Digital Ally, Inc. Announces Third Quarter Operating Results

Digital Ally, Inc. Announces Third Quarter Operating Results 
LENEXA, KS -- (Marketwired) -- 11/11/13 --  Digital Ally, Inc.
(NASDAQ: DGLY), which develops, manufactures and markets advanced
video surveillance products for law enforcement, homeland security
and commercial applications, today announced its operating results
for the third quarter and first nine months of 2013. An investor
conference call is scheduled for 11:15 a.m. EST tomorrow, November
12, 2013 (see details below). 
Third Quarter Highlights 


 
--  Total revenue declined slightly to approximately $4.5 million,
    compared with total revenue of approximately $4.6 million in the third
    quarter of 2012.
--  International revenue increased 405% to $891,722, compared with
    $176,500 in the third quarter of 2012.
--  Gross profit margin narrowed to 54.0% of total revenue vs. 56.9% in
    prior-year period.
--  General and administrative expenses increased 12% from year-earlier
    levels.
--  The Company reported an operating loss of ($836,662), compared with
    operating income of $336,016 in the third quarter of 2012.
--  A net loss of ($905,836), or ($0.42) per share, was posted in the most
    recent quarter, compared with year-earlier net income of $270,040, or
    $0.13 per diluted share.
--  On a non-GAAP basis, an adjusted net loss of ($460,862), or ($0.21)
    per share, in the third quarter of 2013 compared with non-GAAP
    adjusted net income of $263,616, or $0.13 per diluted share, in the
    prior-year quarter.
--  Revenue for the third quarter was negatively impacted by the recent
    federal government shutdown and ongoing sequester, which restricted
    some of the Company's customers' access to federal grants that fund
    purchases of equipment by certain law enforcement agencies.
--  Initial production of the FirstVU HD was completed, and the Company's
    current and potential customers are confirming its expectations for
    acceptance of this new product line.
--  The reduction in profitability during the most recent quarter was
    largely attributable to higher research and development expenses
    related to new products, increased stock-based compensation expense
    reflecting a higher average stock price, increased general and
    administrative co
sts involving additional technical support staff, and
    the absence of a litigation credit that benefited operating results in
    the prior-year quarter.

  
Nine-Month Highlights 


 
--  Total revenue increased 10% to approximately $14.3 million, versus
    total revenue of approximately $13.0 million in the first nine months
    of 2012.
--  Gross profit margin widened to 58.4% of total revenue, compared with
    54.6% in corresponding period of the previous year.
--  General and administrative expenses were 3% lower than in the
    prior-year period.
--  The Company reported a 47% reduction in its operating loss, which
    totaled ($676,484) in the first nine months of 2013, compared with
    ($1,271,694) in the corresponding period of the previous year.
--  A net loss of ($859,292), or ($0.41) per share, in the most recent
    nine-month period, compared favorably with a net loss of ($1,483,890),
    or ($0.73) per share, in the year-earlier period.
--  Non-GAAP adjusted net income improved to $239,152, or $0.11 per
    diluted share, versus a non-GAAP adjusted net loss of ($71,645), or
    ($0.04) per share, in the first nine months of 2012.

  
Management Comments 
"The modest decline in third quarter revenue, when compared with the
prior-year period, primarily reflected a continuation of the economic
headwinds that have impacted law enforcement budgets for the past few
quarters and the negative impact of the recent federal government
shutdown and ongoing sequester upon grants for the purchase of new
law enforcement equipment, partially offset by a strong increase in
international sales," stated Stanton E. Ross, Chief Executive Officer
of Digital Ally, Inc. "We also believe several significant state
contract orders that we expected to receive in the third quarter were
delayed for various reasons. We expect to receive these orders in the
current quarter. Further, our new FirstVU HD body camera has been
enthusiastically received in the marketplace and has performed well
against the competition in testing and evaluation programs conducted
by dozens of police departments. We expect higher shipments of
FirstVU HD units to have a positive impact on our financial
performance this quarter." 
"For the nine months ended September 30, 2013, adjusted net income (a
non-GAAP measure) improved to $239,152, or $0.11 per diluted share,
compared with a non-GAAP adjusted net loss of ($71,645), or ($0.04)
per share, in the first nine months of 2012." 
"Lower revenues, a narrowing of gross profit margins, and higher
research, development and other expenses related to the introduction
of the FirstVU HD and the planned introduction of our DVM-800 in-car
video system, were the primary factors that resulted in an operating
loss in the most recent quarter," continued Ross. "We are confident
that aggressive new product research, development and support
activities will significantly benefit our shareholders over the
long-term. It would be short-sighted to trim such programs in
response to events having a temporary impact upon our markets, such
as the federal government shutdown." 
"We are pleased with the improved productivity of our revamped
international sales organization, which quintupled international
revenue in the third quarter, relative to the prior-year period.
While the timing of international orders is very difficult to
predict, our 'pipeline' of prospective business from a number of
foreign law enforcement agencies has expanded significantly during
recent months." 
"Overall, we believe Digital Ally is poised to expand its share of
the video equipment market among law enforcement agencies and
commercial fleet operators as the economy continues to strengthen and
as our new products gain traction. When revenue recovers, the impact
of greater manufacturing efficiencies, successful cost-reduction
initiatives, and higher margins on new products should improve our
'bottom line' performance," concluded Ross.  
Third Quarter Results 
For the three months ended September 30, 2013, the Company's total
revenue declined 2% to approximately $4.5 million, compared with
revenue of approximately $4.6 million in the third quarter of 2012.
Management attributes the revenue decline primarily to the effects of
the federal government budget sequester and recent temporary
shutdown, which negatively impacted many law enforcement agencies
that rely on federal grants to provide funding for equipment
purchases. October 2013 revenues indicate that the effects of the
government shutdown were temporary in nature. The Company expects to
receive certain awards and opening orders that were delayed last
quarter in the fourth quarter. International revenue increased 405%
to $891,722 in the most recent quarter, compared with $176,590 in the
third quarter of 2012.  
Gross profit decreased to $2,425,326 (54.0% of revenue) in the third
quarter of 2013, versus $2,617,310 (56.9% of revenue) in the
prior-year quarter. The reduction in gross profit margin was
primarily due to production inefficiencies and rework that occurred
during the initial production run of the FirstVU HD. Management
considers these inefficiencies normal for the launch of a new product
and does not expect them to reoccur in the future. Also, 
the Company
scrapped certain unusable parts from the older versions of its
product line during the most recent quarter. Finally, a modest
reduction in sales during the third quarter of 2013 penalized gross
profit margins. Management's long-term goal continues to target gross
profit margins of approximately 60% of revenue. The achievement of
such goal assumes that the Company will benefit from economies of
scale as revenue increases, more efficient outsourcing of component
production, more efficient purchasing practices, and higher gross
margins on new products.  
Selling, General and Administrative ("SG&A") expenses increased 43%
to $3,261,988 (72.6% of revenue) in the three months ended September
30, 2013, versus $2,281,294 (49.6% of revenue) in the corresponding
period of the previous year. Higher research and development expenses
related to new product initiatives, increased stock-based
compensation resulting from a higher average stock price, increased
payroll expenses related to the hiring of additional technical
support staff, and a modest increase in professional fees and
expenses, were partially offset by lower selling, advertising and
promotional expenses. During the third quarter of 2012, the Company's
operating results benefited from a $365,065 credit related to the
settlement of certain litigation. No such credit was recorded in the
third quarter of 2013.  
The Company reported an operating loss of ($836,662) for the quarter
ended September 30, 2013, compared with an operating profit of
$336,016 in the quarter ended September 30, 2012.  
Net interest and other expense increased 5% to $69,174 in the third
quarter of 2013, from $65,976 in the three months ended September 30,
2012. 
The Company reported a net loss of ($905,836), or ($0.42) per share,
for the three months ended September 30, 2013, compared prior-year
net income of $270,040, or $0.13 per diluted share. No income tax
provision or benefit was recorded in the third 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 an adjusted net loss
(before depreciation, amortization, interest expense,
litigation-related credits and stock-based compensation), a non-GAAP
financial measure, of ($460,862), or ($0.21) per share, in the third
quarter of 2013, versus adjusted net income of $263,616, or $0.13 per
diluted share, in the quarter ended September 30, 2012. (Non-GAAP
adjusted net income is described in greater detail in a table at the
end of this press release). 
Nine-Month Results 
In the nine months ended September 30, 2013, the Company's total
revenue increased 10% to approximately $14.3 million, compared with
revenue of approximately $13.0 million in the first nine months of
2012, primarily due to the reorganization of Digital Ally's law
enforcement sales channel and an increase of approximately 50% in
event recorder sales to commercial vehicle fleet operators.
International revenue increased 168% to $1,064,321 in the nine months
ended September 30, 2013, versus $396,705 in the nine months ended
September 30, 2012. 
Gross profit improved 18% to $8,359,068 (58.3% of revenue) in the
first nine months of 2013, versus $7,089,590 (54.6% of revenue) in
the prior-year period.  
Selling, General and Administrative ("SG&A") expenses increased 8% to
$9,035,552 (63.1% of revenue) in the nine months ended September 30,
2013, versus $8,361,284 (64.4% of revenue) in the corresponding
period of the previous year. SG&A expenses in the first nine months
of 2012 included $289,017 in litigation charges and related expenses,
whereas there were no such charges in the first nine months of 2013.  
The Company reported a 47% reduction in its operating loss, which
totaled ($676,484) in the nine months ended September 30, 2013,
compared with an operating loss of ($1,271,694) in the first nine
months of 2012.  
Net interest and other expense declined 14% to $182,808 in the first
nine months of 2013, from $212,196 in the nine months ended September
30, 2012. 
The Company reported a net loss of ($859,292), or ($0.41) per share,
for the nine months ended September 30, 2013, which represented an
improvement of $624,598 when compared with a prior-year net loss of
($1,483,890), or ($0.73) per share. No income tax provision or
benefit was recorded in the first nine months of either 2013 or 2012. 
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
depreciation, amortization, interest expense, litigation-related
expenses and stock-based compensation), a non-GAAP financial measure,
of $239,152, or $0.11 per diluted share, in the first nine months of
2013, versus an adjusted net loss of ($71,645), or ($0.04) per share,
in the nine months ended September 30, 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 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 and/or non-recurring expenses/income
including: (1) income tax expense/benefit, (2) depreciation and
amortization expense, (3) net interest expense, (4) share-based
compensation expense, and (5) litigation charges and related
expenses. 
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 Standard Time (EST) tomorrow, November 12, 2013, to discuss
its operating results for the third quarter and first nine months of
2013, along with other topics of interest. Shareholders and other
interested parties may participate in the conference call by dialing
877-374-8416 (international/local participan
ts 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 November 12, 2013.  
A replay of the conference call will be available one hour after the
completion of the conference call from November 12, 2013 until 9:00
a.m. on January 13, 2014 by dialing 877-344-7529 (international/local
participants dial 412-317-0088) and entering the conference ID#
10036315.  
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 improve its revenues and operating results during the balance of
2013 given the current economic environment; whether it will be able
to achieve improved production and other efficiencies 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, including the FirstVU HD, as scheduled, 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, including the FirstVU HD; whether the interest shown in the
FirstVU HD will translate into sales of such product; whether the
Company's new products 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; whether and the extent to which the
new patents allowed by the US Patent Office will give the Company
effective, enforceable protection of the intellectual property
contained in its products in the marketplace; 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 and nine months ended
September 30, 2013, as filed with the Securities and Exchange
Commission.  
(Financial Highlights Follow) 


 
                                                                            
                             DIGITAL ALLY, INC.                             
                   CONDENSED CONSOLIDATED BALANCE SHEETS                    
                  SEPTEMBER 30, 2013 AND DECEMBER 31, 2012                  
                                (Unaudited)                                 
                                                                            
                                                September 30,  December 31, 
                                                     2013          2012     
                                                                            
                                                -------------  ------------ 
                     Assets                                                 
Current assets:                                                             
  Cash and cash equivalents                     $     363,458  $    703,172 
  Accounts receivable-trade, less allowance for                             
   doubtful accounts of $55,033 - 2013 and                                  
   $70,193 - 2012                                   2,769,421     2,956,654 
  Accounts receivable-other                           174,836        71,148 
  Inventories                                       8,098,046     7,294,721 
  Prepaid expenses                                    371,136       258,642 
                                                -------------  ------------ 
                                                                            
      Total current assets                         11,776,897    11,284,337 
                                                -------------  ------------ 
                                                                            
Furniture, fixtures and equipment                   4,534,942     4,392,880 
Less accumulated depreciation and amortization      3,548,779     3,454,087 
                                                -------------  ------------ 
                                                                            
                                                      986,163       938,793 
                                                -------------  ------------ 
                                                                            
Restricted cash                                       662,500       662,500 
Intangible assets, net                                242
,596       217,660 
Other assets                                          248,846       241,446 
                                                -------------  ------------ 
                                                                            
  Total assets                                  $  13,917,002  $ 13,344,736 
                                                =============  ============ 
                                                                            
      Liabilities and Stockholders' Equity                                  
Current liabilities:                                                        
  Accounts payable                              $   1,296,339  $  1,520,207 
  Subordinated note payable-current, net of                                 
   discount of $45,354 - 2013 and $0 - 2012.        2,454,646            -- 
  Accrued expenses                                  1,101,857       793,524 
  Capital lease obligation-current                     86,858        66,087 
  Income taxes payable                                  8,912         6,717 
  Customer deposits                                     1,878         1,878 
                                                -------------  ------------ 
                                                                            
      Total current liabilities                     4,950,490     2,388,413 
                                                -------------  ------------ 
                                                                            
Long-term liabilities:                                                      
  Subordinated note payable-long-term, net of                               
   discount of $0 - 2013 and $96,378 - 2012                --     2,403,622 
  Litigation accrual-long term                        530,000       530,000 
  Capital lease obligation-long term                   91,030       120,988 
                                                -------------  ------------ 
                                                                            
Total long term liabilities                           621,030     3,054,610 
                                                -------------  ------------ 
                                                                            
Commitments and contingencies                                               
Stockholder's Equity:                                                       
  Common stock, $0.001 par value; 9,375,000                                 
   shares authorized; shares issued: 2,284,048                              
   - 2013 and 2,099,082 - 2012                          2,284         2,099 
  Additional paid in capital                       24,607,277    23,304,401 
  Treasury stock, at cost (shares: 63,518 -                                 
   2013 and 63,518 - 2012)                         (2,157,226)   (2,157,226)
  Accumulated deficit                             (14,106,853)  (13,247,561)
                                                -------------  ------------ 
                                                                            
      Total stockholders' equity                    8,345,482     7,901,713 
                                                -------------  ------------ 
                                                                            
    Total liabilities and stockholders' equity  $  13,917,002  $ 13,344,736 
                                                =============  ============ 
                                                                            
 (FOR ADDITIONAL INFORMATION, PLEASE REFER TO THE COMPANY'S QUARTERLY REPORT
ON FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 2013 FILED WITH THE SEC)    
                                                                            
                                                                            
                                                                            
                             DIGITAL ALLY, INC.                             
              CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS               
                    FOR THE THREE AND NINE MONTHS ENDED                     
                        SEPTEMBER 30, 2013 AND 2012                         
                                (Unaudited)                                 
                                                                            
                                                                            
                             Three months ended        Nine months ended    
                                September 30,            September 30,      
                                                                            
                           ----------------------  ------------------------ 
                                 2013        2012         2013         2012 
                           ----------  ----------  -----------  ----------- 
                                                                            
Product revenue            $4,306,654  $4,357,023  $13,621,945  $12,337,709 
Other revenue                 181,873     239,745      699,026      642,312 
                           ----------  ----------  -----------  ----------- 
                                                                            
Total revenue               4,488,527   4,596,768   14,320,971   12,980,021 
Cost of revenue             2,063,201   1,979,458    5,961,903    5,890,431 
                           ----------  ----------  -----------  ----------- 
                                                                            
  Gross profit              2,425,326   2,617,310    8,359,068    7,089,590 
Selling, general and                                                        
 administrative expenses:                                                   
  Research and development                                                  
   expense                    975,384     627,146    2,691,484    1,804,932 
  Selling, advertising and                                                  
   promotional expense        713,289     716,996    2,002,777    1,990,138 
  Stock-based compensation                                                  
   expense                    268,476     139,995      563,489      381,432 
  Litigation charge                                                         
   (credit) and related                                                     
   expenses                        --    (365,065)          --      289,017 
  General and                                                               
   administrative expense   1,304,839   1,162,222    3,777,802    3,895,765 
                           ----------  ----------  -----------  ----------- 
                                                                            
Total selling, general and                                                  
 administrative expenses    3,261,988   2,281,294    9,035,552    8,361,284 
                           ----------  ----------  -----------  ----------- 
                                                                            
  Operating income (loss)    (836,662)    336,016     (676,484)  (1,271,694)
                           ----------  ----------  -----------  ----------- 
                                                                            
                                                                            
Interest income                 2,554       2,247        9,374        7,026 
Other income (expense)           (519)         --       20,700           -- 
Interest expense              (71,209)    (68,223)    (212,882)    (219,222)
                           ----------  ----------  -----------  ----------- 
                                                                            
Income (loss) before                                                        
 income tax benefit          (905,836)    270,040     (859,292)  (1,483,890)
Income tax expense                                                          
 (benefit)                         --          --           --           -- 
                           ----------  ----------  -----------  ----------- 
                                                                            
Net income (loss)          $ (905,836) $  270,040  $  (859,292) $(1,483,890)
                           ==========  ==========  ===========  =========== 
                                                                            
Net income (loss) per                                                       
 share information:                                                         
  Basic                    $    (0.42) $     0.13  $     (0.41) $     (0.73)
  Diluted                  $    (0.42) $     0.13  $     (0.41) $     (0.73)
                                                                            
Weighted average shares                                              
       
 outstanding:                                                               
  Basic                     2,162,430   2,035,564    2,107,708    2,026,933 
  Diluted                   2,162,430   2,035,564    2,107,708    2,026,933 
                                                                            
 (FOR ADDITIONAL INFORMATION, PLEASE REFER TO THE COMPANY'S QUARTERLY REPORT
  ON FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 2013 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, 2013 AND 2012                         
                                (unaudited)                                 
                                                                            
                              Three Months Ended       Nine Months Ended    
                                 September 30,           September 30,      
                                                                            
                            ----------------------  ----------------------- 
                               2013        2012        2013         2012    
                            ----------  ----------  ----------  ----------- 
                                                                            
Net income (loss)           $ (905,836) $  270,040  $ (859,292) $(1,483,890)
Non-GAAP adjustments:                                                       
  Stock-based compensation     268,476     139,995     563,489      381,432 
  Depreciation and                                                          
   amortization                105,289     150,423     322,073      522,574 
  Litigation charge                                                         
   (credit) and related                                                     
   expenses                         --    (365,065)         --      289,017 
  Interest expense              71,209      68,223     212,882      219,222 
                            ----------  ----------  ----------  ----------- 
                                                                            
Total Non-GAAP adjustments     444,974      (6,424)  1,098,444    1,412,245 
                            ----------  ----------  ----------  ----------- 
                                                                            
                                                                            
Non-GAAP adjusted net                                                       
 income (loss)              $ (460,862) $  263,616  $  239,152  $   (71,645)
                            ==========  ==========  ==========  =========== 
                                                                            
                                                                            
Non-GAAP adjusted net                                                       
 income (loss) per share                                                    
 information:                                                               
Basic                       $    (0.21) $     0.13  $     0.11  $     (0.04)
Diluted                     $    (0.21) $     0.13  $     0.11  $     (0.04)
                                                                            
Weighted average shares                                                     
 outstanding:                                                               
Basic                        2,162,430   2,035,564   2,107,708    2,026,933 
Diluted                      2,162,430   2,035,564   2,107,708    2,026,933 
                                                                            
 (FOR ADDITIONAL INFORMATION, PLEASE REFER TO THE COMPANY'S QUARTERLY REPORT
  ON FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 2013 FILED WITH THE SEC)  
                                                                            
                                                                            
                                                                            
                             DIGITAL ALLY, INC.                             
              CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS               
           FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012            
                                (Unaudited)                                 
                                                                            
                                                        2013        2012    
                                                                            
                                                     ---------  ----------- 
Cash Flows From Operating Activities:                                       
  Net loss                                           $(859,292) $(1,483,890)
  Adjustments to reconcile net loss to net cash                             
   flows (used in) provided by operating activities:                        
    Depreciation and amortization                      322,073      522,574 
    Stock based compensation                           563,489      381,432 
    Provision for inventory obsolescence               (75,962)    (190,444)
    Provision for doubtful accounts receivable         (15,160)     (35,747)
                                                                            
  Change in assets and liabilities:                                         
  (Increase) decrease in:                                                   
    Accounts receivable - trade                        202,393      323,658 
    Accounts receivable - other                       (103,688)    (584,428)
    Inventories                                       (727,363)    (279,259)
    Prepaid expenses                                  (127,012)     (54,135)
    Other assets                                        (7,400)    (120,814)
  Increase (decrease) in:                                                   
    Accounts payable                                  (223,868)     240,790 
    Accrued expenses                                   308,333     (168,369)
    Litigation accrual                                      --      530,000 
    Income taxes payable                                 2,195      (16,970)
    Customer deposits                                       --      (30,021)
                                                     ---------  ----------- 
                                                                            
  Net cash used in operating activities               (741,262)    (965,623)
                                                     ---------  ----------- 
                                                                            
Cash Flows from Investing Activities:                                       
  Purchases of furniture, fixtures and equipment      (250,906)    (152,541)
  Additions to intangible assets                       (32,624)     (22,553)
  Restricted cash for appealed litigation                   --     (662,500)
                                                     ---------  ----------- 
                                                                            
  Net cash used in investing activities               (283,530)    (837,594)
                                                     ---------  ----------- 
                                                                            
Cash Flows from Financing Activities:                                       
  Proceeds from exercise of stock options and                               
   warrants                                            739,572         
  -- 
  Payments on capital lease obligation                 (54,494)      (7,061)
                                                     ---------  ----------- 
                                                                            
  Net cash provided by (used in) financing                                  
   activities                                          685,078       (7,061)
                                                     ---------  ----------- 
                                                                            
Net increase (decrease) in cash and cash equivalents  (339,714)  (1,810,278)
Cash and cash equivalents, beginning of period         703,172    2,270,393 
                                                     ---------  ----------- 
                                                                            
Cash and cash equivalents, end of period             $ 363,458  $   460,115 
                                                     =========  =========== 
                                                                            
Supplemental disclosures of cash flow information:                          
  Cash payments for interest                         $ 161,923  $   151,846 
                                                     =========  =========== 
                                                                            
  Cash payments for income taxes                     $   3,685  $    16,970 
                                                     =========  =========== 
                                                                            
Supplemental disclosures of non-cash investing and                          
 financing activities:                                                      
                                                                            
  Restricted common stock grant                      $     100  $        16 
                                                     =========  =========== 
                                                                            
                                                                            
  Capital expenditures financed by capital lease                            
   obligations                                       $  45,371  $    94,760 
                                                     =========  =========== 
                                                                            
  Issuance of common stock upon exercise of stock                           
   options and common stock purchase warrants        $      87  $        -- 
                                                     =========  =========== 
                                                                            
  Common stock surrendered as consideration for                             
   cashless exercise of stock options and common                            
   stock purchase warrants                           $       2  $        -- 
                                                     =========  =========== 
                                                                            
 (FOR ADDITIONAL INFORMATION, PLEASE REFER TO THE COMPANY'S QUARTERLY REPORT
  ON FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 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 
via email at info@rjfalkner.com 
 
 
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