KUSTOM ENTERTAINMENT, INC. 10-Q

Item 1 – Financial Statements. DIGITAL ALLY, INC. CONDENSED CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 2021 AND DECEMBER 31, 2020 September 30, 2021 December 31, 2020 (Unaudited) Assets Current assets: Cash and cash equivalents $ 40,743,057 $ 4,361,758 Restricted cash 500,000 — Accounts receivable-trade, less allowance for doubtful accounts of $ 123,751 and $ 123,224 – September 30, 2021 and December 31, 2020, respectively 2,356,411 1,705,461 Other receivables 1,621,053 1,529,920 Inventories, net 11,611,249 8,202,274 Prepaid expenses and other current assets 9,306,660 2,030,693 Total current assets 66,138,430 17,830,106 Property, plant and equipment, net 6,068,255 666,800 Goodwill and other intangible assets, net 16,454,946 392,564 Operating lease right of use assets, net 1,109,463 753,175 Other assets 2,121,158 1,154,882 Total assets $ 91,892,252 $ 20,797,527 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 5,710,765 $ 1,144,676 Accrued expenses 1,218,958 796,094 Current portion of operating lease obligations 384,222 113,484 Contract liabilities – current 1,630,529 1,647,469 Debt obligations – current 4,547,421 11,727 Warrant derivative liabilities 17,942,020 — Income taxes payable 1,827 7,158 Total current liabilities 31,435,742 3,720,608 Long-term liabilities: Debt obligations – long term 846,979 148,273 Operating lease obligation, long term 795,704 723,272 Contract liabilities-long term 2,575,786 1,848,869 Total liabilities 35,654,211 6,441,022 Commitments and contingencies Stockholders’ Equity: Common stock, $ 0.001 par value per share; 100,000,000 shares authorized; shares issued: 52,702,947 – September 30, 2021 and 26,834,709 – December 31, 2020 52,703 26,835 Additional paid in capital 123,968,757 106,501,396 Treasury stock, at cost ( 63,518 shares) ( 2,157,226 ) ( 2,157,226 ) Noncontrolling interest in consolidated subsidiary ( 19,863 ) — Accumulated deficit ( 65,606,330 ) ( 90,014,500 ) Total stockholders’ equity 56,238,041 14,356,505 Total liabilities and stockholders’ equity $ 91,892,252 $ 20,797,527 See Notes to the Unaudited Condensed Consolidated Financial Statements. 3 DIGITAL ALLY, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020 (Unaudited) Three months ended September 30, Nine months ended September 30, 2021 2020 2021 2020 Revenue: Product $ 1,356,454 $ 2,958,579 $ 4,988,364 $ 5,778,695 Service and other 3,283,368 630,061 4,680,959 1,967,881 Total revenue 4,639,822 3,588,640 9,669,323 7,746,576 Cost of revenue: Product 1,197,217 2,177,676 3,776,185 4,332,450 Service and other 2,042,035 188,316 2,419,884 533,690 Total cost of revenue 3,239,252 2,365,992 6,196,069 4,866,140 Gross profit 1,400,570 1,222,648 3,473,254 2,880,436 Selling, general and administrative expenses: Research and development expense 492,221 405,083 1,402,185 1,250,528 Selling, advertising and promotional expense 1,511,682 789,854 2,978,620 1,958,884 General and administrative expense 2,995,640 1,871,668 8,174,002 5,585,500 Total selling, general and administrative expenses 4,999,543 3,066,605 12,554,807 8,794,912 Operating loss ( 3,598,973 ) ( 1,843,957 ) ( 9,081,553 ) ( 5,914,476 ) Other income (expense): Interest income 90,036 11,339 222,497 33,208 Interest expense ( 5,675 ) ( 4,940 ) ( 8,466 ) ( 338,136 ) Secured convertible notes issuance expense — — — ( 34,906 ) Change in fair value of proceeds investment agreement — 2,365,000 — 5,250,000 Change in fair value of secured convertible notes — — — ( 1,300,252 ) Change in fair value of short-term investments ( 21,656 ) — ( 28,210 ) — Change in fair value of warrant derivative liabilities 11,585,204 — 33,274,039 — Gain on extinguishment of debt — — 10,000 — Total other income 11,647,909 2,371,399 33,469,860 3,609,914 Income (loss) before income tax benefit 8,048,936 527,442 24,388,307 ( 2,304,562 ) Income tax benefit (expense) — — — — Net income (loss) 8,048,936 527,442 24,388,307 ( 2,304,562 ) Net loss attributable to noncontrolling interests of consolidated subsidiary 19,863 — 19,863 — Net income (loss) attributable to common stockholders $ 8,068,799 $ 527,442 $ 24,408,170 $ ( 2,304,562 ) Net income (loss) per share attributable to common stockholders’ information: Basic $ 0.16 $ 0.02 $ 0.49 $ ( 0.12 ) Diluted $ 0.16 $ 0.02 $ 0.49 $ ( 0.12 ) Weighted average shares outstanding: Basic 51,809,435 26,613,109 49,404,794 19,861,694 Diluted 51,809,435 26,627,941 49,404,794 19,861,694 See Notes to the Unaudited Condensed Consolidated Financial Statements. 4 DIGITAL ALLY, INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT) FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020 (Unaudited) Common Stock Additional Paid In Treasury Noncontrolling interest in consolidated Accumulated Total Stockholders’ Equity Shares Amount Capital stock subsidiary deficit (Deficit) Balance, December 31, 2019 12,079,095 $ 12,079 $ 83,216,387 $ ( 2,157,226 ) $ — $ ( 87,388,619 ) $ ( 6,317,379 ) Stock-based compensation — — 311,677 — — — 311,677 Restricted common stock grant 530,050 530 ( 530 ) — — — — Issuance of common stock for services rendered Issuance of common stock for services rendered, shares Restricted common stock forfeitures ( 22,500 ) ( 23 ) 23 — — — — 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 purchase warrants at exercise price of $3.25 per share in connection with the registered direct offerings Issuance of common stock upon conversion of secured convertible notes and interest 959,543 960 1,342,400 — — — 1,343,360 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 as compensation for acquisition Issuance of common stock as compensation for acquisition, shares Issuance of common stock through underwritten public offering at $ 1.15 per share (net of offering expenses and underwriters’ discount) 2,521,740 2,522 2,499,614 — — — 2,502,136 Issuance of common stock purchase warrants in connection with issuance of unsecured promissory note payable — — 20,806 — — — 20,806 Net loss — — — — — ( 2,334,110 ) ( 2,334,110 ) Balance, March 31, 2020 16,067,928 16,068 87,390,377 ( 2,157,226 ) — ( 89,722,729 ) ( 4,473,510 ) Stock-based compensation — — 376,738 — — — 376,738 Restricted common stock grant 135,450 135 ( 135 ) — — — — Restricted common stock forfeitures ( 12,750 ) ( 13 ) 13 — — — — Issuance of common stock upon conversion of secured convertible notes and interest 1,664,669 1,665 1,679,660 — — — 1,681,325 Issuance of common stock through underwritten public offering at $ 1.65 per share (net of offering expenses and underwriters’ discount) 3,554,545 3,554 5,346,859 — — — 5,350,413 Issuance of common stock through underwritten public offering (net of offering expenses and underwriters’ discount) 3,554,545 3,554 5,346,859 — — 5,350,413 Issuance of common stock through underwritten public offering at $ 2.15 per share (net of offering expenses and underwriters’ discount) 2,539,534 2,540 4,974,152 — — — 4,976,692 Issuance of common stock through underwritten public offering (net of offering expenses and underwriters’ discount) 2,539,534 2,540 4,974,152 — — 4,976,692 Issuance of common stock upon exercise of common stock purchase warrants 2,693,867 2,694 5,200,428 — — — 5,203,122 Issuance of common stock upon exercise of stock options 1,875 2 7,798 7,800 Issuance of common stock purchase warrants in connection with issuance of secured convertible notes — — 721,141 — — — 721,141 Net loss — — — — — ( 497,894 ) ( 497,894 ) Balance, June 30, 2020 26,645,118 26,645 105,697,031 ( 2,157,226 ) — ( 90,220,623 ) 13,345,827 Stock-based compensation — — 498,356 — — — 498,356 Restricted common stock grant 181,091 181 ( 181 ) — — — — Issuance of common stock for services rendered 10,000 10 30,690 — — — 30,700 Net income — — — — — 527,442 527,442 Balance, September 30, 2020 26,836,209 $ 26,836 $ 106,225,896 $ ( 2,157,226 ) $ — $ ( 89,693,181 ) $ 14,402,325 Balance, December 31, 2020 26,834,709 $ 26,835 $ 106,501,396 $ ( 2,157,226 ) $ — $ ( 90,014,500 ) $ 14,356,505 Stock-based compensation — — 326,164 — — — 326,164 Restricted common stock grant 450,000 450 ( 450 ) — — — — Restricted common stock forfeitures ( 7,500 ) ( 8 ) 8 — — — — Issuance of common stock through registered direct offering at $ 3.095 per share and accompanying warrants (net of offering expenses and placement agent discount) 2,800,000 2,800 6,726,200 — — — 6,729,000 Issuance of common stock through registered direct offering at $ 2.80 per share and accompanying warrants (net of offering expenses and placement agent discount) 3,250,000 3,250 6,614,350 — — — 6,617,600 Exercise of pre-funded common stock purchase warrants at $ 3.095 per share 7,200,000 7,200 22,276,800 — — — 22,284,000 Exercise of pre-funded common stock purchase warrants 7,200,000 7,200 22,276,800 — — 22,284,000 Exercise of pre-funded common stock purchase warrants at $ 2.80 per share 11,050,000 11,050 30,928,950 — — — 30,940,000 Exercise of pre-funded common stock purchase warrants 11,050,000 11,050 30,928,950 — — 30,940,000 Issuance of pre-funded common stock purchase warrants in connection with the registered direct offerings — — ( 1,817,548 ) — — — ( 1,817,548 ) Issuance of common stock purchase warrants at exercise price of $ 3.25 per share in connection with the registered direct offerings — — ( 49,398,510 ) — — — ( 49,398,510 ) Issuance of common stock purchase warrants at exercise price in connection with the registered direct offerings — — ( 49,398,510 ) — — ( 49,398,510 ) Net income — — — — — 21,721,858 21,721,858 Balance, March 31, 2021 51,577,209 51,577 122,157,360 ( 2,157,226 ) — ( 68,292,642 ) 51,759,069 Stock-based compensation — — 330,213 — — — 330,213 Net loss — — — — — ( 5,382,487 ) ( 5,382,487 ) Balance, June 30, 2021 51,577,209 51,577 122,487,573 ( 2,157,226 ) — ( 73,675,129 ) 46,706,795 Issuance of common stock through registered direct offering and accompanying warrants (net of offering expenses and placement agent discount) - - - — — - Issuance of common stock through registered direct offering accompanying warrants (net of offering expenses and placement agent discount) - - - — — - Stock-based compensation — — 491,950 — — — 491,950 Issuance of common stock as consideration for acquisition 719,738 720 989,640 — 990,360 Restricted common stock grant 406,000 406 ( 406 ) — Net income — — — — ( 19,863 ) 8,068,799 8,048,936 Net income — — — — ( 19,863 ) 8,068,799 8,048,936 Balance, September 30, 2021 52,702,947 $ 52,703 $ 123,968,757 $ ( 2,157,226 ) $ ( 19,863 ) $ ( 65,606,330 ) $ 56,238,041 See Notes to the Unaudited Condensed Consolidated Financial Statements. 5 DIGITAL ALLY, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020 (Unaudited) 2021 2020 Cash Flows from Operating Activities: Net income (loss) $ 24,388,307 $ ( 2,304,562 ) Adjustments to reconcile net income (loss) to net cash flows used in by operating activities: Depreciation and amortization 239,630 189,390 Gain on extinguishment of debt ( 10,000 ) — Stock based compensation 1,148,327 1,186,771 Change in fair value of warrant derivative liabilities ( 33,274,039 ) — Provision for inventory obsolescence 339,668 254,109 Amortization of discount on unsecured promissory notes — 86,867 Change in fair value of short-term investments 28,210 — Change in fair value of secured convertible notes — 1,300,252 Change in fair value of proceeds investment agreement — ( 5,250,000 ) Provision for doubtful accounts receivable ( 527 ) — Issuance of common stock for services rendered — 30,700 Debt issuance costs — 34,906 Change in operating assets and liabilities: (Increase) decrease in: Accounts receivable – trade 337,364 ( 728,917 ) Accounts receivable – other 111,768 ( 370,123 ) Inventories ( 1,767,724 ) ( 967,324 ) Income tax refund receivable — 44,650 Prepaid expenses ( 3,445,546 ) ( 1,914,855 ) Operating lease right of use assets ( 27,875 ) ( 669,662 ) Other assets ( 752,324 ) ( 110,679 ) Increase (decrease) in: Accounts payable ( 475,256 ) ( 1,281,246 ) Accrued expenses 209,833 ( 129,593 ) Income taxes payable ( 5,331 ) ( 4,776 ) Operating lease obligations 14,757 633,505 ) Contract liabilities 709,977 ( 145,018 ) Net cash used in operating activities ( 12,230,781 ) ( 10,115,605 ) Cash Flows from Investing Activities: Purchases of property, building and equipment ( 5,575,021 ) ( 599,449 ) Additions to other intangible assets ( 239,139 ) ( 40,277 ) Additions to investments — ( 250,000 ) Cash paid for Nobility Healthcare Division acquisition, net of cash acquired ( 1,012,552 ) — Cash paid for Nobility Healthcare Division acquisition, net of cash acquired ( 2,270,000 ) — Cash paid for TicketSmarter acquisition, net of cash acquired ( 8,361,808 ) — Restricted cash related to TicketSmarter acquisition ( 500,000 ) — Net cash used in investing activities ( 17,958,520 ) ( 889,726 ) Cash Flows from Financing Activities: Proceeds from issuance of common stock upon exercise of pre-funded warrants 53,224,000 — Net proceeds from sale of common stock in registered direct offerings 13,346,600 — Proceeds from unsecured promissory note payable, related party — 319,000 Proceeds from unsecured promissory note payable — 100,000 Proceeds from promissory notes payable — 1,568,900 Proceeds from issuance of common stock upon exercise of warrants — 5,203,122 Proceeds from issuance of secured convertible notes payable — 1,500,000 Proceeds from sale of common stock in underwritten public offering — 12,829,241 Proceeds from exercise of stock options — 7,800 Principal payment on subordinated notes payable — ( 400,000 ) Principal payment on secured convertible notes — ( 748,180 ) Principal payments on unsecured promissory note payable, related party — ( 319,000 ) Debt issuance costs — ( 34,906 ) Principal payment on proceeds investment agreement — ( 1,250,000 ) Net cash provided by financing activities 66,570,600 18,775,977 Net increase in cash and cash equivalents 36,381,299 7,770,646 Cash and cash equivalents, beginning of period 4,361,758 359,685 Cash and cash equivalents, end of period $ 40,743,057 $ 8,130,331 Supplemental disclosures of cash flow information: Cash payments for interest $ — $ 128,911 Cash payments for income taxes $ 7,581 $ 4,776 Supplemental disclosures of non-cash investing and financing activities: Issuance of contingent consideration earn-out agreement for business acquisition $ 4,244,400 $ — Issuance of contingent consideration promissory note for business acquisitions $ 1,000,000 $ — Assets assumed in business acquisitions $ 7,366,399 $ — Liabilities assumed in business acquisitions $ 5,494,417 $ — Common stock issued as consideration for business acquisitions $ 990,360 $ — Restricted common stock grant $ 856 $ 845 Restricted common stock forfeitures $ 8 $ 36 Cashless exercise of common stock purchase warrants $ 0 $ 7 Amounts allocated to initial measurement of warrant derivative liabilities in connection to the warrants and pre-funded warrants $ 51,216,058 $ — Issuance of common stock upon conversion of secured convertible notes $ — $ 3,024,685 Amounts allocated to common stock purchase warrants in connection with issuance of unsecured promissory note payable $ — $ 741,947 See Notes to the Unaudited Condensed Consolidated Financial Statements. 6 DIGITAL ALLY, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Operations : Digital Ally, Inc. (with its wholly-owned subsidiaries, Digital Ally International, Inc., Shield Products, LLC, Digital Ally Healthcare, LLC, 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 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. 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 country. 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. The Company was originally incorporated in Nevada on December 13, 2000 as Vegas Petra, Inc. and had no operations until 2004. On November 30, 2004, Vegas Petra, Inc. entered into a Plan of Merger with Digital Ally, Inc., at which time the merged entity was renamed Digital Ally, Inc. Basis of Presentation : The condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. 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. The balance sheet at December 31, 2020 has been derived from the audited financial statements at that date, but does not include all the information and footnotes required by generally accepted accounting principles in the United States for complete financial statements. For further information, refer to the audited financial statements and footnotes included in the Company’s annual report on Form 10-K 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 September 30, 2021. 7 COVID-19 pandemic : The 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 partners. Like 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. 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. Given 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. In 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. To date, travel restrictions and border closures have not materially impacted its ability to obtain inventory or manufacture or deliver products or services to customers. However, if such restrictions become more severe, they could negatively impact those activities in 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. 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. Like 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. 8 The actions the Company has taken so far during the COVID-19 pandemic include, but are not limited to: ● requiring all employees who can work from home to work from home; ● increasing its IT networking capability to best assure employees can work effectively outside the office; and ● for employees who must perform essential functions in one of its offices: ● having employees maintain a distance of at least six feet from other employees whenever possible; ● having employees work in dedicated shifts to lower the risk all employees who perform similar tasks might become infected by COVID-19; ● having employees stay segregated from other employees in the office with whom they require no interaction; and ● requiring unvaccinated 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, 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. 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. Basis of Consolidation : The 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, LLC. All intercompany balances and transactions have been eliminated during consolidation. The Company formed Digital Ally International, Inc. during August 2009 to facilitate the export sales of its products. The Company formed Shield Products, LLC in May 2020 to facilitate the sales of its Shield™ line of disinfectant/cleanser products and ThermoVu ® line of temperature monitoring equipment. 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, Inc. upon its acquisition of Goody Tickets, LLC and TicketSmarter, LLC, to facilitate the global ticketing operations. Revenue Recognition : The Company applies the provisions of Accounting Standards Codification (ASC) 606-10, Revenue from Contracts with Customers , and all related appropriate guidance. The Company recognizes revenue under the core principle to depict the transfer of control to its customers in an amount reflecting the consideration to which it expects to be entitled. In order to achieve that core principle, the Company applies the following five-step approach: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when a performance obligation is satisfied. 9 The Company considers customer purchase orders, which in some cases are governed by master sales agreements, to be the contracts with the customer. In situations where sales are to a distributor, the Company had concluded its contracts are with the distributor as the Company holds a contract bearing enforceable rights and obligations only with the distributor. As part of its consideration for the contract, the Company evaluates certain factors including the customers’ ability to pay (or credit risk). For each contract, the Company considers the promise to transfer products, each of which is distinct, to be the identified performance obligations. In determining the transaction price, the Company evaluates whether the price is subject to refund or adjustment to determine the net consideration to which it expects to be entitled. As the Company’s standard payment terms are less than one year, it has elected the practical expedient under ASC 606-10-32-18 to not assess whether a contract has a significant financing component. The Company allocates the transaction price to each distinct product based on its relative standalone selling price. The product price as specified on the purchase order is considered the standalone selling price as it is an observable input which depicts the price as if sold to a similar customer in similar circumstances. Revenue is recognized when control of the product is transferred to the customer ( i.e. , when the Company’s performance obligations is satisfied), which typically occurs at shipment. Further in determining whether control has been transferred, the Company considers if there is a present right to payment and legal title, along with risks and rewards of ownership having transferred to the customer. Customers do not have a right to return the product other than for warranty reasons for which they would only receive repair services or replacement product. The Company has also elected the practical expedient under ASC 340-40-25-4 to expense commissions for product sales when incurred as the amortization period of the commission asset the Company would have otherwise recognized is less than one year. The Company sells its products and services to customers in the following manner: ● Product 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. ● Product 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 the margin as its compensation for its role in the transaction. The distributor generally maintains product inventory, customer receivables and all related risks and rewards of ownership. Accordingly, upon application of steps one through five above, revenue is recorded when the product is shipped to the distributor consistent with the terms of the distribution agreement. ● Repair parts and services for domestic and international customers are generally handled by its inside customer service employees. Revenue is recognized upon shipment of the repair parts and acceptance of the service or materials by the end customer. ● Service 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. Sales taxes collected on products sold are excluded from revenues and are reported as accrued expenses in the accompanying balance sheets until payments are remitted. Service 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. Contracts with some of the Company’s customers contain multiple performance obligations that are distinct and accounted for separately. The transaction price is allocated to the separate performance obligations on a relative standalone selling price (“SSP”). The Company determined SSP for all the performance obligations using observable inputs, such as standalone sales and historical pricing. SSP is consistent with the Company’s overall pricing objectives, taking into consideration the type of service being provided. SSP also reflects the amount the Company would charge for the performance obligation if it were sold separately in a standalone sale. Multiple performance obligations consist of product, software, cloud subscriptions and extended warranties. 10 The Company’s multiple performance obligations may include future in-car or body-worn camera devices to be delivered at defined points within a multi-year contract, and in those arrangements, the Company allocates total arrangement consideration over the life of the multi-year contract to future deliverables using management’s best estimate of selling price. Contract liabilities consist of deferred revenue and include payments received in advance of performance under the contract and are reported separately as current liabilities and non-current liabilities in the condensed consolidated balance sheets. Such amounts consist of extended warranty contracts, prepaid cloud services and prepaid installation services and are generally recognized as the respective performance obligations are satisfied. Use of Estimates : The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates. Management utilizes various other estimates, including but not limited to determining the estimated lives of long-lived assets, determining the potential impairment of long-lived assets, the fair value of warrants, options, proceeds investment agreement and convertible debt, the recognition of revenue, inventory valuation reserve, the valuation allowance for deferred tax assets and other legal claims and contingencies. The results of any changes in accounting estimates are reflected in the financial statements in the period in which the changes become evident. Estimates and assumptions are reviewed periodically, and the effects of revisions are reflected in the period that they are determined to be necessary. Cash and cash equivalents : Cash and cash equivalents include funds on hand, in bank and short-term investments with original maturities of ninety (90) days or less. The Company maintains its cash and cash equivalents in banks insured by the Federal Deposit Insurance Corporation (FDIC) in accounts that at times may be in excess of the federally insured limit of $ 250,000 per bank. The Company minimizes this risk by 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 , respectively. Accounts Receivable: Accounts receivable are carried at original invoice amount less an estimate made for doubtful receivables based on a review of all outstanding amounts on a weekly basis. The Company determines the allowance for doubtful accounts by regularly evaluating individual customer receivables and considering a customer’s financial condition, credit history, and current economic conditions. One individual customer receivable balances exceeded 10 % of total accounts receivable as of September 30, 2021 and December 31, 2020, which totaled $ 558,729 or 24 % and $ 319,000 or 19 % of total accounts receivable, respectively. Trade receivables are written off when deemed uncollectible. Recoveries of trade receivables previously written off are recorded when received. A trade receivable is considered to be past due if any portion of the receivable balance is outstanding for more than thirty (30) days beyond terms. No interest is charged on overdue trade receivables. Goodwill and Other Intangibles Goodwill - 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. The Company has just recently completed several acquisitions that generated goodwill that will be subject to impairment testing for the first time on December 31, 2021. Goodwill impairment testing is performed at the reporting unit level. Goodwill is assigned to reporting units at the date the goodwill is initially recorded. 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 amount. 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. The 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. Long-lived 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. Factors considered by the Company include, but are not limited to, significant underperformance relative to historical or projected operating results; 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. Other intangible assets that have finite lives are amortized over their useful lives. Segments of Business : Management 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: SUMMARY OF SALES BY GEOGRAPHIC AREA 2021 2020 2021 2020 Three Months Ended September 30, Nine months ended September 30, 2021 2020 2021 2020 Sales by segment: Digital Ally Product $ 1,356,454 $ 2,958,579 $ 4,988,364 $ 5,779,387 Service and other 672,206 630,061 2,069,797 1,967,881 Total Digital Ally 2,028,660 3,588,640 7,058,161 7,747,268 TicketSmarter Service and other 2,050,679 — 2,050,679 — Total TicketSmarter 2,050,679 — 2,050,679 — Nobility Healthcare Service and other 560,483 — 560,483 — Total Nobility Healthcare 560,483 — 560,483 — Total $ 4,639,822 $ 3,588,640 $ 9,669,323 $ 7,746,576 11 Sales to customers outside of the United States are denominated in U.S. dollars. All Company assets are physically located within the United States. Recent Accounting Pronouncements : In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments – Credit Losses” to improve information on credit losses for financial assets and net investment in leases that are not accounted for at fair value through net income. ASU 2016-13 replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses. In April 2019 and May 2019, the FASB issued ASU No. 2019-04, “Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments” and ASU No. 2019-05, “Financial Instruments-Credit Losses (Topic 326): Targeted Transition Relief” which provided additional implementation guidance on the previously issued ASU. In November 2019, the FASB issued ASU 2019-10, “Financial Instruments - Credit Loss (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842),” which defers the effective date for public filers that are considered small reporting companies (“SRC”) as defined by the Securities and Exchange Commission (the “SEC”) to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Since the Company is an SRC, implementation will not be required until January 1, 2023. The Company will continue to evaluate the effect that adopting ASU 2016-13 will have on the Company’s consolidated financial statements. In 2020, FASB issued ASU No. 2020-06 to simplify the accounting for convertible debt instruments as the current accounting guidance was determined to be unnecessarily complex and difficult to navigate. The ASU primarily does three things: (1) The ASU eliminates the beneficial conversion feature model and the cash conversion model. The elimination of these models will result in more convertible instruments (convertible debt instruments or convertible preferred stock instruments) being reported as a single liability instrument. The ASU also makes targeted improvements to the related disclosures, (2) The ASU eliminates certain settlement conditions that are required to qualify for derivative scope exception which will allow for less equity contracts to be accounted for as a derivative and (3) The ASU aligns the diluted EPS calculation for convertible instruments by requiring the use of the if-converted method and requiring share settlement be included in the calculation when the contract includes an option of cash or share settlement. ASU No. 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. In 2020, FASB issued ASU No. 2020-01 which represents a consensus of the Emerging Issues Task Force and it clarifies certain items related to ASU 2016-01, Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The ASU (1) clarifies that when an entity is either applying the equity method or upon discontinuing the equity method it should consider observable price changes in orderly transactions for the identical or a similar investment with the same issuer for valuing basis of the investment and (2) clarifies that when determining the accounting for certain forward contracts and purchased options an entity should not consider, whether upon settlement or exercise, if the underlying securities would be accounted for under the equity method or fair value option. ASU No. 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. In December 2019, the FASB issued ASU No. 2019-12, Income Taxes - simplifying the accounting for income taxes (Topic 740), which is meant to simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740, Income Taxes. The amendment also improves consistent application and simplifies GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The adoption of this standard did not have a significant impact on the Company’s financial position and results of operations. 12 Warrant Derivative Liabilities In accordance with FASB ASC 815-40, Derivatives and Hedging: Contracts in an Entities Own Equity, entities must consider whether to classify contracts that may be settled in its own stock, such as warrants to purchase shares of Common Stock, as equity of the entity or as an asset or liability. If an event that is not within the entity’s control could require net cash settlement, then the contract should be classified as an asset or a liability rather than as equity. We have determined because the terms of the warrants issued during the first quarter of 2021, and remain outstanding, include a provision that entitles all the warrant holders to receive cash for their warrants in the event of a qualifying cash tender offer, while only certain of the holders of the underlying shares of common stock would be entitled to cash, our warrants should be classified as liability measured at fair value, with changes in fair value each period reported in earnings. Volatility in the price of our common stock may result in significant changes in the value of the derivatives and resulting gains and losses on our statement of operations. NOTE 2. INVENTORIES Inventories consisted of the following at September 30, 2021 and December 31, 2020: SCHEDULE OF INVENTORIES September 30, 2021 December 31, 2020 Raw material and component parts $ 3,068,418 $ 3,186,426 Work-in-process 15,506 1,908 Finished goods 10,827,344 6,974,291 Subtotal 13,911,268 10,162,625 Reserve for excess and obsolete inventory ( 2,300,019 ) ( 1,960,351 ) Total $ 11,611,249 $ 8,202,274 Finished goods inventory includes units held by potential customers and sales agents for test and evaluation purposes. The cost of such units totaled $ 156,261 and $ 138,263 as of September 30, 2021 and December 31, 2020, respectively. NOTE 3. DEBT OBLIGATIONS Debt obligations is comprised of the following: SUMMARY OF SECURED CONVERTIBLE DEBENTURES AND PROCEEDS INVESTMENT AGREEMENT September 30, 2021 December 31, 2020 Economic injury disaster loan (EIDL) $ 150,000 $ 150,000 Payroll protection program loan (PPP) — 10,000 Contingent consideration promissory note - Nobility Healthcare Division Acquisition 350,000 — Contingent consideration promissory note – Nobility Healthcare Division Acquisition 650,000 — Contingent consideration earn-out Agreement – TicketSmarter Acquisitions 4,244,400 — Debt obligations 5,394,400 160,000 Less: current maturities of debt obligations 4,547,421 11,727 Debt obligations, long-term $ 846,979 $ 148,273 Debt obligations mature as follows as of September 30, 2021: SCHEDULE OF MATURITY OF DEBT OBLIGATIONS September 30, 2021 2021 (October 1, 2021 to December 31, 2021) $ 4,245,882 2022 403,049 2023 403,166 2024 203,286 2025 3,412 2026 and thereafter 135,605 Total $ 5,394,400 13 2020 Small Business Administration Notes . On May 4, 2020, the Company issued a promissory note in connection with the receipt of the Paycheck Protection Program (“PPP”) Loan of $ 1,418,900 (the “PPP Loan”) under the Small Business Administration’s (the “SBA”) PPP Program under the Coronavirus Aid, Relief, and Economic Security Act ( the “CARES Act”). The PPP Loan has a two -year term and bears interest at a rate of 1.0 % per annum. Monthly principal and interest payments were deferred for nine months after the date of disbursement and total $ 79,851 per month thereafter. The PPP Loan could have been prepaid at any time prior to maturity with no prepayment penalties. The promissory note contained events of default and other provisions customary for a loan of this type. The PPP provides that the PPP Loan may be partially or wholly forgiven if the funds are used for certain qualifying expenses as described in the CARES Act. The Company intends to use the majority of the PPP Loan amount for qualifying expenses and to apply for forgiveness of the PPP Loan in accordance with the terms of the CARES Act. The Company used the majority of the PPP Loan amount for qualifying expenses and to apply for forgiveness of the PPP Loan in accordance with the terms of the CARES Act. The Company applied for forgiveness of the PPP Loan and December 10, 2020, the Company was fully forgiven of its $ 1,418,900 PPP Loan. Additionally, the Company was fully forgiven, during the three months ended June 30, 2021, of its $ 10,000 EIDL advance received with the PPP Loan. On 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. Under the terms of the note issued under the EIDL program, interest accrues on the outstanding principal at the rate of 3.75 % per annum. 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 in part or in full, at any time, without penalty. The Company granted the secured party a continuing interest in and to any and all collateral, including but not limited to tangible and intangible personal property. Contingent Consideration Promissory Notes On 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 % 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 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. If the 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. 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. 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. 14 On 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 % 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 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 basis. 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. 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. 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. Contingent consideration earn-out Agreement – TicketSmarter Acquisition On 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 . The 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 be paid out. 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. The maximum downward earn-out adjustment to the earn-out balance will be to reduce the balance to zero. The 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 acquisition. 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. NOTE 4. FAIR VALUE MEASUREMENT In accordance with ASC Topic 820 — Fair Value Measurements and Disclosures (“ASC 820”), the Company utilizes the market approach to measure fair value for its financial assets and liabilities. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets, liabilities or a group of assets or liabilities, such as a business. 15 ASC 820 utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels: ● Level 1 — Quoted prices in active markets for identical assets and liabilities ● Level 2 — Other significant observable inputs (including quoted prices in active markets for similar assets or liabilities) ● Level 3 — Significant unobservable inputs (including the Company’s own assumptions in determining the fair value) The following table represents the Company’s hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2021 and December 31, 2020: SCHEDULE OF FINANCIAL ASSETS AND LIABILITIES MEASURED AT FAIR VALUE ON RECURRING BASIS September 30, 2021 Level 1 Level 2 Level 3 Total Liabilities: Warrant derivative liabilities $ — $ — $ 17,942,020 $ 17,942,020 Contingent consideration promissory notes and earn-out agreement — — 5,244,400 5,244,400 $ — $ — $ 23,186,420 $ 23,186,420 December 31, 2020 Level 1 Level 2 Level 3 Total Liabilities: Warrant derivative liabilities $ — $ — $ — $ — Contingent consideration promissory note — — — — $ — $ — $ — $ — The following table represents the change in Level 3 tier value measurements for the nine months ended September 30, 2021: SCHEDULE OF FAIR VALUE MEASUREMENTS CHANGE IN LEVEL 3 INPUTS Contingent Consideration Promissory Note Warrant Derivative Liabilities Balance, December 31, 2020 $ — $ — Issuance of detachable warrants in the January 14, 2021 Offering — 21,922,158 Issuance of detachable warrants in the February 1, 2021 Offering — 27,476,352 Issuance of detachable pre-funded warrants in the January 14, 2021 Offering — 378,615 Issuance of detachable pre-funded warrants in the February 1, 2021 Offering — 1,438,934 Transition of derivative warrant liability to equity on pre-funded warrants — — Change in fair value of warrant derivative liabilities — ( 24,552,257 ) Balance, March 31, 2021 — 26,663,802 Issuance of contingent consideration promissory note - Nobility Healthcare Division Acquisition 350,000 — Change in fair value of financial instruments — 2,863,422 Balance, June 30, 2021 $ 350,000 $ 29,527,224 Issuance of contingent consideration promissory note - Nobility Healthcare Division Acquisition 650,000 — Issuance of contingent consideration earn-out agreement - TicketSmarter Acquisition 4,244,400 — Change in fair value of financial instruments ( 11,585,204 ) Balance, September 30, 2021 $ 5,244,400 $ 17,942,020 16 NOTE 5. ACCRUED EXPENSES Accrued expenses comprised of the following at September 30, 2021 and December 31, 2020: SCHEDULE OF ACCRUED EXPENSES September 30, 2021 December 31, 2020 Accrued warranty expense $ 14,278 $ 31,845 Accrued litigation costs 250,000 250,000 Accrued sales commissions 40,328 38,294 Accrued payroll and related fringes 599,030 199,850 Accrued sales returns and allowances 47,272 26,069 Accrued sales taxes 46,002 53,627 Other 222,048 196,409 Total accrued expenses $ 1,218,958 $ 796,094 Accrued warranty expense comprised of the following for the nine months ended September 30, 2021: SCHEDULE OF ACCRUED WARRANTY EXPENSE Beginning balance $ 31,845 Provision for warranty expense 41,040 Charges applied to warranty reserve ( 58,607 ) Ending balance $ 14,278 NOTE 6. INCOME TAXES The 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. The Company has incurred operating losses in recent years, and it continues to be in a three-year cumulative loss position at September 30, 2021. Accordingly, the Company determined there was not sufficient positive evidence regarding its potential for future profits to outweigh the negative evidence of our three-year cumulative loss position under the guidance provided in ASC 740. Therefore, it determined to continue to provide a 100% valuation allowance on its net deferred tax assets. The Company expects to continue to maintain a full valuation allowance until it determines that it can sustain a level of profitability that demonstrates its ability to realize these assets. To the extent the Company determines that the realization of some or all of these benefits is more likely than not based upon expected future 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 September 30, 2021. 17 NOTE 7. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment, net consists of the following: SCHEDULE OF PROPERTY AND EQUIPMENT, NET September 30, 2021 December 31, 2020 Land $ 789,734 $ 59,226 Buildings 4,909,478 363,215 Equipment 552,135 507,676 Leasehold improvements 143,327 289,865 6,394,674 1,219,982 Less: accumulated depreciation ( 326,419 ) ( 553,182 ) Total property, plant and equipment, net $ 6,068,255 $ 666,800 On April 30, 2021 the Company closed on the purchase and sale agreement to acquire a 71,361 square feet commercial office building located in Lenexa, Kansas which is intended to serve as the Company’s future office and warehouse needs. The building contains approximately 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. Depreciation 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. NOTE 8. OPERATING LEASES On May 13, 2020, the Company entered into an operating lease for new warehouse and office space which will serve as its new principal executive office and primary business location. The original lease agreement was amended on August 28, 2020 to correct the footage under lease and monthly payment amounts resulting from such correction. 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 . The Company is responsible for property taxes, utilities, insurance and its proportionate share of common area costs related to its new location. The Company took possession of the leased facilities on June 15, 2020. The remaining lease term for the Company’s office and warehouse operating lease as of September 30, 2021 was sixty-three 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. The Company entered into an operating lease with a third party in October 2019 for copiers used for office and warehouse purposes. The terms 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 months. On 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 space. The lease terms include monthly payments ranging from $ 2,648 to $ 2,774 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 months. On 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 to $ 11,811 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 months . On 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 to $ 7,364 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 months . Lease expense related to the office spaces and copier operating leases were recorded on a straight-line basis over their respective lease terms. Total lease expense under the five operating leases was $ 144,443 for the nine months ended September 30, 2021. 18 The discount rate implicit within the Company’s operating leases was not generally determinable and therefore the Company determined the discount rate based on its incremental borrowing rate on the information available at commencement date. As of commencement date, the operating lease liabilities reflect a weighted average discount rate of 8 %. The following sets forth the operating lease right of use assets and liabilities as of September 30, 2021: SCHEDULE OF OPERATING LEASES RIGHT OF USE ASSETS AND LIABILITIES Assets: Operating lease right of use assets $ 1,109,463 Liabilities: Operating lease obligations-Long-term portion $ 795,704 Operating lease obligations-Current portion 384,222 Total operating lease obligations $ 1,179,926 The components of lease expense were as follows for the nine months ended September 30, 2021: SCHEDULE OF COMPONENTS OF LEASE EXPENSES Selling, general and administrative expenses $ 144,443 Following are the minimum lease payments for each year and in total. SCHEDULE OF FUTURE MINIMUM LEASE PAYMENTS Year ending December 31: 2021 (October 1, to December 31, 2021) $ 109,948 2022 445,635 2023 264,329 2024 191,059 2025 173,333 Thereafter 175,113 Total undiscounted minimum future lease payments 1,359,417 Imputed interest ( 179,491 ) Total operating lease liability $ 1,179,926 NOTE 9. GOODWILL AND OTHER INTANGIBLE ASSETS Goodwill and other intangible assets, net as of September 30, 2021 and December 31, 2020 are as follows: SCHEDULE OF GOODWILL AND OTHER INTANGIBLE ASSETS September 30, 2021 December 31, 2020 Gross value Accumulated amortization Net carrying value Gross value Accumulated amortization Net carrying value Amortized intangible assets: Licenses $ 331,252 $ 61,668 $ 278,324 $ 104,099 $ 52,872 $ 51,227 Patents and Trademarks 444,636 188,111 247,785 264,490 135,236 129,254 775,888 249,779 526,109 368,589 188,108 180,481 Unamortized intangible assets: Goodwill 15,884,308 — 15,884,308 — — — Patents and trademarks pending 44,529 — 44,529 212,083 — 212,083 Total $ 16,704,725 $ 249,779 $ 16,454,946 $ 580,672 $ 188,108 $ 392,564 Patents 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. NOTE 10. COMMITMENTS AND CONTINGENCIES COVID-19 pandemic The 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 we have offices, employees, customers, vendors and other suppliers and business partners. Like most US-based businesses, the COVID-19 pandemic and efforts to mitigate the same began to impact our business in March 2020. By that 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 during the quarters ended June 30, 2021 and September 30, 2021, compared to the same periods in 2020. Given 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 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. 19 In 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. To date, travel restrictions and border closures have not materially impacted its ability to obtain inventory or manufacture or deliver products or services to customers. However, if such restrictions become more severe, they could negatively impact those activities in 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. Like 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. The actions we have taken so far during the COVID-19 pandemic include, but are not limited to: ● Requiring all employees who can work from home to work from home; ● Increasing its IT networking capability to best assure employees can work effectively outside the office; and ● For employees who must perform essential functions in one of its offices: ● Having employees maintain a distance of at least six feet from other employees whenever possible; ● Having employees work in dedicated shifts to lower the risk all employees who perform similar tasks might become infected by COVID-19; ● Having employees stay segregated from other employees in the office with whom they require no interaction; and ● Requiring unvaccinated 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, 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. 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. 20 Litigation. From 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. While 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. NOTE 11. STOCK-BASED COMPENSATION The 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. As of September 30, 2021, the Company had adopted nine separate stock option and restricted stock plans: (i) the 2005 Stock Option and Restricted Stock Plan (the “2005 Plan”), (ii) the 2006 Stock Option and Restricted Stock Plan (the “2006 Plan”), (iii) the 2007 Stock Option and Restricted Stock Plan (the “2007 Plan”), (iv) the 2008 Stock Option and Restricted Stock Plan (the “2008 Plan”), (v) the 2011 Stock Option and Restricted Stock Plan (the “2011 Plan”), (vi) the 2013 Stock Option and Restricted Stock Plan (the “2013 Plan”), (vii) the 2015 Stock Option and Restricted Stock Plan (the “2015 Plan”), (viii) the 2018 Stock Option and Restricted Stock Plan (the “2018 Plan”) and (ix) the 2020 Stock Option and Restricted Stock Plan (the “2020 Plan”).. The 2005 Plan, 2006 Plan, 2007 Plan, 2008 Plan, 2011 Plan, 2013 Plan, 2015 Plan, 2018 Plan and 2020 Plan are referred to as the “Plans.” These Plans permit the grant of stock options or restricted stock to its employees, non-employee directors and others for up to a total of 5,675,000 shares of common stock. The 2005 Plan terminated during 2015 with 20,178 shares not awarded or underlying options, which shares are now unavailable for issuance. Stock options granted under the 2005 Plan that remain unexercised and outstanding as of September 30, 2021 total 7,064 . The 2006 Plan terminated during 2016 with 35,474 shares not awarded or underlying options, which shares are now unavailable for issuance. Stock options granted under the 2006 Plan that remain unexercised and outstanding as of September 30, 2021 total 30,125 . The 2007 Plan terminated during 2017 with 94,651 shares not awarded or underlying options, which shares are now unavailable for issuance. The 2008 Plan terminated during 2018 with 40,499 shares not awarded or underlying options, which shares are now unavailable for issuance. There were no stock options granted under the 2008 Plan that remain unexercised and outstanding as of September 30, 2021. 21 The Company believes that such awards better align the interests of our employees with those of its stockholders. Option awards have been granted with an exercise price equal to the market price of its stock at the date of grant with such option awards generally vesting based on the completion of continuous service and having ten-year contractual terms. These option awards typically provide for accelerated vesting if there is a change in control (as defined in the Plans). The Company has registered all shares of common stock that are issuable under its Plans with the SEC. 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. The fair value of each option award is estimated on the date of grant using a Black-Scholes option valuation model. Activity in the various Plans during the nine months ended September 30, 2021: SUMMARY OF STOCK OPTIONS OUTSTANDING Options Number of Shares Weighted Average Exercise Price Outstanding at December 31, 2020 838,313 $ 3.20 Granted 300,000 1.67 Exercised — — Forfeited ( 46,875 ) ( 12.13 ) Outstanding at September 30, 2021 1,091,438 $ 2.39 Exercisable at September 30, 2021 866,438 $ 2.58 The 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 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: SCHEDULE OF STOCK OPTION PLANS BY FAIR VALUE ASSUMPTION Volatility – range 113.47 % Risk-free rate 1.3 % Contractual term 10.0 years Exercise price $ 1.67 The Plans allow for the cashless exercise of stock options. This provision allows the option holder to surrender/cancel options with an intrinsic value equivalent to the purchase/exercise price of other options exercised. There were no shares surrendered pursuant to cashless exercises during the nine months ended September 30, 2021 and 2020. The 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. As of September 30, 2021, the unrecognized portion of stock compensation expense on all existing stock options was $ 350,123 . The 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 September 30, 2021: SCHEDULE OF SHARES AUTHORIZED UNDER STOCK OPTION PLANS BY EXERCISE PRICE RANGE Outstanding options Exercisable options Exercise price range Number of options Weighted average remaining contractual life Number of options Weighted average remaining contractual life $ 0.01 to $ 2.49 715,000 8.8 years 490,000 8.4 years $ 2.50 to $ 3.49 310,313 6.6 years 310,313 6.6 years $ 3.50 to $ 4.49 45,750 3.4 years 45,750 3.4 years $ 4.50 to $ 6.99 15,000 0.3 years 15,000 0.3 years $ 7.00 to $ 9.52 5,375 0.1 years 5,375 0.1 years 1,091,438 7.8 years 866,438 7.3 years 22 Restricted stock grants. The Board of Directors has granted restricted stock awards under the Plans. Restricted stock awards are valued on the date of grant and have no purchase price for the recipient. Restricted stock awards typically vest over one to four years corresponding to anniversaries of the grant date. Under the Plans, unvested shares of restricted stock awards may be forfeited upon the termination of service to or employment with the Company, depending upon the circumstances of termination. Except for restrictions placed on the transferability of restricted stock, holders of unvested restricted stock have full stockholder’s rights, including voting rights and the right to receive cash dividends. A summary of all restricted stock activity under the equity compensation plans for the nine months ended September 30, 2021 is as follows: SUMMARY OF RESTRICTED STOCK ACTIVITY Number of Restricted shares Weighted average grant date fair value Nonvested balance, December 31, 2020 720,125 $ 1.69 Granted 856,000 2.07 Vested ( 505,250 ) ( 1.95 ) Forfeited ( 7,500 ) ( 1.08 ) Nonvested balance, September 30, 2021 1,063,375 $ 1.87 The Company estimated the fair market value of these restricted stock grants based on the closing market price on the date of grant. As of 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. The nonvested balance of restricted stock vests as follows: SCHEDULE OF NON- VESTED BALANCE OF RESTRICTED STOCK Years ended Number of shares 2021 (October 1, 2021 through December 31, 2021) 6,000 2022 585,375 2023 358,000 2024 54,000 2025 30,000 2026 30,000 NOTE 12. COMMON STOCK PURCHASE WARRANTS The Company has issued common stock purchase warrants in conjunction with various debt and equity issuances. The warrants are either immediately 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 September 30, 2021. The warrants expire from December 30, 2021 through September 18, 2026 and under certain circumstances allow for cashless exercise. On 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. 23 The 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 September 30, 2021: SCHEDULE OF FAIR VALUE OF THE WARRANT DERIVATIVE LIABILITIES Issuance date assumptions September 30, 2021 assumptions Volatility - range 106.6 – 166.6 % 105.2 % Risk-free rate 0.08 - 0.49 % 0.98 % Dividend 0 % 0 % Remaining contractual term 0.01 - 5 years 4.3 - 5 years Exercise price $ 2.80 - 3.25 $ 3.25 Common stock issuable under the warrants 42,550,000 24,300,000 During 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. The following table summarizes information about shares issuable under warrants outstanding during the nine months ended September 30, 2021: SUMMARY OF WARRANT ACTIVITY Warrants Weighted average exercise price Vested Balance, January 1, 2021 3,388,364 $ 6.24 Granted 42,550,000 3.11 Exercised ( 18,250,000 ) 2.92 Cancelled ( 879,766 ) 13.43 Vested Balance, September 30, 2021 26,808,598 $ 3.29 The total intrinsic value of all outstanding warrants aggregated $- 0 - as of September 30, 2021 and the weighted average remaining term is 52.2 months. The following table summarizes the range of exercise prices and weighted average remaining contractual life for outstanding and exercisable warrants to purchase common shares as of September 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 remaining contractual life $ 2.60 465,712 1.8 years $ 3.00 316,800 1.5 years $ 3.25 24,300,000 4.7 years $ 3.36 733,333 1.2 years $ 3.65 167,000 0.7 years $ 3.75 25,753 0.9 years $ 5.00 800,000 0.2 years 26,808,598 4.4 years 24 NOTE 13. STOCKHOLDERS’ EQUITY Registered Direct Offerings On 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 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 $ 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. The securities in the Offering were issued pursuant to a prospectus supplement to the Company’s effective shelf registration statement on Form S-3 (File No. 333-239419). 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 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 or any securities convertible into or exercisable or exchangeable for shares of capital stock of the Company; (ii) file or cause to be filed any registration statement with the SEC relating to the offering of 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; (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 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. The 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. 25 The Company received net proceeds from this offering as follows: SCHEDULE OF NET PROCEEDS FROM OFFERING Description Amount Net proceeds received: Proceeds from the sale of 2,800,000 shares of Common Stock at $ 3.095 per share $ 8,666,000 Proceeds from the sale of pre-funded warrants to purchase 7,200,000 shares of Common Stock at $ 3.085 per share 22,212,000 Less: Placement agent fees and other expenses of the offering ( 1,937,000 ) Net proceeds of the offering $ 28,941,000 In 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 shares of Common Stock at $ 3.25 per share. 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): SCHEDULE OF NET PROCEEDS FROM OFFERING Description Amount Warrant derivative liabilities $ 21,922,158 Pre-funded warrant derivative liabilities 378,615 Total allocation of the net proceeds of the offering to warrant derivative liabilities $ 22,300,773 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 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. 333-239419). 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 or any securities convertible into or exercisable or exchangeable for shares of capital stock of the Company; (ii) file or cause to be filed any registration statement with the SEC relating to the offering of 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; (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. 26 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. The 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 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. The Company received net proceeds from this offering as follows: SCHEDULE OF NET PROCEEDS FROM OFFERING Description Amount Net proceeds received: Proceeds from the sale of 3,250,000 shares of Common Stock at $ 2.80 per share $ 9,100,000 Proceeds from the sale of pre-funded warrants to purchase 11,050,000 shares of Common Stock at $ 2.79 per share 30,829,500 Less: Placement agent fees and other expenses of the offering ( 2,482,400 ) Net proceeds of the offering $ 37,447,100 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 shares of Common Stock at $ 3.25 per share. 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): SCHEDULE OF NET PROCEEDS FROM OFFERING Description Amount Warrant derivative liabilities $ 27,476,352 Pre-funded warrant derivative liabilities 1,438,934 Total allocation of the net proceeds of the offering to warrant derivative liabilities $ 28,915,286 2021 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 . 27 On September 20, 2021, the board of directors approved the grant of 406,000 shares of common stock to employees of the Company. 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. Issuance of Common Stock as Consideration for the TicketSmarter Acquisition. On 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. See Note 16. NOTE 14. NET INCOME (LOSS) PER SHARE The 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: SCHEDULE OF WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING AND LOSS PER SHARE OUTSTANDING 2021 2020 2021 2020 Three Months Ended September 30, Nine months ended September 30, 2021 2020 2021 2020 Numerator for basic and diluted income per share – Net income (loss) attributable to common stockholders $ 8,068,799 $ 527,442 $ 24,408,170 $ ( 2,304,562 ) Denominator for basic loss per share – weighted average shares outstanding 51,809,435 26,613,109 49,404,794 19,861,694 Dilutive effect of shares issuable under stock options outstanding — 14,832 — — Dilutive effect of shares issuable under common stock purchase warrants and convertible debt outstanding — — — — Denominator for diluted income (loss) per share – adjusted weighted average shares outstanding 51,809,435 26,627,941 49,404,794 19,861,694 Net income (loss) per share attributable to common stockholders: Basic $ 0.16 $ 0.02 $ 0.49 $ ( 0.12 ) Diluted $ 0.16 $ 0.02 $ 0.49 $ ( 0.12 ) Basic 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. NOTE 15. 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. Nobility 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 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. 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 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. 28 The Company accounts for business combinations using the acquisition method. 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. The 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: SCHEDULE OF PRELIMINARY FAIR VALUE OF ASSETS AD LIABILITIES ASSUMED Description Amount Assets acquired: Tangible assets acquired, including $ 13,957 of acquired cash $ 88,957 Goodwill 1,125,000 Liabilities assumed consisting of a promissory note issued by the Selling shareholders which was paid off at closing 162,552 Total assets acquired and liabilities assumed $ 1,376,509 Consideration: Cash paid at Healthcare Acquisition date $ 1,026,509 Contingent consideration 350,000 Total Healthcare Acquisition purchase price $ 1,376,509 On 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. The 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. The 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 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. The 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: SCHEDULE OF PRELIMINARY FAIR VALUE OF ASSETS ACQUIRED AND LIABILITIES ACQUISITION Description Amount Assets acquired: Tangible assets acquired $ 202,901 Goodwill 2,920,000 Liabilities assumed pursuant to stock purchase agreement ( 202,901 ) Total assets acquired and liabilities assumed $ 2,920,000 Consideration: Cash paid at acquisition date $ 2,270,000 Contingent consideration 650,000 Total acquisition purchase price $ 2,920,000 29 NOTE 16. TICKETSMARTER ACQUISTION On 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 stock. 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. The 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 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 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. Therefore, 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. The 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 Acquisition. The preliminary fair value of assets acquired, and liabilities assumed in the TicketSmarter Acquisition were as follows: SCHEDULE OF PRELIMINARY FAIR VALUE OF ASSETS ACQUIRED AND LIABILITIES ASSUMED IN THE TICKET SMARTER ACQUISITION Description Amount Assets acquired: Tangible assets acquired, including $ 51,432 of cash acquired $ 7,139,930 Goodwill 11,839,308 Liabilities assumed ( 5,128,964 ) Net assets acquired and liabilities assumed $ 13,850,274 Consideration: Cash paid at TicketSmarter Acquisition date $ 8,413,240 Common stock issued as consideration for TicketSmarter Acquisition at date of acquisition 990,360 Contingent consideration earn-out agreement 4,244,400 Cash paid at closing to escrow amount 500,000 Cash retained from escrow amount pursuant to settlement of working capital target ( 297,726 ) Total TicketSmarter Acquisition purchase price $ 13,850,274 NOTE 17. RELATED PARTY TRANSACTIONS American 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. 30 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 1, 2020; (b) the secured promissory note dated October 21, 2020; 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. ************************************* 31