KUSTOM ENTERTAINMENT, INC. 10-K

Item 9A. Controls and Procedures. Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures to provide reasonable assurance of achieving the control objectives, as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Based on their evaluation as of December 31, 2022, the end of the period covered by this Annual Report on Form 10-K, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were not effective as of December 31, 2022 due to the reasons described below. In connection with the audit of our consolidated financial statements as of December 31, 2022 and 2021, we identified a material weakness in our internal control over financial reporting related to the timely detection of potential accounting misstatements. The company believes that the increase in acquisition activities resulted in a temporary gap of accounting resources during the year ended December 31, 2022. To address these deficiencies, the Company will implement additional procedures designed to accelerate the tempo of upwardly reporting subsidiaries and the visibility of receipt of reports by the parent company to allow for ample opportunities for review procedures in the financial reporting process. 38 Management’s Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that: ● Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; ● Provide reasonable assurance that the transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and ● Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate. The SEC guidance allows companies to exclude acquisitions from management’s report on internal control over financial reporting for the first year after the acquisition. During 2022, the Company completed one business acquisition and one asset acquisition within the revenue cycle management segment. Due to the timing of the transaction, management has excluded the transaction from our annual evaluation of internal control over financial reporting. The preliminary total revenue of this acquisition represents less than 10% of our consolidated revenues for the year ended December 31, 2022. In connection with the filing of this Annual Report on Form 10-K, our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2022. In making this assessment, our management used the criteria set forth by 2013 Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our assessment using the framework in 2013 Internal Control – Integrated Framework , management believes that, as of December 31, 2022, our internal control over financial reporting is not effective. Material Weakness In connection with the audit of our consolidated financial statements as of December 31, 2022 and 2021, we identified a material weakness in our internal control over financial reporting related to timely review and detection of potential accounting misstatements, which in the aggregate, constitute a material weakness. Remediation Activities As part of our plan to remediate this material weakness, we are performing a full review of our internal control procedures. We have implemented, and plan to continue to implement, new controls and new processes. We have hired and plan to continue to hire additional qualified personnel and establish more robust processes to support our internal control over financial reporting, including clearly defined roles and responsibilities. The Company anticipates time being required to complete the implementation and to assess and ensure the sustainability of these controls. The material weakness will not be considered remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. Changes in Internal Control Over Financial Reporting We have completed the process of integrating our recent business acquisition, which was acquired at the beginning of 2022, into our overall internal control over financial reporting process. Other than this integration, there have been no changes in our internal control over financial reporting during the year ended December 31, 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We are continually monitoring and assessing our internal controls to ensure the appropriate design and operating effectiveness. Item 9B. Other Information. None. Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections. Not applicable. 39 PART III Item 10. Directors, Executive Officers and Corporate Governance. Directors The names of the members of our Board of Directors and certain information about them as of the date of this Annual Report on Form 10-K are set forth below: Name of Board of Director Member (4) Positions Age Director Since Stanton E. Ross Chairman, President and Chief Executive Officer 61 2005 Leroy C. Richie (1)(2)(3) Lead Independent Director, Chairman of the Nominating Committee and Compensation Committee and attorney 81 2005 Daniel F. Hutchins (1) Independent Director; Chairman of Audit Committee 67 2007 Michael J. Caulfield (1)(2)(3) Independent Director 67 2016 (1) Member of Audit Committee (2) Member of Compensation Committee (3) Member of Nominating Committee (4) The address of each executive officer and director listed is 14001 Marshall Drive, Lenexa, Kansas 66215. The Board has determined that Messrs. Richie, Hutchins, and Caulfield are “independent directors,” as defined by the rules and listing standards of The Nasdaq Stock Market LLC (“Nasdaq”). In making this determination, the Board considered the transactions and relationships disclosed under “Certain Relationships and Related Transactions” below. Stanton E. Ross has served as Chairman, President and Chief Executive Officer (“CEO”) since September 2005. From March 1992 to June 2005, Mr. Ross was the Chairman and President of American Noble Gas Inc. (formerly known as Infinity Energy Resources, Inc.), a publicly held oil and gas exploration and development company (“AMGAS”) and served as an officer and director of each of AMGAS’s subsidiaries. He resigned from all his positions with AMGAS in June 2005, except Chairman, but was reappointed President in October 2006. From 1991 until March 1992, he founded and served as President of Midwest Financial, a financial services corporation involved in mergers, acquisitions, and financing for corporations in the Midwest. From 1990 to 1991, Mr. Ross was employed by Duggan Securities, Inc., an investment banking firm in Lenexa, Kansas, where he primarily worked in corporate finance. From 1989 to 1990, he was employed by Stifel, Nicolaus & Co., a member of the New York Stock Exchange, where he was an investment executive. From 1987 to 1989, Mr. Ross was self-employed as a business consultant. From 1985 to 1987, Mr. Ross was President and founder of Kansas Microwave, Inc., which developed a radar detector product. From 1981 to 1985, he was employed by Birdview Satellite Communications, Inc., which manufactured and marketed home satellite television systems, initially as a salesman and later as National Sales Manager. Mr. Ross estimates he devoted most of his time to Digital Ally and the balance to AMGAS in 2020. In late 2007, AMGAS sold a substantial portion of its operating assets and has not required a substantial amount of his time since such point. Mr. Ross holds no public company directorships other than with the Company and AMGAS and has not held any others during the previous five years. The Company believes that Mr. Ross’s broad entrepreneurial, financial, and business expertise and his experience with micro-cap public companies and his role as President and Chief Executive Officer give him the qualifications and skills to serve as a Director. 40 Leroy C. Richie has been the Lead Independent Director of Digital Ally since September 2005. He is also the Chairman of the Compensation Committee and Nominating Committee and a member of the Audit Committee. Since June 1, 1999, Mr. Richie has been a director of AMGAS. Additionally, until 2017, Mr. Richie served as a member of the board of directors of Columbia Mutual Funds, (or mutual fund companies acquired by or merged with Columbia Mutual Funds), a family of investment companies managed by Ameriprise Financial, Inc. From 2004 to 2015, he was of counsel to the Detroit law firm of Lewis & Munday, P.C. From 2007 to 2014, Mr. Richie served as a member of the board of directors of OGE Energy Corp. He holds no other public directorships and has not held any others during the previous five years. Until 2019, Mr. Richie served as the Vice-Chairman of the Board of Trustees and Chairman of the Compensation Committee for the Henry Ford Health System, in Detroit. Mr. Richie was formerly Vice President of Chrysler Corporation and General Counsel for automotive legal affairs, where he directed all legal affairs for its automotive operations from 1986 until his retirement in 1997. Before joining Chrysler, he was an associate with the New York law firm of White & Case (1973-1978) and served as director of the New York office of the Federal Trade Commission (1978-1983). Mr. Richie received a B.A. from City College of New York, where he was valedictorian, and a J.D. from the New York University School of Law, where he was awarded an Arthur Garfield Hays Civil Liberties Fellowship. The Company believes that Mr. Richie’s extensive experience as a lawyer and as an officer or director of public companies gives him the qualifications and skills to serve as a Director. Daniel F. Hutchins was elected a Director in December 2007. He serves as Chairman of the Audit Committee and is the Board’s financial expert. Mr. Hutchins, a Certified Public Accountant, was a Principal with the accounting firm of Hutchins & Haake, LLC until his retirement on July 1, 2021. Mr. Hutchins currently serves as a director and the Chief Financial Officer of AMGAS, of which Mr. Ross is the Chairman and President. Mr. Hutchins has served as an instructor for the Becker CPA exam with the Keller Graduate School of Management and has over 18 years of teaching experience preparing CPA candidates for the CPA exam. He has over 40 years of public accounting experience, including five years with Deloitte & Touche, LLP. He has served on the boards of various non-profit groups and is a member of the American Institute of Certified Public Accountants. Mr. Hutchins earned his Bachelor of Business Administration degree in Accounting at Washburn University in Topeka, Kansas. Mr. Hutchins holds no other public company directorships and has not held any others during the previous five years. The Company believes that Mr. Hutchins’ significant experience in finance and accounting gives him the qualifications and skills to serve as a Director. Michael J. Caulfield was elected a Director in May 2016. He is a member of the Audit Committee, Compensation Committee and Nominating Committee. He served as Vice President – Strategic Development of the Company from June 1, 2009 to January 11, 2012. Mr. Caulfield was most recently (2012-2016) a Vice-Chairman at Teneo Holdings, LLC, a global advisory firm where he was responsible for the firm’s investment banking relationships with a broad range of industrial companies. From 2006 to 2009, Mr. Caulfield served as a Managing Director at Banc of America Securities (“BAS”), where he was responsible for the merger, acquisition, divestiture and restructuring advisory services for a number of large public and private companies. He was also in charge of BAS’s global investment banking activities involving the Safety, Security, Engineering and Construction Industries. Prior to joining BAS, Mr. Caulfield spent six years (2000-2006) as a Managing Director with Morgan Stanley in New York City, leading that global investment banking firm’s efforts in the Aerospace and Defense Industries. He was also responsible for the investment banking relationships with a number of Morgan Stanley’s largest clients. From 1989 to 2000, he worked at General Electric Capital Corp., where he served as a Managing Director and head of the Corporate Finance Group. In this capacity, he advised GE Capital and the industrial divisions of General Electric on such issues as capital structuring, mergers and acquisitions, and private equity transactions. Mr. Caulfield received an MBA from the Wharton School of the University of Pennsylvania and a B.S. Degree from the University of Minnesota. The Company believes that Mr. Caulfield’s significant experience in investment banking and the public market gives him the qualifications and skills to serve as a Director. Our Directors are elected annually and hold office until the next annual meeting of our stockholders or until their successors are elected and qualified. Officers are elected annually and serve at the discretion of the Board of Directors. There is no family relationship between any of our directors, director nominees and executive officers. Board vacancies are filled by a majority vote of the Board. 41 Board of Directors and Committee Meetings Our Board of Directors held four meetings and acted a number of times by unanimous consent resolutions during the fiscal year ended December 31, 2022. Each of our directors attended at least 75% of the meetings of the Board of Directors and the committees on which he served in the fiscal year ended December 31, 2022. Our directors are expected, absent exceptional circumstances, to attend all Board meetings and meetings of committees on which they serve and are also expected to attend our annual meeting of stockholders. All directors then in office attended the 2022 annual meeting of stockholders. Committees of the Board of Directors Our Board of Directors currently has four committees: an Audit Committee, a Compensation Committee and a Nominating Committee. Each committee has a written charter approved by the Board of Directors outlining the principal responsibilities of the committee. These charters are also available on the Investor Relations page of our website. All of our directors, other than our Chairman and Chief Executive Officer, have met in executive sessions without management present on a regular basis in 2022 and year-to-date 2023. Audit Committee Our Audit Committee appoints the Company’s independent auditors, reviews audit reports and plans, accounting policies, financial statements, internal controls, audit fees, and certain other expenses and oversees our accounting and financial reporting process. Specific responsibilities include selecting, hiring and terminating our independent auditors; evaluating the qualifications, independence and performance of our independent auditors; approving the audit and non-audit services to be performed by our auditors; reviewing the design, implementation, adequacy and effectiveness of our internal controls and critical accounting policies; overseeing and monitoring the integrity of our financial statements and our compliance with legal and regulatory requirements as they relate to financial statements or accounting matters; reviewing any earnings announcements and other public announcements regarding our results of operations in conjunction with management and our public auditors; conferring with management and the independent auditors regarding the effectiveness of internal controls, financial reporting processes and disclosure controls; consulting with management and the independent auditors regarding Company policies governing financial risk management; reviewing and discussing reports from the independent auditors on critical accounting policies used by the Company; establishing procedures, as required under applicable law, for the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls or auditing matters and the confidential and anonymous submission by employees of concerns regarding questionable accounting or auditing matters; reviewing and approving related-person transactions in accordance with the Company’s policies and procedures with respect to related-person transactions and applicable rules; reviewing the financial statements to be included in our Annual Report on Form 10-K; discussing with management and the independent auditors the results of the annual audit and the results of quarterly reviews and any significant changes in our accounting principles; and preparing the report that the SEC requires in our annual proxy statement. The Audit Committee is comprised of three Directors, each of whom is independent, as defined by the rules and regulations of the SEC and Nasdaq Rule 5605(a)(2). The Audit Committee held four meetings during the year ended December 31, 2022. The members of our Audit Committee are Daniel F. Hutchins (Chairman), Leroy C. Richie and Michael J. Caulfield. The Board of Directors determined that Mr. Hutchins qualifies as an “audit committee financial expert,” as defined under the applicable rules and listing standards of Nasdaq and SEC rules and regulations and is independent as noted above. 42 Under the Sarbanes-Oxley Act of 2002, all audit and non-audit services performed by the Company’s independent registered public accounting firm must be approved in advance by the Audit Committee to assure that such services do not impair the auditor’s independence from the Company. Accordingly, the Audit Committee has adopted an Audit and Non-Audit Services Pre-Approval Policy (the “Policy”) that sets forth the procedures and the conditions pursuant to which services to be performed by the independent auditors are to be pre-approved. Pursuant to the Policy, certain services described in detail in the Policy may be pre-approved on an annual basis together with pre-approved maximum fee levels for such services. The services eligible for annual pre-approval consist of services that would be included under the categories of Audit Fees, Audit-Related Fees and Tax Fees in the table, as well as services for limited review of actuarial reports and calculations. If not pre-approved on an annual basis, proposed services must otherwise be separately approved prior to being performed by the independent registered public accounting firm. In addition, any services that receive annual pre-approval but exceed the pre-approved maximum fee level also will require separate approval by the Audit Committee prior to being performed. The Audit Committee may delegate authority to pre-approve audit and non-audit services to any member of the Audit Committee but may not delegate such authority to management. Compensation Committee Our Compensation Committee assists our Board of Directors in determining the development plans and compensation of our officers, directors and employees. Specific responsibilities include approving the compensation and benefits of our executive officers; reviewing the performance objectives and actual performance of our officers; administering our stock option and other equity compensation plans; and reviewing and discussing with management the compensation discussion and analysis that the SEC requires in our future Form 10-Ks and proxy statements. Our Compensation Committee is comprised of three Directors, whom the Board considers to be independent under the applicable rules and listing standards of Nasdaq and SEC rules and regulations. The members of our Compensation Committee are Leroy C. Richie (Chairman) and Michael J. Caulfield. The Compensation Committee held two meetings and acted several times by unanimous written consent resolutions during the year ended December 31, 2022. Mr. Ross, our Chief Executive Officer, does not participate in the determination of his own compensation or the compensation of directors. However, he makes recommendations to the Compensation Committee regarding the amount and form of the compensation of the other executive officers and key employees, and he often participates in the Compensation Committee’s deliberations about such persons’ compensation. Thomas J. Heckman, our Chief Financial Officer (“CFO”), also assists the Compensation Committee in its deliberations regarding executive officer, director and employee compensation. No other executive officers participate in the determination of the amount or the form of the compensation of executive officers or directors. The Compensation Committee does not utilize the services of an independent compensation consultant to assist in its oversight of executive and director compensation. Nominating Committee Our Nominating Committee assists our Board of Directors by identifying and recommending individuals qualified to become members of our Board of Directors, reviewing correspondence from our stockholders, and establishing, evaluating, and overseeing our corporate governance guidelines. Specific responsibilities include the following: evaluating the composition, size and governance of our Board of Directors and its committees and making recommendations regarding future planning and appointing directors to our committees; establishing a policy for considering stockholder nominees for election to our Board of Directors; and evaluating and recommending candidates for election to our Board of Directors. 43 Our Nominating Committee strives for a Board composed of individuals who bring a variety of complementary skills, expertise, or background and who, as a group, will possess the appropriate skills and experience to oversee our business. The diversity of the members of the Board relates to the selection of its nominees. While the Committee considers diversity and variety of experiences and viewpoints to be important factors, it does not believe that a director nominee should be chosen or excluded solely or largely because of race, color, gender, national origin or sexual orientation or identity. In selecting a director nominee for recommendation to our Board, our Nominating Committee focuses on skills, expertise or background that would complement the existing members on the Board. Accordingly, although diversity may be a consideration in the Committee’s process, the Committee and the Board of Directors do not have a formal policy regarding the consideration of diversity in identifying director nominees. When the Nominating Committee has either identified a prospective nominee or determined that an additional or replacement director is required, the Nominating Committee may take such measures as it considers appropriate in connection with its evaluation of a director candidate, including candidate interviews, inquiry of the person or persons making the recommendation or nomination, engagement of an outside search firm to gather additional information, or reliance on the knowledge of the members of the Board of Directors or management. In its evaluation of director candidates, including the members of the Board eligible for re-election, the Nominating Committee considers a number of factors, including: the current size and composition of the Board of Directors, the needs of the Board of Directors and the respective committees of the Board, and such factors as judgment, independence, character and integrity, age, area of expertise, diversity of experience, length of service and potential conflicts of interest. The Nominating Committee of the Board selects director nominees and recommends them to the full Board of Directors. In relation to such nomination process, the Nominating Committee: ● determines the criteria for the selection of prospective directors and committee members; ● reviews the composition and size of the Board and its committees to ensure proper expertise and diversity among its members; ● evaluates the performance and contributions of directors eligible for re-election; ● determines the desired qualifications for individual directors and desired skills and characteristics for the Board; ● identifies persons who can provide needed skills and characteristics; ● screens possible candidates for Board membership; ● reviews any potential conflicts of interests between such candidates and the Company’s interests; and ● shares information concerning the candidates with the Board and solicits input from other directors. The Nominating Committee has specified the following minimum qualifications that it believes must be met by a nominee for a position on the Board: the highest personal and professional ethics and integrity; proven achievement and competence in the nominee’s field and the ability to exercise sound business judgment; skills that are complementary to those of the existing Board; the ability to assist and support management and make significant contributions to our success; the ability to work well with the other directors; the extent of the person’s familiarity with the issues affecting our business; an understanding of the fiduciary responsibilities that are required of a member of the Board of Directors; and the commitment of time and energy necessary to diligently carry out those responsibilities. A candidate for director must agree to abide by our Code of Ethics and Conduct. 44 After completing its evaluation, the Nominating Committee makes a recommendation to the full Board of Directors as to the persons who should be nominated to the Board, and the Board of Directors determines the nominees after considering the recommendation and report of the Committee. Our Nominating Committee is comprised of two Directors, whom the Board considers to be independent under the applicable rules and listing standards of Nasdaq and SEC rules and regulations. The Nominating Committee held one meeting during the year ended December 31, 2022. The members of our Nominating Committee are Leroy C. Richie (Chairman) and Michael J. Caulfield. Board of Directors’ Role in the Oversight of Risk Management We face a variety of risks, including credit, liquidity, and operational risks. In fulfilling its risk oversight role, our Board of Directors focuses on the adequacy of our risk management process and overall risk management system. Our Board of Directors believes that an effective risk management system will (i) adequately identify the material risks that we face in a timely manner; (ii) implement appropriate risk management strategies that are responsive to our risk profile and specific material risk exposures; (iii) integrate consideration of risk and risk management into our business decision-making; and (iv) include policies and procedures that adequately transmit necessary information regarding material risks to senior executives and, as appropriate, to the Board or relevant committee. The Board of Directors has designated the Audit Committee to take the lead in overseeing risk management at the Board of Directors level. Accordingly, the Audit Committee schedules time for periodic review of risk management, in addition to its other duties. In this role, the Audit Committee receives reports from management, independent registered public accounting firm, outside legal counsel, and other advisors, and strives to generate serious and thoughtful attention to our risk management process and system, the nature of the material risks we face, and the adequacy of our policies and procedures designed to respond to and mitigate these risks. Although the Board of Directors has assigned the primary risk oversight to the Audit Committee, it also periodically receives information about our risk management system and the most significant risks that we face. This is principally accomplished through Audit Committee reports to the Board of Directors and summary versions of the briefings provided by management and advisors to the Audit Committee. In addition to the formal compliance program, our Board of Directors and the Audit Committee encourage management to promote a corporate culture that understands risk management and incorporates it into our overall corporate strategy and day-to-day business operations. Our risk management structure also includes an ongoing effort to assess and analyze the most likely areas of future risk for us. As a result, the Board of Directors and the Audit Committee periodically ask our executives to discuss the most likely sources of material future risks and how we are addressing any significant potential vulnerability. Board Leadership Structure Our Board of Directors does not have a policy on whether the roles of Chief Executive Officer and Chairman of the Board of Directors should be separate and, if they are to be separate, whether the Chairman of the Board should be selected from the non-employee directors or be an employee. Our Board of Directors believes that it should be free to make a choice from time to time in any manner that is in the best interest of us and our stockholders. The Board of Directors believes that Mr. Ross’s service as both Chief Executive Officer and Chairman of the Board is in the best interest of us and our stockholders. Mr. Ross possesses detailed and in-depth knowledge of the issues, opportunities and challenges we face and is thus best positioned to develop agendas, with the input of Mr. Richie, the lead independent director, to ensure that the Board’s time and attention are focused on the most critical matters. His combined role enables decisive leadership, ensures clear accountability, and enhances our ability to communicate our message and strategy clearly and consistently to our stockholders, employees, customers, and suppliers, particularly during times of turbulent economic and industry conditions. 45 Our Board of Directors also believes that a lead independent director is part of an effective Board leadership structure. To this end, the Board has appointed Mr. Richie as the lead independent director. The independent directors meet regularly in executive sessions at which only they are present, and the lead independent director chairs those sessions. As the lead independent director, Mr. Richie calls meetings of the independent directors as needed; sets the agenda for meetings of the independent directors; presides at meetings of the independent directors; is the principal liaison on Board issues between the independent directors and the Chairman and between the independent directors and management; provides feedback to the Chairman and management on the quality, quantity and timeliness of information sent to the Board; is a member of the Compensation Committee that evaluates the CEO’s performance; and oversees the directors’ evaluation of the Board’s overall performance. The Nominating Committee and the Board believe that its leadership structure, which includes the appointment of a lead independent director, is appropriate because it, among other things, provides for an independent director who gives board member leadership and each of the directors, other than Mr. Ross, is independent. Our Board of Directors believes that the independent directors provide effective oversight of management. Stockholder Communications with the Board of Directors Stockholders may communicate with the Board of Directors by writing to us as follows: Digital Ally, Inc., attention: Corporate Secretary, 14001 Marshall Drive, Lenexa, Kansas 66215. Stockholders who would like their submission directed to a member of the Board of Directors may so specify and the communication will be forwarded as appropriate. Policy for Director Recommendations and Nominations Our Nominating Committee will consider candidates for Board membership suggested by Board members, management and our stockholders. The policy of our Nominating Committee is to consider recommendations for candidates to the Board of Directors from any stockholder of record in accordance with our Bylaws. A director candidate recommended by our stockholders will be considered in the same manner as a nominee recommended by a Board member, management or other sources. In addition, a stockholder may nominate a person directly for election to the Board of Directors at an annual meeting of stockholders, provided the stockholder meets the requirements set forth in our Bylaws. We do not pay a fee to any third party to identify or evaluate or assist in identifying or evaluating potential nominees. Stockholder Recommendations for Director Nominations . Stockholder recommendations for director nominations may be submitted to the Company at the following address: Digital Ally, Inc., Attention: Corporate Secretary, 14001 Marshall Drive, Lenexa, Kansas 66215. Such recommendations will be forwarded to the Nominating Committee for consideration, provided that they are accompanied by sufficient information to permit the Board to evaluate the qualifications and experience of the nominees, and they are in time for the Nominating Committee to do an adequate evaluation of the candidate before the Annual Meeting. The submission must be accompanied by a written consent of the individual to stand for election if nominated by the Board of Directors and to serve if elected and to cooperate with a background check. Stockholder Nominations of Directors. Our Bylaws provide that, in order for a stockholder to nominate a director at an annual meeting of stockholders, the stockholder must give timely written notice to our Secretary and such notice must be received at our principal executive offices not less than one-hundred-and-twenty (120) days before the date of our release of the proxy statement to stockholders in connection with our previous year’s annual meeting of stockholders. Such stockholder’s notice shall include, with respect to each person whom the stockholder proposes to nominate for election as a director, all information relating to such nominee that is required under the Exchange Act, including such person’s written consent to being named in the proxy statement as a nominee and serving as a director, and cooperating with a background investigation. In addition, the stockholder must include in such notice the name and address, as they appear on our records, of the stockholder proposing the nomination of such person, and the name and address of the beneficial owner, if any, on whose behalf the nomination is made, the class and number of shares of our capital stock that are owned beneficially and of record by such stockholder of record and by the beneficial owner, if any, on whose behalf the nomination is made, and any material interest or relationship that such stockholder of record and/or the beneficial owner, if any, on whose behalf the nomination is made may respectively have in such business or with such nominee. At the request of the Board of Directors, any person nominated for election as a director shall furnish to our Secretary the information required to be set forth in a stockholder’s notice of nomination that pertains to the nominee. To be timely in the case of a special meeting or if the date of the annual meeting is changed by more than thirty (30) days from such anniversary date, a stockholder’s notice must be received at our principal executive offices no later than the close of business on the tenth (10 th ) day following the earlier of the day on which notice of the meeting date was mailed or public disclosure of the meeting date was made. Compensation Committee Interlocks and Insider Participation None of our executive officers serves, or in the past has served, as a member of the Compensation Committee. None of the members of our Compensation Committee is, or has ever been, an officer or employee of the Company. Code of Ethics and Conduct Our Board of Directors has adopted a Code of Ethics and Conduct that is applicable to all of our employees, officers and directors. Our Code of Ethics and Conduct is intended to ensure that our employees, officers and directors act in accordance with the highest ethical standards. The Code of Ethics and Conduct is available on the Investor Relations page of our website at http://www.digitalally.com and the Code of Ethics and Conduct was filed as an exhibit to our Annual Report on Form 10-KSB filed March 4, 2008. 46 Item 11. E xecutive Compensation. The following table presents information concerning the total compensation of the Company’s Chief Executive Officer (“CEO”), Chief Financial Officer (“CFO”) and Chief Operating Officer (“COO”) and collectively with the CEO and the CFO, the “Named Executive Officers”) for services rendered to the Company in all capacities for the years ended December 31, 2022 and 2021, as required by Item 402(m)(2) of Regulation S-K. Summary Compensation Table Name and Principal Position Year Salary ($) Bonus ($) Stock awards ($) Option awards ($) (1) All other compensation ($) (2) Total ($) Stanton E. Ross 2021 $ 250,000 $ 250,000 $ 828,000 (1)(3) $ — $ 30,805 $ 1,358,805 Chairman, CEO and President 2022 $ 300,000 $ 100,000 $ 374,500 (6) $ — $ 32,034 $ 806,534 Thomas J. Heckman 2021 $ 230,000 $ 115,000 $ 414,000 (1)(4) $ — $ 23,329 $ 782,329 CFO, Treasurer and Secretary 2022 $ 120,000 $ — $ 80,250 (7) $ — $ 16,292 $ 216,542 Peng Han (9) 2021 $ 165,000 $ — $ 63,000 (1)(5) $ — $ 5,428 $ 233,428 COO 2022 $ 250,000 $ — $ 107,000 (8) $ — $ 10,576 $ 367,576 (1) Represents aggregate grant date fair value pursuant to ASC Topic 718 for the respective year for stock options granted. Please refer to Note 14 to the consolidated financial statements for a further description of the awards and the underlying assumptions utilized to determine the amount of grant date fair value related to such grants. (2) Amounts included in all other compensation include the following items: the employer contribution to the Company’s 401(k) Retirement Savings Plan (the “401(k) Plan”) on behalf of the named executive. We are required to provide a 100% matching contribution for all who elect to contribute up to 3% of their compensation to the plan and a 50% matching contribution for all employees’ elective deferral between 4% and 5%. The employee (i) is 100% vested at all times in the employee contributions and employer matching contributions; (ii) receives Company paid healthcare insurance; (iii) receives Company paid contributions to health savings accounts; and (iv) receives Company paid life, accident and disability insurance. See “All Other Compensation Table” below. (3) Stock awards include the following restricted stock granted during 2021 to Mr. Ross: 15,000 shares at $55.20 per share that vest 50% on January 6, 2022 and 50% on January 6, 2023, subject to Mr. Ross remaining an employee of the Company at that point in time. (4) Stock awards include the following restricted stock granted during 2021 to Mr. Heckman: 7,500 shares at $55.20 per share that vest 50% on January 6, 2022 and 50% on January 6, 2023, subject to Mr. Heckman remaining an employee of the Company at that point in time. (5) Stock awards include the following restricted stock granted during 2021 to Mr. Han: 2,500 shares at $25.20 per share that vest ratably over the two-year period ending September 20, 2023. (6) Stock awards include the following restricted stock granted during 2022 to Mr. Ross: 17,500 shares at $21.40 per share that vest 50% on January 7, 2023 and 50% on January 7, 2024, subject to Mr. Ross remaining an employee of the Company at that point in time. (7) Stock awards include the following restricted stock granted during 2022 to Mr. Heckman: 3,750 shares at $21.40 per share that on January 7, 2023, subject to Mr. Heckman remaining an employee of the Company at that point in time. 47 (8) Stock awards include the following restricted stock granted during 2022 to Mr. Han: 5,000 shares at $21.40 per share that vest 20% annually on the anniversary of January 7 from 2023 to 2027, subject to Mr. Han remaining an employee of the Company at that point in time. (9) Mr. Han was appointed Chief Operating Officer on December 13, 2021, thus Mr. Han’s 2021 compensation was set by management prior to his appointment as a named executive officer of the Company. All Other Compensation Table Name and Principal Position Year 401(k) Plan contribution by Company Company paid healthcare insurance Flexible & health savings account contributions by Company Company paid life, accident & disability insurance Other Contractual payments Total ($) Stanton E. Ross 2021 $ 8,606 $ 20,556 $ 1,100 $ 543 $ - $ 30,805 Chairman, CEO and President 2022 $ 10,039 $ 20,319 $ 1,100 $ 576 $ - $ 32,034 Thomas J. Heckman 2021 $ 9,138 $ 12,848 $ 800 $ 543 $ - $ 23,329 CFO, Treasurer and Secretary 2022 $ 4,800 $ 10,021 $ 895 $ 576 $ - $ 16,292 Peng Han (9) 2021 $ 4,885 $ - $ - $ 543 $ - $ 5,428 COO 2022 $ 10,000 $ - $ - $ 576 $ - $ 10,576 Compensation Policy. Our executive compensation plan is based on attracting and retaining qualified professionals who possess the skills and leadership necessary to enable us to achieve earnings and profitability growth to satisfy its stockholders. We must, therefore, create incentives for these executives to achieve both our and individual performance objectives using performance-based compensation programs. No one component is considered by itself, but all forms of the compensation package are considered in total. Wherever possible, objective measurements will be utilized to quantify performance, but many subjective factors still come into play when determining performance. Compensation Components. The main elements of its compensation package consist of base salary, stock options or restricted stock awards and bonus. Base Salary. The base salary for each executive officer is reviewed and compared to the prior year, with considerations given for increase or decrease. The review is generally on an annual basis but may take place more often in the discretion of the Compensation Committee. On January 7, 2021, the Compensation Committee restored the annual base salaries of Stanton E. Ross, President and Chief Executive Officer, Thomas J. Heckman, Chief Financial Officer, Treasurer and Secretary, at $250,000 and $230,000, respectively for 2021. The Compensation Committee plans to review the base salaries for possible adjustments on an annual basis. Base salary adjustments will be based on both individual and our performances and will include both objective and subjective criteria specific to each executive’s role and responsibility with us. 48 Stock Options and Restricted Stock Awards. The Compensation Committee determined stock option and restricted stock awards based on numerous factors, some of which include responsibilities incumbent with the role of each executive with us, tenure with us, as well as our performance. The vesting period of options and restricted stock is also tied, in some instances, to our performance directly related to certain executive’s responsibilities with us. The Compensation Committee determined that Messrs. Ross and Heckman were eligible for awards of stock options or restricted stock in 2021 based on their performance. Refer to the “Grants of Plan-Based Awards” table below for restricted stock awards made in 2021. The Committee also determined that Messrs. Ross, Heckman, and Han would be eligible in 2022 for awards of restricted stock or stock options. Bonuses. The Compensation Committee determined to award bonuses to each of the executive officers in 2022 and 2021, as set forth in the foregoing table. Refer to the “Summary Compensation Table” above for the bonuses paid to Messrs. Ross and Heckman in 2022 and 2021. In fiscal 2022, Messrs. Ross and Heckman were eligible for bonuses of up to $250,000 and $120,000, respectively. Mr. Ross was awarded a partial 2022 bonus of $100,000. The Compensation Committee reviews each executive officer’s performance on a quarterly basis and determines what, if any, portion of the bonus he has earned and will be paid as of such point. Other. In July 2008, we amended and restated our 401(k) Plan. The amended 401(k) Plan requires us to provide a 100% matching contribution for employees who elect to contribute up to 3% of their compensation to the plan and a 50% matching contribution for employees’ elective deferrals between 4% and 5%. We have made matching contributions for executives who elected to contribute to the 401(k) Plan during 2021. Each participant is 100% vested at all times in employee and employer matching contributions. As of December 31, 2022, a total of 23,120 shares of our Common Stock were held in the 401(k) Plan. Mr. Heckman, as trustee of the 401(k) Plan, holds the voting power as to the shares of our Common Stock held in the 401(k) Plan. We have no profit-sharing plan in place for our employees. However, we may consider adding such a plan to provide yet another level of compensation to our compensation plan. The following table presents information concerning the grants of plan-based awards to the Named Executive Officers during the year ended December 31, 2022: Grant of Plan-Based Awards Name Grant date Date approved by Compensation Committee All other stock awards: Number of shares of stock or units: (#) (1) (2)(3) Exercise or base price of option awards ($/Share) Grant date fair value of stock awards ($) (4) Stanton E. Ross Chairman, CEO and President January 7, 2022 January 7, 2022 17,500 (1) $ 21.40 $ 374,500 Thomas J. Heckman CFO, Treasurer and Secretary January 7, 2022 January 7, 2022 3,750 (2) $ 21.40 $ 80,250 Peng Han COO January 7, 2022 January 7, 2022 5,000 (3) $ 21.40 $ 107,000 (1) These restricted stock awards were made under the Digital Ally, Inc. Stock Option and Restricted Stock Plans and vest over a two-year period (50% on January 7, 2023 and 50% on January 7, 2024) contingent upon whether the individual is still employed by us at that point. 49 (2) These restricted stock awards were made under the Digital Ally, Inc. Stock Option and Restricted Stock Plans and vest over a one-year period contingent upon whether the individual is still employed by us at that point. (3) These restricted stock awards were made under the Digital Ally, Inc. Stock Option and Restricted Stock Plans and vest over a five-year period (20% on each anniversary of January 7 from 2023 to 2027) contingent upon whether the individual is still employed by us at that point. (4) Stock awards noted represent the aggregate amount of grant date fair value as determined under ASC Topic 718. Please refer to Note 14 to the consolidated financial statements that appear in our Annual Report on Form 10-K, filed with the SEC on April 15, 2022, for a further description of the awards and the underlying assumptions utilized to determine the amount of grant date fair value related to such grants. Employment Contracts; Termination of Employment and Change-in-Control Arrangements We do not have any employment agreements with any of our executive officers. However, on December 23, 2008, we entered into retention agreements with the following executive officers: Stanton E. Ross and Thomas J. Heckman. In April 2018 we amended these agreements. Retention Agreements - Potential Payments upon Termination or Change of Control The following table sets forth for each named executive officer potential post-employment payments and payments on a change in control and assumes that the triggering event took place on January 1, 2023 and that the amendments to the retention agreements of each person were in effect. Retention Agreement Compensation Name Change in control payment due based upon successful completion of transaction Severance payment due based on termination after Change of Control occurs Total Stanton E. Ross $ 125,000 $ 500,000 $ 625,000 Thomas J. Heckman $ 115,000 $ 460,000 $ 575,000 Total $ 240,000 $ 960,000 $ 1,200,000 The retention agreements guarantee the executive officers’ specific payments and benefits upon a Change in Control of the Company. The retention agreements also provide for specified severance benefits if, after a Change in Control of the Company occurs, the executive officer voluntarily terminates employment for “Good Reason” or is involuntarily terminated without “Cause.” 50 Under the retention agreements, a “Change in Control” means (i) one party alone, or acting with others, has acquired or gained control over more than 50% of the voting shares of the Company; (ii) the Company merges or consolidates with or into another entity or completes any other corporate reorganization, if more than 50% of the combined voting power of the surviving entity’s securities outstanding immediately after such merger, consolidation or other reorganization is owned by persons who were not stockholders of the Company immediately prior to such merger, consolidation or other reorganization; (iii) a majority of the Board of Directors is replaced and/or dismissed by the stockholders of the Company without the recommendation of or nomination by the Company’s current Board of Directors; (iv) the Company’s Chief Executive Officer (the “CEO”) is replaced and/or dismissed by stockholders without the approval of the Board of Directors; or (v) the Company sells, transfers or otherwise disposes of all or substantially all of the consolidated assets of the Company and the Company does not own stock in the purchaser or purchasers having more than 50% of the voting power of the entity owning all or substantially all of the consolidated assets of the Company after such purchase. “Good Reason” means either (i) a material adverse change in the executive’s status as an executive or other key employee of the Company, including without limitation, a material adverse change in the executive’s position, authority, or aggregate duties or responsibilities; (ii) any adverse change in the executive’s base salary, target bonus or benefits; or (iii) a request by the Company to materially change the executive’s geographic work location. “Cause” means (i) the executive has acted in bad faith and to the detriment of the Company; (ii) the executive has refused or failed to act in accordance with any specific lawful and material direction or order of his or her supervisor; (iii) the executive has exhibited, in regard to employment, unfitness or unavailability for service, misconduct, dishonesty, habitual neglect, incompetence, or has committed an act of embezzlement, fraud or theft with respect to the property of the Company; (iv) the executive has abused alcohol or drugs on the job or in a manner that affects the executive’s job performance; and/or (v) the executive has been found guilty of or has plead nolo contendere to the commission of a crime involving dishonesty, breach of trust, or physical or emotional harm to any person. Prior to termination for Cause, the Company shall give the executive written notice of the reason for such potential termination and provide the executive a 30-day period to cure such conduct or act or omission alleged to provide grounds for such termination. If any Change in Control occurs and the executive continues to be employed as of the completion of such Change in Control, upon completion of such Change in Control, as payment for the executive’s additional efforts during such Change in Control, the Company shall pay the executive a Change in Control benefit payment equal to three months of the his base salary at the rate in effect immediately prior to the Change in Control completion date, payable in a lump sum net of required tax withholdings. If any Change in Control occurs, and if, during the one-year period following the Change in Control, the Company terminates the executive’s employment without Cause or the executive submits a resignation for Good Reason (the effective date of such termination or resignation, the “Termination Date”), then: a) The Company shall pay the executive severance pay equal to 12 months of his base salary at the higher of the rate in effect immediately prior to the Termination Date or the rate in effect immediately prior to the occurrence of the event or events constituting Good Reason, payable on the Termination Date in a lump sum net of required tax withholdings, plus all other amounts then payable by the Company to the executive less any amounts then due and owing from the executive to the Company; b) The Company shall provide continuation of the executive’s health benefits at the Company’s expense for 18 months following the Termination Date; and c) The executive’s outstanding employee stock options shall fully vest and be exercisable for a 90-day period following the Termination Date. 51 The executive is not entitled to the above severance benefits for a termination based on death or disability, resignation without Good Reason or termination for Cause. Following the Termination Date, the Company shall also pay the executive all reimbursements for expenses in accordance with the Company’ policies, within ten days of submission of appropriate evidence thereof by the executive. The following table presents information concerning the outstanding equity awards for the Named Executive Officers as of December 31, 2022: Outstanding Equity Awards at Fiscal Year-End Option Awards Stock Awards Name Number of securities underlying unexercised options (#) exercisable (1) Number of securities underlying unexercised options (#) unexercisable Equity incentive plan awards: Number of securities underlying unexercised unearned options (#) Option exercise price ($) Option expiration date Number of shares or units of stock that have not vested (1) Market value of shares or units of stock that have not vested (2) Equity incentive plan awards: Number of unearned shares, units or other rights that have not vested Equity incentive plan awards: Market or Payout value of unearned shares, units or other rights that have not vested Stanton E. Ross Chairman, CEO and President - - - - 25,000 $ 115,000 - $ - Thomas J. Heckman CFO, Treasurer and Secretary - - - - - 7,500 $ 34,500 - $ - Peng Han (9) COO - - - - - 6,250 $ 28,750 - $ - (1) These stock option and restricted stock awards were made under the Digital Ally, Inc. Stock Option and Restricted Stock Plans and vest over the prescribed period contingent upon whether the individual is still employed by the Company at that point. (2) Market value based upon the closing market price of $4.60 on December 31, 2022. 52 The following table presents information concerning the stock options exercised and the vesting of restricted stock awards during 2021 for the Named Executive Officers for the year ended December 31, 2022: Option Exercises and Restricted Stock Vested Option Awards Stock Awards Number of Shares acquired realized on exercise (#) Value realized on exercise ($) Number of Shares acquired on vesting (#) Value on vesting ($) Stanton E. Ross Chairman, CEO and President - $ - 7,500 $ 160,500 (1) Thomas J. Heckman CFO, Treasurer and Secretary - $ - 3,750 $ 80,250 (1) Peng Han COO 331 $ 28,520 1,250 $ 15,000 (2) (1) Based on the closing market price of our Common Stock of $21.40 on January 7, 2022, the date of vesting for 7,500 shares of Common Stock for Mr. Ross, and 3,750 shares of Common Stock for Mr. Heckman. (2) Based on the closing market price of our Common Stock of $12.00 on September 20, 2022, the date of vesting for 1,250 shares of Common Stock for Mr. Han. The number of stock options and restricted stock awards that an employee, director, or consultant may receive under our Plans (defined below under “Information Regarding Plans and Other Arrangements Not Subject to Security Holder Action”) is in the discretion of the administrator and therefore cannot be determined in advance. The Board of Directors’ policy in 2022 was to grant officers an award of 17,500 restricted shares of Common Stock to our CEO/President and 3,750 restricted shares of Common Stock to our CFO/Treasurer and each non-employee director an award of options to purchase 5,000 shares of Common Stock, all subject to vesting requirements. The following table sets forth (a) the aggregate number of shares of Common Stock subject to options granted under the Plans during the year ended December 31, 2022 and (b) the average per share exercise price of such options. Stock Options and Restricted Stock Grants Name of Individual or Group Number of Restricted Shares of Common Stock Granted Number of Options Granted Average per Share Exercise Price Stanton E. Ross, Chairman of the Board of Directors, CEO & President 17,500 - $ - Leroy C. Richie, Director - - $ - Daniel F. Hutchins, Director - - $ - Michael J. Caulfield, Director - - $ - Thomas J. Heckman, Vice President, CFO, Treasurer & Secretary 3,750 - $ - Peng Han 5,000 - $ - All executive officers, as a group 26,250 - $ - All directors who are not executive officers, as a group - - $ - All employees who are not executive officers, as a group 5,500 - $ - Director Compensation Our non-employee directors received the stock option grants noted in the “Director Compensation” table below for their service on the Board of Directors in 2022, including on the Audit, Nominating and Compensation Committees. In July 2021, we granted to Messrs. Richie, Caulfield and Hutchins each options exercisable to acquire 5,000 shares of Common Stock at an exercise price of $33.40 per share for their service on the Board of Directors until the next annual meeting of stockholders with vesting to occur ratably through May 31, 2022, provided each person has remained a director at such dates. Director compensation for the year ended December 31, 2022 was as follows: Director Compensation Name Fees earned or paid in cash ($) Stock awards ($) Option awards ($) Total ($) Stanton E. Ross, Chairman of the Board of Directors (1) $ — $ — $ — $ — Leroy C. Richie $ 95,000 $ — $ — $ 95,000 Daniel F. Hutchins $ 90,000 $ — $ — $ 90,000 Michael J. Caulfield $ 87,917 $ — $ — $ 87,917 (1) As a Named Executive Officer, Mr. Ross’s compensation and option awards are fully reflected in the “Summary Compensation” table, and elsewhere under “Executive Compensation.” He did not receive compensation, stock awards or options for his services as a director. 53 Stock Option and Restricted Stock Grants to Directors Name Number of Restricted Shares of Common Stock Granted Number of Options Granted Average per Share Exercise Price Stanton E. Ross, Chairman of the Board of Directors - - $ - Leroy C. Richie, Director - 5,000 $ 33.40 Daniel F. Hutchins, Director - 5,000 $ 33.40 Michael J. Caulfield, Director - 5,000 $ 33.40 Securities Authorized for Issuance Under Equity Compensation Plans Our Board of Directors adopted the 2005 Stock Option and Restricted Stock Plan (the “2005 Plan”) on September 1, 2005. The 2005 Plan authorized us to reserve 15,625 shares of our Common Stock for issuance upon exercise of options and grant of restricted stock awards. The 2005 Plan terminated in 2015 with 1,078 shares of Common Stock reserved for awards that are now unavailable for issuance. Stock options granted under the 2005 Plan that remain unexercised and outstanding as of December 31, 2022 total 284. On January 17, 2006, our Board adopted the 2006 Stock Option and Restricted Stock Plan (the “2006 Plan”). The 2006 Plan authorizes us to reserve 9,375 shares of Common Stock for future grants under it. The 2006 Plan terminated in 2016 with 2,739 shares of Common Stock reserved for awards that are now unavailable for issuance. Stock options granted under the 2006 Plan that remain unexercised and outstanding as of December 31, 2022 total 531. On January 24, 2007, our Board adopted the 2007 Stock Option and Restricted Stock Plan (the “2007 Plan”). The 2007 Plan authorizes us to reserve 9,375 shares of Common Stock for future grants under it. The 2007 Plan terminated in 2017 with 4,733 shares of Common Stock reserved for awards that are now unavailable for issuance. There are no stock options granted under the 2007 Plan that remain unexercised and outstanding as of December 31, 2022. On January 2, 2008, our Board adopted the 2008 Stock Option and Restricted Stock Plan (the “2008 Plan”). The 2008 Plan authorizes us to reserve 6,250 shares of Common Stock for future grants under it. The 2008 Plan terminated in 2018 with 2,025 shares of Common Stock reserved for awards that are now unavailable for issuance. There are no stock options granted under the 2008 Plan that remain unexercised and outstanding as of December 31, 2022. On March 18, 2011, our Board adopted the 2011 Stock Option and Restricted Stock Plan (the “2011 Plan”). The 2011 Plan authorizes us to reserve 3,125 shares of Common Stock for future grants under it. At December 31, 2022, there were 438 shares of Common Stock reserved for awards available for issuance under the 2011 Plan. Stock options granted under the 2011 Plan that remain unexercised and outstanding as of December 31, 2022 total 50. On March 22, 2013, our Board adopted the 2013 Stock Option and Restricted Stock Plan (the “2013 Plan”). The 2013 Plan was amended on March 28, 2014 and November 14, 2014 to increase the number of shares of Common Stock authorized and reserved for issuance under the 2013 Plan to a total of 15,000. At December 31, 2022, there were no shares of Common Stock reserved for awards available for issuance under the 2013 Plan. Stock options granted under the 2013 Plan that remain unexercised and outstanding as of December 31, 2022 total 1,000. On March 27, 2015, our Board of Directors adopted the 2015 Stock Option and Restricted Stock Plan (the “2015 Plan”). The 2015 Plan was amended on February 25, 2016 and May 31, 2017 to increase the number of shares of Common Stock authorized and reserved for issuance under the 2015 Plan to a total of 62,500. At December 31, 2022, there were no shares of Common Stock reserved for awards available for issuance under the 2015 Plan, as amended. Stock options granted under the 2015 Plan that remain unexercised and outstanding as of December 31, 2022 total 6,500. 54 On April 12, 2018, our Board of Directors adopted the 2018 Stock Option and Restricted Stock Plan (the “2018 Plan”). The 2018 Plan was amended on May 21, 2019 to increase the number of shares of Common Stock authorized and reserved for issuance under the 2018 Plan to a total of 87,500. At December 31, 2022, there were 31,275 shares of Common Stock reserved for awards available for issuance under the 2018 Plan. Stock options granted under the 2018 Plan that remain unexercised and outstanding as of December 31, 2022 total 17,000. Our Board of Directors adopted the 2020 Stock Option and Restricted Stock Plan (the “2020 Plan”) on June 30, 2020 and the Company’s stockholders approved the 2020 Plan at the Annual Meeting held on September 9, 2020. The Company’s stockholders approved an amendment to the 2020 Plan at the Annual Meeting held on June 22, 2021 which increased the number of shares of Common Stock authorized and reserved for issuance under the 2020 Plan to a total of 125,000. At December 31, 2022, there were 12,042 shares of Common Stock reserved for awards available for issuance under the 2020 Plan. Stock options granted under the 2020 Plan that remain unexercised and outstanding as of December 31, 2022 total 29,000. Our Board of Directors adopted the 2022 Stock Option and Restricted Stock Plan (the “2022 Plan”) on October 28, 2022 and the Company’s stockholders approved the 2022 Plan at the Annual Meeting held on December 7, 2022. The number of shares of Common Stock authorized and reserved for issuance under the 2022 Plan totals 125,000. At December 31, 2022, there were no shares of Common Stock reserved for awards available for issuance under the 2022 Plan. Stock options granted under the 2022 Plan that remain unexercised and outstanding as of December 31, 2022 total 125,000. The 2005 Plan, 2006 Plan, 2007 Plan, 2008 Plan, 2011 Plan, 2013 Plan, 2015 Plan, 2018 Plan, 2020 Plan, and 2022 Plan are collectively referred to as the “Plans.” The Plans authorize us to grant (i) to the key employees incentive stock options (except for the 2007 Plan) to purchase shares of Common Stock and non-qualified stock options to purchase shares of Common Stock and restricted stock awards, and (ii) to non-employee directors and consultants’ non-qualified stock options and restricted stock. The Compensation Committee of our Board (the “Compensation Committee”) administers the Plans by making recommendations to the Board or determinations regarding the persons to whom options or restricted stock should be granted and the amount, terms, conditions and restrictions of the awards. The Plans allow for the grant of incentive stock options (except for the 2007 Plan), non-qualified stock options and restricted stock awards. Incentive stock options granted under the Plans must have an exercise price at least equal to 100% of the fair market value of the Common Stock as of the date of grant. Incentive stock options granted to any person who owns, immediately after the grant, stock possessing more than 10% of the combined voting power of all classes of our stock, or of any parent or subsidiary corporation, must have an exercise price at least equal to 110% of the fair market value of the Common Stock on the date of grant. Non-statutory stock options may have exercise prices as determined by our Compensation Committee. The Compensation Committee is also authorized to grant restricted stock awards under the Plans. A restricted stock award is a grant of shares of the Common Stock that is subject to restrictions on transferability, risk of forfeiture and other restrictions and that may be forfeited in the event of certain terminations of employment or service prior to the end of a restricted period specified by the Compensation Committee. We have filed various registration statements on Form S-8 and amendments to previously filed Form S-8’s with the Securities and Exchange Commission (the “SEC”), which registered a total of 408,750 shares of Common Stock issued or to be issued underlying the awards under the Plans. The following table sets forth certain information regarding the Plans as of December 31, 2022: Equity Compensation Plan Information Plan category Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) Weighted-average exercise price of outstanding options, warrants and rights (b) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) Equity compensation plans approved by stockholders 53,950 $ 45.80 408,750 Equity compensation plans not approved by stockholders — $ — — Total all plans 53,950 $ 45.80 408,750 55 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. The following table sets forth, as of March 31, 2023, information regarding beneficial ownership of our Common Stock for: ● each person, or group of affiliated persons, known by us to beneficially own more than 5% of our Common Stock; ● each of our executive officers; ● each of our directors; and ● all of our current executive officers and directors as a group Beneficial ownership is determined according to the rules of the SEC and generally means that a person has beneficial ownership of a security if he, she or it possesses sole or shared voting or investment power of that security, including securities that are currently exercisable or exercisable within sixty (60) days of March 31, 2023. Except as indicated by the footnotes below, we believe, based on the information furnished to us, that the persons named in the table below have sole voting and investment power with respect to all shares of Common Stock shown that they beneficially own, subject to community property laws where applicable. Common Stock subject to securities currently exercisable or exercisable within sixty (60) days of March 31, 2023 are deemed to be outstanding for computing the percentage ownership of the person holding such securities and the percentage ownership of any group of which the holder is a member but are not deemed outstanding for computing the percentage of any other person. Unless otherwise indicated, the address of each beneficial owner listed in the table below is c/o Digital Ally, Inc., 14001 Marshall Drive., Lenexa, KS 66215. Number of Shares of Common Stock Beneficially Owned (1) % of Total Voting Shares % Power 5% or Greater Stockholders: None — — — Executive Officers and Directors: Stanton E. Ross (2) 116,065 4.2 % 4.2 % Leroy C. Richie (3) 18,211 * * Daniel F. Hutchins (4) 17,885 * * Michael J. Caulfield (5) 16,393 * * Thomas J. Heckman (6) 76,687 2.8 % 2.8 % Peng Han (7) 13,781 * * All executive officers and directors as a group (five individuals) 259,022 9.2 % 9.2 % * Represents less than 1%. (1) Based on 2,755,170 shares of Common Stock issued and outstanding as of March 31, 2023 and, with respect only to the ownership by all executive officers and directors as a group. (2) Mr. Ross’s total shares of Common Stock include 26,250 restricted shares that are subject to forfeiture to us. (3) Mr. Richie’s total shares of Common Stock include 16,250 shares of Common Stock to be received upon the exercise of vested options. (4) Mr. Hutchins’ total shares of Common Stock include 16,250 shares of Common Stock to be received upon the exercise of vested options. (5) Mr. Caulfield’s total shares of Common Stock include 16,250 shares of Common Stock to be received upon the exercise of vested options. (6) Mr. Heckman’s total shares of Common Stock include (i) 3,750 restricted shares that are subject to forfeiture to us and (ii) 23,120 shares of Common Stock held in the Company’s 401(k) Plan (on December 31, 2022) as to which Mr. Heckman has voting power as trustee of the 401(k) Plan. (7) Mr. Han’s total shares of Common Stock include (i) 10,250 restricted shares that are subject to forfeiture to us and (ii) 331 shares of Common Stock to be received upon the exercise of vested options. 56 Item 13. Certain Relationships and Related Transactions, and Director Independence. Transactions with Managing Member of Nobility Healthcare On January 27, 2022, the Board of Directors appointed Christian J. Hoffmann, III as a member of the Board, effective immediately. Mr. Hoffmann is a principal owner and manager of Nobility, LLC which is currently the managing member of our consolidated subsidiary Nobility Healthcare, LLC. The Company has advanced a total of $158,384 in the form of a working capital loan to Nobility, LLC in order to fund capital expenditures necessary for the initial growth of the joint venture during 2022. The outstanding balance of the working capital loan was $138,384 as of December 31, 2022 and the Company anticipates full repayment of this advance during the year ended December 31, 2023. The Company paid distributions to the noncontrolling in consolidated subsidiary totaling $15,692 and $-0-, for the years ended December 31, 2022 and 2021, respectively. On 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. Item 14. Principal Accountant Fees and Services. The following table is a summary of the fees billed to us by RBSM LLP for the fiscal years ended December 31, 2022 and 2021: Fee Category Fiscal 2022 fees Fiscal 2021 fees Audit fees $ 327,415 $ 189,250 Audit-related fees — 61,500 Tax fees — — All other fees — — Total fees $ 327,415 $ 250,750 Audit Fees . Such amount consists of fees billed for professional services rendered in connection with the audit of our annual financial statements and review of the interim financial statements included in our quarterly reports. It also includes services that are normally provided by our independent registered public accounting firms in connection with statutory and regulatory filings or engagements. Audit-Related Fees . Consists of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements and are not reported under “Audit Fees.” These services include employee benefit plan audits, consents issued for certain filings with the SEC, accounting consultations in connection with acquisitions, attest services that are not required by statute or regulation, and consultations concerning financial accounting and reporting standards. Tax Fees . Tax fees consist of fees billed for professional services related to tax compliance, tax advice and tax planning. These services include assistance regarding federal, state and international tax compliance, tax audit defense, customs and duties, mergers and acquisitions, and international tax planning. All Other Fees . Consists of fees for products and services other than the services reported above. Pre–Approval Policy of Services Performed by Independent Registered Public Accounting Firm. The Audit Committee’s policy is to pre–approve all audit and non–audit related services, tax services and other services. Pre–approval is generally provided for up to one year, and any pre–approval is detailed as to the particular service or category of services and is generally subject to a specific budget. The Audit Committee has delegated the pre–approval authority to its chairperson when expedition of services is necessary. The independent registered public accounting firm and management are required to periodically report to the full Audit Committee regarding the extent of services provided by the independent registered public accounting firm in accordance with this pre–approval and the fees for the services performed to date. 57 PART IV Item 15. Exhibits and Financial Statement Schedules. (a) The following documents are filed as part of this Annual Report on Form 10-K: 1. Consolidated Financial Statements : The consolidated financial statements required to be included in Part II, Item 8, Financial Statements and Supplementary Data, begin on Page F-1 and are submitted as a separate section of this Annual Report on Form 10-K. 2. Financial Statement Schedules : All schedules are omitted because they are not applicable or are not required, or because the required information is included in the consolidated financial statements or notes in this Annual Report on Form 10-K. 3. Exhibits : Exhibit Number Description of Exhibit 2.1 Agreement and Plan of Merger. (19) 3.1(i)(a) Articles of Incorporation. (19) 3.1(i )(b) Articles of Merger. (19) 3.1(i)(c) Certificate of Amendment to Digital Ally, Inc.’s Articles of Incorporation. (22) 3.1(i)(d) Certificate of Amendment to Articles of Incorporation of Digital Ally, Inc. (23) 3.1(ii) Bylaws (19) 4.1 Form of Common Stock Certificate. * 4.2 Form of Series A-1 Warrant. (6) 4.3 Form of Common Stock Purchase Warrant. (7) 4.4 Common Stock Purchase Warrant of Digital Ally, Inc. (8) 4.5 Form of Common Stock Purchase Warrant (10) 4.6 Description of the Registrant’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934 * 10.1 2005 Stock Option and Restricted Stock Plan. (2) 10.2 2006 Stock Option and Restricted Stock Plan. (2) 10.3 Form of Stock Option Agreement (ISO and Non-Qualified) 2005 Stock Option Plan. (2) 10.4 Form of Stock Option Agreement (ISO and Non-Qualified) 2006 Stock Option Plan. (2) 10.9 Forms of Restricted Stock Agreement for 2005, 2006, 2007 and 2008 Stock Option and Restricted Stock Plans. (3) 10.11 2011 Stock Option and Restricted Stock Plan (4) 10.12 Form of Stock Option Agreement for 2011 Stock Option and Restricted Stock Plan (4) 10.13 Amended and Restated 2015 Stock Option and Restricted Stock Plan (5) 10.14 Form of 2015 Stock Option and Restricted Stock Plan Restricted Stock Grant Agreement. * 10.15 Digital Ally, Inc. 2018 Stock Option and Restricted Stock Plan . (9) 10.16 Form of 2018 Stock Option and Restricted Stock Plan Restricted Stock Grant Agreement. * 10.17 Digital Ally, Inc. 2020 Stock Option and Restricted Stock Plan. (11) 10.18 Amendment to Digital Ally, Inc. 2020 Stock Option and Restricted Stock Plan . (14) 10.19 Form of 2020 Stock Option and Restricted Stock Plan Restricted Stock Grant Agreement. * 10.20 Digital Ally, Inc. 2022 Stock Option and Restricted Stock Plan . (21) 10.21 Form of 2022 Stock Option and Restricted Stock Plan Restricted Stock Grant Agreement under the 2022 Stock Option and Restricted Stock Plan. (24) 10.22 Proceeds Investment Agreement, dated as July 31, 2018, by and between Digital Ally, Inc. and Brickell Key Investments LP (8) 10.23 Letter Agreement, dated as July 31, 2018, by and between Digital Ally, Inc. and Brickell Key Investments LP (8) 10.24 Form of Securities Purchase Agreement, dated as of January 11, 2021, by and between the Company and the Investors. (12) 10.25 Form of Placement Agency Agreement, dated January 27, 2021, by and between the Company and Kingswood Capital Markets, division of Benchmark Investments, Inc. (13) 58 10.26 Form of Securities Purchase Agreement, dated as of January 27, 2021, by and between the Company and the Investors. (13) 10.27 Commercial Real Estate Sales Contract, dated February 24, 2021, between the Company and DDG Holding, LLC. (15) 10.28 Form of Operating Agreement of Nobility Healthcare, LLC, dated June 1, 2021 (16) 10.29 Warrant Exchange Agreement, dated August 19, 2021, by and among the Company and the warrant holders who are signatories thereto. (17) 10.30 Unit Purchase Agreement, dated September 2, 2021 (18) 10.31 Form of Exchange Agreement. (19) 10.32 Form of Securities Purchase Agreement between Digital Ally, Inc. and the investors thereto. (20) 10.33 Form of Registration Rights Agreement by and among Digital Ally, Inc. and the investors named therein. (20) 14.1 Code of Ethics and Code of Conduct. (1) 21.1 Subsidiaries of Registrant * 23.1 Consent of RBSM LLP * 24.1 Power of Attorney * 31.1 Certificate of Stanton E. Ross, Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 * 31.2 Certificate of Thomas J. Heckman, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 * 32.1 Certificate of Stanton E. Ross, Chief Executive Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 * 32.2 Certificate of Thomas J. Heckman, Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 * 101.INS Inline XBRL Instance Document ** 101.SCH Inline XBRL Taxonomy Schema ** 101.CAL Inline XBRL Taxonomy Calculation Linkbase ** 101.LAB Inline XBRL Taxonomy Label Linkbase ** 101.PRE Inline XBRL Taxonomy Presentation Linkbase ** 104 Cover Page Interactive Data File (embedded within the Inline XBRL document) *Filed herewith. ** The XBRL related information in Exhibit 101 to this Annual Report on Form 10-K shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability of that Section and shall not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing or document. (1) Filed as an exhibit to the Company’s Annual Report on Form 10KSB for the Year ended December 31, 2007. (2) Filed as an exhibit to the Company’s October 2006 Form SB-2. (3) Filed as an exhibit to the Company’s Annual Report on Form 10K for the Year ended December 31, 2009. (4) Filed as an exhibit to the Company’s Form 8-K filed June 1, 2011. (5) Filed as an exhibit to the Company’s Form S-8 filed May 23, 2016. (6) Filed as an exhibit to the Company’s Form 8-K filed August 25, 2017. (7) Filed as an exhibit to the Company’s Form 8-K filed April 4, 2018. (8) Filed as an exhibit to the Company’s Form 8-K filed August 2, 2018. (9) Filed as an exhibit to the Company’s Registration Statement on Form S-8 filed August 20, 2018. (10) Filed as an exhibit to the Company’s Form 8-K filed August 5, 2019. (11) Filed as an exhibit to the Company’s Registration Statement on Form S-8 filed November 16, 2020. (12) Filed as an exhibit to the Company’s Form 8-K filed January 12, 2021. (13) Filed as an exhibit to the Company’s Form 8-K filed January 28, 2021. (14) Filed as Appendix A to the Company’s Definitive Proxy Statement on Schedule 14A filed April 27, 2021. (15) Filed as an exhibit to the Company’s Form 8-K filed May 3, 2021. (16) Filed as an exhibit to the Company’s Form 8-K filed June 9, 2021. (17) Filed as an exhibit to the Company’s Form 8-K filed August 19, 2021. (18) Filed as an exhibit to the Company’s Form 8-K filed September 9, 2021. (19) Filed as an exhibit to the Company’s Form 8-K filed August 23, 2022. (20) Filed as an exhibit to the Company’s Form 8-K filed October 19, 2022. (21) Filed as Appendix A to the Company’s Definitive Proxy Statement on Schedule 14A filed October 28, 2022. (22) Filed as an exhibit to the Company’s Form 8-K filed 8-K filed December 8, 2022. (23) Filed as an exhibit to the Company’s Form 8-K filed 8-K filed February 7, 2023. (24) Filed as an exhibit to the Company’s Registration Statement on Form S-8 filed February 28, 2023. (b) No financial statement schedules have been provided because the information is not required or is shown either in the financial statements or the notes thereto. 59 Signatures Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. DIGITAL ALLY, INC., a Nevada corporation By: /s/ Stanton E. Ross Stanton E. Ross Chief Executive Officer (Principal Executive Officer) Dated: March 31, 2023 Each person whose signature appears below authorizes Stanton E. Ross to execute in the name of each such person who is then an officer or director of the registrant, and to file, any amendments to this Annual Report on Form 10-K necessary or advisable to enable the registrant to comply with the Securities Exchange Act of 1934 and any rules, regulations and requirements of the Securities and Exchange Commission in respect thereof, which amendments may make such changes in such Report as such attorney-in-fact may deem appropriate. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature and Title Date /s/ Stanton E. Ross March 31, 2023 Stanton E. Ross, Director and Chief Executive Officer /s/ Leroy C. Richie March 31, 2023 Leroy C. Richie, Director /s/ Michael J. Caulfield March 31, 2023 Michael J. Caulfield, Director /s / Daniel F. Hutchins March 31, 2023 Daniel F. Hutchins, Director /s/ Thomas J. Heckman March 31, 2023 Thomas J. Heckman, Chief Financial Officer, Secretary, Treasurer and Principal Accounting Officer (Principal Financial Officer and Principal Accounting Officer) 60 DIGITAL ALLY, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page(s) Report of Independent Registered Public Accounting Firm (PCAOB ID No: 587 ) F-2 Consolidated Financial Statements:  Consolidated Balance Sheets – December 31, 2022 and 2021 F-5 Consolidated Statements of Operations for the Years Ended December 31, 2022 and 2021 F-6 Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2022 and 2021 F-7 Consolidated Statements of Cash Flows for the Years Ended December 31, 2022 and 2021 F-8 Notes to the Consolidated Financial Statements F-9 F- 1 Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of Digital Ally, Inc. Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Digital Ally, Inc. and its subsidiaries (the Company) as of December 31, 2022 and 2021, the related consolidated statements of operations, stockholders’ equity and cash flows for each of the years in the two year period ended December 31, 2022, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flow for each of the years in the two year period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America. The Company’s Ability to Continue as a Going Concern The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has incurred substantial operating losses and will require additional capital to continue as a going concern. This raises substantial doubt about the Company’s ability to continue as a going concern. Management’s plans regarding these matters are also described in Note 1. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty. Basis for Opinion These financial statement are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. F- 2 Goodwill, Indefinite Life Intangibles and Other Intangibles Impairment Assessments – Entertainment/Ticketing Reporting Unit – Refer to Notes 1, 8 and 22 to the consolidated financial statements Critical Audit Matter Description As described in Note 22 to the consolidated financial statements, the Company’s goodwill and indefinite life intangible asset balance was $5,886,547 and $600,000, respectively as of December 31, 2022. The Company also has amortizable identifiable intangible assets of $5,600,000 and $600,000 which are being amortized over 5 years and 4 years, respectively, and are related to the Entertainment/Ticketing reporting unit. Management tests these assets annually for impairment or more frequently when potential impairment triggering events are present. Goodwill is tested for impairment by comparing the estimated fair value of a reporting unit to its carrying value. Management uses a market approach to estimate the fair value of its reporting unit. The key assumptions and estimates utilized in the market approach primarily include market multiples, peer group and comparable transaction selection and selection of relevant financial matrices for concluding the fair value of reporting unit discount rates, and future levels of revenue growth and operating margins. The principal considerations for our determination that performing procedures relating to the goodwill and intangible asset impairment assessments of the Entertainment/Ticketing reporting unit is a critical audit matter because (i) the significant judgment used by management when determining the fair value estimates of the reporting units; (ii) the high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating the significant assumptions used in management’s fair value estimates; and (iii) the audit effort involved in the use of professionals with specialized skill and knowledge. How the Critical Audit Matter Was Addressed in the Audit Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. ● These procedures included, among others, (i) testing management’s process for determining the fair value estimates of the entertainment/ticketing reporting unit; (ii) testing the completeness and accuracy of the underlying data used in the market approach; and (iii) evaluating the reasonableness of the significant assumptions used by management related to market multiples, peer group and comparable transaction selection and selection of relevant financial matrices for concluding the fair value of reporting unit discount rates, and future levels of revenue growth and operating margins. ● Evaluating management’s assumptions related to the future levels of revenue growth and operating margins involved evaluating whether the assumptions were reasonable considering (i) current and past performance of the reporting units; (ii) the consistency with external market and industry data; and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit. ● Professionals with specialized skill and knowledge were used to assist in evaluating (i) the appropriateness of the market approach and (ii) the reasonableness of significant assumptions related to the market multiples, peer group and comparable transaction selection and selection of relevant financial matrices for concluding the fair value of reporting unit discount rates, and future levels of revenue growth and operating margins. Goodwill and Other Intangibles arising from the acquisition of Healthcare Acquisition and Medical Billing Acquisitions – Refer to Notes 1, 8 and 21 to the consolidated financial statements Critical Audit Matter Description As disclosed in Note 1, Goodwill arises in connection with acquisitions. The excess purchase price over the fair value of net tangible assets and identifiable intangible assets acquired is recorded as goodwill. As disclosed in Note 21, on June 30, 2021, August 31, 2021 and January 1, 2022 the Company completed acquisitions in accordance with the stock purchase agreement. The consideration included an initial payment of cash. In addition to the initial payment amount, the Company agreed to issue an earn-out agreement to the selling stockholders in the contingent amount of $1,750,000 that is subject to an earn-out adjustment based on difference between projected revenue and cash basis revenue collected by the Company in its normal course of business from the clients existing on the acquisition date during the measurement period. The Company gave a fair value of $1,750,000 to the earn-out on the date of acquisition which is considered a contingent liability. Auditing the accounting for the acquisition was complex due to the significant estimation uncertainty in determining the fair values of identified intangible assets, which consisted of Client Agreements $664,034 and Goodwill of $5,480,966. F- 3 Given the significant judgments made by management to estimate the intangible assets acquired, performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions required a high degree of auditor judgment and an increased effort, including the need to involve our fair value specialists. How the Critical Audit Matter Was Addressed in the Audit Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included, among others: ● We utilized personnel with specialized knowledge and skill in valuation to assist in; a) assessing the appropriateness of Multi-Period Excess Earnings Method - valuation methodology for the client agreements – intangible asset, b) evaluating the reasonableness of the growth rates, percent of revenues derived from acquired customers, medical loss ratio, operating costs, contributory asset charge and discount rate used in the income approach, c) evaluating the reasonableness of the assumptions and estimates used in the valuation methodologies. ● Evaluate the reasonableness of management’s significant estimates and assumptions including revenue growth rates, percent of revenues derived from acquired customers, medical loss ratio, operating costs, contributory asset charge and discount rates and futures market conditions. ● Evaluate if there have been events and circumstances that might indicate Goodwill has been impaired. ● Professionals with specialized skill and knowledge were used to assist in evaluating (i) the appropriateness of the income approach and (ii) the reasonableness of significant assumptions. ● Reviewed and assessed the appropriateness of adjustments to Goodwill, Other Intangibles and other Assets and Liabilities acquired based on changes to their estimated fair values. /s/ RBSM LLP We have served as the Company’s auditor since 2019. New York, NY March 31, 2023 PCAOB ID Number 587 F- 4 DIGITAL ALLY, INC. CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2022 AND 2021 2022 2021 Assets Current assets: Cash and cash equivalents $ 3,532,199 $ 32,007,792 Accounts receivable-trade, less allowance for doubtful accounts of $ 152,736 – 2022 and $ 113,234 – 2021 2,044,056 2,727,052 Other receivables (including $ 138,384 due from related parties – 2022 and $ 158,384 – 2021, refer to Note 19) 4,076,522 2,021,813 Inventories, net 6,839,406 9,659,536 Prepaid expenses 8,466,413 9,728,782 Total current assets 24,958,596 56,144,975 Property, plant, and equipment, net 7,898,686 6,841,026 Goodwill and other intangible assets, net 17,872,970 16,902,513 Operating lease right of use assets, net 782,129 993,384 Other assets 5,155,681 2,107,299 Total assets $ 56,668,062 $ 82,989,197 Liabilities and Equity Current liabilities: Accounts payable $ 9,477,355 $ 4,569,106 Accrued expenses 1,090,967 1,175,998 Current portion of operating lease obligations 294,617 373,371 Contract liabilities – current 2,154,874 1,665,519 Debt obligations – current 485,373 389,934 Warrant derivative liabilities — 14,846,932 Income taxes payable 8,097 1,827 Total current liabilities 13,511,283 23,022,687 Long-term liabilities: Debt obligations – long term 442,467 727,278 Operating lease obligation – long term 555,707 688,207 Contract liabilities – long term 5,818,082 2,687,786 Total liabilities 20,327,539 27,125,958 Commitments and contingencies - - Mezzanine equity: Series A Convertible Redeemable Preferred stock, $ 0.001 par value; shares issued: 0 – 2022 and 0 – 2021 — — Series B Convertible Redeemable Preferred stock, $ 0.001 par value; shares issued: 0 – 2022 and 0 – 2021 — — Equity: Common stock, $ 0.001 par value; 200,000,000 shares authorized; shares issued: 2,720,170 – 2022 and 2,545,220 – 2021 2,721 2,545 Additional paid in capital 127,869,342 124,476,447 Noncontrolling interest in consolidated subsidiary 448,694 56,453 Accumulated deficit ( 91,980,234 ) ( 68,672,206 ) Total equity 36,340,523 55,863,239 Total liabilities and equity $ 56,668,062 $ 82,989,197 See Notes to Consolidated Financial Statements. F- 5 DIGITAL ALLY, INC. CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021 2022 2021 Revenue: Product $ 10,999,892 $ 9,180,287 Service and other 26,010,003 12,233,147 Total revenue 37,009,895 21,413,434 Cost of revenue: Product 14,372,115 8,635,047 Service and other 20,315,839 7,114,612 Total cost of revenue 34,687,954 15,749,659 Gross profit 2,321,941 5,663,775 Selling, general and administrative expenses: Research and development expense 2,290,293 1,930,784 Selling, advertising and promotional expense 9,312,204 5,717,824 General and administrative expense 20,452,702 12,776,077 Total selling, general and administrative expenses 32,055,199 20,424,685 Operating loss ( 29,733,258 ) ( 14,760,910 ) Other income (expense): Interest income 131,025 310,200 Interest expense ( 37,196 ) ( 28,600 ) Other expense ( 230,744 ) — Change in fair value of short-term investments ( 84,818 ) ( 101,645 ) Change in fair value of warrant derivative liabilities 6,726,638 36,664,907 Change in fair value of contingent consideration promissory notes and earn-out agreements 516,970 3,732,789 Warrant modification expense — ( 295,780 ) Gain on the extinguishment of debt — 10,000 Gain on extinguishment of warrant derivative liabilities 3,624,794 — Gain on sale of property, plant and equipment 212,831 — Total other income 10,859,500 40,291,871 Income (loss) before income tax expense (benefit) ( 18,873,758 ) 25,530,961 Income tax expense (benefit) — — Net income (loss) ( 18,873,758 ) 25,530,961 Net income attributable to noncontrolling interests of consolidated subsidiary ( 407,933 ) ( 56,453 ) Loss on redemption – Series A & B convertible redeemable preferred stock ( 2,385,000 ) — Net income (loss) attributable to common stockholders $ ( 21,666,691 ) $ 25,474,508 Net income (loss) per share attributable to common information: Basic $ ( 8.50 ) $ 10.14 Diluted $ ( 8.50 ) $ 10.14 Weighted average shares outstanding: Basic 2,548,549 2,511,114 Diluted 2,548,549 2,511,114 See Notes to Consolidated Financial Statements. F- 6 DIGITAL ALLY, INC. CONSOLIDATED STATEMENTS OF EQUITY YEARS ENDED DECEMBER 31, 2022 AND 2021 Noncontrolling Additional Interest in Common Stock Paid In Treasury consolidated Accumulated Shares Amount Capital stock subsidiary deficit Total Balance, December 31, 2020 1,341,735 $ 1,342 $ 106,526,889 $ ( 2,157,225 ) $ — $ ( 90,014,500 ) $ 14,356,506 Stock-based compensation — — 1,605,949 — — — 1,605,949 Restricted common stock grant 42,800 43 ( 43 ) — — — — Restricted common stock forfeitures ( 385 ) — — — — — — Issuance of common stock through registered direct offering at $ 61.90 per share and accompanying warrants (net of offering expenses and placement agent discount) 140,000 140 6,728,860 — — — 6,729,000 Issuance of common stock through registered direct offering at $ 56.00 per share and accompanying warrants (net of offering expenses and placement agent discount) 162,500 162 6,617,438 — — — 6,617,600 Exercise of pre-funded common stock purchase warrants at $ 61.90 per share 360,000 360 22,283,640 — — — 22,284,000 Exercise of pre-funded common stock purchase warrants at $ 56.00 per share 552,500 552 30,939,448 — — — 30,940,000 Issuance of pre-funded common stock purchase warrants in connection with the registered direct offerings — — ( 1,817,548 ) — — — ( 1,817,548 ) Issuance of common stock purchase warrants at exercise price of $ 65.00 per share in connection with the registered direct offerings — — ( 49,398,510 ) — — — ( 49,398,510 ) Issuance of common stock as consideration for acquisition 35,987 36 990,324 — — — 990,360 Repurchase and cancellation of common stock ( 86,742 ) ( 87 ) — — — ( 1,974,992 ) ( 1,975,079 ) Cancellation of treasury stock ( 3,176 ) ( 3 ) — 2,157,225 — ( 2,157,222 ) — Net income — — — — 56,453 25,474,508 25,530,961 Balance, December 31, 2021 2,545,220 $ 2,545 $ 124,476,447 $ — $ 56,453 $ ( 68,672,206 ) $ 55,863,239 Balance 2,545,220 $ 2,545 $ 124,476,447 $ — $ 56,453 $ ( 68,672,206 ) $ 55,863,239 Stock-based compensation — — 1,282,757 — — — 1,282,757 Restricted common stock grant 35,750 36 ( 36 ) — — — — Restricted common stock forfeitures ( 3,250 ) ( 3 ) 3 — — — — Distribution to noncontrolling interest in consolidated subsidiary — — — — ( 15,692 ) — ( 15,692 ) Issuance of common stock under rule 144 restrictions related to contemplated spin-off transaction 25,000 25 ( 25 ) — — — — Repurchase and cancellation of common stock ( 186,299 ) ( 186 ) — — — ( 4,026,337 ) ( 4,026,523 ) Issuance of common stock through warrant exchange agreement 303,750 304 4,495,196 — — — 4,495,500 Loss on redemption of Series A and Series B Preferred Stock — — ( 2,385,000 ) — — — ( 2,385,000 ) Net income (loss) — — — — 407,933 ( 19,281,691 ) ( 18,873,758 ) Balance, December 31, 2022 2,720,171 $ 2,721 $ 127,869,342 $ — $ 448,694 $ ( 91,980,234 ) $ 36,340,523 Balance 2,720,171 $ 2,721 $ 127,869,342 $ — $ 448,694 $ ( 91,980,234 ) $ 36,340,523 See Notes to Consolidated Financial Statements. F- 7 DIGITAL ALLY, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2022 AND 2021 2022 2021 Cash Flows from Operating Activities: Net income (loss) $ ( 18,873,758 ) $ 25,530,961 Adjustments to reconcile net income (loss) to net cash flows used in operating activities: Depreciation and amortization 2,176,679 822,489 Gain on sale of property, plant and equipment ( 212,831 ) — Stock based compensation 1,282,757 1,605,949 Provision for doubtful accounts receivable ( 39,502 ) 9,990 Provision for doubtful lease receivable 140,448 — Gain on extinguishment of debt — ( 10,000 ) Change in fair value of contingent consideration promissory notes and earn-out agreements ( 516,970 ) ( 3,732,789 ) Change in fair value of warrant derivative liability ( 6,726,638 ) ( 36,664,907 ) Gain of extinguishment of warrant derivative liabilities ( 3,624,794 ) — Warrant modification expense — 295,780 Provision for inventory obsolescence 1,574,453 1,954,738 Change in operating assets and liabilities: (Increase) decrease in: Accounts receivable – trade 722,498 ( 29,838 ) Accounts receivable – other (including related party) ( 2,195,157 ) ( 693,992 ) Inventories 1,245,677 ( 1,431,080 ) Prepaid expenses 1,293,080 ( 3,839,458 ) Operating lease right of use assets 328,772 180,497 Other assets ( 3,048,382 ) ( 738,466 ) Increase (decrease) in: Accounts payable 4,709,030 ( 1,907,608 ) Accrued expenses ( 112,896 ) 166,874 Income taxes payable 6,270 ( 5,331 ) Operating lease obligations ( 328,772 ) ( 195,884 Contract liabilities 3,619,651 856,967 Net cash used in operating activities ( 18,580,385 ) ( 17,825,108 ) Cash Flows from Investing Activities: Purchases of property, plant and equipment ( 2,068,508 ) ( 6,428,225 ) Proceeds from sale of property, plant and equipment 609,559 — Purchases of intangible assets ( 116,990 ) ( 1,189,132 ) Proceeds from sale of intangible assets 18,975 — Cash paid for acquisition of Medical Billing Company — ( 1,026,508 ) Cash paid for acquisition of Medical Billing Company — ( 2,270,000 ) Cash paid for acquisition of Medical Billing Company ( 1,153,627 ) — Cash paid for asset acquisition of Medical Billing Company ( 230,000 ) — Cash paid for acquisition of TicketSmarter — ( 8,615,514 ) Collection of notes receivable — 405,000 Net cash used in investing activities ( 2,940,591 ) ( 19,124,379 ) Cash Flows from Financing Activities: Proceeds from issuance of common stock upon exercise of pre-funded warrants — 53,224,000 Net proceeds from sale of common stock in registered direct offerings — 13,346,600 Repurchase and cancellation of common stock ( 4,026,523 ) ( 1,975,079 ) Distribution to noncontrolling interest in consolidated subsidiary ( 15,692 ) — Principal payment on contingent consideration promissory notes ( 527,402 ) — Proceeds from issuance of Series A & B convertible redeemable preferred shares, net of issuance costs 13,365,000 — Redemption of Series A & B convertible redeemable preferred shares ( 15,750,000 ) — Net cash provided by (used in) financing activities ( 6,954,617 ) 64,595,521 Net increase (decrease) in cash and cash equivalents ( 28,475,593 ) 27,646,034 Cash, cash equivalents, beginning of year 32,007,792 4,361,758 Cash, cash equivalents, end of year $ 3,532,199 $ 32,007,792 Supplemental disclosures of cash flow information: Cash payments for interest $ 49,070 $ — Cash payments for income taxes $ 8,730 $ 1,224 Supplemental disclosures of non-cash investing and financing activities: Restricted common stock grant $ 61 $ 43 Restricted common stock forfeitures $ 3 $ — Issuance of contingent consideration earn-out agreement for business acquisitions $ 750,000 $ 3,700,000 Issuance of contingent consideration promissory note for business acquisitions $ — $ 1,000,000 Issuance of contingent consideration promissory note for asset acquisitions $ 105,000 $ — Assets acquired in business acquisitions $ 190,631 $ 6,324,189 Identifiable intangible assets acquired in business acquisitions $ — $ 6,800,000 Goodwill acquired in business acquisitions $ 2,100,000 $ 9,931,547 Liabilities assumed in business acquisitions $ 387,005 $ 5,453,353 ROU and lease liability recorded on extension of lease $ 42,403 $ — Common stock issued as consideration for business acquisitions $ — $ 990,360 Amounts allocated to initial measurement of warrant derivative liabilities in connection to the warrants and pre-funded warrants $ — $ 51,216,058 Issuance of common stock through warrant exchange agreement $ 4,495,500 $ — Cancellation of treasury stock $ — $ 2,157,225 See Notes to Consolidated Financial Statements. F- 8 DIGITAL ALLY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Business: Digital Ally, Inc. was originally incorporated in Nevada on December 13, 2000 as Vegas Petra, Inc. and had no operations until 2004. On November 30, 2004, Vegas Petra, Inc. entered into a Plan of Merger with Digital Ally, Inc., at which time the merged entity was renamed Digital Ally, Inc. (such merged entity, the “Predecessor Registrant”). On August 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. The 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 23. Reverse Stock Split On February 6, 2023, the Company filed a Certificate of Amendment to its Articles of Incorporation, as amended, with the Secretary of State of the State of Nevada to effect a 1-for-20 reverse stock split (the “Reverse Stock Split”) of the shares of its common stock. The Reverse Stock Split was effective as of time of filing. No fractional shares were issued in connection with the Reverse Stock Split. Any fractional shares of our Common Stock that would have otherwise resulted from the Reverse Stock Split were rounded up to the nearest whole number. In connection with the Reverse Stock Split, the board of directors of the Company approved appropriate and proportional adjustments to all outstanding securities or other rights convertible or exercisable into shares of the Company’s common stock, including, without limitation, all preferred stock, warrants, options, and other equity compensation rights. All historical share and per-share amounts reflected throughout the Company’s consolidated financial statements and other financial information in this Report have been adjusted to reflect the Reverse Stock Split as if the split occurred as of the earliest period presented. The par value per share of the Company’s common stock was not affected by the Reverse Stock Split. F- 9 The following is a summary of the Company’s Significant Accounting Policies: Basis of Consolidation : The accompanying financial statements include the consolidated accounts of Digital Ally, its wholly-owned subsidiaries, Digital Ally International, Inc., Shield Products, LLC, Digital Ally Healthcare, LLC, TicketSmarter, Inc., 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. The Company formed Digital Ally International, Inc. during August 2009 to facilitate the export sales of its products. The Company formed Shield Products, LLC in May 2020 to facilitate the sales of its Shield™ line of disinfectant/cleanser products and ThermoVu® line of temperature monitoring equipment. The Company formed Nobility Healthcare, LLC (“Nobility Healthcare”) in June 2021 to facilitate the operations of its revenue cycle management solutions and back-office services for healthcare organizations. The Company formed TicketSmarter, Inc. upon its acquisition of Goody Tickets, LLC and TicketSmarter, LLC, to facilitate its global ticketing operations. The Company formed Worldwide Reinsurance Ltd., which is a captive insurance company domiciled in Bermuda. It will provide primarily liability insurance coverage to the Company for which insurance may not be currently available or economically feasible in today’s insurance marketplace. The Company formed Digital Connect, Inc. and BirdVu Jets, Inc. for travel and transportation purposes in 2022. The Company formed Kustom 440, Inc. in 2022 to create unique entertainment experiences directly for consumers. Fair Value of Financial Instruments : The carrying amounts of financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and subordinated notes payable approximate fair value because of the short-term nature of these items. Revenue Recognition : The Company applies the provisions of Accounting Standards Codification (ASC) 606-10, Revenue from Contracts with Customers , and all related appropriate guidance. The Company recognizes revenue under the core principle to depict the transfer of control to its customers in an amount reflecting the consideration to which it expects to be entitled. In order to achieve that core principle, the Company applies the following five-step approach: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when a performance obligation is satisfied. The Company has two different revenue streams, product and service, represented through its three segments. The Company reports all revenues on a gross basis, other than service revenues from the Company’s entertainment and revenue cycle management segments, Revenues generated by all segments are reported net of sales taxes. Video Solutions The Company considers customer purchase orders, which in some cases are governed by master sales agreements, to be the contracts with the customer. In situation 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 part of its consideration for the contract, the Company evaluates certain factors including the customers’ ability to pay (or credit risk). For each contract, the Company considers the promise to transfer products, each of which is distinct, to be the identified performance obligations. In determining the transaction price, the Company evaluates whether the price is subject to refund or adjustment to determine the net consideration to which it expects to be entitled. As the Company’s standard payment terms are less than one year, it has elected the practical expedient under ASC 606-10-32-18 to not assess whether a contract has a significant financing component. The Company allocates the transaction price to each distinct product based on its relative standalone selling price. The product price as specified on the purchase order is considered the standalone selling price as it is an observable input which depicts the price as if sold to a similar customer in similar circumstances. Revenue is recognized when control of the product is transferred to the customer (i.e. when the Company’s performance obligations is satisfied), which typically occurs at shipment. Further in determining whether control has been transferred, the Company considers if there is a present right to payment and legal title, along with risks and rewards of ownership having transferred to the customer. Customers do not have a right to return the product other than for warranty reasons for which they would only receive repair services or replacement products. 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. F- 10 Service and other revenue is comprised of revenues from extended warranties, repair services, cloud revenue and software revenue. Revenue is recognized upon shipment of the product and acceptance of the service or materials by the end customer for repair services. Revenue for extended warranty, cloud service or other software-based products is over the term of the contract warranty or service period. A time-elapsed method is used to measure progress because the Company transfers control evenly over the contractual period. Accordingly, the fixed consideration related to these revenues is generally recognized on a straight-line basis over the contract term, as long as the other revenue recognition criteria have been met. The Company’s multiple performance obligations may include future in-car or body-worn camera devices to be delivered at defined points within a multi-year contract, and in those arrangements, the Company allocates total arrangement consideration over the life of the multi-year contract to future deliverables using management’s best estimate of selling price. Revenue 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 is 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. Entertainment The Company reports ticketing revenue on a gross or net basis based on management’s assessment of whether the Company is acting as a principal or agent in the transaction. The determination is based upon the evaluation of control over the event ticket, including the right to sell the ticket, prior to its transfer to the ticket buyer. The Company sells tickets held in inventory, which consists of one performance obligation, being to transfer control of an event ticket to the buyer upon confirmation of the order. The Company acts as the principal in these transactions as the ticket is owned by the Company at the time of sale, therefore controlling the ticket prior to transferring to the customer. In these transactions, revenue is recorded on a gross basis based on the value of the ticket and is recognized when an order is confirmed. Payment is typically due upon delivery of the ticket. The Company also acts as an intermediary between buyers and sellers through online secondary marketplace. Revenues derived from this marketplace primarily consist of service fees from ticketing operations, and consists of one primary performance obligation, which is facilitating the transaction between the buyer and seller, being satisfied at the time the order has been confirmed. As the Company does not control the ticket prior to the transfer, the Company acts as an agent in these transactions. Revenue is recognized on a net basis, net of the amount due to the seller when an order is confirmed, the seller is then obligated to deliver the tickets to the buyer per the seller’s listing. Payment is due at the time of sale. F- 11 Other 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. During the year ended December 31, 2022, the Company recognized revenue of $ 2.4 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, 2022 December 31, 2021 Additions/Reclass Recognized Revenue December 31, 2022 Contract liabilities, current $ 1,665,519 $ 1,478,479 $ 989,124 $ 2,154,874 Contract liabilities, non-current 2,687,786 4,560,600 1,430,304 5,818,082 $ 4,353,305 $ 6,039,079 $ 2,419,428 $ 7,972,956 December 31, 2021 December 31, 2020 Additions/Reclass Recognized Revenue December 31, 2021 Contract liabilities, current $ 1,647,469 $ 696,936 $ 678,886 $ 1,665,519 Contract liabilities, non-current 1,848,869 2,432,884 1,593,967 2,687,786 $ 3,496,338 $ 3,129,820 $ 2,272,853 $ 4,353,305 Sales returns and allowances aggregated $ 118,027 and $ 45,298 for the years ended December 31, 2022 and 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. Use of Estimates : The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates. Management utilizes various other estimates, including but not limited to, determining the estimated lives of long-lived assets, determining the potential impairment of long-lived assets, the fair value of warrants, options, the recognition of revenue, inventory valuation reserve, fair value of assets and liabilities acquired in a business combination, incremental borrowing rate on leases, the valuation allowance for deferred tax assets and other legal claims and contingencies. The results of any changes in accounting estimates are reflected in the financial statements in the period in which the changes become evident. Estimates and assumptions are reviewed periodically, and the effects of revisions are reflected in the period that they are determined to be necessary. Cash and cash equivalents : Cash and cash equivalents include funds on hand, in bank and short-term investments with original maturities of ninety (90) days or less. The following table shows the Company’s cash and cash equivalents by significant investment category as of December 31, 2022 and 2021: SCHEDULE OF SHORT TERM INVESTMENTS December 31, 2022 Adjusted Cost Realized Gains Realized Losses Fair Value Demand deposits $ 897,745 $ — $ — $ 897,745 Short-term investments with original maturities of 90 days or less (Level 1): Money market funds 2,634,454 — — 2,634,454 $ 3,532,199 $ — $ — $ 3,532,199 F- 12 December 31, 2021 Adjusted Cost Unrealized Gains Unrealized Losses Fair Value Demand deposits $ 5,031,246 $ — $ — $ 5,031,246 Short-term investments with original maturities of 90 days or less (Level 1): Money market funds 14,928,526 — — 14,928,526 Mutual funds 12,079,901 — ( 31,881 ) 12,048,020 $ 32,039,673 $ — $ ( 31,881 ) $ 32,007,792 The Company maintains its cash and cash equivalents in banks insured by the Federal Deposit Insurance Corporation (FDIC) in accounts that at times may be in excess of the federally insured limit of $ 250,000 per bank. The Company minimizes this risk by placing its cash deposits with numerous major financial institutions. At December 31, 2022 and 2021, the uninsured balance amounted to $ 2,495,189 and $ 29,836,142 , respectively. Accounts Receivable : Accounts receivable are carried at original invoice amount less an estimate made for doubtful receivables based on a review of all outstanding amounts on a weekly basis. The Company determines the allowance for doubtful accounts by regularly evaluating individual customer receivables and considering a customer’s financial condition, credit history, and current economic conditions. Trade receivables are written off when deemed uncollectible. Recoveries of trade receivables previously written off are recorded when received. A trade receivable is considered to be past due if any portion of the receivable balance is outstanding for more than thirty (30) days beyond terms. No interest is charged on overdue trade receivables. Goodwill and Other Intangibles : Goodwill - In connection with acquisitions, the Company applies the provisions of ASC 805, Business Combinations , using the acquisition method of accounting. The excess purchase price over the fair value of net tangible assets and identifiable intangible assets acquired is recorded as goodwill. In accordance with ASC 350, Intangibles - Goodwill and Other , the Company assesses goodwill for impairment annually as of December 31, and more frequently if events and circumstances indicate that goodwill might be impaired. Goodwill impairment testing is performed at the reporting unit level. Goodwill is assigned to reporting units at the date the goodwill is initially recorded. Once goodwill has been assigned to reporting units, it no longer retains its association with a particular acquisition, and all of the activities within a reporting unit, whether acquired or internally generated, are available to support the value of the goodwill. Traditionally, goodwill impairment testing is a two-step process. Step one involves comparing the fair value of the reporting units to its carrying amount. If the carrying amount of a reporting unit is greater than zero and its fair value is greater than its carrying amount, there is no impairment. If the reporting unit’s carrying amount is greater than the fair value, the second step must be completed to measure the amount of impairment, if any. Step two involves calculating an implied fair value of goodwill. The Company has adopted ASU 2017-04 which simplifies subsequent goodwill measurement by eliminating step two from the goodwill impairment test. As a result, the Company compares the fair value of a reporting unit with its respective carrying value and recognizes an impairment charge for the amount by which the carrying amount exceeded the reporting unit’s fair value. F- 13 The Company determines the fair value of its reporting units using the market approach. Under the market approach, we estimate the fair value based on multiples of comparable public companies and precedent transactions. Significant estimates in the market approach include: identifying similar companies with comparable business factors such as size, growth, profitability, risk and return on investment, and assessing comparable revenue and operating income multiples in estimating the fair value of the reporting unit. Long-lived and Other Intangible Assets - The Company periodically assesses potential impairments of its long-lived assets in accordance with the provisions of ASC 360, Accounting for the Impairment or Disposal of Long-lived Assets . An impairment review is performed whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. The Company groups its assets at the lowest level for which identifiable cash flows are largely independent of the cash flows of the other assets and liabilities. The Company has determined that the lowest level for which identifiable cash flows are available is the operating segment level. Factors considered by the Company include, but are not limited to, significant underperformance relative to historical or projected operating results; significant changes in the manner of use of the acquired assets or the strategy for the overall business; and significant negative industry or economic trends. When the carrying value of a long-lived asset may not be recoverable based upon the existence of one or more of the above indicators of impairment, the Company estimates the future undiscounted cash flows expected to result from the use of the asset and its eventual disposition. If the sum of the expected future undiscounted cash flows and eventual disposition is less than the carrying amount of the asset, the Company recognizes an impairment loss. An impairment loss is reflected as the amount by which the carrying amount of the asset exceeds the fair value of the asset, based on the fair value if available, or discounted cash flows, if fair value is not available. The Company assessed potential impairments of its long-lived assets as of December 31, 2022 and concluded that there was no impairment. Long-lived assets such as property, plant and equipment and purchased intangible assets subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset or asset group be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by that asset or asset group to its carrying value. If the carrying value of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques, including discounted cash flow models, quoted market values and third-party appraisals, as considered necessary. Intangible 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. Inventories : Inventories for the video solutions segment consist of electronic parts, circuitry boards, camera parts and ancillary parts (collectively, “components”), work-in-process and finished goods. Finished goods that are manufactured and assembled by the Company are carried at the lower of cost or net realizable value, with cost determined by standard cost methods, which approximate the first-in, first-out method. Inventory costs include material, labor and manufacturing overhead. Inventories for the entertainment segment consists of tickets to live events purchased, which are held at lower of cost or net realizable value, and written-off after the event has occurred. Event tickets for the entertainment segment are carried at lower of cost or net realizable value, and fully written off at the time the event occurs if the ticket is unsold and remaining in inventory after the completion of the event. Management has established inventory reserves based on estimates of excess and/or obsolete current inventory. Manufacturing inventory for the video solutions segment is reviewed for obsolescence and excess quantities on a quarterly basis, based on estimated future use of quantities on hand, which is determined based on past usage, planned changes to products and known trends in markets and technology. Changes in support plans or technology could have a significant impact on obsolescence. To support our world-wide service operations for the video solutions segment, we maintain service spare parts inventory, which consists of both consumable and repairable spare parts. Consumable service spare parts are used within our service business to replace worn or damaged parts in a system during a service call and are generally classified in current inventory as our stock of this inventory turns relatively quickly. However, if there has been no recent usage for a consumable service spare part, but the part is still necessary to support systems under service contracts, the part is considered to be non-current and included within non-current inventories within our consolidated balance sheet. Consumables are charged to cost of goods sold when issued during the service call. F- 14 As these service parts age over the related product group’s post-production service life, we reduce the net carrying value of our repairable spare part inventory on the consolidated balance sheet to account for the excess that builds over the service life. The post-production service life of our systems is generally seven to twelve years and, at the end of twelve years, the carrying value for these parts in our consolidated balance sheet is reduced to zero. We also perform periodic monitoring of our installed base for premature end of service life events and expense, through cost of sales, the remaining net carrying value of any related spare parts inventory in the period incurred. Property, plant and equipment : Property, plant and equipment is stated at cost net of accumulated depreciation. Additions and improvements are capitalized while ordinary maintenance and repair expenditures are charged to expense as incurred. Depreciation is recorded by the straight-line method over the estimated useful life of the asset, which ranges from three to thirty years, other than the infinite useful life of land. Amortization expense on capitalized leases is included with depreciation expense. The cost and accumulated depreciation related to assets sold or retired are removed from the accounts and any gain or loss is credited or charged to income. Leases : The Company determines if an arrangement contains a lease at inception. For arrangements where the Company is the lessee, the Company will evaluate whether to account for the lease as an operating or finance lease. Operating leases are included in the right of use assets (ROU) and operating lease liabilities on the consolidated balance sheet as of December 31, 2022. Finance leases would be included in property, plant and equipment, net and long-term debt and finance lease obligations on the balance sheet. The Company had operating leases for copiers and its office and warehouse space at December 31, 2022 but no financing leases. ROU assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. The Company uses its incremental borrowing rate based on the information available at the commencement date in determining the operating lease liabilities if the operating lease does not provide an implicit rate. Lease terms may include the option to extend when Company is reasonably certain that the option will be exercised. Lease expense for operating leases is recognized on a straight-line basis over the lease term. The Company elected to apply the short-term lease measurement and recognition exemption in which ROU assets and lease liabilities are not recognized for short term leases. Warranties : The Company’s video solutions segment products carry explicit product warranties that extend up to two years from the date of shipment. The Company records a provision for estimated warranty costs based upon historical warranty loss experience and periodically adjusts these provisions to reflect actual experience. Accrued warranty costs are included in accrued expenses. Extended warranties are offered on selected products and when a customer purchases an extended warranty the associated proceeds are treated as contract liabilities and recognized over the term of the extended warranty. F- 15 Shipping and Handling Costs : Shipping and handling costs video solutions segment for outbound sales orders totaled $ 70,749 and $ 79,763 for the years ended December 31, 2022 and 2021, respectively. Such costs are included in selling, general and administrative expenses in the Consolidated Statements of Operations. Advertising Costs : Advertising expense video solutions segment and entertainment segments includes costs related to trade shows and conventions, promotional material and supplies, and media costs. Advertising costs are expensed in the period in which they are incurred. The Company incurred total advertising expenses of approximately $ 7,668,641 and $ 4,110,032 for the years ended December 31, 2022 and 2021, respectively. Such costs are included in selling, advertising and promotional expenses in the Consolidated Statements of Operations. Income Taxes : Deferred taxes are provided for by the liability method in which deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax basis. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. The Company applies the provisions of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) No. 740 - Income Taxes that provides a framework for accounting for uncertainty in income taxes and provided a comprehensive model to recognize, measure, present, and disclose in its financial statements uncertain tax positions taken or expected to be taken on a tax return. It initially recognizes tax positions in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions are initially and subsequently measured as the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and all relevant facts. Application requires numerous estimates based on available information. The Company considers many factors when evaluating and estimating its tax positions and tax benefits, and it recognized tax positions and tax benefits may not accurately anticipate actual outcomes. As it obtains additional information, the Company may need to periodically adjust its recognized tax positions and tax benefits. These periodic adjustments may have a material impact on its Consolidated Statements of Operations. The Company’s policy is to record estimated interest and penalties related to the underpayment of income taxes as income tax expense in the Consolidated Statements of Operations. There was no interest expense related to the underpayment of estimated taxes during the years ended December 31, 2022 and 2021. There were no penalties in 2022 and 2021. The Company is subject to taxation in the United States and various states. As of December 31, 2022, the Company’s tax returns filed for 2019, 2020 and 2021 and to be filed for 2022 are subject to examination by the relevant taxing authorities. With a few exceptions, as of December 31, 2022, the Company is no longer subject to Federal, state, or local examinations by tax authorities for taxable years prior to 2019. Research and Development Expenses : The Company expenses all research and development costs as incurred, which is generally incurred by the video solutions segment. Development costs of computer software to be sold, leased, or otherwise marketed are subject to capitalization beginning when a product’s technological feasibility has been established and ending when a product is available for general release to customers. In most instances, the Company’s products are released soon after technological feasibility has been established. Costs incurred subsequent to achievement of technological feasibility were not significant, and software development costs were expensed as incurred during 2022 and 2021. F- 16 Warrant Derivative Liabilities : In accordance with FASB ASC 815-40, Derivatives and Hedging: Contracts in an Entities Own Equity, entities must consider whether to classify contracts that may be settled in its own stock, such as warrants to purchase shares of Common Stock, as equity of the entity or as an asset or liability. If an event that is not within the entity’s control could require net cash settlement, then the contract should be classified as an asset or a liability rather than as equity. We have determined because the terms of the warrants issued during the first quarter of 2021, and remain outstanding, include a provision that entitles all the warrant holders to receive cash for their warrants in the event of a qualifying cash tender offer, while only certain of the holders of the underlying shares of common stock would be entitled to cash, our warrants should be classified as liability measured at fair value, with changes in fair value each period reported in earnings. Volatility in the price of our common stock may result in significant changes in the value of the derivatives and resulting gains and losses on our statement of operations. Stock-Based Compensation : The Company grants stock-based compensation to its employees, board of directors and certain third-party contractors. Share-based compensation arrangements may include the issuance of options to purchase common stock in the future or the issuance of restricted stock, which generally are subject to vesting requirements. The Company records stock-based compensation expense for all stock-based compensation granted based on the grant-date fair value. The Company recognizes these compensation costs on a straight-line basis over the requisite service period of the award. The Company estimates the grant-date fair value of stock-based compensation using the Black-Scholes valuation model. Assumptions used to estimate compensation expense are determined as follows: ● Expected term is determined using the contractual term and vesting period of the award; ● Expected volatility of award grants made in the Company’s plan is measured using the weighted average of historical daily changes in the market price of the Company’s common stock over the period equal to the expected term of the award; ● Expected dividend rate is determined based on expected dividends to be declared; ● Risk-free interest rate is equivalent to the implied yield on zero-coupon U.S. Treasury bonds with a maturity equal to the expected term of the awards; and ● Forfeitures are accounted for as they occur. Segment Reporting 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. Operating segments are identified as components of an enterprise for which separate discrete financial information is available for evaluation by the chief operating decision maker (the Company’s Chief Executive Officer or “CODM”) in making decisions on how to allocate resources and assess performance. The Company’s three operating segments are Video Solutions, Revenue Cycle Management, and Entertainment, each of which has specific personnel responsible for that business and reports to the CODM. Corporate expenses capture the Company’s corporate administrative activities, is also to be reported in the segment information. Therefore, its operations are eliminated in consolidation and is not considered a separate business segment for financial reporting purposes. Contingent Consideration In circumstances where an acquisition involves a contingent consideration arrangement that meets the definition of a liability under the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 480, Distinguishing Liabilities from Equity, the Company recognizes a liability equal to the fair value of the contingent payments the Company expects to make as of the acquisition date. The Company remeasures this liability each reporting period and records changes in the fair value through the consolidated statement of operations. F- 17 Repurchase and Cancellation of Shares From time to time, the Company’s Board of Directors (the “Board”) may authorize share repurchases of common stock. Shares repurchased under Board authorizations are held in treasury for general corporate purposes and cancelled when it is determined appropriate by management. The Company accounts for repurchases of common stock under the cost method. Shares repurchased and cancelled during the period were recorded as a reduction to stockholders’ equity. See further discussion of the Company’s share repurchase program in Note 18–Stockholders’ Equity. Non-Controlling Interests Non-controlling interests in the Company’s Consolidated Financial Statements represent the interest in subsidiaries held by venture partners. The venture partners hold noncontrolling interests in the Company’s consolidated subsidiary Nobility Healthcare, LLC. Since the Company consolidates the financial statements of all wholly-owned and majority owned subsidiaries, the noncontrolling owners’ share of each subsidiary’s results of operations are deducted and reported as net income attributable to noncontrolling interest in the Consolidated Statements of Operations. Redeemable Preferred Stock Preferred stock may be classified as a liability, temporary equity (i.e., mezzanine equity) or permanent equity. In order to determine the appropriate classification, an evaluation of the cash redemption features is required. Where there exists an absolute right of redemption presently or in the future, the preferred stock would be classified as a liability. If redemption is contingently redeemable upon the occurrence of an event that is outside of the issuer’s control, it should be classified as mezzanine equity. The probability that the redemption event will occur is irrelevant. If no redemption features exist, or if a contingent redemption feature is within the Company’s control, the preferred stock would be considered equity. Lease Receivable Lease receivable are carried at the original invoice amount less the total payments received pertaining to each individual customer’s lease agreement. These agreements range from three to five years and are removed from lease receivables upon termination of the agreement. The Company determines if an allowance for doubtful accounts by regularly evaluating individual customer lease receivables and considering a customer’s financial condition, credit history, and current economic conditions. No allowance was deemed necessary for the year ended December 31, 2022. Notes Receivable Notes receivable are carried at the original note amount less an estimate made for doubtful receivables based on a review of all outstanding notes on a quarterly basis. The Company determines the allowance for doubtful accounts by regularly evaluating each note receivable and considering the borrower’s financial condition, credit history, and current economic conditions. The Company entered into a promissory note, through its entertainment segment, as part of a co-marketing agreement, with a principal amount of $ 3,000,000 . Principal payment, since its inception, on this promissory note totaled $ 1,401,660 as of December 31, 2022, resulting in a remaining balance of $ 1,598,340 maturing December 31, 2023 . New Accounting Standards In 2020, FASB issued ASU No. 2020-06 to simplify the accounting for convertible debt instruments as the current accounting guidance was determined to be unnecessarily complex and difficult to navigate. The ASU primarily does three things: (1) The ASU eliminates the beneficial conversion feature model and the cash conversion model. The elimination of these models will result in more convertible instruments (convertible debt instruments or convertible preferred stock instruments) being reported as a single liability instrument. The ASU also makes targeted improvements to the related disclosures, (2) The ASU eliminates certain settlement conditions that are required to qualify for derivative scope exception which will allow for less equity contracts to be accounted for as a derivative and (3) The ASU aligns the diluted EPS calculation for convertible instruments by requiring the use of the if-converted method and requiring share settlement be included in the calculation when the contract includes an option of cash or share settlement. ASU No. 2020-06 is effective for fiscal years beginning after December 15, 2021 with early adoption permitted for fiscal years beginning after December 15, 2020. The Company adopted this update for the quarter ended March 31, 2021, with no material effect on the financials. In 2020, FASB issued ASU No. 2020-01 which represents a consensus of the Emerging Issues Task Force and it clarifies certain items related to ASU 2016-01, Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The ASU (1) clarifies that when an entity is either applying the equity method or upon discontinuing the equity method it should consider observable price changes in orderly transactions for the identical or a similar investment with the same issuer for valuing basis of the investment and (2) clarifies that when determining the accounting for certain forward contracts and purchased options an entity should not consider, whether upon settlement or exercise, if the underlying securities would be accounted for under the equity method or fair value option. ASU No. 2020-01 is effective for fiscal years beginning after December 15, 2020 with early adoption permitted. The Company adopted this update for the quarter ended March 31, 2021, with no material effect on the financials. In December 2019, the FASB issued ASU No. 2019-12, Income Taxes - simplifying the accounting for income taxes (Topic 740), which is meant to simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740, Income Taxes. The amendment also improves consistent application and simplifies GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The adoption of this standard did not have a significant impact on the Company’s financial position and results of operations. F- 18 In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses” to improve information on credit losses for financial assets and net investment in leases that are not accounted for at fair value through net income. ASU 2016-13 replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses. In April 2019 and May 2019, the FASB issued ASU No. 2019-04, “Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments” and ASU No. 2019-05, “Financial Instruments-Credit Losses (Topic 326): Targeted Transition Relief” which provided additional implementation guidance on the previously issued ASU. In November 2019, the FASB issued ASU 2019-10, “Financial Instruments - Credit Loss (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842),” which defers the effective date for public filers that are considered small reporting companies (“SRC”) as defined by the Securities and Exchange Commission to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Since the Company is an SRC, implementation is not needed until January 1, 2023. The Company will continue to evaluate the effect of adopting ASU 2016-13 will have on the Company’s consolidated financial statements. Going Concern Matters and Management’s Plans The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company incurred substantial operating losses in the years ended December 31, 2022 and December 31, 2021 primarily due to reduced gross margins caused by a combination of competitors’ introduction of newer products with more advanced features together with significant price cutting of their products and the recent acquisitions with much smaller margins than the video solutions segment, historically. The Company incurred operating losses of approximately $ 29.7 million for the year ended December 31, 2022 and $ 14.8 million during the year ended December 31, 2021 and it had an accumulated deficit of $ 92.0 million as of December 31, 2022. In recent years the Company has accessed the public and private capital markets to raise funding through the issuance of debt and equity. In that regard, the Company raised approximately $ 66.6 million in the year ended December 31, 2021 through two underwritten public offerings. These equity raises were utilized to fund its operations and acquisitions. Management expects to continue this pattern until it achieves positive cash flows from operations, although it can offer no assurance in this regard. 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. The Company has increased its contract liabilities to nearly $ 8.0 million as of December 31, 2022, which results in recurring revenue during the period of 2023 to 2026. The Company believes that its quality control and cost cutting initiatives, expansion to non-law enforcement sales channels and new product introduction will eventually restore positive operating cash flows and profitability, although it can offer no assurances in this regard. The Company has significantly cut costs in its entertainment segment through the removal of several large partnerships and sponsorships. These were not yielding the results management expected; thus, it is not expected that these costs with significantly hinder total revenues in 2023 and beyond. In addition to the initiatives described above, the Board of Directors is conducting a review of a full range of strategic alternatives to best position the Company for the future including, but not limited to, the sale of all or certain assets, properties or groups of properties or individual businesses or merger or combination with another company. The result of this review may also include the continued implementation of the Company’s business plan. There can be no assurance that any additional transactions or financings will result from this process. Based on the uncertainties described above, the Company believes its business plan does not alleviate the existence of substantial doubt about its ability to continue as a going concern within one year from the date of the issuance of these consolidated financial statements. The accompanying consolidated financial statements do not include any adjustments related to the recoverability and classification of asset amounts or the classification of liabilities that might be necessary should the Company be unable to continue as a going concern. F- 19 NOTE 2. CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS Financial instruments that potentially subject the Company to concentrations of credit risk consist of accounts receivable. Sales to domestic customers are typically made on credit and the Company generally does not require collateral while sales to international customers require payment before shipment or backing by an irrevocable letter or credit. The Company performs ongoing credit evaluations of its customers’ financial condition and maintains an allowance for estimated losses. Accounts are written off when deemed uncollectible and accounts receivable are presented net of an allowance for doubtful accounts. The allowance for doubtful accounts totaled $ 152,736 as of December 31, 2022 and $ 113,234 as of December 31, 2021. The Company maintains its cash and cash equivalents in banks insured by the Federal Deposit Insurance Corporation (FDIC) in accounts that at times may be in excess of the federally insured limit of $ 250,000 per bank. The Company minimizes this risk by placing its cash deposits with major financial institutions. At December 31, 2022 and 2021, the uninsured balance amounted to $ 2,495,189 and $ 29,836,142 , respectively. The Company uses primarily a network of unaffiliated distributors for international sales and an employee-based direct sales force for domestic sales. No international distributor individually exceeded 10 % of total revenues. No one individual customer receivable balance exceeded 10 % of total accounts receivable as of December 31, 2022. The Company’s video solutions segment purchases finished circuit boards and other proprietary component parts from suppliers located in the United States and on a limited basis from Asia. Although the Company obtains certain of these components from single source suppliers, it generally owns all tooling and management has located alternative suppliers to reduce the risk in most cases to supplier problems that could result in significant production delays. The Company has not historically experienced significant supply disruptions from any of its principal vendors and does not anticipate future supply disruptions. The Company acquires most of its components on a purchase order basis and does not have long-term contracts with its suppliers. NOTE 3. ACCOUNTS RECEIVABLE – ALLOWANCE FOR DOUBTFUL ACCOUNTS The allowance for doubtful accounts receivable was comprised of the following for the years ended December 31, 2022 and 2021: SCHEDULE OF ALLOWANCE FOR DOUBTFUL ACCOUNTS December 31, 2022 December 31, 2021 Beginning balance $ 113,234 $ 123,224 Provision for bad debts 126,018 7,154 Charge-offs to allowance, net of recoveries ( 86,516 ) ( 17,144 ) Ending balance $ 152,736 $ 113,234 NOTE 4. OTHER RECEIVABLES Other receivables were the following at December 31, 2022 and December 31, 2021: SCHEDULE OF OTHER RECEIVABLES December 31, 2022 December 31, 2021 Notes receivable $ 1,598,340 $ 470,000 Lease receivable 2,339,799 1,376,518 Other 138,383 175,295 Total other assets $ 4,076,522 $ 2,021,813 Notes receivable increased by over $ 1.1 million at December 31, 2022 compared to December 31, 2021, primarily due to a note receivable issued by the Company during 2022. The Company entered into a promissory note, through its entertainment segment, as part of a co-marketing agreement, with a principal amount of $ 3,000,000 . Principal payment, since its inception, on this promissory note totaled $ 1,401,660 as of December 31, 2022, resulting in a remaining balance of $ 1,598,340 maturing December 31, 2023 . Lease receivable increased by nearly $ 1.0 million primarily due to increased sales under the Company’s subscription model during 2022. The Company determines if an allowance for doubtful accounts by regularly evaluating notes receivable and individual customer lease receivables, by considering a customer’s financial condition, credit history, and current economic conditions. No allowance was deemed necessary for the year ended December 31, 2022. Other receivables relate to a related party receivable further described in Note 19. NOTE 5. INVENTORIES Inventories consisted of the following at December 31, 2022 and 2021: SCHEDULE OF INVENTORIES December 31, 2022 December 31, 2021 Raw material and component parts– video solutions segment $ 4,509,165 $ 3,062,046 Work-in-process– video solutions segment 3,164 — Finished goods – video solutions segment 6,846,091 8,410,307 Finished goods – entertainment segment 970,527 2,102,272 Subtotal 12,328,947 13,574,625 Reserve for excess and obsolete inventory– video solutions segment ( 5,230,261 ) ( 3,353,458 ) Reserve for excess and obsolete inventory – entertainment segment ( 259,280 ) ( 561,631 ) Total inventories $ 6,839,406 $ 9,659,536 Finished goods inventory includes units held by potential customers and sales agents for test and evaluation purposes. The cost of such units totaled $ 171,071 and $ 153,976 as of December 31, 2022 and 2021, respectively. F- 20 NOTE 6. PREPAID EXPENSES Prepaid expenses were the following at December 31, 2022 and 2021: SCHEDULE OF PREPAID EXPENSE December 31, 2022 December 31, 2021 Prepaid inventory $ 6,110,321 $ 6,546,100 Prepaid advertising 1,931,628 2,455,527 Other 424,464 727,155 Total prepaid expenses $ 8,466,413 $ 9,728,782 Prepaid expenses decreased by nearly $ 1.3 million primarily due to a decline in prepaid inventory purchases and advertising expenses in 2022. NOTE 7. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consisted of the following at December 31, 2022 and 2021: SCHEDULE OF PROPERTY, PLANT AND EQUIPMENT Estimated Useful Life December 31, 2022 December 31, 2021 Building 25 years $ 4,537,037 $ 4,909,478 Land Infinite 739,734 789,734 Office furniture, fixtures, equipment, and aircraft 3 - 20 years 2,048,169 493,652 Warehouse and production equipment 3 - 7 years 51,302 65,948 Demonstration and tradeshow equipment 3 - 7 years 72,341 82,337 Building improvements 5 - 7 years 1,334,374 911,940 Rental equipment 1 - 3 years — 8,584 Total cost 8,782,957 7,261,673 Less: accumulated depreciation and amortization ( 884,271 ) ( 420,647 ) Net property, plant and equipment $ 7,898,686 $ 6,841,026 Depreciation and amortization of property, plant and equipment aggregated $ 614,121 and $ 258,999 for the years ended December 31, 2022 and 2021, respectively. The cost and accumulated depreciation related to assets sold or retired are removed from the accounts and any gain or loss is credited or charged to income. The Company retired fixed assets during 2022 totaling $ 549,104 resulting in a gain on sale of assets of $ 212,831 for the year ended December 31, 2022 on the Company’s Consolidated Statement of Operations. The Company retired fixed assets during 2021 totaling $ 391,535 all of which were fully depreciated resulting in no gain or loss for the year ended December 31, 2021. F- 21 NOTE 8. GOODWILL AND OTHER INTANGIBLE ASSETS Intangible assets consisted of the following at December 31, 2022 and 2021: SCHEDULE OF INTANGIBLE ASSETS December 31, 2022 December 31, 2021 Gross value Accumulated amortization Net carrying value Gross value Accumulated amortization Net carrying value Amortized intangible assets: Licenses (video solutions segment) $ 211,183 $ 80,378 $ 130,805 $ 194,286 $ 65,578 $ 128,708 Patents and trademarks (video solutions segment) 472,077 305,021 167,056 493,945 233,471 260,474 Sponsorship agreement network (entertainment segment) 5,600,000 1,493,333 4,106,667 5,600,000 373,333 5,226,667 SEO content (entertainment segment) 600,000 200,000 400,000 600,000 50,000 550,000 Personal seat licenses (entertainment segment) 180,081 8,001 172,080 201,931 2,244 199,687 Client agreements (revenue cycle management segments) 999,034 126,864 872,170 — — — 8,062,375 2,213,597 5,848,778 7,090,162 724,626 6,365,536 Indefinite life intangible assets: Goodwill (entertainment and revenue cycle management segments) 11,367,514 — 11,367,514 9,931,547 — 9,931,547 Trade name (entertainment segment) 600,000 — 600,000 600,000 — 600,000 Patents and trademarks pending (video solutions segment) 56,678 — 56,678 5,430 — 5,430 Total $ 20,086,567 $ 2,213,597 $ 17,872,970 $ 17,627,139 $ 724,626 $ 16,902,513 Patents and trademarks pending will be amortized beginning at the time they are issued by the appropriate authorities. If issuance of the final patent or trademark is denied, then the amount deferred will be immediately charged to expense. Amortization expense for the years ended December 31, 2022 and 2021 was $ 1,562,558 and $ 563,490 , respectively. Estimated amortization for intangible assets with definite lives for the next five years ending December 31, 2022, and thereafter is as follows: SCHEDULE OF ESTIMATED AMORTIZATION FOR INTANGIBLE ASSETS Year ending December 31: 2023 $ 1,486,473 2024 1,435,915 2025 1,343,420 2026 859,438 2027 and thereafter 723,532 Total $ 5,848,778 F- 22 NOTE 9. OTHER ASSETS Other assets were the following at December 31, 2022 and December 31, 2021: SCHEDULE OF OTHER ASSETS December 31, 2022 December 31, 2021 Lease receivable $ 4,700,923 $ 1,921,021 Sponsorship network 116,828 30,752 Other 337,930 155,526 Total other assets $ 5,155,681 $ 2,107,299 NOTE 10. DEBT OBLIGATIONS Debt obligations is comprised of the following: SUMMARY OF DEBT OBLIGATIONS December 31, 2022 December 31, 2021 Economic injury disaster loan (EIDL) $ 150,000 $ 150,000 Contingent consideration promissory note – Nobility Healthcare Division Acquisition 388,955 317,212 Contingent consideration promissory note – Nobility Healthcare Division Acquisition 176,456 650,000 Contingent consideration promissory note – Nobility Healthcare Division Acquisition 208,083 — Contingent consideration promissory note – Nobility Healthcare Division Acquisition 4,346 — Debt obligations 927,840 1,117,212 Less: current maturities of debt obligations 485,373 389,934 Debt obligations, long-term $ 442,467 $ 727,278 Debt obligations mature as follows as of December 31, 2022: SCHEDULE OF MATURITY OF DEBT OBLIGATIONS December 31, 2022 2023 $ 485,374 2024 297,971 2025 3,412 2026 3,542 2027 and thereafter 137,541 Total $ 927,840 2020 Small Business Administration Notes . On May 12, 2020, the Company received $ 150,000 in loan funding from the SBA under the EIDL program administered by the SBA, which program was expanded pursuant to the recently enacted CARES Act. The EIDL is evidenced by an unsecured promissory note, dated May 8, 2020, in the original principal amount of $ 150,000 with the SBA, the lender. Under the terms of the note issued under the EIDL program, interest accrues on the outstanding principal at the rate of 3.75 % per annum. The term of such note is thirty years, though it may be payable sooner upon an event of default under such note. Monthly principal and interest payments began in November 2022, after being deferred for thirty months after the date of disbursement and total $ 731.00 per month thereafter. Such note may be prepaid in part or in full, at any time, without penalty. The Company granted the secured party a continuing interest in and to any and all collateral, including but not limited to tangible and intangible personal property. Contingent Consideration Promissory Notes On June 30, 2021, Nobility Healthcare, a subsidiary of the Company, issued a contingent consideration promissory note (the “June Contingent Note”) in connection with a stock purchase agreement between Nobility Healthcare and a private company (the “June Seller”) of $ 350,000 . The Contingent Note has a three-year term and bears interest at a rate of 3.00 % per annum. Quarterly principal and interest payments are deferred for six months and is due in equal quarterly installments on the seventh business day of each quarter. The principal amount of the June Contingent Note is subject to an earn-out adjustment, being the difference between the $ 975,000 (the “June Projected Revenue”) and the cash basis revenue (the “June Measurement Period Revenue”) collected by the June Seller in its normal course of business from the clients existing on June 30, 2021, during the period from October 1, 2021 through September 30, 2022 (the “June Measurement Period”) measured on a quarterly basis and annualized as of the relevant period. If the June Measurement Period Revenue is less than the June Projected Revenue, such amount will be subtracted from the principal balance of this June Contingent Note on a dollar-for-dollar basis. If the June Measurement Period Revenue is more than the June Projected Revenue, such amount will be added to the principal balance of this June Contingent Note on a dollar-for-dollar basis. In no event will the principal balance of this June Contingent Note become a negative number. The maximum downward earn-out adjustment to the principal balance will be to zero. There are no limits to the increases to the principal balance of the June Contingent Note as a result of the earn-out adjustments. F- 23 The June 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 $ 350,000 at the acquisition date. Principal payments, since its inception, on this contingent consideration promissory note totaled $ 113,617 . The estimated fair value of the June Contingent Note at December 31, 2022 is $ 176,456 , representing a decrease in its estimated fair value of $ 27,139 as compared to its estimated fair value as of December 31, 2021. Therefore, the Company recorded a gain of $ 27,139 and $ 32,789 in the Consolidated Statements of Operations for the years ended December 31, 2022 and December 31, 2021, respectively. On August 31, 2021, Nobility Healthcare, issued another contingent consideration promissory note (the “August Contingent Payment Note”) in connection with a stock purchase agreement between Nobility Healthcare and a private company (the “August Sellers”) of $ 650,000 . The August Contingent Payment Note has a three-year term and bears interest at a rate of 3.00 % per annum. Quarterly principal and interest payments are deferred for six months and is due in equal quarterly installments on the seventh business day of each quarter. The principal amount of the August Contingent Payment Note is subject to an earn-out adjustment, being the difference between the $ 3,000,000 (the “August Projected Revenue”) and the cash basis revenue (the “August Measurement Period Revenue”) collected by the August Sellers in its normal course of business from the clients existing on September 1, 2021, during the period from December 1, 2021 through November 30, 2022 (the “August Measurement Period”) measured on a quarterly basis and annualized as of the relevant period. If the August Measurement Period Revenue is less than the August Projected Revenue, such amount will be subtracted from the principal balance of this August Contingent Payment Note on a dollar-for-dollar basis. If the August Measurement Period Revenue is more than the August Projected Revenue, such amount will be added to the principal balance of this August Contingent Payment Note on a dollar-for-dollar basis. In no event will the principal balance of this August Contingent Payment Note become a negative number. The maximum downward earn-out adjustment to the principal balance will be to zero. There are no limits to the increases to the principal balance of the August Contingent Payment Note as a result of the earn-out adjustments. The August 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 $ 650,000 at the acquisition date. Principal payments, since its inception, on this contingent consideration promissory note totaled $ 292,953 . The estimated fair value of the August Contingent Note at December 31, 2022 is $ 388,954 , representing an increase in its estimated fair value of $ 31,907 as compared to is estimated fair value as of December 31, 2021. Therefore, the Company recorded a loss of $ 31,907 and $- 0 - in the Consolidated Statements of Operations for the years ended December 31, 2022 and December 31, 2021, respectively. On January 1, 2022, Nobility Healthcare issued another contingent consideration promissory note (the “January Contingent Payment Note”) in connection with a stock purchase agreement between Nobility Healthcare and a private company (the “January Sellers”) of $ 750,000 . The January Contingent Payment Note has a two -and-a-half-year term and bears interest at a rate of 3.00 % per annum. Quarterly principal and interest payments are deferred for seven months and is due in equal quarterly installments on the tenth business day of each quarter. The principal amount of the January Contingent Payment Note is subject to an earn-out adjustment, being the difference between $ 3,500,000 (the “January Projected Revenue”) and the cash basis revenue (the “January Measurement Period Revenue”) collected by the January Sellers in its normal course of business from the clients existing on January 1, 2022, during the period from April 1, 2022 through March 31, 2023 (the “January Measurement Period”) measured on a quarterly basis and annualized as of the relevant period. If the January Measurement Period Revenue is less than the January Projected Revenue, such amount will be subtracted from the principal balance of this January Contingent Payment Note on a dollar-for-dollar basis. If the January Measurement Period Revenue is more than the January Projected Revenue, such amount will be added to the principal balance of this January Contingent Payment Note on a dollar-for-dollar basis. In no event will the principal balance of this January Contingent Payment Note become a negative number. The maximum downward earn-out adjustment to the principal balance will be a reduction to zero. There are no limits to the increases to the principal balance of the January Contingent Payment Note as a result of the earn-out adjustments. F- 24 The 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 $ 120,833 . The estimated fair value of the January Contingent Note at December 31, 2022 is $ 208,083 , representing a decrease in its estimated fair value of $ 421,085 as compared to its estimated fair value as of the inception date. Therefore, the Company recorded a gain of $ 421,085 and $- 0 - in the Consolidated Statements of Operations for the years ended December 31, 2022 and December 31, 2021, respectively. On February 1, 2022, Nobility Healthcare issued another contingent consideration promissory note (the “February Contingent Payment Note”) in connection with an asset purchase agreement between Nobility Healthcare and a private company (the “February Sellers”) of $ 105,000 . The February Contingent Payment Note has a three-year term and bears interest at a rate of 3.00 % per annum. Quarterly principal and interest payments are deferred for seven months and are due in equal quarterly installments on the tenth business day of each quarter. The principal amount of the February Contingent Payment Note is subject to an earn-out adjustment, being the difference between $ 440,000 (the “February Projected Revenue”) and the cash basis revenue (the “February Measurement Period Revenue”) collected by the February Sellers in its normal course of business from the clients existing on February 1, 2022, during the period from May 1, 2022 through April 30, 2023 (the “February Measurement Period”) measured on a quarterly basis and annualized as of the relevant period. If the February Measurement Period Revenue is less than the February Projected Revenue, such amount will be subtracted from the principal balance of this February Contingent Payment Note on a dollar-for-dollar basis. If the February Measurement Period Revenue is more than the February Projected Revenue, such amount will be added to the principal balance of this February Contingent Payment Note on a dollar-for-dollar basis. In no event will the principal balance of this February Contingent Payment Note become a negative number. The maximum downward earn-out adjustment to the principal balance will be a reduction to zero. There are no limits to the increases to the principal balance of the February Contingent Payment Note as a result of the earn-out adjustments. The February 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 $ 105,000 at the acquisition date. The estimated fair value of the February Contingent Note at December 31, 2022 is $ 4,346 , representing a decrease in its estimated fair value of $ 100,654 as compared to its estimated fair value as of the inception date. Therefore, the Company recorded a gain of $ 100,654 and $- 0 - in the Consolidated Statements of Operations for the years ended December 31, 2022 and December 31, 2021, respectively. Contingent consideration earn-out Agreement – TicketSmarter Acquisition On September 1, 2021, TicketSmarter, Inc., a subsidiary of the Company, issued a contingent consideration earn-out agreement (the “TicketSmarter Earn-Out”) in connection with the Stock Purchase Agreement between TicketSmarter, Inc., Goody Tickets, LLC and TicketSmarter, LLC (“TicketSmarter”) of up to $ 4,244,400 with a fair value at acquisition of $ 3,700,000 . The TicketSmarter Earn-Out shall be payable with ninety percent ( 90 %) readily available funds and ten percent ( 10 %) in stock consideration. The principal amount of the TicketSmarter Earn-Out is subject to an earn-out adjustment, being the difference between the $ 2,896,829 (the “Projected EBITDA”) and the actual EBITDA (the “Measurement Period EBITDA”) generated by TicketSmarter in its normal course of business, during the period from September 1, 2021 through December 31, 2021 (the “Measurement Period”). If the Measurement Period EBITDA is less than seventy percent ( 70 %) of the Projected EBITDA, there will be zero contingent payment. If the Measurement Period EBITDA is between seventy percent ( 70 %) and one hundred percent ( 100 %) of the Projected EBITDA, then a fractional amount of the contingent payment will be paid out. If the Measurement Period EBITDA is more than the Projected EBITDA, the full principal balance of this TicketSmarter Earn-Out will be paid out. In no event will the principal balance of this TicketSmarter Earn-Out become a negative number. The maximum downward earn-out adjustment to the earn-out balance will be to reduce the balance to zero. F- 25 The contingent consideration earn-out is considered to be additional purchase price, therefore the estimated fair value of the contingent liability is recorded as a liability at the acquisition date and the fair value is considered part of the consideration paid for the acquisition. Management has recorded the contingent consideration earn-out at its estimated fair value of $ 3,700,000 at the acquisition date. Management determined that the actual Measurement Period EBITDA generated by TicketSmarter was less than 70% of the Projected EBITDA threshold. Therefore, no TicketSmarter Earn-Out payments amounts were due under the agreement. Therefore, the fair value of the contingent consideration earn-out agreement was reduced to zero, and the resulting gain of $- 0 - and $ 3,700,000 was reported in our Consolidated Statements of Operations for the years ended December 31, 2022 and December 31, 2021, respectively. NOTE 11. FAIR VALUE MEASUREMENT In accordance with ASC Topic 820 — Fair Value Measurements and Disclosures (“ASC 820”), the Company utilizes the market approach to measure fair value for its financial assets and liabilities. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets, liabilities or a group of assets or liabilities, such as a business. ASC 820 utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels: ● Level 1 — Quoted prices in active markets for identical assets and liabilities ● Level 2 — Other significant observable inputs (including quoted prices in active markets for similar assets or liabilities) ● Level 3 — Significant unobservable inputs (including the Company’s own assumptions in determining the fair value) The following table represents the Company’s hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2022 and 2021. SCHEDULE OF FINANCIAL ASSETS AND LIABILITIES MEASURED AT FAIR VALUE ON RECURRING BASIS December 31, 2022 Level 1 Level 2 Level 3 Total Liabilities: Warrant derivative liabilities $ — $ — $ — $ — Contingent consideration promissory notes and contingent consideration earn-out agreement — — 777,840 777,840 $ — $ — $ 777,840 $ 777,840 December 31, 2021 Level 1 Level 2 Level 3 Total Liabilities: Warrant derivative liabilities $ — $ — $ 14,846,932 $ 14,846,932 Contingent consideration promissory notes and contingent consideration earn-out agreement — — 967,212 967,212 $ — $ — $ 15,814,144 $ 15,814,144 F- 26 The following table represents the change in Level 3 tier value measurements: SCHEDULE OF FAIR VALUE MEASUREMENTS CHANGE IN LEVEL 3 INPUTS Contingent Consideration Promissory Notes and Earn-Out Agreement Warrant Derivative Liabilities Balance, December 31, 2021 $ 967,212 $ 14,846,932 Issuance of contingent consideration promissory note - Revenue Cycle Management Segment Business Acquisition 750,000 — Issuance of contingent consideration promissory note - Revenue Cycle Management Segment Asset Acquisition 105,000 — Change in fair value of warrant derivative liabilities — ( 6,726,638 ) Gain on extinguishment of warrant derivative liabilities — ( 3,624,794 ) Issuance of common stock through warrant exchange agreement — ( 4,495,500 ) Principal payments on contingent consideration promissory notes – Revenue Cycle Management Acquisitions ( 527,402 ) — Change in fair value of contingent consideration promissory notes - Revenue Cycle Management Acquisitions ( 516,970 ) — Balance, December 31, 2022 $ 777,840 $ — NOTE 12. ACCRUED EXPENSES Accrued expenses consisted of the following at December 31, 2022 and 2021: SCHEDULE OF ACCRUED EXPENSES December 31, 2022 December 31, 2021 Accrued warranty expense $ 15,694 $ 13,742 Accrued litigation costs 247,984 250,000 Accrued sales commissions 55,000 30,213 Accrued payroll and related fringes 504,020 453,858 Accrued sales returns and allowances 118,026 45,298 Accrued taxes 46,408 180,486 Other 103,835 202,401 Total accrued expenses $ 1,090,967 $ 1,175,998 Accrued warranty expense was comprised of the following for the years ended December 31, 2022 and 2021: SCHEDULE OF ACCRUED WARRANTY EXPENSE 2022 2021 Beginning balance $ 13,742 $ 31,845 Provision for warranty expense 71,734 92,202 Charges applied to warranty reserve ( 69,782 ) ( 110,305 ) Ending balance $ 15,694 $ 13,742 F- 27 NOTE 13. INCOME TAXES The components of income tax provision (benefit) for the years ended December 31, 2022, and 2021 are as follows: SCHEDULE OF COMPONENTS OF INCOME TAX PROVISION (BENEFIT) 2022 2021 Current taxes: Federal $ — $ — State — — Total current taxes — — Deferred tax provision (benefit) — — Income tax provision (benefit) $ — $ — A reconciliation of the income tax (provision) benefit at the statutory rate of 21% for the years ended December 31, 2022, and 2021 to the Company’s effective tax rate is as follows: SCHEDULE OF RECONCILIATION OF INCOME TAX (PROVISION) BENEFIT 2022 2021 U.S. Statutory tax rate 21.0 % 21.0 % State taxes, net of Federal benefit 6.0 % 5.1 % Stock based compensation ( 1.5 )% ( 0.9 )% Change in valuation reserve on deferred tax assets ( 91.2 )% ( 26.7 )% Termination of warrant derivative liabilities 57.0 % — % Contingent consideration for acquisition 4.1 % — % Other, net 4.6 % ( 0.3 )% Income tax (provision) benefit — % — % The effective tax rate for the years ended December 31, 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 December 31, 2022, primarily because of the current year operating losses. Significant components of the Company’s deferred tax assets (liabilities) as of December 31, 2022 and 2021 are as follows: SCHEDULE OF SIGNIFICANT COMPONENTS OF DEFERRED TAX ASSETS (LIABILITIES) 2022 2021 Deferred tax assets: Stock-based compensation $ 510,000 $ 705,000 Start-up costs 110,000 115,000 Inventory reserves 1,355,000 875,000 Uniform capitalization of inventory costs 70,000 85,000 Allowance for doubtful accounts receivable 40,000 30,000 Property, plant and equipment depreciation 290,000 285,000 Deferred revenue 1,965,000 1,135,000 Accrued litigation reserve 60,000 65,000 Accrued expenses 50,000 35,000 Net operating loss carryforward 27,940,000 21,240,000 Research and development tax credit carryforward 1,795,000 1,795,000 State jobs credit carryforward 230,000 230,000 Charitable contributions carryforward 95,000 100,000 Total deferred tax assets 34,510,000 26,695,000 Valuation reserve ( 34,200,000 ) ( 16,980,000 ) Total deferred tax assets 310,000 9,715,000 Deferred tax liabilities: Warrant derivative liabilities — ( 9,495,000 Intangible assets ( 165,000 ) ( 75,000 Domestic international sales company ( 145,000 ) ( 145,000 ) Total deferred tax liabilities ( 310,000 ) ( 9,715,000 ) Net deferred tax assets (liability) $ — $ — F- 28 The valuation allowance on deferred tax assets totaled $ 34,200,000 and $ 16,980,000 as of December 31, 2022, and 2021, respectively. The Company records the benefit it will derive in future accounting periods from tax losses and credits and deductible temporary differences as “deferred tax assets.” In accordance with ASC 740, “Income Taxes,” the Company records a valuation allowance to reduce the carrying value of our deferred tax assets if, based on all available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The Company incurred operating losses in 2022 but generated income 2021 and it continues to be in a three-year cumulative loss position at December 31, 2022 and 2021. Accordingly, the Company determined there was not sufficient positive evidence regarding its potential for future profits to outweigh the negative evidence of our three-year cumulative loss position under the guidance provided in ASC 740. Therefore, it determined to increase our valuation allowance by $ 17,220,000 but continue to fully reserve its deferred tax assets at December 31, 2022. The Company expects to continue to maintain a full valuation allowance until it determines that it can sustain a level of profitability that demonstrates its ability to realize these assets. To the extent the Company determines that the realization of some or all of these benefits is more likely than not based upon expected future taxable income, a portion or all of the valuation allowance will be reversed. Such a reversal would be recorded as an income tax benefit and, for some portion related to deductions for stock option exercises, an increase in shareholders’ equity. As of December 31, 2022, the Company had available approximately $ 113,315,000 of Federal net operating loss carry-forwards available to offset future taxable income generated. Such tax net operating loss carry-forwards expire between 2024 and 2042, with $ 63,726,000 of the tax net operating loss carry-forwards have an indefinite life since the enactment of the Tax Cuts and Jobs Act of 2017. In addition, the Company had research and development tax credit carry-forwards totaling $ 1,795,000 available as of December 31, 2022, which expire between 2023 and 2039 . The Internal Revenue Code contains provisions under Section 382 which limit a company’s ability to utilize net operating loss carry-forwards in the event that it has experienced a more than 50% change in ownership over a three-year period. Current estimates prepared by the Company indicate that due to ownership changes which have occurred, approximately $ 765,000 of its net operating loss and $ 175,000 of its research and development tax credit carry-forwards are currently subject to an annual limitation of approximately $ 1,151,000 and may be further limited by additional ownership changes which may occur in the future. As stated above, the net operating loss and research and development credit carry-forwards expire between 2023 and 2039 , allowing the Company to potentially utilize all of the limited net operating loss carry-forwards during the carry-forward period. As discussed in Note 1, “Summary of Significant Accounting Policies,” tax positions are evaluated in a two-step process. The Company first determines whether it is more likely than not that a tax position will be sustained upon examination. If a tax position meets the more-likely-than-not recognition threshold, it is then measured to determine the amount of benefit to recognize in the financial statements. The tax position is measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. Management has identified no tax positions taken that would meet or exceed these thresholds and therefore there are no gross interest, penalties and unrecognized tax expense/benefits that are not expected to ultimately result in payment or receipt of cash in the consolidated financial statements. F- 29 The effective tax rate for the years ended December 31, 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 December 31, 2022, primarily because of the current year operating losses. The Company’s federal and state income tax returns are closed for examination purposes by relevant statute and by examination for 2018 and all prior tax years. NOTE 14. OPERATING LEASE On May 13, 2020, the Company entered into an operating lease for new warehouse and office space, which served as its new principal executive office and primary business location prior to the April 30 purchase and sale agreement. The original lease agreement was amended on August 28, 2020 to correct the footage under lease and monthly payment amounts resulting from such correction. The lease terms, as amended include no base rent for the first nine months and monthly payments ranging from $ 12,398 to $ 14,741 thereafter, with a termination date of December 2026 . The Company is responsible for property taxes, utilities, insurance and its proportionate share of common area costs related to its new location. The Company took possession of the leased facilities on June 15, 2020. The remaining lease term for the Company’s office and warehouse operating lease as of December 31, 2022 was forty-eight months . The Company entered into an operating lease with a third party in October 2019 for copiers used for office and warehouse purposes. The terms of the lease include 48 monthly payments of $ 1,598 with a maturity date of October 2023 . The Company has the option to purchase such equipment at maturity for its estimated fair market value at that point in time. The remaining lease term for the Company’s copier operating lease as of December 31, 2022 was ten months . On June 30, 2021, the Company completed the acquisition of its first medical billing company, through Nobility Healthcare. Upon completion of this acquisition, Nobility Healthcare became responsible for the operating lease for the seller’s office space. The lease terms include monthly payments ranging from $ 2,648 to $ 2,774 thereafter, with a termination date in July 2024 . The Company is responsible for property taxes, utilities, insurance and its proportionate share of common area costs related to this location. The remaining lease term for the Company’s office and warehouse operating lease as of December 31, 2022 was nineteen months . On August 31, 2021, the Company completed the acquisition of its second acquired medical billing company, through Nobility Healthcare. Upon completion of this acquisition, Nobility Healthcare became responsible for the operating lease for the seller’s office space. The lease terms include monthly payments ranging from $ 11,579 to $ 11,811 thereafter, with a termination date in March 2023 . The Company is responsible for property taxes, utilities, insurance and its proportionate share of common area costs related to this location. The Company took possession of the leased facilities on September 1, 2021. The remaining lease term for the Company’s office and warehouse operating lease as of December 31, 2022 was three months . The Company plans to relocate the revenue cycle management operating segment acquired operations to existing owned or leased facilities upon termination of this operating lease. On September 1, 2021, the Company completed the acquisition of Goody Tickets, LLC and TicketSmarter, LLC through TicketSmarter. Upon completion of this acquisition, the Company became responsible for the operating lease for TicketSmarter’s office space. The lease terms include monthly payments ranging from $ 7,211 to $ 7,364 thereafter, with a termination date of December 2022 . The Company is responsible for property taxes, utilities, insurance and its proportionate share of common area costs related to this location. The Company took possession of the leased facilities on September 1, 2021. The Company signed a six-month extension for the lease, extending the remaining lease term for the Company’s office and the remaining lease term for the Company’s warehouse operating lease as of December 31, 2022 was six months . On January 1, 2022, the Company completed the acquisition of a private medical billing company, through its revenue cycle management segment. Upon completion of this acquisition, the Company became responsible for the operating lease for the seller’s office space. The lease terms include monthly payments ranging from $ 4,233 to $ 4,626 , with a termination date of June 2025 . The Company is responsible for property taxes, utilities, insurance and its proportionate share of common area costs related to this location. The Company took possession of the leased facilities on January 1, 2022. The remaining lease term for the Company’s office and warehouse operating lease as of December 31, 2022, was thirty months . F- 30 Lease expense related to the office spaces and copier operating leases was recorded on a straight-line basis over the lease term. Total lease expense under the five operating leases was approximately $ 547,609 for the year ended December 31, 2022. The weighted-average remaining lease term related to the Company’s lease liabilities as of December 31, 2022 and December 31, 2021 was 3.3 years and 3.8 years, respectively. The discount rate implicit within the Company’s operating leases was not generally determinable, and therefore, the Company determined the discount rate based on its incremental borrowing rate on the information available at commencement date. As of commencement date, the operating lease liabilities reflect a weighted average discount rate of 8 % . The following sets forth the operating lease right of use assets and liabilities as of December 31, 2022: SCHEDULE OF OPERATING LEASES RIGHT OF USE ASSETS AND LIABILITIES Assets: Operating lease right of use assets $ 782,129 Liabilities: Operating lease obligations-current portion $ 294,617 Operating lease obligations-less current portion $ 555,707 Total operating lease obligations $ 850,324 Following are the minimum lease payments for each year and in total. SCHEDULE OF FUTURE MINIMUM LEASE PAYMENTS Year ending December 31: 2023 $ 349,811 2024 245,761 2025 196,462 2026 175,113 Total undiscounted minimum future lease payments 967,147 Imputed interest ( 116,823 ) Total operating lease liability $ 850,324 NOTE 15. COMMITMENTS AND CONTINGENCIES Litigation. From time to time, we are notified that we may be a party to a lawsuit or that a claim is being made against us. It is our policy to not disclose the specifics of any claim or threatened lawsuit until the summons and complaint are actually served on us. After carefully assessing the claim, and assuming we determine that we are not at fault or we disagree with the damages or relief demanded, we vigorously defend any lawsuit filed against us. We record a liability when losses are deemed probable and reasonably estimable. When losses are deemed reasonably possible but not probable, we determine whether it is possible to provide an estimate of the amount of the loss or range of possible losses for the claim, if material for disclosure. In evaluating matters for accrual and disclosure purposes, we take into consideration factors such as our historical experience with matters of a similar nature, the specific facts and circumstances asserted, the likelihood of our prevailing, the availability of insurance, and the severity of any potential loss. We reevaluate and update accruals as matters progress over time. 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. The lawsuit 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. However, there can be no assurances as to the outcome of the dispute. F- 31 While the ultimate resolution is unknown, based on the information currently available, we do not expect that these lawsuits will individually, or in the aggregate, have a material adverse effect to our results of operations, financial condition or 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. Notice of Delisting On July 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.” Pursuant 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. On February 23, 2023, the Company received notice from Nasdaq confirming that the Company has cured its bid price deficiency and has fully regained compliance with the Minimum Bid Price Requirement. General 401 (k) Plan. The Company sponsors a 401(k) retirement savings plan for the benefit of its employees. The plan, as amended, requires it to provide 100 % matching contributions for employees, who elect to contribute up to 3% of their compensation to the plan and 50 % matching contributions for employee’s elective deferrals on the next 2% of their contributions . The Company made matching contributions totaling $ 223,084 and $ 127,293 for the years ended December 31, 2022 and 2021, respectively. Each participant is 100 % vested at all times in employee and employer matching contributions. NOTE 16. STOCK-BASED COMPENSATION The Company recorded pre-tax compensation expense related to the grant of stock options and restricted stock issued of $ 1,282,757 and $ 1,605,949 for the years ended December 31, 2022 and 2021, respectively. F- 32 As of December 31, 2022, the Company had adopted ten separate stock option and restricted stock plans: (i) the 2005 Stock Option and Restricted Stock Plan (the “2005 Plan”), (ii) the 2006 Stock Option and Restricted Stock Plan (the “2006 Plan”), (iii) the 2007 Stock Option and Restricted Stock Plan (the “2007 Plan”), (iv) the 2008 Stock Option and Restricted Stock Plan (the “2008 Plan”), (v) the 2011 Stock Option and Restricted Stock Plan (the “2011 Plan”), (vi) the 2013 Stock Option and Restricted Stock Plan (the “2013 Plan”), (vii) the 2015 Stock Option and Restricted Stock Plan (the “2015 Plan”), (viii) the 2018 Stock Option and Restricted Stock Plan (the “2018 Plan”), (ix) the 2020 Stock Option and Restricted Stock Plan (the “2020 Plan”), and (x) the 2022 Stock Option and Restricted Stock Plan (the “2022 Plan”). The 2005 Plan, 2006 Plan, 2007 Plan, 2008 Plan, 2011 Plan, 2013 Plan, 2015 Plan, 2018 Plan, 2020 Plan and 2022 Plan are referred to as the “Plans.” These Plans permit the grant of stock options or restricted stock to its employees, non-employee directors and others for up to a total of 333,750 shares of common stock. The 2005 Plan terminated during 2015 with 1,078 shares not awarded or underlying options, which shares are now unavailable for issuance. Stock options granted under the 2005 Plan that remain unexercised and outstanding as of December 31, 2022 total 284 . The 2006 Plan terminated during 2016 with 2,739 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 December 31, 2022 total 531 . The 2007 Plan terminated during 2017 with 4,733 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 December 31, 2022. The 2008 Plan terminated during 2018 with 2,025 shares not awarded or underlying options, which shares are now unavailable for issuance. There are no stock options granted under the 2008 Plan that remain unexercised and outstanding as of December 31, 2022. Our Board of Directors adopted the 2020 Stock Option and Restricted Stock Plan (the “2020 Plan”) on June 30, 2020 and the Company’s stockholders approved the 2020 Plan at the Annual Meeting held on September 9, 2020. The Company’s stockholders approved an amendment to the 2020 Plan at the Annual Meeting held on June 22, 2021 which increased the number of shares of Common Stock authorized and reserved for issuance under the 2020 Plan to a total of 125,000 . A total of 112,958 options and restricted stock have been granted under the 2020 Plan to date. The 2020 Plan also authorizes us to grant (i) to the key employees’ incentive stock options to purchase shares of Common Stock and non-qualified stock options to purchase shares of Common Stock and restricted stock awards and (ii) to non-employee directors and consultants non-qualified stock options and restricted stock. Our Board of Directors adopted the 2022 Stock Option and Restricted Stock Plan (the “2022 Plan”) on October 28, 2022 and the Company’s stockholders approved the 2022 Plan at the Annual Meeting held on December 7, 2022. The number of shares of Common Stock authorized and reserved for issuance under the 2022 Plan totals 125,000 . The 2022 Plan also authorizes us to grant (i) to the key employees’ incentive stock options to purchase shares of Common Stock and non-qualified stock options to purchase shares of Common Stock and restricted stock awards and (ii) to non-employee directors and consultants non-qualified stock options and restricted stock. The Company believes that such awards better align the interests of our employees with those of its stockholders. Option awards have been granted with an exercise price equal to the market price of its stock at the date of grant with such option awards generally vesting based on the completion of continuous service and having ten-year contractual terms. These option awards typically provide for accelerated vesting if there is a change in control (as defined in the Plans). The Company has registered all shares of common stock that are issuable under its Plans with the SEC. A total of 137,042 shares remained available for awards under the various Plans as of December 31, 2022. The fair value of each option award is estimated on the date of grant using a Black-Scholes option valuation model. F- 33 Activity in the various Plans during the years ended December 31, 2022 and 2021 is reflected in the following table: SUMMARY OF STOCK OPTIONS OUTSTANDING Options Number of Shares Weighted Average Exercise Price Outstanding at January 1, 2021 41,916 $ 64.00 Granted 15,000 33.40 Exercised — — Forfeited ( 2,613 ) ( 232.20 ) Outstanding at December 31, 2021 54,303 $ 47.40 Exercisable at December 31, 2021 46,803 $ 49.60 Options Number of Shares Weighted Average Exercise Price Outstanding at January 1, 2022 54,303 $ 47.40 Granted 1,250 19.60 Exercised — — Forfeited ( 1,603 ) ( 80.80 ) Outstanding at December 31, 2022 53,950 $ 45.80 Exercisable at December 31, 2022 53,950 $ 45.80 The fair value of each option award is estimated on the date of grant using a Black-Scholes option valuation model. The total estimated grant date fair value stock options issued during the year ended December 31, 2022 and 2021 was $ 22,768 and $ 466,831 , respectively. The Company has utilized the following assumptions in its Black-Scholes option valuation model to calculate the estimated grant date fair value of the options during the years ended December 31, 2022 and 2021: SCHEDULE OF FAIR VALUE OF STOCK OPTIONS ASSUMPTION 2022 2021 Assumptions Assumptions Volatility – range 111.67 % 113 % Risk-free rate 1.81 % 1.30 % Expected term 10.0 years 10.0 years Exercise price $ 19.60 $ 33.40 The Plans allow for the cashless exercise of stock options. This provision allows the option holder to surrender/cancel options with an intrinsic value equivalent to the purchase/exercise price of other options exercised. There were no shares surrendered pursuant to cashless exercises during the years ended December 31, 2022 and 2021. At December 31, 2022 and 2021, the aggregate intrinsic value of options outstanding was approximately $- 0 - and $- 0 -, respectively, and the aggregate intrinsic value of options exercisable was approximately $- 0 - and $- 0 -, respectively. The following table summarizes the range of exercise prices and weighted average remaining contractual life for outstanding and exercisable options under the Company’s option plans as of December 31, 2022: SCHEDULE OF SHARES AUTHORIZED UNDER STOCK OPTION PLANS BY EXERCISE PRICE RANGE Outstanding options Exercisable options Exercise price range Number of options Weighted average remaining contractual life Number of options Weighted average remaining contractual life $ 0.01 to $ 49.99 37,000 7.6 years 37,000 7.6 years $ 50.00 to $ 69.99 15,100 5.5 years 15,100 5.5 years $ 70.00 to $ 89.99 1,850 2.8 years 1,850 2.8 years 53,950 6.8 years 53,950 6.8 years F- 34 Restricted stock grants. The Board of Directors has granted restricted stock awards under the Plans. Restricted stock awards are valued on the date of grant and have no purchase price for the recipient. Restricted stock awards typically vest over one to four years corresponding to anniversaries of the grant date. Under the Plans, unvested shares of restricted stock awards may be forfeited upon the termination of service to or employment with the Company, depending upon the circumstances of termination. Except for restrictions placed on the transferability of restricted stock, holders of unvested restricted stock have full stockholder’s rights, including voting rights and the right to receive cash dividends. A summary of all restricted stock activity under the equity compensation plans for the years ended December 31, 2022 and 2021 is as follows: SUMMARY OF RESTRICTED STOCK ACTIVITY Number of Restricted shares Weighted average grant date fair value Nonvested balance, January 1, 2021 36,006 $ 33.80 Granted 42,800 41.40 Vested ( 25,563 ) ( 38.80 ) Forfeited ( 375 ) ( 21.60 ) Nonvested balance, December 31, 2021 52,869 $ 37.40 Number of Restricted shares Weighted average grant date fair value Nonvested balance, January 1, 2022 52,869 $ 37.40 Granted 60,750 14.67 Vested ( 31,244 ) ( 34.73 ) Forfeited ( 3,250 ) ( 21.20 ) Nonvested balance, December 31, 2022 79,125 $ 21.73 The Company estimated the fair market value of these restricted stock grants based on the closing market price on the date of the grant. As of December 31, 2022, there were $ 500,280 of total unrecognized compensation costs related to all remaining non-vested restricted stock grants, which will be amortized over the next forty-eight months in accordance with their respective vesting scale. The nonvested balance of restricted stock vests as follows: SCHEDULE OF NON-VESTED BALANCE OF RESTRICTED STOCK Years ended Number of shares 2023 57,250 2024 12,750 2025 4,000 2026 3,625 2027 1,500 NOTE 17. COMMON STOCK PURCHASE WARRANTS The Company has issued common stock purchase warrants in conjunction with various debt and equity issuances. The warrants are either immediately exercisable, or have a delayed initial exercise date, no more than six months from their respective issue date and allow the holders to purchase up to 67,459 shares of common stock at $ 52.00 to $ 67.20 per share as of December 31, 2022. The warrants expire from February 23, 2023 through July 31, 2023 and certain of the outstanding warrants allow for cashless exercise. F- 35 On January 14, 2021 and February 1, 2021, the Company issued warrants to purchase a total of 2,127,500 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. On August 19, 2021, the Company entered into a Warrant Exchange Agreement (the “Exchange Agreement”) with the Investors cancelling February Warrants exercisable for an aggregate of 384,077 shares of Common Stock in consideration for its issuance of (i) new warrants (the “Exchange Warrants”) to the Investors exercisable for an aggregate of up to 384,077 shares of Common Stock. The Company also issued warrants (the “Replacement Original Warrants”) replacing the February Warrants for the remaining shares of Common Stock exercisable thereunder, representing an aggregate of 330,923 shares of Common Stock, and extended the expiration date of the February Warrants to September 18, 2026 . The Exchange Warrants provide for an initial exercise price of $ 65.00 per share, subject to customary adjustments thereunder, and are immediately exercisable upon issuance for cash and on a cashless basis. On the date of the exchange, the Company calculated the fair value, using the Black-Scholes method, of the cancelled February Warrants and the newly issued Exchange Warrants, the difference in fair value measurement of the respective warrants was attributed to warrant modification expense in the consolidated statement of operations. On the date of the exchange, the February Warrants and Exchange Warrants were valued at $ 11,818,644 and $ 12,114,424 using the original and modified expiry date of the warrants, respectively, using the Black-Scholes method. The difference of $ 295,780 was accordingly recorded as a warrant modification expense in the consolidated statement of operations. SCHEDULE OF WARRANT MODIFICATION Original terms at August 19, 2021 Modified terms at August 19, 2021 Volatility - range 109.3 % 104.7 % Risk-free rate 0.78 % 0.78 % Dividend 0 % 0 % Remaining contractual term 4.5 years 5.1 years Exercise price $ 65.00 $ 65.00 Common stock issuable under the warrants 715,000 715,000 On August 23, 2022, the Company entered into Warrant Exchange Agreements (the “Warrant Exchange Agreements”) with certain investors (the “Investors”), pursuant to which the Company agreed to issue to the Investors an aggregate of 303,750 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 shares of common stock 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 year ended December 31, 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 year ended December 31, 2022. Terms at August 23, 2022 Volatility - range 103.7 % Risk-free rate 3.17 - 3.36 % Dividend 0 % Remaining contractual term 3.4 - 4.1 years Exercise price $ 65.00 Common stock issuable under the warrants 1,215,000 F- 36 Fluctuations in the Company’s stock price are a primary driver for the changes in the derivative valuations during each reporting period. As the stock price increases for each of the related derivative instruments, the value to the holder of the instrument generally increases, therefore increasing the liability on the Company’s balance sheet. Additionally, stock price volatility is one of the significant unobservable inputs used in the fair value measurement of each of the Company’s derivative instruments. The simulated fair value of these liabilities is sensitive to changes in the Company’s expected volatility. Increases in expected volatility would generally result in higher fair value measurement. A 10 % change in pricing inputs and changes in volatilities and correlation factors would not result in a material change in our Level 3 fair value. The following table summarizes information about shares issuable under warrants outstanding during the years ended December 31, 2022 and 2021: SUMMARY OF WARRANT ACTIVITY Warrants Weighted average exercise price Vested Balance, January 1, 2021 169,418 $ 124.80 Granted 2,127,500 62.20 Exercised ( 912,500 ) ( 58.40 ) Cancelled ( 83,988 ) ( 188.40 ) Vested Balance, December 31, 2021 1,300,430 $ 64.80 Warrants Weighted average exercise price Vested Balance, January 1, 2022 1,300,430 $ 64.80 Granted — — Exercised — — Forfeited/cancelled ( 1,232,971 ) ( 65.08 ) Vested Balance, December 31, 2022 67,459 $ 60.26 The total intrinsic value of all outstanding warrants aggregated $- 0 - as of December 31, 2022 and 2021, and the weighted average remaining term was 3.9 and 50.7 months as of December 31, 2022 and 2021, respectively. The 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 December 31, 2022: SUMMARY OF RANGE OF EXERCISE PRICES AND WEIGHTED AVERAGE REMAINING CONTRACTUAL LIFE OF WARRANTS Outstanding and exercisable warrants Exercise price Number of warrants Weighted average remaining contractual life $ 52.00 23,286 0.6 years $ 60.00 15,840 0.3 years $ 67.20 28,333 0.2 years 67,459 0.3 years F- 37 NOTE 18 - STOCKHOLDERS’ EQUITY Registered Direct Offerings On January 14, 2021, the Company consummated a registered direct offering (the “Offering”) of (i) 140,000 shares of common stock (“Shares”), (ii) pre-funded warrants to purchase up to 360,000 shares of Common Stock (the “Pre-Funded Warrants”), issuable to investors whose purchase of shares of Common Stock would otherwise result in such investor, together with its affiliates and certain related parties, beneficially owning more than 4.99% (or, at the election of the holder, 9.99%) of the Company’s outstanding Common Stock immediately following the consummation of the Registered Offering (“Pre-Funded Warrants”); and (iii) common stock purchase warrants (“Warrants”) to purchase up to an aggregate of 500,000 shares of Common Stock (the “Warrant Shares”), which are exercisable for a period of five years after issuance at an initial exercise price $ 65.00 per share, subject to certain adjustments, as provided in the Warrants. The Offering was conducted pursuant to a placement agency agreement, dated January 12, 2021, between the Company and Kingswood Capital Markets, division of Benchmark Investments, Inc., who acted as the exclusive placement agent in connection with the Offering pursuant to a placement agency agreement. The Shares and accompanying Warrants in the Offering were sold at a combined offering price of $ 61.90 per Share and accompanying Warrant and the Pre-Funded Warrants and accompanying Warrants in the Offering were sold at a combined offering price of $ 61.70 per Pre-Funded Warrant and accompanying Warrant. The securities in the Offering were issued pursuant to a prospectus supplement to the Company’s effective shelf registration statement on Form S-3 (File No. 333-239419). The placement agency agreement contained customary representations, warranties and agreements by the Company, customary conditions to closing, indemnification obligations of the Company and the placement agent. The placement agent received discounts and commissions of six percent ( 6 %) of the gross cash proceeds received by the Company from the sale of the securities sold in the Offering and certain expenses. The Company received approximately $ 28,941,000 ($ 29,013,000 upon full exercise of the prefunded warrants) in net proceeds from the Offering after deducting the discounts, commissions, and other estimated offering expenses payable by the Company. As of December 31, 2021, all pre-funded warrants have been fully exercised. The Company plans to use the net proceeds from the Offering for working capital, product development, order fulfilment and for general corporate purposes. The Company received net proceeds from this offering as follows: SCHEDULE OF NET PROCEEDS FROM OFFERING Description Amount Net proceeds received: 8,666,000 Proceeds from the sale of 140,000 shares of Common Stock at $ 61.90 per share $ 8,666,000 Proceeds from the sale of pre-funded warrants to purchase 360,000 shares of Common Stock at $ 61.70 per share 22,212,000 Less: Placement agent fees and other expenses of the offering ( 1,937,000 ) Net proceeds of the offering $ 28,941,000 In conjunction with this Offering, the Company issued prefunded Common Stock purchase warrants to purchase up to 360,000 shares Common Stock at $ 61.90 per share ($ 61.70 prefunded at closing) and Common Stock purchase warrants to purchase up to 500,000 shares of Common Stock at $65.00 per share. The underlying warrant terms provide for net cash settlement outside the control of the Company under certain circumstances in the event of tender offers. As such, the Company is required to treat these warrants as derivative liabilities which are valued at their estimated fair value at their issuance date and at each reporting date with any subsequent changes reported in the consolidated statements of operations as the change in fair value of warrant derivative liabilities. Accordingly, the Company allocated a portion of the net proceeds of this offering to warrant derivative liabilities based on their estimated fair value as follows (See Notes 11 and 17): F- 38 SCHEDULE OF NET PROCEEDS FROM OFFERING Description Amount Warrant derivative liabilities $ 21,922,158 Pre-funded warrant derivative liabilities 378,615 Total allocation of the net proceeds of the offering to warrant derivative liabilities $ 22,300,773 Registered Direct Offerings On February 1, 2021, the Company consummated an registered direct offering (the “Second Offering”) of (i) 162,500 shares of common stock (“February 2021 Shares”), (ii) pre-funded warrants to purchase up to 552,500 shares of Common Stock (the “February 2021 Pre-Funded Warrants”), issuable to investors whose purchase of shares of Common Stock would otherwise result in such investor, together with its affiliates and certain related parties, beneficially owning more than 4.99% (or, at the election of the holder, 9.99%) of the Company’s outstanding Common Stock immediately following the consummation of the Registered Offering; and (iii) common stock purchase warrants (“February 2021 Warrants”) to purchase up to an aggregate of 715,000 shares of Common Stock (the “February 2021 Warrant Shares”), which are exercisable for a period of five years after issuance at an initial exercise price $ 65.00 per share, subject to certain adjustments, as provided in the February 2021 Warrants. The Second Offering was conducted pursuant to a placement agency agreement, dated January 28, 2021, between the Company and Kingswood Capital Markets, division of Benchmark Investments, Inc., who acted as the exclusive placement agent in connection with the Second Offering pursuant to a placement agency agreement. The February 2021 Shares and accompanying February 2021 Warrants in the Second Offering were sold at a combined offering price of $ 56.00 per February 2021 Share and accompanying February 2021 Warrant and the February 2021 Pre-Funded Warrants and accompanying February 2021 Warrants in the Offering were sold at a combined offering price of $ 55.80 per February 2021 Pre-Funded Warrant and accompanying February 2021 Warrant. The securities in the Second Offering were issued pursuant to a prospectus supplement to the Company’s effective shelf registration statement on Form S-3 (File No. 333-239419). The placement agency agreement contained customary representations, warranties and agreements by the Company, customary conditions to closing, indemnification obligations of the Company and the placement agent. The placement agent received discounts and commissions of six percent ( 6 %) of the gross cash proceeds received by the Company from the sale of the securities sold in the Second Offering and certain expenses. F- 39 The Company received approximately $ 37,447,100 ($ 37,557,600 upon full exercise of the prefunded warrants) in net proceeds from the Second Offering after deducting the discounts, commissions, and other estimated offering expenses payable by the Company. As of December 31, 2021, all pre-funded warrants have been fully exercised. The Company plans to use the net proceeds from the Second Offering for working capital, product development, order fulfilment and for general corporate purposes. The Company received net proceeds from this offering as follows: SCHEDULE OF NET PROCEEDS FROM OFFERING Description Amount Net proceeds received: Proceeds from the sale of 162,500 shares of Common Stock at $ 56.00 per share $ 9,100,000 Proceeds from the sale of pre-funded warrants to purchase 552,500 shares of Common Stock at $ 55.80 per share 30,829,500 Less: Placement agent fees and other expenses of the offering ( 2,482,400 ) Net proceeds of the offering $ 37,447,100 In conjunction with the Second Offering, the Company issued prefunded Common Stock purchase warrants to purchase up to 552,500 shares of common Stock at $ 56.00 per share ($ 55.80 prefunded at closing) and Common Stock purchase warrants to purchase up to 715,000 shares of Common Stock at $ 65.00 per share. The underlying warrant terms provide for net cash settlement outside the control of the Company under certain circumstances in the event of tender offers. As such, the Company is required to treat these warrants as derivative liabilities which are valued at their estimated fair value at their issuance date and at each reporting date with any subsequent changes reported in the consolidated statements of operations as the change in fair value of warrant derivative liabilities. Accordingly, the Company allocated a portion of the net proceeds of this offering to warrant derivative liabilities based on their estimated fair value as follows (See Notes 11 and 17): SCHEDULE OF NET PROCEEDS FROM OFFERING Description Amount Warrant derivative liabilities $ 27,476,352 Pre-funded warrant derivative liabilities 1,438,934 Total allocation of the net proceeds of the offering to warrant derivative liabilities $ 28,915,286 2022 Issuance of Restricted Common Stock. On January 7, 2022, the board of directors approved the grant of 26,250 shares of common stock to officers of the Company. Such shares will vest over various periods ranging from one to five years on the anniversary of the grant date, provided that each grantee remains an officer or employee on such dates . On various dates in January 2022, the board of directors approved the grant of 9,500 shares of common stock to employees of the Company. Most shares will generally vest in varying amounts over the next two to five years , provided that each grantee remains an employee on such vesting dates. Cancellation of Restricted Stock During the year ended December 31, 2022, the Company cancelled 3,250 shares for various reasons. Preferred Stock Transaction On 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 “2022 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”), and 100,000 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 2022 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 2022 Offering, the Company paid A.G.P./Alliance Global Partners (the “Financial Advisor”) an aggregate cash fee equal to $ 750,000 and reimbursed the Financial Advisor for certain of its expenses in an amount not to exceed $135,000 . Pursuant to the Purchase Agreement, the Company filed on October 17, 2022 certificates of designation (the “Certificates of Designation”) with the Secretary of the State of Nevada designating the rights, preferences and limitations of the shares of Series A Preferred Stock and Series B Preferred Stock. The Certificate of Designation for the Series A Preferred Stock provides, in particular, that the Series A Preferred Stock will have no voting rights other than the right to vote on the Amendments on an as-if-converted-to-Common-Stock basis. The Certificate of Designation for the Series B Preferred Stock provides, in particular, that the Series B Preferred Stock will have no voting rights other than the right to vote on the Amendments and each share of Series B Preferred Stock entitles the holder thereof the right to cast 2,500 votes on the Amendments . The holders of Preferred Stock will be entitled to dividends, on an as-if converted-to-Common-Stock basis, equal to dividends actually paid, if any, on shares of Common Stock. The Preferred Stock is convertible, at the option of the holders and, in certain circumstances, by the Company, into shares of Common Stock at a conversion price of $ 20.00 per share. The conversion price can be adjusted pursuant to the Certificates of Designation for stock dividends and stock splits, subsequent rights offering, pro rata distributions of dividends or other distribution of its assets, or the occurrence of a fundamental transaction (as defined in the applicable Certificate of Designation). The holders 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 2022 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 2022 Offering, subject to the holders’ rights to convert the shares prior to such redemption . The proceeds of the 2022 Offering were 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 holders. Upon expiration of the redemption period, any proceeds remaining in the escrow account will be disbursed to the Company. The 2022 Offering closed on October 19, 2022. In December 2022, the Company redeemed 1,400,000 shares of Series A & 100,000 shares of Series B Preferred Stock, for a redemption price of $ 15,750,000 , with a $ 13,365,000 carrying amount, resulting in a $ 2,385,000 loss on redemption. Issuance of Common Stock as Consideration for the Potential Spin-Off Transaction. On December 28, 2022, the Company issued a total of 25,000 shares of common stock as a portion of the consideration paid for the advisory services associated with the potential spin-off transaction. F- 40 Stock Repurchase Program On December 6, 2021, the board of directors of the Company authorized the repurchase of up to $ 10.0 million of the Company’s outstanding common stock under the specified terms of a share repurchase program (the “Program”). During the year ended December 31, 2022, the Company repurchased 186,299 shares of its common stock for $ 4,026,523 , in accordance with the Program. SCHEDULE OF STOCK REPURCHASE Period Total Number of Shares Purchased Average Price Paid per Shares Total Number of Shares Purchased as Part of Publicly Announced Program Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program December 2021 86,742 $ 22.80 86,742 — January 2022 34,855 22.20 34,855 — February 2022 34,649 22.40 34,649 — March 2022 24,298 21.20 24,298 — April 2022 29,774 22.80 29,774 — May 2022 35,846 21.60 35,846 — June 2022 26,878 19.20 26,878 — Total all plans 273,041 $ 22.00 273,041 $ 3,998,398 On June 30, 2022, the board of directors of the Company elected to terminate the Program, effective immediately. The Program began in December 2021, with the Company purchasing a total of 273,041 shares at a cost of $ 6,001,602 through June 30, 2022. Noncontrolling Interests The Company owns a 51 % equity interest in its consolidated subsidiary, Nobility Healthcare. As a result, the noncontrolling shareholders or minority interest is allocated 49 % of the income/loss of Nobility Healthcare which is reflected in the statement of (income) loss as “net (income) loss attributable to noncontrolling interests of consolidated subsidiary”. We reported net income attributable to noncontrolling interests of consolidated subsidiary of $ 407,933 and $ 56,453 for the year ended December 31, 2022 and 2021, respectively. NOTE 19. RELATED PARTY TRANSACTIONS Transactions with Managing Member of Nobility Healthcare On January 27, 2022, the board of directors appointed Christian J. Hoffmann, III as a member of the Board, effective immediately. Mr. Hoffmann is a principal owner and manager of Nobility, LLC which is currently the managing member of our consolidated subsidiary Nobility Healthcare, LLC. The Company has advanced a total of $ 158,384 in the form of a working capital loan to Nobility, LLC in order to fund capital expenditures necessary for the initial growth of the joint venture during 2022. The outstanding balance of the working capital loan was $ 138,384 as of December 31, 2022 and the Company anticipates full repayment of this advance during the year ended December 31, 2023. The Company paid distributions to the noncontrolling in consolidated subsidiary totaling $ 15,692 and $- 0 - , for the years ended December 31, 2022 and 2021, respectively. On 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. F- 41 NOTE 20. NET INCOME (LOSS) PER SHARE The calculation of the weighted average number of shares outstanding and loss per share outstanding for the years ended December 31, 2022 and 2021 are as follows: SCHEDULE OF WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING AND LOSS PER SHARE OUTSTANDING 2022 2021 Year ended December 31, 2022 2021 Numerator for basic and diluted income (loss) per share – Net income (loss) attributable to common stockholders $ ( 21,666,691 ) $ 25,474,508 Denominator for basic loss per share – weighted average shares outstanding 2,548,549 2,511,114 Dilutive effect of shares issuable upon conversion of convertible debt and the exercise of stock options and warrants outstanding — — Denominator for diluted loss per share – adjusted weighted average shares outstanding 2,548,549 2,511,114 Net income (loss) per share: Basic $ ( 8.50 ) $ 10.14 Diluted $ ( 8.50 ) $ 10.14 Basic income (loss) per share is based upon the weighted average number of shares of common stock outstanding during the period. For the years ended December 31, 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. NOTE 21. DIGITAL ALLY HEALTHCARE VENTURE On June 4, 2021, Digital Ally Healthcare, a wholly-owned subsidiary of the Company, entered into a venture with Nobility LLC (“Nobility”), an eight-year-old revenue cycle management (“RCM”) company servicing the medical industry, to form Nobility Healthcare, LLC (“Nobility Healthcare”). Digital Ally Healthcare is capitalizing the venture with $ 13.5 million to support the venture’s business strategy to make acquisitions of RCM companies. Digital Ally Healthcare owns 51% of the venture that entitles it to 51% of the distributable cash as defined in the venture’s operating agreement plus a cumulative preferred return of 10% per annum on its invested capital. Nobility will receive a management fee and 49% of the distributable cash, subordinated to Digital Ally Healthcare’s preferred return. The venture comprises the Company’s revenue cycle management segment. On June 30, 2021, the Company’s revenue cycle management segment completed the acquisition of a private medical billing company (the “Healthcare Acquisition”). In accordance with the stock purchase agreement, the Company’s revenue cycle management segment agreed to a non-refundable initial payment (the “Initial Payment Amount”) of $ 850,000 . In addition to the Initial Payment Amount, the Company’s revenue cycle management segment agreed to issue a promissory note to the stockholders of the Healthcare Acquisition in the principal amount of $ 350,000 that is subject to an earn-out adjustment. Management’s estimate of the fair value of this Contingent Note at December 31, 2021 is $ 317,212 . The gain associated with the adjustment in the estimated fair value of this contingent promissory note is recorded as a gain in the Consolidated Statements of Operations for the year ended December 31, 2021. Lastly, the Company’s revenue cycle management segment agreed to pay $ 162,552 representing the principal and accrued interest balance due under a promissory note issued to the selling shareholders prior to the acquisition closing date. The Company’s revenue cycle management segment anticipates the estimated fair value of the contingent promissory note to be paid in full, therefore, the total aggregate purchase price was determined to be approximately $ 1,376,509 . Total acquisition related costs aggregated $ 164,630 , which was expensed as incurred. Subsequent to the acquisition date, the Company received further information regarding the purchased assets and assumed liabilities. As a result, the initial allocation of the purchase price was adjusted by increasing accounts receivable by $ 75,000 with a corresponding reduction of goodwill during the year ended December 31, 2021. F- 42 The Company accounts for business combinations using the acquisition method and that the Company has early adopted the amendments of Regulation S-X dated May 21, 2020 and has concluded that this acquisition was not significant. Accordingly, the presentation of the assets acquired, historical financial statements under Rule 3-05 and related pro forma information under Article 8 of Regulation S-X, respectively, are not required to be presented. Under the acquisition method, the purchase price of the Healthcare Acquisition has been allocated to the acquired tangible and identifiable intangible assets and assumed liabilities based on their estimated fair values at the time of the Healthcare Acquisition. This allocation involves a number of assumptions, estimates, and judgments that could materially affect the timing or amounts recognized in our financial statements. Our assumptions and estimates are based upon information obtained from the management of the Company’s revenue cycle management segment. The acquisition was structured as stock purchase, therefore the excess purchase price over the fair value of net tangible assets acquired was recorded as goodwill, which will not be amortized for income tax filing purposes. The results of operations of acquired businesses are included in the consolidated financial statements from the acquisition date. The purchase price of the Healthcare Acquisition was allocated to the tangible assets, and assumed liabilities based on their preliminary estimated fair values at the time of the Healthcare Acquisition. 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 allocation Description Preliminary as allocated June 30, 2021 Final as allocated June 30, 2022 Assets acquired: Tangible assets acquired, consisting of acquired cash, accounts receivable and right of use asset $ 174,351 $ 174,351 Intangible assets acquired – Client Agreements $ 174,351 $ 174,351 Intangible assets acquired – client agreements — 457,079 Goodwill 1,125,000 667,921 Liabilities assumed consisting of a promissory note issued by the selling shareholders which was paid off at closing, net of lease liability assumed 77,158 77,158 Liabilities assumed pursuant to stock purchase agreement 77158 77158 Net assets acquired and liabilities assumed $ 1,376,509 $ 1,376,509 Consideration: Cash paid at Healthcare Acquisition date $ 1,026,509 $ 1,026,509 Contingent consideration earn-out agreement 350,000 350,000 Total Healthcare Acquisition purchase price $ 1,376,509 $ 1,376,509 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 Cost Amortization through December 31, 2022 Estimated useful life Identifiable intangible assets: Client agreements $ 457,079 $ 68,562 10 years F- 43 For the period from the date of the Healthcare Acquisition to June 30, 2022, the Company adjusted its preliminary fair value estimates and estimated useful lives based upon information obtained through June 30, 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. During the measurement period (which is the period required to obtain all necessary information that existed at the acquisition date, or to conclude that such information is unavailable, not to exceed one year), additional assets or liabilities may be recognized, or there could be changes to the amounts of assets or liabilities previously recognized on a preliminary basis, if new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have resulted in the recognition of these assets or liabilities as of that date. The change in fair value of the contingent consideration is more fully described in Note 10, “Debt Obligations”. On August 31, 2021, the Company’s revenue cycle management segment completed the acquisition of another private medical billing company (the “Medical Billing Acquisition”). In accordance with the stock purchase agreement, Nobility Healthcare agreed to a non-refundable initial payment (the “Initial Payment Amount”) of $ 2,270,000 . In addition to the Initial Payment Amount, the Company’s revenue cycle management segment agreed to issue a contingent promissory note to the stockholders of the Medical Billing Acquisition in the principal amount of $ 650,000 that is subject to an earn-out adjustment. The Company’s revenue cycle management segment anticipates the estimated fair value of the contingent promissory note to be paid in full, therefore, the total aggregate purchase price was determined to be approximately $ 2,920,000 . Total acquisition related costs aggregated $ 5,602 , which was expensed as incurred. The Company accounts for business combinations using the acquisition method and that the Company has early adopted the amendments of Regulation S-X dated May 21, 2020 and has concluded that this acquisition was not significant. Accordingly, the presentation of the assets acquired, historical financial statements under Rule 3-05 and related pro forma information under Article 8 of Regulation S-X, respectively, are not required to be presented. Under the acquisition method, the purchase price of the Healthcare Acquisition has been allocated to the acquired tangible and identifiable intangible assets and assumed liabilities based on their estimated fair values at the time of the Healthcare Acquisition. This allocation involves a number of assumptions, estimates, and judgments that could materially affect the timing or amounts recognized in our financial statements. Our assumptions and estimates are based upon information obtained from the management of the Company’s revenue cycle management segment. The acquisition was structured as stock purchase, therefore the excess purchase price over the fair value of net tangible assets acquired was recorded as goodwill, which will not be amortized for income tax filing purposes. The results of operations of acquired businesses are included in the consolidated financial statements from the acquisition date. The purchase price of the Medical Billing Acquisition was allocated to the tangible assets, and assumed liabilities based on their preliminary estimated fair values at the time of the Medical Billing Acquisition. The preliminary and final 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 Preliminary As allocated Final As allocated Purchase price allocation Preliminary As allocated Final As allocated Description September 30, 2021 September 30, 2022 Assets acquired: Tangible assets acquired $ 401,547 $ 401,547 Identifiable intangible assets acquired – client agreements — 206,955 Goodwill 2,920,000 2,713,045 Liabilities assumed pursuant to stock purchase agreement ( 401,547 ) ( 401,547 ) Net assets acquired and liabilities assumed $ 2,920,000 $ 2,920,000 Consideration: Cash paid at Healthcare Acquisition date $ 2,270,000 $ 2,270,000 Contingent consideration earn-out agreement 650,000 650,000 Total Healthcare Acquisition purchase price $ 2,920,000 $ 2,920,000 F- 44 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 ASSET ACQUIRED AND THEIR ESTIMATED USEFUL LIVES Cost Amortization through December 31, 2022 Estimated useful life Identifiable intangible assets: Client agreements $ 206,955 $ 27,594 10 years For 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. During the measurement period (which is the period required to obtain all necessary information that existed at the acquisition date, or to conclude that such information is unavailable, not to exceed one year), additional assets or liabilities may be recognized, or there could be changes to the amounts of assets or liabilities previously recognized on a preliminary basis, if new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have resulted in the recognition of these assets or liabilities as of that date. The change in fair value of the contingent consideration is more fully described in Note 10, “Debt Obligations”. On January 1, 2022, the Company’s revenue cycle management segment completed the acquisition of another private medical billing company (the “Medical Billing Acquisition”). In accordance with the stock purchase agreement, Nobility Healthcare agreed to a non-refundable initial payment (the “Initial Payment Amount”) of $ 1,153,626 . In addition to the Initial Payment Amount, the Company’s revenue cycle management segment agreed to issue a contingent promissory note to the stockholders of the Medical Billing Acquisition in the principal amount of $ 750,000 that is subject to an earn-out adjustment. The Company’s revenue cycle management segment anticipates the estimated fair value of the contingent promissory note to be paid in full, therefore, the total aggregate purchase price was determined to be approximately $ 1,903,626 . Total acquisition related costs aggregated $ 7,996 , which was expensed as incurred. The Company accounts for business combinations using the acquisition method and that the Company has early adopted the amendments of Regulation S-X dated May 21, 2020 and has concluded that this acquisition was not significant. Accordingly, the presentation of the assets acquired, historical financial statements under Rule 3-05 and related pro forma information under Article 8 of Regulation S-X, respectively, are not required to be presented. Under the acquisition method, the purchase price of the Healthcare Acquisition has been allocated to the acquired tangible and identifiable intangible assets and assumed liabilities based on their estimated fair values at the time of the Healthcare Acquisition. This allocation involves a number of assumptions, estimates, and judgments that could materially affect the timing or amounts recognized in our financial statements. Our assumptions and estimates are based upon information obtained from the management of the Company’s revenue cycle management segment. The acquisition was structured as stock purchase, therefore the excess purchase price over the fair value of net tangible assets acquired was recorded as goodwill, which will not be amortized for income tax filing purposes. The results of operations of acquired businesses are included in the consolidated financial statements from the acquisition date. The purchase price of the Medical Billing Acquisition was allocated to the tangible assets, and assumed liabilities based on their preliminary estimated fair values at the time of the Medical Billing Acquisition. 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 Description Amount Assets acquired: Tangible assets acquired $ 190,631 Goodwill 2,100,000 Liabilities assumed pursuant to stock purchase agreement ( 387,005 ) Total assets acquired and liabilities assumed $ 1,903,626 Consideration: Cash paid at acquisition date $ 1,153,626 Contingent consideration promissory note 750,000 Total acquisition purchase price $ 1,903,626 F- 45 During the measurement period (which is the period required to obtain all necessary information that existed at the acquisition date, or to conclude that such information is unavailable, not to exceed one year), additional assets or liabilities may be recognized, or there could be changes to the amounts of assets or liabilities previously recognized on a preliminary basis, if new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have resulted in the recognition of these assets or liabilities as of that date. The change in fair value of the contingent consideration is more fully described in Note 10, “Debt Obligations”. On February 1, 2022, the Company’s revenue cycle management segment completed an asset acquisition from another private medical billing company (the “Medical Billing Asset Acquisition”). In accordance with the asset purchase agreement, Nobility Healthcare agreed to a non-refundable initial payment (the “Initial Payment Amount”) of $ 230,000 . In addition to the Initial Payment Amount, the Company’s revenue cycle management segment agreed to issue a contingent promissory note to the stockholders of the Medical Billing Asset Acquisition in the principal amount of $ 105,000 that is subject to an earn-out adjustment. The Company’s revenue cycle management segment anticipates the estimated fair value of the contingent promissory note to be paid in full, therefore, the total aggregate purchase price was determined to be approximately $ 335,000 . Total acquisition related costs aggregated $ 10,322 , which was expensed as incurred. 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 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 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 Description Amount Assets acquired: Intangible assets acquired – client agreements $ 335,000 Total assets acquired and liabilities assumed $ 335,000 Consideration: Cash paid at acquisition date $ 230,000 Contingent consideration promissory note 105,000 Total acquisition purchase price $ 335,000 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 Cost Amortization through December 31, 2022 Estimated useful life Identifiable intangible assets: Client agreements $ 335,000 $ 30,708 10 years The change in fair value of the contingent consideration is more fully described in Note 10, “Debt Obligations” and will be estimated on a quarterly basis. F- 46 NOTE 22. TICKETSMARTER ACQUISITION On September 1, 2021, Digital Ally, Inc. formed TicketSmarter, Inc. (“TicketSmarter”), through which the Company completed the acquisition of Goody Tickets, LLC, a Kansas limited liability company (“Goody Tickets”) and TicketSmarter, LLC, a Kansas limited liability company (“TicketSmarter LLC”), collectively the “TicketSmarter Acquisition”. TicketSmarter, Inc. comprises the Company’s entertainment business segment. In accordance with the stock purchase agreement, the Company agreed to an initial payment (the “Initial Payment Amount”) of $ 9,403,600 through a combination of cash and common stock. In addition to the Initial Payment Amount, the Company agreed to issue an earn-out agreement to the stockholders of Goody Tickets and TicketSmarter LLC in the contingent amount of $ 4,244,400 that is subject to an earn-out adjustment based on actual EBITDA achieved in 2021, of which the Company gave a fair value of $ 3,700,000 on the date of acquisition. However, following the completion of 2021, it was determined that the actual EBITDA threshold for any earn-out adjustment to be paid was not met. Thus, in accordance with U.S. GAAP, the fair value of the contingent earn-out is reduced to zero, and the associated gain related to this revaluation is recorded in our Consolidated Statements of Operations for the year ended December 31, 2021. Lastly, included in the agreement, the Company agreed to place $ 500,000 in escrow, subject to a working capital adjustment based on actual working capital amounts on the acquisition date as defined in the agreement, this amount was subject to disbursement 45 days following the close of the acquisition. The parties completed the working capital adjustment resulting in the Company retaining $ 297,726 of the escrow amount with the $ 202,274 released to the Sellers. The total acquisition related costs aggregated $ 40,625 , which was expensed as incurred. The Company accounts for business combinations using the acquisition method and that the Company has early adopted the amendments of Regulation S-X dated May 21, 2020 and has concluded that this acquisition was not significant. Accordingly, the presentation of the assets acquired, historical financial statements under Rule 3-05 and related pro forma information under Article 11 of Regulation S-X, respectively, are not required to be presented. Under the acquisition method, the purchase price of the TicketSmarter Acquisition has been allocated to Goody Tickets’ and TicketSmarter LLC’s acquired tangible and identifiable intangible assets and assumed liabilities based on their estimated fair values at the time of the TicketSmarter Acquisition. This allocation involves a number of assumptions, estimates, and judgments that could materially affect the timing or amounts recognized in our financial statements. The TicketSmarter Acquisition was structured as a stock purchase; however the parties agreed to coordinate the election to invoke IRS Section 338(h)(10) relative to this transaction for tax purposes. Therefore, the excess purchase price over the fair value of net tangible assets acquired was recorded as goodwill, which will be amortized over 15 years for income tax filing purposes. Likewise, the other acquired assets were stepped up to fair value and is deductible for income tax purposes. The results of operations of acquired businesses are included in the consolidated financial statements from the acquisition date. The purchase price of the TicketSmarter Acquisition was allocated to Goody Tickets’ and TicketSmarter LLC’s tangible assets, goodwill, identifiable intangible assets, and assumed liabilities based on their 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 preliminary and final estimated fair value of assets acquired, and liabilities assumed in the TicketSmarter Acquisition were as follows: SCHEDULE OF PARLIAMENT AND FINAL ESTIMATED FAIR VALUE OF ASSETS ACQUIRED AND LIABILITIES ASSUMED ACQUISITION As allocated Final as allocated Purchase price allocation As allocated Final as allocated Description September 30, 2021 December 31, 2021 Assets acquired: Tangible assets acquired, including $ 51,432 of cash acquired $ 7,139,930 $ 5,748,291 Identifiable intangible assets acquired — 6,800,000 Goodwill 11,839,308 5,886,547 Liabilities assumed ( 5,128,964 ) ( 5,128,964 ) Liabilities assumed pursuant to stock purchase agreement - 5128964 - 5128964 Net assets acquired and liabilities assumed $ 13,850,274 $ 13,305,874 Consideration: Cash paid at TicketSmarter Acquisition date $ 8,413,240 $ 8,413,240 Common stock issued as consideration for TicketSmarter Acquisition at date of acquisition 990,360 990,360 Contingent consideration earn-out agreement 4,244,400 3,700,000 Cash paid at closing to escrow amount 500,000 500,000 Cash retained from escrow amount pursuant to settlement of working capital target ( 297,726 ) ( 297,726 ) Total TicketSmarter Acquisition purchase price $ 13,850,274 $ 13,305,874 F- 47 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 COMPONENTS OF IDENTIFIABLE INTANGIBLE ASSETS ACCRUED AND ESTIMATED USEFUL LIVES Cost Amortization through December 31, 2022 Estimated useful life Identifiable intangible assets: Trademarks $ 600,000 $ — indefinite Sponsorship agreement network 5,600,000 1,493,333 5 years Search engine optimization/content 600,000 200,000 4 years $ 6,800,000 $ 1,693,333 For the period from the date of the TicketSmarter Acquisition to December 31, 2021, the Company adjusted its preliminary fair value estimates and estimated useful lives based upon information obtained through December 31, 2021, which resulted in adjustments to the preliminary allocation of the purchase price. These adjustments primarily related to estimated identifiable intangible asset fair values (primarily 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 year ended December 31, 2022. During the measurement period (which is the period required to obtain all necessary information that existed at the acquisition date, or to conclude that such information is unavailable, not to exceed one year), additional assets or liabilities may be recognized, or there could be changes to the amounts of assets or liabilities previously recognized on a preliminary basis, if new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have resulted in the recognition of these assets or liabilities as of that date. The change in fair value of the contingent consideration is more fully described in Note 10, “Debt Obligations”. NOTE 23. SEGMENT DATA 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. Operating segments are identified as components of an enterprise for which separate discrete financial information is available for evaluation by the chief operating decision maker (the Company’s Chief Executive Officer or “CODM”) in making decisions on how to allocate resources and assess performance. The Company’s three operating segments are Video Solutions, Revenue Cycle Management, and Entertainment, each of which has specific personnel responsible for that business and reports to the CODM. Corporate expenses capture the Company’s corporate administrative activities, is 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. Therefore, its operations are eliminated in consolidation and is not considered a separate business segment for financial reporting purposes. F- 48 The Video Solutions Segment encompasses our law, commercial, and shield divisions. 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 Entertainment 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 Company’s corporate administration activities are reported in the corporate line item. These activities primarily include expense related to certain corporate officers and support staff, certain accounting staff, expense related to the Company’s Board of Directors, stock option expense for options granted to corporate administration employees, certain consulting expenses, investor relations activities, and a portion of the Company’s legal, auditing and professional fee expenses. Corporate identifiable assets primarily consist of cash, invested cash (if any), refundable income taxes (if any), and deferred income taxes. Summarized financial information for the Company’s reportable business segments is provided for the indicated periods and as of December 31, 2022, and December 31, 2021: SCHEDULE OF SEGMENT REPORTING 2022 2021 Years Ended December 31, 2022 2021 Net Revenues: Video Solutions $ 8,252,288 $ 9,073,626 Revenue Cycle Management 7,886,107 1,630,048 Entertainment 20,871,500 10,709,760 Total Net Revenues $ 37,009,895 $ 21,413,434 Total net revenues $ 37,009,895 $ 21,413,434 Gross Profit: Video Solutions $ ( 1,250,277 ) $ 2,002,345 Revenue Cycle Management 3,303,477 521,047 Entertainment 268,741 3,140,383 Total Gross Profit $ 2,321,941 $ 5,663,775 Total gross profit $ 2,321,941 $ 5,663,774 Operating Income (loss): Video Solutions $ ( 9,278,721 ) $ ( 4,497,196 ) Revenue Cycle Management 357,705 93,763 Entertainment ( 7,369,241 ) 235,432 Corporate ( 13,443,001 ) ( 10,592,909 ) Total Operating Income (Loss) $ ( 29,733,258 ) $ ( 14,760,910 ) Total operating income (loss) $ ( 29,733,258 ) $ ( 14,760,910 ) Depreciation and Amortization: Video Solutions $ 769,228 $ 395,361 Revenue Cycle Management 128,082 — Entertainment 1,279,369 427,128 Total Depreciation and Amortization $ 2,176,679 $ 822,489 Total depreciation and amortization $ 2,176,679 $ 822,489 Assets (net of eliminations): Video Solutions $ 28,509,706 $ 25,983,348 Revenue Cycle Management 2,201,570 934,095 Entertainment 11,190,491 12,260,780 Corporate 14,766,295 43,810,974 Total Identifiable Assets $ 56,668,062 $ 82,989,197 F- 49 The segments recorded noncash items effecting the gross profit and operating income (loss) through the established inventory reserves based on estimates of excess and/or obsolete current and non-current inventory. The Company recorded a reserve for excess and obsolete inventory in the video solutions segment of $ 5,230,261 and a reserve for the entertainment segment of $ 259,280 as of December 31, 2022 . The segment net revenues reported above represent sales to external customers. Segment gross profit represents net revenues less cost of revenues. Segment operating income, which is used in management’s evaluation of segment performance, represents net revenues, less cost of revenues, less all operating expenses. Identifiable assets are those assets used by each segment in its operations. Corporate assets primarily consist of cash, property, plant and equipment, accounts receivable, inventories, and other assets. Note 24. SUBSEQUENT EVENTS 2023 Issuance of Restricted Common Stock On January 9, 2023, the compensation committee (“the “Compensation Committee”) of the board of directors awarded Stanton E. Ross 17,500 shares of restricted common stock that will vest one half on January 10, 2024 and one half on January 10, 2025 provided that he remains an officer on such dates. Peng Han was awarded 5,000 shares of restricted common stock that will vest 1,000 shares on January 10, 2024, January 10, 2025, January 10, 2026, January 10, 2027 and January 10, 2028 provided that he remains an officer on such dates. The Compensation Committee awarded employees a total of 12,500 shares of restricted common stock that will vest one half on January 10, 2024 and one half on January 10, 2025 provided that they remain employees on such dates. Reverse Stock Split On February 6, 2023, we filed a Certificate of Amendment to the Articles of Incorporation, as amended, with the Secretary of State of the State of Nevada to effect a 1-for-20 reverse stock split (the “Reverse Stock Split”) of the shares of our common stock. The Reverse Stock Split was effective as of time of filing. No fractional shares were issued in connection with the Reverse Stock Split. Any fractional shares of our Common Stock that would have otherwise resulted from the Reverse Stock Split were rounded up to the nearest whole number. In connection with the Reverse Stock Split, our board approved appropriate and proportional adjustments to all outstanding securities or other rights convertible or exercisable into shares of our Common Stock, including, without limitation, all preferred stock, warrants, options, and other equity compensation rights. All historical share and per-share amounts reflected throughout our consolidated financial statements and other financial information in this Report have been adjusted to reflect the Reverse Stock Split as if the split occurred as of the earliest period presented. The par value per share of our common stock was not affected by the Reverse Stock Split. Nasdaq Compliance On February 23, 2023, the Company received notice from Nasdaq confirming that the Company has cured its bid price deficiency and has fully regained compliance with the Minimum Bid Price Requirement. F- 50