Digital Ally, Inc. Announces Third Quarter Operating Results

Digital Ally, Inc. Announces Third Quarter Operating Results 
Gross Profit Margin Improves to 56.9% vs. 51.4% in Prior-Year Quarter 
OVERLAND PARK, KS -- (Marketwire) -- 10/30/12 --  Digital Ally, Inc.
(NASDAQ: DGLY), which develops, manufactures and markets advanced
video surveillance products for law enforcement, homeland security
and commercial applications, today announced its operating results
for the third quarter and first nine months of 2012. An investor
conference call is scheduled for 11:15 a.m. EDT today, October 30,
2012 (see details below). 
Third Quarter Highlights: 


 
--  Third quarter revenue of $4.6 million was unchanged from second
    quarter levels and 22% above first quarter levels.
--  Gross profit margin improved to 56.9% of revenue in third quarter vs.
    53.8% in second quarter and 51.4% in prior-year period.
--  SG&A expenses declined 14% from prior-year period exclusive of
    litigation settlement.
--  Net income improved to $270,040, including litigation settlement, vs.
    prior-year net loss of ($162,918).
--  New products generated 17% of revenue vs. 11% in second quarter and 5%
    a year earlier.
--  Reverse stock split implemented in third quarter to maintain
    compliance with Nasdaq listing requirements.

  
For the three months ended September 30, 2012, the Company's revenue
declined 21% to approximately $4.6 million, compared with revenue of
approximately $5.8 million in the third quarter of 2011. However,
revenue in the most recent quarter was virtually unchanged from $4.6
million in the second quarter of 2012 and was approximately 22%
higher than revenue in the first quarter of 2012.  
Gross profit declined 12% to $2,617,310 in the quarter ended
September 30, 2012, compared with $2,989,496 in the year-earlier
quarter. When compared with the second quarter of 2012, however,
gross profit increased approximately 6%, due to an improvement in
gross profit margin to 56.9% in the three months ended September 30,
2012 versus 53.8% in three months ended June 30, 2012 and 51.4% in
the third quarter of 2011. The continued improvement in gross profit
margin was primarily due to lower component costs resulting from the
Company's supplier cost reduction initiative that was first
implemented in 2011. Better out
sourcing, including from foreign
sources, allowed the Company to lower component costs for products
sold. Furthermore, the Company continued to improve production
overhead costs through headcount and other cost reductions. The
Company's goal is to continue to improve gross margins during the
balance of 2012 through the supply chain initiative, reduced
manufacturing overhead, increased sales volumes and an improved
product mix, the benefits of which may be partially offset by
increased price competition in the in-car video system market. 
Selling, General and Administrative ("SG&A") expenses decreased 26%
in the most recent quarter to $2,281,294, compared with $3,081,936 in
the third quarter of 2011. The reduction in SG&A expenses reflects a
net litigation settlement credit of $365,065 in the third quarter of
2012, along with lower research and development costs, stock-based
compensation expense and general and administrative expenses.
Excluding the net litigation settlement credit, SG&A expenses related
to operations decreased 14% from the year-earlier period. The
continued improvement in SG&A expenses resulted from the Company's
cost containment and reduction initiative that was first implemented
in 2011. The net litigation credit resulted from the settlement of a
lawsuit against a former contract manufacturer and its insurer
totaling $610,000, partially offset by legal fees incurred in defense
of the lawsuit and additional legal fees and related expenses
involving earlier court rulings and a judgment against Digital Ally
in the Z3 Technology lawsuit that it is appealing. 
The Company reported operating income of $336,016 in the most recent
quarter, primarily due to the inclusion of the net litigation
settlement credit. This represents the first quarter that the Company
has reported both operating and net income since the fourth quarter
of 2009. In the prior-year quarter, the Company reported an operating
loss of ($92,440).  
Interest income declined to $2,247 and the Company incurred $68,223
of interest expense on borrowings in the third quarter of 2012.
Interest income and interest expense totaled $5,703 and $76,181,
respectively, in the quarter ended September 30, 2011.  
Pretax and net income improved to $270,040 in the three months ended
September 30, 2012, compared with a pretax and net loss of ($162,918)
in the three months ended September 30, 2011. Pretax and net income
in the most recent quarter was attributable to improved gross
margins, lower operational SG&A expenses, and the net litigation
settlement credit noted above. No income tax provision or benefit was
recorded for the third quarters in either 2012 or 2011. The Company
expects to continue to maintain a full valuation allowance on its
deferred tax assets, including net operating loss carry forwards,
until it determines that it can sustain a level of profitability that
demonstrates its ability to realize such assets.  
The Company reported net income of $0.13 per diluted share for the
quarter ended September 30, 2012, compared with a net loss of ($0.08)
per share in the third quarter of 2011. The weighted average number
of shares outstanding totaled 2,035,564 in the three months ended
September 30, 2012, compared with 2,018,824 shares in the three
months ended September 30, 2011. All per-share figures and the number
of shares outstanding have been adjusted to reflect a 1-for-8 reverse
stock split that was effective on August 24, 2012.  
On a non-GAAP basis, the Company reported adjusted net income (before
income taxes, depreciation, amortization, interest expense, net
litigation settlement credit, and stock-based compensation), a
non-GAAP financial measure, of $263,616, or $0.13 per diluted share,
in the quarter ended September 30, 2012, versus adjusted net income
of $453,590, or $0.22 per diluted share, in the quarter ended
September 30, 2011. (Non-GAAP adjusted net income is described in
greater detail in a table at the end of this press release). 
"While third quarter total revenue was virtually unchanged from
second quarter levels due to a challenging economy, which negatively
impacted state, county and municipal government budgets that fund our
law enforcement customers, we are encouraged that sales in both our
second and third quarters were approximately 22% higher than in the
first quarter of 2012," stated Stanton E. Ross, Chief Executive
Officer of Digital Ally, Inc. "I am particularly pleased to report
that sales of recently released products contributed 17% of total
sales in the most recent quarter, compared with only 5% in the
year-earlier period. Our reorganized law enforcement sales force is
beginning to gain traction in the marketplace, and we are optimistic
that this will be reflected in a resumption in domestic sales growth
in 2013. We also replaced our international sales manager during the
second quarter of 2012 and believe this will result in stronger
foreign sales in the future. Outside the law enforcement industry,
our DVM-250 and DVM-250 Plus event recorders have generated
significant interest among operators of ambulances, taxis and other
commercial fleets, and prospects for higher non-law-enforcement sales
should continue to improve in coming quarters." 
"Revenue growth remains our greates
t challenge, as our team of
dedicated employees has been extremely successful in reducing
production costs and other expenses during the past several
quarters," continued Ross. "This is evident in our ability to
increase gross profit margins by 13.9 percentage points since the
fourth quarter of 2011, to 56.9% of revenue in the three months ended
September 30, 2012. When combined with our success in reducing
corporate overhead expenses, the Company expects to realize benefits
from operating leverage with even modest revenue growth. Looking
towards the future, we are cautiously optimistic that a more stable
market for law enforcement equipment, combined with higher
international sales and continued growth in sales of new products,
offer the potential for 2013 to be a 'turnaround year' for Digital
Ally."  
For the nine months ended September 30, 2012, the Company's revenue
decreased 15% to approximately $13.0 million, compared with revenue
of approximately $15.3 million in the first nine months of 2011.  
Gross profit improved 2% to $7,089,590 in the first nine months of
2012, compared with $6,930,826 in the year-earlier period. Gross
profit margin widened to 54.6% of revenue in the nine months ended
September 30, 2012, versus 45.3% in nine months ended September 30,
2011.  
Selling, General and Administrative ("SG&A") expenses decreased 10%
in the most recent nine-month period to $8,361,284, compared with
$9,253,383 in the nine months ended September 30, 2011. Net
litigation charges and expenses totaled $289,017 in the nine months
ended September 30, 2012 and were associated with the Z3 Technologies
litigation, partially offset by a net litigation settlement credit in
the third quarter of 2012. No litigation charges or credits were
recognized in the first nine months of 2011. Excluding the net
litigation charges and expenses, SG&A expenses related to operations
decreased 13% to $8,072,267 during the first nine months of 2012,
versus $9,253,383 in the nine months ended September 30, 2011. 
The Company reported a reduction in operating loss, which totaled
($1,271,694) in the nine months ended September 30, 2012, due to
improved gross margins and lower operational SG&A expenses, partially
offset by $289,017 in net litigation charges and expenses. In the
prior-year period, the Company reported an operating loss of
($2,322,557). Excluding the net litigation charges and expenses, the
Company's operating loss for the first nine months of 2012 was
approximately 58% lower than the operating loss for the first nine
months of 2011.  
Interest income declined to $7,026 and the Company incurred $219,222
of interest expense on borrowings in the nine months ended September
30, 2012. Interest income and interest expense totaled $12,464 and
$135,017, respectively, in the nine months ended September 30, 2011.  
The Company reported a pretax and net loss of ($1,483,890) in the
nine months ended September 30, 2012, compared with a pretax and net
loss of ($2,445,110) in the nine months ended September 30, 2011. No
income tax provision or benefit was recorded for the nine-month
periods in either 2012 or 2011. The Company expects to continue to
maintain a full valuation allowance on its deferred tax assets,
including net operating loss carry forwards, until it determines that
it can sustain a level of profitability that demonstrates its ability
to realize such assets.  
The Company reported a net loss of ($0.73) per share for the nine
months ended September 30, 2012, compared with a net loss of ($1.21)
per share in the first nine months of 2011. The weighted average
number of shares outstanding totaled 2,026,933 in the nine months
ended September 30, 2012, compared with 2,018,693 shares in the nine
months ended September 30, 2011. All per-share figures and the number
of shares outstanding have been adjusted to reflect a 1-for-8 reverse
stock split that was effective on August 24, 2012.  
On a non-GAAP basis, the Company reported an adjusted net loss
(before income taxes, depreciation, amortization, interest expense,
net litigation charges and expenses, and stock-based compensation), a
non-GAAP financial measure, of ($71,645), or ($0.04) per share, in
the nine months ended September 30, 2012, versus an adjusted net loss
of ($913,740), or ($0.45) per share, in the nine months ended
September 30, 2011. (Non-GAAP adjusted loss is described in greater
detail in a table at the end of this press release).  
Non-GAAP Financial Measures
 Digital Ally, Inc. has provided
financial information in this release that has not been prepared in
accordance with GAAP. This information includes non-GAAP adjusted net
income (loss). Digital Ally uses such non-GAAP financial measures
internally in analyzing its financial results and believes they are
useful to investors, as a supplement to GAAP measures, in evaluating
Digital Ally's ongoing operational performance. Digital Ally believes
that the use of these non-GAAP financial measures provides an
additional tool for investors to evaluate ongoing operating results
and trends and in comparing its financial measures with other
companies in Digital Ally's industry, many of which present similar
non-GAAP financial measures to investors. As noted, the non-GAAP
financial measures discussed above exclude certain non-cash
expenses/income including: (1) income tax expense/benefit, (2)
depreciation and amortization expense, (3) interest expense, (4)
litigation charges (credits) and related expenses, and (5)
share-based compensation expense. 
Non-GAAP financial measures should not be considered in isolation
from, or as a substitute for, financial information prepared in
accordance with GAAP. Investors are encouraged to review the
reconciliation of these non-GAAP measures to their most directly
comparable GAAP financial measure as detailed above. As previously
mentioned, a reconciliation of GAAP to the non-GAAP financial
measures has been provided in the tables included as part of this
press release. 
Investor Conference Call 
The Company will host an investor conference call at 11:15 a.m.
Eastern Daylight Time (EDT) today, October 30, 2012, to discuss its
operating results, along with other topics of interest. Shareholders
and other interested parties may participate in the conference call
by dialing 877-374-8416 (international participants dial
412-317-6716) and asking to be connected to the "Digital Ally, Inc.
Conference Call" a few minutes before 11:15 a.m. EDT today, October
30, 2012.  
A replay of the conference call will be available one hour after the
completion of the conference call until 9:00 a.m. on December 28,
2012 by dialing 877-344-7529 (international participants dial
412-317-0088) and entering the conference ID 10019858. 
About Digital Ally, Inc. 
Digital Ally, Inc. develops, manufactures and markets advanced
technology products for law enforcement, homeland security and
commercial applications. The Company's primary focus is digital video
imaging and storage. For additional information, visit
www.digitalallyinc.com  
The Company is headquartered in Overland Park, Kansas, and its shares
are traded on The Nasdaq Capital Market under the symbol "DGLY". 
This press release contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Act of 1934. These forward-looking statements are
based largely on the expectations or forecasts of future events, can
be affected by inaccurate assumptions, and are subject to various
business risks and known and unknown uncertainties, a number of which
are beyond the control of management. Therefore, actual results could
differ materially from the forward-looking statements contained in
this press release. A wide variety of factors that may cause actual
results to differ from the forward-looking statements include, but
are not limited to, the following: whether the Company will be able
to improve its revenues and operating results during the balance of
2012 and in 2013 given the current economic environment; whether it
will be able to achieve improved production and other efficiencies to
continue to increase its gross and operating margins; whether the
federal economic stimulus funding for law enforcement agencies will
have a positive impact on the Company's revenue; the Company's
ability to deliver its new product offerings 
as scheduled, including
its ability to obtain the required components and products on a
timely basis, and have them perform as planned; its ability to
maintain or expand its share of the markets for its products in which
it competes; whether there will be a commercial market, domestically
and internationally, for one or more of its new products; whether the
Company's new products, including the DVM-250 Video Event Recorder,
will continue to generate an increasing portion of its total sales;
whether its reorganized domestic and international sales force will
result in a rebound in revenues in and outside of the U.S.; whether
the Company will be able to adapt its technology to new and different
uses, including being able to introduce new products; competition
from larger, more established companies with far greater economic and
human resources; its ability to attract and retain customers and
quality employees; the effect of changing economic conditions; and
changes in government regulations, tax rates and similar matters.
These cautionary statements should not be construed as exhaustive or
as any admission as to the adequacy of the Company's disclosures. The
Company cannot predict or determine after the fact what factors would
cause actual results to differ materially from those indicated by the
forward-looking statements or other statements. The reader should
consider statements that include the words "believes", "expects",
"anticipates", "intends", "estimates", "plans", "projects", "should",
or other expressions that are predictions of or indicate future
events or trends, to be uncertain and forward-looking. The Company
does not undertake to publicly update or revise forward-looking
statements, whether as a result of new information, future events or
otherwise. Additional information respecting factors that could
materially affect the Company and its operations are contained in its
annual report on Form 10-K for the year ended December 31, 2011, and
its quarterly report on Form 10-Q for the three and nine months ended
September 30, 2012 to be filed with the Securities and Exchange
Commission.  
(Financial Highlights Follow) 


 
                                                                            
                             DIGITAL ALLY, INC.                             
                   CONDENSED CONSOLIDATED BALANCE SHEETS                    
                  SEPTEMBER 30, 2012 AND DECEMBER 31, 2011                  
                                (Unaudited)                                 
                                                                            
                                               September 30,   December 31, 
                                                    2012           2011     
                                               -------------  ------------- 
                    Assets                                                  
Current assets:                                                             
  Cash and cash equivalents                    $     460,115  $   2,270,393 
  Accounts receivable-trade, less allowance                                 
   for doubtful accounts of $89,253 - 2012 and                              
   $125,000 - 2011                                 2,565,138      2,853,049 
  Accounts receivable-other                          688,746        104,318 
  Inventories                                      7,152,992      6,683,289 
  Prepaid expenses                                   360,443        302,318 
                                               -------------  ------------- 
                                                                            
    Total current assets                          11,227,434     12,213,367 
                                               -------------  ------------- 
                                                                            
Furniture, fixtures and equipment                  4,321,014      4,073,713 
Less accumulated depreciation and amortization     3,633,697      3,212,827 
                                               -------------  ------------- 
                                                                            
                                                     687,317        860,886 
                                               -------------  ------------- 
                                                                            
Restricted cash                                      662,500              - 
Intangible assets, net                               215,882        226,802 
Other assets                                         218,668         97,854 
                                               -------------  ------------- 
                                                                            
  Total assets                                 $  13,011,801  $  13,398,909 
                                               =============  ============= 
                                                                            
     Liabilities and Stockholders' Equity                                   
Current liabilities:                                                        
  Accounts payable                             $   1,087,826  $     847,036 
  Accrued expenses                                   664,891        833,260 
  Capital lease obligation - current                  29,692              - 
  Income taxes payable                                 4,076         21,046 
  Customer deposits                                    1,878         31,899 
                                               -------------  ------------- 
                                                                            
    Total current liabilities                      1,788,363      1,733,241 
                                               -------------  ------------- 
                                                                            
                                                                            
Long-term liabilities:                                                      
  Subordinated notes payable-long-term, net of                              
   discount of $113,386 and $142,711               2,386,614      2,357,289 
  Litigation accrual -long term                      530,000              - 
  Capital lease obligation -long term                 58,007              - 
                                               -------------  ------------- 
                                                                            
    Total long term liabilities                    2,974,621      2,357,289 
                                               -------------  ------------- 
                                                                            
Commitments and contingencies                                               
Stockholders' equity:                                                       
  Common stock, $0.001 par value; 9,375,000                                 
   shares authorized; sharesissued: 2,099,082                               
   - 2012 and 2,082,832 - 2011                         2,099          2,083 
  Additional paid in capital                      23,164,406     22,740,094 
  Treasury stock, at cost (shares: 63,518 -                                 
   2012 and 63,518 - 2011)                        (2,157,226)    (2,157,226)
  Accumulated deficit                            (12,760,462)   (11,276,572)
                                               -------------  ------------- 
                                                                            
    Total stockholders' equity                     8,248,817      9,308,379 
                                               -------------  ------------- 
                                                                            
    Total liabilities and stockholders' equity $  13,011,801  $  13,398,909 
                                               =============  ============= 

 
(FOR ADDITIONAL INFORMATION, PLEASE REFER TO THE COMPANY'S QUARTERLY
REPORT ON FORM 10-Q FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30,
2012 FILED WITH THE SEC) 


 
                                                                            
                             DIGITAL ALLY, INC.                             
              CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS               
                    FOR THE THREE AND NINE MONTHS ENDED                     
                        SEPTEMBER 30, 2012 AND 2011                         
                                (Unaudited)                                 
                                                                            
                                                                            
                         Three months ended           Nine months ended     
                            September 30,   
            September 30,       
                     --------------------------  -------------------------- 
                         2012          2011          2012          2011     
                     ------------  ------------  ------------  ------------ 
                                                                            
Product revenue      $  4,357,023  $  5,620,823  $ 12,337,709  $ 14,817,639 
Other revenue             239,745       197,070       642,312       473,200 
                     ------------  ------------  ------------  ------------ 
                                                                            
Total revenue           4,596,768     5,817,893    12,980,021    15,290,839 
Cost of revenue         1,979,458     2,828,397     5,890,431     8,360,013 
                     ------------  ------------  ------------  ------------ 
                                                                            
  Gross profit          2,617,310     2,989,496     7,089,590     6,930,826 
Selling, general and                                                        
 administrative                                                             
 expenses:                                                                  
  Research and                                                              
   development                                                              
   expense                627,146       719,773     1,804,932     2,139,277 
  Selling,                                                                  
   advertising and                                                          
   promotional                                                              
   expense                716,996       655,267     1,990,138     1,664,584 
  Stock-based                                                               
   compensation                                                             
   expense                139,995       192,221       381,432       636,069 
  Litigation charge                                                         
   (credit) and                                                             
   related expenses      (365,065)            -       289,017             - 
  General and                                                               
   administrative                                                           
   expense              1,162,222     1,514,675     3,895,765     4,813,453 
                     ------------  ------------  ------------  ------------ 
                                                                            
Total selling,                                                              
 general and                                                                
 administrative                                                             
 expenses               2,281,294     3,081,936     8,361,284     9,253,383 
                     ------------  ------------  ------------  ------------ 
                                                                            
  Operating income                                                          
   (loss)                 336,016       (92,440)   (1,271,694)   (2,322,557)
                     ------------  ------------  ------------  ------------ 
                                                                            
                                                                            
Interest income             2,247         5,703         7,026        12,464 
Interest expense          (68,223)      (76,181)     (219,222)     (135,017)
                     ------------  ------------  ------------  ------------ 
                                                                            
Income (loss) before                                                        
 income tax benefit       270,040      (162,918)   (1,483,890)   (2,445,110)
Income tax benefit              -             -             -             - 
                     ------------  ------------  ------------  ------------ 
                                                                            
Net income (loss)    $    270,040  $   (162,918) $ (1,483,890) $ (2,445,110)
                     ============  ============  ============  ============ 
                                                                            
Net loss per share                                                          
 information:                                                               
  Basic              $       0.13  $      (0.08) $      (0.73) $      (1.21)
  Diluted            $       0.13  $      (0.08) $      (0.73) $      (1.21)
                                                                            
Weighted average                                                            
 shares outstanding:                                                        
  Basic                 2,035,564     2,018,824     2,026,933     2,018,693 
  Diluted               2,035,564     2,018,824     2,026,933     2,018,693 

 
(FOR ADDITIONAL INFORMATION, PLEASE REFER TO THE COMPANY'S QUARTERLY
REPORT ON FORM 10-Q FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30,
2012 FILED WITH THE SEC) 


 
                                                                            
                             DIGITAL ALLY, INC.                             
     RECONCILIATION OF NET LOSS TO NON-GAAP ADJUSTED NET INCOME (LOSS)      
                    FOR THE THREE AND NINE MONTHS ENDED                     
                        SEPTEMBER 30, 2012 AND 2011                         
                                (unaudited)                                 
                                                                            
                         Three Months Ended           Nine Months Ended     
                            September 30,               September 30,       
                     --------------------------  -------------------------- 
                         2012          2011          2012          2011     
                     ------------  ------------  ------------  ------------ 
                                                                            
Net income (loss)    $    270,040  $   (162,918) $ (1,483,890) $ (2,445,110)
Non-GAAP                                                                    
 adjustments:                                                               
  Stock-based                                                               
   compensation           139,995       192,221       381,432       636,069 
  Depreciation and                                                          
   amortization           150,423       348,106       522,574       760,284 
  Litigation charge                                                         
   (credit) and                                                             
   related expenses      (365,065)            -       289,017             - 
  Interest expense         68,223        76,181       219,222       135,017 
                     ------------  ------------  ------------  ------------ 
                                                                            
Non-GAAP                                                                    
 adjustments, net          (6,424)      616,508     1,412,245     1,531,370 
                     ------------  ------------  ------------  ------------ 
                                                                            
                                                                            
Non-GAAP adjusted                                                           
 net income (loss)   $    263,616  $    453,590  $    (71,645) $   (913,740)
                     ============  ============  ============  ============ 
                                                                            
                                                                            
Non-GAAP adjusted                                                           
 net loss per share                                                         
 information:                                                               
Basic                $       0.13  $       0.22  $      (0.04) $      (0.45)
Diluted              $       0.13  $       0.22  $      (0.04) $      (0.45)
                                                                            
Weighted average                                                            
 shares outstanding:                                                        
Basic                   2,035,564     2,018,824     2,026,933     2,018,693 
Diluted                 2,035,564     2,018,824     2,026,933     2,018,693 

 
(FOR ADDITIONAL INFORMATION, PLEASE REFER TO THE COMPANY'S QUARTERLY
REPORT ON FORM 10-Q FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30,
2012 FILED WITH THE SEC) 


 
                                                                            
                             DIGITAL ALLY, INC.                             
              CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS               
           FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011            
                                (Unaudited)                                 
                                                                            
                                                      Nine months ended     
                                                        September 30,       
                                                 -------------------------- 
                                                     2012          2011     
                                                 ------------  ------------ 
Cash Flows From Operating Activities:                                       
  Net loss                                       $ (1,483,890) $ (2,445,110)
  Adjustments to reconcile net loss to net cash                             
   flowsused in operating activities:                                       
    Depreciation and amortization                     522,574       760,284 
    Stock based compensation                          381,432       636,069 
    Provision for inventory obsolescence             (190,444)       13,662 
    Provision for doubtful accounts receivable        (35,747)        4,700 
                                                                          - 
  Change in assets and liabilities:                                         
  (Increase) decrease in:                                                   
    Accounts receivable - trade                       323,658       817,490 
    Accounts receivable - other                      (584,428)      159,805 
    Inventories                                      (279,259)    2,925,403 
    Prepaid expenses                                  (54,135)       17,950 
    Other assets                                     (120,814)       (9,265)
                                                                            
  Increase (decrease) in:                                                   
    Accounts payable                                  240,790    (1,892,863)
    Accrued expenses                                 (168,369)       36,336 
    Litigation accrual                                530,000             - 
    Income taxes payable                              (16,970)      (14,350)
    Customer deposits                                 (30,021)         (764)
                                                 ------------  ------------ 
                                                                            
  Net cash (used in) provided by operating                                  
   activities                                        (965,623)    1,009,347 
                                                 ------------  ------------ 
                                                                            
Cash Flows from Investing Activities:                                       
  Purchases of furniture, fixtures and equipment     (152,541)     (229,555)
  Additions to intangible assets                      (22,553)      (23,977)
  Restricted cash for appealed litigation            (662,500)            - 
                                                 ------------  ------------ 
                                                                            
  Net cash used in investing activities              (837,594)     (253,532)
                                                 ------------  ------------ 
                                                                            
Cash Flows from Financing Activities:                                       
  Proceeds from issuance of subordinated note                               
   payable                                                  -     1,500,000 
  Change in line of credit                                  -    (1,500,000)
  Deferred issuance costs for subordinated note                             
   payable                                                  -       (75,000)
  Payments on capital lease obligation                 (7,061)            - 
                                                 ------------  ------------ 
                                                                            
  Net cash used in financing activities                (7,061)      (75,000)
                                                 ------------  ------------ 
                                                                            
Net increase (decrease) in cash and cash                                    
 equivalents                                       (1,810,278)      680,815 
Cash and cash equivalents, beginning of period      2,270,393       623,475 
                                                 ------------  ------------ 
                                                                            
Cash and cash equivalents, end of period         $    460,115  $  1,304,290 
                                                 ============  ============ 
                                                                            
Supplemental disclosures of cash flow                                       
 information:                                                               
  Cash payments for interest                     $    151,846  $     60,109 
                                                 ============  ============ 
                                                                            
  Cash payments for income taxes                 $     16,970  $          - 
                                                 ============  ============ 
                                                                            
Supplemental disclosures of non-cash investing                              
 and financing activities:                                                  
                                                                            
  Restricted common stock grant                  $         16  $         10 
                                                 ============  ============ 
                                                                            
  Capital expenditures financed by capital lease                            
   obligations                                   $     94,760  $          - 
                                                 ============  ============ 
                                                                            
  Transfer of demonstration equipment from                                  
   inventory to equipment                        $          -  $    434,317 
                                                 ============  ============ 

 
(FOR ADDITIONAL INFORMATION, PLEASE REFER TO THE COMPANY'S QUARTERLY
REPORT ON FORM 10-Q FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30,
2012 FILED WITH THE SEC) 
For Additional Information, Please Contact: 
Stanton E. Ross
CEO
(913) 814-7774 
RJ Falkner & Company, Inc.
Investor Relations Counsel
(800) 377-9893
info@rjfalkner.com 
 
 
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