Good morning and welcome to the Digital Ally's Fourth Quarter and Year End 2016 Operating Results Conference Call. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. Statements made on today's call will include forward-looking statements including statements regarding our expectations, beliefs, intentions, or strategies regarding the future including statements around projected spending. We intend that such forward-looking statements to be subject to the Safe Harbor provided by the Private Securities Litigation Reform Act of 1995. The forward-looking statements information is based on current information and expectations regarding Digital Ally Incorporated. These estimates and statements speak only as of the date on which they are made and are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. All forward-looking statements that are made on today's call are subject to risks and uncertainties that could cause our actual results to differ materially. These risks are discussed in our press releases we issued Monday evening and in greater detail in our Annual Report on Form 10-K for 2016 filed with SEC under the caption Risk Factors. You may find this and our other SEC filings on our website at www.digitalallyinc.com. Please note this event is being recorded. I would now like to turn the conference over to Stan Ross, CEO of Digital Ally Inc., and Tom Heckman, CFO of Digital Ally Inc. Thank you. Please go ahead.

Thank you very much. Thanks everybody for joining us today for our recap of 2016 and our happy salute but it's behind us. 2016 was very frustrating for us. Not only did we really get involved in lot of litigation in regards to some unfair trade practices and patent infringements, we had a third-party vendor that got us some components that were very damaging and regards to the fact that we had to recall almost 8000 units to do the right thing by all of our customers. But in short, having the problems that we had in 2016 have really made us a much stronger company going into 2017 and obviously I'd look back on it today, and clearly we're little bit further into 2017 than - on this call then - you know as you're going into the beginning of the year and you can see already some of the things that we put in place in late 2016 have taken hold and really got us teed up for a real nice 2017. I'm really excited about the one thing that we've always been building our company on and belief is that we need to have the highest quality, most advanced products that are out there on the market and then just have a lot of great order takers. And we have introduced DVM-800 HD system that is really doing very well in the industry. Our body cameras continue to take a lot of traction in law enforcement as well. But probably the most exciting thing is the strategy that we took on a couple of years ago to start and entering into the commercial market. That is getting a tremendous amount of traction. I think you all have seen the contract we signed, that's in excess of $8…

Thank you, Stan and welcome everybody. I appreciate you joining us this morning. I want to advice you that we did file our Form - our Annual Report on Form 10-K this morning with the SEC it's available out there. Please refer to that and take a look at it if you got detailed questions or want to understand more fully about what's happened to us in 2016 and what we expect in 2017. As Stan mentioned, 2016 was a disappointing year. There is no two ways about it. We understand that. We realize that. Really, we know why - we believe we know why we put the fixes in place to do that but at the end of the day, our revenues were down 17% year-over-year and our gross margin percentage more importantly was down 10% to 32% year-over-year, that's obviously not a goal of ours. Our goal is more like 60% almost double that so it was a very disappointing year from a revenue and gross margin standpoint. But let's look at the specifics as to what happened to us and what we've done about it. The first thing and as Stan mentioned that we did get involved in litigation this year and we believe deservedly so. We did file lawsuits against both Taser and WatchGuard, two of our main competitors in the body camera market and we believe that they have pirated our patented software embodied in our VuLink patent. And just as a reminder our VuLink patent it really is auto activation - an auto activation feature or body cameras, as well as our in car video system. It was revolutionary idea. We spent the time and effort from an R&D standpoint, spent the time and effort and money and resources to get the patent issued…

Yes, thanks a lot Tom. One of the things that a lot of calls that we get our surrounding the litigation that we have on in regards to the patent infringement and as Tom mentioned, we do have the lawsuits out there against Taser and WatchGuard and we have also put a couple of other companies on notice and that's just as a strong from our perspective as going to hit and file in suit because there are anything that they would be doing to be knowingly and so therefore the damages would be tripled if we’re successful and was stating the patterns that are out there in regards to this litigation. And that's really what is moving down to. We're not seeing any real competition in regards or what I will say fight in the court room by any of these companies. They are mainly trying to put forth any effort that they can as far as fight in the patent office and as you may recall that the Taser challenge this once before in the patent office and was unsuccessful. This is sort of their second attempt and almost third last hurrah if they for unsuccessful. We're pretty familiar with the argument in some of the, I guess the angle in which they are attacking us from and feel pretty good about our position. Again we feel there's a real clear distinction between our product and anything that has been thrown about there. So we do anticipate starting to see some feedback in the second quarter in regards to where the patent office stands in regards to our patents that were awarded to us. Once we have a better and clear picture of where that turns out, I think the courts themselves will start to accelerate moving forward…

[Operator Instructions] And our first question comes from the line of Brian Kinstlinger with Maxim Group.

Can you size the EMS market and maybe talk about what the pipeline looks like for you right now?

I mean I know AMR is the largest, but they're probably what maybe 20%.

We dominate that market. We have probably the top four or five ambulatory providers in the United States as clients. We do not have international customers or clients in that industry yet although we're moving in that direction in a big way. But we do dominated I got to believe we’ve got probably 90%, 80% share of the larger companies.

Our product I would say tailored our product to meet their needs what maybe over two years ago Tom I would say. So we've continued to expand on that and everything from the back doors opening up be in a trigger to any other apparatuses I think they would like. So while we were in their early days in getting the smaller ones, we really were able to refine our product to where eventually we got to AMR so at the start as mentioned, we did probably have four to top five in the industry as clients right now and continue to grow with them.

Great. On the sales front on your last call I thought I understood you expect a recovery in revenues 4Q to 3Q. So can you talk about what happened in the second half of the December quarter that may be change that?

This is Tom. One of the things - and I would say that our fourth quarter revenues were disappointing overall. We did have some of these contracts that we announced after year end we’re in process in 2016 and I am thinking about the AMR and a couple other ones that had they been ink done according to the timeline that we had in place that it would have affected fourth quarter. Now whether it would have turned into a great quarter probably not, but it wouldn’t have been as bad as it was.

Okay. The quarter is essentially done we’ve got two days left and while you said it will be a much better quarter, it’s a bit vague I think given the quarter is done? Can you give us some detail maybe on what do you mean by revenue are better maybe give us a better sense?

Our Board will let us just flat throw out a number but you know obviously are in full gear in regards to implementing and fulfilling the order with AMR. We've seen some funds that were released in regards to law enforcement and nice sized contracts there and some new business that’s came in on top of that. So Brian I am sorry but our Board just won't let us give guidance but we are seeing a very positive trend.

[Operator Instructions] Your next question comes from the line of Ishfaque Faruk with WestPark Capital.

Quick question on your cloud services revenues. What percentage of your customers whether on the law enforcement side or on the commercial side, what percentage of them are actually subscribing for your services revenues whether it’s on the asset tracking side or on the cloud storage side?

Yes, in terms of percentage of customers Ish, I can't give you a definitive number or a percentage, but I would tell you that generally I would say well over 50% maybe as much as 75% of our commercial customer base includes some form of recurring revenue in terms of the FleetVuManager, the web-based monitoring management software or the asset tracking units. And in fact a lot of them use so I’d say from the commercial side the penetration is very good and growing every day. On the law-enforcement side not so much. We did restructure or revamp our VuVault.com domestically it's been a difficult task selling that especially because of the Taser influence out there and I'll leave it at that. Taser influence that's a good way to put it. It’s been a tough, tough not to crack domestically. Now internationally I will tell you that the Taser effect is nonexistent or very low and we can compete on price performance and features internationally and we’re getting our share of those and some very large opportunities are presenting themselves to us and it's really tailored to our product because of the territorial regulations and laws that exist internationally.

All right, okay. You guys have sorted out your manufacturing hardware issues out, do you expect your gross margins to revert back to more normalized levels in 2017 and 2018?

Yes Ish, again we don’t forecast but I will tell you that nowhere in our forecast is there a 32% gross margin like we experienced in 2016 that is anomaly that's not occurred in my lifetime here. So I do not expect that to recur in any form or fashion. Our overall stated goal is 60%. I think that's a reasonably attainable goal whether it can be obtained in 2017 I don't know and I'm hopefully that we can but we do have to get more effects from our QC revamping program which we are right now, but certainly after 2017 I am talking 2019, I see gross margins barring any significant recall issues like we experienced in 2016 to revert back to our norms.

Thank you. Your next question comes from the line of Bryan Lubitz of Aegis Capital.

I want kind of talk about AMR to start, right now the contract is for the DVM 800 correct?

It has a couple of features involved, I mean mainly it’s the DVM 250 but it also has some management software and program in place as well.

But these mostly just dash cams correct?

Correct.

All right. Now for each ambulance we’re looking at what two possibly three EMPs that are on board?

Well I would say at least two and then they probably got multiple shifts even.

Okay. So now when you guys talk about potential for expansion with companies like AMR, I guess a line that we’ll be going toward is getting them on the EMPs body cameras is that something where we're looking to explore?

Yes, I mean there is some real value there. I mean look there's a lot of incidences that happen outside of the vehicle and they recognize that and I think that is something that they are clearly entertaining and would be you know willing to be looking at doing pilots. Again they’ve got a pretty aggressive rollout for the whole fleet in regards to the in-car. But you know the body cameras is absolutely the next step because I know their situations where when you're not - when you're loading unloading individual’s incidence occur and someone's being blamed or sued. And so you know body cameras would be of great value there as well.

So we’re looking at our largest contract pretty much to date with AMR news potential that if we land EMPs it could double or even possibly triple?

I would agree with that.

Okay. Now Royal Caribbean, are you guys alluded to the fact that they’re very pleased with the performance of what we brought to the table. When you say very pleased am I to assume complaints are down do we have any numbers on what makes them be very pleased if you will?

They do I mean the bottom line is and they have given us some transcripts of their - some of the reports to you know their upper management and the bottom line is I think it was 90% reduction in false claims and boy north of 40% in regards to claims that were able to be validated that they were incorrect. And so they seen a tremendous I mean they are absolutely 100% onboard matter of fact we attended a trade show and a couple of the higher-ups with the Royal Caribbean we’re literally bringing other individuals over to our booth and introducing us. So they are very pleased.

Your next question comes from the line of Josh Seide with Maxim.

Thanks for taking the question. Regarding the litigation that you had mentioned what is the next critical event related to the pending patent lawsuit and also has Taser expressed any interest in settling? Thanks.

Thanks Josh. The next I think critical benchmark that I'm aware of is that would come from the patent office itself. They have filed all their documentation and reasons that they believe there is prior art out there that invalidates our patents. We have filed our information saying you know we just don't see how this applies and would even be considered apples-and-apples. So that information have been there and the patent office is pretty good about staying with a timeline that they indicate they'll stay with and maybe - it’s just in the makeup or the writings and stuff. But we anticipate late second quarter to hear some from the patent office. And what we expect to hear is one of two things, one is you know okay guys look we’re little unclear after reading your briefs and your complaints and everything else so therefore we want to schedule a meeting where you all come in and you know orally put forth your arguments. Or it could be a situation that they come back and say look we guys have tried this once before you failed and we looked at all this numerous times, we’re looking at it again. We still don’t see the strength in your argument therefore we’re not going to deal with this anymore and kicked it out. And so that – it looks like that could happen late in the second quarter. In regards to you know our justice system and the timing there that is a mess. As you know actually today we were suppose to have our Marksman's hearing and they clear blue the courts the end called us up and had to reschedule because of the conflict that they had. And it wasn't that Taser trying to delay other than we trying to delay it or I mean this was just the courts themselves delayed it for whatever reason. So they’ll reestablish that Marksman's hearing that I imagine all of it will happen after we hear back from the patent office. Because again the fights really not been in the courtroom so much as it's been at the patent office. My thinking would be depending on how the patent office responds that is really going to set the tempo of all these companies that are after that we believe will violate our patent happen to come to the table or something of substance.

That’s helpful. And then as a follow-up how your prospective customers view their production issues in 2016 that have occurred. And then has that become their main concern kind of going forward and are there any new issues with production we should be mindful in the fourth quarter or the start of 2017? Thanks.

Josh I’m glad you brought that up because I mean I've got absolutely praise or in not only our sales force, but also our customer service people because we had to do a lot of handholding, a lot of handholding but you know our company has been built around strong engineering and strong sales support. Again like I've always said I don't really care to have the greatest salesman out there I want the greatest order takers and as long as I've got a very strong product and strong support then that works out really well. And I got to tell you I don't know our business less than 1/10th of 1% of someone that we may have lost because of that situation Josh. I mean our team did a phenomenal job and there was thousands of units out there so.

This is Tom, I’d like to add, our situation was not atypical from the rest of our competitors, we hear, we see, we understand, we talk to our customers our potential customers. Many if not all of our competitors are having some level of problems with this technology. And again it's not consumer electronics it's very ruggedized mobile energy draining battery type technology that everybody feeling their way through. So it emanated in a large reduction our gross margin this year or in 2016, but I don't by any means want to say we’re the only lone cat out there that’s having these problems. Everybody is having similar issues - they’re just not as local out there and as transparent as we’ve been.

Yes, I mean Tasers the only other really public health company out there and you may have read in I think it was the Memphis chief that indicated that the majority of their original body cameras were in the closet and were not being deployed. But he was pleased to sit there and tell everyone the good thing about that is because they were able to trade them all back in for newer or better quality ones is what they said. So in short what they were saying is the ones ahead didn’t work and you know Taser will replace them with some that they feel that do work. So as Tom said, I mean we know several of our competitors that have just fell on their face and we can elaborate we know one of our competitors who was very dominant when I entered in the business back in 2006 they're basically going by the wayside. We think they’ll be shutting their doors very soon we know of others that are trying to make some type of strategic moves. So you do have your dominant players out there in the law side and some that are now I guess may be trying to look at commercial, but we’re clearly one of the leaders out there. And what Tom said we overcame that and I'm very pleased and again thankful for what a great team we have here.

Thank you. We do a follow-up question from the line of Brian Kinstlinger with Maxim Group.

Can we just really quickly about inventory I think last quarter there was a question about inventory being okay, you had a small write-down so maybe just talk about where the inventory today is it all second and clean and ready to be shipped as it is. And there more changes that need to be made at all to that inventory?

Well we took a good hard look at it year end as you might expect in terms of the audit and just our own closing procedures that we do every quarter. And do probably a better job and further more extensive look at year end so and the short answer is yes we clean the closet and we’re good there now we’ll tell you that we do have those light hours still out there and that's - I can’t give you exact figure on - how much of that there are – those are slow moving at this point because you know we’ve had issues with the manufacturer on those. But outside of that we believe that the inventory situation is in pretty sound shape.

And then my other follow-up given Royal Caribbean's experience has there been discussions with some of the other carriers?

Yes absolutely, absolutely. And believe or not I mean I know that they want their industry to be looked at in a good light and like I said I mean we actually had the Royal Caribbean guys bringing over some of their competitors to visit with us and introducing us and same thing really good things. So we’re looking for that sector to continue to grow.

Thank you. Your next question is a follow-up question from the line Bryan Lubitz with Aegis Capital.

So sticking with the Royal Caribbean and whole commercial segment if you will, Royal Caribbean right now we have upper level management with body cameras is that correct?

It’s more of - I mean mainly but yes mainly the top guys on ships and stuff.

Are we looking to get into potentially the cleaning clues the rest of the people the cars going to one from airport et cetera is that what was the expansion there?

Yes, they’re looking at all of that I mean they have seen that the benefits from what they've done with - you know called for the security and some other higher end profile individuals on the ship and also realized that it could be very helpful in other areas as well.

Okay. You guys seem to be really, really upbeat with commercial I mean let's face it we don’t have to worry about budget meetings and six-month pilot program et cetera, et cetera. Where do you see commercial going? Do you see commercial being even larger than law enforcement for us I know there was a big increase this year?

Yes I mean clearly I mean Bryan again like you said I mean law-enforcement I’ll tell you again there is some real enthusiasm in law-enforcement right now. So and we’re excited about it, I mean we think that some things that really trending up there as well. But you look at the overall market that is out there on the commercial side whether it be in car or body cameras or whatever and it just dwarfs law-enforcement. I mean it just so overwhelming the opportunities that are out there. I mean I think probably, we probably had a two to one in hiring sales reps for commercial versus law just because of the new channels that we’re now chasing.

And you guys already have contracts with companies like Yellow Cab correct can you expand on that?

Yes we are very big in the taxi market as well. So taxis I mean those are like the low hanging fruit to be honest I mean your taxicab, you know the ambulance we’re very strong in. But virtually any type of fleet vehicles I don’t care if its tow trucks that are out there. Even the state assist vehicles you know just the pickup trucks that run up and down the road with the likes in case some ones got a flat tire it’s just a huge market.

Yes Bryan, this is Tom. The in-car event recorder business is very strong force and it’s moving forward and leaps and bounds. But we are also beginning to see the adoption of body-worn cameras by non-law-enforcement, non-private security personnel. We're talking usage of body cameras in new channels that no one else even look at or even tried to get in and we got our foot in and we’re making headway and I got to tell you that I would not be surprised if a new revenue stream from new market that no one's heard of pops up in 2017 and 2018 and provides a meaningful revenue stream and profits for the company. So we're looking at a number of different areas and a number of different uses for body cameras outside the law, outside of private security that will make people scratch your head.

Thank you. At this time there are no further questions. I would like to return the floor to Stan for closing remarks.

Well, listen again I thank everyone for being part of this call and as I mentioned while 2016 was very, very painful to get through in everything else it really has poised us and put us in a position. We learnt a tremendous amount that is going to be very beneficial going forward in 2017 and we just can't wait till we - get some of these quarters behind us and get everybody back on the phone again for updates. So thank you all so much for your participation.

Thank you for your participation in today's Digital Ally fourth quarter and year end 2016 operating results conference call. You may now disconnect.