Digital Ally(DGLY) - 2021 Q1 - Quarterly Report

Financial Performance - Total revenue for Q1 2021 was $2,535,829, a decrease from $2,798,291 in Q4 2020, reflecting a decline of approximately 9.4%[153] - Gross profit for Q1 2021 was $811,882, resulting in a gross profit margin of 32.0%, down from 43.0% in Q4 2020[153] - The company reported an operating loss of $2,865,693 for Q1 2021, compared to a loss of $1,749,174 in Q4 2020, indicating a worsening of operating performance[153] - Net income for Q1 2021 was $21,721,858, a significant improvement from a net loss of $321,318 in Q4 2020[153] - Total revenues for Q1 2021 were $2,535,829, an increase of $110,084 (5%) compared to $2,425,745 in Q1 2020[176] - Product revenues for Q1 2021 were $1,912,577, up $146,041 (8%) from $1,766,536 in Q1 2020, driven by new product lines generating over $141,309 in revenue[176] - Cloud service revenue increased to $241,653 in Q1 2021, a rise of $14,529 (6%) from $227,124 in Q1 2020[172] - Extended warranty service revenues decreased by $78,676 (24%) to $254,692 in Q1 2021 from $333,368 in Q1 2020[173] - Gross profit for Q1 2021 was $811,882, down $453,146 (36%) from $1,265,028 in Q1 2020, primarily due to increased inbound freight costs[182] - Operating loss increased by $938,325 (49%) to $2,865,693, with operating loss as a percentage of revenues worsening to 113% from 80%[190] - Net income improved by $24,055,968 (1,031%) to $21,721,858 for the three months ended March 31, 2021[197] Expenses and Costs - Total selling, general, and administrative expenses for Q1 2021 were $3,677,575, representing 145% of total revenues, an increase from 132% in Q1 2020[158] - Selling, general and administrative expenses rose to $3,677,575 in Q1 2021, an increase of $485,179 (15%) from $3,192,396 in Q1 2020[183] - Research and development expenses totaled $448,965 in Q1 2021, a decrease of $36,783 (8%) from $485,748 in Q1 2020[183] - Cost of product revenue increased by $572,063 (58%) to $1,561,310 in Q1 2021 from $989,247 in Q1 2020, attributed to higher inbound freight costs[177] - Total cost of sales as a percentage of revenues was 68% in Q1 2021, compared to 48% in Q1 2020, indicating a decline in gross margins[179] - Other selling, general, and administrative expenses increased by $751,222 (78%) to $1,715,119, mainly due to increased travel costs and insurance expenses related to COVID-19[189] - Professional fees and expenses decreased by $107,015 (32%) to $232,577 for the three months ended March 31, 2021, primarily due to the termination of the Axon lawsuit[187] - Executive, sales, and administrative staff payroll expenses decreased by $36,619 (5%) to $684,159, attributed to a reduction in technical support staffing due to the COVID-19 pandemic[188] Cash and Debt Management - The company has no off-balance sheet debt and recently acquired a commercial office building for approximately $5.3 million to support future operations[155] - Interest income rose to $41,686 from $6,263, reflecting increased cash levels and net proceeds of approximately $66.4 million from registered direct offerings[191] - Interest expense decreased significantly to $1,427 from $307,560, due to the elimination of most interest-bearing debt using proceeds from registered direct offerings[192] - Cash and cash equivalents increased to $67,626,240, up from $4,361,758 at December 31, 2020, with a net increase of $63,264,482 during the three months[203] - The company has outstanding debt obligations totaling $160,000, with maturities spread across 2021 to 2026 and beyond[215] Inventory and Reserves - As of March 31, 2021, the company had a reserve for excess and obsolete inventory of $2,388,256, representing 21.2% of the gross inventory balance[232] - The company reported a decrease in warranty reserves to $9,243 as of March 31, 2021, down from $31,845 as of December 31, 2020[237] - The company’s finished goods inventory increased by 17% to $8,128,666 as of March 31, 2021, compared to $6,974,291 at December 31, 2020[232] - The company’s total raw materials and component parts decreased by 1% to $3,141,836 as of March 31, 2021[232] Future Outlook and Strategy - The introduction of the EVO-HD, ThermoVU™, and Shield™ product lines is expected to help diversify and increase revenues in the law enforcement and commercial markets[152] - The company aims to increase recurring cloud and service revenues as part of its growth strategy[150] - Total revenue for 2022 was $184,145, an increase from $133,260 in 2021, while revenue for 2023 is projected at $184,241[215] - The company expects to maintain a full valuation allowance on net deferred tax assets until it can demonstrate a sustainable level of profitability[244] - The realization of deferred income tax assets is contingent upon generating sufficient taxable income in future periods[247] Market and Economic Conditions - The COVID-19 pandemic negatively impacted revenues from legacy products, particularly the DVM-250 Plus and DVM-800, while positively affecting sales of the Shield disinfectant and ThermoVU product lines[162] - Inflation has not materially affected the company during the past fiscal year[248] - The company typically generates higher revenues in the second half of the calendar year compared to the first half[248]