KUST

Good morning, ladies and gentlemen, and welcome to the Digital Ally First Quarter Earnings and Corporate Update Conference Call. At this time, all lines are in listen-only mode. [Operator Instructions] Note that this call is being recorded on Wednesday, May 28, 2025. This conference call may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934. We may use words and other expressions that are predictions of, or indicate future events and trends, and that do not relate to historical matters. Rather they represent forward-looking statements. These forward-looking statements are based largely on our expectations or forecast of future events, can be affected by inaccurate assumptions, and are subject to various business risks and known and unknown uncertainties, a number of which are beyond our control. Therefore, actual results could differ materially from the forward-looking statements expressed in this conference call. And readers are cautioned not to place undue reliance on such forward-looking statements. We generally do not publicly update or revise any forward-looking statements expressed in this conference call, whether as a result of new information, future events or otherwise. There can be no assurance that forward-looking statements contained in this document will, in fact, transpire, or prove, to be accurate. I would now like to turn the conference over to Mr. Stan Ross, CEO. Please go ahead.

Thank you. Thanks, everybody, for joining us today. I also have Tom Heckman, the company's CFO, with me today. Tom shortly will go over a little bit of the recap of our first quarter numbers that we put out last week, but I thought it was just going to be a great time for finally, for us all to get on a call. It's been some time since we've been able to. The last couple of years have been a little bit of a challenge, would be an understatement to what Digital Ally has been through. But I think with the moves that have been made over the last six months, the numbers reflected, and we are getting into a scenario where hopefully, we've putting a lot of the things that were attempted and were unsuccessful in the past behind us. And we could look forward to the things that we have set out to achieve and rebuild the company to more of its glory days, not only with the video solutions sector of our company, but the custom entertainment side as well. I know we do still have on the books, our medical billing entity, which I think has been in print that we have had discussions about allowing it to be sold off. So that's still a possibility that we will entertain conversations on. So that we really focused on the core businesses and not have as many of the other issues that we've had out there. So anyway, we're really appreciative of everyone getting on here. We have quite a large audience today, which is really good, and we'll try to address all open items and maybe a real clear picture on where we believe we're able to be headed. And the accomplishments we should we've set our goals for '25 and beyond. So that being said, I'll turn it over to Tom.

Thank you, Stan, and good morning, everybody. I appreciate you joining us today. We did file our Form 10-Q for the first quarter on May 20th, and I really encourage everyone to take a good look at that. Many, many things changed and gladly for the better. And I'm going to hit the highlights in this presentation. But if you really want to see everything and go through the details, obviously, the 10-Q is a place to do that. Right off the bat, I'd like to acknowledge that we've received many calls and e-mails from interested investors in the last several weeks. And unfortunately, we just -- we do not answer all those and particularly the ones that are requesting public -- material non-public information. We just cannot piecemeal information like that out to individual shareholders without building a public forum like today. So we'll be talking about a lot of the information requests that have been coming in on shares and reverses and all that stuff. We'll talk through that today in a public form. As I look at the first quarter, it really looks to me like it was a watershed quarter for us. We're in -- we're moving on from the SPAC days, which consumed us for probably the last two years and really got us unfocused on the legacy business. That SPAC deal died in the third quarter last year in 2024. In the first quarter, we really got a chance to focus back on the legacy business and really, really make some improvements and changes. And I think the first quarter two really shows the progress we've made in that regard. So anyway, what I'm going to do on the P&L, I'm going to compare year-over-year numbers. The first quarter of 2025 ended March 31, versus the first quarter '24 ended March 31, 2024. At the top, the year-over-year revenues were down a little over $1 million, or 19%. But here's really the story on that. If you look at the video product sales, it was down significantly year-over-year. But at the same time, our backlog was over $2 million, our firm backlog. We had to get our supply chain back in order to give us products to be able to fulfill backlog. So there's $2 million of backlog that we're going to be able to work off in the second, third and probably even the fourth quarter of this year that would have really changed the complexion of the revenue figure. So the video product sales was down, but the service was up. So it was a good trend from that standpoint. If you look at the Entertainment segment, we refocused TicketSmarter, our ticketing solution business to shed some of the uneconomical sponsorships that we got involved in. So we really pared some non-gross margin providing, generating businesses, sponsorships, out of TicketSmarter. So the revenues were down, but the profits were up. And then obviously, Kustom 440, which is event production group in the Entertainment segment has not had any 2025 events yet. And the first one coming to Country Stampede, which I'm sure Stan will talk more about is June 26 to 29. So the second quarter is going to be impacted heavily by the first Kustom 440 event called the Country Stampede. So we think the second quarter revenue figures will turn around immensely and show a very good comparative year-over-year number and increase. Even though we dropped 19% of revenue, our gross margin dollars improved by $78,000, or 5%. So you can tell that the refocusing of the TicketSmarter business into economical and efficient sponsorships, as well as paring down some of the P&L, or some of the video segment overhead that hits us in cost of goods sold has come back. The overall gross margin percentage improved to 36% versus 28% last year. So we're going in the right direction on the gross margin dollars. If you look at the SG&A expenses, you'll notice that there was a very large decline across the board in all areas and all segments. In sheer dollar volume, last year's SG&A was a total of $3.6 million. This year, it was less than $1 million. So that's a $2.6 million pickup, or 72% improvement in our SG&A dollars. We focused on pretty much everything in the SG&A line items. We reduced head count across the board. We improved our facilities expense. We sold our building and moved into smaller quarters. And then just our general overhead items, we've really improved the efficiency of those. We believe that year-over-year, we cut out almost $7 million of SG&A costs, that's on an annualized basis. So you look at it, I mean, $7 million out of the SG&A line item is pretty impressive, and we're very happy with that. We believe we've been very successful in reducing our SG&A overhead. As a result of the improved SG&A expense, as well as the gross margin, our operating loss improved to almost $1 million, from the $3.6 million in the prior year. That's a 73% improvement year-over-year. So obviously, we're seeing some good results from that standpoint. If you walk down to the non-operating items, really, the factors that hit us there -- or not hit us, but provided non-operating income was influenced by the liquidity that came in on our $14 million public offering that we closed in February of 2025. As a result of that, we had funds and liquidity to make offers and to extinguish debt, or gain from the extinguishment of debt was $1.250 million during the first quarter of '25. The gain on the extinguishment of liabilities that accounts payable accrued expenses, what have you, was $2.2 million in the first quarter. And then our warrant derivative value gain was $2.5 million. And that's the change in the value of the warrant derivative liabilities, which is kind of a fictional accounting number, but it really recognizes the dilution from the offering that occurred. So from a net income standpoint, we had net income of $4.2 million in the first quarter of '25, or $1.41 per share, versus a $3.9 million loss in 2024, or $27.48 a share. So we had a turnaround of $8 million plus in the net income line. So we're very happy with that. And really, as I said before, I think it was a watershed moment in the first quarter, and hopefully, we can build on those results for the rest of the year. And I know Stan will be talking about some of the initiatives and the focus we're planning on for operations in the remainder of 2025. If you turn over to the balance sheet, our balance sheet really reflects the liquidity injection we got from the $14 million offering that closed in February at 2025. As we sit now at March 31, we had $3.8 million of cash on the balance sheet, versus $400,000 at the end of the year. I'm comparing the March 31, 2025 balance sheet to the 12 -- December 31, '24 balance sheet. So just in one quarter's time, three months' time, we went from $400,000 of cash to almost $4 million of cash on our balance sheet. Our working capital is now positive at $3.4 million, versus a deficit of $19.4 million at the end of the year at '24. That's an improvement of almost $23 million. So very much a turnaround in terms of the complexion of our balance sheet. Our liquidity now is probably better than it has been for several years, and we're looking to build on that strength. If you look at our accounts payable, we paid off $6.7 million of accounts payable during the quarter. We're now down to $4.8 million of accounts payable. Our overall debt level is down over $5.1 million, to $2.7 million at March 31. So obviously, we we've really -- we used the offering dollars to come in and fix our pay down, our debt, and pay down our payables, and really is resulting in a good working capital position. Our equity is now $11.6 million positive, versus $9 million negative at the end of 2024. That's an improvement of over $20 million. Now remember, we've only -- we only received $14 million in the offering. So there was another $6 million of improvement in the equity based on our operations from 2025. With the influx of liquidity over our balance sheet is now very strong. We believe it gives us a good financial backing to implement our operating plans for the rest of 2025 and beyond, and we really needed to get that done, and we were able to accomplish that in the first quarter. There's a couple of other items of interest that I want to go over in more detail. I know this was a subject of a discussion and questions from e-mail and telephone calls and such. We've made a lot of progress with the NASDAQ. The NASDAQ issued a noncompliance notice to us, several of them during the quarter. And we've met with them in April of 2025 and discussed our plans to regain compliance and they agreed to give us that time. The items of non-compliance were that we had a late filing of our Form 10-K for the year-end, as well as our 9/30 10-Q. Both of those were filed and now we're in compliance on that. We were below the $2.5 million equity threshold required for continued listing on the NASDAQ. We're obviously much better than that now. We're almost $12 million of positive equity. So we're certainly in compliance with that. The last item is the item that we're still working on. It's the $1 minimum bid price, which we have to show for 10 consecutive days -- 10 consecutive business days. So we're now above that with the reverses that we administered in the last several weeks. We're trading around $4.50 now. So we believe that, that non-compliance issue is also going to be taken care of, but we're what, 3 or 4 days into that 10-day period. So we've got to wait another seven or eight days -- trading days to show compliance to the NASDAQ. And hopefully, we can get clearance from them that we now are in compliance and will be continued with the listing on the NASDAQ exchange. Here's the split numbers that a lot of people have asked about. We affected two split, one on May 7, there was 1 share for every 20 outstanding. Now on May 23, we issued a second reverse for 1 for 100 shares. So it was very painful. Obviously, we understand and we recognize that, but it was necessary in order to regain compliance with the $1 bid price with NASDAQ. Had we not done that, we probably would not meet that requirement and be delisted and not on exchange. So it was to avoid a very bad outcome from that standpoint. As we sit today, our total common shares outstanding is 1,668,735 shares. Again, 1,668,735 shares. So if you do the math, our market capitalization is a little north of $7 million as we sit today. So obviously, we wish we didn't have to do a reverse split, but it was the only responsible thing to do in order to get back into compliance with the NASDAQ. So again, I appreciate everyone's pace during the quarter and waiting until the public disclosures we made today. And with that, I'll send it back to Stan.

Thanks Tom. Yeah. Obviously, you've seen some pretty dramatic changes that have been made and the effect that's had on not only the balance sheet but the income statement. So real pleased with that. But also I'm very excited about what we've got ahead of us because as Tom mentioned, we had almost $2.2 million in back orders as when we did the raise. We're able to start to getting components in and fulfill those orders. We still have, Tom correct me if I'm wrong, but in excess of the $10 million in deferred revenue?

Yes. Yes.

So that's still out there, which is the subscription model. So that's still very, very attractive and growing. So we're happy about that. We continue to look at and exploit some of the new products and patents that we have in our portfolio. And those products will being announced over the coming quarters as well. And from what we can see, from what the market is requesting, they ought to be very, very well received not only in the, let's call it, the law enforcement side of things, but also in the commercial markets. So video solutions side is really starting to be able to get a lot of momentum behind it again, and we have a lot of great hopes for it in moving forward. In regards to the Entertainment side, we're also very excited because we now have a real clear path on how to go ahead and develop custom entertainment, the side of it. And just to give you an example on how some of this works, for instance, I'll focus on Country Stampede because it's an event that's held annually, this is its 29th year. And over the last, let's say six years, they have not been able, and not been in a position, where at the event they were able to announce the following year's headliners. That's a big step. I mean, they went through two different moves from Manhattan, Kansas to Topkea Kansas and Bonner Springs Kansas. And that along with some other issues they just never had it laid out to where you can take advantage of it like they were in the past when they were in Manhattan. Very pleased to announce that going into this year's 2025, Country Stampede we have, just as of yesterday, secured our 2026 headliners, and I mean for all three days. So that is very exciting, very dramatic in regards to how that plays out also to your cash flow. The way it works, at least in the Country Stampede is while you're there, if you're participating in that particular festival and you like the headliners that you're seeing that are going to be performing the following year, you have the ability to renew your seats right then and there. Otherwise, if you elect not to, then they'll go on sale for the general public with the following couple of weeks. So this is going to be the first time since Digital Ally's owned Country Stampede that, that has got put in place. We also now have created a pretty good -- a lot of respect in the industry and to have other venues contacted us, wanting us to bring Kustom 440 in production to their sites. So while we anticipate only doing maybe eight different events here in 2025. That number is going to be multiples bigger in 2026 as we now have a little bit of a runway to work with. And so there should be some good growth that you can see from '25 to '26 along those lines, too. So you can tell, while there's a lot of excitement going forward, we regret the learning curve and some of the pain of the past, but that's not where our focus is. We're looking forward to accomplish some things and continuing to build on a lot of the legacy that we've originally established and how we can expand on that. And I think you'll see that in the coming quarters, and we will be doing more of these calls. You'll see myself and others out there participating in conferences that we have not been able to participate in while we were associated with the past, the SPAC and such. We just were somewhat -- our hands were sort of tied on what we can get out there and be talking about. But a lot of that is behind us, and we couldn't be more excited. There's a lot of companies out there that you can take a look at that if you want to try to get comps and understand a little bit about the business, whether it be Live Nation or Venue or then -- obviously, the law enforcement side, there's our video solutions side, there's still the axons in the world that are out there as well. So we're excited about the future. We've got a lot to still accomplish and we're ready to take on that task. And so with that being said, I want to thank you all again for attending today and look forward to you guys participating in the our second quarter call when we announce it. I will tell you one more thing before parting is that it is anticipated that next year, which would be the last weekend of June, we will be holding a shareholder conference back here in Kansas City. So therefore, when we have the shareholder meeting here in Kansas City, hopefully, everyone could stick around a few days and participate in the Country Stampede event, and sort of see firsthand what it looks like for a Kustom 440 production. So I wish you all the best. Thank you again for your time today. We look forward to talking soon. Thank you.

Thank you. And this concludes today's call. Thank you for participating. You may now disconnect.

Good morning, ladies and gentlemen, and welcome to the Digital Ally Second Quarter Earnings Conference Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. [Operator Instructions] This call is being recorded on August 19, 2024. This conference call may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. We may use words and other expressions that are predictions of or indicate future events and trends and that do not relate to historical matters rather to represent forward-looking statements. These forward-looking statements are based largely on our expectations or forecast of future events, can be affected by inaccurate assumptions and are subject to various business risks and known and unknown uncertainties, a number of which are beyond our control. Therefore, actual results could differ materially from the forward-looking statements expressed in this conference call, and readers are cautioned not to place undue reliance on such forward-looking statements. We generally do not publicly update or revise any forward-looking statements expressed in this conference call, whether as a result of new information, future events or otherwise. There can be no assurance that forward-looking statements contained in this document will in fact transpire or prove to be accurate. I would now like to turn the conference over to Stan Ross, CEO. Please go ahead.

Thank you. Thanks everybody for joining us today. With me is Brody Green, the company's President. He'll do a high-level overview of our numbers, and then, we'll start getting into answering a lot of the emails and text messages we've had over the last several weeks concerning the status of the merger of Kustom Entertainment with Clover Leaf Group. And so, lots happened on that that we'd like to share with you and some timing issues concerning the first round of dividends and then the second round of stock dividends as well. And maybe give you just some insight on associated value that this entails in regards to Digital Ally and its shareholders. So, with that being said, I will pass the call over to Brody.

Thanks, Stan. Like you said, I'll just do a brief overview of the financials. Greater detail will be in the Form 10-Q up on the SEC's website. Feel free to take a deep dive in there just for further details. I think the more pressing conversation is going to be regarding the business combination. So, we'll get to that as soon as we can. So, the current assets of the company at June 30, 2024, were $14.2 million, down about $1.3 million from year-end. Similarly with total assets, that was at $43.3 million compared to $47 million on December 31. Total current liabilities bumped up to $27.6 million. A chunk of that is about -- a little less than $4 million attributable to the warrant derivative liabilities, which is just the Black-Scholes value of the warrants, some from earlier transactions and some from the June 25 transaction as well. It's a non-cash liability, but nonetheless, liability on the books. Total liabilities is $40.3 million. Now you can see our contract liabilities sitting on the balance sheet, where $3.1 million is current portion and about $7 million for long term. That's our deferred revenue for our three- and five-year contracts. So that's -- those are really going to find their way up to the P&L as those mature and come due. Total stockholders' equity at the end of Q2 was a little over $3 million. So that wraps up the balance sheet. Again, further details you'll find on the Q. And then, for the P&L side, our total revenue for the quarter was $5.6 million, with a total gross profit of $242,000. We had an operating loss of $3.9 million, with a net loss of $5 million and then a net loss per share of $1.74. And then, our current -- at the end of Q2, our current shares outstanding were 3.5 million. And I think that's really a summary. One good thing to call out is our deferred revenue continues to grow. I think it's up to -- it's a little over $10.5 million at this point, I believe. So again, continuing to grow quarter-over-quarter and it will continue to be recognized in the quarter in which it's renewed. So, this continues to grow and hit the P&L just every year moving forward. And as that balance increases, that's pretty much the goal of what we're trying to do with the subscription model. So, it continues to work. And I know we had a few big events this quarter on the Entertainment side as well with them having their festival at the end of June. And I'll let Stan touch on that along with a few other items. So, I'll turn it back over to Stan.

Good. Thanks, Brody. Yeah, much -- a lot of the calls and, as I said, emails even text messages have been around the business combination agreement where Digital Ally is selling one of its subsidiaries, which is Kustom Entertainment to Clover Leaf Capital. They are currently a NASDAQ company. I just looked up their stock, it's still trading nicely, $12.40. We've already done the record date for the first round of dividends. So, there will be approximately almost 2.3 million shares of Clover that will be sent out to the Digital Ally shareholders. That's the equivalent -- just using today's price, let's just say after the merger is completed and the price, let's say, stays where it's at, that'd be almost a $7.70 stock dividend that those shareholders of record will be getting. And the shareholders of record were those that were shareholders at the end of business on August 12th, so last week. So, that should be happening. What will also transpire is Digital Ally itself will then be receiving and holding on to almost 7.6 million shares. And so, you can do the back of the envelope math on that, it's an astronomical number and a lot of value that comes into Digital Ally, especially if the stock holds strong where it's at. And eventually the goal is to go ahead and dividend out those shares as well. There will be a new record date established and those will be sent out in about six month period of time as well. So, now the timing, those who've been following closely know that Clover got their SEC approval of the registration. So, it's active. They are now having their shareholder vote to complete this transaction. I want to say it's at 10:00 o'clock Eastern Time this coming Friday. Once that is completed and we continue to move forward on cross the T's and dot and I's and making sure all the things that have been agreed upon in the business combination agreement are there. Then, we'll move forward the following week into completing that transaction. So, while this has been a very, very, very long haul, as you recall, we sort of announced this project back in December of '22 and then started going down this path and negotiating in about March of '23. Actually entered into an agreement, I want to say it was in June of '23. So, just been a long, long road, but I'm excited about the prospects and the value that it brings into Digital Ally and for its shareholders and the opportunity for clarity on the companies as well. So, it puts a situation where one of the ticketing platform and the festival platform is now out there on its own. So, you essentially have now video solutions and the medical billing company that are part of Digital Ally and it makes it a little clearer to define Digital Ally and who they are by getting Kustom Entertainment moved out. So, excited about that, excited for the value. I'm sure that both companies will be reporting the outcome of the votes. We'll probably -- it's not always good to be doing news releases on a Friday, but the importance of this clearly will have us running something as soon as we know what the outcome of that vote was. And at that point in time, I'm sure we'll be trying to establish a closing date that we will try to include in that release as well. So, been a long time coming, excited to cheer for, again, like I said all the Digital Ally shareholders, Digital Ally and also the new Kustom Entertainment. With that being said, we will touch real quickly on our festival. It was our first year that we acquired Country Stampede. We were in a new location. We had a lineup that was very good and we're excited about the future that Country Stampede holds. It's a 28-year-old country festival, one of the largest and -- if not the largest in the state of Kansas and probably throughout the Midwest. We look to up our game a little bit next year. We've already got offers in to a new lineup for 2025 and looking at multiple festivals that we'll be doing under the Kustom 440 as part of the Kustom Entertainment spin-off. So, with that being said, why don't we go ahead and open up the lines for Q&A please?

Thank you. [Operator Instructions] Your first question comes from Rommel Dionisio from Aegis Capital. Please go ahead.

Good morning. Just -- thanks for taking my question. The first is just a housekeeping question. Could you guys just clarify, please, shares outstanding? It's showing 3.5 million, but I thought you had 2.8 million and there's 1.2 million from the offering. Where's my math off on that? I thought it would be more like 4.0 million and I see 3.5 million only. Thanks.

Yeah. So, it's 3.5 million at quarter-end, because the prefunded warrants had yet to be exercised from the deal. So, now it is up to, I don't know, I believe you're -- I think it's -- yeah, it's a little less than 3.7 million now. But at quarter-end, it was -- what was the number? It was 3.5 million at quarter-end. And then now let me just double check the face of...

Thank you.

But it shouldn't be -- yeah, it's a little less than 3.9 million at this point after all the warrants were exercised.

Great. Perfect. Thanks. Okay. And just more of a fundamental question, I wonder if you could just give us an update on the FirstVu Pro and some of these models that you've launched over the years. Sounds like the deferred revenue number is really growing. So, please comment on the execution of that strategy that you've been laying out the last few quarters and how that's all going? Thank you.

Yeah. We continue to push that FirstVu Pro out and all the docking stations there, the 8-bay in '24. It's kind of a -- I mean, it's -- we did the subscription model more for financing purposes instead of a massive CapEx for these municipalities, cities and especially the commercial side, too. It kind of -- it gives them time to -- it's more of an annual fee rather than a massive undertaking in year one then they use for five years. So, it's worked well on our -- the sports teams. They've enjoyed the subscription model as well as the Royal Caribbean cruise lines and several other colleges and whatnot outside of just law enforcement as well that they sign up for these three- or five-year contracts in which they can pay off cash flow rather than off of big CapEx spends throughout the -- they don't have to make a massive investment. So, yeah, we're happy with that balance continuing to grow, and we hope for it to just continue to compile and then obviously be recurring revenue for us year-over-year, not just from a financial reporting standpoint, but also from a cash flow standpoint.

Great. Thanks very much.

Thank you, Rammel.

[Operator Instructions] And there are no further questions at this time. I will turn the call back over to Stan Ross for closing remarks.

Well, again, thanks everybody for jumping on real quick. And also, want to again point out that both Digital Ally currently has a shareholder vote coming up here this Friday and Clover Leaf Capital also has one on Friday concerning the business combination agreement. And so, we will keep you posted through both the press release and 8-K as soon as we have the outcome of those numbers. So, thanks everybody. Have a great week and we'll talk soon.

Ladies and gentlemen, this concludes your conference call for today. You may now disconnect. Thank you.

Good morning, ladies and gentlemen, and welcome to the Digital Ally First Quarter Earnings Conference call. [Operator Instructions] This call is being recorded on Tuesday, May 21, 2024. This conference may contain forward looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. We may use words and other expressions that are predictions of or indicate future events and trends and that do not relate to external matters, rather they represent forward-looking statements. These forward-looking statements are based largely on our expectations or forecast of future events can be affected by inaccurate assumptions and are subject to various business risks and known and unknown uncertainties, a number of which are beyond our control. Therefore, actual results could differ materially from the forward-looking statements expressed in this conference call and readers are cautioned not to place undue reliance on such forward-looking statements. We generally do not publicly update or revise any forward-looking statements expressed in this conference call, whether as a result or a new information, future events or otherwise. There can be no assurance that the forward-looking statements contained in this document will, in fact, transfer or prove to be accurate. I would now like to hand the conference over to Canara, CEO. Please go ahead.

Thank you. Thanks, everybody, for joining us today. I know we had a call not too far back in regards to our year-end numbers and gave everyone a preferral update. Obviously, this is our first quarter call. And while it's been such a short period, the timing between our 2 calls, really excited what all is -- has happened since we last had a chance to talk to you. Obviously, you've seen some press releases on Digital Ally and some of the video solutions contracts that they've received, including the ones with the Kan City Chiefs. And also, you probably have seen that we've had another very quick turn on an S-4 filing that was done by Clover in regards to the purchase of custom entertainment from Digital Ally concerning the SPAC acquisition. So we're really pleased that, that is progressing along very nicely. Hopeful to hear something in the coming days that we're getting close to having this completion, and then we'll move on, obviously, to all the votes and stuff necessary to get it finalized and then move forward for those of you that may be new to the call, you do realize that there will be stock dividends that would be shared with the Digital Ally shareholders upon completion of that. So really excited about it. Clover stock is still holding very strong up around the $12 point. We're still real close to about a 4:1 ratio in regards to what the Digital Ally shareholders will get. So just been moving forward on it. Like I said, hopefully, you hear something back rather quickly from the SEC and get this thing buttoned up in the coming days. With that being said, we'll go ahead and do a recap of the first quarter numbers. Brody Green is here with me and is President of Digital Ally. So Brody, I'll let you take it.

Thank you, Stan. And as Stan mentioned, it's only been probably 45 days since we last spoke. So not a whole lot of substantial changes, at least as far as the balance sheet goes, and we'll run through the Q1 P&L as well and compare it to 2023's first quarter numbers. You guys probably noticed we filed our Q a couple of days late. That was just due to some -- right after the Q -- or sorry, the rest of the 10-K and the annual audit, it gets a little fast pace to get this Q wrapped up in time along with all the S-4 filings we've been working through for the business combination. So just a 48-hour delay on that, we do apologize, and we don't anticipate that being a trend here moving forward. Going through the balance sheet. At Q1 of 2024, our total current assets were $15.1 million compared to $15.6 million at year-end, so really a $0.5 million change in total current assets mostly due to -- just -- that's mostly attributable to inventory decreases as far as what we have in stock here along with probably a couple more write-offs included within that as well as far as our reserve goes. Total assets at quarter end were $45.2 million compared to $47 million at year-end. A lot of that's related to an asset sale we had during the quarter. Total current liabilities was slightly up to $24.7 million compared to $22.5 million at year-end, largely related to accounts payable and some debt obligations taken on during the first quarter as well. Total liabilities, a similar increase of up to $37.6 million compared to $35.6 million at year-end, so up about $2 million, again, related to accounts payable and some debt taken on during that first quarter. You'll see our stockholders' equity is $7.5 million at the end of first quarter compared to $11.5 million at year-end. That's just in line with a small decrease in assets and a small increase in liabilities. As far as the P&L goes, revenues were down in Q1 of '24 to about $5.5 million compared to $7.7 million last year in the first quarter. However, the real sticking point is our gross profit remained flat at $1.5 million compared to the first quarter of $23 million, which is really a testament to us really focused on rightsizing and working towards profitability and right -- focusing on profitable revenues rather than just revenues for the sake of revenue. So seeing that gross profit number remain at $1.5 million with a $2.2 million decrease in total revenue is exactly what we are hoping for as far as the gross profit comes. And then another big change is our total SG&A for the quarter was $5.2 million compared to $7.7 million in the prior year. So a $2.6 million -- $2.5 million, $2.6 million decrease in SG&A, which is very substantial, which brings our operating loss to $3.6 million compared to $6.2 million last year. So a large improvement in our operating loss compared to our first quarter of 2023. Obviously, still a lot of work to be done, but that's definitely a big step in the right direction to keep our gross profit flat and our operating loss substantially lower. Some other -- you'll see in our stockholders' equity section, really no change in that section, some minor stock grants during the quarter about it. We're really trying to keep that ratio for the business combination, as Stan mentioned, as close to 4:1 as we can. We're close to the finish line there. A few other things just to touch on. Our deferred revenue is up to $10.6 million at March 31, '24 compared to $8.9 million at this time last year. So up about $1.6 million, which is attributable to our subscription model that we talk about every quarter and just those contracts continuing to pile up as deferred revenue gets larger and larger each quarter as we anticipate continuing on here every quarter after this. Like I mentioned earlier, the decrease in inventory down from $3.8 million at year-end to $3.1 million. Our gross inventory was about $7.6 million compared to $8.4 million at year-end. So that's really attributable to the decrease in net inventory. One large item during the quarter, and I don't think Stan touched on this yet was the acquisition of Country Stampede that we completed on March 1 of '24. So Country Stampede, I'm sure Stan will touch on further once I wrap up. But that's a very, very large country festival that's very prominent in the Midwest. It's a 3-day festival that brings in -- I mean, I think it's between 15,000 and 25,000 people a day throughout. So it's a very well-established festival here in the Midwest that there's -- I think -- whether it was the date is June 25 through 27 this year.

Through 29th, I believe this year.

June 27 to 29. So again, that's coming up here in about a month, and that acquisition is very exciting for the company and for the customer entertainment sector as well. As you'll see in the 10-Q, we have our segment footnote, I think it's footnote 18. You'll see the net -- the revenues for each segment of video did about $1.7 million this quarter. Revenue cycle management did $1.4 million, and the entertainment section did about $2.4 million. So that brings the total revenues to $5.5 million. You'll see our gross profit in the video side was almost $600,000. Revenue cycle management was about $0.5 million, and the entertainment section was also about $0.5 million. You'll see there's a large depreciation and amortization on both the video solutions side and entertainment side. That's due to amortization with the acquisitions the entertainment section have done. So with TicketSmarter, they have the large amortization that hits every quarter, which flows through the P&L, unfortunately. Now on the video side, it's depreciation of some assets on the books here on the video side. So overall, a lot of positive signs in this quarter, getting our gross profit to remain flat compared to this time last year even on lower revenues is very exciting because that means our goal to rightsize everything and focus on profitability is coming together. Obviously, still some work to do, but at least we're turning in the right direction and very excited about the future as we continue on here. One last item, as Stan mentioned, the S-4 continue -- we continue to file those. And we're on Amendment 4 for now with the SEC. We got that on file on May 13. So just 8 days ago. We expect your comments back yet this week from the SEC. They only had 6 comments on this last version. So hopefully, those are wrapped up, and then we can -- once we get here back and then we'll promptly file another version with our Q1 numbers included as our numbers are now stale. So we'll get their responses on those 6 comments, drop in Q1 numbers for both custom and the SPAC. And hopefully, that version can go effective shortly thereafter. And we'll obviously keep you guys posted on that. And I encourage you to look at Clover's filings, the C-L-O-E on NASDAQ, that's where the S-4s will be filed within the spec. And then for any further details on our financials for the first quarter 2024, please jump into EDGAR and read our Form 10-Q for more details about our activity throughout the quarter. I'll turn it back over to Stan.

Thanks, Brody. Yes, a couple of things. Obviously, [indiscernible] aligns its video solutions and its position in law enforcement is still strong and still thriving in those areas, and they continue to pursue new customers with the commercial division. And so very excited about that. The acquisition that Brody was talking about on Country Stampede, that particular festival has been around for 28 years. And everyone from the Taylor Swifts of the world, Blake Shelton, and many others have performed at this festival over the years, and it has drawn big numbers in the past. And depending on, I think a lot of it is the venue that it's at in the past, it used to be at a state park. It's got moved a couple of times, and we'll look at what we need to do to get back to a larger venue than what we have the capabilities of right now. But very excited. The numbers we'll hit in this quarter, the second quarter with it being the last weekend of June. We also will be announcing the 2025 lineup. We also have additional festivals that were going -- that customer entertainment will be doing yet this year. And so excited for its growth as well, let alone the ticketing platform that we're able to utilize such as Country Stampede, we're using our own ticketing platform through TicketSmarter. And so it's nice because -- and I've said this time and time again, as we do these events, providing the venue doesn't have something already in place, we will also be doing the ticket sales as well, which is just an added benefit and also helps to the profits associated with the events. So very excited that we're close to the finish line on the business combination agreement. And as soon as we do hear back and we plug in these numbers, we could turn that right back around to them and hopefully then go effective. So Julie will then open this up for any type of questions that we may have with our listeners.

[Operator Instructions] There are no questions at this time. I will turn the call back over to Stan Ross for closing remarks.

Well, again, thanks, everybody, for joining us. And like we said, we know that it was only about 45 days ago that we were having this call and a lot of things have happened very positively. We know that there's going to be potentially another exciting call here in the coming weeks so that we can share with everybody. So anyways, thank you. Have a wonderful day, and we'll wrap this up. Thanks, Julie.

Ladies and gentlemen, this concludes your conference call for today. Thank you. You may now disconnect.

Good morning, ladies and gentlemen, and welcome to Digital Ally, Inc. Q3 2023 Operating Results Conference Call. [Operator Instructions] This conference call may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. We may use words or other expressions that are predictions of or indicate future events and trends and that do not relate to historical matters, rather they represent forward-looking statements. These forward-looking statements are based largely on the expectation or forecast of the future events, can be affected by inaccurate assumptions and are subject to various business risks and known and unknown uncertainties, a number of which are beyond our control. Therefore, actual results could differ materially from forward-looking statements expressed in this conference call. The readers are cautioned not to place undue reliance on such forward-looking statements. We generally do not publicly update or revise any forward-looking statements expressed in this conference call, whether as a result of new information, future events or otherwise. There can be no assurance that the forward-looking statements contained in this document will, in fact, transpire or prove to be accurate. I would now like to remind everyone that this call is being recorded on November 15, 2023. I would now like to turn over the call to Stan Ross. Please go ahead.

Thank you. Thanks, everybody, for joining us today. I have Brody Green, the President with me today. Brody also, as many of you know, has been acting as the CFO as well during this time of our transition that -- to where we're looking at the spin-off with Kustom Entertainment and some of the parties will be going in that direction and others should be staying with the legacy business. But what we're going to do today, Brody is going to give you a little overview of the numbers and sort of some insight to some of the things that we've done to dramatically reduce some of the expenses that we've been telling you all that we've been working on for some time, and that, I think, is clearly shown on the reduction of some of them that are out there, and you can see that the [indiscernible] again. And so we're excited about that. And then we're going to spend a little time. I know that many of you want to get an update on where we're at on sort of the timing of the spin-off of the -- with Kustom Entertainment. I will tell you, there's -- we just found out that there's been a little bit of technical difficulties with some of the software being loaded up in regards to this call, nothing to do with Digital Ally with this call. So we're going to do our best that we can to inform you as well as we can, but we will not be able to have a Q&A session at this time. So hopefully, we do a good job of bringing up to speed and anticipating what those questions may have been and can address them for you. So Brody, I'll let you give them the highlights on the numbers.

Yes. Thanks, Stan. [indiscernible] a quarter with a lot of change and a lot of improvements on the SG&A and spending side that in turn directly impacts our bottom line. So I'll just flow through the face of the financials first and then kind of through some other higher-level points we'd like to touch on and then turn it back over to Stan. So I'll start with the balance sheet. At September 30, 2023, we had our total current assets at about $19.4 million, a small decrease since December '22. Total assets was $51.4 million, a similar decrease as compared to year-end 2022. Our total current liabilities at the end of the quarter were $24.1 million and then total liabilities about $32.5 million. So we have stockholders' equity currently sitting at $18.9 million at quarter end for Q3. On the P&L side, revenues were north of $6.3 million, a bit of a decrease for the same quarter of 2022, but part of that is part of our rightsizing, particularly in the entertainment side with the ticketing [indiscernible] our pay-per-click and marketing dollars can directly impact our revenues, but positively impact our bottom line. Similarly, with cost of revenue, you'll see a large decrease there that really correlates with the decrease in revenue. And then as we've been talking about our gross profit for Q3 of '23 was north of $1.2 million compared to the same period in '22, it was less than 600,000. So we've more than doubled our gross profit quarter -- quarterly comparison from '22 to '23. Similarly, our SG&A was down about 800,000 to $6.4 million from the same quarter of '22. And then one other item we'll call out, that in the other income, obviously, we have the warrant derivative liabilities, which is just a change in liability for our -- the warrants we have out there just due to some accounting nuances. So that was the change in value of north of $1.8 million. So you'll see a line of gain on extinguishment of liabilities of about $0.5 million. That is part of the reduction in sponsorship and marketing expenses we've pushed for over the past quarter in which we were able to rid ourselves the [indiscernible] liabilities and contractual obligations during the quarter and moving into Q4 as well as terminating future contracts that we weren't seeing the results out of that we wanted. So it shows a $0.5 million benefit here, but I think, internally, we know about [ the $7 million ] that we're saving moving forward. That might not necessarily be reflected on the income statement, but they will come off in future years on the expense side. So in short, our net loss for the quarter was about $3.7 million compared to $1.9 million in the same quarter of last year. Comparatively, the same quarter of '22 had a $3.6 million gain on extinguishment of warrant derivative liabilities and $1.2 million on change in fair value. So it was [ fluff ] about $4.6 million with the warrant derivative liabilities in '22. So -- comparatively, it's still very similar and frankly, an improvement since 2022. Quarter-over-quarter, our revenues were down from Q2, but Q2 had the Kustom 440 concert that they put on in May, more of those to come, which will continue to improve revenue along with gross profits. Our deferred revenue number, as we always like to discuss and point out is approaching $10 million. It's at $9.9 million at September 30 of '23. That's up over $2 million from December 31 of '22. So we'll just continue to see that increase over time. And obviously, like we always say, it really brings our starting sales number each month and every quarter well above 0. So we'll just continue to recognize those contracts that are 3 and 5 years and just [ continue to ] stack those up. At the same point of last year, our deferred revenue was less than $7.2 million. So really a $2.7 million increase from the same period last year. So it's over a 12-month span. And we just -- that's only going to continue to grow and grow. So it's an exciting piece for us to have sitting on the balance sheet. Part of our net loss this quarter was due to large inventory write-off of expiring products and trying to scrap some older products that have been in our warehouse for quite some time. We had some R&D for some new products coming up. And hopefully, we'll put those out in the market here in 2024. But obviously, the R&D expenses are incurred now. Obviously, there are several expenses related to this business combination with Clover Leaf that we're pushing through, and we'll have an update on that here shortly. But there's several kind of one-off pieces in these numbers this quarter and likely in '24 -- in Q4 as well as we work towards this transition and this transaction could be completed. And then from there, I think we'll really see an improvement on all sides. Some subsequent events, I'd like to touch on, we appointed a new Board of Director, Duke Daughtery. We appointed him on October 17, [ filed in ] 8-K. So please reference that if [ you'd like some ] more information on it. We completed on October 26, the Loan Agreement and Mortgage to take out the convertible notes we had outstanding of $3 million. So we resolved those and for the mortgage on our building here currently, that was free and clear and [ paid for ] cash several years ago. Again, this is all in the 10-Q, and I encourage you guys to go into 10-Q and take a full look at all this as well in greater detail. And lastly, a brief update on the business combination with Clover Leaf [indiscernible] in October. We've since received comments back from the SEC, and we're working to provide responses to those as soon as we can. We'll have to throw in Q3 numbers as Q2 numbers are [indiscernible]. So we'll give hopefully responses here as soon as possible back to the SEC to move this forward. And with that, I'll turn it back over to Stan and [indiscernible].

Yes. Thanks, Brody. So you can tell, in regards to the numbers, I mean, I think the fact that the reoccurring or the deferred revenue continues to grow as almost at $10 million, so there's an awful lot of the ability and longevity of what the legacy businesses are continuing to build. Medical billing is continuing to [indiscernible] along. No surprises there, continues to kick off good cash flow for us as well. And then you've got the new products that are really starting to get out there, new budgets are coming up, companies that have had long-term contracts with other vendors are now getting to see the new Digital Ally products, and again, been very well received at all the shows we've been to, and those are reflected in the reoccurring revenue/deferred revenue that we're continuing to see and building upon a subscription model for the video side of things. We do anticipate seeing -- going into the tail end of this year and obviously in 2024, some real nice improvements on the commercial lines. We've been out there with the new product. It has been well received, a lot of [ T&Es ] have been going on. So again, I think the legacy business is poised really well to continue to be bringing in new customers and continuing to retain their existing ones with the quality of the new products that we're bringing along. Also, as Brody pointed out, the revenues quarter-over-quarter. And again, that was because of the concert that Kustom 440 put on. I think it generated almost $1.1 million, which was realized out of the box, a small concert that we did somewhat in our backyard here. We do have anticipated additional concerts that we'd look to do quite a few, obviously, not just one-offs, quite a few in 2024. So while that may be more of an impact on the Kustom Entertainment and then at that point in time, the spin-off, that [indiscernible] should be looked at as a very positive because at the end of the day, upon the completion of this merger, you're going to -- all the Digital Ally shareholders will also be Kustom Entertainment shareholders. So excited for that to continue to move forward. I know that many of you may know this, but some of you may not. Just trying to give you an indication of timing on how these things work. But regularly, the S-4 was filed, the SEC had 30 days to get back to us. They did. Comments have been addressed. And now it's just a matter of plugging in the new, what I want to say, third quarter numbers because Q2 is [indiscernible] in their eyes. So Q3 numbers will get plugged in, and then that will be filed with the SEC. At that point in time, they have 10 days to essentially respond. And hopefully, at that point, they come back with very few comments, if any, and should be fairly quick to respond. There shouldn't be any financial issues by any means for us, [ then the ] numbers is just a clarification. Their role is really just to try to do best they can to make sure that all investors have a real clear understanding -- idea of the investments that they may be making. So it's more of making sure that all the disclosures are in there. And [ have no ] problems with that -- with both companies being publicly [ held ]. We've been doing that for some time. So excited about getting close to the finish line on the Kustom Entertainment spin-off. Of course, I will be going with Kustom Entertainment, usually a [ little bit of that ] background as far as, I guess, what I was raised with and very familiar with the markets. And so that I'll be going. Duke will be joining me as one of our Board members. We were able to recently -- we have identified a CFO that should be coming on board for Kustom Entertainment. So that's getting -- all the management people are getting -- put in place. So it's closer than we think, especially with the holidays, the way they're coming up, this will fly by and will -- before we know, it would be making the announcement. And so what will happen on that too is, at that point in time, we'll make sure that, obviously, everyone know, Clover will be the one making the announcement. They'll do a quick shareholder vote/hopefully approval to go ahead and finish what we started here. Meanwhile, we will continue to move forward on building Kustom Entertainment, both the ticketing platform and the production platform in the coming weeks, coming months and I think you'll see some announcements on that. I really apologize. We're unclear on why we can't bring up the Board and everything to go into a Q&A. So I'm not sure where the problem is. But if there is some questions that come up or anything that we can answer that is already out there that [ you just need ] a little more clarification on, please reach out to Brody and/or I, and we'll do the best [indiscernible] to help explain anything that may be out there that we haven't addressed. Brody, you got any comments on anything or...?

No, I don't think so. Like I said earlier, I would encourage you guys to take a look at the 10-Q, it has all the details you could want. So I would dig in there. If you have further questions [indiscernible] obviously reach out to us. I think 10-Q is a great source to really see where the company is at and where we're heading. [indiscernible] good.

All right. Well, listen, thanks, everybody, for getting on. Again, deepest apologies for not being able to get into a Q&A side of things. But we will be back in touch, I'm sure, very soon, and we'll do -- we'll keep you guys abreast of the timing of the merger with Clover and Kustom Entertainment. Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.

Good morning, ladies and gentlemen, and welcome to the Digital Ally Inc. Second Quarter 2023 Operating Results Conference. [Operator Instructions] This conference call may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. We may use words and other expressions that are predictions of or indicate future events and trends and that do not relate to historical matters rather they represent forward-looking statements. These forward-looking statements are based largely on our expectations or forecasts of future events, can be affected by inaccurate assumptions and are subject to various business risks and known and unknown uncertainties, a number of which are beyond our control. Therefore, actual results could differ materially from the forward-looking statements expressed in the conference call, and readers are cautioned not to place undue reliance on such forward-looking statements. We generally do not publicly update or revise any forward-looking statements expressed in this conference call whether as a result of new information, further events or otherwise. There can be no assurance that forward-looking statements contained in this document will, in fact, transpire or prove to be accurate. I would like to remind everyone that this conference is being recorded on August 15, 2023. I will now turn the call over to Stan Ross, CEO. Please go ahead, Mr. Ross.

Thanks, Michelle. Thanks, everybody, for joining us today. Also in the room with me is Brody Green, the President and also -- we have Tom Heckman that has called in as the CFO, but Brody and I will be conducting the call today. I just like to, first of all, thank all the Digital Ally employees and especially the hard efforts that went into getting the 10-Q filed on time, which was really a task when you look at the significant amount of work that is also going on concerning the announced business collaboration agreement that we have concerning Kustom Entertainment with Clover Leaf. So it wasn't an easy task, a lot of folks had to wear a lot of different hats, but it's real nice to see that everyone pulled together and got it done on time. Also very proud of seeing the reduction starting to really start to come into play that I think we talked about on the last call concerning the moves that we started making and some transitions that we're making to get away from some of the contracts that we were in, in regards to TicketSmarter that has really helped to dramatically bring down a lot of the expenses. So while the revenue side was off a little that is very explainable, recognizing that we have such a massive amount of capital allocated towards some programs that just were not successful for us. And so getting through those and getting those was quite a project. The other thing is this was a very important 10-Q to get completed as it is also now gives us the very current numbers that will be a big part of the next filing that will be done very shortly in regards to -- essentially, it's an S-4, those that you're familiar with, SPAC purchases. Anyways, so now that we have that, I think we're going to see a lot of movement towards the Kustom Entertainment Clover Leaf agreements. So with that being said, I'll let Brody go over into a lot more details on the numbers, and then we'll come back with some comments and then open it up for Q&A.

Thanks, Stan. And I'm just going to -- like Stan said, I'm going to roll through the numbers. I'll start with the balance sheet and then go through the P&L and touch on a few other points and then probably turn it back over to Stan to go further into detail on the transaction itself. I wasn't sure that's going to be a hot topic for this call. So I'll just briefly go through the balance sheet. As you guys -- everybody saw in the 10-Q, our cash and cash equivalents was about $2.9 million at the end of the quarter. Total receivables. We had about $4.6 million in receivables, along with a net inventory of $5.8 million and prepaid expenses of $7 million bringing current assets to a little over $20 million, along with some other noncurrent assets, our total asset value at June 30 was $53.5 million. Our current liabilities that at $23.4 million with long-term liabilities, bringing our total liabilities to $31 million. So you can see as total stockholders' equity at June 30 of about $22.5 million with 2.8 million shares outstanding at June 30, and I think that number stands true today as well. On the P&L side, our total revenue was just under $8.3 million. As Stan mentioned, it's slightly down from Q2 of last year. But as we walk -- go down this P&L, you'll notice, it really directly correlates with our cost of revenue as we rein back quite a few things on the TicketSmarter side, especially the paper click and some other sponsorship agreements that didn't really reap the benefits that we are hoping for with a high price tag. Our cost of revenue for the quarter was $5.5 million, bringing a gross profit to $2.7 million for the second quarter of '23. That's up almost -- it's up over $1 million from the same quarter in 2022. So kind of like as Stan mentioned, we really focused on working on our cost of revenue increasing those margins, which you can see in $1 million boost in gross profit for the quarter, even with lower revenues. You can see our total SG&A expense was just under $7.7 million, bringing our operating loss to $4.9 million. However, that's a dramatic improvement from an operating loss of $6.7 million in the quarter prior -- or year prior. Also, there's some other income or expenses flowing through related to the interest expense for the convertible note we did in April, along with an accrual we put together for a lawsuit, we're dealing with as well, bringing a total net loss to $8.3 million for the quarter, $8.4 million once you pull out the income attributable to the medical billing side. One point I would like to touch on is our deferred revenue balance. So that's up $1.5 million from the beginning of the year. So we have a current balance of $9.5 million in deferred revenue for -- at June 30, 2023. So that's related to the subscription model and that -- it's continuing to grow and evolve. I think this quarter, we had over 36 new subscriptions with over 300 Pros and almost 50 EVOs included. So you can see those subscription models are just starting to stack up as we've discussed historically, and just I think that deferred revenue number is going to continue to grow quarter-over-quarter as we move forward. Net inventory was $5.8 million at June 30. That's down about $1 million from year-end as we continue to try and rightsize our inventory levels to keep less unnecessary inventory on hand and wrap up capital in that sense. Related to the $3 million convertible note, we did in April, we issued a little over 1 million warrants along with that, those would be at $5.50 exercise price, $6.50 and $7.50 each tiered up as we disclosed in 8-K previously. So that's all high-level stuff. We also, during the quarter, completed our first event under the Kustom440 division that featured Chris Young and Gabby Barrett was a very successful show. I think everybody that attended had a great time. We were pleased with out win. And obviously, that's just a stepping stone for us moving forward as we look forward to announcing more events yet this year and especially into 2024. But it's good to get the first one under our belt and grow from there. Outside of that, we have some new products coming out on the Digital Ally side that were in the market for Q3 and Q4. Those being the EVO fleet, the commercial in-car systems along with the interview room solution. Those have all been disclosed through press releases. So we're encouraged about how the marketplace are taking those, and we'll see some good results here in Q3 and Q4 with those newer product lines. So for any further details, in more detail, you can heard you guys all read the Form 10-Q we filed yesterday afternoon. And with that, I'll just turn it back over to Stan, and I'm sure we'll go into more detail from there.

Yes. Thanks, Brody. And again, a couple of things that I guess I understand the environment that the stock markets in and how hard it is, sometimes to really get a lot of exposure out there, especially going through the summer, too, when there's so many people doing their vacations and they're off on their trips. But schools kick it back up, and I think people will start focusing again on their investments. But to sit there and, again, Digital Ally having a market cap of only $2.5 million and shareholder equities at $22.5 million. Deferred revenue that Brody was talking about is really just the video solutions side of things at $9.5 million. And then you look at the value that the medical billing company continues to generate and build right now, again, with the ticketing platform and the Kustom440, having the ability and has had some very first production or concert or festival whatever you want to call it, which really did well. We were very pleased. It probably exceeded by as much as 20% of what our target was. So the turnout was great. The lineup was great. The -- without any hiccups in regards to the event. So looking forward to being able to repeat that, not only repeat that model back here in Kansas City, again, but we have identified numerous locations that will be announced in the coming months in regards to conduct them to similar festivals in other parts of the country in which we will also be utilizing our ticketing platform to maximize the profitability on those. So anyways, I was very, very pleased and continue to be very excited about the direction that Digital Ally has going and the opportunities that it has in front of us. And including some new and innovative products that I do believe that will be talked about before the years out as well. So Michelle, I think I'd like to go ahead and open up the floor for questions and answers.

[Operator Instructions] The first question in the queue comes from Allen Klee with Maxim Group.

This is Derek Greenberg on for Allen. My first question is just if you could maybe provide an update on how sales are going to fleets currently?

Going to what, I'm sorry?

Sales to fleet.

Fleets Yes. So that really other products I think we rolled out in early Q3. So we had quite a big pipeline prior to that we have several T&Es out there right now as well as some existing customers that are starting to utilize that new commercial product as well as we finally finalized some of this pricing and whatnot with our large insurance partner we have so they can push it out to their current customers as well. So it's really starting to pick up. It just rolled out recently. So I don't really want to speak to sales that happened in Q3 either, but it's really gaining some traction early this quarter and into this latter half of the quarter as well that I think we're going to see the fruits of that labor here pretty soon.

Yes, Allen. One other thing, too, as you may recall, and I think we talked about it maybe a little bit on a previous call, but the neat thing about the insurance company that we're working with. They actually did a white paper on our fleet in-car video system. And Brody, you may have to help me with the numbers again. But essentially, they've seen such a dramatic reduction in the incidences that particular company was having that they paid for almost 90% of the cost of the equipment in the very first year of a 5-year contract but just the reductions that they had in costs associated with those incidences they had prior -- the year prior. So they clearly, clearly are a big fan and advocate of Digital Ally's commercial in-car system. And they've got -- what was it, 200 reps or so that they'll be pushing it out to some, I think, 35,000 customers that they have. So we've really got to be on top of our game in regards to making sure that we can keep up with what we hope to be a very strong demand and be able to have the product in-house to get it out to them.

Great. I also wanted to touch on the medical billing segment of the business. I was wondering if you maybe saw any opportunities to expand that I guess your overall outlook.

Right now, we've really been focusing on -- so part of that, we're buying decent mom-and-pop sized companies and really pushing for increased gross profit within those companies like just some of the procedures and practices that we have in place with our managing members. So I think we've been in the process of maximizing the profitability of those for the time being with those 4 recent acquisitions. But our eyes are always open and looking at other opportunities as well in that same segment. So right now, we're just working on rightsizing and maximizing the bottom line of the recent acquisitions, but we're also keeping our ear to the ground for potential opportunities that pop up in the near future as well.

Okay. Great. I just have one last question. And that's just relating to revenue. I was wondering what percentage of that is recurring?

I want to say the recurring per quarter is about [ $750,000 ] million of every quarter. So -- and that's all pertaining to the video solutions side. So I would say on the video solution revenue, it's probably 35% to 40% of the quarterly recognized revenue is the recurring portion.

The next question in the queue comes from Rommel with Aegis Capital.

Just a couple of questions on the Entertainment segment. I appreciate your comments earlier on the country roots. So I wonder if you could just give us a little more color in terms of kind of attendance relative to expectations, the reception you had in the marketplace, sounds like you generated some nice product revenues. And as we look forward, do you expect that entertainment sentiment to really kind of start to generate -- looking at the 2024, 2025, the lion's share of its revenues from proprietary events such as this one?

Yes. So what -- give you a little idea of how we have a sort of a structured. We have an entity called Kustom440, and it is the production company that actually puts on the festivals. And so to give you a little insight on what we do before we go and take on even attempt to look at a market and then a line up, then obviously, the facility, the food and beverage and the deal terms that we -- we do a full-blown analysis in regards to the economics of it. And so in this particular one, being here in Kansas City. They've had quite a few events going on in town. I mean I think Brooks & Dunn was just a week or 2 earlier at the T-Mobile Center. And so we're essentially doing this in a Minor League ballpark in the actual baseball park. And so our goal was trying to exceed over 6,000 tickets sold. And I think we came in right around 7,200. The other thing that was a little bit -- a very nice surprise is the food and beverage side of things, we were looking at about $29 as far as per head, and we came in closer to 49%. That's sometimes a real combination to weather because weather was beautiful. I mean we got lucky, and it just -- it was just beautiful. So there was a lot of people having a lot of fun, they were out there. We're actually putting a presentation together that we will do an 8-K filings so that you can take a look at just the attendance, the people having a great time and get a feel for what kind of an event that we put on. So we clearly -- we had representatives from other venues that came to town to see what we were talking about as far as the country routes festival. And so everything I've heard from those that went back is how soon can you come in new country roots at our festival? And is there a chance that you could do one yet this year, things along those lines. So it went really well. And our expectations are to try to do somewhere -- I'm afraid you threw out a number, but I will, I think the country roots itself that brand will try to do approximately 10 of those throughout the country in 2024. Now we will mix that up with other different genres as far as we may have Kustom440 rock classic or something, we'll just have a different mix. And then what you do there, Rommel, what I could do is one day I'm doing the country genre and the next day, I may be doing the rock. In that way, then your numbers really get to look nice because you essentially already have the stage, the lights, the power, your arena, everything is already there, all you're really doing is switching out signage and changing up the theme a little bit, right? So that's when I think we're really going to start to maximize some numbers associated with the festivals that we'll be able to put on. And then possibly even in 3 days in the bigger cities. So we've got a lot of them identified, like I said, there will be a presentation and fairly soon that we'll file an 8-K, and you'll be able to go on there. And it'll have some not only alert you to what happened, but also we're going ahead and identify some of the cities that we anticipate in doing this at.

Great. Well, please do one on the East Coast, Stan so I can attend. Thanks very much.

Okay. You got it.

[Operator Instructions] The next question in the queue comes from Bryan Lubitz with Equitable Advisors.

Glad to see the SG&A is going down, the expenses are coming down. And obviously, we're working through the cycle with the sponsorship deals. Are we fully through that sponsorship deal?

I think they're real close, Bryan. It probably -- they may have a little bit that wraps over into the remainder of the year. But I think there's stuff there that we were able to negotiate some value out of. And what I mean by there is it doesn't have to be just 100% driven by TicketSmarter. So what we may be able to do is utilize the spots, the money that we're committed to spend for advertisement for country roots or our next festival and or some things along those lines. So I think we're at a point where what little bits remaining, we're going to be able to get some value out and whether it be, like I said, the advertising of concerts or maybe even the announcement of new products that video solutions coming out with.

And Bryan, real quick, I also think a lot of the school deals and whatnot we had their year-end is 630 because they do the summer year-ends. So I do think in Q3, you'll see that number continue to go down. And I think after Q3, it probably should be where the number lands going forward without some other adjustments we make along the way. But I do think you saw still a bit of the implications from those deals hit Q2. I think Q3 will continue to see improvements there due to what the schools year-ends are.

Good. Good. Okay. So as far as with the Kustom Entertainment, when you guys moved with the merger, does that deal, I assume just goes with you guys over to Kustom Entertainment. It's not canceled out because you're no longer TicketSmarter, right?

Correct.

Okay. All right. So I actually have 2 questions more. I'd like if you guys can indulge me. The first one is about the actual merger. And I know, Stan, you talked earlier about filing the S-4 and hopefully, thereafter, we can see you on that roadshow, so we can start to see exactly what's going to be handed out to the shareholders. As far as the $125 million takeover, just looking at the shares that you guys have outstanding and the shares that Chloe have outstanding, if I'm reading this right, $18 million is coming in cash and the rest of it is going to be coming in the form of stock.

Well, the way it's structured is based upon a value. And of course, with SPACs, they have the ability to do what do you want to say some redemptions and stuff like that. And they had a meeting the other day and had minimal redemption. So that was very, very encouraging. And so once the -- let's say, the SPAC really understands the Kustom Entertainment story, then everyone will be able to really wrap their arms around it. And so then you really get a sense of the amount of cash versus stock. But right now, I think their stock is still trading north of $11 a share is where it's at.

Okay. All right. So the formula could change. But essentially, shareholders of digital are going to get roughly $125 million takeover for the Kustom Entertainment. That's the value.

Correct.

Okay. All right. So now -- as far as -- and this might be a Brody question because, obviously, Stan, we know you're going to be moving with Kustom Entertainment. As far as just looking at you guys' balance sheet and having assets over $50 million and having $9 million in deferred income coming your way and $20 million worth of revenue roughly that you're going to be looking at? And then looking at a market cap of 14%, again, we find ourselves in a spot where I don't know if we have a poison pill or protection for us, but what you guys are generating, the market's just not simply giving you value on it. At some point, Brody, are you looking to shop the company because, again, you have $15 million in assets out there and have a market cap of 15%, but then to sell a portion of the company at $125 million, just the numbers are just not working out where you guys are getting value to be public.

Yes. And I think that's part of the driver for us doing this spinoff/agreement -- merger agreement is to kind of provide clarity between the 2 companies and 2 stocks to show what Digital Ally is and what Kustom is because we think there's been a lot of confusion in the marketplace about what the company is because we're kind of a conglomerate of quite a few things. So I think we're going to see how it plays out post separation and see if we can start getting increased value in the marketplace for what Digital Ally is as well as what Kustom is going to be. And I think we'll go from there. There's no imminent plans to shop it around by any stretch. But yes, we're just -- I think we're going to see where the market takes it after this separation as it's kind of one of the driving forces is the lack of value we're getting as we currently said.

Yes, because I mean, to have a market cap of 15% and a portion of the company sold for $125 million, it's just -- it's manning for the shareholders. You guys know I've been with you guys for a long time. It's just -- for whatever reason, we're not getting the respect that we deserve. And I know I said guys, I had 2, actually well I have one more. This might be a pawn question, but I'm going to ask in regards to this year being really, really positive on the AI movement. And I know you guys have had a lot of AI incorporated into your body cameras as well as the thermal views and things of that nature. Do you see Digital Ally going more down that road in the future in regards to AI with your products?

Yes, absolutely. I think the whole market is going to trend towards AI in some way, shape or form, and I don't see us not being included in that. I think you're going to have to utilize AI in some fashion down the road now to what extent that's yet to be determined. I know AI is also a bit of a scare for quite a few people. So it's a fine line to walk. Obviously, we know AI is coming, but you have to be careful with how much you dabble with it, and it will be interesting to see how we develop that into our current products and systems and to what extent it will be. But yes, we're looking at where the market is going. We all know that.

So the thermal view has like facial recognition and stuff like that included in it, right? Where else do you guys have AI attached to your products right now, if any?

Bryan, I mean, obviously, the in-car systems and even a lot of the body cameras have some of it. And I'll tell you this as well. I mean, there's ways to continue to bring AI even into the Kustom Entertainment side of things. Obviously, we've got a lot of people coming into arenas. We're going to be wanting to make sure and monitor that. Everything on -- from that on the ticketing side and then keep a track of that to where you're not only a production company that's doing great events, but you're a ticketing company that is working right along with the security of those events, therefore, we can identify if there happens to be someone, let's say, like on the no-fly list, right? In other words, they're not supposed to be attending Taylor Swift concerts. So AI is going to be big in our world throughout.

Well, listen, guys, I'm glad to see that expenses are coming down and revenues, hopefully, will start going in the right direction for us, and we're all very excited to see that S-4 that you're talking about, Stan, and obviously, in the next leg of the Kustom/Digital chapter. So kudos to the quarter and looking forward to seeing more news from you guys soon.

Thank, Bryan.

Thanks, Bryan. Okay. I think we're going to go ahead and wrap things up now and really do appreciate the -- everyone that attended. I appreciate the questions. If there -- like Brody said, please take a look at the 10-Q. Please keep your alerts on for when the S-4 is filed and also the presentation that I referred to earlier. And if there is some additional questions, feel free to give us or shoot us an e-mail or a call and we'll try to get back to you and answer those, that we can answer. Meanwhile, I could tell you on a personal front, how excited I am to see the direction and the improvement and just the excitement for all the Digital Ally opportunities that are ahead of us. And so hopefully, that turns in and monetizes for you all. So thank you, everyone, have a wonderful day, and we'll talk to you all soon.

Thank you, ladies and gentlemen. This concludes your conference. Please disconnect your lines.