Hello and welcome to the Digital Ally Incorporated First Quarter 2013 Operating Results Conference Call. All participants will be in listen-only mode, there will be an opportunity for you to ask questions at the end of today’s presentation (Operator Instructions). Last night Digital Ally issued a press release that included certain cautionary language with respect to forward-looking statements. The company would ask you to review the language in the press release regarding forward-looking statements as they’re equally applicable to any forward-looking statements made during this conference call. (Operator Instructions) Please note this conference is being recorded. Now I would like to turn the conference over to Stan Ross to yield. Mr. Ross. Please go ahead.

Thanks Jessica. Thanks everybody for joining us today I have Tom Heckman with me the company’s CFO, he will be going over the numbers in a lot greater detail, but quickly just wanted to again thank all of our employees for the hard efforts that they have done to help us meet these numbers, this is one of the first quarters we’ve had in a long time that’s just a straight up let the numbers speak for themselves, it’s a goal that we set out to start to achieve last year, and I’m very pleased to present these numbers today. As many of you may recall back on March 27, when we had our year-end call for the 2012 year, I indicated that I was very pleased and excited about how 2013 were shaping up, obviously, I had a little insight to the first quarter, but I want to reiterate that I’m very excited about 2013. Not only that we’ve been able to achieve profitability, we’ve done that with still sort of our core products that are out there and the new ones are just now really starting to contribute in a big, much bigger way. You also will continue to see that here in the second quarter with the new launch, with the launch of our FirstVU HD system, we have a couple of other models that were coming out with as well for law enforcement in regards to mirror systems and also a very nice and unique system that’s more designed truly for the motorcycle cops in their situations that fairly enlarge their equipment needs. So anyways again 2013 started off really well and I believe that we’ll continue to do so, Tom will touch on a numbers a little bit and then I will do a little follow up before the Q&A.

Thank you, Stan, and I appreciate everyone joining us today, I wanted to let you know that the Form 10-Q, I just got word in conformation of the 10-Q was filed this morning and accepted by the SEC so that, with that certainly should be refer to for a more complete description and discussion of our operating results for the quarter and I would encourage everybody to look at the 10-Q as filed. With that said, I do have a couple of comments and want to go into the numbers a little bit from the topside view. First of all, it’s a very good quarter, obviously we met our near-term goal of reaching profitability, in fact, we reached profitability operating income line, we had $180,000 of operating income, we reset the net income line we had a $130,000 of net income and almost as important may be even more importantly, we reached almost $400,000 in adjusted EBITDA which we define as our cash flow. So it’s a very, very good quarter for us. We restored profitability and again, that was our near-term goal and now we have some longer term goals we have to take care of. I want to remind everyone, we did reach profitability at approximately $4.8 million in revenue and there has been questions in the past as to what our breakeven is and we’ve always said it’s in the mid $4 million range, and quite frankly, at $4.8 million we generated $130,000 in net income. So that $4.5 million to $4.6 million range is our breakeven revenue wise and it levers very quickly as you go above that. What’s the profitability during the first quarter confirms to us is that some of our major initiatives that we’ve undertaken in the past couple of years or year…

Fantastic, Tom. Obviously, you can see everybody why I’m so excited about the reminder of 2013. We do have the numbers and the trends going in the correct direction. We have new products that are being well received and as a matter of fact as I will reiterate what Tom said, we have the 500 units that we have of our FirstVU HD, [firstly] everyone of them were spoken forward, they’d be test and evaluation are those that are just going to hit and it have seen some of the prototypes that are ready to start acquiring those units. So, it’s an exciting time for us 2013, I believe it will continue to get brighter for us and hopefully, we will be able to show that in the bottom-line numbers to everybody. Jessica, I think, we’ll go ahead and open up the floor for Q&A at this point.

(Operator Instructions). The first question comes from George Whiteside with Sws Financials. George Walter Whiteside – Sws Financial Services, Inc: Good morning, Stan and all, congratulations.

Good morning, George. George Walter Whiteside – Sws Financial Services, Inc: Wonderful quarter.

Thank you. George Walter Whiteside – Sws Financial Services, Inc: And it’s impressive that you are able to get your gross profit margin up and meet your objectives there, and certainly profitability is welcome by all.

Okay. George Walter Whiteside – Sws Financial Services, Inc: In terms of revenue had commented about the law enforcement sector of your market is, remains rather tough because of budgetary issues, I am sure sequester is not going to be helpful in terms of any flow of federal dollars. Do you see any changes in that situation in the near-term?

Yeah. Actually, George, the things like – it’s stabilized pretty good. And so because of the fact that we’ve reacted to the downturn, we’re starting to feel pretty comfortable where we are at right now. I think we’re getting – continuing to get market share. We have heard of continued financial struggles with some of our competitors. And we know that we’re getting new customers in every month. So, I bet we’ve got to be pushing north of 5,000 as far as the departments that we are selling to. And I believe the FirstVU HD and some of the – has that are not available by anyone else out there, we’ll open up the door to a tremendous amount of other agencies that may already have video, but they don’t have the body cameras and definitely not the quality of body camera that we have. So, I think I’m okay with the flat year as far as the budgets. I think our numbers will continue to improve just because of the steps we have taken, and I do anticipate the commercial market and I’m leaning on them pretty hard to – and its show time. I mean, we went out there the first year and things were little slow, but we also had to do a lot of tweak into our product to get it to be as user friendly as what that sector was wanting. But we’re there and we’re landing simply quite large contracts much likely the one that we did with the company and it has the all department vehicles that – at all the airport. So, George, it’s just looks like we’ve really got things teed up for a good year and I’m excited about it. George Walter Whiteside – Sws Financial Services, Inc: Well, it’s certainly is encouraging to see these developments. My other question relates to your cash position. Now, I understand the restricted cash, that relates to your having appealed some litigation if I understand that. And so, in fact puts you in a net top line cash position, which as in other words, you’ve had since first of the year, you had a significant cash burn, it’s the way I would look at. What do you see happening going forward in the second, third and fourth quarters relative to your cash and are you going to need the raise some additional cash?

George, this is Tom. Actually the cash flow, if you look at the cash balance, the available cash balances, it has been reduced primarily because we’ve reduced accounts payable, and also increased inventory a little bit. I truly believe we’re going to start seeing a decrease in inventories, we did have a little bit of build up because of the launch the FirstVU HD, and we were expecting a couple of international orders that did not come in part of quarter end, so that was a little bit of the increase in inventories, I think we’ll start seeing a decline in inventories, and therefore generation of cash from inventory, payables are all paid down current. So I don’t see a need to pay down payables any faster than what we have. So no, and coupled with profitable operations and growth in revenues, and remember on a international basis we get money upfront. So when we sell those international contract we get deposits or full payment upfront and if we do take a deposit, it’s backed by a letter of credit. So, I think we’re going to turn cash flow positive strongly in the second and third quarters and into the fact where I think we will be in a position to start paying down that sub-debt. George Walter Whiteside – Sws Financial Services, Inc: Well that would certainly be a development that would be welcomed by all I am sure. You mentioned that one of the reasons for your cash position is inventory as a result of international orders not coming in quite a frac as you would have expected and I know in the past you’ve warned us that you are going to get cycles in terms of your international, or the closing of International orders. Do you see any change in there?

Well, George this is Tom, international sales cycles are very unpredictable and I’ll be the first to say that. I will say though that there is some supply contracts out there with certain foreign customers that we’re aware of that are coming in those supply contracts or to fix broken systems that are off the warranty et cetera, et cetera. So, those are a little easier to look at and say yeah, those are going to happen here and here. So, I think there is going to be some level of visibility on timing because of these supply contracts, but again the big international contracts for new sales of new systems, it is still highly unpredictable. George Walter Whiteside – Sws Financial Services, Inc: Well, that’s certainly understandable. It is encouraging to hear that you anticipate an improvement in your cash position. That concludes my two questions and I’ll get back in the queue to get…

Appreciate it, George. Thank you. George Walter Whiteside – Sws Financial Services, Inc: Additional, thanks.

The next question comes from Jeffrey Scott with Scott Asset Management. Jeffrey Scott – Scott Asset Management: All right. Good morning all.

Good morning, Jeff.

Good morning, Jeff. Jeffrey Scott – Scott Asset Management: Just a quick follow-up on the last international questions. You were expecting international orders – substantial ones in Q1, did those orders not happened, or did you lose to somebody else?

No, those are timing issues, and I’m sorry if I wasn’t clear on that. We were expecting them to occur in the first quarter, but because of various issues they didn’t materialize. We believe that they will materialize in the second or third quarter. Jeffrey Scott – Scott Asset Management: So, it’s not a question that you lost them to somebody else?

No. No, no. Jeffrey Scott – Scott Asset Management: No. Okay.

And one, Jeffery, just so you know, it is also – be as a large spare parts order… Jeffrey Scott – Scott Asset Management: Right.

From one of our larger international customers that we’d like to have some inventory. Jeffrey Scott – Scott Asset Management: Okay. The motorcycle market, Stan, can you go through the size of the market and who the competitors are in that market and what – do the competitors have any unique features that you need to match?

Basically, where we at on that is that there is no one that’s really tackled that market. It is not extremely large domestically, but internationally, it has a much larger market, as I’m sure you’re aware of that, you have over in the UK and other parts of the world, they often utilize motorcycles, a lot more than the automobiles, and also I think our FirstVU will be very popular too because of the traffic cost. But most of our competition right now, and even including us in the early beginning was taking systems that were out there and trying to adapt them, and what I mean by adapting, literally putting in a box, and then put them in the side car, you are taking up a lot of space, this year that is actually design all enclosed, one little small box that has the monitor, the cameras, the mark buttons, it is absolutely designed for motorcycles. So we’ll get a sense of how well that will do, we’ll also tell you that it’s also a portable unit as well. So if someone wanted utilize the motorcycle that’s great. But if they also wanted to put it an undercover van, it is portable to where it can be installed, and just literally used and powered up the cigarette lighter, so it’s a very versatile unit, but it is – we are targeting the motorcycle market with that. Jeffrey Scott – Scott Asset Management: What is the size of the motorcycle market in the U.S?

I’d have to believe that there is probably only 50,000 motorcycles out there in the U.S. Jeffrey Scott – Scott Asset Management: Which is still sizeable?

It is if you get a chunk of it, that is correct. Jeffrey Scott – Scott Asset Management: Okay, the FirstVU, the first run 500 units, when will that get done?

We’re expecting them this week, is it?

Yeah, it’s within days, not weeks or months, Jeffery.

I think they’re coming in, may be this Friday, and then we’ll start just making sure and doing a real good test on everything, and final assembly, and get them on out the door, so probably should start shipping next week.

Jeffrey, we’ve already had a pilot run we’ve already sold one unit. So, we do have a revenue unit out there so… Jeffrey Scott – Scott Asset Management: Hey, congratulations. Okay how long will the test be.

We’ve been doing the testing. I mean if you’re talking about – you talk more about the … Jeffrey Scott – Scott Asset Management: When you send a demo to your customer how long do they have before…

We will give them approximately 30 days. Jeffrey Scott – Scott Asset Management: So, this would be revenue in Q2.

Correct. Jeffrey Scott – Scott Asset Management: Basically for 500 units?

Should, yes correct if all are foreseen…

Approved by, yes. Jeffrey Scott – Scott Asset Management: How long would it take to ramp up the next 500 units?

We’ve already got that teed up, I mean the interest in the numbers that we are quoting both domestically and internationally we are already running at a clip of 500 units a month from now until the end of the year. Jeffrey Scott – Scott Asset Management: Have you signed purchase orders for 500 a month or have you just talked your supplier about.

That’s our internal production run I think that some other key components obviously we’ve had to go ahead in get them coming in, but so we’ve got a little flexibility there you know we can move it a little bit you know few months, but we’ve got to go ahead and move forward now we can ramp up just as quick, so… Jeffrey Scott – Scott Asset Management: But basically you expect to receive 500 units a month for the rest of the year.

That’s is what were targeting yes. Jeffrey Scott – Scott Asset Management: Okay, I hope they sell. LIDAR inventory you said it went up again.

Yes. Jeffrey Scott – Scott Asset Management: What level are we at now?

I can give you an exact, seven, right now. Jeffrey Scott – Scott Asset Management: Is this getting worrisome?

Well, it’s been worrisome for a while Jeffery, but I will tell you that they are selling, I mean not in mass quantities we’re averaged around 25 to 35 light hours a month in sales, we do have quite a few bids out there especially internationally and I can never predict when those are going to occur. So, there is interest in them, we are selling them, they could always sell faster we could get these things out the door, I’d love that, but they are there at 331, we’re working on them. Jeffrey Scott – Scott Asset Management: Okay. I’ll hop back in the queue, thanks.

Thank you.

And the next question comes from George Whiteside follow-up with Sws. George Whiteside – Sws Financials: Stan.

Yes. George Whiteside – Sws Financials: I got the proxy statement et cetera and know that you are planning to increase shares on outstanding by 75 million. Could you give us some color on what you are thinking is and maybe some alternatives and plans for the future?

Yeah, George this is Tom, I’ll tell you the basic reason for that we did a one for eight reverse split last year and as a result of that we started with roughly 35 million authorized and a reverse split by eight down the $10 million or so – some more in that area, so what we’re trying to do is, just restore the authorized shares to what it was before that reverse split. George Whiteside – Sws Financials: Well that’s certainly understandable, I was hopeful that you might have a wonderful plan up your sleeves to take over some of your competition perhaps?

They’ve quite dying on the vine, we might be interested. George Whiteside – Sws Financials: Oh! Do I understand that to be – it depends on the price?

That’s true, at the same time you don’t want to catch a falling knife, I mean, we’ve done a great job. We got to give our engineering team and our sales, and just all the employees are digital a lot of credit because we are continuing to – its been quite a bit of money on research and development, come up with new products, both on the law enforcement sector and commercial, and we have not seen a lot of new out of our competition. So it continues to be a situation where I don’t know if they’re just hanging on, or if they I can’t get a sense for, but we continue to be out there and be the leaders, and I think that again yet this year, we’re going to have a couple of new products out there, that are going to be just extremely difficult to compete against, and we’re real quick on having that. I would think that this one in particular would be launched in the third quarter. I know our targets to have all the testing and everything done, so that we make a big splash of the IACP, and it will be a dominant product out there – from everything that I’m aware of that’s out there currently. George Whiteside – Sws Financials: Well that’s certainly understandable of that you would be pleased by that development, and all the other thing that I noticed in the material was a picture of your new building, and that certainly is impressive and I would think anyone who visits to verify what’s going on, would be very, very impressed with that building.

Yeah. The key, George, is the efficiencies. I mean it is just paid dividends, just absolute dividends on having us all under one roof and being able to address issues when they come up versus trying to find people on the other side of the town or another building or whatever, I mean, it’s just – we’re also thankful and we really appreciative to be able to work in one facility. George Whiteside – Sws Financial Services, Inc: Well, keep up the good work and we’ll look forward to next quarters.

Sounds great, George. Thank you.

The next question is a follow-up from Jeffrey Scott with Scott Asset Management. Jeffrey Scott – Scott Asset Management: Let’s keep going. For the every quarter one of the issues has been that each initial customer wanted you to tweak at to some degree. Have you pretty much finished the engineering requirements for new customers?

I would say, yes. I mean the little things now that we’re doing as far as tweaking is not so much – it’s definitely not the hardware side of the things, but a little bit of back-office software for them generating the reports. So, we’ve done a little bit of that. But in most of the client sale that we’re dealing with now, we can meet all their needs. Jeffrey Scott – Scott Asset Management: I mean, where do you stand in terms of penetration for the ambulance market, the taxi market, those specific areas?

Well, we’ve got a lot. We’ve sold quite a few to that sector and we’ve got quite a few pilots that are out there. I think that you will see us, you know, seems a sizeable announceable quarters yet this year, because they are at a point where they’ve utilized the product we’ve treated to meet their needs and now they are ready to go company wide with it. So, I’m very confident that we’re meeting their needs. I mean, we haven’t done any really tweaking for that market some time have we. I mean, it’s ready there. It’s just now a matter of budgets in the finish now with the pilots, because everything is working real well. Jeffrey Scott – Scott Asset Management: How many individual taxi fleets are you in currently, in more than just pilot phase?

The company was 10.

Yeah, it’s probably 10 to 12 right now. Jeffrey Scott – Scott Asset Management: Where you have installed a commercial number?

Correct. Those are different, those are different companies, that have fleets – let’s say you have fleets of, on small side 30, on the high side 2,500 and one in particular.

I mean Jeffery, if you include limo’s it’s quite a bit more than that.

Yeah

We have a pretty good penetration in the limo market at this time. Jeffrey Scott – Scott Asset Management: Okay, in major cities or…

Correct, yes. Jeffrey Scott – Scott Asset Management: Okay. And how many taxi fleets would have pilots going now, I mean are we talking 5 or 50 or just some sort of scale on it.

Well I tell you John…

The head of commercial sales, would know that better than I, but I would have to say that he’s got a couple of dozen out there, that have pilots going on. Jeffrey Scott – Scott Asset Management: Okay. And can you run through the same kind of metric on the ambulance market?

Yeah, that’s obviously quite a bit smaller, but he is probably down to only 7 to 10 pilots, and he has got, like I said the others are ready to move forward, I mean, I wouldn’t consider them pilot anymore they’ve got 30 to 50 units already installed and it’s show time for them. Jeffrey Scott – Scott Asset Management: And how many commercial fleets of ambulances are you in now?

Again I’d get back to, if you include the pilots and everything else probably 30. Jeffrey Scott – Scott Asset Management: But you have 7 to 10 pilots and you are in 30 total so you…

We’ve got a lot of wind ahead and required and they are just not anything more for us to do, they’ve got just, get it through their budgets and everything else, so several I mean, the analyst markets one that we tackled real early in the game. Jeffrey Scott – Scott Asset Management: Yeah.

So, those I wouldn’t consider them pilots, I mean it’s like I said show time, they’ve had their well over six months of utilizing the products, they are working great, and it’s time to go ahead and off with the fleets.

Yeah. Jeffery, whenever we talk about outfitting fleets usually the stacking point is the back office servers, the IT infrastructure of the companies themselves. Jeffrey Scott – Scott Asset Management: Yeah.

But we could really only move as fast as their IT group does and quite frankly we move a lot faster than IT group does unfortunately. So we’re in probably, oh gosh, I’m guessing here, but at least 10 to 15 ambulance providers that have multiple locations that are, that were waiting on them to solve their IT infrastructure before we do a full fleet deployment, but they have told us and have committed to our product when they do get ready for the full fleet deployment. Jeffrey Scott – Scott Asset Management: So for those customers, it’s a sales, it’s only question of which quarter you actually recognize revenue?

I agree, yes.

Yes. Jeffrey Scott – Scott Asset Management: Okay, is there anything happening on the competitive front and on the law enforcement that we should know about.

You know I mean I think that the top three change may be a little bit I mean, I use-to-use mobile vision which was a subsidiary of L-3 as one of the bigger players and you don’t hear much about them anymore, I still think its probably the Watchguard and Cobain are probably the two real players that are out there and us. We got to be the top three that are in the market. Jeffrey Scott – Scott Asset Management: So its still L-3 Watchguard Coban and you.

No L-3 I would not consider, in much of competitor right now. Jeffrey Scott – Scott Asset Management: Okay is there anything happening Watchguard and Coban

They are still pretty good I mean they’ve got some products that are out there that are very comparable they have some of them still like to got to the DVD burner and already went down those past, but they’ve got some good quality staff again we are able to real competitive when it comes to our pricing and futures and as I mentioned there is some products coming out from our camp that we think will be very dominate in regards to futures. The one thing that is helped Watchguard quite a bit is there were probably the first really get into the HD market now well the reason that we didn’t make a big that HD is because now you’re talking about a whole bunch of different back office work that needs to be done in cost for us bringing in new servers and they a lot of agencies that found out the hard way. But that has been a good selling point from them and help them probably if not they may be number one in the business right now.

Jeffrey, This is Tom, I also add that both of those companies’ WatchGuard and Coban have done recent recapitalizations. One went through venture capital and the other one went through a private route, but both were in need of capital, outside capital. Certainly WatchGuard to finish their HD product. Jeffrey Scott – Scott Asset Management: Yeah, is there any synergy with the FirstVU product if a police department where to buy a FirstVU product from you, would they be more inclined to buy one of the car recorders new as well?

Absolutely, yeah. Jeffrey Scott – Scott Asset Management: Is that going to turn out to be true?

Yes. I mean, here is the bottom-line. If you want to, to our knowledge, and again, I’m showing my hand, Jeffery, here but we’re already there. We’re going to be talking about it here in days on the street. But our product will work with our in-car video systems, so I’m not aware of any other unit that’s out there that is adaptable and will also work with in-car video. We’ll have the only one out there sync them up and doing all this. Jeffrey Scott – Scott Asset Management: Which will give a police department reason to move over to your in-car video?

Correct. Jeffrey Scott – Scott Asset Management: If they had a WatchGuard or Coban, or in L-3?

Correct. And here is the other thing I liked about this is we’ve also designed this to be compatible to our older systems that are already out there. So, we’ve got some, what, 30,000 units out there, Tom, or, some number like that and 95% of those will be able to buy a option. Basically you get your standard FirstVU HD then you’ll be able to buy an option package that will allow it to sync up to your existing units. So the first thing that we’re going to be doing is notifying all our existing customers that are out there that we have this body camera that also currently works with their existing equipment, if they so choose. So we’ve gotten pretty good market to start knocking on doors right away with this product.

Jeff this is Tom, I’ll just add that that both Watchguard and L-3, as I recall private label another manufactures of body worn camera, so they don’t even produce their body worn camera, they just private label. So we’re as far I know, the only one that other the OEMs that can manufacture and integrate the body worn camera in the body and the in-car video from the same company.

Yeah that’s very good too. Okay, well listen it looks like, that’s it on the questions, we ran almost an hour. I do appreciate everyone that is listened in on the call. We appreciate it. We do again like I mentioned back in March 2013 looks to be just a fantastic year for us and look forward to having our call for the second quarter to hopefully reiterate. We also again want to make sure and invite everyone to the annual shareholder meeting that we’ve got coming up on May 30th. It will here in Lenexa, Kansas, please let us know if you need any assistance on any accommodations if you are going to be able make it. Thank you very much. Jessica, I think we’re going to wrap it up.

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