Digital Ally(DGLY) - 2024 Q4 - Annual Report

Revenue Performance - Total net revenues for the year ended December 31, 2024, were $19,650,802, a decrease of 30.4$28,248,344 in 2023[126]. - Video Solutions segment revenue decreased to $5,755,391 in 2024 from$7,471,285 in 2023, while Revenue Cycle Management segment revenue fell to $6,131,650 from$6,713,678[126]. - Entertainment segment revenue dropped significantly to $7,763,761 in 2024 from$14,063,381 in 2023[126]. - Total product revenues for the years ended December 31, 2024, and 2023 were $5,404,317 and$9,347,945, respectively, a decrease of $3,943,628 (42.2$3,406,928 in 2024, down from $5,044,576 in 2023, attributed to a focus on higher margin events[136]. - Video solutions operating segment revenues decreased from$4,303,369 in 2023 to $1,997,389 in 2024, impacted by increased competition and inventory shortages[136]. - Total service and other revenues for 2024 were$14,246,485, down from $18,900,399 in 2023, a decrease of$4,653,914 (25%) due to declines in entertainment and revenue cycle management segments[137]. Profitability and Loss - Gross profit for the total company was $5,489,332 in 2024, slightly down from$5,762,484 in 2023, with a gross profit margin increase to 28% from 20%[126][130]. - Operating loss for the total company was $(15,201,540) in 2024, an improvement from$(22,240,553) in 2023[126]. - Operating loss improved by $7,039,013 (31.6$15,201,540 for the year ended December 31, 2024, compared to $22,240,553 in 2023, with operating loss as a percentage of revenues improving to 77$21,715,725 for the year ended December 31, 2024, an improvement of $3,748,224 (15$25,463,949 in 2023[173]. - The basic and diluted loss per share improved to ($5.58) for the year ended December 31, 2024, from ($9.22) in 2023[180]. Expenses and Cost Management - Selling, general and administrative expenses decreased by $7,312,165 (26$20,690,872 in 2024, primarily due to reduced advertising expenses[148]. - Research and development expenses fell by $1,279,073 (49$1,339,673 in 2024, reflecting a strategic cutback in engineering staff and activities[149]. - Selling, advertising, and promotional expenses decreased by $4,993,035 (70$2,144,494 for the year ended December 31, 2024, compared to $7,137,529 in 2023[150]. - General and administrative expenses decreased by$5,870,057 (32%) to $12,376,705 for the year ended December 31, 2024, from$18,246,762 in 2023[151]. - Cost of service revenues as a percentage of service revenues improved to 58% in 2024 from 66% in 2023, indicating better cost management[143]. Inventory and Goodwill - The company recorded a reserve for excess and obsolete inventory in the Video Solutions segment of $2,037,252 in 2024 compared to$4,355,666 in 2023[126]. - Total inventories decreased to $2,586,066 as of December 31, 2024, from$3,845,281 in 2023, with reserves for obsolete and excess inventories at $2,169,655[209]. - Reserves for obsolete and excess inventories represented 46$4,322,000 for the revenue cycle management segment and $307,000 for the entertainment segment due to a decline in demand and economic uncertainty[153]. - The company performed an impairment test due to a decline in demand for services and a decrease in stock price, indicating a triggering event[218]. - The company recorded a non-cash impairment charge of$201,000 for a trade name/trademark in the entertainment segment, driven by economic uncertainty and performance decline[223]. - As of December 31, 2024, the company held goodwill of $5,480,966 for the revenue cycle management segment and$6,112,507 for the entertainment segment[221]. Cash Flow and Financing - Cash and cash equivalents decreased to $454,314 as of December 31, 2024, from$778,149 at the end of 2023, reflecting a net decrease of $323,835[182]. - Net cash used in operating activities improved by$4,779,120 to $5,114,718 for the year ended December 31, 2024, compared to$9,893,838 in 2023[182]. - Net cash provided by financing activities was $4,403,334 for the year ended December 31, 2024, down from$7,380,494 in 2023[183]. - The company had $454,314 in cash and cash equivalents and net negative working capital of$19,377,507 as of December 31, 2024[184]. - The company made matching contributions totaling $144,589 for its 401(k) plan for the year ended December 31, 2024, compared to$207,463 in 2023[191]. Other Financial Metrics - Interest income decreased to $69,509 for the year ended December 31, 2024, down from$95,717 in 2023, reflecting a decline in cash and cash equivalents[157]. - The company recorded a gain on the extinguishment of liabilities of $917,935 for the year ended December 31, 2024, compared to$550,867 in 2023[167][168]. - Total lease expense under the company's operating leases was approximately $627,212 during the year ended December 31, 2024[185]. - Total operating lease liabilities amounted to$718,509 as of December 31, 2024[186]. - Outstanding debt obligations totaled $5,102,526 as of December 31, 2024, with current maturities of$4,961,443 due in 2025[188]. - The company has fully reserved all deferred tax assets, increasing the valuation allowance by $4,680,000 to a total of$46,290,000 as of December 31, 2024[229]. - The fair value of the video solutions reporting unit was substantially in excess of its carrying value, while the revenue cycle management and entertainment segments were determined to be impaired[220]. - The weighted average cost of capital used in the most recent impairment test ranged from 18.3% to 21.3%[219]. - Inflation has not materially affected the company, and the entertainment segment is expected to generate higher revenues in the second half of the calendar year[233].