Digital Ally, Inc. Announces Significantly Improved First Quarter Operating Results

Digital Ally, Inc. Announces Significantly Improved First Quarter Operating 
Results 
Company Reports Diluted E.P.S. of $0.05, Compared With Prior-Year Net
Loss of ($0.40) Per Share 
LENEXA, KS -- (Marketwired) -- 04/29/13 --  Digital Ally, Inc.
(NASDAQ: DGLY), which develops, manufactures and markets advanced
video surveillance products for law enforcement, homeland security
and commercial applications, today announced significant improvements
in revenue, gross profit, operating income, and net income in the
first quarter of 2013 when compared with the prior-year period. An
investor conference call is scheduled for 11:15 a.m. EDT tomorrow,
April 30, 2013 (see details below). 
First Quarter Highlights: 


 
--  Total revenue increased 26% to $4.8 million, compared with total
    revenue of $3.8 million in the first quarter of 2012.
--  Gross profit margin expanded to 60.6% of revenue vs. 52.8% in
    prior-year period.
--  General and administrative expenses declined 13% from year-earlier
    levels.
--  The Company reported an operating profit of $181,417, which
    represented an improvement of $913,597 when compared with the first
    quarter of 2012.
--  Net income improved to $113,695, or $0.05 per diluted share, compared
    with a year-earlier net loss of ($804,729), or ($0.40) per share.
--  Non-GAAP adjusted net income improved to $393,552, versus a non-GAAP
    adjusted net loss of ($414,672) in the prior-year quarter.

  
"Our first quarter financial results, which did not include any
non-recurring gains or losses, clearly reflect the operating leverage
resulting from decreases in overhead expenses, improved outsourcing
of components and other supplier cost reduction initiatives, and the
successful restructuring of our law enforcement products sales
organization," stated Stanton E. Ross, Chief Executive Officer of
Digital Ally, Inc. "Improved gross profit margins and a lower SG&A
expense ratio allowed us to achieve a $913,597 improvement in
operating income on a $998,093 increase in revenue. We also generated
non-GAAP adjusted net income of $393,552 in the first quarter of
2013, which represented an $808,224 increase relative to a non-GAAP
adjusted net loss of ($414,672) in the year-earlier quarter. Our
ability to achieve these gains was particularly impressive in light
of the continuation of a challenging economic environment, which has
continued to negatively impact state, county and municipal government
budgets that fund the law enforcement agencies that represent our
primary customer base." 
"While our legacy DVM-500 and DVM-750 in-car video systems continue
to generate the majority of our revenue, new products are gaining
momentum in the marketplace," continued Ross. "Products we have
introduced during the past three years accounted for 19% of total
sales in the most recent quarter, compared with 6% in the prior-year
quarter and 11% for the full year ended December 31, 2012. We
continue to make inroads into the commercial market, as evidenced by
our first quarter announcement of an order for event recorders from
the largest near-airport parking company in the United States. The
shift in sales mix resulting from growing demand for our new products
should have a positive impact on profitability, because most of our
new products carry higher gross margins than our legacy in-car video
systems." 
"We look towards the future with optimism. While the market for law
enforcement products remains challenging and highly competitive, the
steps we have taken to reduce costs, streamline supply chain
logistics, and incentivize sales efforts have transformed the Company
into a lean organization capable of responding quickly to changes in
our industry. The impressive earnings turnaround that we achieved
during the first quarter of 2013 is very encouraging. I would like to
thank all of our employees, vendors, management and directors for the
dedicated efforts and hard work that made the achievement of a
profitable first quarter possible. We are focused upon the
restoration of sustainable and growing profitability in order to
rebuild shareholder value during the balance of the year," concluded
Ross.  
For the quarter ended March 31, 2013, the Company's total revenue
increased 26% to approximately $4.8 million, compared with revenue of
approximately $3.8 million in the first quarter of 2012. This
represented the highest level of quarterly revenue since the third
quarter of 2011. Management attributes the revenue increase to the
reorganization of the Company's law enforcement sales force, which
commenced in late 2011 and continued through the first half of 2012.
International revenue declined to $80,814 in the most recent quarter,
versus $158,415 in the first quarter of 2012. 
Gross profit improved 45% to $2,895,927 (60.6% of revenue) in the
most recent quarter, versus $1,996,617 (52.8% of revenue) in the
prior-year quarter. The improvement in gross profit margin was
primarily due to the supply chain improvement initiative for better
outsourcing of components for the Company's DVM-500 and DVM-750
products and the introduction of new products that have higher gross
margins than legacy in-car video systems. The Company's goal is to
maintain gross margins at approximately 60% of revenue, although the
achievement of this objective will be challenged by increased price
competition that has led to price discounting on certain larger
contract opportunities.  
Selling, General and Administrative ("SG&A") expenses were relatively
unchanged at $2,714,510 (56.8% of revenue) in the three months ended
March 31, 2013, versus $2,728,797 (72.1% of revenue) in the
corresponding period of the previous year. SG&A expenses in the first
quarter of 2013 included a 13% decline in general and administrative
expenses, relative to the prior-year quarter, reflecting the success
of management's cost-reduction initiative.  
The Company reported an operating profit of $181,417 in the quarter
ended March 31, 2013, compared with an operating loss of ($732,180)
in the quarter ended March 31, 2012.  
Net interest expense declined 7% to $67,722 in the first quarter of
2013, from $72,549 in the three months ended March 31, 2012. 
The Company reported net income of $113,695, or $0.05 per diluted
share, for the three months ended March 31, 2013, which represented
an improvement of $918,424 when compared with a prior-year net loss
of ($804,729), or ($0.40) per share. No income tax provision or
benefit was recorded in the first quarters of either 2013 or 2012.
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.  
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
August 24, 2012.  
On a non-GAAP basis, the Company reported adjusted net income (before
income taxes, depreciation, amortization, interest expense and
stock-based compensation), a non-GAAP financial measure, of $393,552,
or $0.19 per share, in the first quarter of 2013, versus an adjusted
net loss of ($414,672), or ($0.21) per share, in the quarter ended
March 31, 2012. (Non-GAAP adjusted net income 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 a
ccordance 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) net
interest expense 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) tomorrow, April 30, 2013, to discuss its
first quarter 2013 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/local
participants dial 412-317-6716) and asking to be connected to the
"Digital Ally Conference Call" a few minutes before 11:15 a.m.
Eastern Time on April 30, 2013.  
A replay of the conference call will be available one hour after the
completion of the conference call from April 30, 2013 until 9:00 a.m.
on July 2, 2013 by dialing 877-344-7529 (international/local
participants dial 412-317-0088) and entering the conference ID#
10028178.  
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 Lenexa, 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 continue to improve its revenues and operating results in 2013
given the current economic environment; whether it will be able to
continue to achieve improved production and other efficiencies to
maintain its increased 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 in which it competes,
including those outside the law enforcement industry; 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 continue to result in a
recovery 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, 2012 and
quarterly report on Form 10-Q for the three months ended March 31,
2013, as filed with the Securities and Exchange Commission.  
(Financial Highlights Follow) 


 
                                                                            
                                                                            
                             DIGITAL ALLY, INC.                             
                  CONDENSED CONSOLIDATED BALANCE SHEETS                     
                   MARCH 31, 2013 AND DECEMBER 31, 2013                     
                               (Unaudited)                                  
                                                                            
                                                  March 31,    December 31, 
                                                     2013          2012     
                                                                            
                                                ------------- ------------- 
                     Assets                                                 
Current assets:                                                             
  Cash and cash equivalents                     $     394,745 $     703,172 
  Accounts receivable-trade, less allowance for                             
   doubtful accounts of $60,033 - 2013 and                                  
   $70,193 - 2012                                   2,247,017     2,956,654 
  Accounts receivable-other                           109,639        71,148 
  Notes receivable - current                           65,000            -- 
  Inventories                                       7,655,514     7,294,721 
  Prepaid expenses                                    450,707       258,642 
                                                ------------- ------------- 
      Total current assets                         10,922,622    11,284,337 
                                                ------------- ------------- 
Furniture, fixtures and equipment                   4,533,342     4,392,880 
Less accumulated depreciation and amortization      3,513,753     3,454,087 
                                                ------------- ------------- 
                                                    1,019,589       938,793 
                                                ------------- ------------- 
Restricted cash                                       662,500       662,500 
Intangible assets, net                                218,037       217,660 
Other assets                                          252,182       241,446 
                                                ------------- ------------- 
  Total assets                                  $  13,074,930 $  13,344,736 
                                                ============= ============= 
                                                                            
      Liabilities and Stockholders' Equity                                  
Current liabilities:                                                        
  Accounts payable                              $     945,797 $   1,520,207 
  Accrued expenses                                    881,068       793,524 
 Capital lease obligation - current                    68,117        66,087 
  Income taxes payable                                  5,817         6,717 
  Customer deposits                                     1,878         1,878 
                                                ------------- ------------- 
      Total current liabilities                     1,902,677     2,388,413 
                                                ------------- ------------- 
                                                                            
Long-term liabilities:                                                      
  Subordinated notes payable, net of discount of                            
   $79,370 and $96,378                              2,420,630     2,403,622 
  Litigation accrual -long term                       530,000       530,000 
  Capital lease obligation -long term                 102,723       120,988 
                                                ------------- ------------- 
      Total long term liabilities                   3,053,353     3,054,610 
                                                ------------- ------------- 
                                                                            
Commitments and contingencies                                               
Stockholders' equity:                                                       
  Common stock, $0.001 par value; 9,375,000                                 
   shares authorized; shares issued: 2,139,082 -                            
   2013 and 2,099,082 - 2012                            2,139         2,099 
  Additional paid-in capital                       23,407,853    23,304,401 
  Treasury stock, at cost (shares: 63,518 - 2013                            
   and 63,518 - 2012)                              (2,157,226)   (2,157,226)
  Accumulated deficit                             (13,133,866)  (13,247,561)
                                                ------------- ------------- 
      Total stockholders' equity                    8,118,900     7,901,713 
                                                ------------- ------------- 
                                                                            
    Total liabilities and stockholders' equity  $  13,074,930 $  13,344,736 
                                                ============= ============= 

 
(FOR ADDITIONAL INFORMATION, PLEASE REFER TO THE COMPANY'S QUARTERLY
REPORT ON
 FORM 10-Q FOR THE THREE MONTHS ENDED MARCH 31, 2013 FILED
WITH THE SEC) 


 
                                                                            
                                                                            
                                 DIGITAL ALLY, INC.                         
                   CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS          
                             FOR THE THREE MONTHS ENDED                     
                               MARCH 31, 2013 AND 2012                      
                                     (Unaudited)                            
                                                                            
                                                      Three Months ended    
                                                          March 31,         
                                                  ------------------------- 
                                                      2013          2012    
                                                  -----------   ----------- 
                                                                            
                                                                            
Product revenue                                   $ 4,513,792   $ 3,588,553 
Other revenue                                         266,757       193,903 
                                                  -----------   ----------- 
Total revenue                                       4,780,549     3,782,456 
Cost of revenue                                     1,884,622     1,785,839 
                                                  -----------   ----------- 
  Gross profit                                      2,895,927     1,996,617 
Selling, general and administrative expenses:                               
  Research and development expense                    794,162       602,903 
  Selling, advertising and promotional expense        574,439       581,661 
  Stock-based compensation expense                    103,492       120,641 
  General and administrative expense                1,242,417     1,423,592 
                                                  -----------   ----------- 
Total selling, general and administrative                                   
 expenses                                           2,714,510     2,728,797 
                                                  -----------   ----------- 
  Operating income (loss)                             181,417      (732,180)
                                                  -----------   ----------- 
                                                                            
Interest income                                         3,183         2,636 
Interest expense                                      (70,905)      (75,185)
                                                  -----------   ----------- 
Income (loss) before income tax expense               113,695      (804,729)
Income tax expense                                         --            -- 
                                                  -----------   ----------- 
Net income (loss)                                 $   113,695   $  (804,729)
                                                  ===========   =========== 
Net income (loss) per share information:                                    
  Basic                                           $       .06   $     (0.40)
  Diluted                                         $       .05   $     (0.40)
                                                                            
Weighted average shares outstanding:                                        
  Basic                                             2,064,328     2,019,259 
  Diluted                                           2,073,708     2,019,259 

 
(FOR ADDITIONAL INFORMATION, PLEASE REFER TO THE COMPANY'S QUARTERLY
REPORT ON 
 FORM 10-Q FOR THE THREE MONTHS ENDED MARCH 31, 2013 FILED
WITH THE SEC) 


 
                                                                            
                                                                            
                             DIGITAL ALLY, INC.                             
                   RECONCILIATION OF NET INCOME (LOSS) TO                   
                     NON-GAAP ADJUSTED NET INCOME (LOSS)                    
                         FOR THE THREE MONTHS ENDED                         
                           MARCH 31, 2013 AND 2012                          
                                 (unaudited)                                
                                                                            
                                                       Three Months Ended   
                                                           March 31,        
                                                    ----------------------- 
                                                        2013        2012    
                                                    ----------- ----------- 
                                                                            
Net income (loss)                                   $   113,695 $  (804,729)
Non-GAAP adjustments:                                                       
  Stock-based compensation                              103,492     120,641 
  Depreciation and amortization                         105,460     194,231 
  Interest expense                                       70,905      75,185 
                                                    ----------- ----------- 
Non-GAAP adjustments, net                               279,857     390,057 
                                                    ----------- ----------- 
                                                                            
Non-GAAP adjusted net income (loss)                 $   393,552 $  (414,672)
                                                    =========== =========== 
                                                                            
Non-GAAP adjusted net loss per share information:                           
Basic                                               $      0.19 $     (0.21)
Diluted                                             $      0.19 $     (0.21)
                                                                            
Weighted average shares outstanding:                                        
Basic                                                 2,064,328   2,019,259 
Diluted                                               2,073,708   2,019,259 

 
(FOR ADDITIONAL INFORMATION, PLEASE REFER TO THE COMPANY'S QUARTERLY
REPORT ON FORM 10-Q FOR THE THREE MONTHS ENDED MARCH 31, 2013 FILED
WITH THE SEC) 


 
                                                                            
                                                                            
                             DIGITAL ALLY, INC.                             
               CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS              
             FOR THE THREE MONTHS ENDED MARCH 31, 2013 AND 2012             
                                 (Unaudited)                                
                                                                            
                                                       2013         2012    
                                                   -----------  ----------- 
Cash Flows From Operating Activities:                                       
  Net income (loss)                                $   113,695  $  (804,729)
  Adjustments to reconcile net loss to net cash                             
   flows used in operating activities:                                      
    Depreciation and amortization                      105,460      194,231 
    Stock based compensation                           103,492      120,641 
    Provision for inventory obsolescence               (53,212)       1,710 
    Provision for doubtful accounts receivable         (10,160)          -- 
  Change in assets and liabilities:                                         
  (Increase) decrease in:                                                   
    Accounts receivable - trade                        719,797      682,140 
    Accounts receivable - other                        (38,491)      17,629 
    Inventories                                       (307,581)    (508,474)
    Notes receivable - current                         (65,000)          -- 
    Prepaid expenses                                  (196,904)      48,970 
    Other assets                                       (10,736)       8,183 
  Increase (decrease) in:                                                   
    Accounts payable                                  (574,410)     156,435 
    Accrued expenses                                    87,544     (282,149)
    Income taxes payable                                  (900)     (17,000)
    Customer deposits                                       --      (30,021)
                                                   -----------  ----------- 
  Net cash used in operating activities               (127,406)    (412,434)
                                                   -----------  ----------- 
Cash Flows from Investing Activities:                                       
  Purchases of furniture, fixtures and equipment      (162,180)     (68,509)
  Additions to intangible assets                        (2,605)          -- 
                                                   -----------  ----------- 
  Net cash used in investing activities               (164,785)     (68,509)
                                                   -----------  ----------- 
Cash Flows from Financing Activities:                                       
    Payments on capital lease obligations              (16,236)          -- 
                                                   -----------  ----------- 
  Net cash used in financing activities                (16,236)          -- 
                                                   -----------  ----------- 
                                                                            
Net decrease in cash and cash equivalents             (308,427)    (480,943)
                                                                            
Cash and cash equivalents, beginning of period         703,172    2,270,393 
                                                   -----------  ----------- 
                                                                            
Cash and cash equivalents, end of period           $   394,745  $ 1,789,450 
                                                   ===========  =========== 
Supplemental disclosures of cash flow information:                          
  Cash payments for interest                       $    53,896  $    50,000 
                                                   ===========  =========== 
  Cash payments for income taxes                   $     1,175  $    17,000 
                                                   ===========  =========== 

 
(FOR ADDITIONAL INFORMATION, PLEASE REFER TO THE COMPANY'S QUARTERLY
REPORT ON FORM 10-Q FOR THE THREE MONTHS ENDED MARCH 31, 2013 FILED
WITH THE SEC) 
For Additional Information, Please Contact:
Stanton E. Ross
CEO
(913) 814-7774 
or 
RJ Falkner & Company, Inc.
Investor Relations Counsel
(800) 377-9893 
or via email at info@rjfalkner.com 
 
 
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