The company believes its revenues in the fourth quarter 2016 continued to be negatively impacted by Taser's misleading press release, the reexamination of its patent commenced by Taser with the USPTO and its product quality control issues.
Gross profit was $148,807 (4% of revenue) in the fourth quarter 2016, versus $1,563,647 (31% of revenue) in the fourth quarter of 2015. In the fourth quarter 2016, the company scrapped approximately $570,000 of inventory, most of which related to its FirstVU HD product and its product quality issues.
The company also increased its reserve for obsolete inventory by approximately $485,000 in fourth quarter 2016 due to the implementation of newer versions of PCB components, making previous versions excess or obsolete and higher levels of used or trade-in inventory and items requiring refurbishment.
The company said, "we entered 2017 with a strong balance sheet and liquidity, which should be able to support a higher level of product sales and shipments if anticipated orders are forthcoming. Unrestricted cash and equivalents totaled $3.9 million at December 31, 2016, and we had approximately $11.7 million in net working capital available at the end of 2016, including $2.5 million of accounts receivable and $9.6 million of inventory. Our goal is to reduce inventory levels during 2017 to provide additional funding for operations."
However, the company also said, "We were disappointed to report revenues for the year ended 2016 that decreased 17% from the year prior, even though we saw an increase in our service-based revenues in 2016. We are concentrating on expanding our recurring service-based revenue to help stabilize and grow our revenues on a quarterly basis. We are pursuing several new market channels that do not involve our traditional law enforcement and private security customers. If successful, we believe that these new market channels could yield increased recurring service revenues for us in 2017 and beyond.
Following these results, shares of DGLY are down over 14% at $3.95/share pre-market.