What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-08-14 compared with 2023-05-15 · 591 added, 257 removed, 626 unchanged (58% of the section changed)

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(the “Company”, “we”, “us”,

or “our”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended,

or “our”) contains forward-looking statements within the meaning of Section 27A of the Securities Act,

and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

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(22) the issuance or sale of substantial

amounts of our common stock, or the perception that such sales may occur in the future, which may have a depressive effect on the market

price of our securities;

(23) potential dilution from the issuance of common stock underlying outstanding options and warrants;

our additional securities available for issuance, which, if issued, could adversely affect the rights of the holders of our common stock;

(25) the volatility of our stock price due to a number of factors, including, but not limited to, a relatively limited public float;

amounts of our Common Stock, or the perception that such sales may occur in the future,

which may have a depressive effect on the market price of our securities;

(23) potential dilution from the issuance of Common Stock underlying

outstanding options and warrants;

(24) our additional securities available for issuance, which, if issued, could adversely affect the

rights of the holders of our Common Stock;

(25) the volatility of our stock price due to a number of factors, including, but not limited

to, a relatively limited public float;

(26) our ability to integrate and realize the anticipated benefits from acquisitions;

(27) our ability to maintain the listing of our

common stock on the Nasdaq Capital Market.

ability to maintain the listing of our Common Stock on the Nasdaq Capital Market.

Trends and Recent Developments for the Company

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term of the subscription, typically 3 or 5 years.

Cycle Management Operating Segment – We have recently entered the revenue cycle management business late in the second quarter

Cycle Management Operating Segment – We have entered the revenue cycle management business late in the second quarter

of 2021 with the formation of our wholly owned subsidiary, Digital Ally Healthcare, Inc.

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Entertainment

Operating Segment - We have also recently entered into live entertainment and events ticketing services through the formation of

Operating Segment - We have also entered into live entertainment and events ticketing services through the formation of

our wholly owned subsidiary, TicketSmarter and its completed acquisitions of Goody Tickets, LLC and TicketSmarter, LLC, on September

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maintenance fees, along with other administrative costs.

Business Combination

On June 1, 2023, the Company,

entered into the Merger Agreement with Clover Leaf, Merger Sub, the Sponsor, and Kustom.

Pursuant to the Merger Agreement,

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

Merger Sub will merge with and into Kustom, 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.

Upon consummation of the Business Combination, Clover Leaf will change its name to “Kustom Entertainment,

The 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 (i)

$125 million, minus (ii) the estimated Closing Indebtedness.

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

the delivery of 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.

Kustom is comprised of TicketSmarter

and 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.

The 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.

The 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 redemptions.

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.

The transaction has been approved

by 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.

of Operations

financial information for the Company’s reportable business segments is provided for the three months ended March 31, 2023, and

Three Months Ended March 31,

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:

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

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$ (6,661,252 )

$ (11,113,511 )

$ (13,464,590 )

Depreciation and Amortization:

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Results of Operations

experienced operating losses for the first quarter of 2023 and all quarters during 2022.

experienced operating losses for the first half of 2023 and all quarters during 2022.

The following is a summary of our recent operating

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For the three months ended:

September 30,

Total revenue

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Total selling, general and administrative expenses

Operating income (loss)

Operating income (loss) %

Net income (loss)

Operating loss

Operating loss %

$ (8,320,549 )

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We reported a net loss of $8,320,550 on

revenues of $7,697,190 for first quarter of 2023.

revenues of $8,279,632 for second quarter of 2023.

Sheet Arrangements

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that represent commitments to future payments for goods and services.

the Three Months Ended March 31, 2022 and 2021

the Three Months Ended June 30, 2023 and 2022

of Operations

immediately below and discussed in more detail in the subsequent subsections is an analysis of our operating results for the three months

ended March 31, 2023 and 2022, represented as a percentage of total revenues for each such quarter:

Months Ended March 31,

ended June 30, 2023 and 2022, represented as a percentage of total revenues for each such quarter:

the three months ended June 30,

Cost of revenue

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Operating loss

Change in fair value of short-term investments

Loss on accrual for legal settlement

Change in fair value of contingent consideration promissory notes

Loss on conversion of convertible notes

Change in fair value of derivative liabilities

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revenues by operating segment is as follows:

Three Months Ended March

the three months ended

Product Revenues:

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Total Product Revenues

revenues for the three months ended March 31, 2023 and 2022 were $2,453,810 and $2,410,060 respectively, an increase of $43,750 (2%),

revenues for the three months ended June 30, 2023 and 2022 were $3,077,661 and $2,210,181 respectively, an increase of $867,480 (39%),

due to the following factors:

generated by the new entertainment operating segment began with the Company’s September 2021 acquisition of TicketSmarter.

The new entertainment operating segment generated $1,260,789 in product revenues for the three months ended March 31, 2023, compared

to $1,073,830 for the three months ended March 31, 2022.

This product revenue relates to the resale of tickets purchased for live

events, including sporting events, concerts, and theatre, then sold through various platforms to customers.

Company’s video segment operating segment generated revenues totaling $1,193,021 during the three months ended March 31, 2023

compared to $1,336,230 for the three months ended March 31, 2022.

The new entertainment operating segment generated $1,929,059 in product revenues for the three months ended June 30, 2023, compared

to $805,939 for the three months ended June 30, 2022, an increase of $1,123,120 (39%).

This product revenue relates to the first Kustom 440 music festival,

as well as the resale of tickets purchased for live events, including sporting events, concerts, and theatre, then sold through various

platforms to customers.

Company’s video segment operating segment generated revenues totaling $1,148,602 during the three months ended June 30, 2023

compared to $1,404,242 for the three months ended June 30, 2022, a decrease of $255,640 (18%).

In general, our video solutions operating segment has experienced

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and other revenues by operating segment is as follows:

Three Months Ended March 31,

the three months ended

Service and Other Revenues:

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Total Service and Other Revenues

and other revenues for the three months ended March 31, 2023 and 2022 were $5,243,380 and $7,884,721, respectively, a decrease of $2,641,341

and other revenues for the three months ended June 30, 2023 and 2022 were $5,201,971 and $7,141,276, respectively, a decrease of $1,939,305

(27%), due to the following factors:

revenues generated by the video solutions operating segment were $422,823 and $270,925 for the three months ended March 31, 2023

and 2022, respectively, an increase of $151,898 (56%).

revenues generated by the video solutions operating segment were $471,949 and $365,599 for the three months ended June 30, 2023 and

2022, respectively, an increase of $106,350 (29%).

We have experienced increased interest in our cloud solutions for law enforcement

primarily due to the deployment of our cloud-based EVO-HD in-car system and our next generation body-worn camera products, which

contributed to our increased cloud revenues in the three months ended March 31, 2023.

contributed to our increased cloud revenues in the three months ended June 30, 2023.

We expect this trend to continue throughout

2023 as the migration from local storage to cloud storage continues in our customer base.

solutions operating segment revenues from extended warranty services were $211,847 and $199,491 for the three months ended March

solutions operating segment revenues from extended warranty services were $221,228 and $163,639 for the three months ended June 30,

2023 and 2022, respectively, an increase of $57,589 (35%).

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resulting in an increase in their associated extended warranty.

entertainment operating segment generated service revenues totaling $2,755,447 and $5,306,945 for the three months ended March 31,

entertainment operating segment generated service revenues totaling $2,726,211 and $4,375,024 for the three months ended June 30,

2023 and 2022, respectively, a decrease of $1,648,813 (38%).

The Company completed the acquisitions of Goody Tickets, LLC and TicketSmarter,

LLC on September 1, 2021, thus resulting in the new revenue stream for the Company.

TicketSmarter collects fees on transactions administered

through the TicketSmarter.com platform for the buying and selling of tickets for live events throughout the country.

We expect our

entertainment operating segment to continue to present a strong revenue outlook moving forward.

The Company completed the acquisitions of Goody Tickets, LLC and

TicketSmarter, LLC on September 1, 2021, thus resulting in the new revenue stream for the Company.

TicketSmarter collects fees on

transactions administered through the TicketSmarter.com platform for the buying and selling of tickets for live events throughout

We expect our entertainment operating segment to continue to fluctuate as we look to right-size this segment and work

towards profitability.

revenue cycle management operating segment generated service revenues totaling $1,724,772 and $2,120,738 for the three months ended

March 31, 2023 and 2022, respectively, a decrease of $122,367 (6%).

June 30, 2023 and 2022, respectively, a decrease of $395,966 (19%).

Our revenue cycle management operating segment has completed

four acquisitions since formation in June of 2021, thus resulting in the new service revenue stream added in the three months ended

March 31, 2022.

June 30, 2022.

Our revenue cycle management operating segment provides revenue cycle management solutions and back-office services

to healthcare organizations throughout the country.

We expect our revenue cycle management segment to continue to present a strong

revenue outlook moving forward.

revenues for the three months ended March 31, 2023 and 2022 were $7,697,190 and $10,294,781, respectively, a decrease of $2,597,591 (25%),

The slight decrease in revenue is due to refinement within one of the recent acquisitions, as they strive to maximize

profitability rather than focus on top line revenue.

revenues for the three months ended June 30, 2023 and 2022 were $8,279,632 and $9,351,458, respectively, a decrease of $1,071,826 (11%),

due to the reasons noted above.

of Product Revenue

cost of product revenue sold for the three months ended March 31, 2023, and 2022 was $2,315,180 and $2,822,051, respectively, a decrease

cost of product revenue sold for the three months ended June 30, 2023, and 2022 was $2,219,515 and $2,070,476, respectively, an increase

of $149,039 (7%).

Overall cost of goods sold for products as a percentage of product revenues for the three months ended March 31, 2023,

Overall cost of goods sold for products as a percentage of product revenues for the three months ended June 30, 2023,

and 2022 were 72% and 94%, respectively.

Cost of products sold by operating segment is as follows:

Three Months Ended March 31,

the three months ended

Cost of Product Revenues:

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decrease in cost of goods sold for our video solutions segment products is directly correlated with the decrease in product sales for

the three months ended March 31, 2023 compared to the three months ended March 31, 2022.

the three months ended June 30, 2023 compared to the three months ended June 30, 2022.

In addition, the Video Solutions Segment recorded

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Cost of product

sold as a percentage of product revenues for the video solutions segment decreased to 87% for the three months ended March 31, 2023 as

compared to 111% for the three months ended March 31, 2022.

decrease in entertainment operating segment cost of product sold directly correlates to the decrease in product revenues for the three

months ended March 31, 2023 compared to March 31, 2022, resulting in cost of product revenue of $1,263,506 for the three

months ended March 31, 2022, compared to $1,344,336 for the three months ended March 31, 2022.

Cost of product sold as

a percentage of product revenues for the entertainment segment was 100% for the three months ended March 31, 2023 as compared to 125% for the three months ended March 31, 2022.

We recorded $5,409,107 and $5,489,541

in reserves for obsolete and excess inventories at March 31, 2023 and December 31, 2022, respectively.

Total raw materials, component

parts, and work-in-progress were $3,934,946 and $4,512,329 at March 31, 2023 and December 31, 2022, respectively, a decrease of $577,383

Finished goods balances were $7,395,240 and $7,816,618 at March 31, 2023 and December 31, 2022, respectively, a decrease of $421,378

(5%) which was attributable to a decrease in finished goods from our entertainment segment.

The small decrease in the inventory reserve

is primarily due to the reduction in finished goods and movement of excess inventory, offset by the increase in reserve at the entertainment

We believe the reserves are appropriate given our inventory levels as of March 31, 2023.

sold as a percentage of product revenues for the video solutions segment decreased to 70% for the three months ended June 30, 2023 as

compared to 73% for the three months ended June 30, 2022.

increase in entertainment operating segment cost of product sold directly correlates to the increase in product revenues for the three

months ended June 30, 2023 compared to June 30, 2022, resulting in cost of product revenue of $1,414,126 for the three months ended June

30, 2023, compared to $1,041,073 for the three months ended June 30, 2022.

Cost of product sold as a percentage of product revenues for

the entertainment segment was 73% for the three months ended June 30, 2023 as compared to 129% for the three months ended June 30, 2022.

recorded $5,414,534 and $5,489,541 in reserves for obsolete and excess inventories at June 30, 2023 and December 31, 2022, respectively.

Total raw materials, component parts, and work-in-progress were $3,673,516 and $4,512,329 at June 30, 2023 and December 31, 2022, respectively,

a decrease of $838,813 (19%).

Finished goods balances were $7,581,234 and $7,816,618 at June 30, 2023 and December 31, 2022, respectively,

a decrease of $235,384 (3%) which was attributable to a decrease in finished goods from our entertainment segment.

The small decrease

in the inventory reserve is primarily due to the reduction in finished goods and movement of excess inventory, offset by the increase

in reserve at the entertainment segment.

We believe the reserves are appropriate given our inventory levels as of June 30, 2023.

of Service Revenue

Overall cost of service revenue

sold for the three months ended March 31, 2023, and 2022 was $3,851,298 and $5,533,111, respectively, a decrease of $1,681,813 (30%).

Overall cost of goods sold for services as a percentage of service revenues for the three months ended March 31, 2023, and 2022 were 73%

and 70%, respectively.

cost of service revenue sold for the three months ended June 30, 2023, and 2022 was $3,323,077 and $5,561,903, respectively, a decrease

of $2,238,826 (40%).

Overall cost of goods sold for services as a percentage of service revenues for the three months ended June 30,

2023, and 2022 were 64% and 78%, respectively.

Cost of service revenues by operating shipment is as follows:

Three Months Ended March 31,

the three months ended

Cost of Service Revenues:

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increase in cost of service revenues for our video solutions segment is commensurate with the increase in service revenues in the three

months ended March 31, 2023 compared to the three months ended March 31, 2022.

months ended June 30, 2023 compared to the three months ended June 30, 2022.

Cost of service revenues as a percentage of service revenues

for the video solutions segment increased to 46% for the three months ended March 31, 2023 as compared to 39% for the three months ended

March 31, 2022.

for the video solutions segment increased to 42% for the three months ended June 30, 2023 as compared to 40% for the three months ended

June 30, 2022.

of service revenues as a percentage of service revenues for the revenue cycle management operating segment was 53% for the three months

ended March 31, 2023 as compared to 63% for the three months ended March 31, 2022.

ended June 30, 2023 as compared to 55% for the three months ended June 30, 2022.

decrease in entertainment operating segment cost of service revenues is commensurate with the decrease in service revenues in the three

months ended March 31, 2023, compared to the three months ended March 31, 2022.

months ended June 30, 2023, compared to the three months ended June 30, 2022.

Cost of service revenues as a percentage of service revenues

for the entertainment segment was 91% for the three months ended March 31, 2023 as compared to 77% for the three months ended March 31,

Overall gross profit for the three

months ended March 31, 2022 and 2021 was $1,544,792 and $1,939,619, respectively, a decrease of $394,827 (20%).

Gross profit by operating

segment was as follows:

Months Ended March 31,

for the entertainment segment was 77% for the three months ended June 30, 2023 as compared to 95% for the three months ended June 30,

gross profit for the three months ended June 30, 2023 and 2022 was $2,737,040 and $1,719,078, respectively, an increase of $1,017,962

Gross profit by operating segment was as follows:

the three months ended June 30,

Gross Profit:

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Total Gross Profit

overall decrease is attributable to the decrease in revenues for the three months ended March 31, 2023 and a decrease in the overall

cost of sales as a percentage of overall revenues to 80% for the three months ended March 31, 2023 from 81% for the three months ended

March 31, 2022.

Our goal is to improve our margins over the longer term based on the expected margins generated by our new recent revenue

cycle management and entertainment operating segments together with our video solutions operating segment and its expected margins from

our EVO-HD, DVM-800, VuLink, FirstVu Pro, FirstVu II, Shield TM disinfectants and our cloud evidence storage and management

offering, provided that they gain traction in the marketplace.

In addition, if revenues from the video solutions segment increase, we

will seek to further improve our margins from this segment through expansion and increased efficiency utilizing fixed manufacturing overhead

We plan to continue our initiative to more efficient management of our supply chain through outsourcing production, quantity

purchases and more effective purchasing practices.

overall increase is attributable to the large increase in gross profit for the entertainment segment for the three months ended June

30, 2023 along with a decrease in the overall cost of sales as a percentage of overall revenues to 67% for the three months ended June

30, 2023 from 82% for the three months ended June 30, 2022.

Our goal is to continue to improve our margins over the longer term based

on the expected margins generated by our new recent revenue cycle management and entertainment operating segments together with our video

solutions operating segment and its expected margins from our EVO-HD, DVM-800, VuLink, FirstVu Pro, FirstVu II, Shield TM disinfectants

and our cloud evidence storage and management offering, provided that they gain traction in the marketplace.

In addition, if revenues

from the video solutions segment increase, we will seek to further improve our margins from this segment through expansion and increased

efficiency utilizing fixed manufacturing overhead components.

We plan to continue our initiative to more efficiently management of our

supply chain through outsourcing production, quantity purchases and more effective purchasing practices.

General and Administrative Expenses

Selling, general and administrative

expenses were $7,717,598 and $8,742,957 for the three months ended March 31, 2023 and 2022, respectively, a decrease of $1,025,359 (12%).

The decrease was primarily attributable to the reduction in new sponsorships being entered into by the Company.

Our selling, general and

administrative expenses as a percentage of sales increased to 100% for the three months ended March 31, 2023 compared to 85% in the same

period in 2022.

The significant components of selling, general and administrative expenses are as follows:

Three months ended March 31,

general and administrative expenses were $7,677,744 and $8,380,330 for the three months ended June 30, 2023 and 2022, respectively, a

decrease of $702,586 (8%).

The decrease was primarily attributable to the reduction in new sponsorships being entered into by the

Our selling, general and administrative expenses as a percentage of sales increased to 93% for the three months ended June

30, 2023 compared to 90% in the same period in 2022.

The significant components of selling, general and administrative expenses are as

the three months ended June 30,

Research and development expense

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General and administrative expense

Research and development

We continue to focus on bringing new products to market, including updates and improvements to current products.

research and development expenses totaled $934,939 and $498,000 for the three months ended March 31, 2023 and 2022, respectively, an increase

of $436,939 (88%).

Most of our engineers are dedicated to research and development activities for new products, primarily the new generation

of body-worn cameras, EVO-HD and EVO Fleet that can be located in multiple places in a vehicle.

We expect our research and development

activities will continue to trend higher in future quarters as we continue to expand our product offerings based on our new body-worn

camera and EVO-HD product platform and as we outsource more development projects.

We consider our research and development capabilities

and new product focus to be a competitive advantage and intend to continue to invest in this area on a prudent basis and consistent with

our financial resources.

Selling, advertising and

promotional expenses.

Selling, advertising and promotional expense totaled $1,847,489 and $2,779,404 for the three months ended

March 31, 2023 and 2022, respectively, a decrease of $931,915 (34%).

Promotional and advertising expenses represent the primary component

of these costs and totaled $1,462,541 during the three months ended March 31, 2023, compared to $2,389,063 during the three months ended

March 31, 2022, a decrease of $926,522 (39%).

The decrease is primarily attributable to the reduction in new sponsorships being entered

into by the Company.

Additionally, TicketSmarter remains active in sponsorship and advertising, as it continues to build its brand and

gain recognition.

General and administrative

General and administrative expenses totaled $4,935,170 and $5,465,553 for the three months ended March 31, 2023 and 2022,

respectively, a decrease of $530,383 (10%).

The decrease in general and administrative expenses in the three months ended March 31, 2023

and development expense.

We continue to focus on bringing new products to market, including updates and improvements to current

Our research and development expenses totaled $540,276 and $540,222 for the three months ended June 30, 2023 and 2022, respectively.

Most of our engineers are dedicated to research and development activities for new products, primarily the new generation of body-worn

cameras, EVO-HD and EVO Fleet that can be located in multiple places in a vehicle.

We expect our research and development activities

will continue to trend higher in future quarters as we continue to expand our product offerings based on our new body-worn camera and

EVO-HD product platform and as we outsource more development projects.

We consider our research and development capabilities and new

product focus to be a competitive advantage and intend to continue to invest in this area on a prudent basis and consistent with our

financial resources.

advertising and promotional expenses.

Selling, advertising and promotional expense totaled $2,104,625 and $2,763,045 for the

three months ended June 30, 2023 and 2022, respectively, a decrease of $658,420 (24%).

Promotional and advertising expenses represent

the primary component of these costs and totaled $1,654,593 during the three months ended June 30, 2023, compared to $2,361,235 during

the three months ended June 30, 2022, a decrease of $706,642 (30%).

The decrease is primarily attributable to the reduction in new sponsorships

being entered into by the Company.

Additionally, TicketSmarter remains active in sponsorship and advertising, as it continues to build

its brand and gain recognition.

and administrative expense .

General and administrative expenses totaled $5,032,843 and $5,077,063 for the three months ended

June 30, 2023 and 2022, respectively.

The minor decrease in general and administrative expenses in the three months ended June 30, 2023

compared to the same period in 2022 is primarily attributable to a decrease in administrative salaries, as payroll begins to adjust from

the new acquisitions completed by the Company.

General and administrative expenses also decreased due to a decline in rent expenses, and

legal and professional expenses for the three months ended March 31, 2023 compared to the same period in 2022.

For the reasons stated above,

our operating loss was $6,172,806 and $6,803,338 for the three months ended March 31, 2023 and 2022, respectively, a decrease of $630,532

Operating loss as a percentage of revenues increased to 80% in the three months ended March 31, 2023 from 66% in the same period

income decreased to $15,477 for the three months ended March 31, 2023, from $71,362 in the same period of 2022, which reflects our change

in cash and cash equivalent levels in the first quarter of 2023 compared to the first quarter of 2022.

The Company held significant cash

and cash equivalents throughout the first quarter of 2022, allowing a full three months of interest income due to the two completed registered

direct offerings in the first quarter of 2021 which yielded net proceeds of approximately $66.4 million.

incurred interest expenses of $5,664 and $17,009 during the three months ended March 31, 2023 and 2022, respectively.

The decrease is

attributable to a reduction in the contingent earn-out notes associated with the four Nobility Healthcare acquisitions, currently at

a total balance of $499,029 for the four notes, with interest rates of 3.00% per annum.

in Fair Value of Short-Term Investments

recognized a loss on change in fair value of short-term investments totaling $-0- and $84,818 during the three months ended March 31,

2023 and 2022, respectively.

Such short-term investments were included in cash and cash equivalents as they contain original maturities

of ninety (90) days or less.

General and administrative expenses also decreased due to a decline in rent expenses,

and legal and professional expenses for the three months ended June 30, 2023 compared to the same period in 2022.

the reasons stated above, our operating loss was $4,940,704 and $6,661,252 for the three months ended June 30, 2023 and 2022, respectively,

an improvement of $1,720,548 (26%).

Operating loss as a percentage of revenues increased to 60% in the three months ended June 30, 2023

from 71% in the same period in 2022.

income increased to $55,730 for the three months ended June 30, 2023, from $32,233 in the same period of 2022, which reflects our change

in cash and cash equivalent levels in the second quarter of 2023 compared to the second quarter of 2022.

incurred interest expenses of $1,515,509 and $8,501 during the three months ended June 30, 2023 and 2022, respectively.

is attributable to the convertible note issued in the second quarter, along with a reduction in the contingent earn-out notes associated

with the four Nobility Healthcare acquisitions.

in Fair Value of Contingent Consideration Promissory Notes

Company recognized a gain on the change in fair value of contingent consideration promissory notes of $158,021 compared to a loss of

$56,050 during the three months ended March 31, 2023 and 2022, respectively.

This is in connection with the four acquisitions made by

our revenue cycle management segment.

Company recognized a gain on the change in fair value of contingent consideration promissory notes of $-0- and $542,096 during the three

months ended June 30, 2023 and 2022, respectively.

This is in connection with the four acquisitions made by our revenue cycle management

in Fair Value of Derivative Liabilities

the first quarter of 2021, the Company issued detachable warrants to purchase a total of 2,127,500 shares of Common Stock in association

with the two registered direct offerings previously described.

The underlying warrant agreement terms provide for net cash settlement

outside the control of the Company in the event of tender offers 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 condensed consolidated statement of operations as the change in fair value of warrant

derivative liabilities.

There was no change in fair value of the warrant derivative liabilities from December 31, 2022 to March 31, 2023,

and the change in fair value of the warrant derivative liabilities from December 31, 2021, to March 31, 2022, totaled $148,171 which

was recognized as a gain in the first quarter of 2022.

The Company determined the fair value of such warrants as of December 31, 2022,

and as of March 31, 2023, to be $-0- and $-0-, respectively.

During the second quarter of 2023, the Company issued detachable warrants to purchase a total of 1,125,000 shares

of Common Stock in association with the two secured convertible notes previously described.

The underlying warrant agreement terms provide

for net cash settlement outside the control of the Company in the event of tender offers 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 condensed consolidated statement of operations as the change in fair

value of warrant derivative liabilities.

The change in fair value of the warrant derivative liabilities from March 31, 2023, to June 30,

2023, totaled $59,766 which was recognized as a loss in the second quarter of 2023.

on accrual for legal settlement

Company recognized a loss on accrual for legal settlement of $1,792,308 and $-0- during the three months ended June 30, 2023 and 2022,

respectively.

This is in connection with the ongoing lawsuit with Culp McCauley, Inc.

on conversion of convertible debt

Company recognized a loss on conversion of convertible debt of $93,386 and $-0- during the three months ended June 30, 2023 and 2022,

respectively.

This is in connection with the convertible note issued during the three months ended June 30, 2023 and the conversion from

debt to equity during the period.

income (loss)

income (loss) increased to $25,394 for the three months ended June 30, 2023, from ($381) during the three months ended June 30, 2022,

which reflects income related to a warehouse lease within the corporate headquarters.

before Income Tax Benefit

As a result of the above results

of operations, we reported a loss before income tax benefit of $5,979,579 and $6,698,242 for the three months ended March 31, 2023 and

2022, respectively, a decrease of $718,663 (11%).

did not record an income tax expense related to our income for the three months ended March 31, 2023 due to our overall net operating

a result of the above results of operations, we reported a loss before income tax benefit of $8,320,549, and $682,187 for the three months

ended June 30, 2023 and 2022, respectively, a decrease of $7,638,362 (1,120%).

did not record an income tax expense related to our income for the three months ended June 30, 2023 due to our overall net operating

loss carryforwards available.

We have further determined to continue providing a full valuation reserve on our net deferred tax assets

as of March 31, 2023.

as of June 30, 2023.

We had approximately $113.3 million of net operating loss carryforwards and $1.8 million of research and development

tax credit carryforwards as of March 31, 2023 available to offset future net taxable income.

As a result of the above results

of operations, we reported a net loss of $5,979,579 and $6,698,242 for the three months ended March 31, 2023 and 2022, respectively, a

decrease of $718,663 (11%).

Income/(Loss) Attributable to Noncontrolling Interests of Consolidated Subsidiary

tax credit carryforwards as of June 30, 2023 available to offset future net taxable income.

a result of the above results of operations, we reported a net loss of $8,320,549 and $682,187 for the three months ended June 30, 2023

and 2022, respectively, a decrease of $7,638,362 (1,120%).

Income Attributable to Noncontrolling Interests of Consolidated Subsidiary

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.

or minority interest is allocated 49% of the income of Nobility Healthcare which is reflected in the statement of income as “net

income attributable to noncontrolling interests of consolidated subsidiary”.

We reported net income attributable to noncontrolling

interests of consolidated subsidiary of $72,755 and $383,326 for the three months ended June 30, 2023 and 2022, respectively.

Loss Attributable to Common Stockholders

As a result of the above, we reported

a net loss attributable to common stockholders of $6,105,818 and $6,600,148 for the years three months March 31, 2023 and 2022, respectively,

a decrease of $494,330 (7%).

a result of the above, we reported a net loss attributable to common stockholders of $8,393,304 and $1,065,513 for the years three months

June 30, 2023 and 2022, respectively, a decrease of $7,327,791 (688%).

and Diluted Loss per Share

basic and diluted loss per share was $2.22 and $2.59 for the three months ended March 31, 2023 and 2022, respectively.

basic and diluted loss per share was $3.01 and $0.44 for the three months ended June 30, 2023 and 2022, respectively.

Basic 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 and warrants were

antidilutive, and, therefore, not included in the computation of diluted loss per share.

For the three 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 loss per share.

the Six Months Ended June 30, 2023 and 2022

of Operations

immediately below and discussed in more detail in the subsequent subsections is an analysis of our operating results for the six months

ended June 30, 2023 and 2022, represented as a percentage of total revenues for each such quarter:

the six months ended June 30,

Cost of revenue

Selling, general and administrative expenses:

Research and development expense

Selling, advertising and promotional expense

General and administrative expense

Total selling, general and administrative expenses

Operating loss

Loss on accrual for legal settlement

Change in fair value of contingent consideration promissory notes

Change in fair value of derivative liabilities

Other income and interest income (expense), net

Income (loss) before income tax benefit

Income tax (provision)

Net income/(loss)

Net loss attributable to noncontrolling interests of consolidated subsidiary

Net income (loss) attributable to common stockholders

Net income/(loss) per share information:

revenues by operating segment is as follows:

the six months ended June 30,

Product Revenues:

Video Solutions

Revenue Cycle Management

Entertainment

Total Product Revenues

revenues for the six months ended June 30, 2023 and 2022 were $5,531,469 and $4,620,241 respectively, an increase of $911,228 (20%),

due to the following factors:

generated by the new entertainment operating segment began with the Company’s September 2021 acquisition of TicketSmarter.

The new entertainment operating segment generated $3,189,847 in product revenues for the six months ended June 30, 2023, compared

to $1,879,769 for the six months ended June 30, 2022.

This product revenue relates to the first Kustom 440 music festival,

as well as the resale of tickets purchased for live events, including sporting events, concerts, and theatre, then sold through various

platforms to customers.

Company’s video segment operating segment generated revenues totaling $2,341,622 during the six months ended June 30, 2023

compared to $2,740,472 for the six months ended June 30, 2022.

In general, our video solutions operating segment has experienced

pressure on its product revenues as our in-car and body-worn systems are facing increased competition because our competitors have

released new products with advanced features.

Additionally, our law enforcement revenues declined compared to the same period in

2022 due to price-cutting and competitive actions by our competitors, adverse marketplace effects related to our patent litigation

proceedings and our recent financial condition.

video solutions operating segment management has been focusing on migrating customers, and in particular commercial customers, from

a hardware sale to a service fee model.

Therefore, we expect a reduction in commercial hardware sales (principally DVM-250’s,

FLT-250’s, and our body-worn camera line) as we convert these customers to a service model under which we provide the hardware

as part of a recurring monthly service fee.

In that respect, we introduced a monthly subscription agreement plan for our body worn

cameras and related equipment during the second quarter of 2020 that allowed law enforcement agencies to pay a monthly service fee

to obtain body worn cameras without incurring a significant upfront capital outlay.

This program has continued to gain traction,

resulting in decreased product revenues and increased service revenues.

We expect this program to continue to gain momentum, resulting

in recurring revenues over a span of three to five years.

and other revenues by operating segment is as follows:

the six months ended June 30,

Service and Other Revenues:

Video Solutions

Revenue Cycle Management

Entertainment

Total Service and Other Revenues

and other revenues for the six months ended June 30, 2023 and 2022 were $10,445,351 and $15,025,997, respectively, an increase of $4,580,646

(30%), due to the following factors:

revenues generated by the video solutions operating segment were $894,773 and $627,874 for the six months ended June 30, 2023 and

2022, respectively, an increase of $266,899 (43%).

We have experienced increased interest in our cloud solutions for law enforcement

primarily due to the deployment of our cloud-based EVO-HD in-car system and our next generation body-worn camera products, which

contributed to our increased cloud revenues in the six months ended June 30, 2023.

We expect this trend to continue throughout 2023

as the migration from local storage to cloud storage continues in our customer base.

solutions operating segment revenues from extended warranty services were $433,074 and $363,130 for the six months ended June 30,

2023 and 2022, respectively, an increase of $69,944 (19%).

This correlates with the increase in sales of DVM-800 hardware systems

resulting in an increase in their associated extended warranty.

new entertainment operating segment generated service revenues totaling $5,481,659 and $9,681,969 for the six months ended June 30,

2023 and 2022, respectively, a decrease of $4,200,310 (43%).

The Company completed the acquisitions of Goody Tickets, LLC and TicketSmarter,

LLC on September 1, 2021, thus resulting in the new revenue stream for the Company.

TicketSmarter collects fees on transactions administered

through the TicketSmarter.com platform for the buying and selling of tickets for live events throughout the country.

We expect our

entertainment operating segment to continue to fluctuate as we look right-size this segment and work towards profitability.

new revenue cycle management operating segment generated service revenues totaling $3,506,361 and $4,024,695 for the six months ended

June 30, 2023 and 2022, respectively, a decrease of $518,334 (13%).

Our revenue cycle management operating segment has completed

four acquisitions since formation in June of 2021, thus resulting in the new service revenue stream added in the six months ended

June 30, 2023.

Our revenue cycle management operating segment provides revenue cycle management solutions and back-office services

to healthcare organizations throughout the country.

The slight decrease in revenue is due to refinement within one of the recent acquisitions, as they strive to maximize

profitability rather than focus on top line revenue.

revenues for the six months ended June 30, 2023 and 2022 were $15,976,820 and $19,646,238, respectively, a decrease of $3,669,418 (19%),

due to the reasons noted above.

of Product Revenue

cost of product revenue sold for the six months ended June 30, 2023, and 2022 was $4,520,616 and $4,892,527, respectively, a decrease

of $371,911 (8%).

Overall cost of goods sold for products as a percentage of product revenues for the six months ended June 30, 2023,

and 2022 were 82% and 106%, respectively.

Cost of products sold by operating segment is as follows:

the six months ended June 30,

Cost of Product Revenues:

Video Solutions

Revenue Cycle Management

Entertainment

Total Cost of Product Revenues

decrease in cost of goods sold for our video solutions segment products is directly correlated with the decrease in product sales for

the six months ended June 30, 2023 compared to the six months ended June 30, 2022.

In addition, the video solutions segment recorded

valuation allowances for its older product lines and a portion of its Shield products during the first six months of 2023, directly increasing

cost of goods sold for the period.

Cost of product sold as a percentage of product revenues for the video solutions segment improved

to 79% for the six months ended June 30, 2023 as compared to 91% for the six months ended June 30, 2022.

increase in entertainment operating segment cost of product sold directly correlates to the increase in product revenues for the six

months ended June 30, 2023 compared to June 30, 2022, resulting in cost of product revenue of $2,677,633 for the six months ended June

30, 2023, compared to $2,385,409 for the six months ended June 30, 2022.

Cost of product sold as a percentage of product revenues for

the entertainment segment was 84% for the three months ended June 30, 2023 as compared to 127% for the six months ended June 30, 2022.

recorded $5,414,534 and $5,489,541 in reserves for obsolete and excess inventories at June 30, 2023 and December 31, 2022, respectively.

Total raw materials, component parts, and work-in-progress were $3,673,516 and $4,512,329 at June 30, 2023 and December 31, 2022, respectively,

a decrease of $838,813 (19%).

Finished goods balances were $7,581,234 and $7,816,618 at June 30, 2023 and December 31, 2022, respectively,

a decrease of $235,384 (3%) which was attributable to a decrease in finished goods from our entertainment segment.

The small decrease

in the inventory reserve is primarily due to the reduction in finished goods and movement of excess inventory, offset by the increase

in reserve at the entertainment segment.

We believe the reserves are appropriate given our inventory levels as of June 30, 2023.

of Service Revenue

cost of service revenue sold for the six months ended June 30, 2023, and 2022 was $7,174,375 and $11,095,015, respectively, a decrease

of $3,920,640 (35%).

Overall cost of goods sold for services as a percentage of service revenues for the six months ended June 30, 2023,

and 2022 were 69% and 74%, respectively.

Cost of service revenues by operating segment is as follows:

the six months ended June 30,

Cost of Service Revenues:

Video Solutions

Revenue Cycle Management

Entertainment

Total Cost of Service Revenues

increase in cost of service revenues for our video solutions segment is commensurate with the increase in service revenues in the six

months ended June 30, 2023 compared to the six months ended June 30, 2022.

Cost of service revenues as a percentage of service revenues

for the video solutions segment increased to 44% for the six months ended June 30, 2023 as compared to 40% for the six months ended June

decrease in revenue cycle management operating segment cost of service revenue is commensurate with the decrease in service revenues

in the six months ended June 30, 2023 compared to the six months ended June 30, 2022.

Cost of service revenues as a percentage of service

revenues for the revenue cycle management operating segment was 55% for the six months ended June 30, 2023 as compared to 59% for the

six months ended June 30, 2022.

decrease in entertainment operating segment cost of service revenues is commensurate with the decrease in service revenues in the six

months ended June 30, 2023 compared to the six months ended June 30, 2022.

Cost of service revenues as a percentage of service revenues

for the entertainment operating segment was 84% for the six months ended June 30, 2023 as compared to 85% for the six months ended June

gross profit for the six months ended June 30, 2023 and 2022 was $4,281,829 and $3,658,696, respectively, an increase of $623,133 (17%).

Gross profit by operating segment was as follows:

the six months ended June 30,

Gross Profit:

Video Solutions

Revenue Cycle Management

Entertainment

Total Gross Profit

overall increase is attributable to the large overall increase in revenues for the six months ended June 30, 2023 and an increase in

the overall cost of sales as a percentage of overall revenues to 73% for the six months ended June 30, 2023 from 81% for the six months

ended June 30, 2022.

Our goal is to improve our margins over the longer term based on the expected margins generated by our new recent

revenue cycle management and entertainment operating segments together with our video solutions operating segment and its expected margins

from our EVO-HD, DVM-800, VuLink, FirstVu Pro, FirstVu II, ShieldTM disinfectants and our cloud evidence storage and management offering,

provided that they gain traction in the marketplace.

In addition, if revenues from the video solutions segment increase, we will seek

to further improve our margins from this segment through expansion and increased efficiency utilizing fixed manufacturing overhead components.

We plan to continue our initiative to more efficient management of our supply chain through outsourcing production, quantity purchases

and more effective purchasing practices.

General and Administrative Expenses

general and administrative expenses were $15,395,340 and $17,123,286 for the six months ended June 30, 2023 and 2022, respectively, a

decrease of $1,727,946 (10%).

The decrease was primarily attributable to the reduction in new sponsorships being entered into by the

Our selling, general and administrative expenses as a percentage of sales decreased to 96% for the six months ended June 30,

2023 compared to 87% in the same period in 2022.

The significant components of selling, general and administrative expenses are as follows:

the six months ended June 30,

Research and development expense

Selling, advertising and promotional expense

General and administrative expense

and development expense.

We continue to focus on bringing new products to market, including updates and improvements to current

Our research and development expenses totaled $1,475,215 and $1,038,222 for the six months ended June 30, 2023 and 2022, respectively,

an increase of $436,993 (42%).

Most of our engineers are dedicated to research and development activities for new products, primarily

the new generation of body-worn cameras, EVO-HD and EVO Fleet that can be located in multiple places in a vehicle.

We expect our research

and development activities will continue to trend higher in future quarters as we continue to expand our product offerings based on our

new body-worn camera and EVO-HD product platform and as we outsource more development projects.

We consider our research and development

capabilities and new product focus to be a competitive advantage and intend to continue to invest in this area on a prudent basis and

consistent with our financial resources.

advertising and promotional expenses.

Selling, advertising and promotional expense totaled $3,952,115 and $5,542,448 for the

six months ended June 30, 2023 and 2022, respectively, a decrease of $1,590,333 (29%).

The decrease is primarily attributable to the

reduction in new sponsorships being entered into by the Company.

Additionally, TicketSmarter remains active in sponsorship and advertising,

as it continues to build its brand and gain recognition.

and administrative expense .

General and administrative expenses totaled $9,968,010 and $10,542,616 for the six months ended

June 30, 2023 and 2022, respectively, a decrease of $574,606 (5%).

The decrease in general and administrative expenses in the six months

ended June 30, 2023 compared to the same period in 2022 is primarily attributable to a decrease in administrative salaries, as payroll

begins to adjust from the new acquisitions completed by the Company.

General and administrative expenses also decreased due to a decline

in rent expenses, and legal and professional expenses for the three months ended June 30, 2023 compared to the same period in 2022.

the reasons stated above, our operating loss was $11,113,511 and $13,464,590 for the six months ended June 30, 2023 and 2022, respectively,

an improvement of $2,351,079 (17%).

Operating loss as a percentage of revenues changed to 70% in the six months ended June 30, 2023 from

69% in the same period in 2022.

income decreased to $71,085 for the six months ended June 30, 2023, from $103,595 in the same period of 2022, which reflects our change

in cash and cash equivalent levels in the second quarter of 2023 compared to the second quarter of 2022.

The Company held significant

cash and cash equivalents throughout the second quarter of 2022, allowing a full six months of interest income.

incurred interest expense of $1,521,049 and $25,511 during the six months ended June 30, 2023 and 2022, respectively.

The increase is

attributable to the convertible note entered into in the second quarter of 2023, and the contingent earn-out notes associated with the

four Nobility Healthcare acquisitions, with interest rates of 3.00% per annum.

in Fair Value of Short-Term Investments

recognized a loss on change in fair value of short-term investments totaling $-0- and $84,818 during the six months ended June 30, 2023

and 2022, respectively.

Such short-term investments are included in cash and cash equivalents as they contain original maturities of

ninety (90) days or less.

in Fair Value of Contingent Consideration Promissory Notes

the six months ended June 30, 2023, The Company recognized a gain on the change in fair value of contingent consideration promissory

notes of $158,021 and $486,046 during the six months ended June 30, 2023 and 2022, respectively.

This is in connection with the four

acquisitions made by our revenue cycle management segment.

in Fair Value of Derivative Liabilities

During the second quarter of 2023, the Company issued detachable warrants to purchase a total of 1,125,000 shares

of Common Stock in association with the two secured convertible notes previously described.

The underlying warrant agreement terms provide

for net cash settlement outside the control of the Company in the event of tender offers 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 condensed consolidated statement of operations as the change in fair

value of warrant derivative liabilities.

The change in fair value of the warrant derivative liabilities from December 31, 2022, to June

30, 2023, totaled $59,766 which was recognized as a loss in the second quarter of 2023.

on conversion of convertible debt

Company recognized a loss on conversion of convertible debt of $93,386 and $-0- during the six months ended June 30, 2023 and 2022, respectively.

This is in connection with the convertible note issued during the six months ended June 30, 2023 and the conversion from debt to equity

during the period.

income increased to $50,786 for the six months ended June 30, 2023, from $43,059 during the six months ended June 30, 2022, which reflects

income related to a warehouse lease within the corporate headquarters.

before Income Tax Benefit

a result of the above results of operations, we reported a loss before income tax benefit of $14,300,128 and $7,380,430 for the six months

ended June 30, 2023 and 2022, respectively, a decline of $6,919,698 (94%).

did not record an income tax expense related to our income for the six months ended June 30, 2023 due to our overall net operating

loss carryforwards available.

We have further determined to continue providing a full valuation reserve on our net deferred tax assets

as of June 30, 2023.

We had approximately $113.3 million of net operating loss carryforwards and $1.8 million of research and development

tax credit carryforwards as of June 30, 2023 available to offset future net taxable income.

a result of the above results of operations, we reported a net loss of $14,300,128 and $7,380,430 for the six months ended June 30, 2023

and 2022, respectively, a decline of $6,919,698 (94%).

Income Attributable to Noncontrolling Interests of Consolidated Subsidiary

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 of Nobility Healthcare which is reflected in the statement of income as “net

income attributable to noncontrolling interests of consolidated subsidiary”.

We reported net income attributable to noncontrolling

interests of consolidated subsidiary of $198,994 and $285,232 for the six months ended June 30, 2023 and 2022, respectively.

Loss Attributable to Common Stockholders

a result of the above, we reported a net loss attributable to common stockholders of $14,499,122 and $7,665,662 for the six months

June 30, 2023 and 2022, respectively, a deterioration of $6,833,460 (89%).

and Diluted Loss per Share

basic and diluted loss per share was $5.24 and $3.08 for the six months ended June 30, 2023 and 2022, respectively.

Basic loss per share

is based upon the weighted average number of common shares outstanding during the period.

For the 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 loss per share.

and Capital Resources

11 unchanged sentences

cash equivalents:

As of March 31, 2023, we had cash and cash equivalents with an aggregate balance of $2,859,723, a decrease from

As of June 30, 2023, we had cash and cash equivalents with an aggregate balance of $2,923,881, a decrease from

a balance of $3,532,199 at December 31, 2022.

Summarized immediately below and discussed in more detail in the subsequent subsections

are the main elements of the $672,476 net decrease in cash during the three months ended March 31, 2023:

are the main elements of the $608,318 net decrease in cash during the six months ended June 30, 2023:

of net cash used in operating activities.

Net cash used in operating activities was $1,216,876 and $6,055,672 for the three months

ended March 31, 2023 and 2022, respectively, a decrease of $4,838,796.

The improvement is attributable to the non-cash gain attributable

to the change in value of the warrant derivative liability no longer being applicable to 2023, as well as the decline in the usage

of cash to increase accounts receivable, prepaid expenses, and other operating assets during the three months ended March 31, 2023

compared to the same period in 2022.

Net cash used in operating activities was $3,109,986 and $10,932,515 for the six months ended

June 30, 2023 and 2022, respectively, a decrease of $7,822,529.

The improvement is attributable to the non-cash gain attributable to

the change in value of the warrant derivative liability no longer being applicable to 2023, as well as the decline in the usage of cash

to increase accounts receivable, prepaid expenses, and other operating assets during the six months ended June 30, 2023 compared to the

same period in 2022.

of net cash used in investing activities.

Cash used in investing activities was $70,645 and $3,195,346 for the three months ended

March 31, 2023 and 2022, respectively.

During the three months ended March 31, 2023, we made capital expenditures for:

Cash used in investing activities was $126,946 and $3,361,994 for the six months ended

June 30, 2023 and 2022, respectively.

During the six months ended June 30, 2023, we made capital expenditures for:

improvements of the newly purchased office and warehouse building;

2 unchanged sentences

of net cash provided by financing activities.

Cash provided by

(used in) financing activities was $615,045 and ($2,195,658) for the three months ended March 31, 2023 and 2022, respectively.

the first three months of 2023, we most notably made principal payments on contingent consideration promissory notes, received a Commercial

Extension of Credit for our Entertainment Segment and made principal payments on that extension of credit.

During the first three months

of 2022 the Company repurchased its common stock on the open market pursuant to the stock repurchase plan, as well as principal payments

on contingent consideration promissory notes.

had $2,859,723 of cash and cash equivalents and net positive working capital $3,937,426 as of March 31, 2023.

Cash provided by (used in) financing activities was $2,628,614 and ($4,259,037) for the

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

During the first six months of 2023, we most notably completed a convertible note

agreement, made principal payments on contingent consideration promissory notes, received a Commercial Extension of Credit for our Entertainment

Segment, and made principal payments on that extension of credit.

During the first six months of 2022 the Company repurchased its common

stock on the open market pursuant to the stock repurchase plan, as well as principal payments on contingent consideration promissory

had $2,923,881 of cash and cash equivalents and net negative working capital of ($3,109,982) as of June 30, 2023.

Accounts receivable and

other receivables balances represented $4,791,301 of our net working capital at March 31, 2023.

We intend to collect our outstanding

receivables on a timely basis and reduce the overall level during 2023, which would help to provide positive cash flow to support our

operations during 2023.

Inventory represents $5,921,079 of our net working capital at March 31, 2023.

We are actively managing the level

of inventory and our goal is to reduce such level during the balance of 2023 by our sales activities, the increase of which should provide

additional cash flow to help support our operations during 2023.

other receivables balances represented $4,587,929 of our net working capital at June 30, 2023.

We intend to collect our outstanding receivables

on a timely basis and reduce the overall level during 2023, which would help to provide positive cash flow to support our operations

Inventory represents $5,840,216 of our net working capital at June 30, 2023.

We are actively managing the level of inventory

and our goal is to reduce such level during the balance of 2023 by our sales activities, the increase of which should provide additional

cash flow to help support our operations during 2023.

Expenditures:

had the following material commitments for capital expenditures at March 31, 2023:

The 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 March 31, 2023:

Operating lease right of use assets

had the following material commitments for capital expenditures at June 30, 2023:

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.

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

Operating lease right of use assets, net

Operating lease obligations-current portion

1 unchanged sentence

Total operating lease obligations

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

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

Selling, general and administrative expenses

1 unchanged sentence

Year ending December 31:

2023 (April 1, to December 31, 2023)

2023 (July 1, to December 31, 2023)

Total undiscounted minimum future lease payments

3 unchanged sentences

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

6 unchanged sentences

Debt obligations, long-term

obligations mature as follows as of March 31, 2023:

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

obligations mature as follows as of June 30, 2023:

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

2027 and thereafter

11 unchanged sentences

Compensation Expense;

value of warrants;

value of assets and liabilities acquired in business combinations;

for Income Taxes;

Preferred Stock.

Recognition / Allowances for Doubtful Accounts.

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In addition, we adjust the carrying value of inventory if the current market value of that inventory is below its cost.

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

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

Raw material and component parts– video solutions segment

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Total inventories

We balance the need to maintain

strategic inventory levels to ensure competitive delivery performance to our customers against the risk of inventory obsolescence due

to changing technology and customer requirements.

As reflected above, our inventory reserves represented 48% of the gross inventory balance

at March 31, 2023, compared to 45% of the gross inventory balance at December 31, 2022.

We had $5,409,107 and $5,489,541 in reserves for

obsolete and excess inventories at March 31, 2023 and December 31, 2022, respectively.

Total raw materials, component parts, and work-in-process

were $3,934,946 and $4,512,329 at March 31, 2023 and December 31, 2022, respectively, a decrease of $577,383 (13%).

Finished goods balances

were $7,395,240 and $7,816,618 at March 31, 2023 and December 31, 2022, respectively, a decrease of $421,378 (5%).

The small decrease

in the inventory reserve is primarily due to the reduction in finished goods and movement of excess inventory.

Additionally, the Company

determined a reasonable reserve for inventory held at the ticket operating segment, in which some inventory items sell below cost or go

unsold, thus having to be fully written-off following the event date.

We believe the reserves are appropriate given our inventory levels

as of March 31, 2023.

balance the need to maintain strategic inventory levels to ensure competitive delivery performance to our customers against the risk

of inventory obsolescence due to changing technology and customer requirements.

As reflected above, our inventory reserves represented

48% of the gross inventory balance at June 30, 2023, compared to 45% of the gross inventory balance at December 31, 2022.

We had $5,414,534

and $5,489,541 in reserves for obsolete and excess inventories at June 30, 2023 and December 31, 2022, respectively.

Total raw materials,

component parts, and work-in-process were $3,673,516 and $4,512,329 at June 30, 2023 and December 31, 2022, respectively, a decrease

of $838,813 (19%).

Finished goods balances were $7,581,234 and $7,816,618 at June 30, 2023 and December 31, 2022, respectively, a decrease

of $235,384 (3%).

The small decrease in the inventory reserve is primarily due to the reduction in finished goods and movement of excess

Additionally, the Company determined a reasonable reserve for inventory held at the ticket operating segment, in which some

inventory items sell below cost or go unsold, thus having to be fully written-off following the event date.

We believe the reserves are

appropriate given our inventory levels as of June 30, 2023.

actual future demand or market conditions are less favorable than those projected by management or significant engineering changes to

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quality and minimize claims.

Our warranty reserves were increased to $19,261 as of March 31, 2023 compared to $15,694 as of December

31, 2022 due to newer products gaining a long history of claims to consider, which was slightly offset as we begin to slow our warranty

exposures through the roll-off of DVM-750 and DVM-800 units from warranty coverage.

Standard warranty exposure on the DVM-800 and DVM-250plus

are the responsibility of the contract manufacturers which reduced our overall warranty exposure as these are very popular products in

Our warranty reserves were increased to $15,936 as of June 30, 2023 compared to $15,694 as of December 31,

2022 due to newer products gaining a long history of claims to consider, which was slightly offset as we begin to slow our warranty exposures

through the roll-off of DVM-750 and DVM-800 units from warranty coverage.

Standard warranty exposure on the DVM-800 and DVM-250plus are

the responsibility of the contract manufacturers which reduced our overall warranty exposure as these are very popular products in our

There is a risk that we will have higher warranty claim frequency rates and average cost of claims than our history has indicated

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estimated requiring adjustments to these liabilities in future periods.

derivative liabilities.

On 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 in the event of tender

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

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

the change in fair value of warrant derivative liabilities.

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

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

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:

Issuance date assumptions

June 30, 2023 assumptions

Volatility - range

Risk-free rate

Remaining contractual term

Exercise price

$ 5.50 - 7.50

Common stock issuable under the warrants

Compensation Expense .

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stock-price volatility assumption is based on historical volatilities of the underlying stock that are obtained from public data sources

and there were no stock options granted during the three months ended March 31, 2023.

and there were no stock options granted during the three or six months ended June 30, 2023.

factors change and we develop different assumptions in future periods, the compensation expense that we record in the future may differ

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all or some portion of the deferred tax asset will not be realized.

As of March 31, 2023, we have fully reserved all of our deferred

Based on a review of our deferred tax assets and recent operating performance, we determined that our valuation allowance

should be increased by $17,220,000 to a balance of $34,200,000 to fully reserve our deferred tax assets at December 31, 2022.

As of June 30, 2023, we have fully reserved all of our deferred tax

Based on a review of our deferred tax assets and recent operating performance, we determined that our valuation allowance should

be increased by $17,220,000 to a balance of $34,200,000 to fully reserve our deferred tax assets at December 31, 2022.

We determined

that it was appropriate to continue to provide a full valuation reserve on our net deferred tax assets as of March 31, 2023, because

of the overall net operating loss carryforwards available.

that it was appropriate to continue to provide a full valuation reserve on our net deferred tax assets as of June 30, 2023, because of

the overall net operating loss carryforwards available.

We expect to continue to maintain a full valuation allowance until we determine

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financial reporting purposes.

We have no recorded liability as of March 31, 2023 representing uncertain tax positions.

We have no recorded liability as of June 30, 2023 representing uncertain tax positions.

have generated substantial deferred income tax assets related to our operations primarily from the charge to compensation expense taken

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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 2. Management’s Discussion and Analysis