Kustom Entertainment, Inc. (KUST) Q4 2014 Earnings Report, Transcript and Summary

Good morning everyone and welcome to the Digital Ally Inc. Fourth Quarter 2014 and Annual 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 like to 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 also note this event is being recorded. I would now like to turn the conference over to Stan Ross, CEO. Mr. Ross.

Thanks Rocco. Thanks everybody for joining us today. I have with me, Tom Heckman, the company’s CFO. Tom and I are going to do a brief review of the numbers for everybody and then, after we go through a recap of our 2014 year for us the numbers we will also give little clarity in regards to our 2015 guidance that we put out there as well. We’ll try to break it down by different models and also different products that we have in our suite and we’ll also elaborate a little bit on some recent news in regards to some of the new patents that we’ve been issued and how they would come into play in late 2015 and going on into 2016. With that being said, Tom, if you’d like to do a recap?

Sure Stan, thank you, and welcome to everybody today. I appreciate you joining this. Just as a reminder, we did file our Form 10-K yesterday evening. Hopefully, everybody has had a chance to at least look at that and kind of digest some of the MD&A in there and the numbers in that. My intention here is just to hit some of the high points and hopefully get to your questions, and I am sure you do have some questions. Overall, I would say that we had a very strong finish to 2014 compared to 2013. Although we didn’t get to the same amount of revenues, we were shy by about $400,000 at the revenue line. The last quarter of the year had $5.4 million in revenue versus $3.5 million in revenue in 2013, certainly a strong showing in the fourth quarter. And that, really what we are seeing there I believe is the impacts of all the – what I would say excitement about the body camera and the usage of that, what everybody is shared about it. Certainly, we are starting to see some results of that. RFPs have gone out, pilots, they have been done, and we are starting to see the revenues associated with that. So, we are hopeful that that trend continues. It certainly did show up in the fourth quarter and we are excited about what’s going to happen in 2015. In reality, the fourth quarter of 2014 at $5.4 million in revenue was our best quarterly revenue figure since the third quarter of 2011. So, over three years ago, it was our last quarter that was more than $5.4 million. So, we hope we have seen the trough in the economic cycle as far as our business, and we are starting to go up the hill again. It certainly looks like that based on what’s happened in the second half of 2014. We had positive EBITDA in the fourth quarter, 140 some thousand. As I recall, that’s the first time we’ve had a positive EBITDA since Q2 of 2013. And obviously, we always want to have positive EBITDA. We are there now; we hope to be able to maintain that throughout 2015. Our gross margins improved to 59%, which is almost a 10% increase from Q4 2013. So obviously, our gross margins are widening, and that’s a result basically of our newer products including the FirstVU and DVM-800 that generates wider margins for us than our legacy products. For the full year, we are 57%, which is a 1% increase over the full year 2013. So obviously, our gross margins are going in the right direction and what we said many times that our overall goal is to reach 60%, we are one point away from there. So hopefully, we will be able to get over that hump in 2015. Really, the second half of 2014, really confirmed to us that our customers are recovering from the economic downfall and the video business is strong. In fact, we believe that by and large, agencies both federal state and local are directing expenditures, CapEx expenditures towards video equipment rather than other equipments and that’s always a positive for a business. So we are excited about 2015. Looking at the SG&A expense, it increased by about $500,000 year-over-year. The primary area of increase there was our SG&A – I am sorry, our selling cost, and really what we’ve done there is develop a larger inside sales force to complement our outside sales force. I think we are up three body counts in terms of outside sales people that handle the territories. But we’ve developed a very robust inside sales group that handles outbound calls and co-calling if you will and dealing with customer orders and issues inside here that frees up our outside sales staff. So, we’ve invested in our selling, distribution model and I think we are starting to see the results of that. Year-over-year the R&D cost declined $700,000. You might think that that means we cut our R&D efforts and R&D people in-house. But that’s absolutely not what we’ve done. In fact, only a third of our employees are engineers. We’ve increased our headcount in engineering every year for the last three years. So, what really happened there was, we cut our outside contracted engineering for some software development. We actually mothballed a project, a next-generation type project for in-car video and then focused on some of the newer products which you are seeing patents being issued on, or at least patents being filed for now. So, we believe that our R&D effort is as strong as ever. We’ve just been a little more efficient in how we go about it. If you look at our effort though, we’ve really not cut R&D for a number of years, and that’s really, in my view, positive of the vision that Stan and the Board of Directors has had here, because, in the down years, when the revenues were down, we were still providing ample capital and working capital to our R&D effort, and because of that, look at what we’ve produced in the last two years. The FirstVU HD obviously is a hot item for us right now. That was introduced in late 2013, early 2014. The DVM-800 is our top selling video, in-car video system. It was introduced in late 2013. VuLink is a hot seller. We received that patent in June of last year. And that was introduced, so it’s really helping us integrate our body cameras with our in-car video, and that’s a positive step and we are seeing a lot of demand for that from our customers. We’ve also launched cloud solutions for video storage for both commercial and law enforcement. So we’ve been very active and very productive with the dollars we are spending in R&D. We currently just launched our MicroVU HD which is our new HD in-car video system, and we look to see many sales of that in 2015. That was just – actually just shipped this past week. So it’s a new product that’s out there. We are excited to see how it gets traction. Looking at the future product development, we’ve got many development projects and process, and I think you guys have seen some of the fruits of that. Just yesterday, we announced that we did get a patent issued on our Scanning LIDAR, which is the revolutionary type LIDAR system that can be used from a mobile basis. Currently, policemen have to be stationery in order to use LIDAR, and this thing will overlay on to our video systems, our in-car video systems, so that will have hands-free automatic scanning capabilities as they roll down the highway, and store it too and showing on our video system. So, it’s quite an exciting product. It’s probably not a good product for anybody that speeds out there, but it certainly is a good product for us. We also applied for a patent on the breathalyzer. That too would be an integrated device with our video systems. And what you are seeing here is a theme that we are trying to integrate many different products and technologies with our in-car video system, and I think that’s really where things are headed to the law enforcement. Law enforcement agencies don’t like to deal with various vendors. They like to deal with one vendor, a complete end-to-end solution, and we are providing that now and we are going to increase our penetration of that strong hope for us. If you look at our non-operating financial expenses for the year, we’ve talked about it before, but it’s very apparent in the financial statements. Our non-operating, and I will also add, non-cash expenses, were over $6 million in 2014, over $6 million compared to $250,000 of interest expense in 2013. So, obviously almost a $6 million, up $5 million increase year-over-year and that obviously is related to our convertible debt and the associated warrants that we did. During the year, we did two transactions, one for $2 million; one for $4 million and the accounting for those are rather punitive. Even though they are non-cash in nature, they do require the expense being hit to the P&L regardless. So, we saw roughly, $6 million in non-operating, non-cash charges to that extent. The Special Shareholders Meeting happened in 2015, February, 13th of 2015 and we do appreciate everybody on the call that helped – help make that meeting a success. But it did approve that NASDAQ capital listing which was a very important matter for us and the company and also our shareholders and by doing that it allowed the remaining $4 million of convertible debt to be converted into equity and that has been done and as soon as that NASDAQ cap vote happened and was approved, Hudson Bay who was our investor there exercised the right to convert the debt and converted all $4 million of that to equity. So, we have no convertible debt outstanding now. They also have roughly 260,000 warrants outstanding. They will pay us $7.32 a share when and if they do exercise those warrants. And I would suspect with the level of our share price now, that that would happen shortly here. So, once that happens, that means roughly $1.9 million, almost $2 million of new capital comes into the business. So, overall, we like that transactional, those financial statements that really bear that out with the non-cash charges that hit our P&L. We’re looking forward to 2015 since the debt was already converted and we believe that the warrants will likely be exercised here in the near future. But the total effects of non-cash effect should be contained within Q1. So, be on the look out and be aware that Q1 2015 will likely have sizable non-cash charges due to the conversion of the debt and exercise of the warrants. But again, it is all non-cash. If you look at our balance sheet, it remains strong. We have roughly $4.5 million in cash. That includes restricted cash of $1.5 million and the reason that includes that restricted cash is because of the NASDAQ cap approval by the – in the Special Shareholders Meeting that restriction is last and it is now fully available to us as working capital and cash. Receivables increased year-over-year by $1.2 million and that’s primarily just the increased revenue in the fourth quarter going from $3.5 million to $5.4 million in revenue, that’s roughly – almost $2 million increase in revenue in the fourth quarter and that’s the primary reason for the increase in receivables. We don’t foresee any collection issues, or any significant collection issues in that balance. Inventory increased $1.2 million year-over-year and really what that is, it’s an influx of FirstVU HD component parts. We are desperately trying to increase our supply chain productivity to get us in component parts to be able to build the units and get those out into customers’ hands. Right now, we’ve got almost 400 T&E units that have shipped, because we are not able to produce enough FirstVU HDs to meet regular order demand and T&Es. So, it’s important that we get that productivity up and that’s what you are seeing there in terms of the increased inventory. Also, you’ll see an increase in our DVM-800 inventory as well as our legacy product, the DVM-750, believe it or not, we are seeing quite a large demand for the old 750 and therefore we’ve increased our levels to meet our 2015 sales forecast those two items. From a debt perspective, we’ve already talked about the convertible debt has all been converted. So it’s gone. We have $2.5 million subordinated debt that comes due in May of this year and we are currently in negotiation to either extend convert or pay that off when it becomes due. So, we are ready to deal with that $2.5 million or whatever the holder that wants to do. The derivative valuations resulted in a $2.2 million liability on the balance sheet and really what that is, is the value of those warrants that were issued to Hudson Bay in those transactions. And again, we expect those to settle in early 2015, maybe before quarter end, it’s not probably be in Q2. And again, when that happens, it’s going to bring $1.9 million of cash into the company. So, it’s really a good event although we do have no liability on the balance sheet due to the accounting requirements of that. Here some of the matters we are dealing with in 2015. I have already mentioned the FirstVU HD, the supply chain; we are trying to increase that. We are in process of developing a second source for the PCB boards. Again, a PCB, the printed circuit boards or other major component in that item and that’s the bottleneck at the current time is getting those in commercial quantities to us. So we are developing a second source and we expect them to come online later in 2015 and help us deal with the demand its developing out there. From a litigation perspective, there is several matters I would like to touch on. If you recall, Stephen Gans, the next Director of ours, was a plaintiff in a lawsuit against the company and the directors and that has been settled but no amounts paid. It’s pending court approval right now. So we expect that litigation to go away with prejudice, so it can never be brought back. We have a litigation going on with Dreg and I, in fact there is a hearing today in front of the Federal District Court Judge. We are the plaintiff in that issue and we do expect the positive resolution set thing winds down. The third thing, which was a matter of a press release, I think last week or maybe two weeks ago with Utility Associates and I will stress that there is nothing but positive news to record on the utility matter. We did finally and I think we talked about this the last quarter. We were looking forward to getting them in the court under owe to answer what their motives were, why they did this and how they get it. We’ve finally got that opportunity in early March. And we – to be real honest, we were surprised that some of the facts that came out in that hearing and because of that we’ve asked for a leave of court to amend our petition to include additional matters that we believe we were wrong on. So, we expect now some positive developments and a resolution in that matter. In fact, it’s going to – it was continued until later in February, February 21, 22 as I recall. So, stay tuned on the utility matter. You might have noticed that we did provided 2015 forecast which I think Stan may get into a little bit in more detail. But what I will say from an accounting perspective and I help generate that forecast, what we’ve done there is primarily project a recovery in our international commercial markets. The international commercial markets were quite disappointing in 2014. They were short of expectation and actually short of the prior year figures. We believe that they will come back and show substantial improvement in 2015. Law enforcement, domestic law enforcement were showing a little bit of an increase, but certainly that means that that we are leaving a lot on the table with the FirstVU. The upside of the FirstVU what might happen with the sales there could be a game changer; it could rewrite our forecast very shortly to be real honest with you. But we have not reflected that fully in our 2015 forecast. We don’t have a lot of revenue projected in that forecast from our MicroVU HD. You might recall that that was noted as a New Product of The Year at the ICP Conference. One in a string of awards we’ve won with our new products in the last couple of years. Very proud of that. We think it’s going to be a winner from a product standpoint, like I said; we just shipped our first finished commercial units this past week. So we are excited of what the MicroVU could do and we have not reflected that in the forecast as it sits today. So, with that, I’ll give it back to Stan.

Yes, thanks, Tom. Just sort of continue to touch on what Tom was saying there regards to how the FirstVU can still be a game changer for us. We’ve got over 3000 units that we’ve sold out there. Right now, we have 800 departments that are testing and evaluating 1200 units and if you look just sort of the pipeline that that could potentially be from those existing customers, it’s close to $23 million on its own. So, depending on, the financing that these departments have and the timing, 2015 could be a big number and just regards to our body cameras and that side of it. We are very fortunate that we are seeing though a trend and not only is the trend smaller municipalities, but the bigger municipalities in states are moving towards mandating in-car video along with body cameras. So, what we are seeing is that the combination or the package of our DVM-800 along with a body camera linked together with our VuLink, so that the products can communicate with one another regards to activation which is quite unique. It allows an officer to keep his eyes on the road and maintain what he needs to be focusing in on sort of trying to find batons to be pushing to activate the units. We continue to also be out there with one of the – in my opinion, the leading products, we are step near again. We have some of the highest quality resolution out there. We have a real good battery life. We have the capability of replacing a battery while someone is out there on the job versus our competitors have to take their units and either put them in some type of charging docking station or put them back up to the wall. So we – I think the overview here is that spinning the money that we have and continuing to do the R&D is really starting to pay some dividends. And again, with the patents that we are receiving, it’s going to make it a little more challenging for our competition just to jump into this game. On the commercial side though, the commercial division, I couldn’t be more proud of where we are at and where we really make some breakthroughs and just the last 90 days in regards to our product, our capabilities, our cloud storage solution, our asset tracking, it’s just – it’s the total package for any type of fleet that would be out there. So we are now getting daily calls from very large fleets and insurance companies and others that are seeing and recognizing the value of some type of driver behavior monitoring, asset tracking. It has so many features that it can even alert you; you have to tell lied out. And so, that you are not having stuff running up down the road illegally. So, the commercial division, I will be very disappointed if we don’t see big numbers from it this year because they clearly have a dominant product out there and I think they may have been handicapped a little bit in the past, but that is not the case going forward. So, we do have some pretty good insight to what’s going on in the in-car video system. Obviously, the body camera market is quite large. It’s hard even to quantitate those what those numbers could potentially be. And then as Tom mentioned, international sales appears a lot of momentum and started to happen there. As a matter of fact, we are very much aware of and active in regards to a couple of very large international orders that I would expect to see in the first half of this year. So, with that being said, we would like to Rocco, open to that for Q&A session.

[Operator Instructions] Our first question comes from Mike Lindos [Ph] of AGS Capital. Please go ahead. Q – Unidentified Analyst: Hey guys. Could you talk about any federal funding that you hear about coming down the pipeline for the body cameras, and it replacing on the vehicle monitoring?

Mike, that’s a good question. I’ve been – I joined the company back in September of 2005 and got real familiar with the federal funding that’s out there and available. In the past, what I noticed out was somewhat – most of it’s matching funds, but it came down to more of a generic form. In other words, it came down and you could utilize it for your law enforcement needs. Then it got to be a little more – what I would say, defined when they went to a point of saying that you need to be looking at technology, better technology to be doing your jobs with the finding. And most recently, Mike, they are flat out saying, these funds are available for in-car video systems or body cameras and they are really defining it , because there is such a big push not only from – I’d say from the general public that law enforcement departments have some form of videos. So that, both sides are accountable for what’s going on. So, it’s clearly gotten defined - the most recent one that I see that was bouncing around out there was a proposal that President Obama had, had roughly $75 million earmarked for body cameras which was matching fund. So about a $150 million over a three period of time, that was going to triple in and that’s over and above, a couple of billion dollars that’s already out there. Q – Unidentified Analyst: Sounds great. Secondarily, when it comes to the vehicle monitoring, how many vehicles are you monitoring now and what’s your monthly ARPU on that kind of business?

You are referring to more on the commercial side, Mike? Q – Unidentified Analyst: Yes, that’s on the commercial side, right.

It’s a small number right now, I mean; they just really had the big breakthrough in regards to their capabilities in the cloud storage side of things. So, I apologize, John is not here, who is the head of our commercial division, but, it would be less that 500 at this point. Q – Unidentified Analyst: Okay, and do you have an idea what the ARPU or the target ARPU should be per unit?

Well, it moves around, because the way they are priced, it is based on how much usage you have and how often you obtain reports in that. But you are looking at probably 30 to 50 bucks a month in recurring revenue from that, but it will be all over the board. There is different levels of service that we provide and certain customers like taxis use more of it than other customers like delivery trucks and that, so. Q – Unidentified Analyst: Right, all right. All right, great. Thanks for your time.

Our next question comes from Jeff Goldberg of Four Points Capital. Please go ahead.

Congratulations gentlemen. Tom, my question is geared towards competition; obviously Badger has been taking the lion share of the market up to this point. Do you feel that your technology is not only comparable, but possibly superior?

Yes, Jeff, it’s real frustrating, I mean, Badger has been around a lot longer than us and they’ve got their foot in the door just about everywhere, and some of the departments we just can’t get in there, I mean, we are doing everything we can and doing the best to point out that some of these departments are paying as much as three times what is necessary to get the same results, and I wouldn’t say the same results, because if you are going to get back to looking at gadgets, I mean, we have a much better gadget, higher resolution, better battery life, angle of view. We’ve also got all the options, whether it be a chest mounted camera, or a point of view camera, I mean, clearly we have the better gadget. So, the only thing it could be is your cloud storage and we offer that as well. And so, we can come in there and in most departments and someone – at some point in time, this will come to the forefront in a big way, because I would say on average, we can come in 30% less, providing better quality [indiscernible] video side and management side than Taser [ph] and in some scenarios, you are looking at as much as a 60% savings if they would go ahead and utilize, maybe their own servers and handle stuff in-house. So, all we can do is continue to point this out, anytime every time we hear of anything that’s out there. We are trying different tactics to make sure that whoever is making that decision is making that with all the facts, and if we are not allowed in the room to even present, then somebody have to be able to do some explaining and find out their municipalities, I mean over million dollars more than what they need. So, you are right, Jeff. It’s a stuff that we do feel that we definitely have a superior proposal to any municipality that we can give a [indiscernible].

Well, I would add – this is Tom, I would add, our current customer base, people that have bought from us in some form or fashion is over 6000 agencies. And those are your local county, municipal, city, type of sheriffs and police departments, those bread and butter customers that we have will go to us first, because generally, if they have the back-office already, that’s a pass to our in-car video. It is the same as our FirstVU. So, they would – number one, ask us to [indiscernible] and then number two probably buy from us because of the desire to keep just one back-office going. So, we’ve got a leg up on number of agencies from that standpoint. We’ve got a very large, vast customer base that has our products in operation right now.

I don’t say that’s out that the fact that they are out there getting all the big municipalities, but then again, if you look at that, what that number equates to in regards to the big picture, it’s less than 20% of the business.

So, if I am understanding you correctly, your product is 30% less expensive than Badger, give or take?

That is correct and better quality.

And better quality, well, I wish you guys the best of luck again. There is an old expression it’s not what you know, it’s who you know. So, let’s hope we get.

That was well said, Jeff.

Yes, again, I wish you guys the best. Take care.

Thank you.

[Operator Instructions] Our next question comes from Eugene George [Ph], a private investor. Please go ahead. Q – Unidentified Analyst: Good morning gentlemen.

Good morning. Q – Unidentified Analyst: It looks like finally after five years, six years of struggle, we are getting somewhere. Having said, I think, it looks like in your fourth quarter the international revenue increased decently. So, what’s going to happen to domestic revenues? And even looking at the press release, it looks like the first quarter would be a slow one, because of the supply constraints? But can you shed some light on it?

Well, I will say that, we are forecasting 2015 to be roughly $25 million in revenue. Don’t expect that to be a straight-line. I mean our business is lumpy. It’s unpredictable. What happens in - sometimes in unexpected. So don’t expect it to be a straight-line. We are constrained somewhat in Q1 because of the supply chain and develop – we are going from ten-fold, the number of units increased production per month in terms of the FirstVU HD and that has its own set of issues obviously and we are dealing with those and any company would have that same type of issue. So, w are going to get through that. But what I will say, the in-car video systems are leading the way as well, it’s just not the FirstVUs. We’ve go the DVM-800, we got the MicroVU and even the old DVM-750 is showing some sustainability there. So, it’s not just the FirstVUs that make us so excited about 2015.

Yes, I’ll touch a little bit too, in regards to the international orders, those are actually the absolute toughest to predict and see when they will become an end. So, in our guidance, we looked at some contributions from international, contributions from commercial. But, the bulk of our increase is domestic and domestic in-car and body cameras. So, we think the domestic market is quite strong going into 2015 and are very comfortable with – if by chance we had a weak international year, that we are still comfortable with the guidance we’ve given on our $25 million. Q – Unidentified Analyst: Pardon me for saying this thing, I’ve been known to this company long knowing this company for quite long time. Every year we start for the annual conference call here with the same promising that the next, this year will be great and then we fall off. Looking at a situation in the fourth quarter domestic revenue, there is only meaningful of light increase over the first quarter. So, that kind of concerns me. Having said that thing, how many shares have we noted here that all the convertible debt has been converted into shares and warrants are likely to be converted as well? So end of the first quarter, how many shares will be outstanding and if – can you give us an idea? And also competition from – that somebody had mentioned it yesterday on one of the articles.

Yes, this is Tom. I’ll address the share issue and we actually disclosed this on the front page of the 10-K yesterday. The current share count right now is roughly 3.76 million. That includes the conversion of all the $4 million of debt to equity and Hudson Bay has roughly 263,000 warrants outstanding in addition to that. Now, when they do exercise that, remember that, we’ll receive about almost 2 million bucks in terms of exercise proceeds. So, if they were to exercise all the warrants by the end of the quarter, then it would be roughly 4 million shares outstanding.

Thank you. Our next question comes from Martin Yokasawa of Torii Asset Management. Please go ahead.

Congratulations on the patents.

Thanks Martin.

Can we get – maybe the LIDAR patent what I am in, how long does it take or what’s your expectation to get it into a product?

Yes, we’ve already done, obviously the proof-of-concept. We’ve had it going up and down the road, on the side of the roads doing all the things that we’ve talked about in patents obviously. And, where it’s at right now and the reason that we are evaluating what we want to do is that, when we look at the bids that are coming in for us, the bigger packages and everything else, speed detection has fallen off dramatically. I mean, it is, easily a six, seven to one in regards in-car video systems, body cameras, compared to speed detection. So, we don’t know that it’s the proper time to really throw on the resources that going to hit and doing a big launch on this particular product, because I don’t know that the market is that strong right this minute. The other thing about it is, it’s sort of a unique product too, Martin, is that, it does have applications outside of law enforcement. I mean, it is a pretty sophisticated LIDAR scanner. So it has the ability to track a lot of different things other than just vehicles as far as calibrating speed associated with it. So, we are also looking at some other markets, lateral markets if the products maybe good at. And so, we’ll probably have a better clear picture that we can give you on the next call. We just really – right now, we are just sort of doing the evaluation, market evaluation.

And hopefully, I think new or re-initiated including international market sales, because I believe before it was so spotty and actually getting them to paying at timely basis was a difficulty, has something changed that you are including that now in your estimates?

Well, we have it in there, but not in a big fashion. We are way down the road in regards to a particular customer of ours that we’ve had good relationship for many years and we are aware of vehicles that are on order that they are preparing be outfit. And so we do have that insight for that particular customer. And then, we were also given a heads up by another one of our larger distributors that they feel that sort of the timing is approaching in which they are going to upgrade their systems as well.

Martin, this is Tom. I think in the third quarter last year, we issued a press release regarding a spare parts order and a blank purchase order issued by our distributor down in Mexico. If I recall right, it’s roughly 2 million bucks. So that gives us a lot of comfort that that’s coming. We have already shipped roughly 600,000 or 700,000 of that. So, we do have blanket POs out there for a good portion of the increase reflecting in our forecasting.

So, that 750,000 shipped is in this quarter?

No, no, that was in the fourth quarter.

And back to that, you said, you missed, I think the comp is getting better, taxes are going a little bit, tech revenues, I mean, what I am trying to find out is it a new wave of money coming or is there - are we in a honeymoon phase with – due to the incidents?

No, I think it’s definitely a new wave, I mean, because it’s clearly being allocated. And there is just a lot of pressure to make this happen. That’s why, just Tom was indicating just our supply chain to happen the ramp up and shipped so many units to those that are buying versus shipping units for T&Es, for pilots that are going on. It’s just a big number and I don’t think it’s any way, shape or form some type of honeymoon situation, because it appears and again, Martin, there is so many municipalities and states that are flat mandating that you go – you have in-car video and body cameras on all officers and vehicles and in some areas departments where we are – actually if their in-car system is not functioning, that vehicle doesn’t leave the yard. So, really three years, I see the big push in part of the video side of things.

So, if it is a new wave and it’s like your – because the PCBs are constraining your bottleneck, I mean, do we have a maximum amount of sales that you can make, I mean, what’s - kind of what that number?

Yes, here is the quickest answer, Tom to probably address it a little better, but in short, our production restrains will just be short lived. We are flat in making the commitments and in stead of buying in 1000 lot or 2000 lot type of orders in regards to departments we are now doing 315,000 and so, we will clearly ramp up and also be looking at multiple suppliers to have that to resolve that problem. We can overcome it.

And, quality is not an issue of bad bores or anything, this is just kind of a generic – you thought everything has been tested.

Yes, I mean, Martin, it’s such a unique design and again, we’ve been one of the pioneers in solid state systems out there, as far in-car and so to go to the body camera or still stay with the in-car, it wasn’t a big leap of faith and nowadays with the pick and place machines, making sure you do have the good quality boards to begin with, it’s a small amount of units that fell from an off of a line, let along before they get to our shop.

Yes, and that’s one of the reasons it does take a while to stretch the supply chain and then increase the production is because, we require them to put and test fixtures and do functional test and such on-site before they even ship to us. So the likelihood of damage boards or defective boards hopefully is reduced and we’ve actually balanced suppliers because of excessive defective boards. So, we are on that that obviously is a concern. I will acknowledge that but we are dealing with that concern.

Yes, it’s definitely a top priority always.

I guess, lastly is, if somebody comes after you, say Tanger wants to buy you, what’s your plan? I mean, give a protection of voice or what you are going to do?

No, we don’t have anything like that in place. I am always sort of been one that right or wrong, I think it gets boils down to what the shareholders want. If they feel like it’s a fair price or whatever then, it is what it is, I can only sit there and say, look, we are just in the beginning of this growth period. It’s now really the time to try to tell our story at the same time, maybe they’ll come in – if someone shows up with an offer that is fair, then, you got to look at it that way. But, right now, we are just keeping our head down. We are continuing to develop good products and products that are needed in the workforce. We are looking at lateral markets. For instance, our commercial division, we are the largest provider of in-car video systems to the ambulance industry and therefore we have a little bit of inside and a niche in regards to the medical field. And, we may have some products that are very affordable to expand in that market as well. So, right now, we are just continuing to stay focused on the job at hand and then the numbers will take care of itself.

Okay, thanks for your time.

Thank you.

And I am showing no further questions. I would like to turn the call back over to Mr. Ross for any closing remarks. Thank you.

Sounds good. Well, listen, we really appreciate everyone that have taken the time out of their day to get on to the call. We are definitely clearly very, very excited about what’s ahead of us in 2015 and what appears to be even on the horizon pass land. We will continue to work hard to get this company quite profitable and continue to get our fair bit of business in the market share out there. So, appreciate it. If you guys do have any follow-up questions or whatever, feel free to give us a call here at the office. Rocco, thank you very much.

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