Digital Ally Inc (DGLY) 2010 Q4 法說會逐字稿

Hello, and welcome to the Digital Ally Inc year-end conference call. All participants will be in listen-only mode. There will be an opportunity for you to ask questions at the end of today's presentation.

Earlier today, Digital Ally Inc issued a press release that included certain cautionary language with respect to forward-looking statements. The Company would ask you to review the language in the press release regarding forward-looking statements, as they are equally applicable to any forward-looking statements made during this conference call.

(Operator Instructions) Please note, this conference is being recorded.

Now I would like to turn the conference over to Stan Ross. Mr. Ross?

Thanks, Amy. Thanks, everybody, for joining us today. I have Tom Heckman, our CFO, with us today. He will do quite a bit of a recap on 2010, and some of the high points, some of the adjustments that were made, in regards to the balance sheet as far as tax issues. And also point out some very positive steps that we had made in the latter part of the year, that we will emphasize here in the call.

Tom's going to do more of a recap, and as many of you know, on our third-quarter call we sat there and explained how the 2010 year continued to look very soft, and we were going to make the appropriate steps so that we could get Digital Ally back to profitability. That being said, in January we also had a call, and we started to illustrate some of those moves that we have made. Also pointing out, that we had identified over $4 million that we believe in adjustments and savings that we would be able to reflect in 2011.

What you will see here in, I guess basically recapping 2010, unfortunately is old news. As when we move into the first quarter, and as it is almost over, and what we have in our call there, the moves that we've made, and the savings that we were able to implement will be very clear, and the second quarter will show that as well.

So I think what I'll do is, Tom, we'll go ahead and let you do the recap, and then we'll touch on some of the highlights as soon as Tom is done.

Thank you, Stan. And I welcome everyone to today's conference call. I would like to remind you that we did file our Form 10-K this morning, which is a more complete analysis of our financial results and operations for 2010. And I would encourage everyone to get a hold of that and review it for that complete analysis.

First of all, it was a disappointing year in 2010, obviously, from a financial standpoint. What overshadowed that was a $4.3 million non-cash charge that we took in Q4, representing an increase in our valuation allowance against our deferred tax assets. I know that's a lot of accounting jargon, but basically what we've done is, based on our recent operating losses, we're not assured of realizing our net operating loss carry-forwards for tax purposes. Because of that, we went ahead and reserved 100% of those, so there is no deferred taxes on our balance sheets, which is basically a receivable from the government or the IRS, in terms of future refunds or what have you against operating income.

What that means is, in 2011, and until we have demonstrated a consistent pattern of operating income, we will show no income tax expense in quarters and years that we have income. Nor will we show a benefit in quarters and years that we have losses, until those deferred taxes are restored. So basically, it is a non-cash charge that was taken for conservative purposes, to reduce our balance sheet, and the receivables from our operating loss carry-forwards for tax purposes.

Looking at the P&L for 2010, what happened, it exposed some of our weaknesses, and we believe we have addressed those weaknesses. Let me walk down the P&L, and talk about that. First of all, sales declined 4.4% from 2009 to 2010, even though we had a sluggish US market because of the recession, and problems with state and local budgets, our domestic sales actually increased 5% for the year. We are actively addressing some of our weaker sales territories and sales agents as we speak, and we will make adjustments to improve our operations in the marketing side in certain territories.

The drop in sales is primarily from our foreign sales. Now I will remind you that in the fourth quarter of 2009, we shipped a $3.3 million order to Turkey. If that had shipped in 2010, or we had another similar sale in 2010, our foreign sales would have been up. So it was a matter of one sale that occurred in 2009, a very large sale, that did not recur in 2010. What that tells you is that our day in and day out foreign business really improved in 2010 over 2009, but for that large shipment to Turkey.

What we're doing in relation to that is, we're more realistic in terms of our forecast. As we stated in our previous conference calls, we're adjusting our production forecast to eliminate any forecast for foreign sales until they actually occur. We are having to quote longer lead times on those sales and RFP's that are in for foreign delivery, but based on the amount of inventory we have right now, we're able to fill most of those orders if they would occur anyway.

What it also exposed was, that we are too dependent on our law enforcement customers, which in turn, are dependent upon state and local budgets, and the health of that, and in particular, DVMs themselves, the digital video mirrors for law enforcement. What we have done to address that concern is, number one, we've developed and launched the DVM 250, our event recorder. That gets us out of the law enforcement arena, and more into the fleet operators, the taxi cabs, ambulance companies, fire departments, anybody with a fleet of vehicles would be a logical customer for our DVM 250. And hopefully, you guys have seen our press release this morning. We have actually had a notable sale to a large ambulance operator here in the United States. So we believe that that will improve our revenue forecast for 2011, and that the DVM 250 will be a contributor to our revenues.

To get away from just the DVMs being sold to law enforcement, we've developed and are now marketing the Thermal Ally, which is a thermal imaging camera, a night vision camera. We also have the Laser Ally, which is state-of-the-art LIDAR system for speed detection and enforcement, and we also have the FirstVU, which is a body-worn camera. So we've expanded our products significantly, and what we've done is given our salesmen a much larger toolbox to go out and actually make sales to law enforcement customers. So we feel very good about our new products, and that that will help our revenues in 2011 and beyond.

One other weakness that was pointed out is our gross margin pressure. Our gross margin has dropped to 48% in 2010, from 51% in 2009. We're experiencing mild pressure on pricing, our retail pricing, not significant, but it is there. What we looked at was our cost side, the cost of manufacturing and distributing our products. And what we found was that we had built the infrastructure in our production and manufacturing side to support a $40 million, $50 million, maybe even $60 million forecast in production cycle, which has not occurred, and did not occur in 2010.

So we looked at it, and really restructured our production from top to bottom. Let me give you some numbers. Ending the third-quarter 2010, we had 37 people in our production and distribution side. As of today, we have 13. So we have massively reduced our headcount there. And really, primarily in the area of indirect management.

We've eliminated, obviously the VP of Manufacturing is no longer there, and all of indirect management, or a large majority of indirect management that was in place. Purchasing now reports directly to me. So I have overall control of the purchasing and PO's that are issued, and can really determine where we are, cash-flow-wise in terms of that.

Production and quality control now reports to Steve Phillips. And the benefit of that is that engineering changes, engineering problems, production problems, now it's more of a seamless communication effort between what's happening on the production line and engineering, so it seems to be (inaudible) very well. Just the indirect cost savings of taking out that middle management over in production is going to save us over a $0.5 million in 2011, a significant savings obviously.

Attendant to that is, we are increasing our outsourcing of component parts, both foreign and domestic, to contract manufacturers. We realize we cannot be efficient doing everything from A to Z, in producing at a $24 million, $26 million level, which is what our current forecast is for the domestic market. The downside of that is, it is going to take us a quarter or two in 2011, to burn off some of the old inventory that was produced in 2010, before we'll see significant gross margin increases due to that.

The next area was SG&A expense. SG&A expense increased 5% from 2009 to 2010. Obviously, not a good situation when your sales declined almost the same. So we looked at top to bottom, the SG&A costs we had. We reduced six headcount, almost 10% of our administration, engineering, and sales support staff. So we have taken headcount out, as well as other costs.

Let's look at those costs. In engineering, we have reduced or suspended several outside contractors that we're using on some longer-term projects. Some of the resources that are in engineering are now diverted to production management and quality control, so they're doing double duty, if you will. And then we have actually delayed or reduced some of our longer-term products that would not impact our 2011 revenues. So engineering has contributed a significant amount of savings from those areas.

Sales and support; we looked at that. We've reduced sales and support staff by four, and we've looked at primarily the international area. We reported previously that we hired a international sales manager over in the UK. We have since changed that person to more of a distributor relationship with the Company, so he is no longer a payroll drain on us. So we've done that.

Also, we've looked at some of our non-productive trade shows. What I am talking about is, we attended over 250 trade shows worldwide in 2010. We've looked at those, not all of them are as productive as some, so we've taken a pretty good look at those, and tried to cull out some of the less efficient trade shows that we're attending.

From the international side, we've really developed a good system of international distributors, and we're allowing them to do their business. We're not doing as much direct sales internationally, as we have been in the past, and relying more on the international distributors.

From an administrative standpoint, we've already reported that all the officers and directors have taken an across-the-board 30% decrease in cash compensation. We reduced one officer, Director of Manufacturing position has been -- our Vice President of Manufacturing position has been eliminated. Other cost reductions, in terms of -- we have done some things in our IT department and our communications costs and that. In total, we believe that our cost containment and reduction efforts will yield over $2 million in annual savings in the administrative side alone.

Overall, our cost reduction plan that we announced in January 2011 have been implemented as of this date. The early results that we're seeing is, that we may even exceed the $4 million that we previously announced. I am very proud of what our VPs and Stan has done, in terms of stepping up to the plate, if you will, and taking cost reductions, and taking costs out of the business. And I expect the investors to see that as 2011 unfolds.

Our balance sheet remains strong, but it is showing some stress. We have $10.7 million in positive working capital, which is very positive for us, very good position; $10 million of that is in inventory, obviously too high. We're trying to convert that to cash. Early results are that we are reducing inventory significantly, and I anticipate that trend to continue.

AR, accounts receivable, is $4.8 million at the end of the year. We see very little collection problems in that, as most of those receivables are domestic. Law enforcement agencies, it just takes time to collect those sometimes. So we don't see any major risk in our AR, and we should convert those to cash shortly.

You will notice in our balance sheet, that we do have $1.5 million outstanding on our line of credit. Unfortunately, that line of credit does come due in June 2011. It was renewed in June 2010 for a one-year period. It is a challenge, and we realize that to renew or replace that line at maturity -- we're actively shopping for a new bank, as well as discussing with our current bank. Unfortunately, based on our recent operating losses, that will be a challenge because of the capital requirements on banks these days. We'd prefer to pay the line off -- the current balances on the line off through cash flows from operations, as well as a reduction of inventory and receivables as we go.

All in all, in stockholders' equity we have $12 million of equity, over $11 million of net tangible net worth, which is a very strong position. We intend to improve our liquidity position throughout 2011.

Again, financially speaking, 2010 was disappointing. We've learned from those problems, and we think we've addressed each and every one of those, and we look forward to a good 2011.

That concludes the remarks I have prepared, and I would be happy to answer questions in the Q&A session. Thanks, Stan.

You bet. Great job, Tom. Again, a couple of things there. I know this is recapping the past, and it is good to do that, so that we know what the future may hold. And let me try to give you a little insight to what the future may hold for us. As we have stated, and we continue to believe, that our domestic business when it comes to law enforcement, in-car video systems, we believe will stay consistent, and still hit a number somewhere around the $24 million mark for the year. We feel very good about that. We have a tremendous amount of agencies that continue to buy our product, reload up on our product. And that alone, with the $4 million savings that we have talked about, should put us back into a situation where we're profitable.

So now how do we improve on this even more? We do think that we have done some savings side that may exceed the $4 million number, but just play with that, and leave it at the $4 million number in there. The top side now comes in with the new products. We're not going to flat give you any guidance, but I can throw out some numbers, and you can back into it. And that is that, the remainder of 2011, we're pretty much committed to buy right at 1,000 LIDARs. That is the speed detection unit that we have. It is, by far, the most superior laser radar that's out there on the market. It has capabilities of doing that no other units are capable of doing, such as the jamming features, the non-detection features. It is just a superior unit.

We're currently selling that unit for roughly $3,000. So let's assume that we can sit there, and sell everything that we are making. There is roughly a $3 million number that you could add to the current domestic DVM sales, in regards to law enforcement.

We also have the DVM-250. Again, that's the incident recorder that we've talked about. We also announced earlier today, a very large agency, or I should say an operator, that has already bought a few of these systems, I think 65 is the number that they -- their opening order. They have well over 1,800 vehicles in total, the company. And that's just an example of several clients that we're talking about. So again, I think that -- it would be -- we believe that to sell a few thousand of these is fairly easy, as well. So if you sit there and look at the LIDAR, and just the DVM-250, and the domestic market alone, you get back up to around a $30 million number. Now that we're running a lot more lean and efficient, again, that ought to show up on the bottom line.

I will tell you, which is the wild card, and always has been the wild card, is the international market. We have started receiving some more calls, and actually started shipping a few units abroad again. So I know Ken has worked very hard. A matter of fact, just got back from China, which they were at a trade show. They have a lot of stuff going on in the Middle East. Our existing customers in Turkey have came and visited with us again. So we may see 2011 surprise us with some additional international orders that would put us at a very healthy growth, far as 2010 over 2011.

So I know this is -- 2010 was painful. It was painful for us, but we did make the right moves and decisions early in the game, so that they're all been implemented at this point in time. A few of them will -- the costs associated with those moves will show up in the first quarter, but second quarter ought to be lean and mean, and really show you what all we've accomplished here in the last few months.

Amy, I think we'll go ahead and open this up for Q&A.

Okay.

(Operator Instructions).

Our first question comes from Jim Stone at PSK Advisors.

Good morning, gentlemen.

How are you doing, Jim?

Okay. I am calling, asking really, what flavor can you give us of what's happening domestic? 5% doesn't seem that strong of growth. I should think that, that market would have been recovering. And of course you have lost a competitor. So wonder if you can tell us a bit about what you see there? And what the factors are that are controlling the growth in the basic domestic police market?

Jim, what we're seeing right now, it appears to be about the same as what we experienced in 2010. We're going to see a little bit of growth there, I think just because departments that have bought a few units from us in the very beginning, now are very pleased with the units, and will start placing larger orders to outfit the rest of their fleet. So that natural occurring growth will still be there for us. One of the things that we are doing as well, is we have looked at some of our marketing efforts, in regards to the agents that we have out there, and the amount of territory that they're having to cover. And we're finding that there are still a lot of spots, just because of the sheer size of their territories that maybe additional reps there could be some room for, that would allow to us pick up more business. And all in all, I am not looking for a lot of domestic growth with in-car video. What I think we'll see though, is a desire for the LIDAR, and maybe the body-worn cameras. So we'll still be able to go back to our existing customers, but it will be a situation where it is going to still take a little healing for those municipalities to come around like they were a few years ago.

But I am still trying to get a better understanding of what the market, what's happening in the marketplace, that you can't pick up some of the sales that would have gone to your competitor?

Jim, we actually are. You're correct on that. I mean, they didn't have any big numbers obviously, is why they ended up eventually going under. But yes, that business, we are starting to pick that up. We're working with some of the departments in ways, that they may be able to dispose of their products that they have, that they acquired earlier on. So we are getting some of that business.

Okay. And are most of the municipalities still sitting on the money? Or are they -- what flavor can you give us of how the basic market, is either enlarging or staying flattish, whatever?

I think they're still spending it. As they get it, they're spending it. Again, a lot of this money comes from grants, and there is a lot of grant money out there. So they're seeing it. But I am I am not comfortable in stating that it looks to be a 12%, 15% type of improvement. If we can sit there and have another year of 5% of domestic growth, with the amount of cuts that we've made in savings, I am going to be very pleased with our numbers. And then you have the new products come in, it's going to be -- it will be a really good year for us in 2011. But I sure -- I am not dependent, nor is the Company just going to set there and hope for the economy to come back around, at least as far as the municipal, but just enough stuff to allow to us have the ability to grow.

Our next question comes from Marcel Herbst at Herbst Capital Management.

Good morning.

Good morning.

If I understand the situation with your new LIDAR product correctly, you cannot start rolling it out in all markets until 200 LIDARs have been processed by IACP tested by highway patrol. And I understand that this process is not in your control, but do you have an estimate by when this testing is complete, and how many LIDARs have been tested to date?

I mean, I think we're real close. I mean, if not, I bet we're within 30, 60 days of them being completed. So we can really I can kick out a lot larger numbers. So they're close.

Okay. And also going back to the market, there has been a great deal of publicity regarding cutbacks and spending by state and local governments due to lower tax revenues. Have you seen an impact upon your monthly run rate of orders this year so far, from domestic law enforcement agencies because of it?

I don't want to sit there, and just single out a single quarter, but at this point, we went -- Tom, correct me if I'm wrong, but domestic market averaged somewhere around the 6 million mark for the last six quarters. And the in -- the orders that were still, new orders that are coming in, the departments that were sending out bids seem to be pretty consistent. So I don't know that we have seen any change one way or the other, as of yet.

Okay. That sounds good. What level of one-time charges should we expect to see in Q1 based on your recent round of cost cutting?

Yes. We're in the $200,000 neighborhood for total severance costs and that. About 50,000 of that occurred prior to year end, so my best estimate is around $150,000, $160,000 will hit first quarter of 2011.

The next question comes from Sam Bergman at Bayberry Asset Management.

Are you there, Sam?

Okay. We'll move onto Joey Feske at K M Capital.

Hi, Stan.

Hi, Joey.

Sorry about Kansas.

Appreciate that.

I know a couple years ago, we brought on Ashcroft, and part of that was to help us penetrate some of the government market, which is definitely lucrative. And of course, as we all know they're still paying bills. To diversify out of the municipality market and -- what progress are we making in the DHS, like department of Homeland Security and such, to get another revenue stream from a fully funded entity?

We have started selling small quantities into the Homeland Security, and that particular network, let's say. And a lot of the agencies are trying out the FirstVU. That body camera is a product that has a lot of sex appeal to their industry. And so we have started -- we definitely have got our foot in the door, and they are starting to evaluate our products.

But that body camera, we're -- if we would get some type of order from that department, that's not a small order, am I right?

Correct. They would be ordering in large quantities.

Okay. My last question is what about institutional support? I know with all of your restructuring, you probably have been on the street talking to some institutions about coming in, and buying into the long-term changes you're making to the -- just the structure of the Company, and how it operates going forward. Are you finding people interested out there at this level, and --

Joey, actually we haven't been hitting the streets very hard lately, because I mean the bottom line, we haven't really lived up to what our expectations have been to everybody. So I mean, I think what we need to see is, is the first quarter numbers need to get out there. And then maybe even the second quarter numbers, and then it will be real clear that we're back on track, we know what we're doing, we know how to get back to a profitability. And then it's going to make sense to spend the money and go out there, and really get in front of the institutional guys. I think what they would do right now, is they would be in more of a wait and see mode, than they would really be jumping in and looking at giving us coverage, or taking a position in it. So we really haven't been hitting the street that hard, but we do look forward to when we're going to be able to.

Sounds great. You all have a good one. Thanks.

Thanks, Joey.

Your next question comes from Mariusz Skonieczny at Classic Value Investors.

Good morning, guys, how are you?

Good, Mario, how are you?

Good. I have a couple of questions. The first thing I want to say is, about the DVM-250. One thing I want to say, congratulations on finally getting this product out. I know it has been a challenge, and investors have been waiting for this for quite some time. And specifically me, I am very happy to see that it's finally done, and you guys are ready to make some shipments, and make some money. So I am very happy to hear that.

Thank you. We're quite pleased as well.

Yes. So just to recap, you were trying to get this product out for quite some time. And last week I spent a few minutes talking with Steven, just to get an idea what was holding you up. And from what I understand, is you originally had it in the development stage in 2008. And then you had to stop the development for various reasons, and you picked it back up at the end of 2009 and early 2010. So which means that if you are done right now, you completely revamped features over the last year. Am I correct on this?

You are correct. We were able to really add a lot of features, that make this 250 quite robust. I mean, honestly, it could probably -- doesn't have as strong of back office, as what our law enforcement units do. But it has a tremendous amount of features that you will see us, bringing up to the forefront and even adding on a few additional stuff that will be very attractive to the every day user, that's just interested in having the 250 in their vehicle just for their own safety protection.

Right. And now you have been saying that you already have received some good feedback from potential customers about this product?

We have. We have got cab companies that are currently -- have the units in their vehicles, testing them and evaluating them. Obviously, the Company that we have already started shipping to, is a very large ambulance provider and operator, one of the largest in the country. They seem to be very pleased. So right now we're getting really good response, and we even have a few of these units that we went ahead, and some of our international distributors are demonstrating for some folks.

Our next question is from George Whiteside at SWS Financial Services.

Good morning, Stan.

Good morning, George.

In regards to the sales, if I understood you to say that, if you could have sales on a quarterly basis of roughly $6 million, that, that would return you to profitability? Is that a fair assumption?

That is correct.

And we certainly hope that, that does develop. In regard to international sales, I know you made a comment about that. There had been a remark about $3 million order. When do you expect any results from that order? Well, we actually shipped that a little over a year ago. You're talking about the Turkey order that we sent. And they have been very pleased with the product, and we're -- the distributor was actually back here visiting with us, concerning the continued lines, the DVM-500, 750, and also getting well trained on the DVM-250, as he sees a lot of applications for it as well. So they are very active. They seem to have some money over there. I wouldn't be surprised to hear them, or see them place an order yet this year.

Our next question comes from Charles Neuhauser, Mainwall Investment Management.

Hi. My question is, do you anticipate generating cash from working capital this year?

Yes. We're -- this is Tom, by the way. Our inventory is too high. No secret about it. We're over $10 million of inventory at the end of the year. We're going to bring that down substantially. And I hope that that's apparent at the end of the first quarter. The problem with purchasing, and that is, you turn the spigot on the off now, it takes a little while for it to slow up. But we are seeing the impact of that, and I think that it will be apparent as the quarters unfold in 2011. I think primarily from that standpoint, the inventory will (inaudible) substantially, and create good cash flow for us.

So if your line of credit, and you're into your line of credit for a $1.5 million, you have $10 million of inventory, you just said you're going to reduce it substantially, it sounds to me like you could pay off that line of credit, with just shipping the existing inventory out the door?

That's our intention. We have $5 million or so in finished goods, that are waiting for customers to order. So, yes, that's our plan to convert finished goods to cash very quickly, and use that to pay off the line, and get that behind us.

Our next question comes from Sam Bergman at Bayberry Asset Management. Mr. Bergman, you may go ahead with your question. Okay. I guess we'll move onto [Jeffrey Scott], at Scott Asset Management.

Good morning.

Good morning.

I'm -- the -- I'm looking -- I haven't found the same number in the 10-K. In the 10-Q for September, you reported sales returns and allowances of $619,000 for nine months versus $157,000 for the nine months of 2009. What were the numbers for all of 2010, and why was there such a huge difference?

Yes, the sales returns for 2010 were eight -- a little over $800,000, compared to $1.7 million in 2009. There was some returns --

$1.7 million?

Yes, for 2009.

For all of 2009?

All of 2009, so it came down substantially, over half. Primarily those, the sales returns are returns for credit. And they're either upgrading to the DVM-750, or downgrading to the 550 primarily, so that's where that's coming from.

The what?

Those are primarily customers that are upgrading from the DVM-550 to the 750, or downgrading from the 750 to the 550. So those are generally customers trading up or trading down. In certain cases, we're even taking competitors models as trade-ins, to clear that and open up orders. So it is a combination of all of that.

The next question comes from Jim Stone at PSK Advisors.

Wonder if you care to discuss, in the little village I live in, which is [Dobbs Ferry], I hadn't realized it until after it was over, but they went out and bought video for the police cars. I think we have somewhere between six and ten cars, and you folks did not win. Are you familiar with that, so I can get your side of the story?

Actually, I am not familiar with that particular bid that was out there. Sometimes I know, on some of the smaller communities, they have a relationship maybe with a rep or someone and they can negotiate directly. I don't know if that was a public bidding.

It was a public RFP. I think it went out somewhere between six and 10, he told me, and I forgotten it, because it was awhile ago, but if you want to call me, we can talk more about it off line.

That -- I am just not familiar with it. Unfortunately Ken McCoy is out of town today, and he has got some work he is doing out on the West Coast, but I am sure he would maybe have been able to address that particular situation.

I am happy to discuss with you why they said it went to somebody else, but I don't need to do that over an open line.

Not a problem. We would love to visit with you about it. Thank you.

Give me a whistle.

Okay.

Our next question comes from Marcel Herbst at Herbst Capital Management.

Just to follow up on your timeline for implementing cost savings initiative, by when do you expect to achieve this $6 million a quarter break-even type-ish level? Would we see that in Q2 or Q3, or when is that happening?

Tom, you can jump in, but I think everything should be fully implemented and quite visible in full effect by Q2.

Yes. What I would add to that is, on the cost side they're implemented and in place now. We have those implemented. There is some carryover cost in the first quarter 2011, but on the cost side, the second quarter should be pretty pure of any costs from that. Now what I will preface that by saying, the inventory we have on the shelf was built in 2010, and therefore the cost structure in 2010 applies there. That's going to take a quarter or two, maybe even into the third quarter, before we see the full impact of the lower cost structure in production. So the gross margin is a little harder to predict, but as of now, on the cost side SG&A and overhead and in production, has already been implemented, and we're seeing good results of that.

Well, that sounds excellent. Now, in regards to the inventory, did I hear you right, that you mentioned you had already made some significant progress in the first three months of this year to reduce that inventory?

Yes. We're not closed obviously for the quarter, since today is the last day, but the preliminary information I am seeing show that is we are reducing inventory. And I can tell you since buyers and purchasing are reporting directly to me, that the spigot has turned off, that we have slowed, if not stopped, the in -- bringing in inventory that is in excess of our current needs. So we have a handle on buying and purchasing. It is a matter of sales at this point, that we can burn off the inventory that's sitting on the shelf. I said before that we had $5 million of finished goods. We actually have almost $6.5 million of finished goods at the end of the year sitting on the shelf. So we got a quarter or two to burn that off for sure.

Okay. Good. On the last call, you mentioned that your largest DVM 250 competitor [Red Cam] has sold 100,000 event recorders so far, but without a timeframe, this is really hard to understand what this means for us. How many units do they sell in a typical year, and what kind of market share does it represent?

If you are talking about DriveCam, I can't tell you. There is not a lot of good statistics out there, public data, in terms of the whole market. That company has been around for quite some time, is really a pioneer in this area, so that's the accumulation of sales over a number of years, maybe as much as eight or ten years. I really don't know when they started business, but they are the gorilla in this industry.

Their model is a little different, or actually quite a bit different than ours. They go after the ongoing service revenue, and they apply a monthly charge that is significant, and require a two or three-year commitment from the customers, which is not a small charge, and I don't know exactly what it is, but it is probably more than $50 and less than $150 a month. So you can see that, that amount of service charge would add up over time. And our customers are commenting that they much prefer our model, where we sell them the product with the back office. And that back office, they can use for whatever purpose they want, in terms of storage, and retrieval, and reviewing data. So the early information we're getting back from our potential customers is they love our model, and we stack up very nicely against DriveCam, based on how they're selling their product.

Yes. The one thing I am noticing, too is, it appears that the industry, and I mean -- when you get the insurance companies are really starting to get behind a product like this. I think American Family already advertises a reduction in rates, for your kids that are just learning to drive, if they have a unit similar to this in their vehicle. So the industry looks like it is coming to us, and I think our timing is going to be pretty good on this product.

Our next question comes from Mariusz Skonieczny at Classic Value Investors.

Yes. One more question I have on this $1.5 million credit line that's coming due, and did you say in June or July?

It is in June of 2011.

Right, so ideally you would pay it off, as you just answered one of the questions from cash flows. And but now let's say, you cannot pay it off with cash flow. Can you guys go out and possibly get another credit line, like an asset-based credit line using inventory as collateral?

We're an active discussions and negotiations with several other banks, as well as asset-based lenders. I feel fairly confident that we'll be able to move that thing to a new bank if we need to, or to an asset based lender. The issue will be the terms and such, but as of now I feel fairly confident about that, yes.

And Mario, I think even like a lot of the banks we were able to -- that the current ones we're talking to, we were able to layout and show them the mistakes that we made, and why we made them. And we can give them a little bit more insight to what the Company looks like, it's going to do here in 2011 with the cost savings that we have implemented, and some of the other new products and stuff. So therefore, there is actually quite a few banks and lending institutions that have been calling upon us. We haven't had to hit the street very hard, for them to be coming and wanting to visit with us.

Right. Right. Okay. So considering the fact, that you guys are pretty optimistic about what the future holds, and some of the investors like myself share the same feelings, in the past several months ago, we have seen some of the insiders like Tom buy some stock. Now that the quiet period is over, are we going to see some more of you guys coming up to the table and putting your hard-earned money on the line?

This is -- so that you know, this is always the one time of the year that, very seldom does a window ever open for us, because we're well over -- I mean we're a day away from the first quarter being completed. So this is the time of the year where the window, like I said very seldom, I don't know that we've ever had in the past history had it open, to where we could take advantage of anything. Usually it's after the second, third, and fourth -- the second and third quarter, is where the window really opens for us.

So right now it is not open?

It is not open.

Okay. All right. Thank you very much. I have no -- no further questions.

All right. Thank you.

Our next question comes from George Whiteside at SWS Financial.

Stan, as a follow-up to your comments on the LIDAR system, and the fact that you're approaching the finish of the evaluation program, what -- where are the International Chiefs of Police Association, in terms of the possibility of an endorsement?

I don't know that they do that. Basically what you get is, that it is it meets the standards that they sign off on. I don't think they ever get behind an endorsement, other than just stating that the recommendations or the specs that they have outlined and they recommend, this product meets. And that being said, I think we have already got the initial one. It is just what they want to do, is make sure that there is some consistency, so they require the first 200 systems to basically go through their department. Now we were able to, and as you know, we have converted some systems to the metric. And we're able to send those up to Canada, and those did not need to go through the IACP and get their approval.

That's very significant.

Yes. It is a very -- again, it is another very nice market that we'll be able to get into. It's starting to get a little foothold up there.

Excellent. And you made various comments, not only on this call, but in previous calls in terms of international sales. My recollection is there was a -- pending order for not -- not a pending order, but an order and it is not being fulfilled at the moment, in terms of Brazil and perhaps other countries in Central and South America?

That's correct. That's correct. We actually had a purchase order that was quite sizable, that we had last year, early last year, and their funding never came through. And they have contacted us stating that sorry for all the delays and everything else, and they still have a very high interest in having our units being installed down there. And we stand ready to help them. We're just not going to be having a bunch of inventory setting around waiting for their money to come around.

Well, that's totally understandable, I mean you got to run the business, so you can't afford to carry excess inventory, and that is perfectly reasonable. You would think that say, Brazil with its initiatives in terms of aids, that they would have come up with the money, but I understand there is politics involved. Thank you.

Thank you, George.

The next question comes from Jeffrey Scott at Scott Asset Management.

My follow-up. It is March 31st. Can you give us some indication of the range of revenue for the first quarter?

We don't want to get into starting to do that right now, Jeffrey.

Okay. It is March 31st, and we're getting a result for December 31st. We can't hang around until June 30th for the first quarter. Can you give us a date, on which you will release a first quarter results?

Jeffrey, this is Tom. It will be similar to last year's timing. I can't give you exact date. We haven't set it yet, but it will be similar to last year, which I think was around the last week of April, first week of May.

It will clearly be out before what we are anticipating being our annual shareholders meeting, I think we're shooting somewhere around the 24th of May for that, so it'd clearly out quite a bit before that. Hopefully we can get it out by the end of April.

Okay. I am not hearing, I think the sense of urgency that I would expect. I am feeling more than a bit uncomfortable. And I think you owe it to the shareholders to get information out sooner rather than later. And I'd certainly would push for as fast as release as possible, and if it is not the filing of a Q and a conference call, at least a press release, in terms of salient ranges, in terms of range of revenue that's going to be reported, and range of inventory of levels that's going to be reported. So I would just throw that out, and say it would be very, very helpful to us. Thank you.

I agree, and I actually will agree with you on that. We're very proud of some things that we have been able to implement. And we would like to get that out on the street sooner than later. So we will be expediting the first quarter numbers as fast as we can.

Thank you.

Our next question comes from Marcel Herbst at Herbst Capital Management.

Just a quick follow-up on your main product line. How large was the estimated market share in 2010?

And again, that is such a tough one. We're like the only ones out there, that are publicly held that report, so it's just really hard to get our arms around it. We know that L-3 is still the by far the biggest ones that are out there, the COBANs and WatchGuard, from what we hear through the rumor mill, were, they had comparable years to what we did. So probably, I don't know $180 million, $200 million was probably the magic number, maybe a little larger.

Okay. That's fair enough. I understand it is hard to get this type of information. On the last call you mentioned that you are taking steps to improve the quality of your distributor list, and I was wondering what have you done so far in the quarter to make that happen?

A couple of things, one of the things we're starting to do is, is just a little bit tighter rope on some of the reps that are out there, and the management by bringing in a regional sales manager, that will have a -- be over several of the independent reps that we have, which will also have better control over the sub-agents that are occasionally that are out there as well. So I think what we're doing is because of the new products that we have, that are coming out, we can sort of expect a little bit more. It is not like there is a one-trick pony, and you had to give them a large territory, because there is just only so many people that can buy, And now you have a lot of departments, and we have a much larger and broader product line, so they can sell that -- virtually every one of those departments probably have a need for one of our products. So we're tightening it up by adding a few more reps, tightening it up by having a little bit supervision on them, and definitely putting some expectations out there, as far as numbers that we will expect them to meet, or we will be looking for a different people to step in.

Excellent. Thank you.

Thank you.

(Operator Instructions).

We show no further questions at this time. I would like to turn the conference back over to Mr. Ross for any closing remarks.

Well again, I just want to thank everybody for their time today. This was a call that we needed to get out there, and get the numbers behind us, so that we can set there and really focus on 2011. And as we indicated and have stated very strongly, we feel that the necessary cuts have been made for this Company to get back to profitability based upon our core business. And hopefully we will continue to see a lot of interest in our new products and the international markets will pick back up, and 2011 will be a very good year for us. So thank you all for your time. And if you do have any further questions, and we're capable of giving you those answers, feel free to give us a call here at our offices. Thank you very much.

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