2020 was an interesting year, to say the least! With a pandemic, economic disruptions, and political tensions we all had a great many uncertainties to traverse. We had no idea in April if headphones would be a priority for home-bound people, but they were. As a result sales showed a 2.9% decline and a marked shift to direct sales that increased our margins. Our expenses decreased due to a focus on production efficiency and a decrease in rent and overhead and taken together with the extra margin from direct sales allowed us to retire more than 90% of our outstanding debt, materially improving our cash flow. While we posted an increased operating loss for 2020 this is a direct function of accrual revenue recognition timing rules rather than a change in the business. In summary, with steady sales, increased margin, reduced overhead, and decreased debt our financial and operating position is considerably improved entering FY 2021.
2020 highlights include:
1) Goss sales were down 2.9% relative to the prior year, despite the effects of the pandemic on the business and the broader economy.
2) On December 20 we announced ÆON Noire, which has been so popular it has been in backorder since introduction
3) Positive press continues and we’ve received a number of additional awards for product excellence from the audio trade press
4) Our operating overhead has improved materially from 2019 with lower rents and increased operating efficiency
5) Our PPP round 1 loan has qualified for forgiveness and our application is in process; this will be accounted for in the 2021 books once forgiveness is finalized
6) Of the two standard loans detailed in our prospectus, one was paid off in full and the other now has a balance of just $18,193 which we expect will be paid in full in March 2021. This will provide continuous cash-flow benefits in 2021 relative to 2020
7) New product development has benefited from increased investment resources derived from our equity crowd-funding, and several new products and patent filings are in process
The following numbers are our final, unaudited, 2020 results. Net sales were $1,897,488, a decrease of 2.9% from CY 2019. DCA uses accrual accounting and revenue can not be recognized until product has shipped. Unfortunately, pandemic-driven supplier and logistics delays affected DCA’s December production causing most December orders to be shipped in early January, and while the sales occurred in 2020 the revenue must be recognized in 2021. For this reason while sales were only off 2.9% from 2019, total Income declined 15.3% to $1,687,883 and we posted a Net Loss of $143,573. The flip side is that since the revenue is recognized in 2021 we’re off to a great start for the new year!
As the percentage of our revenue derived from direct sales increased so did our margin, and as a result our cash position and balance sheet improved materially. On the cash-flow side we have retired one of the commercial loans we held prior to our StartEngine campaign and have a balance of just $18,193 on the second, which we expect to pay off in March. Our PPP loan qualified for forgiveness and when this is processed we will have retired 100% our existing debt, increasing cash flow for operations and freeing us to explore future loans should we desire.
Major pandemic effects included:
1) Having to figure out how to distribute production to allow employees to build product from home with minimal staff in our facility. The good news is we successfully developed a distributed production model that will allow us to smoothly continue production regardless of office/work mandates we can reasonably anticipate.
2) A literal inversion of shopping trends. In 2019 the majority of revenue came through the retail channels, in 2020 the majority of revenue was direct. Pre-pandemic sales days were best on weekends, during the pandemic weekdays became our strongest sales days. Summer sales are historically our slowest but June, July, and August 2020 saw major jumps in revenue relative to 2019 and posted some of the best monthly results of the year, while fall and early-holiday sales were unusually weak, though late December sales were exceptionally strong
3) Significant supply-chain and air and ocean freight logistics disruptions created late deliveries from suppliers which delayed many of our December shipments and also caused delays in product launches, affecting our 2020 financials due to accrual revenue recognition rules
Due to the unpredictable nature of the pandemic it is impossible to forecast 2021 and we can make no representations about the 2021 outlook.