Good morning and welcome to the Digital Allies Inc. Second Quarter 2015 operating result’s conference call. All participants will be in listen only mode. [Operator instructions]. Earlier today, Digital Allies' comported 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 C.E.O. Mr Ross, please go ahead.

Thanks, Garry. Thanks everybody for joining us today. So we're really excited about the momentum that we’ve started in the second quarter and how it's carried over into the third quarter. Tom Heckman who is our CFO is here today as well. And elaborating on the second quarter numbers and he can give you a little insight on how this is playing on into the third quarter but ensure that we really wanted to just sort of elaborate on where we're at in regards to the some of the guidance that we've given. We continue knowing what we know today and feel very confident that our domestic sales are rather in line with what our expectations were. As a matter of fact, we were eclipsed over a thousand agencies that have been bought from us in regards to the body cameras. We have about another five hundred agencies that are doing tests and evaluations. We were very successful in launching our cloud storage and case management software earlier this year and it seemed to be getting a tremendous amount of traction on that. Some of the larger agencies are now doing [indiscernible] in regards to those projects as well. So all in all the fact that we still are one of the true total video solution providers that routers so that we not allow any person from body cameras and when we push our camera viewing. We've really getting some momentum to finishing this year out and look forward to keeping the pace we've got going. So, Tom, would you elaborate a bit on the numbers and then we'll have few more comments and then we'll give to Q&A.

Sure Stan, thank you, and everyone I appreciate you joining us this morning. Just as a reminder, we did file our 10Q with the SEC this morning. It's available on Edgar. It is a complete picture of the quarter and year to date through June 30. What I'll elaborate on here is some of the high points and items that I think are important for you guys to hear about. I guess overall the first quarter the second quarter was very good revenue earlier, 63% over last year's second quarter and 33% over our first quarter 2015. So pretty much any way you look at it slice and dices it was good quarter revenue wise. In fact it was our best quarter I think since back in 2011 revenue wise. So it's very good trend. We like seeing it that way. The spring, as Stan mentioned earlier than our domestic law enforcement and commercial channels, the international channel was quite frankly disappointing for the quarter in the year-to-date. A couple of things to think about there is that the U.S. dollar has been so strong, One of our biggest customers are there in Mexico and you just look at the exchange rate in Mexico alone, a year ago it was thirteen to one pieces to dollar, now it's approaching sixteen and a half to one that's almost a 30% increase in the exchange rate peso to the dollar. In other proximal projects, I think everyone remembers or hopefully you do that a year ago, we received a blanket purchase order for refurbishment parts from the PFP in Mexico that was to dominate US dollars obviously. So where we are looking at right now either 30% increase in price in dollars that they have to come up with a buy a…

Fantastic. I appreciate it. As you could see we are very excited about the momentum that we've started to see here in Q2 and how it's carried over into Q3. We have made some small announcements on some of the orders that have been starting to role in but the biggest thing is that we continue on a daily basis begin to get inquiries bids and orders from new customers and again I think we're still averaging about one out of every six orders from the new customer. So customer base continues to grow, we are confident that our commercial division which again that a lot of people just sort of overlooked but that is absolutely one of our fastest growing sector, it is our fastest growing sector. And we are very excited about how the finish this year and what 2016's bringing for them. So Gary I think we are going to open this up for Q&A.

We will now begin the question and answer session. [Operator Instructions]. The first question comes from William Gibson with Roth Capital Partners. Please go ahead.

What I wanted to go into first was international. At least to my mind you've almost got too many distributors. Is there a way to narrow the focus on guys that can really contribute?

Yes. Bill I think that is an area that we are looking at. I mean we've got contacts out there and people that have signed agreements with us to be a distributor, but their level of activity just sure has not stepped up. And so the whole international distribution in our marketing side of things is being looked at very aggressively. And you do have a few things in the process that we hope to have, fully implemented here in the third quarter.

Thank you. And just one little follow up. You mentioned the increase in technical service and inside sales personnel, you have totals on each side of it.

Yes. For technical support we're up to 24 people now that includes both inside call-ins technical support as well as what we call level three which is outside support which goes on side and does all the planning delivery and installation of the projects. From an inside sales standpoint, we've got 11 people in the law enforcement side right now, outside we have 21. So we have 21 direct outside sales people and 11 inside sales support people.

Next question comes from [indiscernible] Please go ahead.

I wanted to ask you guys about your inventory levels in Q2. It was up like almost $1.8 million, so are you guys expecting a big pipeline in the second half of 2015?

Yes I mean we obviously built inventory in anticipation of some orders that did not did not come to fruition in the first half and it doesn't mean it's not going to come in the second half in fact we believe that they will. So there was there was a buildup in one or two of our legacy products due to a customer that that is is a buyer that that product. So yeah it was built in anticipation of the sale that did not occur and hopefully it does occur in the third or fourth quarter.

Ok perfect. And another follow up is that you know if you do know this year's gross margins were almost like 66%. Do you I know you guys have a long term target of 60%. But, do you envision a future where your gross margins get ahead of that level.

Well this is Tom. I think what we have to do in order to reach that 65-70% level is get more of the cloud based revenue because once you have that that's incremental revenue with very little cost and that's with Taser does that sort of model they pretty much sell their product at cost or a little over cost or maybe a little under cost. But then they achieve the return based on the recurring cloud revenue that they have locked up for three to five years based on their contract.

Yes, and one of the things I think you know is that we spent a lot of time on the first half of this year is really improving our cloud based storage and case management software package so that we feel like we're easily can compete with Taser and what they have to offer and we think that we may have improved on it and have a lot more teachers versus what they have. So we know that a lot of the larger municipalities that really aren't, may not may have been very pleased with our product but we may have came up short in regards to the cloud storage software. The new ones that will get in to you know in front of you have been extremely excited about the new software package all the features and also the pricing that we can be very competitive on pricing and that's going a long way. So we're definitely starting to see interest with a much larger municipality, so this is the package.

The next question comes from Donald DeFilippo, a private investor. Please go ahead.

I contacted this Yardarm Technologies, they have a device that when attached to a weapon, as soon as its un-holstered, it sends out a signal to the headquarters and to other local policeman who were nearby. I think that if you can contact them the CEO is Bob Stewart, 831-475-1999 and arrange some kind of financial benefit for both companies, it would be a benefit to Digital Ally. I also look forward to Consumer Reports matching our products with other competitors. I believe we have the superior products and I'd like to have that advertised as well. That's about it for now.

We appreciate it and appreciate your comments on it there. Thank you.

The next question comes from Herb Siegel, a private investor. Please go ahead.

Good morning gentlemen thank you for taking my call. First of all congratulations on your revenue number very very nice. My question has to do with it looks like the bids that you're receiving three times the number of bids as you've received historically, that's outstanding. I'm curious as to what percentage of those bids you're actually winning. That's the first part of my question. Second question is entering or continuing on with the commercial customer space is there any particular vertical that you going to focus on. Thank you.

Yes in regards to the bids you know that that's a good question. I don't honestly don't have that number right off the top of my head on which ones and the reasoning for that is the timing of when they make them active and not active. The amount of bids that we're submitting goes clearly you know threefold. So whether or not they’re going to live or is in the next 30 days or next six months sort of the missing that link and I need to give you a good number on that. But I’m sure we’ll do a better job on the next call try to get some numbers for you on that. In regards to the vertical links and staff or as different areas, we clearly have some very distinct markets that out there and we’ll just talk a little bit like on the commercial side. We are the largest provider of in-car video systems for the ambulance companies and because of our exposure there and some of the products and technologies that we have, there is also quite a opening there for us to implement those products on into the medical arena. So we continue to utilize a very brilliant team of engineers that we have and look at these verticals in a lot of different areas. Not only medical, but you could look at the private sector, consumer sector and as these opportunities you presented in front of us even like Donald just said a little while ago. We will definitely pick up the phone and see what we can find out of the plain and a much larger sandbox and just along enforcement sign.

Yes that’s the excitement we have with the commercial product, it lend itself to any company or any business or any governmental agencies for that matter that has a fleet of vehicles and the fleet of vehicles, 10 vehicles or around amount of more. So it really increases sandbox we playing in the customer base we can go after and quite frankly that’s why we’re so excited about the fleet product that we just released. It is a winner, it’s been accepted adopted by some very large companies out there.

The next question comes from [indiscernible]. Please go ahead.

Just a simple question. With this offering, how many shares are fully outstanding include warrants?

Well excluding the warrants, its right over 5 million, I can give you exact number, it’s 5 million 55,000 shares and then there is a 5 million warrants attached to those, so just add that too it. But again those warrant or price of $13.64 a piece so in order to exercise them they would buying at 13.64.

And just a second question just getting familiar with your company. How it is exactly your product compared to TASER’s product in terms of a compatibility or product application?

The unique thing about our system, I mean we clearly have a better mousetrap I mean that the product itself. We’re a high definition system so our quality of our videos much higher grade we have a lot more flexibility and just another example is the fact that we have a removable battery. So when the battery does go dead and in our product end, you don’t have to just put it in a crate and wait for charge back up which do with the TASER unit. We now have a software package that I would say rivals those if not exceeds their capabilities, whatever they can do and those with us. This is about its early is when you look at, if you’re in a police department you’re trying to figure out what your total video solution is going to be, TASER does not have an in-car system and therefore you put department in sort of a tough situation you’re saying okay we’re going to use this software and still all our video by body cameras, those through this mean and our in-car systems are going to be utilizing the different company and therefore it’s a whole different set of software. And they are not about buyable, I mean not any of our competitors that have products that software side it’s compatible with the TASER unit. So you can come to us and we can be your total in solution in regards to your video needs not only give you a real nice quality body camera with not only the chest mounted camera, but also a quality camera. And we also can give you in-care system. And then again one other thing that has to clear would be remembered is the dealing which we have a patent on which allows hand free activation of both units in the in-car and the body camera. So that’s why that really nice unique feature that the every officers enjoy.

Okay that's a nasty one. Thank you very much.

The next question comes from Ross Alright with General Electric. Please go ahead.

Yes, I am actually private shareholder and digital and honestly with all those going in the world particularly with police issues for instance I know with them the Digital Ally they will start jump substantially right after the Fergusson instance kind of now back down where I live in Cincinnati, there was a recent instance and it looks like body cameras are going to be something that is really going to be embraced by the community and law enforcement. I guess I have two questions, the first question is in regard to their sustainability of growth I mean is the growth kind of going to be spiked always by these sort of incidents that seem to percolate or there are longer term sort of horizon as to how to actually grow the company beyond just these incidents that come up and 12 police departments order cameras this day and then the second question is with respect to product differentiation between you and TASER, how easily would it be for TASER to make adaptations to their product to essentially make it equivalent to what you said they couldn't offer, are there intellectual property protections around that?

Yes, correct. Let me address the first one, Ross. You get there on, I mean what I think the longer term growth is going to continue in regards for our company is going to be outside law enforcement, but in the near term law enforcement is absolutely moving towards mandating almost Countrywide not only body cameras but in-car video as well, because body cameras were not the total answer, I mean you got it all through face down in the ground or you got him a look in one direction or someone comes up from behind you better have cameras from multiple angles absorbing what's going on to really get all the information and evidence that you need. So video in regards to capture an evidence is absolutely here to stay and is going to be around several years to come I mean it's just going to get mandate, it's going to be as common as the radio. So near term growth you can't be more excited about what's in front of us as far as Digital Ally and our capabilities there and again the body cameras really in its infant stages of course did not right, now regards to Taser trying to throw some engineers at a new design I mean anyone could do that, I think they could try that we do have some intellectual patents, we do have additional patents that have been filed and we also are not only sitting back and pleased with what we have today, but are also visiting with departments in with enough features and on how to come up with the second generation of body cameras. So that we stay ahead of that -- I mean that's one other things, if you look at the history of our company we've been pretty aggressive on our engineering and our efforts, so we've always felt pretty, we've always been sort of get the leader and never have fallen very far behind in that sector in that area for sure.

The next question comes from Bryan Lubitz with Newbridge Securities. Please go ahead.

What I want to start with if I could, there's been a lot of chatter that we cannot fulfill orders that we're not getting certain orders, can you please talk about the strengthening the balance sheet and how that should be positively affecting future orders for us?

Yes, I think clearly prior to the offering that we just completed, some of our competitors were using our balance sheet and financials against us in competitive situations, because quite frankly we are the only one that's public and shows a balance sheet. So it's easier to throw more rocks at us from that standpoint. That's one of the reasons, one of the big reasons we went out and did the right that we did and we wanted to pulled out that excuse so that marketing technique away from our competitors. And I think we sure did with the deal that we got accomplished.

We definitely, that's a great question. And that is something that we've had to struggle with and I was asking about the Tom as well, similar time on also the warrants and derivatives that are there too, because our stock was doing quite well and because of that the costs associated with those warrants worked against us as a mechanism. So we did look at this not only as, we felt real confident that by doing this stripping the balance sheet through this that it would have a good impact on the top line as well.

Okay. And also guys and I'm supposed to keep the two questions but I'm definitely going to break that rule. Can you guys elaborate on the orders that you had alluded to in the PR in regards to the first month of this quarter about the major orders? And is that something that's based off of work that we did three to six months ago, is that something that just a follow through on bids that we've made, can you elaborate on that?

So here's the deal Bryan, and I'll take the blame for this. You're not I'm not always been a big fan of stepping out there and doing press releases on small orders, although those small orders often get turned into big orders and if they are just an opening order, they need five ten twenty systems or whatever that they are in the whole department that may be 100. So one of the things I noticed is that especially when I was out visiting, different plans they were getting one or two department a mother so not anything major all those that were listed there were just stuff we did in July. That was just a partial list of how many new companies that we brought in like I said would be close to the thousand agents in March. So I still want to make sure there's a substance to the story and not just a bunch of lonesome names out there, but to be spin in that money on press releases and time associated with that. I think in time we have some that's been quarter of $1 million Mark or it's a major municipality or something has substance like that. We will do that and will also start to include some of the other permanent contracts that we received. But that was something just knocked out in July that was just a few of them to.

Okay. So now in that regard obviously the street needs clarity and you know some of the knocks that shorts may have is that we're only securing a contract once every other month or whatever mix maybe because of the PR. So it's not to say that we're going to start structuring our press releases the way that you guys did the last time so at least give us an idea of more and more the contracts that you guys are getting.

That is correct, absolutely correct.

Okay. So now this is the follow up to that and we've talked about this Stan a lot of times our due diligence and find the contract that you guys have to a local newspaper and use it yourself sometimes you guys get notification that way. In particular one of the deals that we are bidding the Memphis area transit authority, it is a deal worth about $24 million and I saw that we were bidding against Caesar and a couple other companies as well. Do we have any idea when they will make announcements based of when we put our bidding as every single municipality different or is there some type of a timeline that you guys are used to, to find out those answers?

So, most of the time they go here and they have some indication on what their timing is. And so whether it's sixty days or ninety days, but they may also ask you to do this too and put in your bid. And then if you're one of the finalists then the remainder go into a tin system pilot for 90 days. And so you know there's a lot of different ways they approach it and so there is no -- out there. And I would remind you the one owner that we have we're now just out there was a separate water the southeast Pennsylvania transit authority similar to Memphis that -- was in process for a year. They took their time, they looked at the products, they tried the products, they tried all the competitors' products and looked at, didn't happen, we won the -- So it is some think quite a while some don't think that wrong with it really is all over the board right.

Okay. So now again with the Memphis area transit authority from what I read that's a $24 million dollars deal. If we win that that doubles the amount of revenue you guys were expecting to do for the year, something like that would have what type of impact in your opinion on your outlook in terms of future guidance. Are those deals out there or is that a once an opportunity once a lifetime opportunity take a deal.

It is Tom, I would say that the emphasis one of many. It’s no secret, the NYPD is out there looking for metropolitan police and UK looking for multiples of that figure. So there is some very large contracts that we’re pursuing currently that are in some process and progress through hopefully we win it. So that’s one of that.

And that’s one other thing to Brian on some of our headcounts. Because we are clearly getting the invites just starting to happen I mean there were just stretch there, that was very frustrating how come, they’re not knocking on our door and giving us an opportunity, I mean we’re knocking on their door, don’t get me wrong. But we just are going to get our foot. And that’s I think because of the amount of municipalities we have out there now and some of the news that's occurred out there and has digital main associated with it. We’re getting those phone calls and that’s one of the reasons you’ve seen the headcount pop-up, because some of these packages just not the standard I’ve got 25 vehicles and 50 officers, I need standard package. Some of these are requiring quite a bit more. And again strength in our technical pre-sales team and have them directly focusing on some of these big opportunities.

[Operator Instructions] The next question comes from Johnny Guan with National Securities Corp. Please go ahead.

I might miss this, but if I could give us a number and how many agencies are piloting your camera right now?

So it’s just over a thousand agencies have already bought and looking at approximately another 500 that are out with some type of testing the valuation program going on.

And my last question is I think in recent light up of freshen your stock, I think it would help investors a had run figure out maybe your no menu backlog?

Well in terms of backlog, we move through pretty quick once we get the order. So we don’t generally see a lot of backlog unless they come in large batches. Our backlog currently is probably less than 3,000 or 4,000 but that can change today it could change tomorrow. I mean there some rather large bids that are out there that we’re expecting also in the near-term.

The next question is a follow-up from Bryan Lubitz with Newbridge Securities. Please go ahead.

So now the recent PGA tour that we has a Digital Ally tour that we had, we had cameras on the caddies. Can we expect that we’re going to have in the future, a camera that can compete with GoPro that could be marketed to the public in that regard?

Digital Ally open, and it’s actually going on right now. It’s definitely given us a platform to set there and evaluate some technology that we develop to see if that is in or we’re getting close to an area where we could compete to be with a GoPro and definitely giving that consumer market. So we’re definitely exploring that and looking what the responsibilities would be cost associated to get price competitive to get in there with GoPro. And what kind of software really needed versus not needed. As you know, we got so many change the customary issues with our long portion of version just your standard system that will play on any media player what I would is what the public good one.

So now in a lot of articles you’re saying that GoPro deals with law enforcement agencies. But am I right and in assuming that there footage to be manipulated, so it can’t be used in core, is that correct?

Yes, it was a challenge really quickly.

And the last question for me. A lot of holders have question regards TASER and I guess technology compared to them et cetera. Obviously they have relationships with the precincts over the course for the last decade and that’s getting their foot in the door. But can you guys talk about some recent articles that have been in regards to TASER going about how they get their business with the back, can we hoping things of that nature?

Bryan you don’t want to get TASER matter doing.

I don’t really care of the matter is right now. Yes and I want to kick their butts so.

You could do a lot of good out there you'll see where some of their methods have been scrutinized real hard in regards to some of the contracts that have occurred and how some companies never truly got a chance to get in there and bid and meanwhile the cities and the shareholders, our taxpayers are losing out. Yes, you got it.

Okay, so I don't know if that last question is truly my last question you guys had a good quarter year over year. It’s up significantly revenues up, margins are up quarter over quarter. I know we've discussed this before but you guys have any idea who is pressuring the stock and can you talk about what you guys are going to do to try and cover back the naked short selling.

Yes honestly right now we do not I mean I think the biggest thing that we could do to assist them is do a much better job in our you know in our I guess marketing campaign in regards to the orders that we get when we get them to make sure that the street knows about it and not have it be a situation where the stock can be manipulated you know so easily. So we would definitely be out there telling the story showing you where we're at on these bigger contracts that we get and making sure the street knows about it and also we got to do a better job about the commercial division I mean we've had very few questions today about our commercial division, and then I thought that's one of the fastest growing sectors. So you're going to see some news coming out of it before the end of the year that will be quite a sort of a surprise for most of my shareholders.

This concludes our question and answer session. I'd like to turn the conference back over to Stan Ross for any closing remarks.

Well it's a night and I really appreciate everyone who participated. I appreciate the questions, the leads, all the above. I mean you know we actively sit there and at the job, I openly hear about twenty five different police departments that attended to get dedication in training. We were able to also have a one on one at being able to show them our products and how they would compare against our competitors'. And we're quite pleased by the amount of response that we got there and the additional leads that we've gotten so far. And just look forward to how this remaining year's going to finish for us. So, yes thanks everybody for participating and if you do have a follow up question, please try to call Tom and us here at the office. Thank you.

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