Replies to post #27 on Digital Ally Inc. (DGLY)

[MikeDDKing]

Let me clarify a few things and give you some calculations and data to back up my thinking.

First of all, my price target is $10-$20 by the end of 2008 but I think the lower end of that range is more likely. Also, I'm not estimating EPS of $1.00/share for 2008. What I said is if they fill their capacity I estimate that they will have an annual EPS of $1.00/share. Here is how I get that:

By January they state that they are going to have capacity to make 1,000 RV mirror video cameras/month. Also, they have stated that they will have capacity to make 1,000 of the flashlight product/month in the same timeframe. The RV mirror cameras sell for approximately $4K each. That figures out to 12K RV mirror units annually for a corresponding $48M in annual revenue when they are at capacity. I don't know how much the flashlight product costs but I guessed that when they are selling the RV mirror product at capacity they might have $12M in revenue for the flashlight product. The sum of those two is $60M in revenue. With a GM of 69% that figures out to a gross profit of $41.4M. When revenue hits $60M I estimated that operating expenses would be $12M which makes before tax earnings of $29.4M or after tax earnings of $19.7M assuming a 33% tax rate. Conservatively speaking, if all options and warrants were exercised, they would have slightly under 20M shares outstanding. So, that gives us an annual EPS of $1.

Now, the question is when will they be able to reach that annual rate? They stated in the last earnings report that their biggest problem this year has been factory capacity and not orders. They already did an expansion in the fist half of the year that will provide increased volume in the second half. They are now doing a second expansion. I think it is a reasonable guess that they could fill this new capacity starting in Q4 of 2008. Somewhere I read a statistic that over 50K new automobiles are placed into service annually in the US. That doesn't even begin to include the existing vehicles in use. So, they have only scratched the surface of what is available. Also, they have the flashlight product plus several additional products that are planned.

Given their growth that I think will continue for several years, I think they deserve a price of 20X annualized earnings for their most recent quarter. So that is how I can make a case for $20 by the end of 2008. Also, I think it is possible that they grow faster than my target. Playing devil's advocate, there are often hiccups that happen with young growing companies and there are many variables. So, while my analysis leads me to a possibility of $20 by the end of the year I tend to discount that considerably. If you cut it in half you get my $10 target for the low end of the range. I think towards the lower end of the $10-20 range is probably a reasonable guess. That is still at least 3X the current price!

Mike