What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2021-11-19 compared with 2021-08-18 · 1145 added, 890 removed, 468 unchanged (81% of the section changed)

2 unchanged sentences

30, 2021 AND DECEMBER 31, 2020

June 30, 2021 (Unaudited)

Current assets:

Cash and cash equivalents

Accounts receivable-trade, less allowance for doubtful accounts

of $ 123,224 – June 30, 2021 and December 31, 2020

Other receivables

Inventories, net

Prepaid expenses

Total current assets

Property, plant and equipment, net

Intangible assets, net

Operating lease right of use assets, net

Liabilities and Stockholders’ Equity

and cash equivalents

receivable-trade, less allowance for doubtful accounts

and $ 123,224

– September 30, 2021 and December 31, 2020, respectively

expenses and other current assets

current assets

Property, plant and equipment,

Goodwill and other intangible

Operating lease right of use

and Stockholders’ Equity

Current liabilities:

Accounts payable

Accrued expenses

Current portion of operating lease obligations

Contract liabilities-current

Subordinated notes payable – current portion

Warrant derivative liabilities

Income taxes payable

Total current liabilities

portion of operating lease obligations

liabilities – current

Debt obligations

derivative liabilities

taxes payable

current liabilities

Long-term liabilities:

Subordinated notes payable – long term

Operating lease obligation, long term

Contract liabilities-long term

Total liabilities

obligations – long term

lease obligation, long term

liabilities-long term

Commitments and contingencies

Stockholders’ Equity:

Common stock, $ 0.001 par value per share;

Common stock, $ 0.001

par value per share;

shares authorized;

shares issued:

51,577,209 shares issued – June 30, 2021 and 26,834,709 shares issued – December 31, 2020

Additional paid in capital

Treasury stock, at cost ( 63,518 shares)

– September 30, 2021 and 26,834,709

– December 31, 2020

paid in capital

stock, at cost ( 63,518 shares)

( 2,157,226 )

Accumulated deficit

Noncontrolling

interest in consolidated subsidiary

( 65,606,330 )

( 90,014,500 )

Total stockholders’ equity

Total liabilities and stockholders’ equity

stockholders’ equity

liabilities and stockholders’ equity

Notes to the Unaudited Condensed Consolidated Financial Statements.

CONSOLIDATED STATEMENTS OF OPERATIONS

THE THREE AND SIX MONTHS ENDED

THE THREE AND NINE MONTHS ENDED

30, 2021 AND 2020

months ended June 30,

Service and other

Total revenue

Cost of revenue:

Service and other

Total cost of revenue

cost of revenue

Selling, general and administrative

and development expense

advertising and promotional expense

and administrative expense

selling, general and administrative expenses

Research and development expense

Selling, advertising and promotional expense

General and administrative expense

Total selling, general and administrative expenses

Operating loss

( 3,598,973 )

( 1,843,957 )

( 9,081,553 )

( 5,914,476 )

Other income (expense):

1 unchanged sentence

Interest expense

Secured convertible notes issuance expense

Gain on extinguishment of debt

Change in fair value of secured convertible notes

Change in fair value of proceeds investment agreement

Change in fair value of short-term investments

Change in fair value of warrant derivative liabilities

Total other income (expense)

Income (loss) before income tax benefit

Income tax benefit

Net income (loss)

Net loss per share information:

Secured convertible notes

issuance expense

Change in fair value of proceeds

investment agreement

Change in fair value of secured

convertible notes

( 1,300,252 )

Change in fair value of short-term

in fair value of warrant derivative liabilities

on extinguishment of debt

Income (loss) before income

( 2,304,562 )

tax benefit (expense)

income (loss)

( 2,304,562 )

loss attributable to noncontrolling interests of consolidated subsidiary

income (loss) attributable to common stockholders

$ ( 2,304,562 )

Net income (loss) per share

attributable to common stockholders’ information:

Weighted average shares outstanding:

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CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

THE THREE AND SIX MONTHS ENDED JUNE 30, 2021 AND 2020

Balance, December 31, 2019

$ ( 2,157,226 )

$ ( 87,388,619 )

THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

Noncontrolling

in consolidated

Stockholders’

December 31, 2019

$ ( 2,157,226 )

Stock-based compensation

Restricted common stock grant

Restricted common stock forfeitures

Issuance of common stock through registered direct offering at $3.095 per share and accompanying warrants (net of offering expenses and placement agent discount)

Issuance of common stock through registered direct offering at $3.095 per share and accompanying

warrants (net of offering expenses and placement agent discount), shares

Issuance of common stock through registered direct offering at $2.80 per share and accompanying warrants (net of offering expenses and placement agent discount)

Issuance of common stock through registered direct offering at $2.80 per share and accompanying

warrants (net of offering expenses and placement agent discount), shares

Exercise of pre-funded common stock purchase warrants at $3.095 per share

Exercise of pre-funded common stock purchase warrants at $3.095 per share, shares

Exercise of pre-funded common stock purchase warrants at $2.80 per share

Exercise of pre-funded common stock purchase warrants at $2.80 per share, shares

Issuance of pre-funded common stock purchase warrants in connection with the registered direct offerings

Issuance of common stock upon conversion of secured convertible notes and interest

Issuance of common stock through underwritten public offering at $1.65 per share (net of offering expenses and underwriters’ discount)

Issuance of common stock through underwritten public offering at $1.65 per share (net of offering

expenses and underwriters’ discount), shares

Issuance of common stock through underwritten public offering at $2.15 per share (net of offering expenses and underwriters’ discount)

Issuance of common stock through underwritten public offering at $2.15 per share (net of offering

expenses and underwriters’ discount), shares

Issuance of common stock upon exercise of common stock purchase warrants

Issuance of common stock upon exercise of common stock purchase warrants, shares

Issuance of common stock upon exercise of stock options

Issuance of common stock upon exercise of stock options, shares

Issuance of common stock purchase warrants in connection with issuance of secured convertible notes

Issuance of common stock through underwritten public offering (net of offering expenses and underwriters’ discount)

Issuance of common stock purchase warrants in connection with issuance of unsecured promissory note payable

Issuance of common stock purchase warrants at exercise price of $3.25 per share in connection with the registered direct offerings

Recognition of warrant derivative liability

$ ( 87,388,619 )

$ ( 6,317,379 )

Balance, March 31, 2020

common stock grant

of common stock for services rendered

of common stock for services rendered, shares

common stock forfeitures

of common stock through registered direct offering at $3.095 per share and accompanying warrants (net of offering expenses and placement

agent discount)

of common stock through registered direct offering at $3.095 per share and accompanying warrants (net of offering expenses and placement

agent discount) , shares

of common stock through registered direct offering at $2.80 per share and accompanying warrants (net of offering expenses and placement

agent discount)

of common stock through registered direct offering at $2.80 per share and accompanying warrants (net of offering expenses and placement

agent discount) , shares

of pre-funded common stock purchase warrants at $3.095 per share

of pre-funded common stock purchase warrants at $3.095 per share , shares

of pre-funded common stock purchase warrants at $2.80 per share

of pre-funded common stock purchase warrants at $2.80 per share , shares

of pre-funded common stock purchase warrants in connection with the registered direct offerings

of common stock purchase warrants at exercise price of $3.25 per share in connection with the registered direct offerings

of common stock upon conversion of secured convertible notes and interest

of common stock through underwritten public offering at $2.15 per share (net of offering expenses and underwriters’ discount)

of common stock upon exercise of common stock purchase warrants

of common stock upon exercise of common stock purchase warrants, shares

of common stock upon exercise of stock options

of common stock upon exercise of stock options, shares

of common stock purchase warrants in connection with issuance of secured convertible notes

of common stock as compensation for acquisition

of common stock as compensation for acquisition, shares

of common stock through underwritten public offering at $ 1.15

per share (net of offering expenses and underwriters’

of common stock purchase warrants in connection with issuance of unsecured promissory note payable

( 2,334,110 )

March 31, 2020

( 2,157,226 )

Stock-based compensation

Restricted common stock grant

Restricted common stock forfeitures

Issuance of common stock upon conversion of secured convertible notes and interest

Issuance of common stock through underwritten public offering at $1.65 per share (net of offering expenses and underwriters’ discount)

Issuance of common stock through underwritten public offering at $2.15 per share (net of offering expenses and underwriters’ discount)

Issuance of common stock upon exercise of common stock purchase warrants

Issuance of common stock upon exercise of stock options

Issuance of common stock purchase warrants in connection with issuance of secured convertible notes

Balance, June 30, 2020

( 89,722,729 )

( 4,473,510 )

common stock grant

common stock forfeitures

of common stock upon conversion of secured convertible notes and interest

of common stock through underwritten public offering at $ 1.65

per share (net of offering expenses and underwriters’

of common stock through underwritten public offering (net of offering expenses and underwriters’ discount)

of common stock through underwritten public offering at $ 2.15

per share (net of offering expenses and underwriters’

of common stock through underwritten public offering (net of offering expenses and underwriters’ discount)

of common stock upon exercise of common stock purchase warrants

of common stock upon exercise of stock options

of common stock purchase warrants in connection with issuance of secured convertible notes

June 30, 2020

( 2,157,226 )

Balance, December 31, 2020

( 90,220,623 )

common stock grant

of common stock for services rendered

September 30, 2020

$ 106,225,896

$ ( 2,157,226 )

Stock-based compensation

Restricted common stock grant

Restricted common stock forfeitures

Issuance of common stock through registered direct offering at $ 3.095 per share and accompanying warrants (net of offering expenses and placement agent discount)

Issuance of common stock through registered direct offering at $ 2.80 per share and accompanying warrants (net of offering expenses and placement agent discount)

Exercise of pre-funded common stock purchase warrants at $ 3.095 per share

Exercise of pre-funded common stock purchase warrants at $ 2.80 per share

Issuance of pre-funded common stock purchase warrants in connection with the registered direct offerings

$ ( 89,693,181 )

December 31, 2020

$ 106,501,396

Issuance of common stock purchase warrants at exercise price of $ 3.25 per share in connection with the registered direct offerings

$ ( 2,157,226 )

$ ( 90,014,500 )

Balance, March 31, 2021

common stock grant

common stock forfeitures

of common stock through registered direct offering at $ 3.095

per share and accompanying warrants (net of

offering expenses and placement agent discount)

of common stock through registered direct offering at $ 2.80

per share and accompanying warrants (net of

offering expenses and placement agent discount)

of pre-funded common stock purchase warrants at $ 3.095

of pre-funded common stock purchase warrants

of pre-funded common stock purchase warrants at $ 2.80

of pre-funded common stock purchase warrants

of pre-funded common stock purchase warrants in connection with the registered direct offerings

( 1,817,548 )

Stock-based compensation

of common stock purchase warrants at exercise price of $ 3.25

per share in connection with the registered

direct offerings

( 49,398,510 )

Balance, June 30, 2021

of common stock purchase warrants at exercise price in connection with the registered direct offerings

( 49,398,510 )

March 31, 2021

( 2,157,226 )

Notes to the Unaudited Condensed Consolidated Financial Statements.

CONSOLIDATED STATEMENTS OF CASH FLOWS

THE SIX MONTHS ENDED JUNE 30, 2021 AND 2020

Cash Flows From Operating Activities:

Net income (loss)

( 68,292,642 )

Adjustments to reconcile net income (loss) to net cash flows used in operating activities:

Depreciation and amortization

Stock-based compensation

Change in fair value of warrant derivative liabilities

( 5,382,487 )

Provision for inventory obsolescence

Gain on extinguishment of debt

Amortization of discount on unsecured promissory notes

Change in fair value of secured convertible notes

Change in fair value of proceeds investment agreement

( 5,382,487 )

Debt issuance costs

Change in operating assets and liabilities:

(Increase) decrease in:

Accounts receivable – trade

Accounts receivable – other

June 30, 2021

( 2,157,226 )

Prepaid expenses

Operating lease right of use assets

Increase (decrease) in:

Accounts payable

Accrued expenses

Income taxes payable

Operating lease obligations

Contract liabilities

Net cash used in operating activities

( 73,675,129 )

of common stock through registered direct offering and accompanying warrants (net of offering expenses and placement agent discount)

of common stock through registered direct offering accompanying warrants (net of offering

expenses and placement agent discount)

of common stock as consideration for acquisition

common stock grant

September 30, 2021

$ 123,968,757

Cash Flows from Investing Activities:

Purchases of property, plant and equipment

$ ( 2,157,226 )

Additions to intangible assets

Cash paid for business acquisition, net of cash acquired

Net cash used in investing activities

$ ( 65,606,330 )

Cash Flows from Financing Activities:

Proceeds from unsecured promissory note payable, related party

Proceeds from unsecured promissory note payable

Proceeds from promissory notes payable

Proceeds from issuance of common stock upon exercise of warrants

Proceeds from issuance of secured convertible notes payable

Proceeds from sale of common stock in underwritten public offering

Proceeds from exercise of stock options

Principal payment on subordinated notes payable

Principal payment on secured convertible notes

Principal payments on unsecured promissory note payable, related

Debt issuance costs

Notes to the Unaudited Condensed Consolidated Financial Statements.

CONSOLIDATED STATEMENTS OF CASH FLOWS

THE NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

Cash Flows from Operating

income (loss)

to reconcile net income (loss) to net cash flows used in by operating activities:

and amortization

on extinguishment of debt

based compensation

in fair value of warrant derivative liabilities

for inventory obsolescence

of discount on unsecured promissory notes

Change in fair value of short-term investments

in fair value of secured convertible notes

in fair value of proceeds investment agreement

for doubtful accounts receivable

of common stock for services rendered

Debt issuance

in operating assets and liabilities:

receivable – trade

receivable – other

tax refund receivable

lease right of use assets

(decrease) in:

taxes payable

lease obligations

cash used in operating activities

Cash Flows from Investing

of property, building and equipment

to other intangible assets

to investments

paid for Nobility Healthcare Division acquisition, net of cash acquired

paid for TicketSmarter acquisition, net of cash acquired

cash related to TicketSmarter acquisition

cash used in investing activities

Cash Flows from Financing

from issuance of common stock upon exercise of pre-funded warrants

Net proceeds from sale of common stock in registered direct offerings

Proceeds from issuance of common stock upon exercise of pre-funded warrants

Principal payment on subordinated notes payable

Principal payment on secured convertible notes

Net cash provided by financing activities

Net increase in cash and cash equivalents

Cash, cash equivalents, beginning of period

Cash, cash equivalents, end of period

Supplemental disclosures of cash flow information:

Cash payments for interest

Cash payments for income taxes

Supplemental disclosures of non-cash investing and financing activities:

Issuance of contingent consideration promissory note for business acquisition

Liabilities assumed in business acquisition

Restricted common stock grant

Restricted common stock forfeitures

Cashless exercise of common stock purchase warrants

Amounts allocated to initial measurement of warrant derivative liabilities in connection to the warrants and pre-funded warrants

Issuance of common stock upon conversion of secured convertible notes

Amounts allocated to common stock purchase warrants in connection with issuance of unsecured promissory note payable

Proceeds from unsecured promissory note payable, related party

from unsecured promissory note payable

from promissory notes payable

from issuance of common stock upon exercise of warrants

from issuance of secured convertible notes payable

from sale of common stock in underwritten public offering

from exercise of stock options

payment on subordinated notes payable

payment on secured convertible notes

payments on unsecured promissory note payable, related party

Debt issuance

payment on proceeds investment agreement

cash provided by financing activities

Net increase in cash and

cash equivalents

and cash equivalents, beginning of period

and cash equivalents, end of period

Supplemental disclosures of

cash flow information:

payments for interest

payments for income taxes

disclosures of non-cash investing and financing activities:

of contingent consideration earn-out agreement for business acquisition

of contingent consideration promissory note for business acquisitions

Assets assumed in business acquisitions

assumed in business acquisitions

stock issued as consideration for business acquisitions

common stock grant

common stock forfeitures

exercise of common stock purchase warrants

allocated to initial measurement of warrant derivative liabilities in connection to the warrants and pre-funded warrants

of common stock upon conversion of secured convertible notes

allocated to common stock purchase warrants in connection with issuance of unsecured promissory note payable

Notes to the Unaudited Condensed Consolidated Financial Statements.

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(with its wholly-owned subsidiaries, Digital Ally International, Inc., Shield Products, LLC, Digital Ally Healthcare, LLC,

collectively, “Digital Ally,” “Digital,” and the “Company”) produces digital video imaging, storage

products and disinfectant and related safety products for use in law enforcement, security and commercial applications.

The Company’s

products include, among others;

in-car digital video/audio recorders contained in a rear-view mirror for use in law enforcement and commercial

a system that provides its law enforcement customers with audio/video surveillance from multiple vantage points and hands-free

automatic activation of body-worn cameras and in-car video systems;

a miniature digital video system designed to be worn on an individual’s

TicketSmarter, Inc., and its majority-owned subsidiary Nobility Healthcare, LLC, collectively, “Digital Ally,” “Digital,”

and the “Company”) produces digital video imaging, storage products, disinfectant and related safety products for use in

law enforcement, security and commercial applications;

also offering revenue cycle management solutions, ticket resale marketplace, and

ticketing services.

The Company’s products include, among others;

in-car digital video/audio recorders contained in a rear-view

mirror for use in law enforcement and commercial fleets;

a system that provides its law enforcement customers with audio/video surveillance

from multiple vantage points and hands-free automatic activation of body-worn cameras and in-car video systems;

a miniature digital video

system designed to be worn on an individual’s body;

and cloud storage solutions.

The Company has recently added two new lines of branded products:

(1) the ThermoVu™ line, which

is a line of self-contained temperature monitoring stations that provides alerts and controls facility access when an individual’s

temperature exceeds a pre-set threshold and (2) the Shield™ disinfectant and cleanser line, which is for use against viruses and

bacteria and which we began offering to the Company’s law enforcement and commercial customers beginning late in the second quarter

The Company added two new lines of branded products:

(1) the ThermoVu ® line, which is a line of self-contained temperature monitoring stations that provides alerts

and controls facility access when an individual’s temperature exceeds a pre-set threshold and (2) the Shield™ disinfectant

and cleanser line, which is for use against viruses and bacteria and which we began offering to the Company’s law enforcement and

commercial customers beginning late in the second quarter of 2020.

Both product lines are manufactured by third parties.

In addition, the Company has active research and development programs

to adapt its technologies to other applications.

It can integrate electronic, radio, computer, mechanical, and multi-media technologies

to create unique solutions to address needs in a variety of other industries and markets, including mass transit, school bus, taxicab

and the military.

The Company sells its products to law enforcement agencies, private security customers and organizations, and consumer

and commercial fleet operators through direct sales domestically and third-party distributors internationally.

the Company has active research and development programs to adapt its technologies to other applications.

It can integrate electronic,

radio, computer, mechanical, and multi-media technologies to create unique solutions to address needs in a variety of other industries

and markets, including mass transit, school bus, taxicab and the military.

The Company sells its products to law enforcement agencies,

private security customers and organizations, and consumer and commercial fleet operators through direct sales domestically and third-party

distributors internationally.

Additionally, through our Digital Ally Healthcare, LLC subsidiary, the Company has expanded into the revenue

cycle management solutions field, helping provide working capital and back-office services to healthcare organizations throughout the

Lastly, through the Company’s recently formed TicketSmarter, Inc.

subsidiary, it has entered the online ticketing platform

through TicketSmarter.com, as a unique marketplace for buyers and sellers of tickets for live events throughout the country.

Company was originally incorporated in Nevada on December 13, 2000 as Vegas Petra, Inc.

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a fair presentation have been included.

Operating results for the three and six month periods ended June 30, 2021 are not necessarily

Operating results for the three and nine month periods ended September 30, 2021 are not necessarily

indicative of the results that may be expected for the year ending December 31, 2021.

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for the year ended December 31, 2020, and the unaudited financial statements and footnotes included in the Company’s quarterly

report on Form 10-Q for the quarter ended March 31, 2021.

report on Form 10-Q for the quarter ended September 30, 2021.

COVID-19 pandemic represents a fluid situation that presents a wide range of potential impacts of varying durations for different global

geographies, including locations where the Company has offices, employees, customers, vendors and other suppliers and business

geographies, including locations where the Company has offices, employees, customers, vendors and other suppliers and business partners.

most US-based businesses, the COVID-19 pandemic and efforts to mitigate the same began to have impacts on our business in March 2020.

By that time, much of our first fiscal quarter was completed.

During the remainder of 2020 and the first quarter of 2021, the

Company observed decreases in demand from certain customers, including primarily law-enforcement and commercial customers.

the Company are beginning to experience an increase in demand for the three months ended June 30, 2021, compared to the same period in 2020.

the fact that the Company’s products are sold through a variety of distribution channels, the Company expects its

sales will experience more volatility as a result of the changing and less predictable operational needs of many customers as a result

of the COVID-19 pandemic.

The Company is aware that many companies, including many of its suppliers and customers, are

reporting or predicting negative impacts from COVID-19 on future operating results.

Although the Company observed significant

declines in demand for its products from certain customers during 2020 and the first quarter of 2021, the Company believes

that the impact of the COVID-19 remains too fluid and unknown, hindering the Company from determining the long-term

demand for current products.

The Company also cannot be certain how demand may shift over time as the impacts of the COVID-19

pandemic may go through several phases of varying severity and duration.

of broader macro-economic risks and already known impacts on certain industries that use the Company’s products and services,

During the remainder of 2020 and the first quarter of 2021, the Company

observed decreases in demand from certain customers, including primarily law-enforcement and commercial customers.

However, the Company

is beginning to experience an increase in demand for the three months ended September 30, 2021, compared to the same period in 2020.

the fact that the Company’s products are sold through a variety of distribution channels, the Company expects its sales will experience

more volatility as a result of the changing and less predictable operational needs of many customers as a result of the COVID-19 pandemic.

The Company is aware that many companies, including many of its suppliers and customers, are reporting or predicting negative impacts

from COVID-19 on future operating results.

Although the Company observed significant declines in demand for its products from certain

customers during 2020 and the first quarter of 2021, the Company believes that the impact of the COVID-19 remains too fluid and unknown,

hindering the Company from determining the long-term demand for current products.

The Company also cannot be certain how demand may shift

over time as the impacts of the COVID-19 pandemic may go through several phases of varying severity and duration.

light of broader macro-economic risks and already known impacts on certain industries that use the Company’s products and services,

the Company has taken, and continue to take targeted steps to lower its operating expenses because of the COVID-19 pandemic.

The Company continues to monitor the impacts of COVID-19 on its operations closely and this situation could change based

on a significant number of factors that are not entirely within its control and are discussed in this and other sections of this

quarterly report on Form 10-Q.

The Company does not expect there to be material changes to its assets on its balance

sheet or its ability to timely account for those assets.

Further, in connection with the preparation of this quarterly report

on Form 10-Q, the Company reviewed the potential impacts of the COVID-19 pandemic on goodwill and intangible assets and have determined

there to be no material impact at this time.

The Company has also reviewed the potential impacts on future risks to the business

as it relates to collections, returns and other business-related items.

travel restrictions and border closures have not materially impacted its ability to obtain inventory or manufacture or deliver

continues to monitor the impacts of COVID-19 on its operations closely and this situation could change based on a significant number

of factors that are not entirely within its control and are discussed in this and other sections of this quarterly report on Form 10-Q.

The Company does not expect there to be material changes to its assets on its balance sheet or its ability to timely account for those

Further, in connection with the preparation of this quarterly report on Form 10-Q, the Company reviewed the potential impacts

of the COVID-19 pandemic on goodwill and intangible assets and have determined there to be no material impact at this time.

has also reviewed the potential impacts on future risks to the business as it relates to collections, returns and other business-related

date, travel restrictions and border closures have not materially impacted its ability to obtain inventory or manufacture or deliver

products or services to customers.

1 unchanged sentence

a way that would harm the business over the long term.

Travel restrictions impacting people can restrain our ability to assist

its customers and distributors as well as impact its ability to develop new distribution channels, but at present the

Company does not expect these restrictions on personal travel to be material to our business operations or financial results.

Company has taken steps to restrain and monitor its operating expenses and therefore it does not expect any such impacts

to materially change the relationship between costs and revenues.

most companies, the Company has taken a range of actions with respect to how it operates to assure it complies with

government restrictions and guidelines as well as best practices to protect the health and well-being of its employees and its

ability to continue operating its business effectively.

To date, the Company has been able to operate its business

effectively using these measures and to maintain internal controls as documented and posted.

The Company also has not experienced

challenges in maintaining business continuity and does not expect to incur material expenditures to do so.

However, the impacts

of COVID-19 and efforts to mitigate the same have remained unpredictable and it remains possible that challenges may arise in the future.

Travel restrictions impacting people can restrain our ability to assist its customers

and distributors as well as impact its ability to develop new distribution channels, but at present the Company does not expect these

restrictions on personal travel to be material to our business operations or financial results.

The Company has taken steps to restrain

and monitor its operating expenses and therefore it does not expect any such impacts to materially change the relationship between costs

and revenues.

most companies, the Company has taken a range of actions with respect to how it operates to assure it complies with government restrictions

and guidelines as well as best practices to protect the health and well-being of its employees and its ability to continue operating

its business effectively.

To date, the Company has been able to operate its business effectively using these measures and to maintain

internal controls as documented and posted.

The Company also has not experienced challenges in maintaining business continuity and does

not expect to incur material expenditures to do so.

However, the impacts of COVID-19 and efforts to mitigate the same have remained unpredictable

and it remains possible that challenges may arise in the future.

actions the Company has taken so far during the COVID-19 pandemic include, but are not limited to:

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employees stay segregated from other employees in the office with whom they require no interaction;

employees to wear masks while they are in the office whenever possible.

The Company currently

believes revenue for the year ending December 31, 2021 will still be impacted due to the conditions noted.

In April 2020,

unvaccinated employees to wear masks while they are in the office whenever possible.

Company currently believes revenue for the year ending December 31, 2021 will still be impacted due to the conditions noted.

2020, the Company implemented a COVID-19 mitigation plan designed to further reduce its operating expenses during the pandemic.

Actions taken to date include work hour and salary reductions for senior management.

taken to date include work hour and salary reductions for senior management.

These cost reductions are in addition to the significant

restructuring actions which the Company continues to implement and develop throughout 2021.

Based on the Company’s

current cash position, its projected cash flow from operations and its cost reduction and cost containment efforts

to date, the Company believes that it will have sufficient capital and or have access to sufficient capital through public

and private equity and debt offerings to sustain operations for a period of one year following the date of this filing.

If business interruptions

resulting from the COVID-19 pandemic were to be prolonged or expanded in scope, the business, financial condition, results of

operations and cash flows would be negatively impacted.

The Company will continue to actively monitor this situation and will

implement actions necessary to maintain business continuity.

Based on the Company’s current cash

position, its projected cash flow from operations and its cost reduction and cost containment efforts to date, the Company believes that

it will have sufficient capital and or have access to sufficient capital through public and private equity and debt offerings to sustain

operations for a period of one year following the date of this filing.

If business interruptions resulting from the COVID-19 pandemic

were to be prolonged or expanded in scope, the business, financial condition, results of operations and cash flows would be negatively

The Company will continue to actively monitor this situation and will implement actions necessary to maintain business continuity.

of Consolidation :

accompanying financial statements include the consolidated accounts of Digital Ally and its wholly-owned subsidiaries, Digital Ally International,

Inc., Shield Products, LLC , and Digital Ally Healthcare, LLC.

All intercompany balances and transactions have been eliminated during

consolidation.

accompanying financial statements include the consolidated accounts of Digital Ally, its wholly-owned subsidiaries, Digital Ally International,

Inc., Shield Products, LLC, Digital Ally Healthcare, LLC, TicketSmarter, Inc, and its majority-owned subsidiary Nobility Healthcare,

All intercompany balances and transactions have been eliminated during consolidation.

Company formed Digital Ally International, Inc.

3 unchanged sentences

line of temperature monitoring equipment.

The Company formed Digital Ally Healthcare, LLC in June 2021 to facilitate its new medical

billing division.

The Company formed Nobility Healthcare, LLC in June 2021 to facilitate the operations

of its revenue cycle management solutions and back-office services for healthcare organizations.

Lastly, the Company formed TicketSmarter,

upon its acquisition of Goody Tickets, LLC and TicketSmarter, LLC, to facilitate the global ticketing operations.

Recognition :

Company applies the provisions of Accounting Standards Codification (ASC) 606-10, Revenue from Contracts with Customers , and all

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than one year.

Company sells its products and services to law enforcement and commercial customers in the following manner:

to domestic customers are made direct to the end customer (typically a law enforcement agency or a commercial customer) through its

sales force, which is composed of its employees.

Company sells its products and services to customers in the following manner:

sales to domestic customers are made direct to the end customer (typically a law enforcement agency or a commercial customer) through

its sales force, which is composed of its employees.

Revenue is recorded when the product is shipped to the end customer.

to international customers are made through independent distributors who purchase products from the Company at a wholesale price

and sell to the end user (typically law enforcement agencies or a commercial customer) at a retail price.

sales to international customers are made through independent distributors who purchase products from the Company at a wholesale

price and sell to the end user (typically law enforcement agencies or a commercial customer) at a retail price.

The distributor retains

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is recognized upon shipment of the repair parts and acceptance of the service or materials by the end customer.

sales through the Company’s Nobility Healthcare subsidiary are driven through relationships with medium to large healthcare

organizations, in which revenue is recognized upon execution of services.

Through the Company’s TicketSmarter subsidiary, service

sales are driven largely in part to the usage of the TicketSmarter.com marketplace by buyers and sellers, in which the Company collects

service fees for each transaction.

taxes collected on products sold are excluded from revenues and are reported as accrued expenses in the accompanying balance sheets until

payments are remitted.

and other revenue is comprised of revenues from extended warranties, repair services, cloud revenue and software revenue.

recognized upon shipment of the product and acceptance of the service or materials by the end customer for repair services.

extended warranty, cloud service or other software-based products is over the term of the contract warranty or service period.

A time-elapsed

method is used to measure progress because the Company transfers control evenly over the contractual period.

Accordingly, the fixed consideration

related to these revenues is generally recognized on a straight-line basis over the contract term, as long as the other revenue recognition

criteria have been met.

and other revenue is comprised of revenues from extended warranties, repair services, cloud revenue, software revenue, revenue cycle

management services, and ticket marketplace services.

Revenue is recognized upon shipment of the product and acceptance of the service

or materials by the end customer for repair services.

Revenue for extended warranty, cloud service or other software-based products is

over the term of the contract warranty or service period.

A time-elapsed method is used to measure progress because the Company transfers

control evenly over the contractual period.

Accordingly, the fixed consideration related to these revenues is generally recognized on

a straight-line basis over the contract term, as long as the other revenue recognition criteria have been met.

with some of the Company’s customers contain multiple performance obligations that are distinct and accounted for separately.

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The Company minimizes this risk by

placing its cash deposits with major financial institutions.

At June 30, 2021 and December 31, 2020, the uninsured balance amounted to

$ 57,265,079 and

placing its cash deposits with numerous major financial institutions.

At September 30, 2021 and December 31, 2020, the uninsured balance

amounted to $ 38,152,409 and

$ 3,653,192 ,

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and considering a customer’s financial condition, credit history, and current economic conditions.

One individual customer receivable

balance exceeded 10 % of total accounts receivable as of June 30, 2021 and December 31, 2020, which totaled $ 287,000 or 32 % and $ 319,000

or 19 % of total accounts receivable, respectively.

One individual customer

receivable balances exceeded 10 %

of total accounts receivable as of September 30, 2021 and December 31, 2020, which totaled $ 558,729

and $ 319,000

of total accounts receivable, respectively.

receivables are written off when deemed uncollectible.

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No interest is charged on overdue trade receivables.

has determined that its operations are comprised of one reportable segment:

the sale of digital audio and video recording and speed detection

For the three and six months ended June 30, 2021 and 2020, sales by geographic area were as follows:

SUMMARY OF SALES BY GEOGRAPHIC AREA

Three Months Ended

Six Months Ended

Sales by geographic area:

United States of America

and Other Intangibles

- In connection with acquisitions, the Company applies the provisions of ASC 805, Business Combinations , using the acquisition

method of accounting.

The excess purchase price over the fair value of net tangible assets and identifiable intangible assets acquired

is recorded as goodwill.

In accordance with ASC 350, Intangibles - Goodwill and Other , the Company assesses goodwill for impairment

annually as of December 31, and more frequently if events and circumstances indicate that goodwill might be impaired.

has just recently completed several acquisitions that generated goodwill that will be subject to impairment testing for the first time

on December 31, 2021.

impairment testing is performed at the reporting unit level.

Goodwill is assigned to reporting units at the date the goodwill is initially

Once goodwill has been assigned to reporting units, it no longer retains its association with a particular acquisition, and

all of the activities within a reporting unit, whether acquired or internally generated, are available to support the value of the goodwill.

Traditionally,

goodwill impairment testing is a two-step process.

Step one involves comparing the fair value of the reporting units to its carrying

If the carrying amount of a reporting unit is greater than zero and its fair value is greater than its carrying amount, there

is no impairment.

If the reporting unit’s carrying amount is greater than the fair value, the second step must be completed to

measure the amount of impairment, if any.

Step two involves calculating an implied fair value of goodwill.

The Company has adopted ASU

2017-04 which simplifies subsequent goodwill measurement by eliminating step two from the goodwill impairment test.

As a result, the

Company compares the fair value of a reporting unit with its respective carrying value and recognized an impairment charge for the amount

by which the carrying amount exceeded the reporting unit’s fair value.

Company determines the fair value of its reporting units using an income approach.

Under the income approach, the Company determined

fair value based on estimated discounted future cash flows of each reporting unit.

Determining the fair value of a reporting unit is

judgmental in nature and requires the use of significant estimates and assumptions, including revenue growth rates and EBITDA margins,

discount rates and future market conditions, among others.

and Other Intangible Assets - The Company periodically assesses potential impairments of its long-lived assets in accordance with

the provisions of ASC 360, Accounting for the Impairment or Disposal of Long-lived Assets .

An impairment review is performed

whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable.

The Company groups

its assets at the lowest level for which identifiable cash flows are largely independent of the cash flows of the other assets and liabilities.

The Company has determined that the lowest level for which identifiable cash flows are available is the operating segment level.

considered by the Company include, but are not limited to, significant underperformance relative to historical or projected operating

significant changes in the manner of use of the acquired assets or the strategy for the overall business;

and significant negative

industry or economic trends.

When the carrying value of a long-lived asset may not be recoverable based upon the existence of one or

more of the above indicators of impairment, the Company estimates the future undiscounted cash flows expected to result from the use

of the asset and its eventual disposition.

If the sum of the expected future undiscounted cash flows and eventual disposition is less

than the carrying amount of the asset, the Company recognizes an impairment loss.

An impairment loss is reflected as the amount by which

the carrying amount of the asset exceeds the fair value of the asset, based on the fair value if available, or discounted cash flows,

if fair value is not available.

The Company assessed potential impairments of its long-lived assets as of December 31, 2020 and concluded

that there was no impairment.

intangible assets that have finite lives are amortized over their useful lives.

of Business :

has determined that, due to recent business acquisitions, its operations are comprised of three reportable segments:

Digital Ally, TicketSmarter, and Nobility Healthcare.

For the three and nine months ended September 30, 2021 and 2020, sales by segment

were as follows:

OF SALES BY GEOGRAPHIC AREA

TicketSmarter

Nobility Healthcare

to customers outside of the United States are denominated in U.S.

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the calculation when the contract includes an option of cash or share settlement.

2020-06 is effective for fiscal years beginning after December 15, 2021 with early adoption permitted for fiscal years beginning

after December 15, 2020.

Management has not early-adopted this new standard and continues to evaluate the impact of adopting ASU 2020-06

will have on its consolidated financial statements.

2020-06 is effective for fiscal years beginning

after December 15, 2021 with early adoption permitted for fiscal years beginning after December 15, 2020.

Management has not early-adopted

this new standard and continues to evaluate the impact of adopting ASU 2020-06 will have on its consolidated financial statements.

2020, FASB issued ASU No.

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method or fair value option.

2020-01 is effective

for fiscal years beginning after December 15, 2020 with early adoption permitted.

The Company adopted this update for the quarter ended

March 31, 2021, with no material effect on the financials.

2020-01 is effective for fiscal years beginning after December 15, 2020 with early adoption permitted.

The Company adopted this update for the quarter ended March 31, 2021, with no material effect on the financials.

December 2019, the FASB issued ASU No.

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losses on our statement of operations.

consisted of the following at June 30, 2021 and December 31, 2020:

SCHEDULE OF INVENTORIES

December 31, 2020

Raw material and component parts

consisted of the following at September 30, 2021 and December 31, 2020:

OF INVENTORIES

material and component parts

Work-in-process

Finished goods

Reserve for excess and obsolete inventory

for excess and obsolete inventory

( 2,300,019 )

( 1,960,351 )

Total inventories

goods inventory includes units held by potential customers and sales agents for test and evaluation purposes.

The cost of such units

totaled $ 131,068 and $ 138,263 as of June 30, 2021 and December 31, 2020, respectively.

totaled $ 156,261 and

of September 30, 2021 and December 31, 2020, respectively.

DEBT OBLIGATIONS

obligations is comprised of the following:

SUMMARY OF SECURED CONVERTIBLE DEBENTURES AND PROCEEDS INVESTMENT AGREEMENT

December 31, 2020

Economic injury disaster loan (EIDL)

Payroll protection program loan (PPP)

Contingent consideration promissory note

OF SECURED CONVERTIBLE DEBENTURES AND PROCEEDS INVESTMENT AGREEMENT

injury disaster loan (EIDL)

Payroll protection

program loan (PPP)

consideration promissory note - Nobility Healthcare Division Acquisition

consideration promissory note – Nobility Healthcare Division Acquisition

consideration earn-out Agreement – TicketSmarter Acquisitions

Debt obligations

current maturities of debt obligations

Debt obligations, long-term

obligations mature as follows as of June 30, 2021:

SCHEDULE OF MATURITY OF DEBT OBLIGATIONS

June 30, 2021

2021 (July 1, 2021 to December 31, 2021)

obligations, long-term

obligations mature as follows as of September 30, 2021:

OF MATURITY OF DEBT OBLIGATIONS

(October 1, 2021 to December 31, 2021)

and thereafter

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EIDL advance received with the PPP Loan.

May 12, 2020, the Company received $ 150,000 in loan funding from the SBA under the EIDL program administered by the SBA, which program

was expanded pursuant to the recently enacted CARES Act.

The EIDL is evidenced by a secured promissory note, dated May 8, 2020, in the

original principal amount of $ 150,000 with the SBA, the lender.

the terms of the note issued under the EIDL program, interest accrues on the outstanding principal at the rate of 3.75 % per annum.

term of such note is thirty years, though it may be payable sooner upon an event of default under such note.

Monthly principal and interest

payments are deferred for twelve months after the date of disbursement and total $ 731 per month thereafter.

May 12, 2020, the Company received $ 150,000

in loan funding from the SBA under the EIDL program

administered by the SBA, which program was expanded pursuant to the recently enacted CARES Act.

The EIDL is evidenced by a secured promissory

note, dated May 8, 2020, in the original principal amount of $ 150,000

with the SBA, the lender.

the terms of the note issued under the EIDL program, interest accrues on the outstanding principal at the rate of 3.75 %

The term of such note is thirty years, though it may be payable sooner upon an event of default under such note.

Monthly principal

and interest payments are deferred for twelve months after the date of disbursement and total $ 731

per month thereafter.

Such note may be prepaid

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including but not limited to tangible and intangible personal property.

Contingent Consideration Promissory Note

On June 30, 2021, Nobility

Healthcare, LLC, a subsidiary of the Company, issued a contingent consideration promissory note (the “Note”) in connection

with the Stock Purchase Agreement between Nobility and Elite Medical Billing Specialists (“Elite”) of $ 350,000 .

has a three -year term and bears interest at a rate of 3.00 % per annum.

Quarterly principal and interest payments are deferred for six

months and is due in equal quarterly installments on the seventh business day of each quarter.

The principal amount of the Note is subject

to an earn-out adjustment, being the difference between the $ 975,000 (the “Projected Revenue”) and the cash basis revenue

(the “Measurement Period Revenue”) collected by Elite in its normal course of business from the clients existing on June

30, 2021, during the period from October 1, 2021 through September 30, 2022 (the “Measurement Period”) measured an a quarterly

basis and annualized as of the relevant period.

If the Measurement Period Revenue is less than the Projected Revenue, such amount will

be subtracted from the principal balance of this Note on a dollar-for-dollar basis.

If the Measurement Period Revenue is more than the

Projected Revenue, such amount will be added to the principal balance of this Note on a dollar-for-dollar basis.

In no event will the

principal balance of this Note become a negative number.

The maximum downward earn-out adjustment to the principal balance will be to

There are no limits to the increases to the principal balance of the Note as a result of the earn-out adjustments.

The contingent consideration

promissory note is considered to be additional purchase price, therefore the estimated fair value of the contingent liability is recorded

as a liability at the acquisition date and the fair value is considered part of the consideration paid for the acquisition.

has recorded the contingent consideration promissory note at its estimated fair value of $ 350,000 at the acquisition date.

will continue to estimate the fair value of this Note at each reporting date with the change, if any recorded as a gain or loss in the

statement of operations during the relevant period.

Consideration Promissory Notes

June 30, 2021, Nobility Healthcare, LLC, a subsidiary of the Company, issued a contingent consideration promissory note (the “Contingent

Note”) in connection with the Stock Purchase Agreement between Nobility and a private Company (the “Seller”)

of $ 350,000 .

The Contingent Note has a three-year term and bears interest at a rate of 3.00 %

Quarterly principal and interest payments are deferred for six months and is due in equal quarterly installments on the seventh

business day of each quarter.

The principal amount of the Contingent Note is subject to an earn-out adjustment, being the difference

between the $ 975,000

(the “Projected Revenue”) and the

cash basis revenue (the “Measurement Period Revenue”) collected by the Seller in its normal course of business from

the clients existing on June 30, 2021, during the period from October 1, 2021 through September 30, 2022 (the “Measurement Period”)

measured on a quarterly basis and annualized as of the relevant period.

If the Measurement Period Revenue is less than the Projected

Revenue, such amount will be subtracted from the principal balance of this Contingent Note on a dollar-for-dollar basis.

Measurement Period Revenue is more than the Projected Revenue, such amount will be added to the principal balance of this Contingent

Note on a dollar-for-dollar basis.

In no event will the principal balance of this Contingent Note become a negative number.

The maximum downward earn-out adjustment to the principal balance will be to zero.

There are no limits to the increases to the principal

balance of the Contingent Note as a result of the earn-out adjustments.

contingent consideration promissory note is considered to be additional purchase price;

therefore, the estimated fair value of

the contingent liability is recorded as a liability at the acquisition date and the fair value is considered part of the consideration

paid for the acquisition.

Management has recorded the contingent consideration promissory note at its estimated fair value of $ 350,000

at the acquisition date.

Management will continue

to estimate the fair value of this Contingent Note at each reporting date with the change, if any recorded as a gain or loss in

the statement of operations during the relevant period.

August 31, 2021, Nobility Healthcare, LLC, a subsidiary of the Company, issued a contingent consideration promissory note (the

“Contingent Payment Note”) in connection with the Stock Purchase Agreement between Nobility and a private Company

(the “Sellers”) of $ 650,000 .

The Contingent Payment Note has a three -year

term and bears interest at a rate of 3.00 %

Quarterly principal and interest payments are deferred for six months and is due in equal quarterly installments on the seventh

business day of each quarter.

The principal amount of the Contingent Payment Note is subject to an earn-out adjustment, being

the difference between the $ 3,000,000

(the “Projected Revenue”) and the

cash basis revenue (the “Measurement Period Revenue”) collected by the Sellers in its normal course of business from

the clients existing on September 1, 2021, during the period from December 1, 2021 through November 30, 2022 (the “Measurement

Period”) measured on a quarterly basis and annualized as of the relevant period.

If the Measurement Period Revenue is less than

the Projected Revenue, such amount will be subtracted from the principal balance of this Contingent Payment Note on a dollar-for-dollar

If the Measurement Period Revenue is more than the Projected Revenue, such amount will be added to the principal balance of this

Contingent Payment Note on a dollar-for-dollar basis.

In no event will the principal balance of this Contingent Payment

Note become a negative number.

The maximum downward earn-out adjustment to the principal balance will be to zero.

There are no limits

to the increases to the principal balance of the Contingent Payment Note as a result of the earn-out adjustments.

contingent consideration promissory note is considered to be additional purchase price, therefore the estimated fair value of the contingent

liability is recorded as a liability at the acquisition date and the fair value is considered part of the consideration paid for the

Management has recorded the contingent consideration promissory note at its estimated fair value of $ 650,000

at the acquisition date.

Management will continue

to estimate the fair value of this Contingent Payment Note at each reporting date with the change, if any recorded as a gain or

loss in the statement of operations during the relevant period.

consideration earn-out Agreement – TicketSmarter Acquisition

September 1, 2021, TicketSmarter, Inc., a subsidiary of the Company, issued a contingent consideration earn-out agreement (the

“TicketSmarter Earn-Out”) in connection with the Stock Purchase Agreement between TicketSmarter, Inc., Goody Tickets,

LLC and TicketSmarter, LLC (“TicketSmarter”) of $ 4,244,400 .

TicketSmarter Earn-Out shall be payable with ninety percent (90%) readily available funds and ten percent (10%) in stock

consideration.

The principal amount of the TicketSmarter Earn-Out is subject to an earn-out adjustment, being the difference between

the $ 2,896,829

(the “Projected EBITDA”) and the actual

EBITA (the “Measurement Period EBITDA”) generated by TicketSmarter in its normal course of business, during the period

from September 1, 2021 through December 31, 2021 (the “Measurement Period”).

If the Measurement Period EBITDA is less

than seventy percent (70%) of the Projected EBITDA, there will be zero contingent payment.

If the Measurement Period EBITDA is between

seventy percent (70%) and one hundred percent (100%) of the Projected EBITDA, then a fractional amount of the contingent payment will

If the Measurement Period EBITDA is more than the Projected EBITDA, the full principal balance of this TicketSmarter Earn-Out

will be paid out.

In no event will the principal balance of this TicketSmarter Earn-Out become a negative number.

downward earn-out adjustment to the earn-out balance will be to reduce the balance to zero.

contingent consideration earn-out is considered to be additional purchase price, therefore the estimated fair value of the contingent

liability is recorded as a liability at the acquisition date and the fair value is considered part of the consideration paid for the

Management has recorded the contingent consideration earn-out at its estimated fair value of $ 4,244,400

at the acquisition date.

Management will

continue to estimate the fair value of this TicketSmarter Note at each reporting date with the change, if any recorded as a gain or loss

in the statement of operations during the relevant period.

FAIR VALUE MEASUREMENT

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following table represents the Company’s hierarchy for its financial assets and liabilities measured at fair value on a recurring

basis as of June 30, 2021 and December 31, 2020:

SCHEDULE OF FINANCIAL ASSETS AND LIABILITIES MEASURED AT FAIR VALUE ON RECURRING BASIS

June 30, 2021

Warrant derivative liabilities

Contingent consideration promissory note

December 31, 2020

Warrant derivative liabilities

Contingent consideration promissory note

following table represents the change in Level 3 tier value measurements for the six months ended June 30, 2021:

SCHEDULE OF FAIR VALUE MEASUREMENTS CHANGE IN LEVEL 3 INPUTS

Contingent Consideration Promissory Note

Warrant Derivative Liabilities

basis as of September 30, 2021 and December 31, 2020:

OF FINANCIAL ASSETS AND LIABILITIES MEASURED AT FAIR VALUE ON RECURRING BASIS

derivative liabilities

consideration promissory notes and earn-out agreement

derivative liabilities

consideration promissory note

following table represents the change in Level 3 tier value measurements for the nine months ended September 30, 2021:

OF FAIR VALUE MEASUREMENTS CHANGE IN LEVEL 3 INPUTS

Consideration Promissory Note

Derivative Liabilities

Balance, December 31, 2020

Issuance of detachable warrants in the January 14, 2021 Offering

Issuance of detachable warrants in the February 1, 2021 Offering

Issuance of detachable pre-funded warrants in the January 14, 2021 Offering

Issuance of detachable pre-funded warrants in the February 1, 2021 Offering

Transition of derivative warrant liability to equity on pre-funded warrants

Change in fair value of warrant derivative liabilities

of detachable warrants in the January 14, 2021 Offering

detachable warrants in the February 1, 2021 Offering

detachable pre-funded warrants in the January 14, 2021 Offering

detachable pre-funded warrants in the February 1, 2021 Offering

Transition of

derivative warrant liability to equity on pre-funded warrants

in fair value of warrant derivative liabilities

( 24,552,257 )

Balance, March 31, 2021

Issuance of contingent consideration promissory note

Change in fair value of financial instruments

Balance, June 30, 2021

March 31, 2021

contingent consideration promissory note - Nobility Healthcare Division Acquisition

in fair value of financial instruments

June 30, 2021

contingent consideration promissory note - Nobility Healthcare Division Acquisition

contingent consideration earn-out agreement - TicketSmarter Acquisition

in fair value of financial instruments

( 11,585,204 )

September 30, 2021

ACCRUED EXPENSES

expenses consisted of the following at June 30, 2021 and December 31, 2020:

SCHEDULE OF ACCRUED EXPENSES

Accrued warranty expense

Accrued litigation costs

Accrued sales commissions

Accrued payroll and related fringes

Accrued sales returns and allowances

Accrued sales taxes

Total accrued expenses

warranty expense was comprised of the following for the six months ended June 30, 2021:

SCHEDULE OF ACCRUED WARRANTY EXPENSE

Beginning balance

Provision for warranty expense

Charges applied to warranty reserve

Ending balance

effective tax rate for the three months ended June 30, 2021 and 2020 varied from the expected statutory rate due to the Company continuing

to provide a 100 % valuation allowance on net deferred tax assets.

The Company determined that it was appropriate to continue the full

valuation allowance on net deferred tax assets as of June 30, 2021 primarily because of the Company’s history of operating losses.

Company has incurred operating losses in recent years, and it continues to be in a three-year cumulative loss position at June 30, 2021.

expenses comprised of the following at September 30, 2021 and December 31, 2020:

OF ACCRUED EXPENSES

warranty expense

Accrued litigation

Accrued sales

Accrued payroll

and related fringes

Accrued sales

returns and allowances

Accrued sales

Total accrued

warranty expense comprised of the following for the nine months ended September 30, 2021:

OF ACCRUED WARRANTY EXPENSE

Provision for

warranty expense

applied to warranty reserve

effective tax rate for the three months ended September 30, 2021 and 2020 varied from the expected statutory rate due to the Company

continuing to provide a 100 %

valuation allowance on net deferred tax assets.

The Company determined that it was appropriate to continue the full valuation allowance

on net deferred tax assets as of September 30, 2021 primarily because of the Company’s history of operating losses.

Company has incurred operating losses in recent years, and it continues to be in a three-year cumulative loss position at September 30,

Accordingly, the Company determined there was not sufficient positive evidence regarding its potential for future profits to outweigh

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taxable income, a portion or all of the valuation allowance will be reversed.

The Company has available to it approximately $ 76 million

in net operating loss carryforwards to offset future taxable income as of June 30, 2021.

The Company has available to it approximately $ 76

million in net operating loss carryforwards to

offset future taxable income as of September 30, 2021.

PROPERTY, PLANT AND EQUIPMENT

Property, plant

and equipment, net consists of the following:

plant and equipment, net consists of the following:

OF PROPERTY AND EQUIPMENT, NET

Leasehold improvements

Property and Equipment, gross

accumulated depreciation

Total property, plant and equipment, net

property, plant and equipment, net

April 30, 2021 the Company closed on the purchase and sale agreement to acquire a 71,361 square feet commercial office building located

2 unchanged sentences

30,000 square feet of office space and the remainder warehouse space .

The total purchase price was approximately $ 5.3 million, the Company

funded the purchase price with cash on hand, without the addition of external debt or other financing.

expense for the six months ended June 30, 2021 and June 30, 2020 was $ 95,346 and $ 43,183 , respectively, and is included in general

and administrative expenses.

OPERATING LEASE

The total purchase price was approximately $ 5.3

million, the Company funded the purchase price

with cash on hand, without the addition of external debt or other financing.

expense for the nine months ended September 30, 2021 and September 30, 2020 was $ 177,959

and $ 115,196 ,

respectively, and is included in general and administrative expenses.

OPERATING LEASES

May 13, 2020, the Company entered into an operating lease for new warehouse and office space which will serve as its new principal executive

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The lease terms, as amended include no base rent for the first nine months

and monthly payments ranging from $ 12,398 to $ 14,741 thereafter, with a termination date of December 2026 .

and monthly payments ranging from $ 12,398

thereafter, with a termination

date of December 2026 .

The Company is responsible

3 unchanged sentences

The remaining lease term for the Company’s office and warehouse operating

lease as of June 30, 2021 was sixty-six months.

The Company’s previous office and warehouse space lease expired in April 2020 and

the Company paid holdover rent for the time period until it moved to and commenced occupying the new space on June 15, 2020.

lease as of September 30, 2021 was sixty-three

The Company’s previous office and

warehouse space lease expired in April 2020 and the Company paid holdover rent for the time period until it moved to and commenced occupying

the new space on June 15, 2020.

Company entered into an operating lease with a third party in October 2019 for copiers used for office and warehouse purposes.

of the lease include 48 monthly payments of $ 1,598 with a maturity date of October 2023 .

The Company has the option to purchase the equipment

at maturity for its estimated fair market value at that point in time.

The remaining lease term for the Company’s copier operating

lease as of June 30, 2021 was 28 months.

expense related to the office space and copier operating leases were recorded on a straight-line basis over their respective lease terms.

Total lease expense under the two operating leases was $ 65,953

for the six months ended June 30,

of the lease include 48

monthly payments of $ 1,598

with a maturity

date of October 2023 .

The Company has the option

to purchase the equipment at maturity for its estimated fair market value at that point in time.

The remaining lease term for the Company’s

copier operating lease as of September 30, 2021 was 25

June 30, 2021, the Company completed the acquisition of a private medical billing company, through its majority owned subsidiary, Nobility

Healthcare, LLC.

Upon completion of this acquisition, the Company became responsible for the operating lease for the Seller’s office

The lease terms include monthly payments ranging from $ 2,648

thereafter, with a termination

date of July 2024.

The Company is responsible

for property taxes, utilities, insurance and its proportionate share of common area costs related to this location.

The Company took

possession of the leased facilities on June 30, 2021.

The remaining lease term for the Company’s office and warehouse operating

lease as of September 30, 2021 was thirty-four

August 31, 2021, the Company completed the acquisition of a private medical billing company, through its majority owned subsidiary,

Nobility Healthcare, LLC.

Upon completion of this acquisition, the Company became responsible for the operating lease for the Seller’s

office space.

The lease terms include monthly payments ranging from $ 11,579

thereafter, with a termination

date of March 2023.

The Company is responsible

for property taxes, utilities, insurance and its proportionate share of common area costs related to this location.

The Company took

possession of the leased facilities on September 1, 2021.

The remaining lease term for the Company’s office and warehouse operating

lease as of September 30, 2021 was eighteen

September 1, 2021, the Company completed the acquisition of Goody Tickets, LLC and TicketSmarter, LLC (“TicketSmarter Acquisition”),

through its wholly owned subsidiary, TicketSmarter, Inc.

Upon completion of this acquisition, the Company became responsible for the

operating lease for TicketSmarter Inc.’s office space.

The lease terms include monthly payments ranging from $ 7,211

thereafter, with a termination

date of December 2022.

The Company is responsible

for property taxes, utilities, insurance and its proportionate share of common area costs related to this location.

The Company took

possession of the leased facilities on September 1, 2021.

The remaining lease term for the Company’s office and warehouse operating

lease as of September 30, 2021 was fifteen

expense related to the office spaces and copier operating leases were recorded on a straight-line basis over their respective

Total lease expense under the five operating leases was $ 144,443

for the nine months ended September 30, 2021.

discount rate implicit within the Company’s operating leases was not generally determinable and therefore the Company determined

2 unchanged sentences

the operating lease liabilities reflect a weighted average discount rate of 8 %.

following sets forth the operating lease right of use assets and liabilities as of June 30, 2021:

SCHEDULE OF OPERATING LEASES RIGHT OF USE ASSETS AND LIABILITIES

Operating lease right of use assets

Operating lease obligations-current portion

Operating lease obligations-less current portion

Total operating lease obligations

components of lease expense were as follows for the six months ended June 30, 2021:

SCHEDULE OF COMPONENTS OF LEASE EXPENSES

Selling, general and administrative expenses

following sets forth the operating lease right of use assets and liabilities as of September 30, 2021:

OF OPERATING LEASES RIGHT OF USE ASSETS AND LIABILITIES

lease right of use assets

Operating lease

obligations-Long-term portion

lease obligations-Current portion

operating lease obligations

components of lease expense were as follows for the nine months ended September 30, 2021:

OF COMPONENTS OF LEASE EXPENSES

general and administrative expenses

are the minimum lease payments for each year and in total.

SCHEDULE OF FUTURE MINIMUM LEASE PAYMENTS

Year ending December 31:

2021 (July 1, 2021 to December 31, 2021)

2025 & beyond

Total undiscounted minimum future lease payments

Imputed interest

Total operating lease liability

CONTINGENCIES

OF FUTURE MINIMUM LEASE PAYMENTS

ending December 31:

(October 1, to December 31, 2021)

Total undiscounted

minimum future lease payments

operating lease liability

GOODWILL AND OTHER INTANGIBLE ASSETS

and other intangible assets, net as of September 30, 2021 and December 31, 2020 are as follows:

OF GOODWILL AND OTHER INTANGIBLE ASSETS

carrying value

Amortized intangible assets:

and Trademarks

Unamortized intangible

and trademarks pending

and trademarks pending will be amortized beginning at the time they are issued by the appropriate authorities.

If issuance of the final

patent or trademark is denied, then the amount deferred will be immediately charged to expense.

COMMITMENTS AND CONTINGENCIES

COVID-19 pandemic represents a fluid situation that presents a wide range of potential impacts of varying durations for different global

geographies, including locations where the Company has offices, employees, customers, vendors and other suppliers and business

most US-based businesses, the COVID-19 pandemic and efforts to mitigate the same began to have impacts on our business in March 2020.

By that time, much of the Company’s first fiscal quarter was completed.

During 2020 and the first quarter of 2021,

geographies, including locations where we have offices, employees, customers, vendors and other suppliers and business partners.

most US-based businesses, the COVID-19 pandemic and efforts to mitigate the same began to impact our business in March 2020.

time, much of the Company’s first fiscal quarter was completed.

During the balance of 2020 and the first quarter of 2021,

the Company observed recent decreases in demand from certain customers, including primarily law-enforcement and commercial customers.

However, we are beginning to experience an increase in demand for the three months ended June 30, 2021, compared to the same period in

Given the fact that the Company’s

products are sold through a variety of distribution channels, the Company expects sales will experience more volatility as

a result of the changing and less predictable operational needs of many customers as a result of the COVID-19 pandemic.

is aware that many companies, including many current suppliers and customers, are reporting or predicting negative impacts

from COVID-19 on future operating results.

However, we are beginning to experience an increase in demand during the quarters ended June 30, 2021 and September 30, 2021, compared

to the same periods in 2020.

the fact that the Company’s products and services are sold through a variety of distribution channels, the Company expects sales

will experience more volatility as a result of the changing and less predictable operational needs of many customers as a result of the

COVID-19 pandemic.

The Company is aware that many companies, including many current suppliers and customers, are reporting or predicting

negative impacts from COVID-19 on future operating results.

Although the Company observed a slight increase in demand for products from

certain customers during the quarter ended June 30, 2021, the Company believes that the impact of the COVID-19 remains

too fluid and unknown, hindering the Company from determining the long-term demand for current products.

also cannot be certain how demand may shift over time as the impacts of the COVID-19 pandemic may go through several phases of varying

severity and duration.

of broader macro-economic risks and already known impacts on certain industries that use the Company’s products and services,

certain customers during the quarter ended September 30, 2021, the Company believes that the impact of the COVID-19 remains too fluid

and unknown, hindering the Company from determining the long-term demand for current products.

The Company also cannot be certain how

demand may shift over time as the impacts of the COVID-19 pandemic may go through several phases of varying severity and duration.

light of broader macro-economic risks and already known impacts on certain industries that use the Company’s products and services,

the Company has taken, and continues to take targeted steps to lower its operating expenses because of the COVID-19 pandemic.

The Company continues to monitor the impacts of COVID-19 on its operations closely and this situation could change based

on a significant number of factors that are not entirely within its control and are discussed in this and other sections of this

quarterly report on Form 10-Q.

The Company does not expect there to be material changes to its assets on our balance sheet

or its ability to timely account for those assets.

Further, in connection with the preparation of this quarterly report on Form

10-Q and the financial statements contained herein, the Company reviewed the potential impacts of the COVID-19 pandemic on goodwill

and intangible assets and have determined there to be no material impact at this time.

The Company has also reviewed the potential

impacts on future risks to the business as it relates to collections, returns and other business-related items.

travel restrictions and border closures have not materially impacted its ability to obtain inventory or manufacture or deliver

continues to monitor the impacts of COVID-19 on its operations closely and this situation could change based on a significant number

of factors that are not entirely within its control and are discussed in this and other sections of this quarterly report on Form 10-Q.

The Company does not expect there to be material changes to its assets on our balance sheet or its ability to timely account for those

Further, in connection with the preparation of this quarterly report on Form 10-Q and the financial statements contained herein,

the Company reviewed the potential impacts of the COVID-19 pandemic on goodwill and intangible assets and have determined there to be

no material impact at this time.

The Company has also reviewed the potential impacts on future risks to the business as it relates to

collections, returns and other business-related items.

date, travel restrictions and border closures have not materially impacted its ability to obtain inventory or manufacture or deliver

products or services to customers.

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a way that would harm the business over the long term.

Travel restrictions impacting people can restrain its ability to

assist its customers and distributors as well as impact its ability to develop new distribution channels, but at present

the Company does not expect these restrictions on personal travel to be material to our business operations or financial results.

The Company has taken steps to restrain and monitor its operating expenses and therefore it does not expect any

such impacts to materially change the relationship between costs and revenues.

most companies, the Company has taken a range of actions with respect to how it operates to assure it comply with

government restrictions and guidelines as well as best practices to protect the health and well-being of its employees and its

ability to continue operating its business effectively.

To date, the Company has been able to operate its business

effectively using these measures and to maintain all internal controls as documented and posted.

The Company also has not

experienced challenges in maintaining business continuity and does not expect to incur material expenditures to do so.

the impacts of COVID-19 and efforts to mitigate the same have remained unpredictable and it remains possible that challenges may arise

in the future.

actions the Company has taken so far during the COVID-19 pandemic include, but are not limited to:

Travel restrictions impacting people can restrain its ability to assist its customers

and distributors as well as impact its ability to develop new distribution channels, but at present the Company does not expect these

restrictions on personal travel to be material to our business operations or financial results.

The Company has taken steps to restrain

and monitor its operating expenses and therefore it does not expect any such impacts to materially change the relationship between costs

and revenues.

most companies, the Company has taken a range of actions with respect to how it operates to assure it comply with government restrictions

and guidelines as well as best practices to protect the health and well-being of its employees and its ability to continue operating

its business effectively.

To date, the Company has been able to operate its business effectively using these measures and to maintain

all internal controls as documented and posted.

The Company also has not experienced challenges in maintaining business continuity and

does not expect to incur material expenditures to do so.

However, the impacts of COVID-19 and efforts to mitigate the same have remained

unpredictable and it remains possible that challenges may arise in the future.

actions we have taken so far during the COVID-19 pandemic include, but are not limited to:

all employees who can work from home to work from home;

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employees stay segregated from other employees in the office with whom they require no interaction;

employees to wear masks while they are in the office whenever possible.

The Company currently

believes revenue for the year ending December 31, 2021 will still be impacted due to the conditions noted.

In April 2020,

unvaccinated employees to wear masks while they are in the office whenever possible.

Company currently believes revenue for the year ending December 31, 2021 will still be impacted due to the conditions noted.

2020, the Company implemented a COVID-19 mitigation plan designed to further reduce its operating expenses during the pandemic.

Actions taken to date include work hour and salary reductions for senior management.

taken to date include work hour and salary reductions for senior management.

These cost reductions are in addition to the significant

restructuring actions which the Company continues to implement and develop throughout.

Based on the Company’s

current cash position, its projected cash flow from operations and its cost reduction and cost containment efforts

to date, the Company believes that it will have sufficient capital and or have access to sufficient capital through public

and private equity and debt offerings to sustain operations for a period of one year following the date of this filing.

If business interruptions

resulting from the COVID-19 pandemic were to be prolonged or expanded in scope, the business, financial condition, results of

operations and cash flows would be negatively impacted.

The Company will continue to actively monitor this situation and will

implement actions necessary to maintain business continuity.

From time to time, the Company

is notified that it may be a party to a lawsuit or that a claim is being made against it.

It is the Company’s

policy to not disclose the specifics of any claim or threatened lawsuit until the summons and complaint are actually served.

carefully assessing the claim, and assuming the Company determines that it is not at fault or it disagrees with

the damages or relief demanded, it vigorously defends any lawsuit filed against it.

The Company records a liability

when losses are deemed probable and reasonably estimable.

When losses are deemed reasonably possible but not probable, the Company

determines whether it is possible to provide an estimate of the amount of the loss or range of possible losses for the claim, if

material for disclosure.

In evaluating matters for accrual and disclosure purposes, the Company takes into consideration factors

such as our historical experience with matters of a similar nature, the specific facts and circumstances asserted, the likelihood of

it prevailing, the availability of insurance, and the severity of any potential loss.

The Company reevaluates and updates

accruals as matters progress over time.

the ultimate resolution is unknown, based on the information currently available, the Company does not expect that these lawsuits

will individually, or in the aggregate, have a material adverse effect to its results of operations, financial condition or cash

However, the outcome of any litigation is inherently uncertain and there can be no assurance that any expense, liability or damages

that may ultimately result from the resolution of these matters will be covered by its insurance or will not be in excess of amounts

recognized or provided by insurance coverage and will not have a material adverse effect on its operating results, financial condition

or cash flows.

Company owns U.S.

9,253,452 (the “ ‘452 Patent”), which generally covers the automatic activation and coordination

of multiple recording devices in response to a triggering event, such as a law enforcement officer activating the light bar on the vehicle.

Company filed suit on January 15, 2016 in the U.S.

District Court for the District of Kansas (the “U.S.

District Court”)

2:16-cv-02032) against Axon Enterprise, Inc.

(“Axon”), alleging willful patent infringement against Axon’s

body camera product line and Signal auto-activation product.

The Company is seeking both monetary damages and a permanent injunction

against Axon for infringement of the ‘452 Patent.

December 2016 and January 2017, Axon filed two petitions for Inter Partes Review (“IPR”) against the ‘452 Patent.

The United States Patent and Trademark Office (“USPTO”) rejected both of Axon’s petitions.

Axon is now statutorily

precluded from filing any more IPR petitions against the ‘452 Patent.

District Court litigation was temporarily stayed following the filing of the petitions for IPR.

However, on November 17, 2017, the U.S.

District Court of Kansas rejected Axon’s request to maintain the stay.

With this ruling, the parties then proceeded towards trial,

after which the parties filed motions for summary judgement on January 31, 2019.

June 17, 2019, the U.S.

District Court granted Axon’s motion for summary judgment that Axon did not infringe on the Company’s

patent and dismissed the case.

District Court’s ruling did not find that the ‘452 Patent was invalid.

not address any other issue, such as whether Digital’s requested damages were appropriate, and it did not impact the Company’s

ability to file additional lawsuits to hold other competitors accountable for patent infringement.

This ruling solely related to an interpretation

of the Company’s claims as they relate to Axon and was unrelated to the supplemental briefing the Company filed on its damages

Those issues are separate and the U.S.

District Court’s ruling on the motion for summary judgment had nothing to do with

the Company’s damages request.

Company filed an opening appeal brief on August 26, 2019 with the U.S.

Court of Appeals for the Tenth Circuit (the “Court of Appeals”),

appealing the U.S.

District Court’s granting of Axon’s motion for summary judgment.

Axon responded by filing a responsive

brief on November 6, 2019 and we then filed a reply brief responding to Axon on November 27, 2019.

The Court of Appeals scheduled oral

arguments on our appeal of the U.S.

District Court’s summary judgment ruling on April 6, 2020.

This appeal was intended to address

the Company’s position that the U.S.

District Court incorrectly dismissed our claims against Axon.

If the Court of Appeals overturns

the ruling of the U.S.

District Court, the case would have been remanded to the U.S District Court before a new judge.

On March 12, 2020,

the panel of judges for the Court of Appeals issued an order cancelling the oral arguments previously set for April 6, 2020, having determined

that the appeal will be decided solely based on the parties’ briefs.

On April 22, 2020, a three-judge panel of the United States

Court of Appeals denied our appeal and affirmed the District Court’s previous decision to grant Axon summary judgment.

2020, we filed a petition for panel rehearing requesting that we be granted a rehearing of our appeal of the U.S.

District Court’s

summary judgment ruling.

Furthermore, we requested that we be given an opportunity to make our case through oral argument in front of

the three-judge panel of the Court of Appeals, which was also denied.

The Company has abandoned its right to any further appeals.

STOCK-BASED COMPENSATION

Company recorded pretax compensation expense related to the grant of stock options and restricted stock issued of $ 330,213 and $ 376,738

for the three months ended June 30, 2021 and 2020, and $ 656,378 and $ 688,415 for the six months ended June 30, 2021 and 2020, respectively.

of June 30, 2021, the Company had adopted nine separate stock option and restricted stock plans:

Based on the Company’s current cash position,

its projected cash flow from operations and its cost reduction and cost containment efforts to date, the Company believes that it will

have sufficient capital and or have access to sufficient capital through public and private equity and debt offerings to sustain operations

for a period of one year following the date of this filing.

If business interruptions resulting from the COVID-19 pandemic were to be

prolonged or expanded in scope, the business, financial condition, results of operations and cash flows would be negatively impacted.

The Company will continue to actively monitor this situation and will implement actions necessary to maintain business continuity.

time to time, we are notified that we may be a party to a lawsuit or that a claim is being made against us.

It is our policy to not disclose

the specifics of any claim or threatened lawsuit until the summons and complaint are actually served on us.

After carefully assessing

the claim, and assuming we determine that we are not at fault or we disagree with the damages or relief demanded, we vigorously defend

any lawsuit filed against us.

We record a liability when losses are deemed probable and reasonably estimable.

When losses are deemed

reasonably possible but not probable, we determine whether it is possible to provide an estimate of the amount of the loss or range of

possible losses for the claim, if material for disclosure.

In evaluating matters for accrual and disclosure purposes, we take into consideration

factors such as our historical experience with matters of a similar nature, the specific facts and circumstances asserted, the likelihood

of our prevailing, the availability of insurance, and the severity of any potential loss.

We reevaluate and update accruals as matters

progress over time.

the ultimate resolution is unknown, based on the information currently available, we do not expect that these lawsuits will individually,

or in the aggregate, have a material adverse effect to our results of operations, financial condition and cash flows.

However, the outcome

of any litigation is inherently uncertain and there can be no assurance that any expense, liability or damages that may ultimately result

from the resolution of these matters will be covered by our insurance or will not be in excess of amounts recognized or provided by insurance

coverage and will not have a material adverse effect on our operating results, financial condition or cash flows.

Company recorded pretax compensation expense related to the grant of stock options and restricted stock issued of $ 491,950

and $ 498,356

for the three months ended September 30, 2021

and 2020 and $ 1,148,327

and $ 1,186,771

for the nine months ended September 30, 2021

and 2020, respectively.

of September 30, 2021, the Company had adopted nine separate stock option and restricted stock plans:

(i) the 2005 Stock Option and Restricted

13 unchanged sentences

shares are now unavailable for issuance.

Stock options granted under the 2005 Plan that remain unexercised and outstanding as of June

Stock options granted under the 2005 Plan that remain unexercised and outstanding as of September

30, 2021 total 7,064 .

2 unchanged sentences

shares are now unavailable for issuance.

Stock options granted under the 2006 Plan that remain unexercised and outstanding as of June

Stock options granted under the 2006 Plan that remain unexercised and outstanding as of September

30, 2021 total 30,125 .

5 unchanged sentences

shares are now unavailable for issuance.

There were no

stock options granted under the 2008 Plan that

remain unexercised and outstanding as of June 30, 2021.

There were no stock options granted under the 2008 Plan that remain unexercised and outstanding

as of September 30, 2021.

Company believes that such awards better align the interests of our employees with those of its stockholders.

6 unchanged sentences

under its Plans with the SEC.

A total of 791,939 shares remained available for awards under the various Plans as of June 30, 2021.

A total of 1,091,438

shares remained available for awards under

the various Plans as of September 30, 2021.

On July 8, 2020, the Company’s

board of directors approved the grant of options to purchase 300,000 shares of Common Stock at an exercise price of $ 1.67 per of which

(i) options to purchase 75,000 shares of Common Stock were fully vested at the time of grant and (ii) options to purchase 225,000 shares

of Common Stock are subject to vesting ratably on a quarterly basis through May 31, 2022.

fair value of each option award is estimated on the date of grant using a Black-Scholes option valuation model.

in the various Plans during the six months ended June 30, 2021:

SUMMARY OF STOCK OPTIONS OUTSTANDING

Exercise Price

in the various Plans during the nine months ended September 30, 2021:

OF STOCK OPTIONS OUTSTANDING

Outstanding at December

Outstanding at June 30, 2021

Exercisable at June 30, 2021

at September 30, 2021

fair value of each option award is estimated on the date of grant using a Black-Scholes option valuation model.

The total estimated grant

date fair value stock options issued during the six months ended June 30, 2021 was $- 0 - as there were no grants during that period.

date fair value stock options issued during the nine months ended September 30, 2021 was $ 466,831 .

Following are certain estimates and assumptions utilized as of the issuance date to determine the grant-date fair value of the stock

options issued during 2021:

OF STOCK OPTION PLANS BY FAIR VALUE ASSUMPTION

Risk-free rate

Exercise price

Plans allow for the cashless exercise of stock options.

2 unchanged sentences

There were no shares surrendered pursuant to cashless exercises

during the six months ended June 30, 2021 and 2020.

aggregate intrinsic value of options outstanding was $- 0 -, and the aggregate intrinsic value of options exercisable was $- 0 - at June

30, 2021 and December 31, 2020.

of June 30, 2021, the unrecognized portion of stock compensation expense on all existing stock options was $- 0 -.

during the nine months ended September 30, 2021 and 2020.

aggregate intrinsic value of options outstanding was $- 0 -,

and the aggregate intrinsic value of options exercisable was $- 0 -

at September 30, 2021 and December 31, 2020.

of September 30, 2021, the unrecognized portion of stock compensation expense on all existing stock options was $ 350,123 .

following table summarizes the range of exercise prices and weighted average remaining contractual life for outstanding and exercisable

options under the Company’s option plans as of June 30, 2021:

SCHEDULE OF SHARES AUTHORIZED UNDER STOCK OPTION PLANS BY EXERCISE PRICE RANGE

Outstanding options

Exercisable options

Exercise price

Weighted average

contractual life

Weighted average

contractual life

0.01 to $ 2.49

2.50 to $ 3.49

3.50 to $ 4.49

4.50 to $ 6.99

7.00 to $ 9.52

options under the Company’s option plans as of September 30, 2021:

OF SHARES AUTHORIZED UNDER STOCK OPTION PLANS BY EXERCISE PRICE RANGE

average remaining contractual life

stock grants.

9 unchanged sentences

and the right to receive cash dividends.

summary of all restricted stock activity under the equity compensation plans for the six months ended June 30, 2021 is as follows:

SUMMARY OF RESTRICTED STOCK ACTIVITY

Number of Restricted

grant date fair

Nonvested balance, December 31, 2020

Nonvested balance, June 30, 2021

summary of all restricted stock activity under the equity compensation plans for the nine months ended September 30, 2021 is as follows:

OF RESTRICTED STOCK ACTIVITY

Nonvested balance,

December 31, 2020

balance, September 30, 2021

Company estimated the fair market value of these restricted stock grants based on the closing market price on the date of grant.

June 30, 2021, there were $ 753,011

of total unrecognized compensation costs

related to all remaining non-vested restricted stock grants, which will be amortized over the next 18 months in accordance with their

respective vesting scale.

September 30, 2021, there were $ 1,354,329

of total unrecognized compensation costs related

to all remaining non-vested restricted stock grants, which will be amortized over the next 60 months in accordance with their respective

vesting scale.

nonvested balance of restricted stock vests as follows:

SCHEDULE OF NON-VESTED BALANCE OF RESTRICTED STOCK

2021 (July 1, 2021 through December 31, 2021)

COMMON STOCK PURCHASE WARRANTS

OF NON- VESTED BALANCE OF RESTRICTED STOCK

(October 1, 2021 through December 31, 2021)

PURCHASE WARRANTS

Company has issued common stock purchase warrants in conjunction with various debt and equity issuances.

1 unchanged sentence

exercisable, or have a delayed initial exercise date, no more than six months from their respective issue date and allow the holders

to purchase up to 26,808,598 shares of common stock at $ 2.60 to $ 5.00 per share as of June 30, 2021.

The warrants expire from December

30, 2021 through February 1, 2026 and under certain circumstances allow for cashless exercise.

January 14, 2021 and February 1, 2021, the Company issued warrants to purchase a total of 42,550,000 shares of Common Stock.

terms provide for net cash settlement outside the control of the Company under certain circumstances in the event of tender offers.

such, the Company is required to treat these warrants as derivative liabilities which are valued at their estimated fair value at their

issuance date and at each reporting date with any subsequent changes reported in the consolidated statements of operations as the change

in fair value of warrant derivative liabilities.

Furthermore, the Company revalues the fair value of warrant derivative liability as

of the date the warrant is exercised with the resulting warrant derivative liability transitioned to equity.

to purchase up to 26,808,598

shares of common stock at $ 2.60

per share as of September 30, 2021.

warrants expire from December 30, 2021 through September 18, 2026 and

under certain circumstances allow for cashless exercise.

January 14, 2021 and February 1, 2021, the Company issued warrants to purchase a total of 42,550,000

shares of Common Stock.

The warrant terms provide

for net cash settlement outside the control of the Company under certain circumstances in the event of tender offers.

As such, the Company

is required to treat these warrants as derivative liabilities which are valued at their estimated fair value at their issuance date and

at each reporting date with any subsequent changes reported in the consolidated statements of operations as the change in fair value

of warrant derivative liabilities.

Furthermore, the Company revalues the fair value of warrant derivative liability as of the date the

warrant is exercised with the resulting warrant derivative liability transitioned to equity.

On August 19, 2021, the

Company entered into a Warrant Exchange Agreement (the “Exchange Agreement”) with the

Investors cancelling February Warrants exercisable for an aggregate of 7,681,540 shares of Common Stock in consideration for its issuance

of (i) new warrants (the “Exchange Warrants”) to the Investors exercisable for an aggregate of up to 7,681,540 shares of

Common Stock.

The Company also issued warrants (the “Replacement Original Warrants”) replacing the February Warrants for

the remaining shares of Common Stock exercisable thereunder, representing an aggregate of 6,618,460 shares of Common Stock, and extended

the expiration date of the February Warrants to September 18, 2026.

The Exchange Warrants provide for an initial exercise price of $ 3.25

per share, subject to customary adjustments thereunder, and are immediately exercisable upon issuance for cash and on a cashless basis.

Company has utilized the following assumptions in its Black-Scholes option valuation model to calculate the estimated fair value of the

warrant derivative liabilities as of their date of issuance and as of June 30, 2021:

SCHEDULE OF FAIR VALUE OF THE WARRANT DERIVATIVE LIABILITIES

Issuance date assumptions

June 30, 2021 assumptions

warrant derivative liabilities as of their date of issuance and as of September 30, 2021:

OF FAIR VALUE OF THE WARRANT DERIVATIVE LIABILITIES

date assumptions

30, 2021 assumptions

Volatility - range

Risk-free rate

0.08 - 0.49 %

Remaining contractual term

0.01 - 5 years

Exercise price

$ 2.80 - 3.25

Common stock issuable under the warrants

the six months ended June 30, 2021, holders of pre-funded warrants exercised a total of 18,250,000 warrants which were fair valued at

$ 1,817,549 at their date of issuance and recorded as a derivative warrant liability.

On the date of exercise such pre-funded warrants

were fair valued at zero , which was transitioned to permanent equity during the six months ended June 30, 2021.

The Company reported

the $ 1,817,549 change in fair value from their issuance date to their exercise date in the condensed statements of operations as the

change in fair value of warrant derivative liabilities.

following table summarizes information about shares issuable under warrants outstanding during the six months ended June 30, 2021:

SUMMARY OF WARRANT ACTIVITY

exercise price

Common stock issuable under

the nine months ended September 30, 2021, holders of pre-funded warrants exercised a total of 18,250,000

warrants which were fair valued at $ 1,817,549

at their date of issuance and recorded as a derivative

warrant liability.

On the date of exercise such pre-funded warrants were fair valued at zero, which was transitioned to permanent equity

during the nine months ended September 30, 2021.

The Company reported the $ 1,817,549

change in fair value from their issuance date

to their exercise date in the condensed statements of operations as the change in fair value of warrant derivative liabilities.

following table summarizes information about shares issuable under warrants outstanding during the nine months ended September 30, 2021:

OF WARRANT ACTIVITY

Vested Balance, January

( 18,250,000 )

Forfeited/cancelled

Vested Balance, June 30, 2021

total intrinsic value of all outstanding warrants aggregated $- 0 - as of June 30, 2021 and the weighted average remaining term is 51.2

Balance, September 30, 2021

total intrinsic value of all outstanding warrants aggregated $- 0 -

as of September 30, 2021 and the weighted average remaining term is 52.2

following table summarizes the range of exercise prices and weighted average remaining contractual life for outstanding and exercisable

warrants to purchase shares of common stock as of June 30, 2021:

SUMMARY OF RANGE OF EXERCISE PRICES AND WEIGHTED AVERAGE REMAINING CONTRACTUAL LIFE OF WARRANTS

Outstanding and exercisable warrants

Exercise price

Number of warrants

Weighted average

contractual life

warrants to purchase common shares as of September 30, 2021:

OF RANGE OF EXERCISE PRICES AND WEIGHTED AVERAGE REMAINING CONTRACTUAL LIFE OF WARRANTS

and exercisable warrants

average remaining

STOCKHOLDERS’ EQUITY

Direct Offerings

January 14, 2021, the Company consummated a registered direct offering (the “Offering”) of (i) 2,800,000 shares of common

stock (“Shares”), (ii) pre-funded warrants to purchase up to 7,200,000 shares of Common Stock (the “Pre-Funded Warrants”),

issuable to investors whose purchase of shares of Common Stock would otherwise result in such investor,

together with its affiliates and certain related parties, beneficially owning more than 4.99% (or, at the election of the holder, 9.99%)

of the Company’s outstanding Common Stock immediately following the consummation of the Registered Offering (“Pre-Funded

and (iii) common stock purchase warrants (“Warrants”) to purchase up to an aggregate of 10,000,000 shares

of Common Stock (the “Warrant Shares”), which are exercisable for a period of five years after issuance at an initial exercise

price $ 3.25 per share, subject to certain adjustments, as provided in the Warrants.

The Offering was conducted pursuant to a placement

agency agreement, dated January 12, 2021, between the Company and Kingswood Capital Markets, division of Benchmark Investments, Inc.,

who acted as the exclusive placement agent in connection with the Offering pursuant to a placement

agency agreement .

The Shares and accompanying Warrants in the Offering were sold at a combined offering price of $ 3.095 per Share

and accompanying Warrant and the Pre-Funded Warrants and accompanying Warrants in the Offering were sold at a combined offering price

of $ 3.085 per Pre-Funded Warrant and accompanying Warrant.

January 14, 2021, the Company consummated a registered direct offering (the “Offering”) of (i) 2,800,000

of common stock (“Shares”), (ii) pre-funded warrants to purchase up to 7,200,000

of Common Stock (the “Pre-Funded Warrants”), issuable to investors whose purchase of shares of Common Stock would otherwise

result in such investor, together with its affiliates and certain related parties, beneficially owning more than 4.99% (or, at the election

of the holder, 9.99%) of the Company’s outstanding Common Stock immediately

following the consummation of the Registered Offering (“Pre-Funded Warrants”);

and (iii) common stock purchase warrants (“Warrants”)

to purchase up to an aggregate of 10,000,000

shares of Common Stock (the “Warrant Shares”),

which are exercisable for a period of five

years after issuance at an initial exercise price

per share, subject to certain adjustments, as

provided in the Warrants.

The Offering was conducted pursuant to a placement agency agreement, dated January 12, 2021, between the Company

and Kingswood Capital Markets, division of Benchmark Investments, Inc., who acted as the exclusive placement agent in connection with

the Offering pursuant to a placement agency agreement.

The Shares and accompanying Warrants in the Offering were sold at a combined offering

price of $ 3.095

per Share and accompanying Warrant and the Pre-Funded

Warrants and accompanying Warrants in the Offering were sold at a combined offering price of $ 3.085

per Pre-Funded Warrant and accompanying Warrant.

securities in the Offering were issued pursuant to a prospectus supplement to the Company’s effective shelf registration statement

1 unchanged sentence

The placement agency agreement contained customary representations, warranties and agreements by the

Company, customary conditions to closing, indemnification obligations of the Company and the placement agen t .

The placement agent received discounts and commissions of six percent ( 6 %) of the gross cash proceeds

received by the Company from the sale of the securities sold in the Offering and certain expenses.

Under the placement agency agreement,

the Company and its officers and directors executed lock-up agreements whereby, subject to certain expectations, (a) the Company has agreed

not to engage in the following for a period of 90 days from the date of the pricing of the Offering, (i)

offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option,

right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any shares of capital stock of the Company

Company, customary conditions to closing, indemnification obligations of the Company and the placement agent.

The placement agent received

discounts and commissions of six percent ( 6 %)

of the gross cash proceeds received by the Company from the sale of the securities sold in the Offering and certain expenses.

the placement agency agreement, the Company and its officers and directors executed lock-up agreements whereby, subject to certain expectations,

(a) the Company has agreed not to engage in the following for a period of 90 days from the date of the pricing of the Offering, (i) offer,

pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right

or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any shares of capital stock of the Company

or any securities convertible into or exercisable or exchangeable for shares of capital stock of the Company;

3 unchanged sentences

(iii) complete any offering of debt securities

of the Company, or (iv) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences

of ownership of capital stock of the Company.

pursuant to the terms of the Securities Purchase Agreement the Company has granted to the Investors, for a period of 12 months after the

closing of the Offering, the right to participate in subsequent offerings by the Company of Common Stock and Common Stock equivalents

in an amount up to 50 % of the amount of each such subsequent offering, on the same terms, conditions and price provided for in such subsequent

received approximately $ 28,941,000 ($ 29,013,000 upon full exercise of the prefunded warrants) in net proceeds from the Offering after

deducting the discounts, commissions, and other estimated offering expenses payable by the Company.

As of June 30, 2021, all pre-funded

warrants have been fully exercised.

The Company plans to use the net proceeds from the Offering for working capital, product development,

order fulfillment and for general corporate purposes.

of the Company, or (iv) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic

consequences of ownership of capital stock of the Company.

pursuant to the terms of the Securities Purchase Agreement the Company has granted to the Investors, for a period of 12 months after

the closing of the Offering, the right to participate in subsequent offerings by the Company of Common Stock and Common Stock equivalents

in an amount up to 50 %

of the amount of each such subsequent offering, on the same terms, conditions and price provided for in such subsequent offering.

Company received approximately $ 28,941,000

($ 29,013,000

upon full exercise of the prefunded warrants)

in net proceeds from the Offering after deducting the discounts, commissions, and other estimated offering expenses payable by the Company.

As of September 30, 2021, all pre-funded warrants have been fully exercised.

The Company plans to use the net proceeds from the Offering

for working capital, product development, order fulfillment and for general corporate purposes.

Company received net proceeds from this offering as follows:

SCHEDULE OF NET PROCEEDS FROM OFFERING

Net proceeds received:

Proceeds from the sale of 2,800,000 shares of Common Stock at $ 3.095 per share

Proceeds from the sale of pre-funded warrants to purchase 7,200,000 shares of

Common Stock at $ 3.085 per share

OF NET PROCEEDS FROM OFFERING

from the sale of 2,800,000

shares of Common Stock at $ 3.095

from the sale of pre-funded warrants to purchase 7,200,000

shares of Common Stock at $ 3.085

Placement agent fees and other expenses of the offering

Net proceeds of the offering

In conjunction with this Offering,

the Company issued prefunded Common Stock purchase warrants to purchase up to 7,200,000

( 1,937,000 )

proceeds of the offering

conjunction with this Offering, the Company issued prefunded Common Stock purchase warrants to purchase up to 7,200,000

shares Common Stock at $ 3.095

per share ($ 3.085

prefunded at closing) and Common Stock purchase warrants to purchase up to 10,000,000

prefunded at closing) and Common Stock purchase

warrants to purchase up to 10,000,000

shares of Common Stock at $ 3.25

The underlying warrant terms provide for net cash settlement outside the control of the Company under certain circumstances

in the event of tender offers.

As such, the Company is required to treat these warrants as derivative liabilities which are valued at

their estimated fair value at their issuance date and at each reporting date with any subsequent changes reported in the consolidated

statements of operations as the change in fair value of warrant derivative liabilities.

Accordingly, t he

Company allocated a portion of the net proceeds of this offering to warrant derivative liabilities based on their estimated fair value

as follows (See Notes 4 and 11) :

SCHEDULE OF NET PROCEEDS FROM OFFERING

The underlying warrant terms provide

for net cash settlement outside the control of the Company under certain circumstances in the event of tender offers.

As such, the Company

is required to treat these warrants as derivative liabilities which are valued at their estimated fair value at their issuance date and

at each reporting date with any subsequent changes reported in the consolidated statements of operations as the change in fair value

of warrant derivative liabilities.

Accordingly, the Company allocated a portion of the net proceeds of this offering to warrant derivative

liabilities based on their estimated fair value as follows (See Notes 4 and 11):

OF NET PROCEEDS FROM OFFERING

derivative liabilities

warrant derivative liabilities

Pre-funded warrant derivative liabilities

Total allocation of the net proceeds of the offering to warrant derivative liabilities

Registered Direct Offering

On February 1, 2021, the Company

consummated an registered direct offering (the “Second Offering”) of (i) 3,250,000 shares of common stock (“Shares”),

(ii) pre-funded warrants to purchase up to 11,050,000 shares of Common Stock (the “Pre-Funded Warrants”), issuable to investors

whose purchase of shares of Common Stock would otherwise result in such investor, together with its affiliates and certain related parties,

beneficially owning more than 4.99% (or, at the election of the holder, 9.99%) of the Company’s outstanding Common Stock immediately

allocation of the net proceeds of the offering to warrant derivative liabilities

Direct Offering

February 1, 2021, the

Company consummated an registered direct offering (the “Second Offering”) of (i) 3,250,000

of common stock (“Shares”), (ii) pre-funded warrants to purchase up to 11,050,000

of Common Stock (the “Pre-Funded Warrants”), issuable to investors whose purchase of shares of Common Stock would otherwise

result in such investor, together with its affiliates and certain related parties, beneficially owning more than 4.99% (or, at the election

of the holder, 9.99%) of the Company’s outstanding Common Stock immediately

following the consummation of the Registered Offering (“Pre-Funded Warrants”);

and (iii) common stock purchase warrants (“Warrants”)

to purchase up to an aggregate of 14,300,000 shares of Common Stock (the “Warrant Shares”), which are exercisable for a period

of five years after issuance at an initial exercise price $ 3.25 per share, subject to certain adjustments, as provided in the Warrants.

The Second Offering was conducted pursuant to a placement agency agreement, dated January 28, 2021, between the Company and Kingswood

Capital Markets, division of Benchmark Investments, Inc., who acted as the exclusive placement agent

in connection with the Second Offering pursuant to a placement agency agreement .

The Shares and accompanying Warrants in the Second

Offering were sold at a combined offering price of $ 2.80 per Share and accompanying Warrant and the Pre-Funded Warrants and accompanying

Warrants in the Offering were sold at a combined offering price of $ 2.79 per Pre-Funded Warrant and accompanying Warrant.

The securities in the Second Offering

were issued pursuant to a prospectus supplement to the Company’s effective shelf registration statement on Form S-3 (File No.

The placement agency agreement contained customary representations, warranties and agreements by the Company, customary conditions to

closing, indemnification obligations of the Company and the placement agent.

to purchase up to an aggregate of 14,300,000

shares of Common Stock (the “Warrant Shares”),

which are exercisable for a period of five

years after issuance at an initial exercise price

per share, subject to certain adjustments, as

provided in the Warrants.

The Second Offering was conducted pursuant to a placement agency agreement, dated January 28, 2021, between

the Company and Kingswood Capital Markets, division of Benchmark Investments, Inc., who acted as the exclusive placement agent in connection

with the Second Offering pursuant to a placement agency agreement.

The Shares and accompanying Warrants in the Second Offering were sold

at a combined offering price of $ 2.80

per Share and accompanying Warrant and the Pre-Funded

Warrants and accompanying Warrants in the Offering were sold at a combined offering price of $ 2.79

per Pre-Funded Warrant and accompanying Warrant.

securities in the Second Offering were issued pursuant to a prospectus supplement to the Company’s effective shelf registration

statement on Form S-3 (File No.

The placement agency agreement contained customary representations, warranties and agreements

by the Company, customary conditions to closing, indemnification obligations of the Company and the placement agent.

The placement agent

received discounts and commissions of six percent (6%) of the gross cash proceeds received by the Company from the sale of the securities

sold in the Second Offering and certain expenses.

Under the placement agency agreement,

the Company and its officers and directors executed lock-up agreements whereby, subject to certain exceptions, (a) the Company has agreed

not to engage in the following for a period of 90 days from the date of the pricing of the Offering, (i)

offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option,

right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any shares of capital stock of the Company

received discounts and commissions of six percent ( 6 %)

of the gross cash proceeds received by the Company from the sale of the securities sold in the Second Offering and certain expenses.

the placement agency agreement, the Company and its officers and directors executed lock-up agreements whereby, subject to certain exceptions,

(a) the Company has agreed not to engage in the following for a period of 90 days from the date of the pricing of the Offering, (i) offer,

pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right

or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any shares of capital stock of the Company

or any securities convertible into or exercisable or exchangeable for shares of capital stock of the Company;

3 unchanged sentences

(iii) complete any offering of debt securities

of the Company, or (iv) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences

of ownership of capital stock of the Company.

Further, pursuant to the terms

of the Securities Purchase Agreement the Company has granted to the Investors, for a period of 12 months after the closing of the Second

Offering, the right to participate in subsequent offerings by the Company of Common Stock and Common Stock equivalents in an amount up

to 50 % of the amount of each such subsequent offering, on the same terms, conditions and price provided for in such subsequent offering.

Company received approximately $ 37,447,100 ($ 37,557,600 upon full exercise of the prefunded warrants) in net proceeds from the Second

Offering after deducting the discounts, commissions, and other estimated offering expenses payable by the Company.

As of June 30, 2021,

all pre-funded warrants have been fully exercised.

The Company plans to use the net proceeds from the Second Offering for working capital,

product development, order fulfillment and for general corporate purposes.

of the Company, or (iv) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic

consequences of ownership of capital stock of the Company.

pursuant to the terms of the Securities Purchase Agreement the Company has granted to the Investors, for a period of 12 months after

the closing of the Second Offering, the right to participate in subsequent offerings by the Company of Common Stock and Common Stock

equivalents in an amount up to 50 %

of the amount of each such subsequent offering, on the same terms, conditions and price provided for in such subsequent offering.

Company received approximately $ 37,447,100

($ 37,557,600

upon full exercise of the prefunded warrants)

in net proceeds from the Second Offering after deducting the discounts, commissions, and other estimated offering expenses payable by

As of September 30, 2021, all pre-funded warrants have been fully exercised.

The Company plans to use the net proceeds from

the Second Offering for working capital, product development, order fulfillment and for general corporate purposes.

Company received net proceeds from this offering as follows:

SCHEDULE OF NET PROCEEDS FROM OFFERING

Net proceeds received:

Proceeds from the sale of 3,250,000 shares of Common Stock at $ 2.80 per share

Proceeds from the sale of pre-funded warrants to purchase 11,050,000 shares of

Common Stock at $ 2.79 per share

OF NET PROCEEDS FROM OFFERING

from the sale of 3,250,000

shares of Common Stock at $ 2.80

from the sale of pre-funded warrants to purchase 11,050,000

Common Stock at $ 2.79

Placement agent fees and other expenses of the offering

Net proceeds of the offering

In conjunction with this Offering,

the Company issued prefunded Common Stock purchase warrants to purchase up to 11,050,000

Shares Common Stock at $ 2.80

per share ($ 2.79

prefunded at closing) and Common Stock purchase warrants to purchase up to 14,300,000

( 2,482,400 )

proceeds of the offering

conjunction with this Offering, the Company issued prefunded Common Stock purchase warrants to purchase up to 11,050,000

Shares Common Stock at $2.80 per share ($ 2.79

prefunded at closing) and Common Stock purchase

warrants to purchase up to 14,300,000

shares of Common Stock at $ 3.25

The underlying warrant terms provide for net cash settlement outside the control of the Company under certain circumstances

in the event of tender offers.

As such, the Company is required to treat these warrants as derivative liabilities which are valued at

their estimated fair value at their issuance date and at each reporting date with any subsequent changes reported in the consolidated

statements of operations as the change in fair value of warrant derivative liabilities.

Accordingly, t he

Company allocated a portion of the net proceeds of this offering to warrant derivative liabilities based on their estimated fair value

as follows (See Notes 4 and 11):

SCHEDULE OF NET PROCEEDS FROM OFFERING

The underlying warrant terms provide

for net cash settlement outside the control of the Company under certain circumstances in the event of tender offers.

As such, the Company

is required to treat these warrants as derivative liabilities which are valued at their estimated fair value at their issuance date and

at each reporting date with any subsequent changes reported in the consolidated statements of operations as the change in fair value

of warrant derivative liabilities.

Accordingly, the Company allocated a portion of the net proceeds of this offering to warrant derivative

liabilities based on their estimated fair value as follows (See Notes 4 and 11):

OF NET PROCEEDS FROM OFFERING

derivative liabilities

warrant derivative liabilities

Pre-funded warrant derivative liabilities

Total allocation of the net proceeds of the offering to warrant derivative liabilities

Total allocation

of the net proceeds of the offering to warrant derivative liabilities

Issuance of Restricted Common Stock.

On January 7, 2021, the board

of directors approved the grant of 450,000 shares of common stock to officers of the Company.

Such shares will generally vest one-half

on January 7, 2022 and one half on January 7, 2023, provided that each grantee remains an officer or employee on such dates.

NET EARNINGS (LOSS) PER SHARE

The calculation of the weighted

average number of shares outstanding and loss per share outstanding for the three and six months ended June 30, 2021 and 2020 are as follows:

January 7, 2021, the board of directors approved the grant of 450,000

shares of common stock to officers of the Company.

shares will generally vest one-half on January 7, 2022 and one half on January 7, 2023, provided that each grantee remains an officer

or employee on such dates .

September 20, 2021, the board of directors approved the grant of 406,000

shares of common stock to employees of

A total of 26,000 shares vested immediately upon grant and the remaining 380,000 shares will generally vest in

varying amounts over the next 5 years, provided that each grantee remains an employee on such vesting dates.

of Common Stock as Consideration for the TicketSmarter Acquisition.

September 2, 2021, the Company issued a total of 719,738 shares of common stock as a portion of the consideration paid for the acquisition

of Goody Tickets, LLC and TicketSmarter, LLC.

NET INCOME (LOSS) PER SHARE

calculation of the weighted average number of shares outstanding and income (loss) per share outstanding for the three and nine months

ended September 30, 2020 and 2019 are as follows:

OF WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING AND LOSS PER SHARE OUTSTANDING

Three Months Ended

Six Months Ended

Numerator for basic and diluted income per share – Net income

Denominator for basic loss per share – weighted average shares outstanding

Dilutive effect of shares issuable under stock options and warrants outstanding

Denominator for diluted loss per share – adjusted weighted average shares outstanding

Net loss per share:

Basic income (loss) per share

is based upon the weighted average number of common shares outstanding during the period.

For the three and six months ended June 30,

2021 and 2020, all shares issuable upon conversion of convertible debt and the exercise of outstanding stock options and warrants were

antidilutive, and, therefore, not included in the computation of diluted income (loss) per share.

for basic and diluted income per share – Net income (loss) attributable to common stockholders

$ ( 2,304,562 )

Denominator for basic loss per

share – weighted average shares outstanding

Dilutive effect

of shares issuable under stock options outstanding

effect of shares issuable under common stock purchase warrants and convertible debt outstanding

for diluted income (loss) per share – adjusted weighted average shares outstanding

Net income (loss) per share attributable

to common stockholders:

income (loss) per share is based upon the weighted average number of common shares outstanding during the period.

For the three and nine

months ended September 30, 2021 and 2020, all shares issuable upon conversion of convertible debt and the exercise of outstanding stock

options and warrants were antidilutive, and, therefore, not included in the computation of diluted income (loss) per share.

DIGITAL ALLY HEALTHCARE VENTURE

On June 4, 2021, Digital Ally

Healthcare, a wholly-owned subsidiary of the Company, entered into a venture with Nobility LLC (“Nobility”), an eight-year

old revenue cycle management (“RCM”) company servicing the medical industry, to form Nobility Healthcare, LLC (“Nobility

Healthcare”).

Digital Ally Healthcare is capitalizing the venture with $ 13.5 million to support the venture’s business strategy

to make acquisitions of RCM companies.

Digital Ally Healthcare owns 51% of the venture that entitles it to 51% of the distributable cash

as defined in the venture’s operating agreement plus a cumulative preferred return of 10% per annum on its invested capital.

will receive a management fee and 49% of the distributable cash, subordinated to Digital Ally Healthcare’s preferred return.

On June 30, 2021,

Nobility Healthcare completed the acquisition of Elite Medical Billing Specialists, Inc, a Michigan limited liability company

In accordance with the stock purchase agreement, Nobility Healthcare agreed to a non-refundable initial

payment (the “Initial Payment Amount”) of $ 850,000 .

In addition to the Initial Payment Amount, Nobility Healthcare agreed to issue a promissory note to the stockholders of Elite in the

principal amount of $ 350,000 that

is subject to an earn-out adjustment.

Lastly, included in the agreement, Nobility Healthcare agreed to pay in full the balance due

under a promissory note issued by the selling shareholders prior to this agreement, including the principal and accrued interest,

totaling $ 162,552 at

the closing date.

The Company anticipates the earn-out to be paid in full, therefore, the total aggregate purchase price of Elite

was determined to be approximately $ 1,376,509 .

The total acquisition related costs of the Elite Acquisition aggregated

June 4, 2021, Digital Ally Healthcare, a wholly-owned subsidiary of the Company, entered into a venture with Nobility LLC (“Nobility”),

an eight-year old revenue cycle management (“RCM”) company servicing the medical industry, to form Nobility Healthcare, LLC

(“Nobility Healthcare”).

Digital Ally Healthcare is capitalizing the venture with $ 13.5

million to support the venture’s business

strategy to make acquisitions of RCM companies.

Ally Healthcare owns 51% of the venture that entitles it to 51% of the distributable cash as defined in the venture’s operating

agreement plus a cumulative preferred return of 10% per annum on its invested capital.

Nobility will receive a management fee and 49%

of the distributable cash, subordinated to Digital Ally Healthcare’s preferred return .

June 30, 2021, Nobility Healthcare completed the acquisition of a private medical billing company (the “Healthcare Acquisition”).

In accordance with the stock purchase agreement, Nobility Healthcare agreed to a non-refundable initial payment (the “Initial

Payment Amount”) of $ 850,000 .

In addition to the Initial Payment Amount, Nobility Healthcare agreed to issue a promissory note to the stockholders of the Healthcare

Acquisition in the principal amount of $ 350,000

that is subject to an earn-out adjustment.

included in the agreement, Nobility Healthcare agreed to pay in full the balance due under a promissory note issued by the selling shareholders

prior to this agreement, including the principal and accrued interest, totaling $ 162,552

at the closing date.

The Company anticipates

the earn-out to be paid in full, therefore, the total aggregate purchase price of Elite was determined to be approximately $ 1,376,509 .

The total acquisition related costs of the Healthcare Acquisition aggregated $ 164,630 ,

which was expensed as incurred.

Subsequent to the acquisition date, the Company received further information regarding the pursed

assets and assumed liabilities.

As a result, the initial allocation of the purchase price was adjusted by increasing accounts receivable

by $ 75,000 with a corresponding reduction of goodwill during the three months ended September 30, 2021.

Company accounts for business combinations using the acquisition method.

Under the acquisition method, the purchase price of the Elite

Acquisition has been allocated to Elite’s acquired tangible and identifiable intangible assets and assumed liabilities based on

their estimated fair values at the time of the Elite Acquisition.

This allocation involves a number of assumptions, estimates, and judgments

that could materially affect the timing or amounts recognized in our financial statements.

Our assumptions and estimates are based upon

comparable market data and information obtained from the management of Nobility.

Under the acquisition method, the purchase price of the Healthcare Acquisition

has been allocated to the acquired tangible and identifiable intangible assets and assumed liabilities based on their

estimated fair values at the time of the Healthcare Acquisition.

This allocation involves a number of assumptions, estimates,

and judgments that could materially affect the timing or amounts recognized in our financial statements.

The acquisition was

structured as stock purchase, therefore the excess purchase price over the fair value of net tangible assets acquired was recorded

as goodwill, which will not be amortized for income tax filing purposes.

The results of operations of acquired businesses are

included in the consolidated financial statements from the acquisition date.

purchase price of the Elite Acquisition was allocated to Elite’s tangible assets, identifiable intangible assets, and assumed liabilities

based on their estimated fair values at the time of the Elite Acquisition.

The preliminary fair value of assets acquired and liabilities

assumed in the Elite Acquisition were as follows:

purchase price of the Healthcare Acquisition was allocated to the tangible assets, identifiable intangible assets, and

assumed liabilities based on their estimated fair values at the time of the Healthcare Acquisition.

The preliminary fair value

of assets acquired and liabilities assumed in the Healthcare Acquisition were as follows:

OF PRELIMINARY FAIR VALUE OF ASSETS AD LIABILITIES ASSUMED

Assets acquired:

Tangible assets acquired, consisting of acquired cash

Liabilities assumed consisting of a promissory note issued

by the Selling shareholders

assets acquired, including $ 13,957 of acquired cash

assumed consisting of a promissory note issued by the Selling shareholders

which was paid off at closing

Total assets acquired and liabilities assumed

Cash paid at Elite Acquisition date

assets acquired and liabilities assumed

Consideration:

Healthcare Acquisition date

consideration

Healthcare Acquisition purchase price

August 31, 2021, Nobility Healthcare completed the acquisition of another private medical billing company (the “Medical

Billing Acquisition”).

In accordance with the stock purchase agreement, Nobility Healthcare agreed to a non-refundable initial

payment (the “Initial Payment Amount”) of $ 2,270,000 .

In addition to the Initial Payment Amount, Nobility Healthcare agreed to issue a promissory note to the stockholders of the Medical

Billing Acquisition in the principal amount of $ 650,000

that is subject to an earn-out adjustment.

Company anticipates the earn-out to be paid in full, therefore, the total aggregate purchase price of the Medical Billing Acquisition

was determined to be approximately $ 2,920,000 .

The total acquisition related costs of the Medical Billing Acquisition aggregated $ 5,602 ,

which was expensed as incurred.

Company accounts for business combinations using the acquisition method.

Under the acquisition method, the purchase price of the Medical

Billing Acquisition has been allocated to the acquired tangible and identifiable intangible assets and assumed

liabilities based on their estimated fair values at the time of the Medical Billing Acquisition.

This allocation involves a

number of assumptions, estimates, and judgments that could materially affect the timing or amounts recognized in our financial

The acquisition was structured as stock purchase, therefore the excess purchase price over the fair value of net

tangible assets acquired was recorded as goodwill, which will not be amortized for income tax filing purposes.

The results of

operations of acquired businesses are included in the consolidated financial statements from the acquisition date.

purchase price of the Medical Billing Acquisition was allocated to the tangible assets, identifiable intangible assets,

and assumed liabilities based on their estimated fair values at the time of the Medical Billing Acquisition.

The preliminary fair

value of assets acquired, and liabilities assumed in the Medical Billing Acquisition were as follows:

OF PRELIMINARY FAIR VALUE OF ASSETS ACQUIRED AND LIABILITIES ACQUISITION

Assets acquired:

Tangible assets acquired

assumed pursuant to stock purchase agreement

assets acquired and liabilities assumed

Consideration:

acquisition date

consideration

acquisition purchase price

TICKETSMARTER ACQUISTION

September 1, 2021, Digital Ally, Inc.

formed TicketSmarter, Inc.

(“TicketSmarter”), through which the Company completed the

acquisition of Goody Tickets, LLC, a Kansas limited liability company (“Goody Tickets”) and TicketSmarter, LLC, a Kansas

limited liability company (“TicketSmarter LLC”), collectively the “TicketSmarter Acquisition”.

In accordance

with the stock purchase agreement, the Company agreed to an initial payment (the “Initial Payment Amount”) of $ 9,403,600

through a combination of cash and common

In addition to the Initial Payment Amount, the Company agreed to issue an earn-out agreement to the stockholders of Goody

Tickets and TicketSmarter LLC in the contingent amount of $ 4,244,400

that is subject to an earn-out adjustment based

on actual EBITDA achieved in 2021.

Lastly, included in the agreement, the Company agreed to place $ 500,000

in escrow, subject to a working capital adjustment

based on actual working capital amounts on the acquisition date as defined in the agreement, this amount was subject

to disbursement 45 days following the close of the acquisition.

The parties completed the working capital adjustment resulting in

the Company retaining $ 297,726 of the escrow amount with the $ 202,274 released to the Sellers.

The Company anticipates the earn-out

amount to be paid in full, therefore, the total aggregate purchase price of the TicketSmarter Acquisition was determined to be approximately

$ 13,850,274 .

The total acquisition related costs of the TicketSmarter Acquisition

aggregated $ 40,625 ,

which was expensed as incurred.

Company accounts for business combinations using the acquisition method.

Under the acquisition method, the purchase price of the

TicketSmarter Acquisition has been allocated to Goody Tickets’ and TicketSmarter LLC’s acquired tangible and

identifiable intangible assets and assumed liabilities based on their estimated fair values at the time of the TicketSmarter

This allocation involves a number of assumptions, estimates, and judgments that could materially affect the timing or

amounts recognized in our financial statements.

The TicketSmarter Acquisition was structured as a stock purchase, however the

parties agreed to coordinate the election to invoke IRS Section 338(h)(10) relative to this transaction for tax purposes.

the excess purchase price over the fair value of net tangible assets acquired was recorded as goodwill, which will be amortized over

15 years for income tax filing purposes.

The results of operations of acquired businesses are included in the consolidated

financial statements from the acquisition date.

purchase price of the TicketSmarter Acquisition was allocated to Goody Tickets’ and TicketSmarter LLC’s tangible assets,

goodwill, identifiable intangible assets, and assumed liabilities based on their estimated fair values at the time of the TicketSmarter

The preliminary fair value of assets acquired, and liabilities assumed in the TicketSmarter Acquisition were as follows:

OF PRELIMINARY FAIR VALUE OF ASSETS ACQUIRED AND LIABILITIES ASSUMED IN THE TICKET SMARTER ACQUISITION

Assets acquired:

assets acquired, including $ 51,432 of cash acquired

( 5,128,964 )

assets acquired and liabilities assumed

Consideration:

TicketSmarter Acquisition date

issued as consideration for TicketSmarter Acquisition at date of

Contingent consideration

Total Elite Acquisition purchase price

earn-out agreement

paid at closing to escrow amount

retained from escrow amount pursuant to settlement of working capital target

TicketSmarter Acquisition purchase price

RELATED PARTY TRANSACTIONS

American Rebel Holding, Inc.

Rebel Holding, Inc.

Secured Promissory Notes

On October 1, 2020, the Company

advanced $ 250,000 to American Rebel Holdings, Inc.

(AREB) under a secured promissory note.

The CEO, President and Chairman of AREB is

the brother of the Company’s CEO, President and Chairman.

Such note bears interest at 8 % and is secured by all the tangible and

intangible assets of the Company that are not currently secured by other indebtedness.

The Company also received warrants to purchase

1,250,000 shares of AREB common stock at an exercise price of $ 0.10 per share with a five-year term .

This note had an original

maturity date of January 2, 2021 ;

however, additional provisions within the note provided for an extension of the maturity date for fourteen

months due to AREB’s failure to raise $300,000 in new debt or equity financing prior to the original maturity date.

Upon this extension,

the AREB was obligated to make equal monthly payments of principal and interest over the extended period of the note.

On October 21, 2020, the Company

advanced $ 250,000 to AREB under a second secured promissory note.

Such note bears interest at 8 % and is secured by inventory manufactured

and revenue/accounts receivable derived from a specific purchase order.

The Company also received warrants to purchase 1,250,000 shares

of AREB common stock at an exercise price of $ 0.10 per share with a five -year term .

This note has a maturity date of April 21, 2021 , subject to full repayment upon AREB closing on debt or equity financings of at least $600,000, and the receipt of revenue from the

sale of inventory sold under the specific purchase order serving as collateral .

On March 1, 2021, the Company advanced an additional $ 117,600

to AREB on terms similar to the previously issued notes.

On April 21, 2021, the parties

agreed to the terms of a Debt Settlement Agreement and Mutual Release regarding the following:

(a) the secured promissory note dated October

October 1, 2020, the Company advanced $ 250,000

to American Rebel Holdings, Inc.

a secured promissory note.

The CEO, President and Chairman of AREB is the brother of the Company’s CEO, President and Chairman.

Such note bears interest at 8 %

and is secured by all the tangible and intangible assets of the Company that are not currently secured by other indebtedness.

also received warrants to purchase 1,250,000

shares of AREB common stock at an exercise price

per share with a five-year

note had an original maturity date of January

however, additional provisions within the note provided for an extension of the maturity date for fourteen months due to AREB’s

failure to raise $300,000 in new debt or equity financing prior to the original maturity date.

this extension, the AREB was obligated to make equal monthly payments of principal and interest over the extended period of the note.

October 21, 2020, the Company advanced $ 250,000

to AREB under a second secured promissory note.

Such note bears interest at 8 %

and is secured by inventory manufactured and revenue/accounts receivable derived from a specific purchase order.

The Company also received

warrants to purchase 1,250,000

shares of AREB common stock at an exercise price

per share with a five-year

This note has a maturity date of

21, 2021 , subject

to full repayment upon AREB closing on debt or equity financings of at least $600,000, and the receipt of revenue from the sale of inventory

sold under the specific purchase order serving as collateral.

March 1, 2021, the Company advanced an additional $ 117,600

to AREB on terms similar to the previously issued

April 21, 2021, the parties agreed to the terms of a Debt Settlement Agreement and Mutual Release regarding the following:

(a) the secured

promissory note dated October 1, 2020;

(b) the secured promissory note dated October 21, 2020;

and (c) an advance made by the Company on March 1, 2021.

arranged for a lump sum payment aggregating $ 639,956 to liquidate all outstanding debt including accrued interest for the two delinquent

notes and the advance which lump-sum payment was made on April 21, 2021.

Unsecured Promissory Notes Payable – Related party

During February and April 2020,

the Company borrowed a total of $ 319,000 from the Company’s Chairman, CEO & President under an unsecured promissory note bearing

interest at 6 % through its May 28, 2020 maturity date.

The proceeds from the note were used for general corporate purposes.

The principal

balance and related accrued interest were paid in full in cash during June 2020.

Total interest accrued and paid on this note was $ 5,236 .

Elite Medical Billing Specialists, Inc.

Acquisition Related Expenses

On June 30, 2021,

Nobility Healthcare, LLC, (a consolidated subsidiary of the Company), acquired Elite and paid acquisition related costs aggregating

Of the total acquisition related costs paid, a total of $ 30,600 was paid to Nobility, LLC, a minority member of Nobility

Healthcare, LLC and $ 23,580 to one of Nobility, LLC’s members in accordance with the provisions of the operating

SUBSEQUENT EVENTS

Letter of Intent to

Acquire Medical Billing Company

21, 2021, the Company’s healthcare subsidiary entered a letter of intent to acquire 100 % of the capital stock of a medical billing

company located in the Midwest for a total purchase price of $ 2,750,000 (the “Target”).

The purchase price includes $ 2.1

million in cash at closing and a $ 650,000 contingent consideration promissory note bearing interest at 3 % per annum subject to adjustment

based on revenues achieved over an approximate 18-month period after closing.

The letter of intent is subject to satisfactory completion

of due diligence procedures, review of legal, financial, tax and other matters concerning the Target’s business.

The letter of

intent is also not binding until the parties mutually agree to the terms of the underlying definitive agreements including the receipt

of all approvals and consents considered necessary by both parties.

The parties are currently negotiating the final definitive agreements

and anticipate a closing date on or around August 31, 2021.

However, there can be no assurances that the parties will complete the acquisition

of the Target and on what terms will be included in the final definitive agreements.

Amendment to the 2020

Stock Option and Restricted Stock Plan

Board of Directors approved an amendment to the 2020 Stock Option and Restricted Stock Plan (the “2020 Plan”) on March 15,

2021, subject to the affirmative vote of a majority of common shares by the Company’s stockholders.

At the annual meeting of the

Company’s stockholders held on July 8, 2020 (the “Annual Meeting”) the stockholders approved the amendment to the 2020

Such amendment provided for an increase in the number of shares reserved for issuance under the plan from 1,000,000 to 2,500,000

shares of common stock issuable under the 2020 Plan.

and (c) an advance made by the Company

on March 1, 2021.

The parties arranged for a lump sum payment aggregating $ 639,956

to liquidate all outstanding debt including accrued

interest for the two delinquent notes and the advance which lump-sum payment was made on April 21, 2021.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements