For the three months ended June 30, 2015, the Company's total revenue increased 63% to approximately $5.6 million, compared with revenue of approximately $3.4 million in the three months ended June 30, 2014. The Company attributes the revenue increase to the heightened interest in the benefits of video evidence among law enforcement agencies following civil unrest in Ferguson, Missouri; Baltimore, Maryland and other cities during the past twelve months. Management believes that there has been a shift in buying patterns of its law enforcement customers because of the transparency and accountability that video surveillance provides to the general public.


Digital Ally shipped seven orders in excess of $100,000 each during the most recent quarter, which generated combined revenue of approximately $1.3 million. During the second quarter of 2014, the Company shipped no orders valued individually at greater than $100,000.


International revenue totaled $66,798 during the second quarter of 2015, versus $125,623 in the corresponding period of the previous year. While the Company has provided a number of bids to international customers, international sales cycles generally take longer than domestic business. Management believes that Digital Ally's new products may appeal to international customers, in particular the DVM-800 and FirstVU HD, although it can provide no assurances in this regard.


Gross profit increased 60% to $3,092,194 (54.9% of revenue) in the most recent quarter, versus $1,928,389 (55.9% of revenue) in the prior-year quarter and $1,653,740 (38.9% of revenue) in the first quarter of 2015. The Company's goal is to improve gross margins to 60% of revenue over the longer term based on the expected margins of its newer products, in particular the DVM-800 and FirstVU HD, if they continue to gain traction in the marketplace and production of commercial products increases. In addition, as revenue from these products increases, the Company will seek to further improve gross margins through economies of scale and more efficient utilization of fixed manufacturing overhead components


Selling, General and Administrative ("SG&A") expenses increased 35% to $3,909,156 in the second quarter of 2015, compared with $2,894,039 in the second quarter of 2014. Research and development costs rose 13% to $783,880 (vs. $695,101 in 2014). The Company increased the size of its engineering staff of web-based developers in order to expand its offerings to include cloud-based evidence storage and management for its law enforcement customers (VuVault.net) and its web-based commercial fleet driver monitoring and management tool (FleetVU). Selling, advertising and promotional expense rose 40% to $932,407, compared with $664,077 a year earlier. Sales force salaries increased as a result of variable commissions paid on increased sales, and the Company incurred greater expenses attributable to increased participation in trade shows and media advertising, along with other marketing initiatives designed to help penetrate new markets and increase awareness of new products. Stock-based compensation expense increased to $329,201 (vs. $183,419), primarily due to the amortization of restricted stock granted to officers and other employees in February 2015. Professional fees and related expenses rose 111% to $430,809 in the second quarter of 2015, primarily due to higher accounting fees and litigation expenses. Executive, support and administrative staff payroll expenses increased 26% to $634,128, compared with $502,160 a year earlier, due primarily to the hiring of additional technical support staff to handle field inquiries and installation matters. Other SG&A expenses rose to $798,731 in the three months ended June 30, 2015, versus $645,375 in the prior-year period, primarily due to increased consulting, contract labor and travel expenses. The Company is developing engineering and manufacturing standard processes that will assist in the achievement of ISO 13485, ISO 9001, FDA cGMPs, and MD Directive 93/42/EEC certifications. The Company also utilized consultants to help design, develop and launch a new corporate website in the most recent quarter.


For the reasons previously stated, the Company reported an operating loss of ($816,962) for the second quarter of 2015, compared with an operating loss of ($965,650) in the year-earlier quarter.


Interest income decreased to $2,828 in the three months ended June 30, 2015, versus $7,510 a year earlier. Interest expense totaled $79,841 in the second quarter of 2015, compared with $127,249 in the prior-year quarter, due to the conversion of a $4.0 million Senior Secured Convertible Note into equity in February 2015.


Non-cash income of $116,061 was recorded in the second quarter of 2015 as a result of changes in warrant derivative values. A warrant derivative gain of $97,142 was recorded in the prior-year quarter.


Because the Company elected to account for and record its Senior Secured Convertible Note on a fair value basis, it was required to expense certain related issuance costs to "other expense" during the second quarter of 2015. Such costs totaled $14,474 at June 30, 2015 and $0 at June 30, 2014.


The Company reported a 2015 second quarter net loss of ($792,388), or ($0.20) per share, compared with a prior-year net loss of ($988,089), or ($0.43) per share. No income tax provision or benefit was recorded in the second quarters of either 2015 or 2014. The weighted average number of shares outstanding totaled 4,044,112 in the most recent quarter, versus 2,317,309 in the year-earlier quarter.


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.


On a non-GAAP basis, the Company reported an adjusted net loss (before, depreciation, amortization, interest expense, changes in derivative liabilities, changes in fair value of secured convertible notes payable, Senior Secured Convertible Note issuance expenses, and stock-based compensation), of ($318,207), or ($0.08) per share, for the quarter ended June 30, 2015, versus a non-GAAP adjusted net loss of ($645,494), or ($0.28) per share, in the second quarter of 2014. (Non-GAAP adjusted net income/loss is described in greater detail in a table at the end of this press release).

For the six months ended June 30, 2015, the Company's total revenue increased 34% to approximately $9.9 million, compared with revenue of approximately $7.4 million in the first half of 2014.


Digital Ally shipped 11 orders in excess of $100,000 each during the first half of 2015, which generated combined revenue of approximately $1.8 million. During the prior-year period, the Company shipped two orders valued individually at greater than $100,000, for a total of $499,000 in revenue.


International revenue totaled $106,486 during the first half of 2015, versus $174,732 in the corresponding period of the previous year.


Gross profit increased 12% to $4,745,934 (48.0% of revenue) in the six months ended June 30, 2015, versus $4,249,328 (57.7% of revenue) in the prior-year period. The Company's goal is to improve gross margins to 60% of revenue over the longer term based on the expected margins of its newer products, in particular the DVM-800 and FirstVU HD, if they continue to gain traction in the marketplace and production of commercial products increases.


Selling, General and Administrative ("SG&A") expenses increased 31% to $7,526,091 in the first half of 2015, compared with $5,761,130 in the first half of 2014. Increases were posted in all components of SG&A expenses with the exception of Research and Development costs, which declined slightly when compared with the prior-year period.


The Company reported an operating loss of ($2,780,157) for the six months ended June 30, 2015, compared with an operating loss of ($1,511,802) in the year-earlier period.


Interest income decreased to $8,143 in the six months ended June 30, 2015, versus $10,024 a year earlier. Interest expense totaled $206,014 in the first half of 2015, compared with $227,061 in the prior-year quarter, due to the conversion of the Company's $4.0 million Senior Secured Convertible Note into equity in February 2015.


Non-cash income of $281,783 was recorded in the first half of 2015 as a result of changes in warrant derivative values. A warrant derivative gain of $97,142 was recorded in the prior-year period.


Because the Company elected to account for and record its $4.0 Senior Secured Convertible Note on a fair value basis, when the holder of such note exercised its right to convert the remaining principal balance of the note and accrued interest into 661,213 shares of common stock, a non-cash, non-recurring charge of $4,434,383 was incurred during the first quarter of 2015. This reflected the increase in the Company's stock price over the conversion rate as of the conversion dates.


Senior Secured Convertible Note issuance expenses totaled $74,350 in the six months ended June 30, 2015, compared with $224,438 a year earlier. "Other income" of $1,878 in the first half of 2015 compared with "other expense" of $3,453 in the prior-year period.


The Company reported a net loss of ($7,203,100), or ($1.94) per share, in the first half of 2015, compared with a prior-year net loss of ($1,859,588), or ($0.82) per share. No income tax provision or benefit was recorded in the first six months of either 2015 or 2014. The weighted average number of shares outstanding totaled 3,710,960 in the six months ended June 30, 2015, versus 2,263,230 in the year-earlier period.



On a non-GAAP basis, the Company reported an adjusted net loss (before, depreciation, amortization, interest expense, changes in derivative liabilities, changes in fair value of secured convertible notes payable, Senior Secured Convertible Note issuance expenses, and stock-based compensation), of ($1,843,032), or ($0.50) per share, for the six months ended June 30, 2015, versus a non-GAAP adjusted net loss of ($946,646), or ($0.42) per share, in the first half of 2014. (Non-GAAP adjusted net income/loss is described in greater detail in a table at the end of this press release).

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