Good morning, and welcome to the Digital Ally Inc. Third Quarter 2013 Operating Results Conference Call. All participants will be in a listen-only mode. (Operator Instructions) Earlier today, Digital Ally Inc. 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 are equally applicable to any forward-looking statements made during this conference call. Please note this event is being recorded. I would now like to turn the conference over to Stan Ross, CEO. Mr. Ross, please go ahead.

Thank you very much. Thanks everybody for joining us today for today’s call on covering the third quarter. Also we hope that you had an opportunity to see the press release that was ran earlier today concerning a nice order that we received from Evansville regards to our FirstVU HD product, which we’ll do quite a bit of talking about today. With me today is Tom Heckman, the company’s CFO. Tom will do a – recap a little bit of our numbers, a little bit of understanding of how we reached these numbers and also will give us a little insight in what’s currently in our pipeline that we can look forward to hopefully having the sales in the fourth quarter, and also we’ll get into new product development that we will be introducing later this quarter and then also new products that will be hitting early in 2014. So Tom, why don’t I let you go here and start addressing the numbers. And we’ll go from there.

Thank you, Stan. And I want to welcome everyone to the call today. I know everyone has got questions and interesting thoughts about the third quarter, we do as well. But I would like to tell everyone that we did file the Form 10-Q with the SEC this morning. That’s a complete recap of the quarter including MD&A, full set of financials footnotes and I do encourage everybody to take a look at that, if they have any detailed information they want to look at. We will have a brief overview of the quarter and what happened, followed by Q&A here. First of all, I think everyone is aware, if they are not, they should be. We did file a patent lawsuit against a company called Utility Associates Inc. in October, October 25 to be exact. Unfortunately, it is pending litigation. It’s very early in the process and I have been instructed by our attorneys to read a prepared statement, so we don’t jeopardize any of our legal position. So please refrain from asking questions. I will make this prepared remark or prepared statement regarding it, and hopefully that will satisfy or answer most of your questions during that. Anyway with that said, here is our prepared remarks. On October 25, we took further steps to protect our customer from baseless threats of patent infringement by Utility Associates Inc. by filing a lawsuit in the Federal U.S. District Court in Kansas. In addition, we are contacting current and prospective customers to provide assurances that we will take appropriate actions to protect them from the threats made to them by Utility. We appreciate that our shareholders may be interested in the information regarding the lawsuit, because this is an ongoing legal matter. We cannot devote confidential information or response to questions…

Great job, Tom. Yes, I’ll just touch on a few things real quick before we go to the Q&A portion. And it revolves a little bit around new product development. Our DVM-800, while it is definitely already feature rich, definitely really priced competitive, we’ve also will be introducing a DVM-800 Live, which is unit that has more appeal for the international markets, but it allows live streaming of the video to go back to a centralized location or even an off-sourced location. Those units are currently being evaluated, doing some testing in-house, but we actually have some units that are being sent abroad to be evaluated as well. The other thing in regards to the FirstVU HD. Obviously we’ve got a tremendous product there, but the uniqueness to it is what we have let’s say on offshoot [ph] called the view link which allows the FirstVU HD to communicate with the in-car video system as well. That is very unique. I’ve not have heard anyone that has anything even similar to that, and at the same time we have patents filed protecting that [indiscernible] in those products. So we look to continue to enhance the law enforcement products and the things that we grow in that section. We also have recently continued to look at our commercial market. We have been growing – as last year we did about $800,000. We’ve been stating that we will approximately double this year coming into the $1.6 million, very comfortable that that number will be obtained. And the fact, that we have the ability to possibly double again in 2014. We are now recognizing the uniqueness to it, definitely the size to it. And so we have allocated resources on the commercial side to also enhance that product that I think allows us to really get into a situation where we will be a key dominant player in that arena. And I believe you’ll see that early in 2014 for these added features that are coming into the game. So Emily, I think we would like to open up the lines for Q&A session if you don’t mind.

Thank you. We will now begin the question-and-answer session. (Operator Instructions) At this time, we’ll pause momentarily to assemble our roster. We ask that you please limit your questions to one at a time and if you have further questions you may reenter the question queue. Our first question is from Orin Hirschman of AIGH Investment Partners. Please go ahead. Orin Hirschman – AIGH Investment Partners: How are you?

Doing well. Orin Hirschman – AIGH Investment Partners: So I want to summarize some of the points you made on the financial side just to see if we covered everything here. And basically in-car cam business, it sounds like that’s bouncing back already this quarter from what happened last quarter. Is that a fair statement?

That is fair. Yes. Orin Hirschman – AIGH Investment Partners: Together with that on that – it sounds like that this quarter will recognize some significant revenues from the body cam finally?

That is correct as well. Yes, you’ll definitely see the increase.

Yes, Orin, we’ve already shipped the Evansville order, so will certainly hit the fourth quarter. Orin Hirschman – AIGH Investment Partners: Is there a possibility to think, what’s your production parts – how many can you produce at this point, and don’t you seem to gotten that figured out? And can you basically find homes for all that you can produce at this point from the pipeline of potential customers?

I think coming back from a trade show where we had almost 1,100 leads and I think we can find homes for them – as far as homes in regards to final sales, that’s just a matter of the process of them running their course in regards to available funds, doing their evaluation and seeing what their full needs are. Orin Hirschman – AIGH Investment Partners: From the pipeline of total potential of over 4,000 body cam orders, is a significant amount of that potentially for this quarter and next quarter?

Yes, I mean it’s just a matter – they’ve asked for it and we’ve said there and said we have some. How many you need, what is your timing of wanting to start it, even though they are acquiring and excited about it. They too are starting to attach, put together to do their evaluations who are going to be doing it. So it’s quick as they can get set up, we should be able to start filling those gaps with the T&Es out there. We currently – Tom correct me, I mean I don’t know that we have a real shortfall in regards to being able to get units out there as far as meeting the T&E side of it.

No, we’ve got adequate production currently to handle what’s out there, even what’s in the pipeline. Orin Hirschman – AIGH Investment Partners: I mean how – approximately within some range, could you indicate how much you could produce?

I mean easily, we’re real comfortable with knocking out 500 units a month. We could easily ramp up and probably double that number currently if the need would arise. Orin Hirschman – AIGH Investment Partners: Okay. And the 500 units a month though, that you can mind actually fourth quarter revenue, but is their enough finance from the existing pipeline you have, from those 4,000 plus potentially as far as to be able to fill that up?

Yes, I believe so. I mean again like the things that when we talked about the leads, those are not just for individual units. A lot of times, they will request three, four, five units or even different units for different departments to try. So obviously you have a day shift, night shift. They can use the same unit if they like. But sometimes they’d like to just go ahead and have an officer to be responsible for that particular unit. Orin Hirschman – AIGH Investment Partners: Okay. And my last question just on the financial side, in terms of expenses you wanted a little bit of them coming back in line. Will the R&D as well start coming back in line this quarter?

This quarter, it’s going to be similar to what it was last quarter the 900 plus range. And the reason I’d say that is we’re in the launch mode of the DVM-800. So I think once we get the DVM-800 out and the FirstVU HD completely done, you will see this income back in line a little bit. Now we do have a very aggressive development pipeline, things that we’ve not shared with you or anyone yet, that we continue to work on. So we certainly have other projects, but we are going to be judicious in which ones we find and how aggressive we get on the deployment of those. Orin Hirschman – AIGH Investment Partners: Okay, thanks so much.

Our next question is from [indiscernible]. Please go ahead.

Hi guys, well thanks for the call, and congratulations on the contract you announced today. In relation to the contract that you announced today, why don’t your PR more of those? I know this is a larger contract, but it seems like you have a very non-aggressive stance on PR. And I am wondering why even the small contracts or small company, why don’t you come out and PR them more aggressively. I tend to find out about your contracts through my clients who read them on Facebook and then I go to your website, and they are not even PR-ed. I am just wondering why you don’t do that.

Corey [ph], we have looked into this and we agree we need to be a little more aggressive on it. I don’t want to – I have a suggestion that was made that when you get to sizable order, next time also lump in all the smaller entities that are buying the product as well, so that you could see the fact that we’re getting some broad coverage out there. I think one of the unique things too is and Tom did a real good analysis for our board of directors after a competitor came out with their numbers and a competitor that is greatly advertising looks for the every little unit that is sold, but when you tally up that number –and correct me if I’m wrong Tom that was only about the little over 1,200 is all they sold for the quarter. And we look at where we’re going and realize that it’s not real expensive, but it’s not inexpensive to run press releases, have make sure that unless maybe you have a little bit of a template, but you have to have the attorney sign off and you’d have to do your filings. I mean it’s just – and actually you know you’ve eaten the profitability on an order. So you will see us, Corey [ph] do better job of definitely continuing to announce the sizable ones, but also try to lump in another, let’s say 20 municipalities and/or state or some acquired X amount of units and do a better job, but still we don’t want to be just spend money left and right to be dragging about something and not making money.

I understand that, but at this point, you’re not even lumping them together, you’re not releasing any of them. So just to increase the shareholder value, we would like to see some PR. Your competitors PR every single thing possible and you’re PR – it doesn’t seem like you’re PR-ing much at all. So for today which is convenient that I came after that you had an earnings call which is great, but I find to be convenient I am just wondering why the other ones up until now if you say you’re going to PR them that’s great. But as a shareholder and clients that hold shares, you’d like to see guys get more aggressive regardless of the cost because only then it benefits the shareholder and benefit you guys in the long as run.

We appreciate what you’re saying and hear what you’re saying and definitely intent to address it.

Thank you.

Thank you.

(Operator Instructions) Our next question is from Bill Sutherland of Emerging Growth Equities. Please go ahead. Bill Sutherland – Emerging Growth Equities: Hi thanks. And thanks for having the call. So I was curious about the kind of how many of the body cams first units you got into the third quarter shipments, and just to try to understand based on what you have to ship at this point, how much was already shipped in the quarter?

The third quarter numbers or?

You’re talking about number of units shipped in the third quarter? Bill Sutherland – Emerging Growth Equities: Yes.

Well, obviously the Evansville order was not shipped until Q4. So and we announced 350 total sales, so you’re looking somewhere less than 200 at the end of the third quarter – 150 to 200 probably would be pretty accurate.

Yes. Bill Sutherland – Emerging Growth Equities: Okay. And your ASP – your selling price is?

For the retail, it’s $995, Bill, but in quantities we do reduce it in the low $900. Bill Sutherland – Emerging Growth Equities: Okay. And so the way we should think about this I guess is that you got great pipeline building, but given the T&E process, I am just kind of – trying to figure out if Q4 can reflect a lot of that pipeline or whether it’s going to really be more of a – it will really get the dead traction starting in Q1?

Such as funding [ph] issue I mean – they tell you one thing, Bill, that we’re ready to buy, we’re ready to buy. You jump through the loops, you get them units. You do what you need to do to help them and then you are relying a lot on them if they’re telling you regards to their timing of actually being able to fund and give a PO. I mean it was [indiscernible] on the phone just a second ago, he mentioned about finding out about stuff he looked on Facebook. And we were actually surprised that we found out today was on their web page before we even received the purchase order. Of course we can’t announce up until we get the purchase order and it was almost 10 days later before we received that. Bill Sutherland – Emerging Growth Equities: Yes.

It’s just a challenge, Bill. Bill Sutherland – Emerging Growth Equities: Well it’s good one to have. And just one last thing I want to kind of figure out with you guys on the phone is the drop-off in the public sector, the U.S. business. And so, when you guys think about it, kind of on a granular basis, do you think the lion’s share of it was the funding issue and like a pending question is how much you all generally ship to that marketplace in the last month of the quarter, I mean as a percentage?

Usually the last month is the best month of almost every quarter that I’ve seen since I’ve been around here. I mean it’s usually – unless you have – as far as domestically, unless you got influence from international, it always seems to be the – someone has got extra money for the quarter or that maybe the end of their budgetary cycle or whatever and it seems like that’s when we get a lot of calls, but there is – and I know that budgetary or [indiscernible] have may been an issue, but I know that situation of a state contract that’s out there that we are aware of everything awarded and you have to wonder if the individual is going to re-cut his PL, all of a sudden received a similar letter as that we’ll send out that concerning this lawsuit and [indiscernible] wait a minute, I’m about ready to buy $0.5 million, $1 million worth of goods and now am I going to be doing something, and I’ll be in violation with some patent. So the last month of last quarter was strange how it played out. It was just really strange. Bill Sutherland – Emerging Growth Equities: Now do you tend to count on the last month for maybe half of the quarter’s sales?

Not quite that much at all.

I am just looking back on history, Bill, and every quarter during 2012 and so far in 2013 with exceptional third quarter, the third month of the quarter was by far the biggest revenue was. So it is concerning. And in September – early to mid-September it just dropped off. And I don’t know if it was patent deal or whether it was the shutdown. All I know is something happened. It just was not a logical into otherwise good quarter.

And Bill, and we said, I mean we went ahead and gave the October numbers, they were up 33% over year-over-year from last year. So, maybe just slipped [ph] a few days. Bill Sutherland – Emerging Growth Equities: Yes. And you’re now expecting another quarter like you’ve had for international this quarter, right?

Well, expecting no. I wouldn’t be surprised, because again international orders take forever and you never know when they’re going to hit. And once they do hit, you never know when they are going to get funded. Bill Sutherland – Emerging Growth Equities: Right.

So there is a lot of ifs and maybes and what it is, you know do I expected? No. Would I be surprised? No. It could happen. There is enough in the pipeline that some might fall out of the sky and just change the complexion of the quarter significantly. Bill Sutherland – Emerging Growth Equities: Actually just maybe a one more. The gross margin if you were to take out the impact from the first few – the extraordinary costs were down in the quarter, would your gross margin have been – like how much higher would it have been?

Well, there were several impacts that were related to the FirstVU and not necessarily the FirstVU. In other words, like we put all hands on debt to rework and redo the FirstVU and then did not produce the 500 and the 750. So we didn’t have the base to apply the overhead and we went way under absorbed for the quarter, which – I am sorry as accounting speak, but there were some – a lot of related impacts that weren’t necessarily directly the FirstVU, but were caused by it. Bill Sutherland – Emerging Growth Equities: I got it. I am just kind of curious how quick you can come back towards target 60% level.

Well, I am not going to make predictions forecast. All I’ll say is our goal is 60%. We hit 60% in two out of the three quarters here in 2013. I would not be surprised if we couldn’t get back there in the next quarter too. Bill Sutherland – Emerging Growth Equities: Okay. All right, guys. Thanks a lot.

Thanks, Bill.

Our next question from Mark [indiscernible]. Please go ahead.

Hi guys. I just have got two separate questions unrelated. First is how’s your – if you could just address your balance sheet and how that’s looking with such a small amount of cash on hand and the losses, and how you guys plan to address that?

Well from an overall complexion standpoint, our balance sheet actually improved quarter-over-quarter. It will be – cash balance isn’t huge. It did improve by $150,000 over Q2. Our inventory was down $140,000 over Q2. Our net positive working capital was improved by $120,000 versus Q2. Our equity was up $100,000. So in reality, at least the high level the balance sheet has improved quarter-over-quarter. Now there are some issues that we’re dealing with and not the legal which is the subordinated notes due come due in May of 2014. We’re already in discussions and talking about some type of extension renewal on that. We do continue to have to reduce and maintain our inventory balances at a more efficient levels, that’s a challenge and we need to get better at that. And we need to continue with our accounts receivable, that our collection days are 38 to 45 days which when you have government customers is not very bad, but we need to continue that type of collection effort and we’ll be in pretty good shape.

Okay, no worries. And then my second question is just in looking at the landscape of people dealing with the government and specifically companies like your own, I mean some of your direct competitors. I’m not seeing – and I’m not trying to question your analysis of the short fall for this quarter being mostly the government shutdown, but just aren’t seeing that, I mean with some of your direct competitors. So I’m wondering are you guys a little – could you just help me understand how you guys are different and why you may have been impacted so much differently than some of your – the guys in the same space?

Yes, I don’t know exactly who that would be that you’re referring to. I mean you’ve got TASER, who is one out there who has one product that we really compete against. And then on the other side of the equations, we really don’t have any publicly held companies that are out there that – yes that are squirreling in our space that we can sector and give this kind of data. I mean the only thing that we’d have to go by is the fact that we – it’s a small community and we do hear this type of feedback from our competitors. And I mean because you’ve only got about four or five players that are in the – that are real players in the video side of it. And the body cameras, you only have three, and one of the three is actually trying to raise money, so [indiscernible]. So anyways. Yes, I don’t know. From what we’ve heard it was sort of felt by several others as well as far as our competitors on the video side, yes.

Okay. I was talking about TASER. I just hadn’t heard that directly from them so much, but I imagine it’s baked into their numbers so. Okay, well thanks a lot guys.

Thank you. We appreciate it.

And this concludes our question-and-answer session. I’d like to turn the conference back over to Mr. Ross for any closing remarks.

Well, we want to thank everybody for joining us for the call today. Again while we were disappointed by the third quarter’s number, it hasn’t by anyways diminished our enthusiasm on a strong finish to this year and definitely a real strong continuation into 2014. Sure we will give you all our efforts and make sure that we do a little better job of communicate in which you – we hear what our shareholders are requesting of us and definitely will try to respond. So Tom, do you have any other words?

No. Again I echo that the board is not pleased. We’re not pleased with the results of third quarter. We’ve learned from that. We’ve moving on. We’re dealing with the basic issues that face our company. And I think these new products are really going to put us back on the right track revenue-wise. And really our problem has been revenue and it continues to be revenue and we’re focusing our efforts on that. And we will like Stan said, appraise our investors more often and about the results of our sales efforts especially in the newer products.

Thank you.