Digital Ally Inc (DGLY) 2017 Q4 法說會逐字稿

Good morning, and welcome to the Digital Ally 2017 Annual Operating Results Conference Call. (Operator Instructions) Statements made on today's call will include forward-looking statements, including statements regarding our expectations, beliefs, intentions or strategies regarding the future, including statements around projected spending. We intend that such forward-looking statements be subject to the safe harbor provided by the Private Securities Litigation Reform Act of 1995.

The forward-looking statements information is based on current information and expectations regarding Digital Ally, Inc. These estimates and statements speak only as of the date on which they are made, are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict.

All forward-looking statements that are made on today's call are subject to risks and uncertainties that could cause our actual results to differ materially. These risks are discussed in our press releases we issued Tuesday evening and in greater detail in our Form 10-Q filed with the SEC under the caption Risk Factors. You may find this and our other SEC filings on our website at www.digitalallyinc.com.

Please note that this event is being recorded. I would now like to turn the conference over to Stan Ross, CEO of Digital Ally; and Tom Heckman, CFO of Digital Ally. You may begin.

Thank you very much, and thanks, everybody, for attending today. Tom's going to do a pretty in-depth review of our numbers for 2017, and then it's -- I'll take back over and give you a little bit of color in regards to what we're seeing in 2018's outlook. I'll also cover our strategic options that we have out there, that we've retained Roth Capital Partners to assist us with. And we'll also get into our patent litigation concerning our lawsuits that we have against Axon and WatchGuard.

So Tom, I'll let you start off and then I'll jump in after that.

Thank you, Stan, and welcome, everyone. I appreciate you joining us this morning. I want to remind you that we did file our Form 10-K this morning, and I would refer everybody to the 10-K as filed for a more in-depth and full disclosure of what's going on with the company and certainly with respect to the year ended 12/31/2017, so please refer to that. I'll direct my comments more to the larger issues and larger trends that we're seeing as we sit here today.

First of all, I wanted -- I think everyone realizes our conference call and our filing of our 10-K has taken a little longer this year than it typically does, and in fact, we did file an extension, an automatic extension with the SEC that gave us an extra 15 days. So by filing this morning, we met that extended due date. So no harm, no foul in terms of that.

The primary reason for the extension or the need for the extension was we needed to conclude the refinancing that occurred and actually closed on April 3. Although we tried our darndest and really wanted to get this thing closed by the end of March so we could file on time, we were unable to do so for a variety of reasons, including Easter holiday, obviously. But in any event, that's really the reason for the extension. We wanted to conclude that and be able to put that in our financials and in our financial statement footnotes as a subsequent event.

Just talking about that refinancing. We closed on a $6.05 million 8% convertible debenture with institutional investors on April 3. The conversion price is $2.50 per share, which is roughly $0.20 a share above market on the day of close. The convertible debt has 40% warrant coverage included in that, and the exercise price on the warrants is $3 per share, so we got a premium to the market in terms of this financing. We think it was a good refinancing for the company.

We did have some various alternatives that we were looking at, including the existing institutional investors that had the maturing debt from December of 2016. And we concluded to go with this new group of institutional investors, and we believe that it was the best deal for the company and for the investors from a dilution and cash impact.

The convertible debt began -- is a 13-month maturity on that debt and then a PNI payment start in month 4. So we got 4 months of no pay, principal interest. And then after the fourth month, assuming that we do meet the equity conditions in the notes, we can also pay that with PIK payments of stocks. So anyway, we believe that was a good transaction for us, a good financing and it got the maturing debt, off our books and paid off. So that was really the reason for the extension.

Looking at 2017 financial statements. Obviously, they were disappointing to management and the board and probably to the investors as well. Revenues declined by $2 million. And let's look at the reasons for these declines. I think the #1 reason was we did face fierce price competition in our primary law products, particularly the body-worn camera area and as well the in-car systems. I think many of you have heard about the 1-year free product and free cloud services offered by one of our competitors. We chose not to participate in that kind of promotion. And quite frankly, we believed that after the initial year is up, that we will get another crack at those customers when sticker shock sets in with the re-upping of those contracts. So we decided not to participate in those price -- deep price discounts. In fact, giving product away and services away. And we believe that's not the way to compete in that area.

Also, we are moving forward with introducing some new products, especially in in-car video systems, for both law and commercial. Our products are somewhat dated. We do need to come out with newer technology, fresh technology and actually what we believe will be leapfrog technology that we will go forward and probably apply for patents on certain features of that, which obviously, with the patent litigation in our market, we have competitors that try to copycat our advances in technology. And we will protect our intellectual property as we have with the auto-activation technology that we've already filed patent infringement cases on.

So we will be introducing new products later this year. We've got internal deadlines that I won't share with you, but we believe that we'll be coming to market with new hype technology, leapfrog technology, if you will, during 2018 for in-car systems.

Commercial revenues did increase somewhat from a lower base, but actually, it really should have been a much higher increase. I think we've talked about the AMR contract issues that occurred last year. It was our largest commercial contract to date. It got stalled, and because of some issues with some recording capabilities or some events that did not get recorded, we have worked through those issues and are now moving towards a conclusion resolution of those issues, but that did contract revenues from the commercial side. Otherwise, it would've been a much larger increase in commercial revenues.

Also, our commercial revenue sources are primarily service revenues through the FleetVU.com cloud-based management system. Therefore, generally, commercial revenues are not driven by upfront product. Hardware sales are driven more by 2- to 5-year contracts for service -- cloud services using our FleetVU contracts. So in reality, that -- although the commercial products revenue did increase during the year, it would've increased more had we included all the revenue from the service side. But accounting requires us to amortize that over the period of the service.

Looking at 2018. What are we doing to increase revenues and reverse this declining trend in revenues? First of all, the VuLink sales are perking up. VuLink is our auto-activation technology. It is patented. It is a central part of the litigation we have right now with Axon and WatchGuard. We did sign a supply and distribution contract late last year with VIEVU, LLC. It required only $50,000 of shipments during 2017. It was signed late in the year, I think it was November. So we only required $50,000 in shipments in 2017, which they complied with. They have to buy $2.5 million of VuLinks from us in 2018 to maintain their exclusivity as well as $3 million in 2019 to maintain their exclusivity. So we're very hopeful that, that happens, and that -- obviously, that's a big shot in terms of revenue for us in 2018 and beyond.

The introduction, which I talked about, of the new products in late 2018, I think the market will be very receptive to the new features, the new technology that we're going to be presenting. And we believe that, that will lead to some improved in-car video sales.

The AMR contract for commercial purposes, we talked about a little bit. Generally, let me give you some parameters. AMR has roughly 1,500, 1,600 deployed units. What we have agreed to so far is that we will go out and upgrade firmware and replace internal SD card memories in about 600 of those. And at the same time, we will deploy ATU units, asset tracking units, in those 600 units. And the ATUs will generate recurring service revenue of about $20 a month. So you do the math. We're in process of upgrading and installing those ATUs in 600 units. And obviously, that will generate more service revenue for our commercial contract side.

The NASCAR sponsorship, and I know Stan will probably talk about this more, gosh, we're very excited about where we're at with that. I won't tell you the terms of it. Stan may allude to it later, but companies our size typically do not get that kind of access to the sponsorship, the other sponsors in NASCAR. And everyone can look at the racecars that are there and the companies that are well-represented there. NASCAR runs their business as a family business, and they very much promote sponsors to buy from other sponsors, to do business with other sponsors, and we're very excited about the opportunities that, that might lead to. In fact, we're already well down the road on a couple of very large opportunities that were generated specifically by the NASCAR relationship.

We have some very large international opportunities in both large -- in both law and commercial. We can't really report anything at this point, but there's some large stuff going on, particularly in Europe, Turkey, Central and South America, that involve both body cameras and in-car systems that we're very excited about. They're well beyond the selection phase. We have been selected as a provider, but we're still hammering out contract details and implementation, and we're dealing with the laws in general that require data to not be stored outside of the territorial boundaries of those countries. So we're excited about those opportunities, but it's going to take a little bit of time to work through all the issues that surround the storage of that -- those videos and stuff.

Secondary I'd like to talk about is our SG&A. If you look at our financials for 2017 versus 2016, our overall SG&A burn was reduced by $2 million. And primarily, that was a result of an initiative that Stan and I took to the board and the board approved in the fourth quarter of 2017 where we did a substantial headcount reduction and implemented some containment measures in SG&A.

We've seen a lot of progress just in the 2017 figures. And again, that was implemented midway through the fourth quarter. And then some of the headcount reductions did not occur and SG&A reductions did not occur until first quarter 2018. So 2018 should reflect the full year of these savings and reductions. Our expectation is, based on our current estimates of the deployment of these savings, is that SG&A will be reduced by $4.5 million or better in 2018 versus 2017. So as you can tell, it's a very, very significant step in the right direction on the SG&A and working ourselves towards EBITDA positive results.

Obviously, the SG&A cuts were painful but necessary to do that. With the substantial reduction in SG&A, our EBITDA breakeven point is now in the low-3s per quarter, $3.2 million, $3.4 million. And that's really the exact pinpoint of that is really dependent on the gross margins that happen in 2018.

So we brought down our breakeven substantially with these cuts. And hopefully, with the improved revenues that we talked about earlier, we'll be inching towards and moving towards EBITDA-positive results in 2018.

Overall, 2017 was a difficult year but there's some very large catalysts that are out there that either have happened or will happen, or we believe will happen in the near future. What -- the catalysts that have happened, we started the monetization of the VuLink patent. We've talked about the VuLink contract. Competitors are coming to us now. With the successes we've had in the courtroom and at the patent office against the competitors, Axon and WatchGuard, that we believe walked all over our patent, our competitors are now seeing that there -- this patent is going to stick. And they're coming to us. We believe we'll have some more monetization transactions in 2018, 2019. And also the patent litigation is progressing quite well. We've won just about at every point so far. There's -- I don't -- I can't recall, 5-or-so IPRs that have been asserted, and the patent office has pretty much denied all but one, and that one is -- should be resolved in June. So we've done nothing but win in the courtroom and in the patent office. So we expect and hope that to continue as well.

I talked about the NASCAR affiliations and the immense opportunities that, that presents to us. That's a high point for 2018, '19. We do need to monetize that relationship, and we're well on our way to do that.

The commercial FleetVU.com cloud-based software and driver management monitoring platform, is a leader. It's recognized as a leader in the commercial industry. What that basically does is marry -- there's a lot of metadata providers and asset tracking providers that give you the information, but very few combine that with the video capabilities, video and audio capabilities that we have, especially with the VuLink where we can do automatic activation with it as well. So we're recognized as a leader, and we believe that, that is a catalyst that will really come home in 2018 and '19. Obviously, the SG&A reductions that we've already taken in late 2017 and early 2018 will have a huge impact on our full year results for 2018.

Here's the things that we expect to happen in the future that will be large catalysts. We talked about continuing to monetize the VuLink patent. Hopefully, we'll have some news on that shortly. We just need to continue winning the patent litigation against both Axon and WatchGuard. We talked about that.

The new product platform will be introduced later in 2018. We believe that technology will be very appealing to customers and will leapfrog competitors, and we will apply for patent protection on that for obvious reasons. We are close on some big commercial contracts, both international and NASCAR-related, as well as just generally. We've done a good job of marketing commercially our FleetVU and DVM-250 event recorder, so we're very, very excited about some large opportunities that are out there.

So by and large, 2017 was a difficult year, no doubt about it. But we believe there's catalysts that have happened and will happen that will catapult the company back into profitability and hopefully improve the stock price in the near term. Stan?

Yes. Thanks, Tom. Like Tom said, we're seeing strength in both the law enforcement and the commercial divisions and honestly anticipate and expect to see growth in both of those divisions, not only because of the stance that we're having in regards to the substance behind our patents but the overall market itself seems to be a lot healthier. And again, the commercial market is quite new and available to us. There's a tremendous amount of new opportunities that are popping up in that division. So I anticipate that both divisions to have a great 2018.

In regards to our strategic options that we're looking at. To give you a little bit of background, for those that have not been following real closely. A lot of this started back in October of last year. And it was unsolicited but there was a little bit of consolidation going on in the law enforcement market. And we ended up winning in the patent office against Axon again, one of the challenges that they had put up against this.

And so as soon as we had that win underneath our belt and that acquisition occurred, we started getting calls from other companies, not only within our industry but wanting to enter our industry. And therefore, it put us in a position where we needed to go get some outside assistance that could deal with this type of -- these inquiries as we still try to stay focused on running the business.

Since that has occurred, there's been multiple companies that have contacted Roth Capital, multiple NDAs that have been circulated and signed. And we're even at the point of visiting their corporate headquarters as well as their -- would be visiting ours. So that's way down the road.

We really didn't let Roth Capital get very aggressive about going forward on the strategic opportunities because we also knew that we were going to be hearing concerning another IPR that was being challenged in the patent office by WatchGuard and that deadline was in December. And again, we were successful in the patent office in December. And therefore, we were set in a really high position in regards to our litigation capabilities to go after both the Axon/Taser and also WatchGuard.

So we'll talk about them one at a time right now as far as the strategic opportunities. You sort of have to break up the company and look at it from a number of different assets. Obviously, the law enforcement business and customer base is an asset on its own. The commercial division and its customer base is an asset on its own.

Our IP clearly has value. And then we look at the litigation as having a tremendous amount of value. We feel that the successes that we've had in the patent office now puts us in a great position to get in front of a judge and jury, and I say Kansas judge and jury, to go ahead and demonstrate the -- not only the infringements, but the damages that we believe have been generated due to the fact of these guys walking all over our patents.

So with those 4 different assets out there, we can get real creative in regards to what we think is strategic. It could be anything from maybe selling off our IP and keeping the litigation, maybe selling off law enforcement and the IP, maybe selling the whole company.

But all of those options are being explored and there are numerous parties that have, what I want to say, areas that is more attractive to them than one. And there's also others that are interested in the big picture and that's everything.

So pretty excited about our strategic opportunities. As far as the litigation goes and the timing on it, as Tom mentioned, we have been challenged numerous times by Axon in the patent office, and they have been quite unsuccessful in their challenges. We have now been able to go back to the court. We were able to have the stay lifted. We on, I want to say, March 7, we had the Markman's hearing in which we are waiting on a ruling on that, which could occur any day, really anticipating that to occur. I would be a little bit surprised if it goes much longer than this month. And then after that happens, we have been mandated to do mediation within 30 days of it. And also discovery would be within 60 days of the ruling far as the Markman's hearing as well. So you can see, we're way down the road in regards to this litigation. Matter of fact, there's a pretrial conference scheduled for July 24 against Axon. So we anticipate a very active next couple of quarters in regards to our case against them.

WatchGuard, they were challenging one of our patents. And again, the WatchGuard situation's a little, I'd almost say, a little stronger due to the fact that they, right out of the box, were violating 3 of our patents. And they were sitting there and they challenged one of them called the '950 and were successful in it and that ruling came down in December. So they were -- there was a hearing on the '292 back in, I want to say it was in February, and that ruling will come down in June. But once that comes down, no matter how it plays out, it really doesn't matter how it plays out because we still have the other 2 patents against them, we will be going and approaching the court to lift the stay there, and we do believe that possibly, the damages concerning and surrounding the WatchGuard could be equal to that, that we'll be pursuing against Axon.

So the litigation is moving along nicely. It's taken forever. But it's one of those things that as you could tell, it's tremendously a lot closer now than it's ever been. There are no more challenges to deal with in the patent office concerning the patents that we've talked about and the lawsuits that are out there are being addressed. So it's now time to get in front of a judge and jury.

So we're pretty optimistic about what our options are on a strategic front. Obviously, pretty optimistic of what the business looks like for us and the growth at hand. And we will keep everyone well-informed as things progress. So at this time, I think we would like to go ahead and open up the conference call for questions as well.

(Operator Instructions) And your first question comes from Ishfaque Faruk.

So could you give me a sense for how far and how many different parties you're currently speaking with during your strategic review and how far the process is along?

Yes. As you know, I mean, what I could tell you is that I know that there's probably -- were well over a dozen people that have shown levels of interest. There have been nondisclosures that have been signed off on that's in the works or have already been signed off on, 6 to 8 of them. And then talks have occurred with several of them. And you got to realize, some of the initial conversations are being held by Roth while we're continuing to run the business itself. And again, we held them back, like I said, Ish, in regards to making sure some of the real value points in regards to Digital. We're going to be very clear for those that are taking a look at us, and that revolved around the timing of the challenges in the patent office and the litigation.

Okay. And in terms of WatchGuard, when do you think there will be a resolution? I mean, like WatchGuard filed a lawsuit against you, too, right? So isn't that going to be hard to enforce in the court?

I'm not sure I'm familiar with what you're talking about there, Ish. I mean -- go ahead.

They filed a motion for inequitable conduct on your part, too, right?

The counterclaim stuff? Yes, I mean, that would be customarily. I mean, that's nothing that we're too concerned about. I mean, look, the bottom line is they violated our patents. If they didn't believe they're violating them, why did they try so hard to invalidate them? Years. And I can imagine how many hundreds of thousands, if not millions of dollars they spent on trying to invalidate them. So these guys got to do something to try to scare us off, try to have us spend a little bit more money. But it's not the case. We have been very successful in the patent office, and that patent office challenge is basically over with. It's now courtroom time.

Yes. I would add, Ish, that to date, as far as I can tell in reading the law -- the court proceedings in that, neither WatchGuard or Axon have really come out and said that they don't violate our patent. They're just trying to invalidate it so they can continue on with their infringing products. So it's really not a question whether they violate the patent. They obviously do, or else they wouldn't have gone to the patent office to try and get them invalidated. So the question is fairly clear and straightforward as to if the patent stands, which it has so far and it's withheld 5, 6, 7 IPRs and such, that the answer is pretty apparent.

Okay. In terms of financial impact, which one of the companies, is it WatchGuard or is it Axon, which one is having a bigger impact in your -- trying to in your contracts and when you're soliciting the law enforcement RFPs, et cetera?

Yes. So I think if I'm understanding your question correctly, obviously, Axon is the leader when it comes to body cameras. They've done a very, very aggressive campaign and they have had a lot of success. You have to give them that. I mean, the approach they've taken is they went out there and bought the business. And so it's -- they've got a tremendous amount of agencies, officers, licenses that are out there in regards to the body cameras. In regards to in-car, WatchGuard is the company to go after. I mean, WatchGuard's a good company, good competitor. I mean, I'm not knocking the companies and their products. It's just the fact that the way they went about walking all over our technology that we spent a lot of time, money and energy developing and should have been able to monetize that in the general course of business, these guys just quickly copied. But -- so you've got one. In regards to WatchGuard, there's much more of a presence in the in-car, and obviously, Axon, in regards to body camera. Now when it comes to monetization and/or damages, well, I'll tell you what, they may be running neck and neck. And I say that only because I don't have a clear picture of what the bookings and such look like in regards to WatchGuard. Axon has put their numbers out there, and you can get a pretty good understanding. Matter of fact, even in their most recent press releases, they have no problems going ahead and talking about their Axon Signal device, which is the comparable to our VuLink. So we really don't know who's -- until we get the final discovery completed, who may have to write the biggest check.

All right. And in terms of like the Axon patent, it has been like really affecting your sales for the last couple of years. Do you still have any sense for the timing of when this whole thing will go away and/or when if you'll receive any damages at all?

Yes. So let me give you a couple of things that I think -- again, this is -- clearly falls into the forward-looking statement and speculation and stuff. But you have to realize that we have been taken it on the chin time after time after time in regards to both parties coming after us. And we have been successful in dealing with them in the patent office, and now moving forward, to the courtroom. And the fact that there's already a pretrial date set for July 24 on Axon is a pretty good indicator of where we think we'll be in regards to the ruling of the Markman's hearing, also on the mediation and closing of discovery. WatchGuard will be a little bit behind that. But I think if you start seeing rulings coming down in our favor in regards to the Axon case, WatchGuard would probably be wise to want to come to the table sooner than later in regards to their scenario because it'll start to get to a point where there's going to be possibly a ruling out there that would look very unfavorable for them at the time they get to the courtroom. That being said, because of the strategic opportunities that we are looking at, one of the things that I'm sure that the 2 parties that I'm talking about have been thinking in the back of their mind and we have heard in the past, is that these guys just won't go away, meaning Digital Ally. We just won't go away. We continue to fight another day, another round and stay in there and being very aggressive. The thing that they've got to be worrying about is now, you have entities that are obviously larger than us that are contacting us and probably are a lot stronger position financially to weather this storm. And that's probably got to make them a little bit concerned as well, that if we do have a much larger player come into this, and then they know they're going to have to go do the math.

(Operator Instructions) Your next question comes from Bryan Lubitz.

All right. I wanted to dive into the cost reductions that we have that Tom had alluded to earlier. And I just want to go over. Tom, did you say the breakeven for us for a quarter here on out is about $3.2 million for revenue?

Well, Bryan, that's what I said because once the SG&A cuts come into full fruition, now some of those, and in fact, a pretty good size, a substantial portion of those, came to effect late in January. So we won't get the full effect in Q1 but we certainly should in Q2, Q3 and Q4. Yes, I mean, $3 million, $3.2 million, $3.3 million, in that range, and the reason I've given you a range is the gross margins kind of bounce around on this a little bit depending on product mix and all that. But I think that is a reasonable goal. That gets us to EBITDA positive or at least neutral range. And that's our immediate goal, and obviously, our long-term goal is a lot higher than that.

Okay. So that being said, you also alluded to, in the earnings report, a jump in the residual business that we're getting from the data storage products that we have. And you also talked about the upgrade over at AMR, which would add to that number. Those are significantly higher margins than just selling our product, correct? Those are 80%, 90%, in that range?

Yes. Well, it's software services obviously and we've already expended that as R&D when we developed the FleetVU.com platform in that. And really, our only cost, our true cost going forward is the cloud cost, which is minimal compared to the revenue side. Now we have looked at, at least on the commercial side, our recurring service base on contracts in place and already on the books will exceed $1 million in 2018 already. So we've got $1 million of recurring service revenues on the book already. And quite frankly, we've got several, I'm talking more than 3, 4, 5 large contracts, commercial contracts, that we believe we will book here hopefully in the second quarter, if not the third, that will probably more than double that. So we've got some significant opportunities. You're right, the margins on that -- on the FleetVU.com especially are very nice because we've already expended the R&D to build that platform.

Okay. So you kind of jumped ahead of me with getting to the big commercial contracts. I want to still stay with the margins aspect of it. When you say very nice, am I going too high in saying 80%? Is it closer to 70%, 60%?

I would say it's at or around 80%.

At or around 80%.

Put it that way.

Okay. And obviously, the more that increases, the more that helps our margins overall. And stay with me, Tom. So you're looking at -- you're saying roughly $3.2 million. And I just want to, for my own mind here, we did $14.6 million revenue for the year this year without these cuts. And now, we have these cuts and we have an expanding margin product that should even bring, again, those numbers higher. So if that was everything implemented that we had this past year, if that was implemented in that past year and assuming no other promise, we would have been profitable for the year with that close?

Well, probably not profitable in an accounting sense, but an EBITDA sense, we've certainly been very close to breakeven. We do have a lot of non-cash financing costs below the line. But from an EBITDA cash flow perspective, you're right, we would've been much closer to breakeven.

Okay. Now AMR. Obviously, you guys going back, they've continued to use our product the whole time. But we put the original installation of their whole fleet, which, correct me if I'm wrong, was close to 7,000 or 8,000 ambulances, we put that on hold. Do we expect after this upgrade of the 600 units to resume that contract as well?

So we're there, Bryan. As you know, they went through an acquisition. And so we feel like that probably was more of the reasons that everything got put on hold or the brakes that were hit because we are seeing -- their acquisition has been completed, that we are seeing additional orders, we're seeing the upgrades, we're seeing starting to get back to business as usual. What we don't have a good sense of yet is really how aggressive they will be to go ahead and finish what they started. They've had a lot of success with the fact that they've had our units in their vehicles that has saved them, I'm sure, countless millions in regards to litigation and liabilities costs associated with it. So it's a little early, Bryan, to really have a good sense of where that's going. But there is definitely a very positive atmosphere between the 2 companies.

Yes, and I would add, Bryan, that there's been some catastrophic events that have occurred since last year or the time when they put this contract on hold that our systems did capture, and that's a good omen. I mean, they see that. And I can't tell you the countless number of events that -- some are humorous even, if you will, that they've caught and been able to get out in front of and manage their liability exposure, too. So they see and are enjoying the fruits and the cost containment reductions and liability reductions of our systems. So our systems are performing for them. And like Stan said, and let me back up, they went through a large acquisition. They were acquired by KKR and merged with or will be merged with Texas Air Medical Group. So they were going through a very large corporate transaction. Parent -- their parent was changing. Obviously, when those type of transactions happen, capital expenditures are restrained and constrained until the deal is done. And I know they had some antitrust issues they had to resolve out in Hawaii, I think. And so for various reasons, I think 2018, hopefully, will be better for that contract.

Okay. Now I'd like to talk about VIEVU, if we could. How much did VIEVU account for, for our revenue for last year?

Yes, I think the contract was signed in November, and we had to do a little bit of engineering to get it -- get the product ready to integrate with their product. So the contract required them to buy $50,000 worth of VuLinks in 2017, so -- and which they did. So $50,000 is the revenue from the VuLink or VIEVU contract in 2017. 2018, they have to buy $2.5 million worth of VuLinks to maintain exclusivity. And they have to buy $3 million or above in 2019 to maintain exclusivity.

So this contract obviously, with the cuts that we made, and assuming we continue with the same business mix we already had from last quarter, could really put us over that level to get to profitability, or at least on the EBITDA part?

Yes, yes. The VuLink product is -- it's our patented product. And quite frankly, we're monetizing it, and we should have that opportunity because we invented it, we built it and the market demands it right now. I mean, it's really a standard in most contract offerings and bids that are being floated out there. So the VIEVU contract, we believe, is the start of something big on the VuLink side, especially as we hopefully are successful with the Axon and WatchGuard litigation. And as I said before, we have other competitors coming to us, wanting to license or get a supply contract or buy from us or somehow be able to use that technology. And that's how it's supposed to work. But you have characters in our industry that don't play by those rules, so.

Can I ask regarding VIEVU? They have they NYPD contract, correct?

Correct.

And now, that's a contract that requires hands-free activation?

I don't recall if it required hands-free activation at the time that they were awarded it. But I know that it's a feature, like all departments, that they would be interested in. I mean, again, Bryan, there's been too many cases where departments have done the right thing and have got in-car systems, they've got body cameras. But unfortunately, for whatever reason, the officer did not activate those devices. And that becomes a real nightmare when those situations happen, especially if there is a shooting or fatality of some sort. It just doesn't look good. Why did you not turn on your body camera?

Yes, yes. Or you can mute it, in some cases, like what happened in Seattle. Can I ask, does VIEVU have an in-car dash system?

They do not.

Okay. Is that something that we're looking to break into a space with them on? I mean, obviously, they're coming a lot -- covering a lot of our products or similar products. Have we had talks with them regarding that?

We're open to talking to a lot of different companies. I mean, seriously, I mean, VIEVU is a great company. The people that we've worked with there are tremendous, very excited about continuing to work with them. But honestly, even though we're suing them, there's nice companies out there like WatchGuard that they do produce a good product. They are a very capable competitor that keeps us on our toes, keeps us pushing every day to have more innovative products and designs. But they're a pretty nice organization as well. So my point being, Bryan, is that we're receptive to talking to anyone if it makes financial sense for us all.

Now that contract that you have with VIEVU regarding them have exclusivity, and now the fact that we've hired Roth, and Stan, you have said we have roughly 12 companies inquiring, roughly 6 to 8 NDAs and talks with several of them where it's going to progress to potentially corporate headquarter meanings. Is VIEVU a part of that group? If not, how do they feel about having exclusivity with us and us potentially selling ourselves out as a company?

Yes. That's -- Bryan, I can't disclose who the parties are.

Okay. So reading -- I'm not going to go there. Okay. I don't want to get you in trouble or me. Lastly, did you mention Markman you expect to have within a month? I mean, it's been -- March...

Well, yes, it's been since March 7. I think you should -- again, I really believe it can happen almost any day. And I would anticipate it clearly not going past April, because again, we've already got a July 24 pretrial date set. And I would hope that and reading into it, that the mediation and discovery would have been completed by that date as well, so.

And how much time do you need for that, for the mediation...

The mediation, they have requested it to be done within 30 days. And if I know Axon, they'll try to set something up on day 29. And the discovery would be then another 30 days at the end of that. So a total of 60 days after the Markman's hearing. So again, all that still can fall within the timeline that we're talking about far as the July 24 date.

Okay. Otherwise, they would push back that date?

I'm sure they'd try.

Okay. Last -- I know I said last thing before. Last thing. You had mentioned, Tom, that we were very, very close, and you guys have said this on other conference calls and we've announced major contracts like AMR and such and Yellow Cab and some of the other things that we've done with the partner side. So we believe you when you say you closed some contracts. You had mentioned something about possible second quarter, possible third quarter in the commercial fleet. Is this off the heels of what we have going on with NASCAR?

Well, part of it. It clearly is developments that came from there, but honestly, the majority of the things that -- and this is Stan. Majority of the things, I think, Tom was referring to, we've been working on prior to NASCAR.

We've been pushing this thing, it looks like a little over 50 minutes. We're going a little longer than what I thought. I do want to thank everybody for their time today and really appreciate the input, the questions, the e-mails that we've received and the leads that even some of our shareholders have generated for us. It's all been very appreciative. And again, I couldn't be more excited about 2018 and our prospects, not only with the SG&A, things that we've done there to right the ship, but the prospects. It seemed really exciting. And again, the Roth Capital and the litigation and all, looks like 2018's going to be very exciting for us. So thanks again for your time today. And we will keep in touch.

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