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CORRESP
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    Unassociated Document

    June 26,
2009

      Mr. Larry
Spirgel

      Division
of Corporation Finance

      U.S.
Securities and Exchange Commission

      100 F
Street, N.E.

      Washington,
D.C. 20549

    Re:          Digital Ally,
Inc.

    Form
10-K for the Fiscal Year Ended December 31, 2008

    Filed
March 10, 2009

    Form
10-Q for the Quarterly Period Ended March 31, 2009

    File
No. 001-33899

      Dear
Mr. Spirgel:

    We have
reviewed your May 22, 2009 comment letter (the “Comment Letter”) regarding the
Form 10-K for the fiscal year ended December 31, 2008 (the “Form 10-K”) and
the Form 10-Q for the quarterly period ended March 31, 2009 (the “Form 10-Q”) of
Digital Ally, Inc. (the “Registrant”).  On behalf of the Registrant,
we submit this response letter.   For your convenience, we have
provided our responses below in a question and answer format.  Your
original comment is provided below in bold text, followed by our
response.

    Form 10-K for the fiscal
year ended December 31, 2008

    Management’s Discussion and
Analysis of Financial Condition and Results of Operations

    General

              1.

              Please
      discuss how the-following items may impact current and future
      results:

              ·

              changes
      in credit lines;

              ·

              credit
      availability;

              ·

              parties
      with which you have credit lines;

              ·

              whether
      existing credit lines have matured or been
  called;

              ·

              whether
      backup credit lines are available;

              ·

              the
      ability to raise capital in a realistic evaluation of your current
      financial situation.

    In
future filings we will include the recommendations of the Staff in Management’s
Discussion and Analysis of Financial Condition and Results of Operations
(MD&A).  This addition will appropriately address the Staff’s
concerns as well as any other appropriate conditions.

              2.

              Provide
      a robust discussion of your prospects for 2009 in a section on trends
      after considering the impact of the economic situation in the 4th
      quarter of 2008 and the 1st
      quarter of 2009.  Please remember that there are two assessments
      that you must make where a trend, demand, commitment, event or uncertainty
      is known:

        Page 1 of
16

                ·

              Is
      the known trend, demand, commitment event or uncertainty likely to come to
      fruition?  If you determine that it is not reasonably likely to
      occur, no disclosure is required;
and,

              ·

              If
      you cannot make that determination, you must evaluate objectively the
      consequences of the known trend, demand, commitment, event or uncertainty,
      on the assumption that it will come to fruition.  Disclosure is
      then required unless you determine that a material effect on the
      registrant’s financial condition or results of operations is not
      reasonably likely to occur.  Please note that “reasonably
      likely” is a lower threshold than “more likely than not” but a higher
      threshold than “remote.’  The concept of “reasonably likely” is
      used in the context of disclosure for MD&A purposes and is not
      intended to mirror the tests in SFAS 5 established to determine when an
      accrual is necessary, or when disclosure in the footnotes to the financial
      statements is required.

    Please
address the above and include the following in your discussion as
well:

              ·

              The
      impact of changes in products;

              ·

              Any
      known trends or uncertainties that have had or that you reasonably expect
      will have a material favorable or unfavorable impact on net sales or
      revenues or income from continuing
operations;

              ·

              If
      events that are likely to cause a material change in the relationship
      between costs and revenues, the change in the relationship should be
      disclosed; and

              ·

              To
      the extent there is a material increase in net sales, discuss the price
      versus volume mix (whether the overall increase is attributable to
      increases in prices or increases in the volume of goods and services being
      sold).

    In
future filings we will include the recommendations of the Staff in a new section
in Management’s Discussion and Analysis of Financial Condition and Results of
Operations (MD&A) that discusses our prospects for 2009 including any known
trends, demands commitments or uncertainties.  This addition will
appropriately address the Staff’s concerns as well as any other appropriate
conditions.

    Result of
Operations

              3.

              Your
      discussion regarding results of operations should not consist ‘merely of
      numeric dollar and percentage changes measured from period to period of
      various line items on the income statement. You should address the
      underlying reasons for changes in the price versus volume mix. For
      example, if sales declined because the volume of goods sold decreased by
      20%, but this was offset by a 10% increase in price, the discussion in
      MD&A should not stop once it identifies the price and volume
      components. In this example, the underlying factors that contributed to
      the decline in volume as well as the increase in selling prices should
      also be discussed. The focus should be on an analysis of the factors that
      caused these changes to occur, in providing this analysis, you may find it
      helpful to include a discussion of key variables and financial measures
      management is utilizing in managing the business. These variables may be
      non-financial in nature or may represent industry,
      specific metrics. Furthermore, MD&A should fully explain the results
      of operations. For

        Page 2 of
16

              example,
      MD&A should not merely state that the increase in revenues and costs
      of revenues is due to a significant acquisition. Rather, the contribution
      of the recent acquisition to total revenues should be quantified to the
      extent possible, and any increase or decrease in the underlying revenues
      of the pre-existing business should then be
  addressed.

    In response to the Staff’s comment,
we will include the recommendations of the Staff by revising our MD&A to be
included in future Form 10Q and 10K filing.  These revisions will
appropriately address the Staff’s concerns as well as any other appropriate
conditions.

    For the Years Ended December
31, 2008 and 2007

    Operating
Expenses

    Sales Commissions, page
25

              4.

              Please
      explain your statement regarding the increased expense being attributable
      to paying a commission for sales to an international customer. Please tell
      us to whom the commission was paid and discuss the detail. Expand
      disclosure in future filings and provide us with your proposed
      disclosure.

    The
commission is being paid to the specific international distributor who had
cultivated the relationship with the customer and was previously selling our
product to the customer.  In an effort to reduce its overall costs,
the customer requested that it be permitted to purchase directly from Digital
Ally, Inc. rather than buy through the distributor. As part of the arrangement
we are paying a normal commission to our distributor based upon the sales to his
customer.

    In
response to the Staff’s comment, we will revise our MD&A to be included in
future 10K filings in the following manner:

    Sales
Commissions.  Sales commissions totaled $2,765,058 and
$1,333,394 for the years ended December 31, 2008 and 2007, respectively, an
increase of $1,431,664 (107%).  The increase in 2008 was commensurate
with the 68% increase in revenue experienced during the year ended December 31,
2008 compared to 2007.  Sales commissions as a percentage of total
revenues were 8.5% during the year ended December 31, 2008, a slight increase
from the 6.9% experienced in 2007.  The increased percentage is
principally attributable to a change involving our largest individual customer
during the third quarter of 2008.  This international customer began
to purchase directly from us on a commission basis, rather than from our
international distributor.  Previously, this customer was buying from
our distributor at his retail price and preferred to buy directly from us at
better pricing.  Because of the size of the customer we agreed to sell
directly to this customer.

    Liquidity and Capital
Resources page 26

              5.

              Discuss
      in detail why you have experienced increasing revenues and attained
      profitability in 2008 but also experienced a decline in cash flow from
      operations.

    In response to the Staff’s comment,
we will include the recommendations of the Staff by revising our MD&A to be
included in future Form 10Q and 10K filing.  These revisions will
appropriately address the Staff’s concerns as well as any other appropriate
conditions.

        Page 3 of
16

    In
general, the reason for the negative cash flow from operations relates to funds
used to increase inventory and accounts receivables during
2008.  Please refer to responses to Items 8 and 10 below regarding
increases in inventories and accounts receivable.

    Critical Accounting
Estimates, page 29

              6.

              Please
      note that an accounting estimate is recognized as a “critical accounting
      estimate” if:

              ·

              the
      accounting estimate requires you to make assumptions about matters that
      are highly uncertain at the time the accounting estimate is made;
      and

              ·

              different
      estimates that the company reasonably could have used in the current
      period, or changes in the accounting estimate that are reasonably likely
      to occur from period to period, would have a material impact on the
      presentation of your financial condition, changes in financial condition
      or results of operations.

    To
inform investors of each critical accounting estimate and to place it the
context of your financial condition, changes in financial condition and results
of operations, the following information is required:

              ·

              A
      discussion that identifies and describes the estimate, the methodology
      used, certain assumptions and reasonably likely
  changes;

              ·

              An
      explanation of the significance of the accounting estimate to your
      financial condition, changes in financial condition and results of
      operations and, where material, an identification of the line items in the
      your financial statements affected by the accounting
    estimate;

              ·

              A
      quantitative discussion of changes in line items in the financial
      statements and overall financial performance if you were to assume that
      the accounting estimate were changed, either by using reasonably possible
      near-term changes in certain assumption(s) underlying the accounting
      estimate or by using the reasonably possible range of the accounting
      estimate;

              ·

              A
      quantitative and qualitative discussion of any material changes made to
      the accounting estimate in the past three years, the reasons for the
      changes, and the effect on line items in the financial statements and
      overall financial performance;

    Sensitivity
analyses should provide a quantitative discussion of how changes in variables
will affect results rather than the blanket statements that you are calling
sensitivity analyses. Please revise. Please provide us with your proposed
disclosures.

    In response to the Staff’s comment,
we will revise the Critical Accounting Estimates section of our MD&A to be
included in future Form 10Q and 10K filing.  These revisions will
appropriately address the Staff’s concerns as well as any other appropriate
conditions.  We have enclosed as Exhibit A our proposed wording for
your consideration.

    Financial
Statements

    Note 1.  Nature of
Business and Summary of Significant Accounting Policies

        Page 4 of
16

    Revenue Recognition, page
F-7

              7.

              We
      note that you sell primarily through a network of unaffiliated
      distributors/sales agents and they have significant accounts receivable
      balances. Please tell us about your return policy and disclose it in
      future filings. If appropriate, please tell us your consideration of the
      guidance in SFAS 48.

    In
response to the Staff’s comment, our products are shipped FOB shipping point
(Grain Valley, Missouri) and there are no written or unwritten rights provided
to customers under which they can return the products for credit.  The
Company grants a two-year warranty for the product, which gives the customer the
right to return defective products for repair and or replacement
only.  We will revise our Revenue Recognition policy footnote to
disclose that no right of return exists.

              8.

              In
      order to evaluate the appropriateness of your revenue recognition
      accounting policy, tell us in detail the nature and terms of your
      relationship with both your distributors and sales agents. In your
      response address, among other factors, the
  following:

              ·

              Does
      the distributor act as a principal or as an agent in your relationship
      with you?

              ·

              Who
      do you consider your customer?

              ·

              Do
      you bill the ultimate customer or the
  distributor?

              ·

              What
      is the nature of the service the distributor provides to
    you?

              ·

              How
      do you compensate the distributor?

              ·

              Do
      you ship the merchandise directly to the
  customer?

              ·

              What
      are the credit terms and the return
policy?

              ·

              We
      note that you had an account receivable balance of $8,117,515 at March 31,
      2009 and revenues of $4,389,184 for the three months ended March 31, 2009.
      Therefore, it appears that your sales collections have been minimal. Tell
      in detail why. Tell us whether there is an oral or written agreement
      whereby the distributor can wait to pay you until the merchandise is sold
      to the end user.

    Considering
the nature of our comment, tell us in more detail why you believe that your
current revenue recognition accounting policy is appropriate. In your response
address your consideration to SFAS 48 and SAB 101, as amended by SAB
104.

    In
response to the Staff’s comment, we have separate and distinct relationships
between our independent sales agents that sell to domestic customers and our
international distributors that we treat differently for revenue recognition
purposes.  We will describe our relationship to each of these parties
separately:

    Independent Sales Agents
- We use independent sales agents for our US domestic sales
force.  These individuals generally carry other product lines and call
upon the law enforcement community to solicit sales of our products as well as
any other lines that they carry.  We receive purchase orders directly
from the law enforcement agencies and generally ship these from our warehouse to
the law enforcement agency.  The independent sales agent receives a
commission on each sale that he solicits, bears his/her own cost