Digital Ally(DGLY) - 2024 Q1 - Quarterly Report

Revenue Performance - Total net revenues for Q1 2024 were $5,529,351, a decrease of 28.2% compared to $7,697,190 in Q1 2023[186] - Video Solutions segment revenue decreased to $1,718,293 in Q1 2024 from $1,899,364 in Q1 2023, reflecting a decline of 9.5%[186] - Revenue Cycle Management segment revenue fell to $1,434,598 in Q1 2024 from $1,781,590 in Q1 2023, a decrease of 19.5%[186] - Entertainment segment revenue decreased significantly to $2,376,460 in Q1 2024 from $4,016,236 in Q1 2023, a decline of 40.9%[186] - Total revenues for the three months ended March 31, 2024, were $5,529,351, a decrease of $2,167,839 (28%) compared to $7,697,190 in 2023[197] - Product revenues decreased by $887,964 (36%) to $1,565,846 for the three months ended March 31, 2024, from $2,453,810 in 2023[195] - Service and other revenues decreased by $1,279,875 (24%) to $3,963,505 for the three months ended March 31, 2024, from $5,243,380 in 2023[196] Profitability and Loss - Total operating loss for Q1 2024 was $3,639,034, an improvement from a loss of $6,172,806 in Q1 2023[186] - The company reported a net loss of $3,943,268 for Q1 2024, compared to a net loss of $5,979,579 in Q1 2023[189] - Operating loss decreased by $2,533,772 (41%) to $3,639,034 in Q1 2024 from $6,172,806 in Q1 2023, with operating loss as a percentage of revenues improving to 66%[208] - Net loss attributable to common stockholders was $3,931,020 in Q1 2024, a decrease of $2,174,798 (36%) from $6,105,818 in Q1 2023[220] Efficiency and Cost Management - Gross profit margin for Q1 2024 was 27.6%, compared to 20.1% in Q1 2023, indicating improved efficiency[189] - Gross profit margin improved to 28% in Q1 2024 from 20% in Q1 2023, driven by a reduction in cost of revenue from 80% to 72%[197] - Operating loss decreased to (66)% of total revenues in Q1 2024, compared to (80)% in Q1 2023[197] - Cost of service revenue decreased by $1,413,039 (37%) to $2,438,259 in Q1 2024, with service revenues as a percentage of service revenues improving from 73% to 62%[201] - Selling, general and administrative expenses decreased by $2,554,865 (33%) to $5,162,732 in Q1 2024 from $7,717,598 in Q1 2023[205] - Research and development expenses totaled $487,466 in Q1 2024, down $447,473 (48%) from $934,939 in Q1 2023, focusing on new body-worn camera products[205] Assets and Liabilities - Identifiable assets decreased to $45,164,195 as of March 31, 2024, down from $47,028,809 as of December 31, 2023[186] - Debt obligations increased to $7,278,860 as of March 31, 2024, compared to $6,113,750 as of December 31, 2023, reflecting a significant rise in financial leverage[226] - Total undiscounted minimum future lease payments amount to $1,159,779, with total operating lease liability at $975,678 as of March 31, 2024[226] - Debt obligations maturing in 2024 are $2,402,188, with long-term debt obligations totaling $4,875,831 as of March 31, 2024[226] Inventory and Reserves - Reserves for obsolete and excess inventories were $4,486,389 as of March 31, 2024, slightly down from $4,542,461 at the end of 2023[200] - The reserve for excess and obsolete inventory represented 59% of the gross inventory balance at March 31, 2024, up from 54% at December 31, 2023[242] - Total inventories decreased to $3,148,689 as of March 31, 2024, from $3,845,281 at December 31, 2023, indicating a reduction in stock levels[242] - Finished goods balances decreased by 12% to $4,670,553 as of March 31, 2024, from $5,322,693 at December 31, 2023[242] Cash Flow and Capital Needs - Cash, cash equivalents, and restricted cash increased to $1,025,461 as of March 31, 2024, up from $778,149 at December 31, 2023[224] - Net cash used in operating activities decreased to $918,545 in Q1 2024 from $1,216,876 in Q1 2023, a decrease of $298,331[225] - The company anticipates needing to restore positive operating cash flows and/or raise additional capital in the short term to fund operations[222] Other Financial Metrics - Interest expenses rose to $648,567 in Q1 2024 from $5,664 in Q1 2023, primarily due to interest charges and amortization of debt[210] - Gain on extinguishment of liabilities increased to $682,345 in Q1 2024 from $0 in Q1 2023, reflecting improved negotiation of payables[213] - The company's warranty reserves increased to $20,529,000 as of March 31, 2024, compared to $17,699,000 as of December 31, 2023, due to newer products gaining a longer history of claims[251] Strategic Developments - The company has diversified its product offerings with the introduction of ThermoVu™ and Shield™ lines in 2020[179] - The revenue cycle management segment has completed four acquisitions since its formation in 2021, enhancing its service capabilities[181] - Historical bad debts for the video solutions segment were negligible, with less than $258,000 charged off as uncollectible on cumulative revenues of $248.0 million since 2006[238] - The company has fully reserved all of its deferred tax assets, increasing the valuation allowance by $7,410,000 to a total of $41,610,000 as of December 31, 2023[256] - The company has no recorded liability as of March 31, 2024, representing uncertain tax positions[257] - Inflation has not materially affected the company during the past fiscal year, and the Entertainment Segment is expected to generate higher revenues in the second half of the calendar year[260]