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Taser International Inc. (NASDAQ:TASR) seems to have once again become a Wall Street darling thanks to their new wearable TASER AXON camera system that captures devices and enhances transparency between law enforcement agencies and their communities. The AXON flex is a digital video camera worn on an officer's body that

TASER CEO Rick Smith says "will become standard equipment [at police forces] within the next 5-10 years."

This new product has helped send TASR to 52 week highs as it closed at $11.92 yesterday. At next year's consensus estimate of $0.37 EPS, this represents a forward P/E ratio of 32. Here is a picture of the AXON camera from their website:


(Click to enlarge)

I cannot find anywhere mentioned that this is a patented product. Enter Digital Ally Inc. (NASDAQ:DGLY). Digital Ally, Inc. produces digital video imaging, audio recording, and related storage products for use in law enforcement and security applications in the United States and internationally. They also launched a similar product to the TASR AXON:

Introducing the Digital Ally FirstVu™ HD Officer-Worn Video System (description):

Since their inception, many body cameras have had limitations that made them difficult for law enforcement entities to fully utilize them. To answer these concerns, Digital Ally used direct input from officers to develop the FirstVu™ HD. The system is comprised of a small 1.75" camera and a separate, thin 2.75" x 4" recording module which may be securely mounted together or separately for more versatile body, vehicle and other mounting options.

Below are pictures of the DGLY camera from their website:

In last quarter's conference call,

DGLY CFO Tom Heckman said this about the recently launched product, "The FirstVu HD is tracking our predictions. It has been delayed the launch and production levels have been delayed a little bit, but it in no way tampers our enthusiasm and optimism with the revenue potential that unit is. In fact, I have got my numbers, Stan has got his number, but I would be surprised if we couldn't generate $750k-1 million in revenue in the third quarter from our HD sales based on what we have on the books already. As I said before, the FirstVu HD is truly the leader of that market. It's a Body-Worn market. And I think we are seeing our channel move more into that direction."

Additionally, DGLY recently received two patents and one is very important to this discussion. The second patent relates to remote transmitters worn by law enforcement personnel in the field. This patent application covers, among other features, on-board storage of recorded data to insure that no evidence is lost when law enforcement officers are away from their vehicles.

While I am not a patent attorney, this patent by description seems to me relevant to what TASR and DGLY are doing with their new product.

On the last conference call, there was an exchange between an analyst and DGLY CEO Stan Ross on the patents:

George Whiteside - SWS Financial Services

"My next question involves your patents, Stan had indicated that you have challenged some competitors who began using some of your "technology" and now that there has been an award, will that allow you to perhaps get some type of settlement fee, license, etcetera?"

Stan Ross - Chairman and Chief Executive Officer

"Yes, George, this is Stan. I mean, I think there is two avenues, those that you put on notice that they were a violation, you actually can go after them in regards to damages that may have occurred from that point going forward. I mean, that's one of those things you put them on notice. The ones that are continuing or have a product that's similar to ours that want to and if we elect to allow them to continue down that path, they need to be talking to us concerning some type of royalty to continue to draw that way or otherwise they need to be taking their product off the market or in the situation we will definitely call them on the carpet and have the coach to do so. And they were strong, I mean, I know of one or two in particular worthy competitors that are out there that will not like these moves at all."

DGLY also has a line of products they call event recorders and they recently received the second largest order in their history. The order will be shipped to a major ambulance service provider that delivers emergency medical services throughout the Midwestern United States.

"This order for 250 of our DVM-250 series of Video Event Recorders will increase the safety and security of Emergency Medical Technicians ("EMTs") and patients in our customer's Midwestern service area," stated John Rumage, Director of Commercial Sales at Digital Ally, Inc.

CFO Tom Heckman said of this new product on the last conference call,

"The commercial market is developing nicely. As I said before, we are expanding beyond the ambulance market. We are pretty much saturated at the ambulance market. There is not many of the bigger players that we haven't got units in or will be getting units into. The likely candidates are we've got a couple of pilot projects going out in cabs, taxicabs throughout several larger cities in the U.S., some limos. And quite recently, we have got an opportunity to outfit the City Public Works Department of a pretty sizable, around midsize city. So, that seems to be an open market for us that we should have the product to answer their needs. So, I am very optimistic the commercial market will continue to develop."

Here is a picture of the event recorder from the DGLY website:

As far as financials, for the first half of 2013, DGLY Total revenue increased 17% to $9.8 million, versus total revenue of $8.4 million in the first half of 2012. Non-GAAP adjusted net income improved to $700,014, or $0.33 per diluted share, versus a non-GAAP adjusted net loss of ($335,261), or ($0.17) per share, in the year-earlier period.

"The turnaround in our operating results in the first quarter of 2013 continued into the second quarter, and we are pleased to report that our net profitability for the first half of the year improved by approximately $1.8 million, or $0.86 per diluted share, when compared with the first half of last year," stated Stanton E. Ross, Chief Executive Officer of Digital Ally, Inc. "On a non-GAAP basis, our adjusted net income improved by 286% in the most recent quarter, to $306,462, or $0.15 per diluted share, compared with non-GAAP adjusted net income of $79,411, or $0.04 per diluted share, in last year's second quarter."

As far as future growth,

Stan Ross, DGLY CEO stated, "We continue to have one of the most aggressive new product development programs in our industry, which we believe will benefit our shareholders in the second half of 2013 and in future years," continued Ross. "We are particularly enthusiastic about the prospects for our new FirstVU HD body camera in the law enforcement field and our DVM-250 and DVM250Plus event recorders, which are designed to meet the safety and security needs of commercial fleets such as ambulances, taxis, utility vehicles, and shuttle bus operators. Whenever practical, we seek to protect our product and technological innovations by expanding our intellectual property portfolio, and we were pleased to recently announce the receipt of two new U.S. patents for our core product line.

"Overall, we were pleased with our operating results during the first half of 2013, and the outlook for the balance of the year is promising. We have 'right-sized' our manufacturing and expense infrastructure for the current market environment, and we believe the Company is well-positioned to benefit from substantial operating leverage when revenue levels increase," concluded Ross.

Risks include the ability to gain market penetration with these products, as well as competition. However, with $750,00-$1 million in backlog right after launch, it appears they are getting traction. If it becomes true what the TASR CEO said that this product will become standard equipment for all police officers, then that is a big enough market for more than one company to be successful in. In fact a judge in New York recently ordered police to wear these cameras.

DGLY has done $0.33 in adjusted EPS for the first half of 2013 and said the second half looks promising. If they were to conservatively have no growth and replicate those results in the second half of 2013, they would record $0.66 in adjusted EPS. If I apply the TASR forward growth P/E of 32 to this, you would have a DGLY share price of $21.12. Combine that with the company having restructured themselves to leverage higher sales, and to me the future for DGLY has strong potential. Lastly, with only 2.1 million shares outstanding, DGLY could receive more attention once they are known to be competing against the TASR product.

Source: Why Digital Ally Inc. Could Double When Compared To Taser International Inc.