What changed in this filing

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Item 1. Financial Statements

2023-08-14 compared with 2023-05-15 · 626 added, 535 removed, 1214 unchanged (49% of the section changed)

2 unchanged sentences

30, 2023 AND DECEMBER 31, 2022

March 31, 2023 (Unaudited)

June 30, 2023 (Unaudited)

December 31, 2022

1 unchanged sentence

Cash and cash equivalents

Accounts receivable – trade, net of $ 181,761 allowance – March 31, 2023 and $ 146,964 – December 31, 2022

Other receivables, net of $ 5,000 allowance – March 31, 2023 and $ 0 – December

31, 2022 (including $ 138,384 due from related parties – March 31, 2023 and $ 138,384 – December 31, 2022, refer to Note 20)

Accounts receivable – trade, net of $ 176,876 allowance – June 30, 2023 and $ 152,736 – December 31, 2022

Other receivables, net of $ 5,000 allowance – June 30, 2023 and $ 0 – December 31, 2022 (including $ 138,384 due from related parties – June 30, 2023 and $ 138,384 – December 31, 2022, refer to Note 20)

Inventories, net

4 unchanged sentences

Operating lease right of use assets, net

Income tax receivable

Liabilities and Stockholders’ Equity

4 unchanged sentences

Contract liabilities – current portion

Debt obligations – current portion

Debt obligations, net – current portion

Warrant derivative liabilities

Income taxes payable

11 unchanged sentences

shares issued:

2,755,224 shares issued – March 31, 2023 and 2,720,170 shares issued – December 31, 2022

2,800,752 shares issued – June 30, 2023 and 2,720,170 shares issued – December 31, 2022

Additional paid in capital

7 unchanged sentences

CONSOLIDATED STATEMENTS OF OPERATIONS

THE THREE MONTHS ENDED

THE THREE AND SIX MONTHS ENDED

30, 2023 AND 2022

Three months ended

three months ended June 30,

six months ended June 30,

Service and other

11 unchanged sentences

( 6,661,252 )

( 11,113,511 )

( 13,464,590 )

Other income (expense):

1 unchanged sentence

Interest expense

( 1,515,509 )

( 1,521,049 )

Other income (loss)

Loss on accrual for legal settlement

( 1,792,308 )

Loss on conversion of convertible note

Change in fair value of contingent consideration promissory notes

1 unchanged sentence

Change in fair value of warrant derivative liabilities

Total other income

Total other income (expense)

( 3,379,845 )

( 3,186,617 )

Income (loss) before income tax benefit

1 unchanged sentence

( 14,300,128 )

( 7,380,430 )

Income tax benefit

1 unchanged sentence

( 14,300,128 )

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

( 7,380,430 )

Net (income) attributable to noncontrolling interests of consolidated subsidiary

Net loss attributable to common stockholders

1 unchanged sentence

$ ( 1,065,513 )

$ ( 14,499,122 )

$ ( 7,665,662 )

Net loss per share information:

2 unchanged sentences

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022

Additional Paid In

Noncontrolling interest in consolidated

THE THREE AND SIX MONTHS ENDED JUNE 30, 2023 AND 2022

Noncontrolling

Balance, December 31, 2021

1 unchanged sentence

$ ( 68,672,206 )

$ 124,476,447

$ ( 68,672,206 )

Stock-based compensation

10 unchanged sentences

$ ( 77,336,028 )

$ 124,871,161

$ ( 77,336,028 )

Stock-based compensation

Restricted common stock forfeitures

Repurchase and cancellation of common stock

( 1,962,663 )

( 1,962,755 )

Net income (loss)

( 1,065,513 )

Balance, June 30, 2022

$ 125,252,766

$ ( 80,364,204 )

$ 125,252,766

$ ( 80,364,204 )

Balance, December 31, 2022

9 unchanged sentences

( 5,979,579 )

Balance, March 31, 2023

$ 127,984,155

$ ( 98,086,052 )

$ 127,984,155

$ ( 98,086,052 )

Stock-based compensation

Restricted common stock forfeitures

Issuance due to rounding from reverse stock split

Conversion of convertible note into common stock

Net Income (loss)

1 unchanged sentence

( 8,320,549 )

Balance, March 31, 2023

Balance, June 30, 2023

$ 128,283,343

4 unchanged sentences

CONSOLIDATED STATEMENTS OF CASH FLOWS

MONTHS ENDED MARCH 31, 2023 AND 2022

Three months ended

THE SIX MONTHS ENDED JUNE 30, 2023 AND 2022

the six months ended June 30,

Cash Flows From Operating Activities:

4 unchanged sentences

Stock-based compensation

Non-cash interest expense

Change in fair value of warrant derivative liabilities

( 5,561,789 )

Convertible debt discount amortization

Loss on conversion of debt

Provision for inventory obsolescence

Provision for doubtful accounts receivable

Provision for doubtful lease receivable

Allowance for doubtful lease reserve

Change in fair value of contingent consideration promissory note

Change in operating assets and liabilities (net of assets and liabilities acquired):

Change in operating assets and liabilities:

(Increase) decrease in:

8 unchanged sentences

Accrued expenses

Operating lease obligations

Income taxes payable

Lease deposit

Operating lease obligations

Contract liabilities

3 unchanged sentences

Cash Flows from Investing Activities:

Purchases of furniture, fixtures and equipment

Purchases of property, plant and equipment

( 1,923,501 )

2 unchanged sentences

( 1,153,627 )

Cash paid for asset acquisition from Medical Billing Company

Cash paid for asset acquisition of Medical Billing Company

Net cash used in investing activities

4 unchanged sentences

Distribution to noncontrolling interest in consolidated subsidiary

Net proceeds of convertible debt with detachable warrants

Proceeds – Commercial Extension of Credit – Entertainment Segment

1 unchanged sentence

Principal payment on contingent consideration promissory notes

Net cash provided by (used in) financing activities

Net cash (used in) provided by financing activities

( 4,259,037 )

7 unchanged sentences

Supplemental disclosures of non-cash investing and financing activities:

Restricted common stock grant

Restricted common stock forfeitures

Issuance of contingent consideration promissory note for business and asset acquisitions

Commercial extension of credit repaid through accrued revenue – Entertainment segment

ROU and lease liability recorded on extension of lease

Conversion of convertible notes payable into common stock

Issuance of contingent consideration promissory note for business acquired

Assets acquired in business acquisitions

Liabilities assumed in the business acquisition

Goodwill acquired in business acquisitions

Liabilities assumed in business acquisitions

Commercial Extension of Credit repaid through accrued

revenue – Entertainment Segment

and lease liability recorded on extension of lease

Restricted common stock grant

Reverse stock split rounding issuances

Restricted common stock forfeitures

Debt discount on convertible note

Notes to the Unaudited Condensed Consolidated Financial Statements.

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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 Entertainment 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.

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 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

(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., Kustom Entertainment, Inc., and its majority-owned subsidiary Nobility Healthcare, LLC, collectively,

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

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

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

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

This segment includes both service and product revenues

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

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

throughout the country, as a monthly service fee.

The 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 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

Such required segment information is included in Note 19.

On December 8, 2022, the Company announced that its

Board of Directors unanimously approved a plan to pursue a separation into two independent, publicly-traded companies to optimize investment

and capital allocation, accelerate growth, and unlock shareholder value.

Specifically, the Company plans to spin off (the “Spin-off”)

its ticketing operating segment, Kustom Entertainment, Inc.

Upon completion of the Spin-off, the Company’s

stockholders will own equity in two focused and streamlined businesses.

Digital Ally, Inc.

will continue to be a provider

of video solution technology for law enforcement agencies, commercial fleets, and situational event security solutions.

Digital Ally will

also continue to provide working capital and back-office services to a variety of healthcare organizations throughout the country through

its revenue cycle management subsidiary.

For the year ending December 31, 2022, these consolidated

businesses generated approximately $ 37.0 million in annual revenues.

We believe that Digital Ally, as a stand-alone entity, will be well-positioned

to accelerate organic growth in its large and attractive end markets, benefit from favorable secular trends, and begin to apply discipline

and focus throughout the company to enhance profitability and continue to drive growth, new product development and expansion.

As an independent company, we believe that Digital

will have greater strategic focus and operational flexibility, while building on its recent momentum and emphasizing the improvement

of its profit margins and profitability.

Additionally, the Company expects to benefit from dedicated resources and management, with an

attention to brand building, innovation, and extended opportunities domestically as well as internationally.

As Digital Ally has continued

to build its portfolio of subscriptions and customers that are already in place, we believe that we can continue to maintain stable sales

through our deferred revenue model;

however, there will be an equal expectation for growth and expansion across several high-growth adjacent

Upon completion of the Spin-off, Digital Ally, Inc.

will be led by Brody J.

Green, who will serve as Chief Executive Officer.

The Company intends to continue to be listed on the NASDAQ under

its current ticker symbol, “DGLY”.

Kustom will be a multi-disciplinary entertainment

company, anchored by a premier ticketing technology business, which we believe is poised to achieve substantial scaling opportunities,

through its TicketSmarter, Inc.

subsidiary, which offers unique primary and secondary ticketing products to the market.

Additionally,

Kustom’s offerings will include a distinctive event marketing and production company, with numerous customization options for events,

festivals, and concerts, through its Kustom 440, Inc., subsidiary.

For the year ending December 31, 2022, these standalone

businesses achieved approximately $20.9 million in annual revenues.

We believe that this business can achieve above-average growth by

exploiting its relationships in the sporting and entertainment industries that are intended to support its primary ticketing-related opportunities,

along with the expectation of the full deployment of the Kustom 440 brand and its line of service offerings.

Kustom will be able to differentiate

itself through its ability to provide event services of all sizes, ranging from corporate events to multi-day festivals.

the ability to offer venue, ticketing, marketing, and production capabilities will make this company a unique and attractive option for

many partners and investors.

With the planned separation, TicketSmarter is expected

to enhance its leadership position in the national secondary ticketing marketplace, while also building a stronger position in the primary

ticketing market.

Furthermore, as Kustom 440 was formed in mid-2022, the event marketing and production business will be fully able to

execute and produce the planned events throughout 2023, as production and investments have already begun.

Kustom will be led by Stanton E.

Ross, who will serve as the President

and Chief Executive Officer.

Kustom’s shares are expected to be listed on a national exchange under a ticker symbol to be determined

and announced at a later date.

The Company may also pursue an alternative disposition

of Kustom instead of the Spin-Off.

The Spin-Off or alternative transaction is expected to be completed in the second half of 2023.

June 1, 2023, the Company, entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Clover Leaf Capital

Corp., a Delaware corporation (“Clover Leaf”), CL Merger Sub, Inc., a Nevada corporation and a wholly owned subsidiary of

Clover Leaf (“Merger Sub”), Yntegra Capital Investments LLC, a Delaware limited liability company, in the capacity as the

representative from and after the Effective Time (as defined in the Merger Agreement) for the stockholders of Clover Leaf in accordance

with the terms and conditions of the Merger Agreement (the “Sponsor” or the “Purchaser Representative”), and

Kustom Entertainment, Inc., a Nevada corporation, a wholly owned subsidiary of the Company, with a focus and mission to own and produce

events, festivals, and entertainment alongside its evolving primary and secondary ticketing technologies (“Kustom”).

to the Merger Agreement, subject to the terms and conditions set forth therein upon the consummation of the transactions contemplated

by the Merger Agreement (the “Closing”), Merger Sub will merge with and into Kustom (the “Merger” and, together

with the other transactions contemplated by the Merger Agreement, the “Business Combination”), with Kustom continuing as

the surviving corporation in the Merger and a wholly owned subsidiary of Clover Leaf.

In the Merger, all of the issued and outstanding

capital stock of Kustom immediately prior to the Effective Time shall no longer be outstanding and shall automatically be cancelled and

shall cease to exist in exchange for the right for the Company to receive the Merger Consideration (as defined below).

Upon consummation

of the Business Combination, Clover Leaf will change its name to “Kustom Entertainment, Inc.”

aggregate merger consideration to be paid pursuant to the Merger Agreement to the Company as of immediately prior to the Effective Time

will be an amount equal to (the “Merger Consideration”) (i) $ 125 million, minus (ii) the estimated consolidated indebtedness

of Kustom as of the Closing (“Closing Indebtedness”).

The Merger Consideration to be paid to the Company will be paid solely

by the delivery of new shares of Clover Leaf Class A Common Stock, each valued at $ 11.14 per share (the “Merger Consideration Shares”).

The Closing Indebtedness (and the resulting Merger Consideration) is based solely on estimates determined shortly prior to the Closing

and is not subject to any post-Closing true-up or adjustment.

is comprised of TicketSmarter, Inc.

(“TicketSmarter”) and Kustom 440, Inc.

(“Kustom 440”), both currently wholly

owned subsidiaries.

Both TicketSmarter and Kustom 440 will combine their management teams and focus on concerts, entertainment and garnering

additional ticketing partnerships in 2023 and beyond.

Kustom 440 and TicketSmarter will use their existing sponsorships and sports property

partnerships to develop alternative entertainment options for consumers.

combined company will be known as Kustom Entertainment and will operate under the same management team as Kustom.

which is currently

led by Stanton E.

Ross, the current CEO of the Company.

The transaction contemplates an equity value of $ 125 million for Kustom.

combined company is expected to have an implied initial pro forma equity value of approximately $222.2 million, with the proposed Business

Combination expected to provide approximately $18.1 million in gross proceeds from the cash held in trust by Clover Leaf, assuming no

Additionally, the Company will distribute to its shareholders 15% of the Merger Consideration Shares obtained in Kustom

immediately following the closing of the Merger and intends to distribute the balance of such Merger Consideration Shares following a

six-month lock-up period.

transaction has been approved by the board of directors of the Company (the “Board”) and the board of directors of Clover

Leaf and is subject to approval by the stockholders of Clover Leaf and other customary closing conditions.

The Company, as the sole holder

of Kustom common stock, has approved the transaction.

to the plan to consummate the Business Combination, the Company no longer expects to pursue a separation of Kustom into its own independent

publicly traded company via spin-off, as announced on December 8, 2022.

of Presentation:

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a fair presentation have been included.

Operating results for the three month period ended March 31, 2023 are not necessarily indicative

of the results that may be expected for the year ending December 31, 2023.

Operating results for the three- and six-month period ended June 30, 2023 are not necessarily

indicative of the results that may be expected for the year ending December 31, 2023.

balance sheet at December 31, 2022 has been derived from the audited financial statements at that date, but does not include all the

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

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

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

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

forecasted future cash flows and the Company’s obligations due before May 15, 2024.

forecasted future cash flows and the Company’s obligations due before August 14, 2024.

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

For the three months ended March 31,

For the six months ended June 30, 2023,

the Company had a net loss attributable to common stockholders of $ 14,499,122 net cash used in operating activities of $ 3,109,986 , $ 126,946

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

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

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

All intercompany balances and transactions

have been eliminated during consolidation.

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

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

All intercompany balances and transactions have

been eliminated during consolidation.

Company formed Digital Ally International, Inc.

during August 2009 to facilitate the export sales of its products.

formed Shield Products, LLC in May 2020 to facilitate the sales of its Shield™ line of disinfectant/cleanser products and

ThermoVu® line of temperature monitoring equipment.

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

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

The Company formed

TicketSmarter, Inc.

on September 1, 2021, upon its acquisition of Goody Tickets, LLC and TicketSmarter, LLC, to facilitate its

global entertainment operations.

The Company formed Worldwide Reinsurance Ltd.

in December 2021, 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.

Shield Products, LLC in May 2020 to facilitate the sales of its Shield™ line of disinfectant/cleanser products and ThermoVu®

line of temperature monitoring equipment.

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

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

The Company formed TicketSmarter, Inc.

1, 2021, upon its acquisition of Goody Tickets, LLC and TicketSmarter, LLC, to facilitate its global entertainment operations.

formed Worldwide Reinsurance Ltd.

in December 2021, 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.

BirdVu Jets, 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.

in 2022 to create unique entertainment experiences directly for consumers.

Value of Financial Instruments:

1 unchanged sentence

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

Recognition :

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

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

In situations where sales are to a distributor, the Company has concluded that such contracts are with the distributor as in such

cases the Company holds contract bearing enforceable rights and obligations only with the distributor.

As part of its

consideration for the contract, the Company evaluates certain factors including the customers’ ability to pay (or credit

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

The product price as specified on the purchase order is considered the standalone selling price as it is an observable input

which depicts the price as if sold to a similar customer in similar circumstances.

Revenue is recognized when control of the product

is transferred to the customer (i.e.

when the Company’s performance obligations are satisfied), which typically occurs at

Further in determining whether control has been transferred, the Company considers if there is a present right to payment

and legal title, along with risks and rewards of ownership having transferred to the customer.

Customers do not have a right to

return the product other than for warranty reasons for which they would only receive repair services or replacement product.

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.

situations where sales are to a distributor, the Company has concluded that such contracts are with the distributor as in such cases

the Company holds contract bearing enforceable rights and obligations only with the distributor.

As part of its consideration for the

contract, the Company evaluates certain factors including the customers’ ability to pay (or credit risk).

For each contract, the

Company considers the promise to transfer products, each of which is distinct, to be the identified performance obligations.

In determining

the transaction price, the Company evaluates whether the price is subject to refund or adjustment to determine the net consideration

to which it expects to be entitled.

As the Company’s standard payment terms are less than one year, it has elected the practical

expedient under ASC 606-10-32-18 to not assess whether a contract has a significant financing component.

The Company allocates the transaction

price to each distinct product based on its relative standalone selling price.

The product price as specified on the purchase order is

considered the standalone selling price as it is an observable input which depicts the price as if sold to a similar customer in similar

circumstances.

Revenue is recognized when control of the product is transferred to the customer (i.e.

when the Company’s performance

obligations are satisfied), which typically occurs at shipment.

Further in determining whether control has been transferred, the Company

considers if there is a present right to payment and legal title, along with risks and rewards of ownership having transferred to the

Customers do not have a right to return the product other than for warranty reasons for which they would only receive repair

services or replacement product.

The Company has also elected the practical expedient under ASC 340-40-25-4 to expense commissions for

product sales when incurred as the amortization period of the commission asset the Company would have otherwise recognized is less than

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

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

During the three months ended March 31, 2023, the Company recognized revenue of $ 0.5 million related to its contract liabilities.

During the six months ended June 30, 2023, the Company recognized revenue of $ 1.0 million related to its contract liabilities.

liabilities consist of deferred revenue and include payments received in advance of performance under the contract and are reported separately

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SCHEDULE OF CONTRACT LIABILITIES

March 31, 2023

Additions/Reclass

Recognized Revenue

June 30, 2023

Contract liabilities, current

Contract liabilities, non-current

March 31, 2022

Additions/Reclass

Recognized Revenue

June 30, 2022

Contract liabilities, current

Contract liabilities, non-current

returns and allowances aggregated $ 116,642 and $ 118,027 for the years ended March 31, 2023 and December 31, 2022, respectively.

returns and allowances aggregated $ 116,629 and $ 118,027 for the six months ended June 30, 2023 and December 31, 2022, respectively.

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

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OF SHORT TERM INVESTMENTS

March 31, 2023

Demand deposits

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

Money market funds

December 31, 2022

June 30, 2023

Demand deposits

1 unchanged sentence

Money market funds

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

Company maintains its cash and cash equivalents in banks insured by the Federal Deposit Insurance Corporation (FDIC) in accounts that

2 unchanged sentences

with major financial institutions.

At March 31, 2023 and December 31, 2022, the uninsured balance amounted to $ 2,021,428 and $ 2,495,189 ,

At June 30, 2023 and December 31, 2022, the uninsured balance amounted to $ 2,232,909 and $ 2,495,189 ,

respectively.

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

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.

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.

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.

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

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if fair value is not available.

The Company last assessed potential impairments of its long-lived assets as of March 31, 2023 and concluded

The Company last assessed potential impairments of its long-lived assets as of June 30, 2023 and concluded

that there was no impairment.

assets include deferred patent costs and license agreements.

Legal expenses incurred in preparation of patent application have been deferred

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

Costs incurred in preparation of applications that are not granted will

be charged to expense at that time.

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

rights to certain licensed materials used in its products.

These sublicense agreements generally require upfront payments to obtain the

exclusive rights to such material.

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

estimated useful life on a straight-line method.

assets include deferred patent costs, license agreements, and intangibles related to acquisitions.

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.

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

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and Cancellation of Shares

time to time, the Company’s Board of Directors (the “Board”) may authorize share repurchases of common stock.

time to time, the Board may authorize share repurchases of common stock.

repurchased under Board authorizations are held in treasury for general corporate purposes and cancelled when it is determined appropriate

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Non-controlling

interests in the Company’s Consolidated Financial Statements represent the interest in subsidiaries held by our venture partner.

The venture partner holds a noncontrolling interest in the Company’s consolidated subsidiary Nobility Healthcare, LLC.

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 or loss attributable to noncontrolling interest

in the Consolidated Statements of Operations.

interests in the Company’s Consolidated Financial Statements represent the interest in subsidiaries held by our venture

The venture partner holds a noncontrolling interest in the Company’s consolidated subsidiary Nobility Healthcare,

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 or loss

attributable to noncontrolling interest in the Consolidated Statements of Operations.

Accounting Standards

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.

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 adoption of this standard

did not have a significant impact on the Company’s financial position and results of operations.

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

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.

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.

The adoption of this standard did not have a significant impact

on the Company’s financial position and results of operations.

June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses” to improve information on credit losses

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As such, we adopted ASC 326 effective January 1, 2023.

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

financial position and results of operations.

consisted of the following at March 31, 2023 and December 31, 2022:

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

Company’s financial position and results of operations.

consisted of the following at June 30, 2023 and December 31, 2022:

SCHEDULE OF INVENTORIES

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The cost of such units

totaled $ 173,630 and $ 171,071 as of March 31, 2023 and December 31, 2022, respectively.

totaled $ 217,441 and $ 171,071 as of June 30, 2023 and December 31, 2022, respectively.

DEBT OBLIGATIONS

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Economic injury disaster loan (EIDL)

Convertible note payable, net of unamortized debt discount of $ 1,975,909

Contingent consideration promissory note – Nobility Healthcare Division Acquisition

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Debt obligations, long-term

obligations mature as follows as of March 31, 2023:

obligations mature as follows as of June 30, 2023:

OF MATURITY OF DEBT OBLIGATIONS

2023 (April 1, 2023 to December 31, 2023)

2023 (July 1, 2023 to December 31, 2023)

2027 and thereafter

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Monthly principal and interest

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

payments 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

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on this contingent consideration promissory note totaled $ 172,436 .

The estimated fair value of the June Contingent Note at March 31,

2023 is $ 147,047 , representing a reduction in its estimated fair value of $ 29,409 as compared to its estimated fair value as of December

This reduction only relates to the principal payments made for the three months ended March 31, 2023.

The estimated fair value of the June Contingent Note at June 30, 2023

is $ 117,637 , representing a reduction in its estimated fair value of $ 58,919 as compared to its estimated fair value as of March 31,

This reduction only relates to the principal payments made for the three and six months ended June 30, 2023.

Therefore, the Company

recorded no gain or loss in the Consolidated Statements of Operations for the three months ended March 31, 2023.

recorded no gain or loss in the Consolidated Statements of Operations for the three and six months ended June 30, 2023.

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

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The estimated fair value of the August Contingent Note

at March 31, 2023 is $ 324,129 , representing a reduction in its estimated fair value of $ 64,826 as compared to its estimated fair value

as of December 31, 2022.

This reduction only relates to the principal payments made for the three months ended March 31, 2023.

the Company recorded no gain or loss in the Consolidated Statements of Operations for the three months ended March 31, 2023

at June 30, 2023 is $ 259,303 , representing a reduction in its estimated fair value of $ 64,826 as compared to its estimated fair value

as of March 31, 2023.

This reduction only relates to the principal payments made for the three and six months ended June 30, 2023.

Therefore, the Company recorded no gain or loss in the Consolidated Statements of Operations for the three and six months ended June

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

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The estimated fair value

of the January Contingent Note at March 31, 2023 is $ 6,926 , representing a reduction in its estimated fair value of $ 175,146 as compared

of the January Contingent Note at June 30, 2023 is $ 5,936 , representing a reduction in its estimated fair value of $ 175,146 as compared

to its estimated fair value as of December 31, 2022.

Therefore, the Company recorded a gain of $ 175,146 in the Consolidated Statements

of Operations for the three months ended March 31, 2023.

of Operations for the six months ended June 30, 2023.

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

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The estimated fair value

of the February Contingent Note at March 31, 2023 is $ 20,928 , representing an increase in its estimated fair value of $ 17,125 as compared

of the February Contingent Note at June 30, 2023 is $ 19,888 , representing an increase in its estimated fair value of $ 17,125 as compared

to its estimated fair value as of December 31, 2022.

Therefore, the Company recorded a loss of $ 17,125 in the Consolidated Statements

of Operations for the three months ended March 31, 2023.

of Operations for the six months ended June 30, 2023.

Commercial Extension of Credit

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December 31, 2023.

of the three months ended March 31, 2023, the Company’s Entertainment segment had repaid $ 291,143 towards the

principal on the loan through remittances and had an outstanding balance of $ 708,857 .

of the six months ended June 30, 2023, the Company’s Entertainment segment had repaid $ 824,383 towards the principal on the loan

through remittances and had an outstanding balance of $ 175,617 .

April 5, 2023, the Company entered into and consummated the initial closing (the “First Closing”)

of the transactions contemplated by a Securities Purchase Agreement, dated as of April 5, 2023 (the “Purchase Agreement”),

between the Company and certain investors (the “Purchasers”).

the First Closing, the Company issued and sold to the Purchasers Senior Secured Convertible Notes in the aggregate original principal

amount of $ 3,000,000 (the “Notes”) and warrants (the “Warrants”).

The Purchase Agreement provided for a ten percent

( 10 %) original interest discount resulting in gross proceeds to the Company of $ 2,700,000 .

No interest accrues under the Notes.

are exercisable for an aggregate 1,125,000 shares comprised of 375,000 warrants at an exercise price of $ 5.50 per share of the Company’s

common stock, par value $ 0.001 (the “Common Stock”), 375,000 warrants at an exercise price of $ 6.50 per share of Common Stock, and 375,000

warrants at an exercise price of $ 7.50 per share of Common Stock.

to certain conditions, within 18 months from the effectiveness date and while the Notes remain outstanding, the Purchasers have the

right to require the Company to consummate a second closing of up to an additional $ 3,000,000

of Notes (the “Second Notes”) and Warrants on the same terms and conditions as the First Closing, except that the Second

Notes may be subordinate to a mortgage on the Company’s headquarters building (the “Bank Mortgage”).

Notes are convertible into shares of Common Stock at the election of the Purchasers at any time at a fixed conversion price of $ 5.00

(the “Conversion Price”) per share

of Common Stock.

The Conversion Price is subject to customary adjustments for stock dividends, stock splits, reclassifications and the

like, and subject to price-based adjustment in the event of any issuances of Common Stock, or securities convertible, exercisable or

exchangeable for, Common Stock at a price below the then-applicable Conversion Price (subject to certain exceptions).

Subject to certain

conditions, including certain equity conditions, the Company may redeem some or all of the then outstanding principal amount of the Note

for cash in an amount equal to 110 %

of the outstanding principal amount of the Notes (the “Optional Redemption Amount”).

In addition, the Purchasers may, at

their option, demand repayment at the Optional Redemption Amount upon five (5) business days’ written notice following (i) the

closing by the Company of the Bank Mortgage, or (ii) a sale by the Company of Common Stock or Common Stock equivalents.

Notes rank senior to all outstanding and future indebtedness of the Company and its subsidiaries, and are secured by substantially all

of the Company’s assets, as evidenced by (i) a security agreement entered into at the Closing,

(ii) a trademark security agreement entered into at the Closing, (iii) a patent security

agreement entered into at the Closing, (iv) a guaranty executed by all direct and indirect

subsidiaries of the Company pursuant to which each of them has agreed to guaranty the obligations of the

Company under the Notes, and (v) a mortgage on the Company’s headquarters building in favor of the Purchasers.

at the Closing, the Company entered into a Registration Rights Agreement (the “Registration Rights Agreement”) with the Purchasers.

Pursuant to the terms of the Registration Rights Agreement, the Company has agreed to prepare and file with the SEC within the 10th business

day following the First Closing (the “Filing Date”) a registration statement covering the resale of the shares of Common

Stock issuable upon conversion of the Notes and exercise of the Warrants, and to use its best efforts to cause such Registration Statement

to be declared effective under the Securities Act of 1933, as amended (the “Securities Act”), as promptly as possible, but

in any event no later than 45 days following the Filing Date (the “Effectiveness Date”).

If the Registration Statement is

not filed by the Filing Date or is not declared effective by the Effectiveness Date, or under certain other circumstances described in

the Registration Rights Agreement, then the Company shall be obligated to pay, as partial liquidated damages, to each Purchaser an amount

in cash equal to 2 % of the original principal amount of the Notes each month until the applicable event giving rise to such payments

If the Company fails to pay any partial liquidated damages in full within seven days after the date payable, the Company will

pay interest thereon at a rate of 10 % per annum.

Company recognized the full warrant derivative value, with the remaining amount being allocated to the debt obligation.

the warrant derivative value exceeded the net proceeds from the issuance, the excess amount is recognized as a loss on the date of the

Thus, the Company recorded a loss of $ 576,380 as an interest expense on the date of issuance relating to the Convertible note.

The following is the assumptions used

in calculating the estimated grant-date fair value of the detachable warrants to purchase common stock granted in connection with the

Convertible Note:

OF WARRANT TO PURCHASE COMMON STOCK GRANTED

April 5, 2023

(issuance date)

Volatility - range

Risk-free rate

Remaining contractual term

Exercise price

$ 5.50 – 7.50

Common stock issuable under the warrants

is a summary of activity relative to the Convertible Note for the six months ended June 30, 2023:

SUMMARY OF CONVERTIBLE NOTE ACTIVITY

Balance, December 31, 2022

Convertible Note, at par

Conversion of convertible note into common stock

Principal payments

Unamortized debt discount

( 1,975,909 )

Balance, June 30, 2023

During the three and six months

ended June 30, 2023 the Company amortized $ 925,455 of debt discount under interest expense, compared to $- 0 - for the three and six months

ended June 30, 2022.

On June 2, 2023, the Purchasers elected to convert $ 125,000 principal, at the fixed price of $ 5.00 per share of

common stock, 25,000 shares valued at $ 119,750 .

The loss on conversion of convertible note into common shares, of $ 93,386 , was recorded

during the period.

FAIR VALUE MEASUREMENT

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

basis as of March 31, 2023 and December 31, 2022:

basis as of June 30, 2023 and December 31, 2022:

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

March 31, 2023

June 30, 2023

Contingent consideration promissory notes and contingent consideration earn-out agreement

Liabilities, fair value

Warrant derivative liabilities

December 31, 2022

Contingent consideration promissory notes and contingent consideration earn-out agreement

Liabilities, fair value

following table represents the change in Level 3 tier value measurements for the three months ended March 31, 2023:

Warrant derivative liabilities

following table represents the change in Level 3 tier value measurements for the periods ended June 30, 2023:

SCHEDULE OF FAIR VALUE MEASUREMENTS CHANGE IN LEVEL 3 INPUTS

Contingent Consideration Promissory Notes

Warrant Derivative Liabilities

Balance, December 31, 2022

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Balance, March 31, 2023

Issuance of warrant derivative liabilities

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

Change in fair value of warrant derivative liabilities

Balance, June 30, 2023

ACCRUED EXPENSES

expenses consisted of the following at March 31, 2023 and December 31, 2022:

expenses consisted of the following at June 30, 2023 and December 31, 2022:

SCHEDULE OF ACCRUED EXPENSES

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Accrued taxes

Total accrued expenses

warranty expense was comprised of the following for the three months ended March 31, 2023:

accrued expenses

warranty expense was comprised of the following for the six months ended June 30, 2023:

SCHEDULE OF ACCRUED WARRANTY EXPENSE

Beginning balance

Provision for warranty expense

Charges applied to warranty reserve

Ending balance

effective tax rate for the three months ended March 31, 2023 and 2022 varied from the expected statutory rate due to the Company continuing

for warranty expense

applied to warranty reserve

effective tax rate for the three months ended June 30, 2023 and 2022 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 March 31, 2023, primarily because of the Company’s history of operating losses.

Company has incurred operating losses in recent years, and it continues to be in a three-year cumulative loss position at March 31, 2023.

valuation allowance on net deferred tax assets as of June 30, 2023, primarily because of the Company’s history of operating losses.

Company has incurred operating losses in recent years, and it continues to be in a three-year cumulative loss position at June 30, 2023.

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

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The Company has available to it approximately $ 113.3

million (based on its December 31, 2022 tax return) in net operating loss carryforwards to offset future taxable income as of March 31,

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

PREPAID EXPENSES

expenses were the following at March 31, 2023 and December 31, 2022:

expenses were the following at June 30, 2023 and December 31, 2022:

SCHEDULE OF PREPAID EXPENSE

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PROPERTY, PLANT AND EQUIPMENT

plant and equipment consisted of the following at March 31, 2023 and December 31, 2022:

plant and equipment consisted of the following at June 30, 2023 and December 31, 2022:

SCHEDULE OF PROPERTY, PLANT AND EQUIPMENT

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Net property, plant and equipment

Depreciation expense for the three months ended March

31, 2023 and March 31, 2022 was $ 171,631 and $ 135,438 , respectively, and is included in general and administrative expenses.

Depreciation expense for the three months ended June 30, 2023 and June 30, 2022 was $ 174,261 and $ 171,890 , respectively,

and is included in general and administrative expenses.

expense for the six months ended June 30, 2023 and June 30, 2022 was $ 345,892 and $ 307,328 , respectively, and is included in general

and administrative expenses.

OPERATING LEASE

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

lease as of March 31, 2023, was forty-five months .

lease as of June 30, 2023, was forty-two months .

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

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The remaining lease term for the Company’s copier operating

lease as of March 31, 2023, was seven months .

lease as of June 30, 2023, was four months .

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

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possession of the leased facilities on June 30, 2021.

The remaining lease term for the Company’s office operating lease as of March

31, 2023, was sixteen months .

The remaining lease term for the Company’s office operating lease as of June

30, 2023, was thirteen months .

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

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The remaining lease term for the

Company’s operating lease as of March 31, 2023 was eighty-four months .

Company’s operating lease as of June 30, 2023 was eighty-one months .

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 operating lease as of March 31, 2023 was three months.

The Company plans to relocate the entertainment operating segment acquired operations to existing owned or leased facilities upon termination

of this operating lease.

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

lease terms include monthly payments ranging from $ 7,211

thereafter, with a termination

date of December 2022 .

The Company is responsible for property taxes, utilities, insurance and its proportionate share of

common area costs related to this location.

The Company took possession of the leased facilities on September 1, 2021.

signed a six-month extension for the lease, extending the remaining lease term for the Company’s office with an expiry date of

June 30, 2023.

The Company signed a three-month

extension for the lease, extending the remaining lease term for the Company’s office and the remaining lease term for the

Company’s operating lease as of June 30, 2023 was three months.

The Company plans to relocate the entertainment operating

segment acquired operations to existing owned or leased facilities upon termination of this operating lease.

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

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The remaining lease term for the Company’s office operating lease as of

March 31, 2023, was twenty-seven months .

June 30, 2023, was twenty-four months .

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

Total lease expense under the six operating leases was approximately $ 142,402 during the three months ended March 31, 2023.

weighted-average remaining lease term related to the Company’s lease liabilities as of March 31, 2023 was 4.8 years.

Total lease expense under the six operating leases was approximately $ 156,856 and $ 297,117 , during the three and six months ended June

30, 2023, respectively.

weighted-average remaining lease term related to the Company’s lease liabilities as of June 30, 2023 was 4.6 years.

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

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

following sets forth the operating lease right of use assets and liabilities as of March 31, 2023:

following sets forth the operating lease right of use assets and liabilities as of June 30, 2023:

SCHEDULE OF OPERATING LEASES RIGHT OF USE ASSETS AND LIABILITIES

Operating lease right of use assets

Operating lease right of use assets, net

Operating lease obligations-current portion

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Total operating lease obligations

components of lease expense were as follows for the three months ended March 31, 2023:

OF LEASE EXPENSE

Selling, general and administrative expenses

components of lease expense were as follows for the six months ended June 30, 2023:

SCHEDULE OF LEASE EXPENSE

general and administrative expenses

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

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Year ending December 31:

2023 (April 1, to December 31, 2023)

2023 (July 1, to December 31, 2023)

Total undiscounted minimum future lease payments

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GOODWILL AND OTHER INTANGIBLE ASSETS

assets consisted of the following at March 31, 2023 and December 31, 2022:

assets consisted of the following at June 30, 2023 and December 31, 2022:

SCHEDULE OF INTANGIBLE ASSETS

March 31, 2023

June 30, 2023

December 31, 2022

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

expense for the three months ended March 31, 2023 and 2022 was $ 371,478 and $ 357,966 , respectively.

Estimated amortization for intangible

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

expense for the three months ended June 30, 2023 and 2022 was $ 374,714 and $ 358,944 , respectively, and $ 745,150 and $ 716,910 , for the

six months ended June 30, 2023 and 2022, respectively.

Estimated amortization for intangible assets with definite lives for the next

five years ending December 31 and thereafter is as follows:

SCHEDULE OF ESTIMATED AMORTIZATION FOR INTANGIBLE ASSETS

Year ending December 31:

2023 (April 1, to December 31, 2023)

2023 (July 1, to December 31, 2023)

2027 and thereafter

assets were the following at March 31, 2023 and December 31, 2022:

assets were the following at June 30, 2023 and December 31, 2022:

SCHEDULE OF OTHER ASSETS

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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.

of June 30, 2023, we are able to estimate a range of reasonably possible loss related to the Culp McCauley case, our estimate of the aggregate reasonably possible

loss (in excess of any accrued amounts) was approximately $ 1.8

Our estimate with respect to the aggregate reasonably possible loss is based upon currently available information and is

subject to significant judgment and a variety of assumptions and known and unknown uncertainties, which may change quickly and

significantly from time to time, particularly if and as we engage with applicable governmental agencies or plaintiffs in connection

with a proceeding.

Also, the matters underlying the reasonably possible loss will change from time to time.

As a result, actual

results may vary significantly from the current estimate.

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

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

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.”

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.

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.

STOCK-BASED COMPENSATION

Company recorded pre-tax compensation expense related to the grant of stock options and restricted stock issued of $ 179,482 and $ 294,331

for the three months ended March 31, 2023 and 2022, respectively.

of March 31, 2023, the Company had adopted ten separate stock option and restricted stock plans:

for the three months ended June 30, 2023 and 2022, and $ 321,779 and $ 776,350 for the six months ended June 30, 2023 and 2022, respectively.

of June 30, 2023, the Company had adopted ten separate stock option and restricted stock plans:

(i) the 2005 Stock Option and Restricted

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are now unavailable for issuance.

Stock options granted under the 2005 Plan that remain unexercised and outstanding as of March 31, 2023

Stock options granted under the 2005 Plan that remain unexercised and outstanding as of June 30, 2023

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 March 31, 2023 total 531 .

Stock options granted under the 2006 Plan that remain unexercised and outstanding as of June 30, 2023 total 531 .

Plan terminated during 2017 with 4,733 shares not awarded or underlying options, which shares are now unavailable for issuance.

are no stock options granted under the 2007 Plan that remain unexercised and outstanding as of March 31, 2023.

are no stock options granted under the 2007 Plan that remain unexercised and outstanding as of June 30, 2023.

The 2008 Plan terminated

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There are no stock options

granted under the 2008 Plan that remain unexercised and outstanding as of March 31, 2023.

granted under the 2008 Plan that remain unexercised and outstanding as of June 30, 2023.

option grants.

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A total of 137,042 shares remained available for awards under the various Plans

as of March 31, 2023.

as of June 30, 2023.

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

summary of all stock option activity under the Plans for the three months ended March 31, 2023 is as follows:

summary of all stock option activity under the Plans for the six months ended June 30, 2023 is as follows:

SUMMARY OF STOCK OPTIONS OUTSTANDING

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Outstanding at December 31, 2022

Outstanding at March 31, 2023

Exercisable at March 31, 2023

Outstanding at June 30, 2023

Exercisable at June 30, 2023

Plans allow for the cashless exercise of stock options.

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There were no shares surrendered pursuant to cashless exercises

during the three months ended March 31, 2023 and 2022.

aggregate intrinsic value of options outstanding was $- 0 - and $- 0 -, at March 31, 2023 and December 31, 2022, respectively.

during the six months ended June 30, 2023 and 2022.

aggregate intrinsic value of options outstanding was $- 0 - and $- 0 -, at June 30, 2023 and December 31, 2022, respectively.

The aggregate

intrinsic value of options exercisable was $- 0 - and $- 0 -, at March 31, 2023 and December 31, 2022, respectively.

of March 31, 2023, the unrecognized portion of stock compensation expense on all existing stock options was $- 0 -.

intrinsic value of options exercisable was $- 0 - and $- 0 -, at June 30, 2023 and December 31, 2022, respectively.

of June 30, 2023, the unrecognized portion of stock compensation expense on all existing stock options was $- 0 -.

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

options under the Company’s option plans as of March 31, 2023:

options under the Company’s option plans as of June 30, 2023:

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

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and the right to receive cash dividends.

summary of all restricted stock activity under the Plans for the three months ended March 31, 2023 is as follows:

summary of all restricted stock activity under the Plans for the six months ended June 30, 2023 is as follows:

SUMMARY OF RESTRICTED STOCK ACTIVITY

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Nonvested balance, December 31, 2022

Nonvested balance, March 31, 2023

Nonvested balance, June 30, 2023

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

March 31, 2023, there were $ 559,045 of total unrecognized compensation costs related to all remaining non-vested restricted stock grants,

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

June 30, 2023, there were $ 298,313 of total unrecognized compensation costs related to all remaining non-vested restricted stock grants,

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

nonvested balance of restricted stock vests as follows:

SCHEDULE OF NON-VESTED BALANCE OF RESTRICTED STOCK

2023 (April 1, 2023 through December 31, 2023)

2023 (July 1, 2023 through December 31, 2023)

COMMON STOCK PURCHASE WARRANTS

Purchase Warrants

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 39,162

shares of common stock at $ 52.00

to $60.00 per share as of March 31, 2023.

warrants expire from April 3, 2023 through July 31, 2023 and under certain circumstances allow for cashless

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 1,148,286 shares of common stock at $ 5.50 to $ 52.00 per share as of June 30, 2023.

The warrants expire from July 31, 2023

through April 5, 2028 and under certain circumstances allow for cashless exercise.

January 14, 2021 and February 1, 2021, the Company issued warrants to purchase a total of 2,127,500 shares of Common Stock.

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derivative liabilities through the consolidated statement of operations.

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.

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.

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 (the “February Warrants”) 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

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

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.

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

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SCHEDULE OF WARRANT MODIFICATION

Original terms at August 19, 2021

Modified terms at August 19, 2021

terms at August 19, 2021

Volatility - range

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Exercise price

Common stock issuable under the warrants

Common stock issuable under

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

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August 23, 2022

Volatility - range

Risk-free rate

3.17 - 3.36 %

Remaining contractual term

3.4 - 4.1 years

Exercise price

Common stock issuable under the warrants

contractual term

stock issuable under the warrants

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

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

following table summarizes information about shares issuable under warrants outstanding during the three months ended March 31, 2023:

Purchase Warrants

April 5, 2023, the Company issued warrants to purchase a total of 1,125,000 shares of Common Stock.

The warrant terms provide for net

cash settlement outside the control of the Company under certain circumstances.

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.

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

warrant derivative liabilities as of their date of issuance and as of June 30, 2023:

date assumptions

30, 2023 assumptions

contractual term

stock issuable under the warrants

following table summarizes information about shares issuable under warrants outstanding during the six months ended June 30, 2023:

SUMMARY OF WARRANT ACTIVITY

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Forfeited/cancelled

Vested Balance, March 31, 2023

total intrinsic value of all outstanding warrants aggregated $- 0 - as of March 31, 2023, and the weighted average remaining term is four

Vested Balance, June 30, 2023

total intrinsic value of all outstanding warrants aggregated $- 0 - as of June 30, 2023, and the weighted average remaining term is fifty-six

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 March 31, 2023:

warrants to purchase shares of Common Stock as of June 30, 2023:

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

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Exercise price

Number of warrants

Weighted average

contractual life

remaining contractual life

STOCKHOLDERS’ EQUITY

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anniversary dates in January through January 2025, provided that each grantee remains an employee of the company on such dates.

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

The Reverse Stock Split was effective as of time of filing.

No fractional shares were issued in connection with the Reverse Stock

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.

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.

As a result of the Reverse Stock Split, no fractional shares of new common stock will be issued in connection with

the Reverse Stock Split, all of which shares of new common stock shall be rounded up to the nearest whole number of such shares.

the Company issued 24,206 shares pursuant to Reverse Stock Split related to rounding up to the nearest whole number of shares.

Noncontrolling

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) loss

attributable to noncontrolling interests of consolidated subsidiary of ($ 126,239 ) and $ 98,094 for the three months ended March 31, 2023

and 2022, respectively.

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 $ 72,754

and $ 383,326

for the three months ended June 30, 2023 and

2022, and $ 198,993

and $ 285,232

for the six months ended June 30, 2023 and 2022,

respectively.

Noncontrolling

the six months ended June 30, 2023, the Company cancelled 3,625 shares for various reasons.

of Convertible Note

the six months ended June 30, 2023, pursuant to the Convertible Note, the Purchasers elected to convert $ 125,000 principal, at the fixed price of

per share of common stock, 25,000

shares valued at $ 119,750 .

NET EARNINGS (LOSS) PER SHARE

calculation of the weighted average number of shares outstanding and loss per share outstanding for the three months ended March 31,

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

30, 2023 and 2022 are as follows:

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

months ended March 31,

Numerator for basic and diluted income (loss) per share – Net income (loss)

the three months ended

the six months ended

Numerator for basic and diluted

income per share – Net loss attributable to common stockholders

$ ( 8,393,304 )

$ ( 1,065,513 )

Denominator for basic income (loss) per share – weighted average shares outstanding

Dilutive effect of shares issuable upon conversion of convertible debt and the exercise of stock options and warrants outstanding

Denominator for diluted income (loss) per share – adjusted weighted average shares outstanding

Net income (loss) per share:

$ ( 14,499,122 )

$ ( 7,665,662 )

Denominator for basic loss per share – weighted average shares outstanding

Dilutive effect of shares issuable under stock options and warrants outstanding

Denominator for diluted loss per share – adjusted weighted average shares outstanding

Net loss per share:

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

For the three months

ended March 31, 2023 and 2022, all shares issuable upon conversion of convertible debt and the exercise of outstanding stock options

For the three and six

months ended June 30, 2023 and 2022, all shares issuable upon conversion of convertible debt and the exercise of outstanding stock options

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

DIGITAL ALLY HEALTHCARE VENTURE

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

Nobility will receive a management fee and 49% of the distributable cash, subordinated to Digital Ally Healthcare’s preferred

The venture comprises the Company’s revenue cycle management segment.

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 promissory 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,

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 and, 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

June 4, 2021, Digital Ally Healthcare, a wholly owned subsidiary of the Company, entered into a venture with Nobility LLC

(“Nobility”), an eight-year-old revenue cycle management (“RCM”) company servicing the medical industry, to

form Nobility Healthcare, LLC (“Nobility Healthcare”).

Digital Ally Healthcare is capitalizing the venture with $ 13.5 million

to support the venture’s business strategy to make acquisitions of RCM companies.

Ally Healthcare owns 51% of the venture that entitles it to 51% of the distributable cash as defined in the venture’s

operating agreement plus a cumulative preferred return of 10% per annum on its invested capital.

Nobility will receive a management

fee and 49% of the distributable cash, subordinated to Digital Ally Healthcare’s preferred return.

comprises the Company’s revenue cycle management segment.

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 “June Initial Payment Amount”) of $ 850,000 .

In addition to the June 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 promissory 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 and, 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.

Company accounts for business combinations using the acquisition method and that the Company has early adopted the amendments of Regulation

Company accounts for business combinations using the acquisition method and the Company has early adopted the amendments of Regulation

S-X dated May 21, 2020 and has concluded that this acquisition was not significant.

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FAIR VALUE OF ASSETS ACQUIRED AND LIABILITIES ACQUISITION

June 30, 2021

June 30, 2022

Purchase price allocation

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Amortization through

March 31, 2023

June 30, 2023

Identifiable intangible assets:

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Obligations”.

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.

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 “August Initial Payment Amount”) of $ 2,270,000 .

In addition to the August 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.

Company accounts for business combinations using the acquisition method and that the Company has early adopted the amendments of Regulation

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Amortization through

March 31, 2023

June 30, 2023

Identifiable intangible assets:

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Obligations”.

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.

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 “January Initial Payment Amount”) of $ 1,153,626 .

In addition to the January 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.

Company accounts for business combinations using the acquisition method and that the Company has early adopted the amendments of Regulation

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Obligations”.

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

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 “February Initial Payment Amount”) of $ 230,000 .

In addition to the February 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.

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

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TICKETSMARTER ACQUISITION

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”) (such acquisitions, collectively, the “TicketSmarter Acquisition”).

TicketSmarter, Inc.

September 1, 2021, the Company formed 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”) (such acquisitions, collectively, the “TicketSmarter Acquisition”).

TicketSmarter,

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

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.

In accordance with the stock purchase agreement, the Company

agreed to an initial payment (the “TicketSmarter Initial Payment Amount”) of $ 9,403,600

through a combination of cash and Common Stock.

In addition to the TicketSmarter 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.

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

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 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.

Company accounts for business combinations using the acquisition method and that the Company has early adopted the amendments of Regulation

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

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

purchase price allocation

September 30,

SCHEDULE OF PARLIAMENT AND FINAL ESTIMATED FAIR VALUE OF ASSETS ACQUIRED AND LIABILITIES ASSUMED ACQUISITION

Preliminary purchase price allocation

Assets acquired:

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the date of acquisition:

SCHEDULE OF COMPONENTS

OF IDENTIFIABLE INTANGIBLE ASSETS ACCRUED AND ESTIMATED USEFUL LIVES

SCHEDULE OF COMPONENTS OF IDENTIFIABLE INTANGIBLE ASSETS ACCRUED AND ESTIMATED USEFUL LIVES

Amortization through

March 31, 2023

June 30, 2023

Identifiable intangible assets:

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

There were no adjustments to the allocation of the purchase price during the three months ended March 31, 2023.

There were no adjustments to the allocation of the purchase price during the six months ended June 30, 2023.

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

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

financial information for the Company’s reportable business segments is provided for the indicated periods and as of March 31,

2023, and March 31, 2022:

financial information for the Company’s reportable business segments is provided for the indicated periods and as of June 30, 2023,

and June 30, 2022:

SCHEDULE OF SEGMENT REPORTING

Three Months Ended March 31,

the three months ended June 30,

the six months ended June 30,

Net Revenues:

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$ ( 1,130,749 )

$ ( 3,328,173 )

$ ( 2,846,004 )

Revenue Cycle Management

4 unchanged sentences

( 3,398,832 )

Total Operating Income (Loss)

( 3,457,110 )

( 6,479,211 )

( 6,970,828 )

Total Operating Loss

$ ( 4,940,704 )

$ ( 6,661,252 )

$ ( 11,113,511 )

$ ( 13,464,590 )

Depreciation and Amortization:

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LLC is currently the managing member of 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 2021.

The outstanding balance of the working capital loan was $ 138,384 as of March 31, 2023 and the Company anticipates full repayment of this

advance during the year ended December 31, 2023.

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 2021.

The outstanding balance

of the working capital loan was $ 138,384

as of June 30, 2023 and the Company anticipates

full repayment of this advance during the year ended December 31, 2023.

SUBSEQUENT EVENTS

April 5, 2023, Digital Ally, Inc.

(the “Company”) entered into and consummated the initial closing (the “First Closing”)

of the transactions contemplated by a Securities Purchase Agreement, dated as of April 5, 2023 (the “Purchase Agreement”),

between the Company and certain investors (the “Purchasers”).

the First Closing, the Company issued and sold to the Purchasers Senior Secured Convertible Notes in the aggregate original principal

amount of $ 3,000,000 (the “Notes”) and warrants (the “Warrants”).

The Purchase Agreement provided for a ten percent

( 10 %) original interest discount resulting in gross proceeds to the Company of $ 2,700,000 .

No interest accrues under the Notes.

are exercisable for an aggregate 1,125,000 shares comprised of 375,000 warrants at an exercise price of $ 5.50 per share of the Company’s

common stock (the “Common Stock”), 375,000 warrants at an exercise price of $ 6.50 per share of Common Stock, and 375,000

warrants at an exercise price of $ 7.50 per share of Common Stock.

to certain conditions, within 18 months from the Effectiveness Date (as defined below) and while the Notes remain outstanding, the Purchasers

have the right to require the Company to consummate a second closing of up to an additional $ 3,000,000 of Notes and Warrants on the

same terms and conditions as the First Closing, except that the Notes may be subordinate to a mortgage on the Company’s headquarters

building (the “Bank Mortgage”).

Notes are convertible into shares of Common Stock at the election of the Purchasers at any time at a fixed conversion price of $ 5.00

(the “Conversion Price”) per share of Common Stock.

The Conversion Price is subject to customary adjustments for stock dividends,

stock splits, reclassifications and the like, and subject to price-based adjustment in the event of any issuances of Common Stock, or

securities convertible, exercisable or exchangeable for, Common Stock at a price below the then-applicable Conversion Price (subject

to certain exceptions).

Subject to certain conditions, including certain equity conditions, the Company may redeem some or all of the

then outstanding principal amount of the Note for cash in an amount equal to 110 % of the outstanding principal amount of the Notes (the

“Optional Redemption Amount”).

In addition, the Purchasers may, at their option, demand repayment at the Optional Redemption

Amount upon five (5) business days’ written notice following (i) the closing by the Company of the Bank Mortgage, or (ii) a sale

by the Company of Common Stock or Common Stock equivalents.

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

What changed 10-Q

Item 1. Financial Statements