What changed in this filing

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Item 1. Financial Statements

2022-11-14 compared with 2022-08-15 · 602 added, 458 removed, 1283 unchanged (45% of the section changed)

2 unchanged sentences

30, 2022 AND DECEMBER 31, 2021

June 30, 2022

September 30, 2022

December 31, 2021

Current assets:

1 unchanged sentence

Accounts receivable – trade, net

Other receivables (including $ 138,384 due from related parties – June 30, 2022 and $ 158,384 – December 31, 2021, refer to Note 20)

Other receivables (including $ 138,384 due from related parties – September 30, 2022 and $ 158,384 – December 31, 2021, refer to Note 20)

Inventories, net

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Stockholders’ Equity:

Common stock, $ 0.001 par value per share;

Common stock, $ 0.001

par value per share;

shares authorized;

shares issued:

47,828,405 shares issued – June 30, 2022 and 50,904,391 shares issued – December 31, 2021

shares issued and outstanding – September 30, 2022 and 50,904,391

shares issued and outstanding – December 31, 2021

Additional paid in capital

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CONSOLIDATED STATEMENTS OF OPERATIONS

THE THREE AND SIX MONTHS ENDED

THE THREE AND NINE MONTHS ENDED

30, 2022 AND 2021

Three months ended June 30,

Six months ended June 30,

Three months ended

September 30,

Nine months ended

September 30,

Service and other

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Change in fair value of warrant derivative liabilities

( 2,863,422 )

Total other income (expense)

( 2,765,603 )

Gain on extinguishment of warrant derivative liabilities

Total other income

Income (loss) before income tax benefit

5 unchanged sentences

( 9,299,498 )

Net income attributable to noncontrolling interests of consolidated subsidiary

Net loss (income) attributable to noncontrolling interests of consolidated subsidiary

Net income (loss) attributable to common stockholders

1 unchanged sentence

$ ( 9,568,134 )

$ ( 7,665,662 )

Net loss per share information:

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CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND 2021

Additional Paid In

Noncontrolling interest in consolidated

THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021

Noncontrolling

Balance, December 31, 2020

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$ ( 73,675,129 )

Issuance of common stock as consideration for acquisition

Restricted common stock grant

Stock-based compensation

Balance, September 30, 2021

$ 123,968,757

$ ( 2,157,226 )

$ ( 65,606,330 )

Balance, December 31, 2021

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$ 124,820,428

$ ( 77,332,537 )

Stock-based compensation

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$ ( 80,358,955 )

Issuance of common stock through warrant exchange agreement

Stock-based compensation

Net income (loss)

( 1,902,475 )

( 1,919,071 )

Balance, September 30,

$ ( 82,261,430 )

Notes to the Unaudited Condensed Consolidated Financial Statements.

CONSOLIDATED STATEMENTS OF CASH FLOWS

THE SIX MONTHS ENDED JUNE 30, 2022 AND 2021

Six months ended June 30,

THE NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021

Nine months ended September 30,

Cash Flows From Operating Activities:

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( 33,274,039 )

Gain on extinguishment of warrant derivative liabilities

Provision for inventory obsolescence

1 unchanged sentence

Gain on extinguishment of debt

Change in fair value of short-term investments

Change in fair value of contingent consideration promissory note

4 unchanged sentences

( 3,426,732 )

( 1,448,044 )

( 1,767,724 )

Prepaid expenses

( 3,445,546 )

Operating lease right of use assets

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Additions to intangible assets

Cash paid for acquisition, net of cash acquired

Cash paid for TicketSmarter acquisition, net of cash acquired

( 8,361,808 )

Restricted cash related to TicketSmarter acquisition

Cash paid for acquisition of Medical Billing Company

( 1,153,627 )

( 1,012,552 )

Cash paid for asset acquisition of Medical Billing Company

( 2,270,000 )

Net cash used in investing activities

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Issuance of contingent consideration promissory note for business acquired

Issuance of common stock through warrant exchange agreement

Assets acquired in business acquisitions

1 unchanged sentence

Goodwill acquired in business acquisitions

Common stock issued as consideration for business acquisition

Restricted common stock grant

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entered into a Plan of Merger with Digital Ally, Inc., at which time the merged entity was renamed Digital

business of Digital Ally, Inc.

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

Healthcare, LLC, TicketSmarter, Inc., Worldwide Reinsurance, Ltd., Digital Connect, Inc., Kustom 440, Inc., and its majority-owned subsidiary

Nobility Healthcare, LLC, collectively, “Digital Ally,” “Digital,” and the “Company”) is divided

into three reportable operating segments:

1) the Video Solutions Segment, 2) the Revenue Cycle Management Segment and 3) the Ticketing

The Video Solutions Segment is our legacy business that produces digital video imaging, storage products, disinfectant and related

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

This segment includes both service and product revenues

through our subscription models offering cloud and warranty solutions, and hardware sales for video and health safety solutions.

Revenue Cycle Management Segment provides working capital and back-office services to a variety of healthcare organizations throughout

the country, as a monthly service fee.

The Ticketing Segment acts as an intermediary between ticket buyers and sellers within our secondary

ticketing platform, ticketsmarter.com, and we also acquire tickets from primary sellers to then sell through various platforms.

The accounting

guidance on Segment Reporting establishes standards for reporting information regarding operating segments in annual financial statements

and requires selected information of those segments to be presented in financial statements.

Such required segment information is included

(such merged entity, the “Predecessor Registrant”).

23, 2022 (the “ Effective Time ”), the Predecessor Registrant merged with and into its wholly owned subsidiary,

DGLY Subsidiary Inc., a Nevada corporation (the “ Registrant ”), pursuant to an agreement and plan of merger, dated as

of August 23, 2022 (the “ Merger Agreement ”), between the Predecessor Registrant and the Registrant, with the Registrant

as the surviving corporation in the merger (such transaction, the “ Merger ”).

At the Effective Time, Articles of Merger

were filed with the Secretary of State of the State of Nevada, pursuant to which the Registrant was renamed “Digital Ally, Inc.”

and, by operation of law, succeeded to the assets, continued the business and assumed the rights and obligations of the Predecessor Registrant

immediately prior to the Merger.

Under the Nevada Revised Statutes, shareholder approval was not required in connection with the Merger

Agreement or the transactions contemplated thereby.

At the Effective Time, pursuant

to the Merger Agreement, (i) each outstanding

share of Predecessor Registrant’s common stock, par value $ 0.001 per share (the “ Predecessor Common Stock ”)

automatically converted into one share of common stock, par value $ 0.001 per share, of the Registrant (“ Registrant Common Stock ”),

(ii) each outstanding option, right or warrant to acquire shares of Predecessor Common Stock converted into an option, right or warrant,

as applicable, to acquire an equal number of shares of Registrant Common Stock under the same terms and conditions as the original options,

rights or warrants, and (iii) the directors and executive officers of the Predecessor Registrant were appointed as directors and executive

officers, as applicable, of the Registrant, each to serve in the same capacity and for the same term as such person served with the Predecessor

Registrant immediately before the Merger.

business of the Registrant, Digital Ally, Inc.

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

Products, LLC, Digital Ally Healthcare, LLC, TicketSmarter, Inc., Worldwide Reinsurance, Ltd., Digital Connect, Inc., BirdVu Jets,

Inc., Kustom 440, Inc., and its majority-owned subsidiary Nobility Healthcare, LLC, collectively, “Digital Ally,”

“Digital,” and the “Company”), is divided into three reportable operating segments:

1) the Video Solutions

Segment, 2) the Revenue Cycle Management Segment and 3) the Ticketing Segment.

The Video Solutions Segment is our legacy business

that produces digital video imaging, storage products, disinfectant and related safety products for use in law enforcement, security

and commercial applications.

This segment includes both service and product revenues through our subscription models offering cloud

and warranty solutions, and hardware sales for video and health safety solutions.

The Revenue Cycle Management Segment provides

working capital and back-office services to a variety of healthcare organizations throughout the country, as a monthly service fee.

The Ticketing Segment acts as an intermediary between ticket buyers and sellers within our secondary ticketing platform,

ticketsmarter.com, and we also acquire tickets from primary sellers to then sell through various platforms.

The accounting guidance

on Segment Reporting establishes standards for reporting information regarding operating segments in annual financial statements and

requires selected information of those segments to be presented in financial statements.

Such required segment information is

included in Note 19.

of Presentation :

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a fair presentation have been included.

Operating results for the three and six month periods ended June 30, 2022 are not necessarily

Operating results for the three and nine month periods ended September 30, 2022 are not necessarily

indicative of the results that may be expected for the year ending December 31, 2022.

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for the year ended December 31, 2021.

and Going Concern

the second quarter of 2014, the FASB issued ASU No.

2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40):

Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.

This update provided U.S.

GAAP guidance on

management’s responsibility in evaluating whether there is substantial doubt about a company’s ability to continue as a going

concern and about related footnote disclosures.

Under this standard, the Company is required to evaluate whether there is substantial

doubt about its ability to continue as a going concern each reporting period, including interim periods.

In evaluating the Company’s

ability to continue as a going concern, management considered the conditions and events that could raise substantial doubt about the

Company’s ability to continue as a going concern within 12 months after the Company’s financial statements were issued (November

Management considered the Company’s current financial condition and liquidity sources, including current funds available,

forecasted future cash flows and the Company’s obligations due before November 14, 2023.

Company has experienced net losses and cash outflows from operating activities since inception.

For the nine months ended September 30,

2022, the Company had a net loss attributable to common stockholders of $ 9,568,134 , net cash used in operating activities of $ 17,797,992 ,

$ 3,488,972 used in investing activities and $ 4,425,437 used in financing activities.

The Company will have to restore positive operating

cash flows and profitability over the next year and/or raise additional capital to fund its operational plans, meet its customary payment

obligations and otherwise execute its business plan.

There can be no assurance that it will be successful in restoring positive cash

flows and profitability, or that it can raise additional financing when needed, and obtain it on terms acceptable or favorable to the

Company has implemented an enhanced quality control program to detect and correct product issues before they result in significant rework

expenditures affecting its gross margins and has seen progress in that regard.

The Company has also implemented a marketing and advertisement

reduction plan for its ticketing segment, which will focus on reducing and alleviating current obligations from its media marketing agreements

and place a hold on entering into any new agreements.

The Company believes that its quality control, cost-cutting initiatives, and new

product introduction will eventually restore positive operating cash flows and profitability, although it can offer no assurances in

has evaluated the significance of the conditions described above in relation to the Company’s ability to meet its obligations and

concluded that, without additional funding, the Company will not have sufficient funds to meet its obligations within one year from the

date the condensed consolidated financial statements were issued.

pandemic/Supply Chain :

pandemic continues to represent an evolving and 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 U.S.-based businesses, the COVID-19 pandemic and efforts to mitigate

the same began to have impacts on our business in March 2020.

Since that time, although the original effect of the COVID-19 pandemic has

eased, we have continued to operate in an uncertain economic environment that is characterized by, business slowdowns or shutdowns, labor

shortages, supply chain challenges, changes in government spending and requirements, regulatory challenges, inflationary pressures and

market volatility.

We continue to experience operational

challenges as a result of worldwide events including the Russia-Ukraine conflict, continued uncertainty associated with the pandemic,

and volatility in global markets, which are compounded by the complex integrated global supply chain for both vendors and customers.

the COVID-19 pandemic dissipates at varying times and rates in different regions around the world, there could be a prolonged negative

impact on these global supply chains.

Our ability to continue operations at specific facilities will be impacted by the interdependencies

of the various participants of these global supply chains, which are largely beyond our direct control.

A prolonged shut down of these

global supply chains could have a material adverse effect on our business, results of operations, cash flows and financial condition.

COVID-19 pandemic continues to represent an evolving and 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.

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

Since that time, although the original effect of the COVID-19 pandemic has eased, we have continued to operate in an uncertain economic

environment that is characterized by, business slowdowns or shutdowns, labor shortages, supply chain challenges, changes in government

spending and requirements, regulatory challenges, inflationary pressures and market volatility.

continue to experience operational challenges as a result of worldwide events including the Russia-Ukraine conflict, continued uncertainty

associated with the pandemic, and volatility in global markets, which are compounded by the complex integrated global supply chain for

both vendors and customers.

As the COVID-19 pandemic dissipates at varying times and rates in different regions around the world, there

could be a prolonged negative impact on these global supply chains.

Our ability to continue operations at specific facilities will be

impacted by the interdependencies of the various participants of these global supply chains, which are largely beyond our direct control.

A prolonged shut down of these global supply chains could have a material adverse effect on our business, results of operations, cash

flows and financial condition.

our suppliers have increased challenges with their workforce (including as a result of illness, absenteeism, reactions to health and

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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., Worldwide Reinsurance, Ltd., Digital Connect, Inc., Kustom

440, Inc., and its majority-owned subsidiary Nobility Healthcare, LLC.

All intercompany balances and transactions have been eliminated

during consolidation.

Inc., Shield Products, LLC, Digital Ally Healthcare, LLC, TicketSmarter, Inc., Worldwide Reinsurance, Ltd., Digital Connect, Inc., BirdVu

Jets, Inc., Kustom 440, Inc., and its majority-owned subsidiary Nobility Healthcare, LLC.

All intercompany balances and transactions

have been eliminated during consolidation.

Company formed Digital Ally International, Inc.

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The Company formed Digital Connect, Inc.

and BirdVu Jets, Inc.

for travel and transportation purposes in 2022.

The company formed Kustom 440, Inc.

to create unique entertainment experiences directly for consumers.

The company formed Kustom

in 2022 to create unique entertainment experiences directly for consumers.

Value of Financial Instruments :

1 unchanged sentence

notes payable approximate fair value because of the short-term nature of these items.

Recognition :

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

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by all segments are reported net of sales taxes.

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 are 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.

Company considers customer purchase orders, which in some cases are governed by master sales agreements, to be the contracts with the

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 are 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

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

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

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Cycle Management

The Company reports revenue cycle

management revenues on a net basis, as its primary source of revenue is its end-to-end service fees which are generally determined as

a percentage of the invoice amounts collected.

These service fees are reported as revenue monthly upon completion of the Company’s

performance obligation to provide the agreed upon service.

Company reports revenue cycle management revenues on a net basis, as its primary source of revenue is its end-to-end service fees which

are generally determined as a percentage of the invoice amounts collected.

These service fees are reported as revenue monthly upon completion

of the Company’s performance obligation to provide the agreed upon service.

Company reports ticketing revenue on a gross or net basis based on management’s assessment of whether the Company is acting as

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prepaid cloud services and prepaid installation services and are generally recognized as the respective performance obligations are satisfied.

During the three months ended June 30, 2022, the Company recognized revenue of $ 0.4 million related to its contract liabilities.

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 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.

During the three months ended September 30, 2022, the Company recognized revenue of $ 0.7 million related to its contract liabilities.

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 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.

Total contract liabilities consist of the following:

SCHEDULE OF CONTRACT LIABILITIES

December 31, 2021

Additions/Reclass

Recognized Revenue

June 30, 2022

September 30,

Contract liabilities, current

Contract liabilities, non-current

returns and allowances aggregated $ 117,552 and $ 45,298 for the six months ended June 30, 2022 and year ended December 31, 2021, respectively.

returns and allowances aggregated $ 118,029 and $ 45,298 for the nine months ended September 30, 2022 and year ended December 31, 2021,

respectively.

Obligations for estimated sales returns and allowances are recognized at the time of sales on an accrual basis.

The accrual is determined

based upon historical return rates adjusted for known changes in key variables affecting these return rates.

is determined based upon historical return rates adjusted for known changes in key variables affecting these return rates.

of Estimates :

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OF SHORT TERM INVESTMENTS

June 30, 2022

Adjusted Cost

Realized Gains

Realized Losses

September 30, 2022

Demand deposits

Short-term investments with

original maturities of 90 days or less (Level 1):

Short-term investments with original maturities of 90 days or less (Level 1):

Money market funds

December 31, 2021

Adjusted Cost

Unrealized Gains

Unrealized Losses

Demand deposits

Short-term investments with

original maturities of 90 days or less (Level 1):

Short-term investments with original maturities of 90 days or less (Level 1):

Money market funds

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with major financial institutions.

At June 30, 2022 and December 31, 2021, the uninsured balance amounted to $ 11,682,011 and $ 29,836,142 ,

At September 30, 2022 and December 31, 2021, the uninsured balance amounted to $ 4,459,897 and $ 29,836,142 ,

respectively.

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if fair value is not available.

The Company last assessed potential impairments of its long-lived assets as of June 30, 2022 and concluded

that there was no impairment.

assets include deferred patent costs and license agreements.

Legal expenses incurred in preparation of patent application have been deferred

and will be amortized over the useful life of granted patents.

Costs incurred in preparation of applications that are not granted will

be charged to expense at that time.

The Company has entered into several sublicense agreements under which it has been assigned the exclusive

rights to certain licensed materials used in its products.

These sublicense agreements generally require upfront payments to obtain the

exclusive rights to such material.

The Company capitalizes the upfront payments as intangible assets and amortizes such costs over their

estimated useful life on a straight-line method.

The Company last assessed potential impairments of its long-lived assets as of September 30, 2022 and

concluded that there was no impairment.

assets include sponsorship networks, tradenames, client agreements, deferred patent costs and license agreements.

Legal expenses incurred in

preparation of patent application have been deferred and will be amortized over the useful life of granted patents.

Costs incurred

in preparation of applications that are not granted will be charged to expense at that time.

The Company has entered into several

sublicense agreements under which it has been assigned the exclusive rights to certain licensed materials used in its products.

These sublicense agreements generally require upfront payments to obtain the exclusive rights to such material.

capitalizes the upfront payments as intangible assets and amortizes such costs over their estimated useful life on a straight-line

accounting guidance on Segment Reporting establishes standards for reporting information regarding operating segments in annual financial

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administrative activities and are also to be reported in the segment information.

The Company’s captive insurance subsidiary provides

services to the Company’s other business segments and not to outside customers;

however, that subsidiary had no activity in the

three months ended June 30, 2022 and 2021.

Therefore, its operations will be eliminated in consolidation, and it is not considered a separate

business segment for financial reporting purposes.

Consideration

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amendment also improves consistent application and simplifies GAAP for other areas of Topic 740 by clarifying and amending existing guidance.

The amendments in ASU 2019-12 are effective for public business entities for

fiscal years beginning after Dec.

The adoption of this standard did not have a significant impact on the Company’s

financial position and results of operations.

consisted of the following at June 30, 2022 and December 31, 2021:

The amendments in ASU 2019-12 are effective for public business entities for fiscal years beginning

The adoption of this standard did not have a significant impact on the Company’s financial position

and results of operations.

consisted of the following at September 30, 2022 and December 31, 2021:

SCHEDULE OF INVENTORIES

June 30, 2022

December 31, 2021

September 30,

Raw material and component parts– video solutions segment

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The cost of such units

totaled $ 135,573 and $ 153,976 as of June 30, 2022 and December 31, 2021, respectively.

totaled $ 181,381 and $ 153,976 as of September 30, 2022 and December 31, 2021, respectively.

DEBT OBLIGATIONS

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OF DEBT OBLIGATIONS

June 30, 2022

December 31, 2021

September 30,

Economic injury disaster loan (EIDL)

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Debt obligations, long-term

obligations mature as follows as of June 30, 2022:

obligations mature as follows as of September 30, 2022:

SCHEDULE OF MATURITY OF DEBT OBLIGATIONS

2022 (July 1, 2022 to December 31,

September 30,

2022 (October 1, 2022 to December 31, 2022)

2027 and thereafter

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On December 10, 2020, the Company was fully forgiven of its $ 1,417,413

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.

Additionally, the Company was fully forgiven, during the three months ended September 30, 2021, of its $ 10,000 EIDL advance

received with the PPP Loan.

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

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Monthly principal and interest

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

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

Such note may be prepaid

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

Total principal payments, since its inception, on this contingent

consideration promissory note totaled $ 57,724 .

The estimated fair value of the June Contingent

Note at June 30, 2022 is $ 211,868 , representing an increase in its estimated fair value of $ 3,844 as compared to its estimated fair

value as of March 31, 2022.

Therefore, the Company recorded a loss of $ 3,844 in the Consolidated Statements of Operations for the

three months ended June 30, 2022.

The Company recorded a gain of $ 47,620 in the Consolidated Statements of Operations for the six months ended June

Total principal payments, since its inception,

on this contingent consideration promissory note totaled $ 84,208 .

The estimated fair value of the June Contingent Note at September 30,

2022 is $ 205,865 , representing an increase in its estimated fair value of $ 20,481 as compared to its estimated fair value as of June

Therefore, the Company recorded a loss of $ 20,481 in the Consolidated Statements of Operations for the three months ended September

The Company recorded a gain of $ 27,139 in the Consolidated Statements of Operations for the nine months ended September 30,

August 31, 2021, Nobility Healthcare issued another contingent consideration promissory note (the “August Contingent Payment Note”)

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contingent consideration promissory note at its estimated fair value of $ 650,000 at the acquisition date.

Principal payments, since its inception, on this

contingent consideration promissory note totaled $ 159,098 .

The estimated fair value of the

August Contingent Note at June 30, 2022 is $ 426,326 , representing a decrease in its estimated fair value of $ 172,091 as compared to

is estimated fair value as of March 31, 2022.

Therefore, the Company recorded a gain of $ 172,091 in the Consolidated Statements of

Operations for the three months ended June 30, 2022.

The Company recorded a gain of $ 64,576 in the Consolidated Statements of Operations for the six months ended June

Principal payments, since its

inception, on this contingent consideration promissory note totaled $ 228,127 .

The estimated fair value of the August Contingent Note

at September 30, 2022 is $ 436,449 , representing an increase in its estimated fair value of $ 79,153 as compared to is estimated fair

value as of June 30, 2022.

Therefore, the Company recorded a loss of $ 79,153 in the Consolidated Statements of Operations for the three

months ended September 30, 2022.

The Company recorded a loss of $ 14,576 in the Consolidated Statements of Operations for the nine months

ended September 30, 2022.

January 1, 2022, Nobility Healthcare issued another contingent consideration promissory note (the “January Contingent Payment Note”)

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

January Contingent Payment Note is considered to be additional purchase price, therefore the estimated fair value of the contingent

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

Management has recorded the contingent consideration promissory note at its estimated fair value of $ 750,000

at the acquisition date.

The estimated fair value of the January Contingent Note at June 30, 2022 is $ 481,151 ,

representing a decrease in its estimated fair value of $ 268,849

as compared to is estimated fair value as of March 31, 2022.

Therefore, the Company recorded a gain of $ 268,849

in the Consolidated Statements of Operations for the three and six months ended June 30, 2022.

There were no principal payments on

this contingent consideration promissory note during the three months ended June 30, 2022.

January Contingent Payment 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 $ 750,000 at the acquisition date.

Principal payments, since its inception, on this contingent consideration promissory note totaled $ 70,888 .

The estimated fair value of

the January Contingent Note at September 30, 2022 is $ 449,507 , representing an increase in its estimated fair value of $ 39,244 as compared

to is estimated fair value as of June 30, 2022.

Therefore, the Company recorded a loss of $ 39,244 in the Consolidated Statements of Operations

for the three months ended September 30, 2022.

The Company recorded a gain of $ 229,605 in the Consolidated Statements of Operations for

the nine months ended September 30, 2022.

February 1, 2022, Nobility Healthcare issued another contingent consideration promissory note (the “February Contingent Payment

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

Management has recorded the contingent consideration promissory note at its estimated fair value of $ 105,000

at the acquisition date.

The estimated fair value of the February Contingent Note at June 30, 2022 is $ 0 ,

representing a reduction in its estimated fair value of $ 105,000

as compared to is estimated fair value as of March 31, 2022.

Therefore, the Company recorded a gain of $ 105,000

in the Consolidated Statements of Operations for the three and six months ended June 30, 2022.

There were no principal payments on

this contingent consideration promissory note during the three months ended June 30, 2022.

Management has recorded the contingent consideration promissory note at its estimated fair value of $ 105,000 at the acquisition

The estimated fair value of the February Contingent Note at September 30, 2022 is $ 0 , representing no change in its estimated fair

value as compared to is estimated fair value as of June 30, 2022.

Therefore, the Company recorded a no change and a gain of $ 105,000

in the Consolidated Statements of Operations for the three and nine months ended September 30, 2022, respectively.

There were no principal

payments on this contingent consideration promissory note during the three months ended September 30, 2022.

FAIR VALUE MEASUREMENT

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

basis as of June 30, 2022 and December 31, 2021:

basis as of September 30, 2022 and December 31, 2021:

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

June 30, 2022

September 30, 2022

Warrant derivative liabilities

Contingent consideration promissory notes

Contingent consideration promissory notes and

contingent consideration earn-out agreement

Liabilities, fair value

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Liabilities, fair value

following table represents the change in Level 3 tier value measurements for the periods ended June 30, 2022:

following table represents the change in Level 3 tier value measurements for the periods ended September 30, 2022:

SCHEDULE OF FAIR VALUE MEASUREMENTS CHANGE IN LEVEL 3 INPUTS

Contingent Consideration Promissory Notes

Warrant Derivative Liabilities

Consideration

Promissory Notes

Warrant Derivative

Balance, December 31, 2021

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Balance, June 30, 2022

Principal payments on contingent consideration promissory notes – Revenue Cycle Management Acquisitions

Change in fair value of contingent consideration promissory notes - Revenue Cycle Management Acquisitions

Change in fair value of warrant derivative liabilities

( 1,164,849 )

Gain on extinguishment of warrant derivative liabilities

Issuance of common stock through warrant exchange agreement

( 4,495,500 )

Balance, September 30, 2022

ACCRUED EXPENSES

expenses consisted of the following at June 30, 2022 and December 31, 2021:

expenses consisted of the following at September 30, 2022 and December 31, 2021:

SCHEDULE OF ACCRUED EXPENSES

September 30,

Accrued warranty expense

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Total accrued expenses

warranty expense was comprised of the following for the six months ended June 30, 2022:

warranty expense was comprised of the following for the nine months ended September 30, 2022:

SCHEDULE OF ACCRUED WARRANTY EXPENSE

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Ending balance

effective tax rate for the three months ended June 30, 2022 and 2021 varied from the expected statutory rate due to the Company continuing

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

The Company determined that it was appropriate to continue the full

valuation allowance on net deferred tax assets as of June 30, 2022, primarily because of the Company’s history of operating losses.

Company has incurred operating losses in recent years, and it continues to be in a three-year cumulative loss position at June 30, 2022.

effective tax rate for the three months ended September 30, 2022 and 2021 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, 2022, primarily because of the Company’s history of

operating losses.

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

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

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The Company has available to it approximately $ 81.4 million

(based on its December 31, 2021 tax return) in net operating loss carryforwards to offset future taxable income as of June 30, 2022.

(based on its December 31, 2021 tax return) in net operating loss carryforwards to offset future taxable income as of September 30, 2022.

PREPAID EXPENSES

expenses were the following at June 30, 2022 and December 31, 2021:

expenses were the following at September 30, 2022 and December 31, 2021:

SCHEDULE OF PREPAID EXPENSE

September 30,

Prepaid inventory

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PROPERTY, PLANT AND EQUIPMENT

plant and equipment consisted of the following at June 30, 2022 and December 31, 2021:

plant and equipment consisted of the following at September 30, 2022 and December 31, 2021:

SCHEDULE OF PROPERTY, PLANT AND EQUIPMENT

September 30,

Office furniture, fixtures and equipment

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Net property, plant and equipment

expense for the six months ended June 30, 2022 and June 30, 2021 was $ 307,328 and $ 95,346 , respectively, and is included in general and

administrative expenses.

expense for the nine months ended September 30, 2022 and September 30, 2021 was $ 381,014 and $ 177,959 , respectively, and is included

in general and administrative expenses.

OPERATING LEASE

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

lease as of June 30, 2022, was fifty-four months.

lease as of September 30, 2022, was fifty-one months .

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

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The remaining lease term for the Company’s copier operating

lease as of June 30, 2022, was sixteen months.

June 30, 2021, the Company completed the acquisition of a private medical billing company, through its revenue cycle management segment.

lease as of September 30, 2022, was thirteen months .

June 30, 2021, the Company completed the acquisition of a private medical billing company, through its revenue cycle management

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

lease terms include monthly payments ranging from $ 2,648 to $ 2,774 , with a termination date of July 2024.

The lease terms include monthly payments ranging from $ 2,648 to $ 2,774 , with a termination date of July 2024 .

The Company is responsible

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The Company took

possession of the leased facilities on June 30, 2021.

possession of the leased facilities on September 30, 2021.

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

lease as of June 30, 2022, was twenty-five months.

lease as of September 30, 2022, was twenty-two months.

August 31, 2021, the Company completed the acquisition of a private medical billing company, through its revenue cycle management segment.

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

lease as of June 30, 2022, was nine months.

lease as of September 30, 2022, was six months .

September 1, 2021, the Company completed the TicketSmarter Acquisition, in its ticketing segment.

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The Company took possession of the leased facilities on September

The remaining lease term for the Company’s office and warehouse operating lease as of June 30, 2022 was six months.

The remaining lease term for the Company’s office and warehouse operating lease as of September 30, 2022 was three months .

January 1, 2022, the Company completed the acquisition of a private medical billing company, through its revenue cycle management segment.

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

lease as of June 30, 2022, was thirty-six months.

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

Total lease expense under the six operating leases was approximately $ 119,230

and $ 274,302 , during the three and six months ended June 30, 2022, respectively.

weighted-average remaining lease term related to the Company’s lease liabilities as of June 30, 2022 was 3.5 years.

lease as of September 30, 2022, was thirty-three months .

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

Total lease expense under the six operating leases was approximately $ 140,967 and $ 415,269 , during the three and nine months ended September

30, 2022, respectively.

weighted-average remaining lease term related to the Company’s lease liabilities as of September 30, 2022 was 3.5 years.

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

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

following sets forth the operating lease right of use assets and liabilities as of June 30, 2022:

following sets forth the operating lease right of use assets and liabilities as of September 30, 2022:

SCHEDULE OF OPERATING LEASES RIGHT OF USE ASSETS AND LIABILITIES

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SCHEDULE OF FUTURE MINIMUM LEASE PAYMENTS

ending December 31:

(July 1, to December 31, 2022)

undiscounted minimum future lease payments

operating lease liability

Year ending December 31:

2022 (October 1, to December 31, 2022)

Total undiscounted minimum future lease payments

Imputed interest

Total operating lease liability

GOODWILL AND OTHER INTANGIBLE ASSETS

assets consisted of the following at June 30, 2022 and December 31, 2021:

assets consisted of the following at September 30, 2022 and December 31, 2021:

SCHEDULE OF INTANGIBLE ASSETS

June 30, 2022

September 30, 2022

December 31, 2021

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

expense for the three months ended June 30, 2022 and 2021 was $ 358,944

and $ 27,483 ,

respectively, and $ 716,910 and $ 50,114 , for the six months ended June 30, 2022 and 2021, respectively.

Estimated amortization for intangible

assets with definite lives for the next five years ending December 31 and thereafter is as follows:

expense for the three months ended September 30, 2022 and 2021 was $ 460,489 and $ 40,211 , respectively, and $ 1,177,759 and $ 100,069 , for

the nine months ended September 30, 2022 and 2021, respectively.

Estimated amortization for intangible assets with definite lives for

the next five years ending December 31 and thereafter is as follows:

SCHEDULE OF ESTIMATED AMORTIZATION FOR INTANGIBLE ASSETS

Year ending December 31:

2022 (July 1, to December 31, 2022)

2022 (October 1, to December 31, 2022)

2026 and thereafter

Other assets were the following

at June 30, 2022 and December 31, 2021:

assets were the following at September 30, 2022 and December 31, 2021:

SCHEDULE OF OTHER ASSETS

September 30,

Lease receivable

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progress over time.

On May 31, 2022, the Company filed

a lawsuit against Culp McAuley, Inc.

(“defendant”) in the United States District Court for the District of Kansas.

arises from the defendant’s multiple breaches of its obligations to the Company.

The Company seeks monetary damages and injunctive

relief based on certain conduct by the defendant.

On July 18, 2022, the defendant filed its Answer to the Company’s Verified Complaint

and included Counterclaims alleging breach of contract and seeking monetary damages.

On August 8, 2022, the Company filed its Reply and

Affirmative Defenses to the Counterclaims by, among other things, denying the allegations and any and all liability.

We have not concluded

that a material loss related to the allegations is probable, nor have we accrued a liability related to these claims.

Although we believe

a loss could be reasonably possible (as defined in ASC 450), we do not have sufficient information to determine the amount or range of

reasonably possible loss with respect to the potential damages given that the dispute is yet to enter the discovery process.

We will continue

to vigorously pursue these claims, and we continue to believe that we have valid grounds for recovery of the disputed deliverables.

there can be no assurances as to the outcome of the dispute.

While the ultimate resolutions are unknown, based on the information currently

available, we do not expect that this lawsuit 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.

May 31, 2022, the Company filed a lawsuit against Culp McAuley, Inc.

(“defendant”) in the United States District Court for

the District of Kansas.

The lawsuit arises from the defendant’s multiple breaches of its obligations to the Company.

seeks monetary damages and injunctive relief based on certain conduct by the defendant.

On July 18, 2022, the defendant filed its Answer

to the Company’s Verified Complaint and included Counterclaims alleging breach of contract and seeking monetary damages.

8, 2022, the Company filed its Reply and Affirmative Defenses to the Counterclaims by, among other things, denying the allegations and

any and all liability.

We have not concluded that a material loss related to the allegations is probable, nor have we accrued a liability

related to these claims.

Although we believe a loss could be reasonably possible (as defined in ASC 450), we do not have sufficient information

to determine the amount or range of reasonably possible loss with respect to the potential damages given that the dispute is yet to enter

the discovery process.

We will continue to vigorously pursue these claims, and we continue to believe that we have valid grounds for

recovery of the disputed deliverables.

However, there can be no assurances as to the outcome of the dispute.

the ultimate resolutions are unknown, based on the information currently available, we do not expect that this lawsuit 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.

7, 2022, the Company, received a written notification (the “Notice”) from the Listing Qualifications Department of The Nasdaq

Stock Market LLC (“Nasdaq”) notifying the Company that it was not in compliance with the minimum bid price requirement for

continued listing on the Nasdaq Capital Market, as set forth under Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Price Requirement”),

because the closing bid price of the Company’s common stock was below $ 1.00 per

share for the previous thirty (30) consecutive business days.

The Notice has no immediate effect on the listing of the Common Stock,

which will continue to trade uninterrupted on the Nasdaq Capital Market under the ticker “DGLY.”

to Nasdaq Listing Rule 5810(c)(3)(A), the Company has been granted 180 calendar days from the date of the Notice, or until January 3,

2023 (the “Compliance Period”), to regain compliance with the Minimum Bid Price Requirement.

If at any time during the Compliance

Period, the bid price of the Common Stock closes at or above $ 1.00 per share for a minimum of ten (10) consecutive business days,

Nasdaq will provide the Company with written confirmation of compliance with the Minimum Bid Price Requirement and the matter will be

the event the Company does not regain compliance with the Minimum Bid Price Requirement by January 3, 2023, the Company may be eligible

for an additional 180-calendar day grace period.

To qualify, the Company will be required to meet the continued listing requirement for

market value of publicly held shares and all other initial listing standards for the Nasdaq Capital Market, with the exception of the

Minimum Bid Price Requirement, and will need to provide written notice to Nasdaq of its intent to regain compliance with such requirement

during such second compliance period.

the Company does not regain compliance within the allotted compliance period(s), including any extensions that may be granted by Nasdaq,

Nasdaq will provide notice that the Common Stock will be subject to delisting from the Nasdaq Capital Market.

STOCK-BASED COMPENSATION

Company recorded pre-tax compensation expense related to the grant of stock options and restricted stock issued of $ 251,733 and $ 491,950

for the three months ended June 30, 2022 and 2021, and $ 776,350 and $ 656,378 for the six months ended June 30, 2022 and 2021, respectively.

of June 30, 2022, the Company had adopted nine separate stock option and restricted stock plans:

for the three months ended September 30, 2022 and 2021, and $ 1,028,084 and $ 1,186,771 for the nine months ended September 30, 2022 and

2021, respectively.

of September 30, 2022, the Company had adopted nine separate stock option and restricted stock plans:

(i) the 2005 Stock Option and Restricted

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

June 30, 2022 total 5,689 .

The 2006 Plan terminated during 2016 with 54,787 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 June 30, 2022 total

The 2007 Plan terminated during 2017 with 94,651 shares not awarded or underlying options, which shares are now unavailable for

There are no stock options granted under the 2007 Plan that remain unexercised and outstanding as of June 30, 2022.

Plan terminated during 2018 with 40,499 shares not awarded or underlying options, which shares are now unavailable for issuance.

were no stock options granted under the 2008 Plan that remain unexercised and outstanding as of June 30, 2022.

September 30, 2022 total 5,689 .

The 2006 Plan terminated during 2016 with 54,787 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,

2022 total 10,625 .

The 2007 Plan terminated during 2017 with 94,651 shares not awarded or underlying options, which shares are now unavailable

for issuance.

There are no stock options granted under the 2007 Plan that remain unexercised and outstanding as of September 30, 2022.

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, 2022.

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

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The Board of Directors has granted stock options under the Plans.

These option awards have been granted with an exercise

price equal to the market price of the Company’s 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 190,845 shares remained available for awards under the various Plans as of June 30, 2022.

These option awards have been granted with an

exercise price equal to the market price of the Company’s 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 190,845 shares remained available for awards under the various Plans as of September 30, 2022.

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

summary of all stock option activity under the Plans for the six months ended June 30, 2022 is as follows:

summary of all stock option activity under the Plans for the nine months ended September 30, 2022 is as follows:

SUMMARY OF STOCK OPTIONS OUTSTANDING

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Outstanding at December 31, 2021

Outstanding at June 30, 2022

Exercisable at June 30, 2022

Outstanding at September 30, 2022

Exercisable at September 30, 2022

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

The total estimated grant

date fair value stock options issued during the six months ended June 30, 2022 was $ 22,768 .

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 2022:

date fair value stock options issued during the nine months ended September 30, 2022 was $ 22,768 .

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 2022:

SCHEDULE OF FAIR VALUE OF STOCK OPTIONS ASSUMPTION

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There were no shares surrendered pursuant to cashless exercises

during the six months ended June 30, 2022 and 2021.

aggregate intrinsic value of options outstanding was $- 0 - and $- 0 -, at June 30, 2022 and December 31, 2021, respectively.

during the nine months ended September 30, 2022 and 2021.

aggregate intrinsic value of options outstanding was $- 0 - and $- 0 -, at September 30, 2022 and December 31, 2021, respectively.

The aggregate

intrinsic value of options exercisable was $- 0 - and $- 0 -, at June 30, 2022 and December 31, 2021, respectively.

of June 30, 2022, the unrecognized portion of stock compensation expense on all existing stock options was $- 0 -.

intrinsic value of options exercisable was $- 0 - and $- 0 -, at September 30, 2022 and December 31, 2021, respectively.

of September 30, 2022, the unrecognized portion of stock compensation expense on all existing stock options was $- 0 -.

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

options under the Company’s option plans as of June 30, 2022:

options under the Company’s option plans as of September 30, 2022:

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

contractual life

stock grants.

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and the right to receive cash dividends.

summary of all restricted stock activity under the Plans for the six months ended June 30, 2022 is as follows:

summary of all restricted stock activity under the Plans for the nine months ended September 30, 2022 is as follows:

SUMMARY OF RESTRICTED STOCK ACTIVITY

Number of Restricted

grant date fair

Nonvested balance, December 31, 2021

Nonvested balance, June 30, 2022

Nonvested balance, September 30, 2022

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

June 30, 2022, there were $ 880,299 of total unrecognized compensation costs related to all remaining non-vested restricted stock grants,

which will be amortized over the next fifty-five months in accordance with their respective vesting scale.

September 30, 2022, there were $ 627,217 of total unrecognized compensation costs related to all remaining non-vested restricted stock

grants, which will be amortized over the next fifty-two months in accordance with their respective vesting scale.

nonvested balance of restricted stock vests as follows:

SCHEDULE OF NON-VESTED BALANCE OF RESTRICTED STOCK

2022 (July 1, 2022 through December 31, 2022)

2022 (October 1, 2022 through December 31, 2022)

COMMON STOCK PURCHASE WARRANTS

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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 25,674,931 shares of common stock at $ 2.60 to $ 3.75 per share as of June 30, 2022.

The warrants expire from August 21,

2022 through September 18, 2026 and under certain circumstances allow for cashless exercise.

purchase up to 1,349,178 shares of common stock at $ 2.60 to $ 3.36 per share as of September 30, 2022.

The warrants expire from February

23, 2023 through July 31, 2023 and under certain circumstances allow for cashless exercise.

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

issued on January 14, 2021 consist of (i) pre-funded warrants to purchase up to 7,200,000 shares of common stock and (ii) common stock

purchase warrants to purchase up to an aggregate of 10,000,000 shares of common stock.

The warrants issued on February 1, 2021 consist

of (i) pre-funded warrants to purchase up to 11,050,000 shares of common stock and (ii)

common stock purchase warrants (“February Warrants”) to purchase up to an aggregate

of 14,300,000 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

re-values the fair value of warrant derivative liability as of the date the warrant is exercised with the resulting warrant derivative

liability transitioned to change in fair value of warrant derivative liabilities through the consolidated statement of operations.

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

issued on February 1, 2021 consist of (i) pre-funded warrants to purchase up to 11,050,000 shares

of common stock and (ii) common stock purchase warrants (“February Warrants”)

to purchase up to an aggregate of 14,300,000 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 re-values the fair value of warrant derivative liability as of the date the warrant is exercised with the resulting

warrant derivative liability transitioned to change in fair value of warrant derivative liabilities through the consolidated statement

of operations.

August 19, 2021, the Company entered into a Warrant Exchange Agreement (the “Exchange Agreement”) with certain investors

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SCHEDULE OF WARRANT MODIFICATION

Original terms at August 19, 2021

Modified terms at August 19, 2021

Volatility - range

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Common stock issuable under the warrants

August 23, 2022, the Company entered into a Warrant Exchange Agreement (the “Warrant Exchange Agreements”) with certain

investors (the “Investors”), pursuant to which the Company agreed to issue to the Investors an

aggregate of 6,075,000

shares of Common Stock in exchange for the cancellation by the Investors of the January Warrants, the Exchange Warrants and the

Replacement Originals Warrants.

On the date of the exchange, the Company calculated the fair value of the issuance of common shares

pursuant to the Warrant Exchange Agreements, attributing that value to common stock and additional paid in capital.

The remaining value of the warrant derivative liability was attributed

to an income from change in fair market value of warrant derivative liabilities and gain on extinguishment of warrant derivative liabilities

in the consolidated statement of operations.

On the date of the Warrant Exchange Agreement, using the Black-Scholes method, the fair value

of the warrant derivative liability was $ 8.1 million, compared to $ 9.3 million at June 30, 2022, resulting in income from change in fair

market value of warrant derivative liabilities of $ 1.2 million during the three months ended September 30, 2022.

Further, the value of

the issued shares of Common Stock was $ 4.5 million, applied to additional paid in capital, resulting in a gain on the extinguishment of

warrant derivative liabilities of $ 3.6 million during the three months ended September 30, 2022.

Volatility - range

Risk-free rate

3.17 - 3.36 %

Remaining contractual term

3.4 - 4.1 years

Exercise price

Common stock issuable under the warrants

in the Company’s stock price is a primary driver for the changes in the derivative valuations during each reporting period.

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result in a material change in our Level 3 fair value.

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

warrant derivative liabilities as of their date of issuance and as of June 30, 2022:

SCHEDULE OF FAIR VALUE OF THE WARRANT DERIVATIVE LIABILITIES

Issuance date assumptions

June 30, 2022 assumptions

Volatility - range

106.6 – 166.6 %

Risk-free rate

0.08 - 0.49 %

Remaining contractual term

0.01 - 5 years

3.5 – 4.2 years

Exercise price

$ 2.80 - 3.25

Common stock issuable under the warrants

following table summarizes information about shares issuable under warrants outstanding during the six months ended June 30, 2022:

SUMMARY OF WARRANT ACTIVITY

following table summarizes information about shares issuable under warrants outstanding during the nine months ended September 30, 2022:

OF WARRANT ACTIVITY

exercise price

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Forfeited/cancelled

Vested Balance, June 30, 2022

total intrinsic value of all outstanding warrants aggregated $- 0 - as of June 30, 2022, and the weighted average remaining term is 45

( 24,659,420 )

Vested Balance, September 30, 2022

total intrinsic value of all outstanding warrants aggregated $- 0 - as of September 30, 2022, and the weighted average remaining term is

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

warrants to purchase shares of common stock as of June 30, 2022:

warrants to purchase shares of common stock as of September 30, 2022:

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

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Number of warrants

Weighted average

contractual life

1 unchanged sentence

of Restricted Stock

the six months ended June 30, 2022, the Company cancelled 65,000 restricted shares of common stock due to forfeiture reasons.

the nine months ended September 30, 2022, the Company cancelled 65,000 restricted shares of common stock due to forfeiture reasons.

Repurchase Program

1 unchanged sentence

common stock under the specified terms of a share repurchase program (the “Program”).

During the three months ended June

During the nine months ended September

30, 2022, the Company repurchased 3,725,986 shares of its common stock for $ 4,026,523 , in accordance with the Program.

Furthermore, during the six months ended June 30, 2022, the Company repurchased 3,725,986 shares of its common stock

for $ 4,026,523 , in accordance with the Program.

SCHEDULE OF STOCK REPURCHASE

Total Number of

Average Price

Total Number of

Shares Purchased as

Part of Publicly

Maximum Approximate Dollar Value of

Shares that May Yet Be

Purchased Under the

December 2021

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as “net (income) loss attributable to noncontrolling interests of consolidated subsidiary”.

We reported net income attributable

to noncontrolling interests of consolidated subsidiary of $ 383,326 and $- 0 - for the three months ended June 30, 2022 and 2021, and $ 285,232

and $- 0 - for the six months ended June 30, 2022 and 2021, respectively.

We reported net loss attributable

to noncontrolling interests of consolidated subsidiary of $ 16,596 and a net loss of $ 19,863 for the three months ended September 30,

2022 and 2021, and a net income of $ 268,636 and a net loss of $ 19,863 for the nine months ended September 30, 2022 and 2021, respectively.

NET EARNINGS (LOSS) PER SHARE

calculation of the weighted average number of shares outstanding and loss per share outstanding for the three and six months ended June

calculation of the weighted average number of shares outstanding and loss per share outstanding for the three and nine months ended September

30, 2022 and 2021 are as follows:

SCHEDULE OF WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING AND LOSS PER SHARE OUTSTANDING

Three Months Ended

Six Months Ended

September 30,

Nine months Ended

September 30,

Numerator for basic and diluted income per share – Net income (loss) attributable to common stockholders

1 unchanged sentence

$ ( 9,568,134 )

$ ( 7,665,662 )

Denominator for basic loss per share – weighted average shares outstanding

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income (loss) per share is based upon the weighted average number of common shares outstanding during the period.

For the three and six

months ended June 30, 2022 and 2021, all shares issuable upon conversion of convertible debt and the exercise of outstanding stock options

and warrants were antidilutive, and, therefore, not included in the computation of diluted income (loss) per share.

For the three and nine

months ended September 30, 2022 and 2021, all shares issuable upon the exercise of outstanding stock

options and warrants were antidilutive, and, therefore, not included in the computation of diluted income (loss) per share.

DIGITAL ALLY HEALTHCARE VENTURE

45 unchanged sentences

The results of operations of acquired businesses are included in the consolidated financial statements from the acquisition

purchase price of the Healthcare Acquisition was allocated to the tangible assets, and assumed liabilities based on their

preliminary estimated fair values at the time of the Healthcare Acquisition.

The Company retained the services of an independent valuation firm to determine

the fair value of these identifiable intangible assets.

The Company will continue to evaluate the fair value of the identified intangible

The preliminary and final estimated fair value of assets acquired, and liabilities assumed

in the Healthcare Acquisition were as follows:

SCHEDULE OF PRELIMINARY FAIR VALUE OF ASSETS ACQUIRED AND LIABILITIES ACQUISITION

purchase price of the Healthcare Acquisition was allocated to the tangible assets, and assumed liabilities based on their preliminary

estimated fair values at the time of the Healthcare Acquisition.

The Company retained the services of an independent valuation firm to

determine the fair value of these identifiable intangible assets.

The Company will continue to evaluate the fair value of the identified

intangible assets.

The preliminary and final estimated fair value of assets acquired, and liabilities assumed in the Healthcare Acquisition

were as follows:

OF PRELIMINARY AND FINAL ESTIMATED FAIR VALUE OF ASSETS ACQUIRED AND LIABILITIES ACQUISITION

Purchase price allocation

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Total Healthcare Acquisition purchase price

Definite-lived intangible assets

consist of client agreements and are amortized on a straight-line basis over their ten-year estimated useful life.

and Other Intangible Assets.

The following table sets forth

the components of identifiable intangible assets acquired and their estimated useful lives in years as of the date of acquisition:

SCHEDULE OF IDENTIFIABLE INTANGIBLE ASSETS ACQUIRED AND THEIR ESTIMATED USEFUL LIVES

Amortization through

September 30,

Identifiable intangible assets:

Client agreements

For the period from the date of

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acquisition date.

purchase price of the Medical Billing Acquisition was allocated to the tangible assets, and assumed liabilities based on their

preliminary estimated fair values at the time of the Medical Billing Acquisition.

The Company expects to retain the services of an

independent valuation firm to determine the fair value of these identifiable intangible assets.

Once determined, the Company will

reallocate the purchase price of the acquisition based on the results of the independent evaluation if they are materially different

from the allocations as recorded on August 31, 2021.

The preliminary estimated 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

The purchase price of the Medical

Billing Acquisition was allocated to the tangible assets, and assumed liabilities based on their preliminary estimated fair values at

the time of the Medical Billing Acquisition.

The Company retained the services of an independent valuation firm to determine the fair

value of these identifiable intangible assets.

The Company will continue to evaluate the fair value of the identified intangible assets.

The preliminary and final estimated fair value of assets acquired, and liabilities assumed in the Healthcare Acquisition were as follows:

OF PRELIMINARY FAIR VALUE OF ASSETS ACQUIRED AND LIABILITIES ACQUISITION

Preliminary As

September 30,

Assets acquired:

assumed pursuant to stock purchase agreement

assets acquired and liabilities assumed

Tangible assets acquired

Identifiable intangible assets acquired – client agreements

Liabilities assumed pursuant to stock purchase agreement

Net assets acquired and liabilities assumed

Consideration:

paid at acquisition date

consideration promissory note

acquisition purchase price

Cash paid at Healthcare Acquisition date

Contingent consideration earn-out agreement

Total Healthcare Acquisition purchase price

The following table sets forth

the components of identifiable intangible assets acquired and their estimated useful lives in years as of the date of acquisition:

SCHEDULE OF IDENTIFIABLE INTANGIBLE ASSETS ACQUIRED AND THEIR ESTIMATED USEFUL LIVES

Amortization through

September 30,

Identifiable intangible assets:

Client agreements

the period from the date of the Healthcare Acquisition to August 31, 2022, the Company adjusted its preliminary fair value estimates

and estimated useful lives based upon information obtained through August 31, 2022, which resulted in adjustments to the preliminary

allocation of the purchase price.

These adjustments primarily related to estimated identifiable intangible asset fair values of client

agreements and goodwill.

the measurement period (which is the period required to obtain all necessary information that existed at the acquisition date, or to

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acquisition date.

purchase price of the Medical Billing Acquisition was allocated to the tangible assets, and assumed liabilities based on their

preliminary estimated fair values at the time of the Medical Billing Acquisition.

The Company expects to retain the services of an

independent valuation firm to determine the fair value of these identifiable intangible assets.

Once determined, the Company will

reallocate the purchase price of the acquisition based on the results of the independent evaluation if they are materially different

from the allocations as recorded on January 1, 2022.

The preliminary estimated fair value of assets acquired, and liabilities

assumed in the Medical Billing Acquisition were as follows:

The purchase price of the Medical

Billing Acquisition was allocated to the tangible assets, and assumed liabilities based on their preliminary estimated fair values at

the time of the Medical Billing Acquisition.

The Company retained the services of an independent valuation firm to determine the fair

value of these identifiable intangible assets.

The Company will continue to evaluate the fair value of the identified intangible assets.

There was no change from the preliminary estimated fair value to the final estimated fair value of assets acquired, and liabilities assumed

in the Healthcare Acquisition, those value were as follows:

SCHEDULE OF PRELIMINARY FAIR VALUE OF ASSETS ACQUIRED AND LIABILITIES ACQUISITION

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Total acquisition related costs aggregated $ 10,322 , which was expensed

In accordance with ASC 805, “Business

Combinations”, the acquisition method of accounting is used, and recognition of the assets acquired is at fair value as of the acquisition

accordance with ASC 805, “Business Combinations”, the acquisition method of accounting is used, and recognition of the assets

acquired is at fair value as of the acquisition dates.

All acquisition costs were expensed as incurred.

The consideration paid has been allocated to the assets acquired based on their

estimated fair values at the acquisition date.

The estimate of fair values for the intangible assets acquired were agreed to by both buyer

The estimated fair value of intangible assets acquired in the Medical Billing Asset Acquisition were as follows:

The consideration paid has been

allocated to the assets acquired based on their estimated fair values at the acquisition date.

The estimate of fair values for the intangible

assets acquired were agreed to by both buyer and seller.

The estimated fair value of intangible assets acquired in the Medical Billing

Asset Acquisition were as follows:

SCHEDULE OF PRELIMINARY FAIR VALUE OF ASSETS ACQUIRED AND LIABILITIES ACQUISITION

6 unchanged sentences

Total acquisition purchase price

Definite-lived intangible assets consist of client agreements and are amortized

on a straight-line basis over their ten-year estimated useful life.

Goodwill and Other Intangible Assets.

The following table sets forth

the components of identifiable intangible assets acquired and their estimated useful lives in years as of the date of acquisition:

SCHEDULE OF IDENTIFIABLE INTANGIBLE ASSETS ACQUIRED AND THEIR ESTIMATED USEFUL LIVES

Amortization through

September 30,

Identifiable intangible assets:

Client agreements

change in fair value of the contingent consideration is more fully described in Note 3, “Debt Obligations” and will be estimated

46 unchanged sentences

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 preliminary estimated fair values at the time of the

TicketSmarter Acquisition.

The Company retained the services of an independent valuation firm to determine the fair value of these identifiable

intangible assets.

goodwill, identifiable intangible assets, and assumed liabilities based on their preliminary estimated fair values at the time of

the TicketSmarter Acquisition.

The Company retained the services of an independent valuation firm to determine the fair value of

these identifiable intangible assets.

The Company will continue to evaluate the fair value of the identified intangible assets.

The preliminary estimated

fair value of assets acquired, and liabilities assumed in the TicketSmarter Acquisition were as follows:

OF PRELIMINARY FAIR VALUE OF ASSETS ACQUIRED AND LIABILITIES ASSUMED ACQUISITION

purchase price

assets acquired, including $ 51,432 of cash acquired

intangible assets acquired

assets acquired and liabilities assumed

preliminary and final estimated fair value of assets acquired, and liabilities assumed in the TicketSmarter Acquisition were as

OF PRELIMINARY AND FINAL ESTIMATED FAIR VALUE OF ASSETS ACQUIRED AND LIABILITIES ASSUMED ACQUISITION

Final as allocated

September 30,

Assets acquired:

Tangible assets acquired, including $ 51,432 of cash acquired

Identifiable intangible assets acquired

Liabilities assumed

( 5,128,964 )

Liabilities assumed pursuant to stock purchase agreement

( 5,128,964 )

Net assets acquired and liabilities assumed

Consideration:

paid at TicketSmarter Acquisition date

stock issued as consideration for TicketSmarter Acquisition at date of acquisition

consideration earn-out agreement

paid at closing to escrow amount

retained from escrow amount pursuant to settlement of working capital target

TicketSmarter Acquisition purchase price

Cash paid at TicketSmarter Acquisition date

Common stock issued as consideration for TicketSmarter Acquisition at date of acquisition

Contingent consideration earn-out agreement

Cash paid at closing to escrow amount

Cash retained from escrow amount pursuant to settlement of working capital target

Total TicketSmarter Acquisition purchase price

following table sets forth the components of identifiable intangible assets acquired and their estimated useful lives in years as of

1 unchanged sentence

OF COMPONENTS OF IDENTIFIABLE INTANGIBLE ASSETS ACQUIRED AND ESTIMATED USEFUL LIVES

September 30,

intangible assets:

6 unchanged sentences

related to the sponsorship agreement network), the estimated fair value of the contingent earn-out agreement liability and goodwill.

There were no adjustments to the allocation of the purchase price during the three and six months ended June 30, 2022.

There were no adjustments to the allocation of the purchase price during the three and nine months ended September 30, 2022.

the measurement period (which is the period required to obtain all necessary information that existed at the acquisition date, or to

32 unchanged sentences

cash, invested cash (if any), refundable income taxes (if any), and deferred income taxes.

financial information for the Company’s reportable business segments is provided for the indicated periods and as of June 30, 2022,

and June 30, 2021:

financial information for the Company’s reportable business segments is provided for the indicated periods and as of September

30, 2022, and September 30, 2021:

SCHEDULE OF SEGMENT REPORTING

Three months ended June 30,

Six months ended June 30,

Three months ended

September 30,

Nine months ended

September 30,

Net Revenues:

2 unchanged sentences

Total Net Revenues

Gross Profit:

Gross Profit (Loss):

Video Solutions

5 unchanged sentences

$ ( 940,039 )

$ ( 4,327,049 )

$ ( 1,919,559 )

Revenue Cycle Management

2 unchanged sentences

( 3,054,407 )

( 2,662,423 )

( 10,025,236 )

( 7,165,483 )

Total Operating Income (Loss)

1 unchanged sentence

$ ( 3,598,973 )

$ ( 20,031,610 )

$ ( 9,081,553 )

Depreciation and Amortization:

18 unchanged sentences

with Managing Member of Nobility Healthcare

On January 27, 2022, the Board

of Directors appointed Christian J.

January 27, 2022, the Board of Directors appointed Christian J.

Hoffmann, III as a member of the Board, effective immediately.

Hoffmann is a principal owner and

manager of Nobility, LLC which is currently the managing member of our consolidated subsidiary Nobility Healthcare, LLC.

is a principal owner and manager of Nobility, LLC which is currently the managing member of our consolidated subsidiary Nobility Healthcare,

LLC is currently the managing member of Nobility Healthcare, LLC.

1 unchanged sentence

capital loan to Nobility, LLC in order to fund capital expenditures necessary for the initial growth of the joint venture during 2021.

The outstanding balance of the working capital loan was $ 138,384 as of June 30, 2022 and the Company anticipates full repayment of this

advance during the year ended December 31, 2022.

During the six months ended June 30, 2022, the Company paid distributions to the noncontrolling

in consolidated subsidiary totaling $ 15,692 .

On August 1, 2022, Mr.

Hoffmann resigned as a member of the Board, effective

He remains as a principal owner and manager of Nobility, LLC which is currently the managing member of our consolidated subsidiary

Nobility Healthcare, LLC.

SUBSEQUENT EVENTS

Notice of Delisting

On July 7, 2022,

Digital Ally, Inc., a Nevada Corporation (the “Company”), received a written notification (the “Notice”) from

the Listing Qualifications Department of The Nasdaq Stock Market LLC (“Nasdaq”) notifying the Company that it was not in

compliance with the minimum bid price requirement for continued listing on the Nasdaq Capital Market, as set forth under Nasdaq Listing

Rule 5550(a)(2) (the “Minimum Bid Price Requirement”), because the closing bid price of the Company’s common stock,

par value $ 0.001 per share (the “Common Stock”), was below $ 1.00 per share for the previous thirty (30) consecutive business

The Notice has no immediate effect on the listing of the Common Stock, which will continue to trade uninterrupted on the Nasdaq

Capital Market under the ticker “DGLY.”

to Nasdaq Listing Rule 5810(c)(3)(A), the Company has been granted 180 calendar days from the date of the Notice, or until January 3,

2023 (the “Compliance Period”), to regain compliance with the Minimum Bid Price Requirement.

If at any time during the Compliance

Period, the bid price of the Common Stock closes at or above $ 1.00 per share for a minimum of ten (10) consecutive business days, Nasdaq

will provide the Company with written confirmation of compliance with the Minimum Bid Price Requirement and the matter will be closed.

the event the Company does not regain compliance with the Minimum Bid Price Requirement by January 3, 2023, the Company may be eligible

for an additional 180-calendar day grace period.

To qualify, the Company will be required to meet the continued listing requirement for

market value of publicly held shares and all other initial listing standards for the Nasdaq Capital Market, with the exception of the

Minimum Bid Price Requirement, and will need to provide written notice to Nasdaq of its intent to regain compliance with such requirement

during such second compliance period.

Company does not regain compliance within the allotted compliance period(s), including any extensions that may be granted by Nasdaq, Nasdaq

will provide notice that the Common Stock will be subject to delisting from the Nasdaq Capital Market.

Resignation of a Member of Board of Directors

The outstanding balance of the working capital loan was $ 138,384 as of September 30, 2022 and the Company anticipates full repayment

of this advance during the year ended December 31, 2022.

During the nine months ended September 30, 2022, the Company paid distributions

to the noncontrolling in consolidated subsidiary totaling $ 15,692 .

August 1, 2022, Mr.

Hoffmann resigned as a member of the Board, effective immediately.

He remains as a principal owner and manager of Nobility,

LLC which is currently the managing member of our consolidated subsidiary Nobility Healthcare, LLC.

He remains as a principal owner and manager of

Nobility, LLC which is currently the managing member of our consolidated subsidiary Nobility Healthcare, LLC.

SUBSEQUENT EVENTS

Stock Transaction

October 13, 2022, the Company, entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain institutional

investors (the “Preferred Stock Investors”), pursuant to which the Company agreed to issue and sell, in a private placement

(the “Offering”), 1,400,000

shares of the Company’s Series A Convertible

Redeemable Preferred Stock, par value $ 0.001

per share (the “Series A Preferred Stock”),

shares of the Company’s Series B Convertible

Redeemable Preferred Stock, par value $ 0.001

per share (the “Series B Preferred Stock”,

and together with the Series A Preferred Stock, the “Preferred Stock”), at an offering price of $ 9.50

per share, representing a 5% original issue discount

to the stated value of $ 10.00

per share, for gross aggregate proceeds of $ 15

million in the Offering, before the deduction of discounts, fees and offering expenses.

The shares of Preferred Stock will,

under certain circumstances, be convertible into shares of the Company’s common stock, at the option of the holders of the Preferred

Stock and, in certain circumstances, by the Company.

In connection with the Offering, the Company agreed to pay A.G.P./Alliance Global

Partners (the “Financial Advisor”) an aggregate cash fee equal to $ 750,000 and to reimburse the Financial Advisor for certain

of its expenses in an amount not to exceed $135,000.

Company has called an annual meeting of stockholders to consider amendments (the “Amendments”) to the Company’s Articles

of Incorporation (the “Charter”), (i) to authorize an increase in the number of shares of Common Stock that the Company is

authorized to issue under the Charter (the “Authorized Share Increase Amendment”) and (ii) to authorize the Company, in the

sole and absolute discretion of the Board of Directors, to effect a reverse stock split of the outstanding shares of Common Stock by a

ratio to be determined by the Board of Directors (the “Reverse Stock Split Amendment” and, together with the Authorized Share

Increase Amendment, the “Amendments”).

of the Series A Preferred Stock and Series B Preferred Stock have the right to require the Company to redeem their shares of the relevant

series at a price per share equal to 105% of the stated value of such shares commencing (i) after the earlier of (1) the receipt of stockholder

approval of the Amendments and (2) sixty (60) days after the closing of the Offering and (ii) before the date that is ninety (90) days

after such closing.

The Company has the option to redeem the Series A Preferred Stock and Series B Preferred Stock at a price per share

equal to 105% of the stated value of such shares commencing after the 90th day following the closing of the Offering, subject to the holders’

rights to convert the shares prior to such redemption.

of the Offering are being held in an escrow account, along with the additional amount that would be necessary to fund the 105% redemption

price until the expiration of the redemption period for the Preferred Stock, as applicable, subject to the earlier payment to redeeming

Upon expiration of the redemption period, any proceeds remaining in the escrow account will be disbursed to the Company.

The Offering closed on October

*************************************

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements