Nov. 4, 2009 (PR Newswire) --

OVERLAND PARK, Kan., Nov. 4 /PRNewswire-FirstCall/ -- Digital Ally, Inc. (Nasdaq: DGLY), which develops, manufactures and markets advanced video surveillance products for law enforcement, homeland security and commercial security applications, today announced its operating results for the third quarter and first nine months of 2009. An investor conference call is scheduled for 11:00 a.m. EST tomorrow, November 5, 2009 (see details below).

"Although we did not ship any large international orders, I am pleased to report that the Company generated net income in the three months ended September 30, 2009," stated Stanton E. Ross, Chief Executive Officer of the Company. "Gross profit margins recovered to 58.3%, versus 50.0% in the second quarter and 42.3% in the first quarter of 2009, and we realized positive results from our cost control initiative to reduce overall selling general and administrative expenses. Third quarter revenues trailed the levels achieved in the prior-year quarter and the second quarter of 2009, primarily due to the absence of significant international sales, which can fluctuate quite substantially from quarter to quarter. During the third quarter of last year, international sales exceeded $3.1 million, whereas such sales totaled less than $300,000 in the quarter ended September 30, 2009."

"We also experienced a reduction in average order size in the most recent quarter, which we believe reflects the budgetary constraints that are impacting most law enforcement agencies in the current challenging economic environment. However, we received and shipped eight $100,000-plus domestic orders, totaling $1.3 million, during the third quarter, suggesting that Digital Ally is making inroads with larger law enforcement departments with its new DVM-750 system. Production rates for our new DVM-750, DVM-500 Ultra and DVM-500 Plus in-car video systems improved throughout the third quarter, reaching planned production rates of 60 to 70 units per day in September 2009."

For the three months ended September 30, 2009, the Company reported revenue of approximately $5.7 million, compared with revenue of approximately $8.5 million in the third quarter of 2008. International revenues decreased to $270,491 in the third quarter of 2009, compared with approximately $3.2 million (including a single order valued at $2.2 million) in the quarter ended September 30, 2008. International orders are often larger in size than typical domestic orders, and the timing of the receipt and shipment of such orders can have a significant impact upon Digital Ally's sales in particular quarters. Net income for the quarter ended September 30, 2009 totaled $81,402, or $0.01 per diluted share, compared with net income of $873,609, or $0.05 per diluted share, in the prior-year quarter, and net losses in the three quarters preceding the most recent quarter.

Gross profits declined to $3,334,989 in the third quarter of 2009, compared with gross profits of $5,167,824 in the prior-year period. Gross profit margins approximated 58.3% of revenues in the most recent quarter, versus 61.1% in the third quarter of 2008, 50.0% in the second quarter of 2009 and 42.3% in the first quarter of 2009. The decrease in third quarter gross profit margins, when compared with the prior-year quarter, was primarily due to product conversion costs and inefficiencies related to the introduction of new products during 2009. However, the Company experienced a significant improvement in gross margins during the third quarter of 2009, when compared with the second and first quarters of 2009. This was attributable to the successful introduction of, and production efficiencies realized from, the new products as the year has progressed. As noted earlier, production rates for the new models steadily improved throughout the quarter ended September 30, 2009, and the Company expects such production rates to improve further during the fourth quarter. Management also expects gross profit margins to continue to improve in the quarter ending December 31, 2009.

Selling, General and Administrative ("SG&A") expenses declined 15% to $3,212,553 (56.2% of sales) in the third quarter of 2009, compared with $3,798,436 (44.9% of sales) in the year-earlier quarter. The majority of this decrease was attributable to lower sales commissions resulting from a decline in sales, along with lower research and development costs, a reduction in stock compensation expense, and the inclusion of $278,172 in vendor settlements and credits. The Company has implemented overhead cost containment initiatives during 2009 that positively impacted operating results during the third quarter 2009.

For the three months ended September 30, 2009, the Company reported operating income of $122,436, compared with $1,369,388 in the third quarter of 2008.

The Company reported pretax income of $131,402 in the quarter ended September 30, 2009, versus pretax income of $1,391,609 in the quarter ended September 30, 2008. After an income tax provision of $50,000, the Company reported net income of $81,402 in the third quarter of 2009. This compared with net income of $873,609, after income tax expense of $518,000, in the third quarter of 2008.

Basic and diluted earnings per share of $0.01 in the most recent quarter compared with basic earnings per share of $0.06 and diluted earnings per share of $0.05 in the prior-year quarter.

On a non-GAAP basis, the Company reported adjusted net income (before income taxes, depreciation, amortization and stock-based compensation), a non-GAAP financial measure, of $643,842, or $0.04 per diluted share, in the quarter ended September 30, 2009, versus adjusted net income of $2,083,370, or $0.16 per diluted share, in the quarter ended September 30, 2008. (Non-GAAP adjusted net income is described in greater detail in a table at the end of this news release).

"We expect production rates and gross profit margins to continue to improve during the fourth quarter, as we put behind us the start-up costs and inefficiencies associated with the delayed introduction of new products during the first nine months of the year," Ross said. "Based upon domestic orders already received or in the pipeline, including $1.6 million in backorders on our books at the end of September, higher gross margins, and the shipment of a previously announced $3 million-plus order to the Turkish Police Department, we expect that our fourth quarter will represent a strong finish to the current year."

"In light of the encouraging reception among law enforcement personnel of our new FirstVu wearable body camera and the DV-500 Ultra motorcycle and watercraft video system at the recent International Association of Chiefs of Police Conference in Denver, and with additional new product introductions planned for coming months, we are optimistic that 2010 should be an exciting year for the Company," concluded Ross.

For the nine months ended September 30, 2009, the Company reported revenue of approximately $17.1 million, compared with revenue of approximately $25.9 million in the first nine months of 2008. Gross profits declined to $8,705,134 in the nine months ended September 30, 2009, versus $16,026,314 in the corresponding period of the previous year. An operating loss of ($2,130,834) was recorded in the first nine months of 2009, compared with operating income of $6,144,158 in the year-earlier period. The Company reported a pretax loss of ($2,103,745) in the nine months ended September 30, 2009, versus pretax income of $6,215,676 in the first nine months of 2008. After an income tax benefit of $720,000, the Company reported a net loss of ($1,383,745) in the first nine months of 2009, versus net income (after income tax expense of $2,253,000) of $3,962,676 in the nine months ended September 30, 2008.

The Company recorded a net loss per share of $0.01 in the first nine months of 2009 compared with basic earnings per share of $0.26 and diluted earnings per share of $0.22 in the corresponding period of the previous year.

On a non-GAAP basis, the Company reported an adjusted net loss (before income taxes, depreciation, amortization and stock-based compensation), a non-GAAP financial measure, of ($20,803) in the nine months ended September 30, 2009, versus adjusted net income of $7,614,845 in the nine months ended September 30, 2008.

The Company generated $474,691 in net cash from its operating activities during the first nine months of 2009, compared with $2,951,153 in net cash used in operating activities during the nine months ended September 30, 2008. As of September 30, 2009, the Company had $1,017,790 of cash and equivalents, working capital of $13,876,461, no debt outstanding, and shareholders' equity of $16,951,030.

Non-GAAP Financial Measures

Digital Ally, Inc.