Stan Ross – Chairman and CEO Tom Heckman – CFO, Treasurer and Secretary

Orin Hirschman – AIGH Investment Partners Bill Sutherland – Emerging Growth Equities

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 on the matter. However, as background to the case, Utility recently mailed letters to current and prospective purchasers of our in-car mobile video surveillance systems threatening patent infringement lawsuits if our customers continue to use our products. We do believe that similar letters were sent out to our competitors’ customers as well. So we were not the only ones involved in this. Surprisingly, the patent Utility is using to harass our customers is not even one that it developed on its own. Instead, it purchased the patent from someone else who developed the invention. Utility maybe what many critics pejoratively refer to these days as a patent troll, which is an entity that uses a patent merely as a way to make money by storing settlements after threats of litigation. Unfortunately, threats from these so-called patent trolls and these types of patent infringement lawsuits are nothing new these days. In fact, the threat of so-called patent trolls has become so significant that Congress is considering seven-plus bills to reduce potentially abusive patent litigation like the kind threatened by Utility. The Government Accounting Office recently reported on patent litigation’s repercussions and the Federal Trade Commission has conducted its own study. The White House has issued executive orders directed to be issued to crime companies that are just trying to essentially leverage and hijack somebody else’s idea and see if they can extort some money out of them. Unfortunately, it will take time for these bills to make their way through Congress. And Digital Ally was not in a position to standby and wait for that to go through Congress. So we filed a lawsuit against Utility to protect Digital Ally Inc.’s current and prospective customers. In this lawsuit, we are asking the court to affirmatively declare that our products do not infringe Utility’s patent. We also plan to ask the United States Patent and Trademark Office to take a second look at the patent, because we believe there is new evidence showing it never should have been granted in the first place. We believe Digital Ally will be vindicated in these proceedings and we will not hesitate in the future to protect our customers from these types of threats. That’s the end of the prepared remarks. I will also post on our website a couple of articles – hot links to a couple of articles out there in the internet world that also explains what’s going on here and what patent trolls do and how they do their business. So anyway I will post that to our website and you’re welcome to read that for further information on that. Okay, with that said. Let’s move onto the third quarter results. Obviously management and the board of directors are disappointed in the results that we had for the quarter. And it’s certainly not what we expected. Having said that, let’s look more into the details. First and foremost, revenue was disappointing for the quarter. Revenue year-over-year declined $100,000 and more importantly to me and to management here it declined $500,000, almost $0.5 million versus Q2 of 2013. That broke our string of three straight quarters of revenue growth. The way I look at the revenue is from three different revenue streams. First of all, we have the domestic law enforcement market. Secondly, we have a commercial revenue stream, which is primarily our DVM-250 and 250 Plus product sales to commercial fleet customers. And then thirdly, both law enforcement and commercial sales to the international channel, which is predominantly law enforcement, but there is some commercial sales to that channel. If you look at the details of those three different revenues streams, there is a $1.4 million drop in the revenue which is 33% in the domestic law enforcement revenue stream, when compared to Q2, 2013, a significant and sudden drop in revenue from that revenue stream. Comparatively, we had a $100,000 or 14% increase in commercial revenue and an $800,000 or 900% increase in international revenue when compared to Q2, 2013. So certainly our issues that we encountered in the third quarter, revolved around what happened in the domestic law enforcement market. So what did happen in the domestic law enforcement market? I believe and I’ll tell you why in a little bit here that the government shutdown during the quarter significantly impacted our third quarter revenues. There are many estimates and it depends on how you cut it and slice it, but our bread and butter customer is rural county sheriff’s departments, smaller rural cities or towns if you will and smaller agencies overall. Our bread and butter clients were not the St. Louis and Kansas City, the Detroit of the world. It’s the smaller counties and police agencies in smaller rural towns. Those type of agencies rely heavily on federal grants. And federal grants, they come in many different varieties, either direct grants from the federal government or federal governments grants to states and then onward. And in fact, an estimate is that 30% to 50% of our individual customers rely on grants in some ways. Some are matching, some are 100% grants, some are 25% grants, but in any event there is a heavy reliance on federal grants in our domestic law enforcement business. The reason I believe that is the third quarter revenues were tracking very nicely with the second quarter of 2013 and the year prior, until early to mid-September and then the bottom dropped off. And that’s basically when talks of the shutdown started and our domestic customers really slowed down their inquiries and were concerned about whether they would get the grants and if they submitted orders and do not have a grant money coming in, they didn’t want to have to pay for, that sort of thing. So I believe that it had a tremendous impact on our domestic law enforcement revenues for the quarter. Also we did announce the DVM-800 during September in anticipation of the IACP conference. Our new DVM-800 convert was announced and it’s cost efficient, feature rich product that I think also contributed to the decline in domestic revenues – domestic law enforcement revenues in the third quarter. I do believe that the impact that we’ve got in September has pretty much bounced back if looking at actual October revenues, in 2013 were up 32% over 2012 revenues. So we’re tracking very nicely the 2012, so the bounce back I believe has occurred in domestic revenues – domestic law enforcement revenues and hopefully we put this episode behind us. Also impacting domestic law enforcement revenues were the fact that we were awarded two state contracts during the third quarter 2013. Unfortunately, some of our competitors have filed informal and formal protests, which is a normal typical response to some of these things. So the initial shipments of POs were not received in the third quarter were moving forward to call out the protest and we hope that those shipments will occur in the fourth quarter. So unfortunately the five previous quarters that we – coming into third quarter of 2013, contains sizable revenues from our state contracts. And specifically Q2, 2013 had two large state POs and Q3 of 2012, a year ago also contained two state POs of the sizable nature. So we did not get state contract – significant state contract revenues in Q3. I believe that was the result of these competitor challenges which I think will get cleared up here in the fourth quarter. So anyway, I believe that the state contracts will come back, the revenues associated with that. We are continuing to pursue at least one at this time and they do come up periodically. So that should bounce back in Q4. With all that’s going on, I think Q4 domestic law enforcement revenue will bounce back from the Q3 levels. And hopefully we’ll confirm our feelings that that wasn’t temporary non-recurring event. Now for the good news. Commercial revenues continue to show steady improvement. There was a 14% improvement over Q2, 2013. We did ship one large ambulance order of 250 units in the third quarter which I think we did issue a press released on, so you are probably aware of that. We continue to see larger opportunities in larger fleets in the commercial areas. So I think we’re gaining traction in the commercial market, although the revenues are not sizable yet. We are getting traction in every quarter. I believe we’ll see somewhat of an improvement. International sales, is also a very good point of our discussion here. Order revenues for the third quarter reached $900,000. That’s versus $200,000 in a year ago and $100,000 in Q2, 2013, so a significant huge improvement. Primarily the improvement was related to the final order of one of the larger cities in Mexico of our product. They ordered a total of 250 DVM-750s of which 200 were shipped in the third quarter. The remaining 50 will probably not ship until early 2014. So, probably will impact our 2014 revenues. By the way that was our largest single international order since Q4 of 2009, so almost four years ago. That was our largest order internationally. Interesting that that order we have been pursuing for well over a year. It shows or indicates the long cycle of these international opportunities and they eventually do occur, but it takes time and patience to get there. As I’ve said before, this is one of the larger Mexican cities. And the good think about that is that gives us visibility in that area and we’re already receiving inquiries and sending T&E or Test and Evaluation units to neighboring cities and states or provinces I guess whatever they call them down there in Mexico. So I think the visibility of this deployment in a Mexican city will lead to future opportunities that we hope we can close. We expect 2013 to be our best year for international revenue since 2011 and it may even surpass that depending on how things go in the fourth quarter. Now the item I think a lot of people have in their mind is the FirstVU HD. Hopefully you’ve had a chance to look at the press release that we did issue this morning. In that we disclosed some sales numbers, some pipeline and where we sit in terms of T&E units currently. Now we’ll caution you that these numbers change every day. These are smaller $1,000, $900 unit price units. So we’re sending new units our every day. So these numbers as of today are stale, because of the activity in this product. Actual sales had now actually to 350 units. Evansville, Indiana represents our largest individual order to-date at a 150 units. And basically, the Evansville opportunity and purchase really provides us a template as they have the FirstVU opportunities as what we expected the progress out there. Evansville conducted a 60-day test and evaluation period, included all the major suspects out there, all the competitors with viable body cameras. We were evaluated as a top rated unit out there. They took – well obviously it took 60-days for T&E period. It took them 30 to 45 days to evaluate and approve the purchase, and then also locate and use available funding. So, it’s overall a 90 to 100 day process. I think that’s a reasonable expectation for template of a larger order. It’s not going to be an immediate order. They are not going to look at a one day, order it the next day, it’s going to take some time for them to do their evaluation and actually result in some time more. We currently have at least 150 individual law enforcement agencies conducting T&E programs. Those may contain one or even more than one units being evaluated of ours, so it could be two or three units in the field being tested. And primarily we will run into the same competitors – same two or three competitors that I think everybody is aware of, in each one of our T&Es. We believe based on the results of the T&Es to-date that we have a clear majority in terms of being the top rated unit out there. Stan and I thought a little bit about putting percentages in there, but I think clearly we can say a majority and we believe that a larger majority that have been just a simple majority rates ours as the top rated unit out there. Including T&E programs and process recently completed, we have a potential sales pipeline of over 4,600 units at the current time. Now I caution you that the 4,600 units is a gross number. That’s the total out there and it’s growing every day of opportunities that will pursue in terms of T&E programs right now. We won’t win all of them. Obviously, we won’t win all of them, but we’ll win some of them and it will take sometime to evaluate and close deals. Now I will tell you that there is a certain portion of these smaller government agencies that I referred to before, the rural sheriffs and the rural towns that are doing T&Es right now that they are looking at 2014 budgets. So they may be doing T&E programs, now but the actual orders if they ever do materialize will not be until 2014. The buzz right now is the body worn cameras and everybody wants to see that – see them and test them and see if that’s what they want and then they’ll look into the budget down in the future. We believe that the number of T&Es will increase steadily and maybe even substantially, because of the leads that we generated, the recently completed IACP, International Association of Chiefs of Police, which was held in late October out in Philadelphia. I think and Stan can step in here as well, I’ve been to five of them now and this was by far the busiest IACP trade show that I’ve ever attended. And by busy, I mean the number of participants or potential customers coming through the number that looked at our units, talked to our people, held it, used it somewhat and actually indicated interest in not only the FirstVU but also our DVM-800 and other products that we have out there. I had under that time, it was quite [ph] a little bit surprising too to see a number of executives from other companies and their sales teams that had come by to see the new products that we were displaying and what the competition was now looking like in regards to the forefront. So it was absolutely – and since I’ve been here and I’ve been involved with company since September ‘05, it was again the most active trade show I’ve ever attended as well. So thanks, Stan. And in fact after we got back from the IACP, we counted up and categorized all the leads that we generated. And from that, we had over 900 police agencies that indicated interest in the FirstVU HD and obviously we’re going to follow-up with them and hopefully get T&E units send out to them here in the future. So it was enthusiastically received to say the least. It was very productive in terms of potential customers and leads, and we were very pleased with the overall results of the IACP conference. With that, I will – I truly believe that the FirstVU HD will be a revenue driver for us here in the fourth quarter and beyond. We talked a little bit about the DVM-800. We were also encouraged with the reception that got out of the IACP. It is like I said before, very cost effective and feature rich. We do plan to launch that unit sometime in December of 2013 or potentially January 2014. I don’t expect it to really drive revenue until at least Q1 of 2014 and potentially even in Q2 2014, but that is a unit that will dominate – we believe will dominate that category. Overall, revenue was disappointing for Q3, but we do believe that based on the government shutdown and what happened there, that some of the agony was inflicted on us not caused by us, and hopefully that will not occur in the future. If you look down also an another area of concern was our gross margin decline to 54% in Q3 compared to 57% in Q3 of 2012 a year prior and 60% in Q2, 2013. You guys probably recall that our goal is to reach 60% gross margin. So obviously we did reach our goal. But here is really what happened to us. We did run into initial production issues with the FirstVU HD. In fact, we had outsourced the manufacturer of that whole unit, the first FirstVU HD to a contract manufacturer. That contract manufacturer had some significant problems primarily with the camera head and the calibration of that and just getting that done right. We eventually retracted that work back in-house, and in fact our engineers built some new production fixtures and calibration fixtures that were quite unique and handled the problem, but that causes a lot of the work and rework and quite frankly some scrap. That impacted mightily our gross margin for the first quarter – I’m sorry, the third quarter. Since we pulled it back in and we’ve fixed the production issues – now understand that our standard hours for the production of the FirstVU HD is less than an hour. So it doesn’t take long to double or triple your time when you’re doing rework in these units. And there is just not a lot of labor involved, but when scrap and rework and that happens, it does have a significant effect. Right now our current work hours are tracking our expectations, our hours are coming back in line and we’re happy with the production situation on the FirstVU HD. Just as a matter of interest, we are launching the DVM-800 in the fourth quarter. So we do not expect to create any of these similar inefficiencies that we saw in the FirstVU HD. And primarily, because the DVM-800 is a derivative of another product that’s already produced in total by a contract – outside contract manufacturer. So they’ve been producing similar units for years actually. So we do not expect for us those inefficiencies to occur as a result of lots of DVM-800. Looking at the SG&A expenses, we did see an increase year-over-year and versus Q2, 2013. We spoke earlier or the last conference call that that R&D expenses was expected to be elevated throughout the rest of 2013 and it was. It was $53,000 more in total than in Q2, 2013 and $350,000 more than in prior year. And basically that’s the result of our aggressive product development program and getting these new products out such as the FirstVU HD and the DVM-800. Stock compensation was expected to increase, and it did increased to $128,000 more than prior year and $77,000 more than the previous quarter in 2013. And I think I mentioned this in the last call, based on our current information of amortization schedules, we believe that Q4, 2013 will show a reduction of a $126,000 in stock compensation expenses. So that should fall back in the line and it is a non-cash expense anyway. We believe that we should be able to maintain SG&A expense at the current levels throughout the rest of 2014. So I think in total, we’re okay with SG&A. We don’t see it increasing substantially. 2014, we’re starting to map out and budget and I think that will be priority to try and get that peered back down in 2014. Okay, switching over to the cash flow. We had negative EBITDA of $460,000 for Q3. The way we funded that negative EBITDA was the exercise of stock options during the quarter provided $740,000 of new cash and that was primarily the result of the run up in our stock price. Some of the stock options became – had value intrinsically and exercises were done. And basically that cash that came in from our stock options covered – more than covered the negative EBITDA that we generated for the quarter. Certainly, we’re going to be focusing on improving cash flow and EBITDA in Q4 and beyond. From the balance perspective, our balance sheet – the complexion of an actually improved quarter-over-quarter. If you look in, our cash improved by $150,000 from Q2. Our inventory was decreased by $140,000 versus Q2. Net positive working capital improved by $120,000 and our total equity increased by $100,000 due to the stock option compensation as well as the stock option exercises. So our balance sheet, the complexion of it actually improved quarter-over-quarter regardless of the loss – the net income loss or the net loss on operations. What we’re currently dealing with, obviously the subordinated notes, come due in May of 2014. We’re already starting discussions in terms of extending and renewing, that’s the subordinated notes. So we’re taking steps to deal with that uncertainty out there. We are reducing inventory balances further. We’ve got controls in place. We believe we will see some declines in inventory balances that will generate some additional cash flow. Our AR has been and continues to be very current and our collection days are running between 38 and 45 days. So we’re pretty darn good shape with our AR. To wrap it up, our Q3 results were certainly disappoint for management and the board of directors, and I think probably for a lot of our investors. There is certainly reasons and excuses out there that it wasn’t good, but the fact remains it was a bad quarter for us. We’ve got move on from there and improve it in the fourth quarter. With that said, we do have the FirstVU HD rolled out. We believe it will be a major contributor. The DVM-800 will be launched in Q4, but not really improve revenues probably significantly into Q1, 2014. Our international pipeline is come alive and it’s now productive and most importantly, hopefully the government stability comes back to our market base and our customers and it improves the environment we have to deal with. Thank you. Stan?

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.

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