30 (Unaudited) | Cash Flow Activity | 2022 ($) | 2021 ($) | | :--- | :--- | :--- | | Net cash used in operating activities | (17,797,992) | (12,230,781) | | Net cash used in investing activities | (3,488,972) | (17,958,520) | | Net cash (used in) provided by financing activities | (4,425,437) | 66,570,600 | | **Net (decrease) increase in cash** | **(25,712,401)** | **36,381,299** | | Cash, end of period | 6,295,391 | 40,743,057 | - The company repurchased and cancelled **$4,026,523** of common stock in the first nine months of 2022[25](index=25&type=chunk) [Notes to the Condensed Consolidated Financial Statements](index=12&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) The notes detail the company's segment structure, accounting policies, a going concern warning, Nasdaq delisting notice, and a subsequent preferred stock purchase agreement - The company is divided into three reportable operating segments: **Video Solutions**, **Revenue Cycle Management**, and **Ticketing**[31](index=31&type=chunk) - Management concluded that without additional funding, the company will not have sufficient funds to meet its obligations within one year, raising substantial doubt about its ability to continue as a going concern[36](index=36&type=chunk)[38](index=38&type=chunk) - On July 7, 2022, the company received a delisting notice from Nasdaq for its stock price falling below the **$1.00** minimum bid price requirement, with a compliance deadline of January 3, 2023[138](index=138&type=chunk) - Subsequent to the quarter, on October 13, 2022, the company entered into a securities purchase agreement to sell **$15,000,000** in Series A and Series B Convertible Redeemable Preferred Stock[211](index=211&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=52&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations.) Management discusses significant revenue growth driven by acquisitions, alongside compressed gross margins, widened operating losses, tightened liquidity, and a going concern warning, with capital bolstered by a preferred stock offering [Results of Operations](index=54&type=section&id=Results%20of%20Operations) For the nine months ended September 30, 2022, total revenues surged **191.0%** due to new segments, but gross margin compressed, operating losses widened, and the company shifted to a net loss Revenue by Segment - Nine Months Ended Sep 30 | Segment | 2022 Revenue ($) | 2021 Revenue ($) | % Change | | :--- | :--- | :--- | :--- | | Video Solutions | 6,152,733 | 7,058,161 | -12.8% | | Revenue Cycle Management | 6,039,807 | 2,050,679 | +194.5% | | Ticketing | 15,937,852 | 560,483 | +2743.6% | | **Total Net Revenues** | **28,130,392** | **9,669,323** | **+191.0%** | Gross Profit by Segment - Nine Months Ended Sep 30 | Segment | 2022 Gross Profit ($) | 2021 Gross Profit ($) | % Change | | :--- | :--- | :--- | :--- | | Video Solutions | 1,543,057 | 2,663,131 | -42.1% | | Revenue Cycle Management | 2,520,709 | 197,681 | +1175.1% | | Ticketing | 190,432 | 612,442 | -68.9% | | **Total Gross Profit** | **4,254,198** | **3,473,254** | **+22.5%** | - Selling, general and administrative (SG&A) expenses increased by **93%** to **$24,300,000** for the nine months ended Sep 30, 2022, up from **$12,600,000** in the prior year, primarily due to acquisitions[303](index=303&type=chunk) [Liquidity and Capital Resources](index=71&type=section&id=Liquidity%20and%20Capital%20Resources) The company's liquidity significantly decreased, with cash falling to **$6,295,391**, driven by cash outflows from operations, investing, and financing, leading to a going concern warning and the termination of a stock repurchase program - The company experienced a net decrease in cash of **$25,712,401** during the first nine months of 2022, reducing the cash balance to **$6,295,391**[324](index=324&type=chunk) - Management states that recurring losses and cash used in operations raise substantial doubt about the company's ability to continue as a going concern[323](index=323&type=chunk) - A stock repurchase program was terminated on June 30, 2022, after the company repurchased **5,460,824** shares for a total cost of **$6,001,602** under the program[170](index=170&type=chunk)[329](index=329&type=chunk) [Critical Accounting Estimates](index=73&type=section&id=Critical%20Accounting%20Estimates) Management identifies critical accounting estimates including revenue recognition, inventory valuation, goodwill, warranty reserves, warrant derivative liabilities, stock-based compensation, and income taxes, with a full valuation allowance on deferred tax assets - Key critical accounting estimates include: **Revenue Recognition**, **Allowance for Excess and Obsolete Inventory**, **Goodwill**, **Warranty Reserves**, **Fair value of warrant derivative liabilities**, **Stock-based Compensation**, and **Accounting for Income Taxes**[332](index=332&type=chunk) - Inventory reserves for excess and obsolete items were **$3,800,000** as of September 30, 2022, representing **25.6%** of the gross inventory balance[351](index=351&type=chunk) - The company maintains a full valuation allowance on its net deferred tax assets as of September 30, 2022, due to its history of operating losses[110](index=110&type=chunk)[367](index=367&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=79&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk.) This section is not applicable for the company's current reporting status - Not Applicable[373](index=373&type=chunk) [Controls and Procedures](index=79&type=section&id=Item%204.%20Controls%20and%20Procedures.) As of September 30, 2022, the company's disclosure controls and procedures were deemed effective, with no material changes to internal control over financial reporting during the quarter - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of September 30, 2022[375](index=375&type=chunk) - No material changes to internal control over financial reporting occurred during the third quarter of 2022[376](index=376&type=chunk) [PART II - OTHER INFORMATION](index=80&type=section&id=PART%20II%20-%20OTHER%20INFORMATION) This section provides details on legal proceedings, risk factors, equity sales, other information, and exhibits [Legal Proceedings](index=80&type=section&id=Item%201.%20Legal%20Proceedings.) The company is involved in a lawsuit against Culp McAuley, Inc. for breach of obligations, with counterclaims filed, though management does not expect a material adverse effect - The company filed a lawsuit against Culp McAuley, Inc. on May 31, 2022, alleging breach of obligations, with the defendant filing counterclaims for breach of contract[136](index=136&type=chunk) - Management does not expect the lawsuit, individually or in aggregate with other claims, to have a material adverse effect on its financial results or condition[137](index=137&type=chunk)[380](index=380&type=chunk) [Risk Factors](index=80&type=section&id=Item%201A.%20Risk%20Factors.) As a smaller reporting company, the registrant is not required to provide risk factor disclosures in its Form 10-Q - As a smaller reporting company, the registrant is not required to provide risk factor disclosures in its Form 10-Q[381](index=381&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=80&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds.) No unregistered sales of equity securities occurred in Q3 2022 that were not already reported on a Form 8-K - No unregistered sales of equity securities occurred in Q3 2022 that were not already reported on a Form 8-K[382](index=382&type=chunk) [Other Information](index=80&type=section&id=Item%205.%20Other%20Information.) This section is not applicable for the company's current reporting status - Not applicable[388](index=388&type=chunk) [Exhibits](index=81&type=section&id=Item%206.%20Exhibits.) This section lists the exhibits filed with the quarterly report, including merger agreements, articles of incorporation, bylaws, and officer certifications

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2022. or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to __________. Commission File Number: 001-33899 Digital Ally, Inc. (Exact name of registrant as specified in its charter) Nevada 20-0064269 (State or other ...

Digital Ally, Inc. (NASDAQ:DGLY) Q1 2022 Earnings Conference Call May 24, 2022 11:15 AM ET Company Participants Stan Ross - Chief Executive Officer Tom Heckman - Chief Financial Officer Conference Call Participants Rommel Dionisio - Aegis Capital Bryan Lubitz - Aegis Capital Mike Albanese - EF Hutton Operator Ladies and gentlemen, thank you for standing by, and welcome to Digital Ally’s 2022 First Quarter Operating Results Call. At this time, all participants lines are in a listen-only mode. After the speak ...

Revenue Performance - Total net revenues for the three months ended March 31, 2022, were $10,294,781, a significant increase from $2,535,829 in the same period of 2021, representing a growth of approximately 305%[201]. - Total revenues for the three months ended March 31, 2022, increased by $7,758,952 (306%) to $10,294,781 from $2,535,829 in the same period of 2021[228]. - Ticketing segment revenue reached $6,380,775, indicating a strong performance since its establishment[201]. - Revenue Cycle Management segment generated $1,903,957 in revenue, reflecting the company's recent entry into this market[201]. - Video Solutions segment revenue decreased to $2,010,049 from $2,535,829 year-over-year, a decline of about 21%[201]. - Product revenues for the three months ended March 31, 2022, were $2,410,060, an increase of $497,483 (26%) compared to $1,912,577 in the same period of 2021[219]. - Service and other revenues surged to $7,884,721 for the three months ended March 31, 2022, an increase of $7,261,469 (1,165%) from $623,252 in the same period of 2021[224]. - The new ticketing operating segment generated $5,306,945 in service revenues for the three months ended March 31, 2022, compared to $0 in the same period of 2021, marking a 100% increase[226]. - The revenue cycle management operating segment generated $1,903,957 in service revenues for the three months ended March 31, 2022, also a 100% increase from $0 in the same period of 2021[227]. Profitability and Loss - The company reported a net loss of $6,698,242 on revenues of $10,294,781 for the first quarter of 2022, compared to a net income of $21,721,858 in the same quarter of 2021[204]. - Operating loss for the first quarter of 2022 was $6,803,338, compared to a loss of $2,865,693 in the same period of 2021[201]. - The company experienced a gross profit margin decrease to 19% in Q1 2022 from 32% in Q1 2021, attributed to increased cost of revenue[207]. - Operating loss for Q1 2022 was (66)% of total revenues, an improvement from (113)% in the same quarter of 2021[207]. - Gross profit for Q1 2022 was $1,939,619, an increase of $1,127,737 (138.9%) compared to Q1 2021[237]. - Selling, general and administrative expenses for Q1 2022 were $8,742,957, an increase of $5,065,382 (137.7%) compared to Q1 2021[238]. - Operating loss for Q1 2022 was $6,803,338, an increase of $3,937,645 (137.4%) compared to Q1 2021[242]. - The company reported an income/(loss) before income tax benefit of ($6,698,242) for Q1 2022, a decrease of $28,420,100 (130.8%) compared to Q1 2021[249]. - Net income for the three months ended March 31, 2022, was reported at a loss of $6,698,242, a decrease of $28,420,100 (130.8%) compared to the same period in 2021[252]. - Net loss attributable to common stockholders for the three months ended March 31, 2022, was ($6,600,148), a deterioration of $28,322,006 (130.4%) from $21,721,858 in 2021[254]. - Basic and diluted loss per share was ($0.13) for the three months ended March 31, 2022, compared to $0.49 in 2021[255]. Assets and Liabilities - Total identifiable assets as of March 31, 2022, were $79,026,018, down from $82,989,197 at the end of 2021[201]. - Cash and cash equivalents decreased to $20,561,116 as of March 31, 2022, from $32,007,792 at December 31, 2021, reflecting a net decrease of $11,446,676[260]. - The company had approximately $81.4 million of net operating loss carryforwards available as of March 31, 2022[250]. - Total outstanding debt obligations amounted to $1,912,064 as of March 31, 2022, with long-term debt obligations at $1,249,347[266]. - The company had $19,483,613 in net positive working capital as of March 31, 2022, with accounts receivable representing $5,602,094 of this amount[263]. Cash Flow - Net cash used in operating activities was $6,055,672 for the three months ended March 31, 2022, an increase of $2,848,828 compared to $3,206,844 in 2021[260]. - Cash used in investing activities was $3,195,346 for the three months ended March 31, 2022, compared to $99,274 in 2021[261]. - Cash used in financing activities was $2,195,658 for the three months ended March 31, 2022, down from cash provided of $66,570,600 in 2021[262]. Inventory and Reserves - Total inventories as of March 31, 2022, amounted to $9,405,920, a decrease from $9,659,536 as of December 31, 2021[286]. - The reserve for obsolete and excess inventories was $3,896,460 as of March 31, 2022, representing 29.3% of the gross inventory balance[288]. - Raw materials and component parts increased by $777,750 (25%) from $3,062,046 as of December 31, 2021, to $3,839,796 as of March 31, 2022[288]. - Finished goods decreased by $1,050,051 (10%) from $10,512,579 as of December 31, 2021, to $9,462,528 as of March 31, 2022[288]. - Warranty reserves decreased to $10,582 as of March 31, 2022, compared to $13,742 as of December 31, 2021[298]. New Products and Market Strategy - The company has introduced new product lines, including ThermoVu® temperature monitoring stations and Shield™ disinfectants, to diversify its offerings[191]. - The company introduced new products, including the FirstVu Pro and FirstVu II body-worn cameras, which are expected to gain traction in the market[221]. - The company is transitioning customers from hardware sales to a service fee model, which is anticipated to reduce product revenues but increase recurring service revenues over the next three to five years[222]. - The Ticketing Segment is expected to generate higher revenues in the second half of the calendar year compared to the first half[307]. Tax and Valuation - The company has fully reserved all deferred tax assets as of March 31, 2022, with a valuation allowance of $16,980,000[304]. - The company expects to maintain a full valuation allowance until it can demonstrate a sustainable level of profitability[304]. - The company has generated substantial deferred income tax assets primarily from stock options, tax credit carryforwards, and net operating loss carryforwards[306]. - The realization of deferred income tax assets is contingent on generating sufficient taxable income in future periods[306]. - As of March 31, 2022, the company has no recorded liability representing uncertain tax positions[305]. Interest and Financial Instruments - Interest income increased to $71,362 in Q1 2022 from $41,686 in Q1 2021[243]. - Interest expense for Q1 2022 was $17,009, an increase from $1,428 in Q1 2021[245]. - The company recorded a net loss of $56,050 related to changes in fair value of contingent consideration promissory notes in Q1 2022[247]. - The company issued warrants to purchase a total of 42,550,000 shares of Common Stock, which are treated as derivative liabilities[299]. - The fair value of warrant derivative liabilities was calculated using a volatility range of 106.6% to 166.6% at issuance and 104.1% as of March 31, 2022[300]. Cost Structure - Overall cost of product revenue for Q1 2022 was $2,822,051, an increase of $1,260,741 (81%) compared to Q1 2021[230]. - Cost of service revenue for Q1 2022 was $5,553,111, an increase of $5,370,474 (3,302%) compared to Q1 2021[233].

Part I [Business](index=5&type=section&id=Item%201.%20Business.) Digital Ally, Inc. diversified into Revenue Cycle Management and Ticketing segments in 2021, significantly increasing revenue while continuing its legacy Video Solutions business - The company expanded into **Revenue Cycle Management** and **Ticketing** as new operating segments, alongside its legacy Video Solutions business[21](index=21&type=chunk) Net Revenues by Segment (2021 vs. 2020) | Segment | 2021 Net Revenues ($) | 2020 Net Revenues ($) | | :--- | :--- | :--- | | Video Solutions | $9,073,626 | $10,514,868 | | Revenue Cycle Management | $1,630,048 | — | | Ticketing | $10,709,760 | — | | **Total Net Revenues** | **$21,413,434** | **$10,514,868** | - The Video Solutions segment offers **in-car video systems**, **body-worn cameras**, the **VuLink auto-activation system**, and **health safety products**[22](index=22&type=chunk) - The **Revenue Cycle Management** segment, established in Q2 2021 through acquisitions, provides **billing and back-office services** to healthcare organizations[23](index=23&type=chunk)[24](index=24&type=chunk) - The **Ticketing** segment, formed in Q3 2021 via the **TicketSmarter acquisition**, operates an online marketplace for **over 125,000 live events** with **over 48 million tickets** for sale[26](index=26&type=chunk)[28](index=28&type=chunk) - As of December 31, 2021, the company had approximately **146 full-time employees** across its segments[80](index=80&type=chunk)[84](index=84&type=chunk) - In December 2021, the company formed **Worldwide Reinsurance Ltd.**, a Bermuda-based captive insurance subsidiary for liability coverage[70](index=70&type=chunk) [Risk Factors](index=16&type=section&id=Item%201A.%20Risk%20Factors.) This section is not applicable - Not applicable[92](index=92&type=chunk) [Unresolved Staff Comments](index=16&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments.) The company reports no unresolved staff comments - None[94](index=94&type=chunk) [Properties](index=16&type=section&id=Item%202.%20Properties.) In 2021, the company acquired a **71,361 sq. ft. commercial building** for **$5.3 million** in Lenexa, Kansas, for its future headquarters, and assumed operating leases from recent acquisitions - On April 30, 2021, the company purchased a **71,361 sq. ft. commercial office building** in Lenexa, Kansas, for approximately **$5.3 million** in cash[97](index=97&type=chunk) - The company assumed operating leases for office spaces from recent acquisitions, with terms ending between **December 2022 and July 2024**[98](index=98&type=chunk)[99](index=99&type=chunk)[100](index=100&type=chunk) [Legal Proceedings](index=16&type=section&id=Item%203.%20Legal%20Proceedings.) The company's primary legal proceeding, a patent infringement lawsuit against Axon, concluded with appeals denied and no material adverse effect expected from ongoing litigation - The company's patent infringement suit against Axon, filed in January 2016, resulted in a summary judgment for Axon in June 2019[104](index=104&type=chunk)[107](index=107&type=chunk) - Appeals to the U.S. Court of Appeals were denied in April 2020, and the company has abandoned further appeal rights[108](index=108&type=chunk) - The company records legal liabilities when probable and estimable, with no material adverse effect expected from current proceedings[109](index=109&type=chunk)[110](index=110&type=chunk) [Mine Safety Disclosures](index=18&type=section&id=Item%204.%20Mine%20Safety%20Disclosures.) This section is not applicable - Not applicable[112](index=112&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=19&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities.) The company's common stock trades on Nasdaq under 'DGLY', initiated a **$10 million** share repurchase program in Q4 2021, has not paid dividends, and maintains equity compensation plans Quarterly Stock Price Range (High/Low) | Period | 2021 High ($) | 2021 Low ($) | 2020 High ($) | 2020 Low ($) | | :--- | :--- | :--- | :--- | :--- | | 1st Quarter | $3.98 | $1.51 | $2.02 | $0.64 | | 2nd Quarter | $2.24 | $1.56 | $7.10 | $0.67 | | 3rd Quarter | $1.83 | $1.17 | $4.43 | $1.80 | | 4th Quarter | $1.60 | $0.97 | $3.19 | $1.91 | - On December 6, 2021, the Board approved a share repurchase program for up to **$10 million** of common stock, expiring December 31, 2022[119](index=119&type=chunk) Share Repurchases in Q4 2021 | Period | Total Shares Purchased | Average Price Paid ($) | Approx. Dollar Value Remaining in Program ($) | | :--- | :--- | :--- | :--- | | December 2021 | 1,734,838 | $1.14 | $8,024,921 | - The company has not declared or paid cash dividends and intends to retain future earnings for business operations[120](index=120&type=chunk) Equity Compensation Plan Information (as of Dec 31, 2021) | Plan category | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | Weighted-average exercise price of outstanding options, warrants and rights ($) (b) | Number of securities remaining available for future issuance (c) | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by stockholders | 1,086,064 | $2.37 | 915,845 | [Reserved](index=21&type=section&id=Item%206.%20%5BReserved%5D.) This section is reserved [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=22&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operation.) In 2021, total revenue more than doubled to **$21.4 million** driven by new segments, leading to a **$25.5 million** net income primarily from non-cash gains on warrant derivatives, and significantly improved liquidity to **$32.0 million** cash from **$66.4 million** in offerings Consolidated Results of Operations Summary | Metric | 2021 ($) | 2020 ($) | | :--- | :--- | :--- | | Total Revenue | $21,413,434 | $10,514,868 | | Gross Profit | $5,663,775 | $4,062,594 | | Operating Loss | ($14,760,910) | ($7,663,651) | | Net Income (Loss) | $25,530,961 | ($2,625,881) | | Basic and Diluted EPS | $0.51 | ($0.12) | - The significant increase in total revenue was driven by the new **Ticketing** and **Revenue Cycle Management** segments, established through acquisitions in the second half of 2021[162](index=162&type=chunk) - Net income resulted primarily from a **$36.7 million** non-cash gain on warrant derivative liabilities and a **$3.7 million** gain on contingent consideration from acquisitions[230](index=230&type=chunk)[231](index=231&type=chunk) - SG&A expenses increased **74.2%** to **$20.4 million** in 2021, driven by new acquisitions, increased promotional activities, and higher professional fees[213](index=213&type=chunk)[214](index=214&type=chunk)[215](index=215&type=chunk)[216](index=216&type=chunk) - The company raised approximately **$66.4 million** in net proceeds from two registered direct offerings in Q1 2021, significantly strengthening liquidity[247](index=247&type=chunk)[251](index=251&type=chunk)[255](index=255&type=chunk) - Cash and cash equivalents increased to **$32.0 million** at year-end 2021 from **$4.4 million** in 2020, primarily due to financing activities[265](index=265&type=chunk) [Results of Operations (2021 vs. 2020)](index=24&type=section&id=Results%20of%20Operations) Total revenues surged **103.6%** to **$21.4 million** in 2021, driven by new segments, resulting in a **$25.5 million** net income despite increased operating loss and SG&A, primarily due to non-cash gains Revenue by Type and Segment (2021 vs. 2020) | Revenue Type / Segment | 2021 ($) | 2020 ($) | % Change | | :--- | :--- | :--- | :--- | | **Product Revenues** | | | | | Video Solutions | $6,393,050 | $8,029,457 | (20.4)% | | Ticketing | $2,787,237 | — | 100% | | *Total Product Revenues* | *$9,180,287* | *$8,029,457* | *14.3%* | | **Service & Other Revenues** | | | | | Video Solutions | $2,680,576 | $2,485,411 | 7.9% | | Ticketing | $7,922,523 | — | 100% | | Revenue Cycle Management | $1,630,048 | — | 100% | | *Total Service Revenues* | *$12,233,147* | *$2,485,411* | *392.2%* | | **Total Revenues** | **$21,413,434** | **$10,514,868** | **103.6%** | Gross Profit by Segment (2021 vs. 2020) | Segment | 2021 Gross Profit ($) | 2020 Gross Profit ($) | | :--- | :--- | :--- | | Video Solutions | $2,002,345 | $4,062,594 | | Revenue Cycle Management | $521,047 | — | | Ticketing | $3,140,383 | — | | **Total Gross Profit** | **$5,663,775** | **$4,062,594** | - SG&A expenses increased by **$8.7 million (74.2%)** to **$20.4 million**, driven by new acquisitions, increased promotional expenses, and higher payroll[213](index=213&type=chunk) - A non-cash gain of **$36,664,907** from the change in fair value of warrant derivative liabilities was the primary driver of net income[230](index=230&type=chunk) - A gain of **$3,732,789** was recognized from the change in fair value of contingent consideration related to acquisitions[231](index=231&type=chunk)[232](index=232&type=chunk) [Liquidity and Capital Resources](index=41&type=section&id=Liquidity%20and%20Capital%20Resources) The company's liquidity significantly improved in 2021, with cash increasing to **$32.0 million** from **$4.4 million**, primarily due to **$66.4 million** in net proceeds from direct offerings, despite substantial cash usage in operating and investing activities - The company raised approximately **$66.4 million** in net proceeds from two registered direct offerings in Q1 2021, providing adequate liquidity for the foreseeable future[247](index=247&type=chunk) Summary of Cash Flows (2021 vs. 2020) | Cash Flow Activity | 2021 ($) | 2020 ($) | | :--- | :--- | :--- | | Net Cash Used in Operating Activities | ($17,825,108) | ($13,274,715) | | Net Cash Used in Investing Activities | ($19,124,379) | ($1,499,189) | | Net Cash Provided by Financing Activities | $64,595,521 | $18,775,977 | - Investing activities in 2021 included approximately **$5.3 million** for a new building and cash payments for three acquisitions[269](index=269&type=chunk)[270](index=270&type=chunk)[271](index=271&type=chunk)[272](index=272&type=chunk) - Financing activities in 2021 were dominated by **$66.6 million** gross proceeds from two public offerings, offset by approximately **$2.0 million** in share repurchases[263](index=263&type=chunk) - As of December 31, 2021, the company had net working capital of **$33.1 million**, a significant improvement from the prior year[264](index=264&type=chunk) [Critical Accounting Policies](index=48&type=section&id=Critical%20Accounting%20Policies) The company's critical accounting policies involve significant judgment, including Revenue Recognition, Allowance for Excess and Obsolete Inventory (**$3.9 million** reserve), Goodwill and Intangible Asset impairment, Warranty Reserves, Stock-based Compensation, and Income Taxes with a full valuation allowance against deferred tax assets - Key critical accounting policies include **Revenue Recognition**, **Allowance for Excess and Obsolete Inventory**, **Goodwill and other intangible assets**, **Warranty Reserves**, **Stock-based Compensation Expense**, **Fair value of warrants**, **Fair value of assets and liabilities acquired in business combinations**, and **Accounting for Income Taxes**[289](index=289&type=chunk) - Revenue for the ticketing segment is recorded on a **gross basis** for inventory sales and a **net basis** for marketplace transactions[298](index=298&type=chunk)[299](index=299&type=chunk)[300](index=300&type=chunk) - The reserve for excess and obsolete inventory was **$3.9 million** as of December 31, 2021, up from **$2.0 million** in 2020, primarily due to older product obsolescence and new ticketing segment reserves[312](index=312&type=chunk) - The company maintains a full valuation allowance of **$17.0 million** against its net deferred tax assets as of December 31, 2021, due to recurring operating losses[327](index=327&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=53&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk.) This section is not applicable - Not applicable[332](index=332&type=chunk) [Financial Statements and Supplementary Data](index=53&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data.) This section presents the consolidated financial statements for 2021 and 2020, along with RBSM LLP's unqualified audit opinion, which highlights critical audit matters regarding **goodwill and intangible valuation** and **inventory reserves** - The independent auditor, **RBSM LLP**, issued an unqualified opinion on the consolidated financial statements[387](index=387&type=chunk) - Critical Audit Matters included the valuation of **goodwill and intangibles** from the TicketSmarter acquisition and the valuation of **inventory reserves** due to estimation uncertainty and complex judgment[392](index=392&type=chunk)[399](index=399&type=chunk) Consolidated Balance Sheet Highlights (As of Dec 31) | Account | 2021 ($) | 2020 ($) | | :--- | :--- | :--- | | Total Assets | $82,989,197 | $20,797,527 | | Total Liabilities | $27,125,958 | $6,441,021 | | Total Equity | $55,863,239 | $14,356,506 | - **Warrant derivative liabilities** of **$14.8 million** were recorded as a current liability in 2021, not present in 2020[410](index=410&type=chunk) [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=53&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure.) The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[336](index=336&type=chunk) [Controls and Procedures](index=54&type=section&id=Item%209A.%20Controls%20and%20Procedures.) Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2021, excluding recently acquired businesses, with integration ongoing - Management concluded that **disclosure controls and procedures** were effective as of December 31, 2021[338](index=338&type=chunk) - Management's report on **internal control over financial reporting** concluded that controls were effective as of December 31, 2021[342](index=342&type=chunk) - The evaluation of internal control over financial reporting excluded the **TicketSmarter** and **Goody Tickets** acquisitions from September 2021[341](index=341&type=chunk) [Other Information](index=54&type=section&id=Item%209B.%20Other%20Information.) The company reports no other information - None[345](index=345&type=chunk) [Disclosure Regarding Foreign Jurisdictions that Prevent Inspections](index=55&type=section&id=Item%209C.%20Disclosure%20Regarding%20Foreign%20Jurisdictions%20that%20Prevent%20Inspections.) This section is not applicable - Not applicable[347](index=347&type=chunk) Part III [Directors, Executive Officers and Corporate Governance](index=56&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance.) Information for this item is incorporated by reference from the company's definitive proxy statement - Information is incorporated by reference to the **2022 Proxy Statement**[350](index=350&type=chunk) [Executive Compensation](index=56&type=section&id=Item%2011.%20Executive%20Compensation.) Information for this item is incorporated by reference from the company's definitive proxy statement - Information is incorporated by reference to the **2022 Proxy Statement**[352](index=352&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=56&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters.) Information for this item, including equity compensation plans, is incorporated by reference from the company's definitive proxy statement and Part II, Item 5 of this report - Information is incorporated by reference to the **2022 Proxy Statement**[354](index=354&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=56&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence.) Information for this item is incorporated by reference from the company's definitive proxy statement - Information is incorporated by reference to the **2022 Proxy Statement**[357](index=357&type=chunk) [Principal Accountant Fees and Services](index=56&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services.) Information for this item is incorporated by reference from the company's definitive proxy statement - Information is incorporated by reference to the **2022 Proxy Statement**[359](index=359&type=chunk) Part IV [Exhibits and Financial Statement Schedules](index=57&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules.) This section lists documents filed with the Annual Report on Form 10-K, including consolidated financial statements starting on page F-1, omitted schedules, and a comprehensive list of exhibits - The consolidated financial statements required by Item 8 are included starting on **page F-1**[362](index=362&type=chunk) - All financial statement schedules have been omitted as not applicable or included elsewhere[363](index=363&type=chunk) - Key exhibits include **stock option plans**, **placement agency agreements**, the **real estate sales contract**, and agreements for the **Nobility and TicketSmarter acquisitions**[364](index=364&type=chunk)[365](index=365&type=chunk)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Title of each class Trading Symbol(s) Name of exchange on which registered Common stock, $0.001 par value per share DGLY the Nasdaq Capital Market LLC FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2021. or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ t ...

Digital Ally, Inc. (NASDAQ:DGLY) Q3 2021 Earnings Conference Call November 17, 2021 11:15 AM ET Company Participants Stanton Ross - Chief Executive Officer Tom Heckman - Chief Financial Officer Conference Call Participants Rommel Dionisio - Aegis Capital Bryan Lubitz - Aegis Capital Patrick McGrady - Stonefish Capital Operator This conference call contains forward-looking statements within the meaning of Section 27E of the Securities Exchange Act of 1934 as amended relating to Digital Ally's future business ...

Financial Data and Key Metrics Changes - Total revenues increased by 44% year-over-year and 21% year-to-date [8] - Gross margins improved to 51% from 23% in the prior year [9] - SG&A expenses increased by 53% year-over-year and 32% year-to-date [9] Business Line Data and Key Metrics Changes - Product revenues rose by 63% year-over-year, with the EVO-HD system accounting for 25% of total revenues compared to 9% last year [10] - DVM-800 maintained a steady contribution of about 18% of revenues [11] - FirstVU body cameras contributed approximately 12% of total revenues, with a new version expected to launch soon [12] - DVM-250 commercial product dropped to about 2% of revenues due to COVID-19 impacts [13] - Service revenues increased by 14% year-over-year, while cloud revenues faced challenges [16] Market Data and Key Metrics Changes - Rental revenues increased significantly due to a sublease on a newly acquired building [17] - Overall gross margins increased primarily due to a shift towards higher-margin EVO products [18] Company Strategy and Development Direction - The company is pursuing a roll-up strategy in the medical billing industry, with the recent acquisition of Elite Medical [28] - Plans to close additional acquisitions in the medical billing sector and other areas by the end of Q3 [30] - The company aims to enhance EBITDA through strategic acquisitions and leverage existing relationships in law enforcement and commercial sectors [35] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about growth opportunities as schools reopen and COVID-19 vaccinations progress [36] - The company anticipates continued demand for ThermoVu and Shield products in various sectors [36] Other Important Information - The company reported a strong balance sheet with $58 million in cash and minimal debt [27] - SG&A expenses were driven by professional fees related to acquisitions and increased insurance costs due to COVID-19 [19][24] Q&A Session Summary Question: Impact of FirstVU product on margins - Management confirmed that FirstVU is a high-margin product, typically sold on a subscription basis [37] Question: Opportunities for ThermoVu in large gatherings - Management acknowledged potential for ThermoVu in theaters and workplaces as they reopen [39] Question: Growth of recurring revenue - Recurring revenue has faced challenges due to commercial clients not ramping up post-COVID, but law enforcement side has continued to grow [45] Question: Medical billing acquisition's role in growth - The acquisition is expected to open doors for ThermoVu and Shield products in hospitals and clinics [48] Question: SG&A charges and future expectations - Management indicated that some SG&A increases are nonrecurring, but ongoing acquisitions will lead to continued professional fees [51] Question: Marketing efforts for product awareness - The company is increasing visibility through various marketing strategies, including branding in videos [53] Question: Future roadshows and investor outreach - Management confirmed plans for roadshows to increase awareness and communicate the company's story [69]