Source Capital Group, Inc.
May 13, 2008
DIGITAL ALLY, Inc. (NASDAQ:DGLY- $9.50)
INITIATE COVERAGE - BUY RECOMMENDATION
12-Month Price Target = $18.00
For Research Disclosures . See Page 10
DIGITAL ALLY REPORTS OUTSTANDING QUARTER
Digital Ally, Inc. (.Digital Ally. or the .Company.) recently
reported operating results for its first quarter of FY08 ending March
31. Revenue was up 150% from the same quarter of the prior year
and reflected a 22% sequential increase for Q407. With improving
supply chain performance, gross margins increased to 61.9% in
Q108 from 60.3% in Q107 and 57.8% in Q407. The result was
diluted EPS of $0.10 for the quarter vs. $0.01 for Q107. In its press
release announcing the quarter results the Company guided toward
revenue of $40 million for FY08, more than double its FY07 results.
NEW PRODUCT . EXPANDED MARKET
Digital Ally entered the law enforcement market in 2006 with the introduction of its DVM-500 In-Car Digital
Rearview Mirror System. On May 1, 2008 the Company introduced the DVM-250 Pro, a lower priced event
recorder aimed at the broader transportation market. Event recorders automatically record and store video and
audio from outside and inside of vehicles and are used by taxicabs, limousines, school buses, transit buses, delivery
vehicles, utility company vehicles and even personal vehicles. The DVM-250 Pro constantly records a 30-second
loop and in the case of a sudden change in speed, sudden stop, or other violent maneuver the recording continues
providing video and sound record of the event. These recordings can be used for driver training, personal
protection and monitoring as well as protection against liability workman.s compensation claims in the event of an
accident. The DVM-250 Pro is aimed at a general market that is several times larger than the approximately
450,000 law enforcement vehicles in use in the United States.
COMPANY PREPARES FOR CONTINUED GROWTH
In addition to the recent new product introduction, Digital Ally increased the size of its production/assembly facility
in the first quarter of 2008 to accommodate an anticipated expansion in product shipments. The Company also
reported that it more than tripled research and development expenses from Q107 as it targets new market
opportunities. Products include extensions of current products as well as new products.
CURRENT CAPITALIZATION AND CASH FLOW SHOULD SUPPORT EXPANSION
Digital Ally ended Q1 with approximately $4.9 million in cash, nearly $10 million in current assets and no debt.
For the year ended December 31, 2007 the Company generated $4.8 million cash from operations and spent only
$563K on capital expenditures. The Company does not have to spend significant capital dollars for production,
since most of the production is outsourced and assembly takes place at the Company.s Kansas facilities. In this
regard there should be minimal dilution of current shareholders from capital raises to meet the projections we have
prepared.
ESTIMATE OF FINANCIAL RESULTS
: (FY ends 12/31) (Dollar amounts in Thousands . Except EPS) Year A Qtr A Qtr E Qtr E Qtr E Year E Year E
2007 3/31/08 6/30/08 9/31/08 12/31/08 2008 2009
Revenue $19,391 $8,601 $9,461 $10,407 $11,656 $40,125 $76,238
Net Income $ 4,523 $1,676 $1,929 $ 2,191 $ 2,457 $ 8,523 $15,525
Earnings/Share $ 0.28 $ 0.10 $ 0.11 $ 0.12 $ 0.14 $ 0.46 $ 0.82
$9.73 (05/13/08)
