What changed in this filing

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Item 9A. Controls and Procedures

2024-04-01 compared with 2023-03-31 · 1300 added, 1200 removed, 2314 unchanged (52% of the section changed)

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Regarding the Effectiveness of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including

our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the design and operation

of our disclosure controls and procedures to provide reasonable assurance of achieving the control objectives, as defined in Rules 13a-15(e)

and 15d-15(e) of the Exchange Act.

Based on their evaluation as of December 31, 2022, the end of the period covered by this Annual Report

on Form 10-K, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were

not effective as of December 31, 2022 due to the reasons described below.

In connection with the audit of our consolidated financial statements as

of December 31, 2022 and 2021, we identified a material weakness in our internal control over financial reporting related to the timely

detection of potential accounting misstatements.

The company believes that the increase in acquisition activities resulted in a temporary

gap of accounting resources during the year ended December 31, 2022.

To address these deficiencies, the Company will implement additional

procedures designed to accelerate the tempo of upwardly reporting subsidiaries and the visibility of receipt of reports by the parent

company to allow for ample opportunities for review procedures in the financial reporting process.

the supervision and with the participation of our management, including our principal executive officer and principal financial

officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures to

provide reasonable assurance of achieving the control objectives, as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act.

Based on their evaluation as of December 31, 2023, the end of the period covered by this Annual Report on Form 10-K, our principal

executive officer and principal financial officer concluded that our disclosure controls and procedures were not effective at a

reasonable assurance level to ensure that the information required to be disclosed in reports filed or submitted under the Exchange

Act, including this Annual Report on Form 10-K, was recorded, processed, summarized and reported within the time periods specified

in the SEC’s rules and forms, and was accumulated and communicated to management, including our principal executive officer

and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Report on Internal Control Over Financial Reporting

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with the policies or procedures may deteriorate.

SEC guidance allows companies to exclude acquisitions from management’s report on internal control over financial reporting for

the first year after the acquisition.

During 2022, the Company completed one business acquisition and one asset acquisition within the

revenue cycle management segment.

Due to the timing of the transaction, management has excluded the transaction from our annual evaluation

of internal control over financial reporting.

The preliminary total revenue of this acquisition represents less than 10% of our consolidated

revenues for the year ended December 31, 2022.

connection with the filing of this Annual Report on Form 10-K, our management assessed the effectiveness of our internal control over

financial reporting as of December 31, 2023.

In making this assessment, our management used the criteria set forth by 2013 Internal

Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

assessment using the framework in 2013 Internal Control – Integrated Framework , management believes that, as of December

31, 2022, our internal control over financial reporting is not effective.

Material Weakness

In connection with the audit of

our consolidated financial statements as of December 31, 2022 and 2021, we identified a material weakness in our internal control over

financial reporting related to timely review and detection of potential accounting misstatements, which in the aggregate, constitute a

In making this assessment, our management used the criteria set forth by 2013 Internal Control

– Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Based on our assessment

using the framework in 2013 Internal Control – Integrated Framework, management believes that, as of December 31, 2023, our internal

control over financial reporting is not effective.

Material Weakness

In connection

with the audit of our consolidated financial statements as of December 31, 2023 and 2022, we identified a material weakness in our internal

control over financial reporting related to timely review and detection of potential accounting misstatements, which in the aggregate,

constitute a material weakness.

Remediation Activities

As part of our plan to remediate

this material weakness, we are performing a full review of our internal control procedures.

We have implemented, and plan to continue

to implement, new controls and new processes.

We have hired and plan to continue to hire additional qualified personnel and establish

more robust processes to support our internal control over financial reporting, including clearly defined roles and responsibilities.

of our plan to remediate this material weakness, we are performing a full review of our internal control procedures.

We have implemented,

and plan to continue to implement, new controls and new processes.

We have hired and plan to continue to hire additional qualified personnel

and establish more robust processes to support our internal control over financial reporting, including clearly defined roles and responsibilities.

The Company anticipates time being required to complete the implementation and to assess and ensure the sustainability of these controls.

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in Internal Control Over Financial Reporting

have completed the process of integrating our recent business acquisition, which was acquired at the beginning of 2022, into our

overall internal control over financial reporting process.

Other than this integration, there have been no changes in our internal

control over financial reporting during the year ended December 31, 2022, that have materially affected, or are reasonably likely to

materially affect, our internal control over financial reporting.

We are continually monitoring and assessing our internal controls

to ensure the appropriate design and operating effectiveness.

have completed the process of integrating our recent business acquisition, which was acquired at the beginning of 2022, into our overall

internal control over the financial reporting process.

Other than this integration, there have been no changes in our internal control

over financial reporting during the year ended December 31, 2023, that have materially affected, or are reasonably likely to materially

affect, our internal control over financial reporting.

We are continually monitoring and assessing our internal controls to ensure the

appropriate design and operating effectiveness.

of the Company’s directors or officers adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement

during the Company’s fiscal quarter ended December 31, 2023.

Regarding Foreign Jurisdictions that Prevent Inspections.

Executive Officers and Corporate Governance.

The names of the members of our Board of Directors and certain information

about them as of the date of this Annual Report on Form 10-K are set forth below:

names of the members of our Board of Directors and certain information about them as of the date of this Annual Report on Form 10-K are

set forth below:

of Board of Director Member (4)

President and Chief Executive Officer

and Chief Executive Officer

Richie (1)(2)(3)

Independent Director, Chairman of the Nominating Committee and Compensation Committee and attorney

Duke Daughtery (1)

Chairman of Audit Committee

Caulfield (1)(2)(3)

of Audit Committee

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Board has determined that Messrs.

Richie, Hutchins, and Caulfield are “independent directors,” as defined by the rules and

Richie, and Daughtery are “independent directors,” as defined by the rules and

listing standards of The Nasdaq Stock Market LLC (“Nasdaq”).

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and relationships disclosed under “Certain Relationships and Related Transactions” below.

Ross has served as Chairman, President and Chief Executive Officer (“CEO”) since September 2005.

From March 1992

to June 2005, Mr.

Ross has served as Chairman and Chief Executive Officer (“CEO”) since September 2005.

From March 1992 to June

Ross was the Chairman and President of American Noble Gas Inc.

(formerly known as Infinity Energy Resources, Inc.),

a publicly held oil and gas exploration and development company (“AMGAS”) and served as an officer and director of each of

AMGAS’s subsidiaries.

He resigned from all his positions with AMGAS in June 2005, except Chairman, but was reappointed President

in October 2006.

From 1991 until March 1992, he founded and served as President of Midwest Financial, a financial services corporation

involved in mergers, acquisitions, and financing for corporations in the Midwest.

(formerly known as Infinity Energy Resources, Inc.), a publicly

held oil and gas exploration and development company (“AMGAS”) and served as an officer and director of each of AMGAS’s

subsidiaries.

He resigned from all his positions with AMGAS in June 2005, except Chairman, but was reappointed President in October 2006.

From 1991 until March 1992, he founded and served as President of Midwest Financial, a financial services corporation involved in mergers,

acquisitions, and financing for corporations in the Midwest.

From 1990 to 1991, Mr.

Ross was employed by Duggan

Securities, Inc., an investment banking firm in Lenexa, Kansas, where he primarily worked in corporate finance.

From 1989 to 1990, he

was employed by Stifel, Nicolaus & Co., a member of the New York Stock Exchange, where he was an investment executive.

Ross was self-employed as a business consultant.

Ross was employed by Duggan Securities, Inc., an

investment banking firm in Lenexa, Kansas, where he primarily worked in corporate finance.

From 1989 to 1990, he was employed by Stifel,

Nicolaus & Co., a member of the New York Stock Exchange, where he was an investment executive.

From 1987 to 1989, Mr.

Ross was President and founder of Kansas Microwave,

Inc., which developed a radar detector product.

From 1981 to 1985, he was employed by Birdview Satellite Communications, Inc., which

manufactured and marketed home satellite television systems, initially as a salesman and later as National Sales Manager.

Ross estimates

he devoted most of his time to Digital Ally and the balance to AMGAS in 2020.

In late 2007, AMGAS sold a substantial portion of its operating

assets and has not required a substantial amount of his time since such point.

Ross holds no public company directorships other than

with the Company and AMGAS and has not held any others during the previous five years.

Ross was self-employed

as a business consultant.

From 1985 to 1987, Mr.

Ross was President and founder of Kansas Microwave, Inc., which developed a radar detector

From 1981 to 1985, he was employed by Birdview Satellite Communications, Inc., which manufactured and marketed home satellite

television systems, initially as a salesman and later as National Sales Manager.

Ross estimates he devoted most of his time to Digital

Ally and the balance to AMGAS in 2020.

In late 2007, AMGAS sold a substantial portion of its operating assets and has not required a

substantial amount of his time since such point.

Ross holds no public company directorships other than with the Company and AMGAS

and has not held any others during the previous five years.

The Company believes that Mr.

entrepreneurial, financial, and business expertise and his experience with micro-cap public companies and his role as President and Chief

Executive Officer give him the qualifications and skills to serve as a Director.

Ross’s broad entrepreneurial, financial,

and business expertise and his experience with micro-cap public companies and his role as President and Chief Executive Officer give

him the qualifications and skills to serve as a Director.

Richie has been the Lead Independent Director of Digital Ally since September 2005.

He is also the Chairman of the Compensation

Committee and Nominating Committee and a member of the Audit Committee.

He is also the Chairman of the

Compensation Committee and Nominating Committee and a member of the Audit Committee.

Since June 1, 1999, Mr.

Richie has been a director of AMGAS.

Richie has been a

director of AMGAS.

Additionally, until 2017, Mr.

Richie served as a member of the board of directors of Columbia Mutual Funds, (or mutual fund companies

acquired by or merged with Columbia Mutual Funds), a family of investment companies managed by Ameriprise Financial, Inc.

2015, he was of counsel to the Detroit law firm of Lewis & Munday, P.C.

Richie served as a member of the board of directors of Columbia Mutual Funds, (or

mutual fund companies acquired by or merged with Columbia Mutual Funds), a family of investment companies managed by Ameriprise

Financial, Inc.

From 2004 to 2015, he was of counsel to the Detroit law firm of Lewis & Munday, P.C.

From 2007 to 2014, Mr.

Richie served as a member of the board

of directors of OGE Energy Corp.

He holds no other public directorships and has not held any others during the previous five years.

Richie served as the Vice-Chairman of the Board of Trustees and Chairman of the Compensation Committee for the Henry Ford Health

System, in Detroit.

Richie was formerly Vice President of Chrysler Corporation and General Counsel for automotive legal affairs,

where he directed all legal affairs for its automotive operations from 1986 until his retirement in 1997.

Before joining Chrysler, he

was an associate with the New York law firm of White & Case (1973-1978) and served as director of the New York office of the Federal

Trade Commission (1978-1983).

Richie served as a member of the board of directors of OGE Energy Corp.

He holds no other public directorships and has not held any

others during the previous five years.

Until 2019, Mr.

Richie served as the Vice-Chairman of the Board of Trustees and Chairman of

the Compensation Committee for the Henry Ford Health System, in Detroit.

Richie was formerly Vice President of Chrysler

Corporation and General Counsel for automotive legal affairs, where he directed all legal affairs for its automotive operations from

1986 until his retirement in 1997.

Before joining Chrysler, he was an associate with the New York law firm of White & Case

(1973-1978) and served as director of the New York office of the Federal Trade Commission (1978-1983).

Richie received a B.A.

from City College of New York, where he was valedictorian, and a J.D.

New York University School of Law, where he was awarded an Arthur Garfield Hays Civil Liberties Fellowship.

The Company believes that

Richie’s extensive experience as a lawyer and as an officer or director of public companies gives him the qualifications and

skills to serve as a Director.

Hutchins was elected a Director in December 2007.

He serves as Chairman of the Audit Committee and is the Board’s financial

Hutchins, a Certified Public Accountant, was a Principal with the accounting firm of Hutchins & Haake, LLC until his

retirement on July 1, 2021.

Hutchins currently serves as a director and the Chief Financial Officer of AMGAS, of which Mr.

the Chairman and President.

Hutchins has served as an instructor for the Becker CPA exam with the Keller Graduate School of Management

and has over 18 years of teaching experience preparing CPA candidates for the CPA exam.

He has over 40 years of public accounting experience,

including five years with Deloitte & Touche, LLP.

He has served on the boards of various non-profit groups and is a member of the

American Institute of Certified Public Accountants.

Hutchins earned his Bachelor of Business Administration degree in Accounting

at Washburn University in Topeka, Kansas.

Hutchins holds no other public company directorships and has not held any others during

the previous five years.

from the New York University School of Law, where he was

awarded an Arthur Garfield Hays Civil Liberties Fellowship.

The Company believes that Mr.

Hutchins’ significant experience in finance and accounting gives him the

qualifications and skills to serve as a Director.

Caulfield was elected a Director in May 2016.

He is a member of the Audit Committee, Compensation Committee and Nominating

He served as Vice President – Strategic Development of the Company from June 1, 2009 to January 11, 2012.

was most recently (2012-2016) a Vice-Chairman at Teneo Holdings, LLC, a global advisory firm where he was responsible for the firm’s

investment banking relationships with a broad range of industrial companies.

Richie’s extensive experience as a

lawyer and as an officer or director of public companies gives him the qualifications and skills to serve as a Director.

Duke Daughtery joined the board of directors of Digital Ally in October 2023.

He serves as Chairman of the Audit Committee

and is the Board’s financial expert.

From 1987 to 2019, Mr.

Caulfield served as a Managing Director

at Banc of America Securities (“BAS”), where he was responsible for the merger, acquisition, divestiture and restructuring

advisory services for a number of large public and private companies.

He was also in charge of BAS’s global investment banking

activities involving the Safety, Security, Engineering and Construction Industries.

Prior to joining BAS, Mr.

Caulfield spent six years

(2000-2006) as a Managing Director with Morgan Stanley in New York City, leading that global investment banking firm’s efforts

in the Aerospace and Defense Industries.

He was also responsible for the investment banking relationships with a number of Morgan Stanley’s

largest clients.

From 1989 to 2000, he worked at General Electric Capital Corp., where he served as a Managing Director and head of the

Corporate Finance Group.

In this capacity, he advised GE Capital and the industrial divisions of General Electric on such issues as capital

structuring, mergers and acquisitions, and private equity transactions.

Caulfield received an MBA from the Wharton School of the

University of Pennsylvania and a B.S.

Degree from the University of Minnesota.

Daughtery was an assurance partner and audit practice leader with

Grant Thornton and Deloitte & Touche in Kansas City.

Daughtery was instrumental in the significant growth of Grant

Thornton’s Kansas City audit practice.

Daughtery served numerous companies ranging from high growth private equity backed

clients, to multi-billion revenue private companies to public companies ranging from smaller public companies to the Fortune 500.

Daughtery brings to the board of directors many years of leadership experience as an assurance partner at major accounting firms

and extensive experience in developing and executing growth strategies, acquisitions and capital transactions.

considers Mr.

Daughtery to be an audit committee financial expert.

Daughtery obtained his Bachelor of Arts in Accounting and in

Management and Business Administration from Saint Ambrose University.

Daughtery holds no public company directorships other than

with the Company and has only held the forementioned position in Digital Ally during the previous five years.

From 2019 to 2023 Mr.

Daughtery was not employed by any company.

The Company believes that Mr.

Caulfield’s significant

experience in investment banking and the public market gives him the qualifications and skills to serve as a Director.

Daughtery’s extensive experience as an accountant of

public companies gives him the qualifications and skills to serve as a director.

Directors are elected annually and hold office until the next annual meeting of our stockholders or until their successors are elected

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of Directors and Committee Meetings

Board of Directors held four meetings and acted a number of times by unanimous consent resolutions during the fiscal year ended December

Each of our directors attended at least 75% of the meetings of the Board of Directors and the committees on which he served

in the fiscal year ended December 31, 2022.

Our directors are expected, absent exceptional circumstances, to attend all Board meetings

and meetings of committees on which they serve and are also expected to attend our annual meeting of stockholders.

All directors then

in office attended the 2022 annual meeting of stockholders.

Board of Directors held four meetings and acted a number of times by unanimous consent resolutions during the fiscal year ended

December 31, 2023.

Each of our directors attended at least 75% of the meetings of the Board of Directors and the committees on which

he was appointed and served in the fiscal year ended December 31, 2023.

Our directors are expected, absent exceptional

circumstances, to attend all Board meetings and meetings of committees on which they serve and are also expected to attend our

annual meeting of stockholders.

All directors then in office attended the 2023 annual meeting of stockholders.

of the Board of Directors

Board of Directors currently has four committees:

Board of Directors currently has three committees:

an Audit Committee, a Compensation Committee and a Nominating Committee.

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that the SEC requires in our annual proxy statement.

Audit Committee is comprised of three Directors, each of whom is independent, as defined by the rules and regulations of the SEC and

Audit Committee is comprised of two Directors, each of whom is independent, as defined by the rules and regulations of the SEC and

Nasdaq Rule 5605(a)(2).

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The members of our Audit Committee

are Daniel F.

Hutchins (Chairman), Leroy C.

Richie and Michael J.

The Board of Directors determined that Mr.

Hutchins qualifies

as an “audit committee financial expert,” as defined under the applicable rules and listing standards of Nasdaq and SEC rules

and regulations and is independent as noted above.

Duke Daughtery (Chairman), and Leroy C.

The Board of Directors determined that

Daughtery qualifies as an “audit committee financial expert,” as defined under the applicable rules and listing standards

of Nasdaq and SEC rules and regulations and is independent as noted above.

the Sarbanes-Oxley Act of 2002, all audit and non-audit services performed by the Company’s independent registered public accounting

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and discussing with management the compensation discussion and analysis that the SEC requires in our future Form 10-Ks and proxy statements.

Compensation Committee is comprised of three Directors, whom the Board considers to be independent under the applicable rules and listing

standards of Nasdaq and SEC rules and regulations.

Compensation Committee is comprised of two Directors, whom the Board considers to be independent under the applicable rules and

listing standards of Nasdaq and SEC rules and regulations.

The members of our Compensation Committee are Leroy C.

Richie (Chairman) and Michael

The Compensation Committee held two meetings and acted several times by unanimous written consent resolutions during the

year ended December 31, 2022.

Ross, our Chief Executive Officer, does not participate in the determination of his own compensation

or the compensation of directors.

However, he makes recommendations to the Compensation Committee regarding the amount and form of the

compensation of the other executive officers and key employees, and he often participates in the Compensation Committee’s deliberations

about such persons’ compensation.

Heckman, our Chief Financial Officer (“CFO”), also assists the Compensation

Committee in its deliberations regarding executive officer, director and employee compensation.

No other executive officers participate

in the determination of the amount or the form of the compensation of executive officers or directors.

The Compensation Committee does

not utilize the services of an independent compensation consultant to assist in its oversight of executive and director compensation.

Richie (Chairman)

Duke Daughtery.

The Compensation Committee held two meetings and acted several times by unanimous written consent resolutions

during the year ended December 31, 2023.

Ross, our Chief Executive Officer, does not participate in the determination of his own

compensation or the compensation of directors.

However, he makes recommendations to the Compensation Committee regarding the amount

and form of the compensation of the other executive officers and key employees, and he often participates in the Compensation

Committee’s deliberations about such persons’ compensation.

Heckman, our Chief Financial Officer

(“CFO”), also assists the Compensation Committee in its deliberations regarding executive officer, director and employee

compensation.

No other executive officers participate in the determination of the amount or the form of the compensation of

executive officers or directors.

The Compensation Committee does not utilize the services of an independent compensation consultant

to assist in its oversight of executive and director compensation.

Nominating Committee assists our Board of Directors by identifying and recommending individuals qualified to become members of our Board

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The members of our Nominating Committee are Leroy C.

Richie (Chairman) and Michael J.

Richie (Chairman) and D.

Duke Daughtery.

of Directors’ Role in the Oversight of Risk Management

face a variety of risks, including credit, liquidity, and operational risks.

In fulfilling its risk oversight role, our Board of Directors

focuses on the adequacy of our risk management process and overall risk management system.

Our Board of Directors believes that an effective

risk management system will (i) adequately identify the material risks that we face in a timely manner;

(ii) implement appropriate risk

management strategies that are responsive to our risk profile and specific material risk exposures;

(iii) integrate consideration of

risk and risk management into our business decision-making;

and (iv) include policies and procedures that adequately transmit necessary

information regarding material risks to senior executives and, as appropriate, to the Board or relevant committee.

In fulfilling its risk oversight role, our Board of

Directors focuses on the adequacy of our risk management process and overall risk management system.

Our Board of Directors believes

that an effective risk management system will (i) adequately identify the material risks that we face in a timely manner;

implement appropriate risk management strategies that are responsive to our risk profile and specific material risk exposures;

integrate consideration of risk and risk management into our business decision-making;

and (iv) include policies and procedures that

adequately transmit necessary information regarding material risks to senior executives and, as appropriate, to the Board or

relevant committee.

Board of Directors has designated the Audit Committee to take the lead in overseeing risk management at the Board of Directors level.

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Ross, is independent.

Our Board of Directors believes that the independent

Our Board of Directors believes that independent

directors provide effective oversight of management.

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Drive, Lenexa, Kansas 66215.

Stockholders who would like their submission directed to a member of the Board of Directors may so specify

Stockholders who would like their submission directed to a member of the Board of Directors may specify

and the communication will be forwarded as appropriate.

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date was made.

Compensation Committee Interlocks and Insider Participation

None of our executive officers serves, or in the past has served, as a

member of the Compensation Committee.

None of the members of our Compensation Committee is, or has ever been, an officer or employee of

Committee Interlocks and Insider Participation

of our executive officers serves, or in the past has served, as a member of the Compensation Committee.

None of the members of our Compensation

Committee is, or has ever been, an officer or employee of the Company.

of Ethics and Conduct

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and the Code of Ethics and Conduct was filed as an exhibit to our Annual Report on Form 10-KSB filed March 4, 2008.

Section 16(a) Reports

the securities laws of the United States, our directors, executive (and certain other) officers, and any persons holding ten percent

or more of our Common Stock must report on their ownership of the Common Stock and any changes in that ownership to the SEC.

due dates for these reports have been established.

During the fiscal year ended December 31, 2023, we believe the following reports listed

in the table below were required to be filed by such persons pursuant to Section 16(a) and were not filed on a timely basis for each such reporting person:

of Late Reports

Peng’s Form 4 was not filed on timely basis.

Ross’ Form 4 was not filed on timely basis.

Compensation.

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Compensation Table

and Principal Position

other compensation ($) (2)

CEO and President

Treasurer and Secretary

Name and Principal Position

Stock awards ($)

Option awards

All other compensation ($) (2)

$ 374,500 (3)

Chairman and CEO

CFO, Treasurer and Secretary

$ 107,000 (5)

Represents aggregate grant date fair value pursuant to ASC Topic 718 for the respective year for stock options granted.

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Stock awards include the following restricted stock granted during 2022 to Mr.

7,500 shares at $55.20 per share that vest 50%

on January 6, 2022 and 50% on January 6, 2023, subject to Mr.

3,750 shares at $21.40 per share that on January

7, 2023, subject to Mr.

Heckman remaining an employee of the Company at that point in time.

Stock awards include the following restricted stock granted during 2022 to Mr.

2,500 shares at $25.20 per share that vest ratably

over the two-year period ending September 20, 2023.

5,000 shares at $21.40 per share that vest 20% annually

on the anniversary of January 7 from 2023 to 2027, subject to Mr.

Han remaining an employee of the Company at that point in time.

Stock awards include the following restricted stock granted during 2023 to Mr.

17,500 shares at $21.40 per share that vest 50%

on January 7, 2023 and 50% on January 7, 2024, subject to Mr.

17,500 shares at $4.99 per share that vest 50% on

January 10, 2024 and 50% on January 10, 2025, subject to Mr.

Ross remaining an employee of the Company at that point in time.

Stock awards include the following restricted stock granted during 2023 to Mr.

3,750 shares at $21.40 per share that on January

7, 2023, subject to Mr.

Heckman remaining an employee of the Company at that point in time.

3,750 shares at $4.99 per share that vested on

April 1, 2023.

Stock awards include the following restricted stock granted during 2023 to Mr.

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Han remaining an employee of the Company at that point in time.

Han was appointed Chief Operating Officer on December 13, 2021, thus Mr.

Han’s 2021 compensation was set by management prior

to his appointment as a named executive officer of the Company.

Other Compensation Table

and Principal Position

contributions

CEO and President

Treasurer and Secretary

Name and Principal Position

401(k) Plan contribution by Company

paid healthcare insurance

Flexible & health savings account contributions by Company

paid life, accident & disability insurance

Other Contractual payments

Chairman and CEO

CFO, Treasurer and Secretary

Our executive compensation plan is based on attracting and retaining qualified professionals who possess the skills and

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January 7, 2022, the Compensation Committee restored the annual base salaries of Stanton E.

Ross, President and Chief Executive Officer,

Heckman, Chief Financial Officer, Treasurer and Secretary, at $250,000 and $230,000, respectively for 2021.

Ross, Chief Executive Officer, Thomas J.

Heckman, Chief Financial Officer, Treasurer and Secretary, and Peng Han, Chief Operating Officer, at $300,000, $120,000, and $250,000,

respectively for 2022.

January 10, 2023, the Compensation Committee restored the annual base salaries of Stanton E.

Ross, Chief Executive Officer, Thomas J.

Heckman, Chief Financial Officer, Treasurer and Secretary, and Peng Han, Chief Operating Officer, at $250,000, $120,000, and $250,000,

respectively for 2023.

Compensation Committee plans to review the base salaries for possible adjustments on an annual basis.

Base salary adjustments will be

based on both individual and our performances and will include both objective and subjective criteria specific to each executive’s

based on both the individual and our performances and will include both objective and subjective criteria specific to each executive’s

role and responsibility with us.

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The Compensation Committee determined that Messrs.

Ross and Heckman were eligible

for awards of stock options or restricted stock in 2021 based on their performance.

Refer to the “Grants of Plan-Based Awards”

table below for restricted stock awards made in 2021.

Ross, Heckman, and Han were

eligible for awards of stock options or restricted stock in 2022 based on their performance.

Refer to the “Grants of Plan-Based

Awards” table below for restricted stock awards made in 2022.

The Committee also determined that Messrs.

Ross, Heckman, and Han would be eligible

in 2022 for awards of restricted stock or stock options.

Ross, Heckman, and Han

would be eligible in 2023 for awards of restricted stock or stock options.

The Compensation Committee determined to award bonuses to each of the executive officers in 2023 and 2022, as set forth in the

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Refer to the “Summary Compensation Table” above for the bonuses paid to Messrs.

Ross and Heckman in 2022

Ross, Heckman, and Han in

2023 and 2022.

In fiscal 2023, Messrs.

Ross and Heckman were eligible for bonuses of up to $250,000 and $120,000, respectively.

awarded a partial 2022 bonus of $100,000.

The Compensation Committee reviews each executive officer’s performance on a quarterly

basis and determines what, if any, portion of the bonus he has earned and will be paid as of such point.

Ross, Heckman, and Han were eligible for bonuses of up to $250,000, $120,000, and $250,000, respectively.

In July 2008, we amended and restated our 401(k) Plan.

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of Plan-Based Awards

shares of stock

CEO and President

Treasurer and Secretary

All other stock

of shares of stock

Exercise or base

price of option

Grant date fair

value of stock

Chairman and CEO

January 10, 2023

CFO, Treasurer and Secretary

January 10, 2023

These restricted stock awards were made under the Digital Ally, Inc.

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These restricted stock awards were made under the Digital Ally, Inc.

Stock Option and Restricted Stock Plans and vest over a one-year

period contingent upon whether the individual is still employed by us at that point.

These restricted stock awards were made under the Digital Ally, Inc.

Stock Option and Restricted Stock Plans and vest over a five-year

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Please refer to Note 14

to the consolidated financial statements that appear in our Annual Report on Form 10-K, filed with the SEC on April 15, 2022, for a further

to the consolidated financial statements that appear in our Annual Report on Form 10-K, filed with the SEC on March 31, 2023, for a further

description of the awards and the underlying assumptions utilized to determine the amount of grant date fair value related to such grants.

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Agreement Compensation

Change in control

payment due based

upon successful

completion of

Severance payment

termination after

Control occurs

retention agreements guarantee the executive officers’ specific payments and benefits upon a Change in Control of the Company.

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Equity Awards at Fiscal Year-End

unexercisable

CEO and President

Treasurer and Secretary

Option Awards

of securities underlying unexercised options (#) exercisable (1)

of securities underlying unexercised options (#) unexercisable

incentive plan awards:

Number of securities underlying unexercised unearned options (#)

Option exercise price ($)

expiration date

of shares or units of stock that have not vested (1)

Market value of shares or units of stock that have not vested (2)

incentive plan awards:

Number of unearned shares, units or other rights that have not vested

incentive plan awards:

Market or Payout value of unearned shares, units or other rights that have not vested

Chairman and CEO

CFO, Treasurer and Secretary

These stock option and restricted stock awards were made under the Digital Ally, Inc.

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on exercise ($)

Chairman, CEO and President

$ 160,500 (1)

Chairman and CEO

CFO, Treasurer and Secretary

on the closing market price of our Common Stock of $4.78 on January 6, 2023, the date of vesting for 7,500 shares of Common Stock,

Ross, and 3,750 shares of Common Stock for Mr.

on the closing market price of our Common Stock of $12.00 on September 20, 2022, the date of vesting for 1,250 shares of Common Stock

and the closing market price of our Common Stock of $4.78 on January 7, 2023, the date of vesting for 8,750 shares of Common Stock

on the closing market price of our Common Stock of $4.78 on January 6, 2023, the date of vesting for 3,750 shares of Common Stock,

and the closing market price of our Common Stock of $4.62 on March 31, 2023, the date of vesting for 3,750 shares of Common Stock

on the closing market price of our Common Stock of $4.78 on January 7, 2023, the date of vesting for 1,000 shares of Common Stock

number of stock options and restricted stock awards that an employee, director, or consultant may receive under our Plans (defined below

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The Board of Directors’ policy in 2023 was to grant officers an

award of 17,500 restricted shares of Common Stock to our CEO/President and 3,750 restricted shares of Common Stock to our CFO/Treasurer

and each non-employee director an award of options to purchase 5,000 shares of Common Stock, all subject to vesting requirements.

award of 17,500 restricted shares of Common Stock to our CEO and 3,750 restricted shares of Common Stock to our CFO/Treasurer and each

non-employee director an award of options to purchase 5,000 shares of Common Stock, all subject to vesting requirements.

following table sets forth (a) the aggregate number of shares of Common Stock subject to options granted under the Plans during the year

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Share Exercise

Ross, Chairman of the Board of Directors, CEO & President

Ross, Chairman of the Board of Directors & CEO

Richie, Director

Hutchins, Director

Caulfield, Director

Heckman, Vice President, CFO, Treasurer & Secretary

Peng Han, COO

All executive officers, as a group

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on the Board of Directors in 2023, including on the Audit, Nominating and Compensation Committees.

July 2021, we granted to Messrs.

Richie, Caulfield and Hutchins each options exercisable to acquire 5,000 shares of Common Stock at an

exercise price of $33.40 per share for their service on the Board of Directors until the next annual meeting of stockholders with vesting

to occur ratably through May 31, 2022, provided each person has remained a director at such dates.

compensation for the year ended December 31, 2023 was as follows:

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Ross, Chairman of the Board of Directors (1)

Duke Daughtery

a Named Executive Officer, Mr.

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services as a director.

Option and Restricted Stock Grants to Directors

Number of Restricted Shares of Common Stock Granted

Number of Options Granted

Average per Share Exercise Price

Ross, Chairman of the Board of Directors

Richie, Director

Hutchins, Director

Caulfield, Director

November 17, 2023, our board of directors adopted a clawback policy (the “Clawback Policy”) permitting the Company to

seek the recovery of incentive compensation received by any of the Company’s current and former executive officers (as

determined by the board in accordance with Section 10D of the Exchange Act) and such other senior executives/employees who may from

time to time be deemed subject to the Clawback Policy by the board (collectively, the “Covered Executives”).

to be recovered will be the excess of the incentive compensation paid to the Covered Executive based on the erroneous data over the

incentive compensation that would have been paid to the Covered Executive had it been based on the restated results, as determined

by the board.

If the board cannot determine the amount of excess incentive compensation received by the Covered Executive directly

from the information in the accounting restatement, then it will make its determination based on a reasonable estimate of the effect

of the accounting restatement.

Refer to Exhibit 97 of this Annual Report for the Company’s Clawback Policy.

Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

following table sets forth, as of April 1, 2024, information regarding beneficial ownership of our Common Stock for:

person, or group of affiliated persons, known by us to beneficially own more than 5% of our Common Stock;

of our executive officers;

of our directors;

of our current executive officers and directors as a group

ownership is determined according to the rules of the SEC and generally means that a person has beneficial ownership of a security if

he, she or it possesses sole or shared voting or investment power of that security, including securities that are currently exercisable

or exercisable within sixty (60) days of April 1, 2024.

Except as indicated by the footnotes below, we believe, based on the information

furnished to us, that the persons named in the table below have sole voting and investment power with respect to all shares of Common

Stock shown that they beneficially own, subject to community property laws where applicable.

Stock subject to securities currently exercisable or exercisable within sixty (60) days of April 1, 2024 are deemed to be outstanding

for computing the percentage ownership of the person holding such securities and the percentage ownership of any group of which the holder

is a member but are not deemed outstanding for computing the percentage of any other person.

otherwise indicated, the address of each beneficial owner listed in the table below is c/o Digital Ally, Inc., 14001 Marshall Drive.,

Lenexa, KS 66215.

Number of Shares of Common

Stock Beneficially Owned (1)

5% or Greater Stockholders:

Executive Officers and Directors:

Duke Daughtery

All executive officers and directors as a group (five individuals)

less than 1%.

on 2,800,754 shares of Common Stock issued and outstanding as of April 1, 2024 and, with respect only to the ownership by all executive

officers and directors as a group.

Ross’s total shares of Common Stock include 8,750 restricted shares that are subject to forfeiture to us.

Richie’s total shares of Common Stock include 16,250 shares of Common Stock to be received upon the exercise of vested options.

Heckman’s total shares of Common Stock include 66,946 shares of Common Stock held in the Company’s 401(k) Plan (on December

31, 2023) as to which Mr.

Heckman has voting power as trustee of the 401(k) Plan.

Han’s total shares of Common Stock include (i) 9,000 restricted shares that are subject to forfeiture to us and (ii) 331 shares

of Common Stock to be received upon the exercise of vested options.

Authorized for Issuance Under Equity Compensation Plans

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in the event of certain terminations of employment or service prior to the end of a restricted period specified by the Compensation Committee.

have filed various registration statements on Form S-8 and amendments to previously filed Form S-8’s with the Securities and Exchange

Commission (the “SEC”), which registered a total of 408,750 shares of Common Stock issued or to be issued underlying the

awards under the Plans.

The following table sets forth

certain information regarding the Plans as of December 31, 2022:

Equity Compensation Plan Information

have filed various registration statements on Form S-8 and amendments to previously filed Form S-8’s with SEC, which registered

a total of 408,750 shares of Common Stock issued or to be issued underlying the awards under the Plans.

following table sets forth certain information regarding the Plans as of December 31, 2023:

Compensation Plan Information

Plan category

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Total all plans

Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

following table sets forth, as of March 31, 2023, information regarding beneficial ownership of our Common Stock for:

person, or group of affiliated persons, known by us to beneficially own more than 5% of our Common Stock;

of our executive officers;

of our directors;

of our current executive officers and directors as a group

ownership is determined according to the rules of the SEC and generally means that a person has beneficial ownership of a security if

he, she or it possesses sole or shared voting or investment power of that security, including securities that are currently exercisable

or exercisable within sixty (60) days of March 31, 2023.

Except as indicated by the footnotes below, we believe, based on the information

furnished to us, that the persons named in the table below have sole voting and investment power with respect to all shares of Common

Stock shown that they beneficially own, subject to community property laws where applicable.

Stock subject to securities currently exercisable or exercisable within sixty (60) days of March 31, 2023 are deemed to be outstanding

for computing the percentage ownership of the person holding such securities and the percentage ownership of any group of which the holder

is a member but are not deemed outstanding for computing the percentage of any other person.

otherwise indicated, the address of each beneficial owner listed in the table below is c/o Digital Ally, Inc., 14001 Marshall Drive.,

Lenexa, KS 66215.

Number of Shares of Common

Stock Beneficially Owned (1)

5% or Greater Stockholders:

Executive Officers and Directors:

Caulfield (5)

All executive officers and directors as a group (five individuals)

less than 1%.

on 2,755,170 shares of Common Stock issued and outstanding as of March 31, 2023 and, with respect only to the ownership by all executive

officers and directors as a group.

Ross’s total shares of Common Stock include 26,250 restricted shares that are subject to forfeiture to us.

Richie’s total shares of Common Stock include 16,250 shares of Common Stock to be received upon the exercise of vested options.

Hutchins’ total shares of Common Stock include 16,250 shares of Common Stock to be received upon the exercise of vested options.

Caulfield’s total shares of Common Stock include 16,250 shares of Common Stock to be received upon the exercise of vested options.

Heckman’s total shares of Common Stock include (i) 3,750 restricted shares that are subject to forfeiture to us and (ii) 23,120

shares of Common Stock held in the Company’s 401(k) Plan (on December 31, 2022) as to which Mr.

Heckman has voting power as

trustee of the 401(k) Plan.

Han’s total shares of Common Stock include (i) 10,250 restricted shares that are subject to forfeiture to us and (ii) 331

shares of Common Stock to be received upon the exercise of vested options.

Relationships and Related Transactions, and Director Independence.

with Managing Member of Nobility Healthcare

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

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

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

Company has advanced a total of $158,384 in the form of a working capital loan to Nobility, LLC in order to fund capital expenditures

necessary for the initial growth of the joint venture during 2022.

The outstanding balance of the working capital loan was $138,384 as

of December 31, 2022 and the Company anticipates full repayment of this advance during the year ended December 31, 2023.

paid distributions to the noncontrolling in consolidated subsidiary totaling $15,692 and $-0-, for the years ended December 31, 2022

and 2021, respectively.

August 1, 2022, Mr.

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

He remains as a principal owner and manager of

Nobility, LLC.

2023, a trust, the beneficiaries of which are the Chief Executive Officer of TicketSmarter, and his spouse, contributed cash in the

amount of $2,700,000 to support TicketSmarter’s operations and to repay approved debts and obligations of TicketSmarter in

exchange for the TicketSmarter Related Party Note (the “TickerSmarter Related Party Note”).

The TicketSmarter Related Party Note

bears interest of 13.25% per annum with weekly repayments of the principal amount of $54,000.00 each, together with accrued

interest, for fifty weeks, or until the principal is paid in full, commencing on January 2, 2024.

The use of proceeds of the

TicketSmarter Related Party Note was to resolve numerous outstanding payables at a discounted rate, the discount received is

recognized as a gain on extinguishment of liabilities on the statement of operations.

Additionally, these negotiations relieved

TicketSmarter of numerous future obligations following fiscal year 2023.

Accountant Fees and Services.

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consolidated financial statements or notes in this Annual Report on Form 10-K.

and Plan of Merger.

of Incorporation.

of Amendment to Digital Ally, Inc.’s Articles of Incorporation.

of Amendment to Articles of Incorporation of Digital Ally, Inc.

Agreement and Plan of Merger, dated August 23, 2022, between Digital Ally, Inc.

and DGLY Subsidiary.

Agreement and Plan of Merger, dated June 1, 2023, by and among Clover Leaf Capital Corp., CL Merger Sub, Inc., Yntegra Capital Investments LLC, in the capacity as the Purchaser Representative, Kustom Entertainment, Inc.

and Digital Ally, Inc.

Articles of Incorporation.

Certificate of Amendment to Digital Ally, Inc.’s Articles of Incorporation, dated December 8, 2022.

Certificate of Amendment to Articles of Incorporation of Digital Ally, Inc., dated February 6, 2023.

Form of Common Stock Certificate.

Form of Series A-1 Warrant.

Form of Common Stock Purchase Warrant.

Common Stock Purchase Warrant of Digital Ally, Inc.

Form of Common Stock Purchase Warrant

Form of Certificate of Designation of Series A Convertible Redeemable Preferred Stock.

Form of Certificate of Designation of Series B Convertible Redeemable Preferred Stock.

Form of Common Stock Purchase Warrant of Digital Ally, Inc., dated August 5, 2019.

Form of Pre-Funded Common Stock Purchase Warrant of Digital Ally, dated February 1, 2021.

Form of Common Stock Purchase Warrant of Digital Ally, dated February 1, 2021.

Form of Senior Secured Convertible Note, issued by Digital Ally, Inc., dated April 5, 2023.

Form of Warrant of Digital Ally, Inc., dated April 5, 2023.

Revolving Note, dated October 26, 2023, issued by Digital Ally, Inc.to Kompass Kapital Funding, LLC.

Description of the Registrant’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934.

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Amended and Restated 2015 Stock Option and Restricted Stock Plan

of 2015 Stock Option and Restricted Stock Plan Restricted Stock Grant Agreement.

Form of 2015 Stock Option and Restricted Stock Plan Restricted Stock Grant Agreement.

Digital Ally, Inc.

2018 Stock Option and Restricted Stock Plan.

of 2018 Stock Option and Restricted Stock Plan Restricted Stock Grant Agreement.

Form of 2018 Stock Option and Restricted Stock Plan Restricted Stock Grant Agreement.

Digital Ally, Inc.

2020 Stock Option and Restricted Stock Plan.

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and Brickell Key Investments LP.

Form of Securities Purchase Agreement, dated as of January 11, 2021, by and between the Company and the Investors.

Form of Placement Agency Agreement, dated January 27, 2021, by and between the Company and Kingswood Capital Markets, division of Benchmark Investments, Inc.

Form of Securities Purchase Agreement, dated as of January 27, 2021, by and between the Company and the Investors.

Commercial Real Estate Sales Contract, dated February 24, 2021, between the Company and DDG Holding, LLC.

Form of Securities Purchase Agreement, dated as of January 11, 2021, by and between Digital Ally, Inc.

and the Investors.

Form of Placement Agency Agreement, dated January 27, 2021, by and between Digital Ally, Inc.

and Kingswood Capital Markets, division of Benchmark Investments, Inc.

Form of Securities Purchase Agreement, dated as of January 27, 2021, by and between Digital Ally, Inc.

and the Investors.

Commercial Real Estate Sales Contract, dated February 24, 2021, between Digital Ally, Inc.

and DDG Holding, LLC.

Form of Operating Agreement of Nobility Healthcare, LLC, dated June 1, 2021.

Warrant Exchange Agreement, dated August 19, 2021, by and among the Company and the warrant holders who are signatories thereto.

Warrant Exchange Agreement, dated August 19, 2021, by and among Digital Ally, Inc.

and the warrant holders who are signatories thereto.

Unit Purchase Agreement, dated September 2, 2021.

Form of Exchange Agreement.

Form of Securities Purchase Agreement between Digital Ally, Inc.

of Exchange Agreement, dated August 23, 2022.

Form of Securities Purchase Agreement, dated October 13, 2022, between Digital Ally, Inc.

and the investors thereto.

Form of Registration Rights Agreement by and among Digital Ally, Inc.

Form of Registration Rights Agreement, dated October 13, 2022, by and among Digital Ally, Inc.

and the investors named therein.

Form of Securities Purchase Agreement, dated April 5, 2023, between Digital Ally, Inc.

and certain Purchasers who are signatories thereto.

Form of Security Agreement, dated April 5, 2023, between Digital Ally, Inc.

and certain holders of Digital Ally, Inc.’s Senior Secured Convertible Notes who are signatories thereto.

Form of Trademark Security Agreement, dated April 5, 2023, between Digital Ally, Inc.

and a lender.

Form of Patent Security Agreement, dated April 5, 2023, between Digital Ally, Inc.

and between Digital Ally, Inc.

and a lender.

Form of Subsidiary Guaranty, dated April 5, 2023, by and among Digital Ally, Inc.

and its direct and indirect subsidiaries and a lender.

Form of Registration Rights Agreement, dated April 5, 2023, between Digital Ally, Inc.

and certain Purchasers, who are signatories thereto.

Loan and Security Agreement, dated October 26, 2023, by and between Digital Ally, Inc., Digital Ally Healthcare, LLC, and Kompass Kapital Funding, LLC.

Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing, dated October 26, 2023, by and between Digital Ally, Inc.

and Kompass Kapital Funding, LLC.

Lock-Up Agreement, dated June 1, 2023, by and between Clover Leaf Capital Corp., Yntegra Capital Investments, LLC, and Digital Ally, Inc.

Code of Ethics and Code of Conduct.

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Heckman, Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Digital Ally, Inc.

Clawback Policy

XBRL Instance Document **

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by specific reference in such filing or document.

Filed as an exhibit to the Company’s Annual Report on Form 10KSB for the Year ended December 31, 2007.

Filed as an exhibit to the Company’s October 2006 Form SB-2.

Filed as an exhibit to the Company’s Annual Report on Form 10K for the Year ended December 31, 2009.

Filed as an exhibit to the Company’s Form 8-K filed June 1, 2011.

Filed as an exhibit to the Company’s Form S-8 filed May 23, 2016.

Filed as an exhibit to the Company’s Form 8-K filed August 25, 2017.

Filed as an exhibit to the Company’s Form 8-K filed April 4, 2018.

Filed as an exhibit to the Company’s Form 8-K filed August 2, 2018.

Filed as an exhibit to the Company’s Registration Statement on Form S-8 filed August 20, 2018.

Filed as an exhibit to the Company’s Form 8-K filed August 5, 2019.

Filed as an exhibit to the Company’s Registration Statement on Form S-8 filed November 16, 2020.

Filed as an exhibit to the Company’s Form 8-K filed January 12, 2021.

Filed as an exhibit to the Company’s Form 8-K filed January 28, 2021.

Filed as Appendix A to the Company’s Definitive Proxy Statement on Schedule 14A filed April 27, 2021.

Filed as an exhibit to the Company’s Form 8-K filed May 3, 2021.

Filed as an exhibit to the Company’s Form 8-K filed June 9, 2021.

Filed as an exhibit to the Company’s Form 8-K filed August 19, 2021.

Filed as an exhibit to the Company’s Form 8-K filed September 9, 2021.

Filed as an exhibit to the Company’s Form 8-K filed August 23, 2022.

Filed as an exhibit to the Company’s Form 8-K filed October 19, 2022.

Filed as Appendix A to the Company’s Definitive Proxy Statement on Schedule 14A filed October 28, 2022.

Filed as an exhibit to the Company’s Form 8-K filed 8-K filed December 8, 2022.

Filed as an exhibit to the Company’s Form 8-K filed 8-K filed February 7, 2023.

Filed as an exhibit to the Company’s Registration Statement on Form S-8 filed February 28, 2023.

as an exhibit to the Company’s Annual Report on Form 10KSB for the Year ended December 31, 2007.

as an exhibit to the Company’s October 2006 Form SB-2.

as an exhibit to the Company’s Annual Report on Form 10K for the Year ended December 31, 2009.

as an exhibit to the Company’s Form 8-K filed June 1, 2011.

as an exhibit to the Company’s Form S-8 filed May 23, 2016.

as an exhibit to the Company’s Form 8-K filed August 25, 2017.

as an exhibit to the Company’s Form 8-K filed April 4, 2018.

as an exhibit to the Company’s Form 8-K filed August 2, 2018.

as an exhibit to the Company’s Registration Statement on Form S-8 filed August 20, 2018.

as an exhibit to the Company’s Form 8-K filed August 5, 2019.

as an exhibit to the Company’s Registration Statement on Form S-8 filed November 16, 2020.

as an exhibit to the Company’s Form 8-K filed January 12, 2021.

as an exhibit to the Company’s Form 8-K filed January 28, 2021.

as Appendix A to the Company’s Definitive Proxy Statement on Schedule 14A filed April 27, 2021.

as an exhibit to the Company’s Form 8-K filed May 3, 2021.

as an exhibit to the Company’s Form 8-K filed June 9, 2021.

as an exhibit to the Company’s Form 8-K filed August 19, 2021.

as an exhibit to the Company’s Form 8-K filed September 9, 2021.

as an exhibit to the Company’s Form 8-K filed August 23, 2022.

as an exhibit to the Company’s Form 8-K filed October 19, 2022.

as Appendix A to the Company’s Definitive Proxy Statement on Schedule 14A filed October 28, 2022.

as an exhibit to the Company’s Form 8-K filed December 8, 2022.

as an exhibit to the Company’s Form 8-K filed February 7, 2023.

as an exhibit to the Company’s Registration Statement on Form S-8 filed February 28, 2023.

as an exhibit to the Company’s Annual Report on Form 10K for the Year ended December 31, 2022.

as an exhibit to the Company’s Form 8-K filed April 7, 2023.

as an exhibit to the Company’s Form 8-K filed June 6, 2023.

as an exhibit to the Company’s Form 8-K filed October 27, 2023.

financial statement schedules have been provided because the information is not required or is shown either in the financial statements

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Nevada corporation

Chief Executive Officer (Principal Executive Officer)

Executive Officer

Executive Officer)

April 1, 2024

person whose signature appears below authorizes Stanton E.

3 unchanged sentences

in respect thereof, which amendments may make such changes in such Report as such attorney-in-fact may deem appropriate.

to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on

behalf of the registrant and in the capacities and on the dates indicated.

to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the

registrant and in the capacities and on the dates indicated.

April 1, 2024

Ross, Director and Chief Executive Officer

April 1, 2024

Richie, Director

Caulfield, Director

Hutchins, Director

Heckman, Chief Financial Officer, Secretary, Treasurer and Principal Accounting Officer (Principal Financial Officer and Principal Accounting Officer)

Duke Daughtery

April 1, 2024

Duke Daughtery

April 1, 2024

Heckman, Chief Financial Officer, Secretary, Treasurer and

Principal Accounting Officer

(Principal Financial Officer and Principal Accounting Officer)

AND SUBSIDIARIES

TO CONSOLIDATED FINANCIAL STATEMENTS

of Independent Registered Public Accounting Firm (PCAOB ID No:

Report of Independent Registered Public Accounting Firm (PCAOB ID No:

Financial Statements:

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Notes to the Consolidated Financial Statements

York, NY 10022

www.rbsmllp.com

of Independent Registered Public Accounting Firm

the Stockholders and the Board of Directors of Digital Ally, Inc.

the Stockholders and the

of Directors of

and subsidiaries

on the Consolidated Financial Statements

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Accordingly, we express no such opinion.

New York, NY Washington DC Mumbai & Pune, India Boca Raton, FL

San Francisco, CA Las Vegas, NV Beijing, China Athens, Greece

ANTEA International with affiliated offices worldwide

audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error

26 unchanged sentences

primarily include market multiples, peer group and comparable transaction selection and selection of relevant financial matrices for

concluding the fair value of reporting unit discount rates, and future levels of revenue growth and operating margins.

concluding the fair value of reporting unit, and future levels of revenue growth.

principal considerations for our determination that performing procedures relating to the goodwill and intangible asset impairment assessments

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financial statements.

procedures included, among others, (i) testing management’s process for determining

the fair value estimates of the entertainment/ticketing reporting unit;

(ii) testing the

completeness and accuracy of the underlying data used in the market approach;

procedures included, among others, (i) testing management’s process for determining the fair value estimates of the entertainment/ticketing

reporting unit;

(ii) testing the completeness and accuracy of the underlying data used in the market approach;

and (iii) evaluating

the reasonableness of the significant assumptions used by management related to market multiples,

peer group and comparable transaction selection and selection of relevant financial matrices

for concluding the fair value of reporting unit discount rates, and future levels of revenue

growth and operating margins.

management’s assumptions related to the future levels of revenue growth and operating

margins involved evaluating whether the assumptions were reasonable considering (i) current

and past performance of the reporting units;

(ii) the consistency with external market and

industry data;

and (iii) whether these assumptions were consistent with evidence obtained

in other areas of the audit.

● Professionals

with specialized skill and knowledge were used to assist in evaluating (i) the appropriateness

of the market approach and (ii) the reasonableness of significant assumptions related to

the market multiples, peer group and comparable transaction selection and selection of relevant

financial matrices for concluding the fair value of reporting unit discount rates, and future

levels of revenue growth and operating margins.

and Other Intangibles arising from the acquisition of Healthcare Acquisition and Medical Billing Acquisitions – Refer to Notes

1, 8 and 21 to the consolidated financial statements

Audit Matter Description

disclosed in Note 1, Goodwill arises in connection with acquisitions.

The excess purchase price over the fair value of net tangible assets

and identifiable intangible assets acquired is recorded as goodwill.

disclosed in Note 21, on June 30, 2021, August 31, 2021 and January 1, 2022 the Company completed acquisitions in accordance with the

stock purchase agreement.

The consideration included an initial payment of cash.

In addition to the initial payment amount, the Company

agreed to issue an earn-out agreement to the selling stockholders in the contingent amount of $1,750,000 that is subject to an earn-out

adjustment based on difference between projected revenue and cash basis revenue collected by the Company in its normal course of business

from the clients existing on the acquisition date during the measurement period.

The Company gave a fair value of $1,750,000 to the earn-out

on the date of acquisition which is considered a contingent liability.

Auditing the accounting for the acquisition was complex due to

the significant estimation uncertainty in determining the fair values of identified intangible assets, which consisted of Client Agreements

$664,034 and Goodwill of $5,480,966.

the significant judgments made by management to estimate the intangible assets acquired, performing audit procedures to evaluate the

reasonableness of management’s estimates and assumptions required a high degree of auditor judgment and an increased effort, including

the need to involve our fair value specialists.

the Critical Audit Matter Was Addressed in the Audit

the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated

financial statements.

These procedures included, among others:

utilized personnel with specialized knowledge and skill in valuation to assist in;

the appropriateness of Multi-Period Excess Earnings Method - valuation methodology for the

client agreements – intangible asset, b) evaluating the reasonableness of the growth

rates, percent of revenues derived from acquired customers, medical loss ratio, operating

costs, contributory asset charge and discount rate used in the income approach, c) evaluating

the reasonableness of the assumptions and estimates used in the valuation methodologies.

the reasonableness of management’s significant estimates and assumptions including

revenue growth rates, percent of revenues derived from acquired customers, medical loss ratio,

operating costs, contributory asset charge and discount rates and futures market conditions.

if there have been events and circumstances that might indicate Goodwill has been impaired.

the reasonableness of the significant assumptions used by management related to market multiples, peer group and comparable transaction

selection and selection of relevant financial matrices for concluding the fair value of reporting unit and future levels of revenue

management’s assumptions related to the future levels of revenue growth and involved evaluating whether the assumptions were

reasonable considering (i) current and past performance of the reporting units;

(ii) the consistency with external market and industry

and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit.

Professionals

with specialized skill and knowledge were used to assist in evaluating (i) the appropriateness

of the income approach and (ii) the reasonableness of significant assumptions.

and assessed the appropriateness of adjustments to Goodwill, Other Intangibles and other

Assets and Liabilities acquired based on changes to their estimated fair values.

have served as the Company’s auditor since 2019.

ID Number 587

with specialized skill and knowledge were used to assist in evaluating (i) the appropriateness of the market approach and (ii) the

reasonableness of significant assumptions related to the market multiples, peer group and comparable transaction selection and selection

of relevant financial matrices for concluding the fair value of reporting unit and future levels of revenue growth.

We have served as the Company’s auditor since 2019.

April 1, 2024

PCAOB ID Number 587

New York, NY Washington DC Mumbai & Pune, India Boca Raton, FL

San Francisco, CA Las Vegas, NV Beijing, China Athens, Greece

ANTEA International with affiliated offices worldwide

BALANCE SHEETS

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Accounts receivable-trade, less allowance for doubtful accounts of $ 200,668 – 2023 and $ 152,736 – 2022

Other receivables (including $ 138,384 due from related parties – 2022 and $ 158,384 – 2021, refer to Note 19)

Other receivables, net of $ 5,000 allowance – 2023 and $ 0 - 2022 (including $- 0 - due from related parties – 2023 and $ 138,384 – 2022, refer to Note 19)

Inventories, net

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Contract liabilities – current

Notes payable – related party – current portion

Debt obligations – current

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Contract liabilities – long term

Lease deposit

Total liabilities

Commitments and contingencies

Mezzanine equity:

Series A Convertible Redeemable Preferred stock, $ 0.001

shares issued:

Series B Convertible Redeemable Preferred stock, $ 0.001

shares issued:

Common stock, $ 0.001 par value;

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Interest expense

( 3,134,253 )

Other expense

Loss on accrual for legal settlement

( 1,792,308 )

Loss on conversion of convertible debt

( 1,112,705 )

Change in fair value of short-term investments

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Change in fair value of contingent consideration promissory notes and earn-out agreements

Warrant modification expense

Gain on the extinguishment of debt

Gain on the extinguishment of liabilities

Gain on extinguishment of warrant derivative liabilities

Gain on sale of property, plant and equipment

Total other income

Income (loss) before income tax expense (benefit)

Total other income (loss)

( 3,223,396 )

Income tax expense (benefit)

Net income (loss)

Loss before income tax benefit (provision)

( 25,463,949 )

( 18,873,758 )

Income tax expense benefit (provision)

( 25,463,949 )

( 18,873,758 )

Net income attributable to noncontrolling interests of consolidated subsidiary

Loss on redemption – Series A & B convertible redeemable preferred stock

Net income (loss) attributable to common stockholders

( 2,385,000 )

Net income (loss) per share attributable to common information:

Net loss attributable to common stockholders

$ ( 25,688,547 )

$ ( 21,666,691 )

Net loss per share attributable to common information:

Weighted average shares outstanding:

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$ ( 68,672,206 )

$ ( 90,014,500 )

Stock-based compensation

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Restricted common stock forfeitures

Issuance of common stock through

registered direct offering at $ 61.90

per share and accompanying warrants (net of

offering expenses and placement agent discount)

Issuance of common stock through

registered direct offering at $ 56.00

per share and accompanying warrants (net of

offering expenses and placement agent discount)

Exercise of pre-funded common

stock purchase warrants at $ 61.90

Exercise of pre-funded common

stock purchase warrants at $ 56.00

Issuance of pre-funded common

stock purchase warrants in connection with the registered direct offerings

( 1,817,548 )

Distribution to noncontrolling interest in consolidated subsidiary

Issuance of common stock under rule 144 restrictions related to contemplated spin-off transaction

Repurchase and cancellation of common stock

( 4,026,337 )

Issuance of common stock purchase

warrants at exercise price of $ 65.00

per share in connection with the registered

direct offerings

( 4,026,523 )

Issuance of common stock through warrant exchange agreement

Loss on redemption of Series A and Series B Preferred Stock

( 2,385,000 )

Issuance of common stock as

consideration for acquisition

Repurchase and cancellation

of common stock

( 2,385,000 )

( 19,281,691 )

Cancellation of treasury stock

( 18,873,758 )

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Restricted common stock forfeitures

Distribution to noncontrolling

interest in consolidated subsidiary

Issuance of common stock under

rule 144 restrictions related to contemplated spin-off transaction

Repurchase and cancellation

of common stock

( 4,026,337 )

( 4,026,523 )

Issuance of common stock through

warrant exchange agreement

Loss on redemption of Series

A and Series B Preferred Stock

( 2,385,000 )

Net income (loss)

Conversion of convertible note into common stock

Issuance due to rounding from reverse stock split

( 25,688,547 )

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Notes to Consolidated Financial Statements.

STATEMENTS OF CASH FLOWS

CONSOLIDATED STATEMENTS OF CASH FLOWS

ENDED DECEMBER 31, 2023 AND 2022

Cash Flows from Operating Activities:

Net income (loss)

$ ( 25,463,949 )

Adjustments to reconcile net income (loss) to net cash flows used in operating activities:

$ ( 18,873,758 )

Adjustments to reconcile net loss to net cash flows used in operating activities:

Depreciation and amortization

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Stock based compensation

Non-cash interest expense

Amortization of debt issuance costs

Gain on extinguishment of liabilities

Convertible debt discount amortization

Loss on conversion of debt

Loss on extinguishment of convertible debt

Loss on accrual for legal settlement

Provision for doubtful accounts receivable

Provision for doubtful lease receivable

Gain on extinguishment of debt

Change in fair value of contingent consideration promissory notes and earn-out agreements

( 3,732,789 )

Change in fair value of warrant derivative liability

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( 6,726,638 )

Gain of extinguishment of warrant derivative liabilities

Gain on extinguishment of warrant derivative liabilities

( 3,624,794 )

Warrant modification expense

Provision for inventory obsolescence

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( 2,195,157 )

( 1,431,080 )

Prepaid expenses

( 3,839,458 )

Operating lease right of use assets

( 1,343,751 )

( 3,048,382 )

Increase (decrease) in:

Accounts payable

( 1,907,608 )

Accrued expenses

Accrued interest - related party

Income taxes payable

Lease deposit

Operating lease obligations

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( 2,068,508 )

( 6,428,225 )

Proceeds from sale of property, plant and equipment

Purchases of intangible assets

( 1,189,132 )

Proceeds from sale of intangible assets

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( 1,153,627 )

Cash paid for acquisition of Medical Billing Company

( 2,270,000 )

Cash paid for acquisition of Medical Billing Company

Cash paid for asset acquisition of Medical Billing Company

Cash paid for acquisition of TicketSmarter

( 8,615,514 )

Collection of notes receivable

Net cash used in investing activities

( 2,940,591 )

( 19,124,379 )

Cash Flows from Financing Activities:

Proceeds from issuance of common stock upon exercise of pre-funded warrants

Net proceeds from sale of common stock in registered direct offerings

Repurchase and cancellation of common stock

( 4,026,523 )

( 1,975,079 )

Distribution to noncontrolling interest in consolidated subsidiary

Net proceeds of convertible debt with detachable warrants

Net proceeds of related party note payable

Net proceeds of revolving loan agreement – Video Solutions Segment

Proceeds – Commercial Extension of Credit – Entertainment Segment

Proceeds – Merchant Advances – Video Solutions Segment

Payments on convertible debt

( 3,162,500 )

Payments on Commercial Extension of Credit – Entertainment Segment

( 1,367,715 )

Payments on Merchant Advances – Video Solutions Segment

Principal payment on EIDL loan

Principal payment on contingent consideration promissory notes

Proceeds from issuance of Series A & B convertible redeemable preferred shares,

net of issuance costs

Redemption of Series A & B convertible redeemable

preferred shares

Proceeds from issuance of Series A & B convertible redeemable preferred shares, net of issuance costs

Redemption of Series A & B convertible redeemable preferred shares

( 15,750,000 )

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( 6,954,617 )

Net increase (decrease) in cash and cash equivalents

Net decrease in cash, cash equivalents and restricted cash

( 2,754,050 )

Cash, cash equivalents, beginning of year

Cash, cash equivalents, end of year

( 28,475,593 )

Cash, cash equivalents and restricted cash, beginning of year

Cash, cash equivalents, and restricted cash, end of year

Supplemental disclosures of cash flow information:

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Issuance of contingent consideration earn-out agreement for business acquisitions

Issuance of contingent consideration promissory note for business acquisitions

Issuance of contingent consideration promissory note for asset acquisitions

Assets acquired in business acquisitions

Identifiable intangible assets acquired in business acquisitions

Goodwill acquired in business acquisitions

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ROU and lease liability recorded on extension of lease

Common stock issued as consideration for business acquisitions

Amounts allocated to initial measurement of warrant derivative liabilities in connection to the warrants and pre-funded warrants

Common stock issued due to rounding from reverse stock split

Conversion of convertible notes payable into common stock

Issuance of common stock through warrant exchange agreement

Cancellation of treasury stock

Notes to Consolidated Financial Statements.

Debt discount on convertible note

TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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

1) the Video Solutions Segment, 2) the Revenue Cycle

Management Segment and 3) the Ticketing Segment.

The Video Solutions Segment is our legacy business that produces digital video imaging,

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

includes both service and product revenues through our subscription models offering cloud and warranty solutions, and hardware sales

for video and health safety solutions.

The Revenue Cycle Management Segment provides working capital and back-office services to a variety

of healthcare organizations throughout the country, as a monthly service fee.

The Ticketing Segment acts as an intermediary between ticket

buyers and sellers within our secondary ticketing platform, ticketsmarter.com, and we also acquire tickets from primary sellers to then

sell through various platforms.

The accounting guidance on Segment Reporting establishes standards for reporting information regarding

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

Such required segment information is included in Note 23.

Reverse Stock Split

February 6, 2023, the Company filed a Certificate of Amendment to its Articles of Incorporation, as amended, with the Secretary of

State of the State of Nevada to effect a 1-for-20

reverse stock split (the “Reverse Stock Split”) of the shares of its common stock.

The Reverse Stock Split was

effective as of time of filing.

LLC, Digital Ally Healthcare, LLC (“Digital Ally Healthcare”), TicketSmarter, Inc.

(“TicketSmarter”), Worldwide

Reinsurance, Ltd., Digital Connect, Inc., BirdVu Jets, Inc., Kustom 440, Inc.

(“Kustom 440”), Kustom Entertainment, Inc.,

and its majority-owned subsidiary Nobility Healthcare, LLC, collectively, “Digital Ally,” “Digital,” and the

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

1) the Video Solutions Segment, 2) the Revenue Cycle Management

Segment and 3) the Ticketing Segment.

The Video Solutions Segment is our legacy business that produces digital video imaging, storage

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

This segment includes

both service and product revenues through our subscription models offering cloud and warranty solutions, and hardware sales for video

and health safety solutions.

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

organizations throughout the country, as a monthly service fee.

The Ticketing Segment acts as an intermediary between ticket buyers and

sellers within our secondary ticketing platform, ticketsmarter.com, and we also acquire tickets from primary sellers to then sell through

various platforms.

The accounting guidance on Segment Reporting establishes standards for reporting information regarding operating segments

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

Such required

segment information is included in Note 23.

February 6, 2023, the Company filed a Certificate of Amendment to its Articles of Incorporation, as amended, with the Secretary of State

of the State of Nevada to effect a 1-for-20 reverse stock split (the “Reverse Stock Split”) of the shares of its common stock.

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

No fractional shares were issued in connection with the Reverse Stock Split.

Any fractional shares

of our Common Stock that would have otherwise resulted from the Reverse Stock Split were rounded up to the nearest whole number.

connection with the Reverse Stock Split, the board of directors of the Company approved appropriate and proportional adjustments to

all outstanding securities or other rights convertible or exercisable into shares of the Company’s common stock, including, without

limitation, all preferred stock, warrants, options, and other equity compensation rights.

All historical share and per-share amounts

reflected throughout the Company’s consolidated financial statements and other financial information in this Report have been adjusted to

reflect the Reverse Stock Split as if the split occurred as of the earliest period presented.

The par value per share of the Company’s common

stock was not affected by the Reverse Stock Split.

Any fractional shares of our Common Stock that would have otherwise resulted from the Reverse Stock Split were rounded up to the nearest

whole number.

In connection with the Reverse Stock Split, the board of directors of the Company approved appropriate and proportional

adjustments to all outstanding securities or other rights convertible or exercisable into shares of the Company’s common stock,

including, without limitation, all preferred stock, warrants, options, and other equity compensation rights.

All historical share and

per-share amounts reflected throughout the Company’s consolidated financial statements and other financial information in this

Report have been adjusted to reflect the Reverse Stock Split as if the split occurred as of the earliest period presented.

The par value

per share of the Company’s common stock was not affected by the Reverse Stock Split.

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

a Delaware corporation (Nasdaq:

CLOE) (“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, 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”).

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 (the “Closing”), 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.

the Closing which is subject to the approval of Clover Leaf’s shareholders and the satisfaction or waiver of certain other customary

closing conditions, the common stock of the combined company is expected to be listed on the Nasdaq under a mutually agreed new ticker

symbol that reflects the name “Kustom Entertainment”.

following is a summary of the Company’s Significant Accounting Policies:

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have been eliminated during consolidation.

The Company formed Digital Ally

International, Inc.

Company formed Digital Ally International, Inc.

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

The Company formed Shield Products, LLC in May

2020 to facilitate the sales of its Shield™ line of disinfectant/cleanser products and ThermoVu® line of temperature monitoring

The Company formed Nobility Healthcare, LLC (“Nobility Healthcare”) in June 2021 to facilitate the operations of

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

The Company formed TicketSmarter,

upon its acquisition of Goody Tickets, LLC and TicketSmarter, LLC, to facilitate its global ticketing operations.

The Company formed

Worldwide Reinsurance Ltd., which is a captive insurance company domiciled in Bermuda.

It will provide primarily liability insurance coverage

to the Company for which insurance may not be currently available or economically feasible in today’s insurance marketplace.

Company formed Digital Connect, Inc.

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

line of temperature monitoring equipment.

The Company formed Nobility Healthcare, LLC (“Nobility Healthcare”) in June 2021

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

formed TicketSmarter, Inc.

upon its acquisition of Goody Tickets, LLC and TicketSmarter, LLC, to facilitate its global ticketing operations.

The Company formed Worldwide Reinsurance Ltd., which is a captive insurance company domiciled in Bermuda.

It will provide primarily liability

insurance coverage to the Company for which insurance may not be currently available or economically feasible in today’s insurance

The Company formed Digital Connect, Inc.

and BirdVu Jets, Inc.

for travel and transportation purposes in 2022.

The Company formed Kustom 440,

in 2022 to create unique entertainment experiences directly for consumers.

formed Kustom 440, Inc.

in 2022 to create unique entertainment experiences directly for consumers, and Kustom Entertainment, Inc.

2023 to serve as the participant in the Business Combination.

Value of Financial Instruments :

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Company also acts as an intermediary between buyers and sellers through online secondary marketplace.

Revenues derived from this

marketplace primarily consist of service fees from ticketing operations, and consists of one primary performance obligation, which is

facilitating the transaction between the buyer and seller, being satisfied at the time the order has been confirmed.

As the Company does

not control the ticket prior to the transfer, the Company acts as an agent in these transactions.

Revenue is recognized on a net basis,

net of the amount due to the seller when an order is confirmed, the seller is then obligated to deliver the tickets to the buyer per

the seller’s listing.

Revenues derived from this marketplace

primarily consist of service fees from ticketing operations, and consists of one primary performance obligation, which is facilitating

the transaction between the buyer and seller, being satisfied at the time the order has been confirmed.

As the Company does not control

the ticket prior to the transfer, the Company acts as an agent in these transactions.

Revenue is recognized on a net basis, net of the

amount due to the seller when an order is confirmed, the seller is then obligated to deliver the tickets to the buyer per the seller’s

Payment is due at the time of sale.

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of Estimates :

preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States

of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure

of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during

the reporting period.

preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United

States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities

and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and

expenses during the reporting period.

Actual results could differ from those estimates.

Management utilizes various other estimates, including but not

limited to, determining the estimated lives of long-lived assets, determining the potential impairment of long-lived assets, the fair

value of warrants, options, the recognition of revenue, inventory valuation reserve, fair value of assets and liabilities acquired in

a business combination, incremental borrowing rate on leases, the valuation allowance for deferred tax assets and other legal claims

and contingencies.

The results of any changes in accounting estimates are reflected in the financial statements in the period in which

the changes become evident.

Estimates and assumptions are reviewed periodically, and the effects of revisions are reflected in the period

that they are determined to be necessary.

Management utilizes various other estimates,

including but not limited to, determining the estimated lives of long-lived assets, determining the potential impairment of

long-lived assets, the fair value of warrants, options, the recognition of revenue, inventory valuation reserve, allowances for

doubtful accounts and other receivables, incremental borrowing rate on leases, the valuation allowance for deferred tax assets and other legal

claims and contingencies.

The results of any changes in accounting estimates are reflected in the financial statements in the period

in which the changes become evident.

Estimates and assumptions are reviewed periodically, and the effects of revisions are reflected

in the period that they are determined to be necessary.

and cash equivalents :

and cash equivalents include funds on hand, in bank and short-term investments with original maturities of ninety (90) days or less.

The following table shows the Company’s cash and cash equivalents by significant investment category as of

December 31, 2022 and 2021:

The following table shows the Company’s cash and cash equivalents by significant investment category as of December 31, 2023 and

OF SHORT TERM INVESTMENTS

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respectively.

cash of $ 97,600 and $- 0 - was included in other assets as of December 31, 2023 and 2022, respectively.

Restricted cash consists of bank

deposits that collateralize our debt obligations.

following table provides a reconciliation of cash and cash equivalents in the consolidated balance sheets to cash, cash equivalents

and restricted cash in the consolidated statements of cash flows:

OF RECONCILIATION OF CASH AND CASH EQUIVALENTS

Cash and cash equivalents

Long-term restricted cash included in other assets

Total cash, cash equivalents and restricted cash in the statements of cash flows

receivable are carried at original invoice amount less an estimate made for doubtful receivables based on a review of all outstanding

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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

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.

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:

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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that there was no impairment.

Long-lived assets such as property, plant and equipment and purchased intangible assets subject to amortization are

reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

If circumstances require a long-lived asset or asset group be tested for possible impairment, the Company first compares undiscounted

cash flows expected to be generated by that asset or asset group to its carrying value.

If the carrying value of the long-lived asset

or asset group is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying value

exceeds its fair value.

Fair value is determined through various valuation techniques, including discounted cash flow models, quoted market

values and third-party appraisals, as considered necessary.

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 such as property, plant and equipment and purchased intangible assets subject to amortization are reviewed for impairment whenever

events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

If circumstances require a long-lived

asset or asset group be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by

that asset or asset group to its carrying value.

If the carrying value of the long-lived asset or asset group is not recoverable on an

undiscounted cash flow basis, an impairment is recognized to the extent that the carrying value exceeds its fair value.

Fair value is

determined through various valuation techniques, including discounted cash flow models, quoted market values and third-party appraisals,

as considered necessary.

assets include deferred patent costs and 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.

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

Inventories :

for the video solutions segment consist of electronic parts, circuitry boards, camera parts and ancillary parts (collectively,

“components”), work-in-process and finished goods.

Finished goods that are manufactured and assembled by the Company are

carried at the lower of cost or net realizable value, with cost determined by standard cost methods, which approximate the first-in,

first-out method.

Inventory costs include material, labor and manufacturing overhead.

Inventories for the entertainment segment

consists of tickets to live events purchased, which are held at lower of cost or net realizable value, and written-off after the

event has occurred.

Event tickets for the entertainment segment

are carried at lower of cost or net realizable value, and fully written off at the time the event occurs if the ticket is unsold

for the video solutions segment consist of electronic parts, circuitry boards, camera parts and ancillary parts (collectively, “components”),

work-in-process and finished goods.

Finished goods that are manufactured and assembled by the Company are carried at the lower of cost

or net realizable value, with cost determined by standard cost methods, which approximate the first-in, first-out method.

Inventory costs

include material, labor and manufacturing overhead.

Inventories for the entertainment segment consists of tickets to live events purchased,

which are held at lower of cost or net realizable value, and written-off after the event has occurred.

Event tickets for the entertainment

segment are carried at lower of cost or net realizable value, and fully written off at the time the event occurs if the ticket is unsold

and remaining in inventory after the completion of the event.

Management has established inventory reserves based on estimates of excess and/or obsolete current inventory.

Management has established inventory reserves based on estimates of excess

and/or obsolete current inventory.

Manufacturing

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The Company had operating leases

for copiers and its office and warehouse space at December 31, 2022 but no financing leases.

for copiers, offices and warehouse space at December 31, 2023 but no financing leases.

assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement

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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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period were recorded as a reduction to stockholders’ equity.

See further discussion of the Company’s share repurchase

program in Note 18–Stockholders’ Equity.

See further discussion of the Company’s share repurchase program

in Note 18–Stockholders’ Equity.

Non-Controlling

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Consolidated Statements of Operations.

Redeemable Preferred Stock

Preferred stock may be classified as a liability, temporary equity (i.e.,

mezzanine equity) or permanent equity.

In order to determine the appropriate classification, an evaluation of the cash redemption features

Where there exists an absolute right of redemption presently or in the future, the preferred stock would be classified

as a liability.

If redemption is contingently redeemable upon the occurrence of an event that is outside of the issuer’s control,

it should be classified as mezzanine equity.

The probability that the redemption event will occur is irrelevant.

If no redemption features

exist, or if a contingent redemption feature is within the Company’s control, the preferred stock would be considered equity.

Lease Receivable

Lease receivable

are carried at the original invoice amount less the total payments received pertaining to each individual customer’s lease agreement.

Preferred Stock

stock may be classified as a liability, temporary equity (i.e., mezzanine equity) or permanent equity.

In order to determine the appropriate

classification, an evaluation of the cash redemption features is required.

Where there exists an absolute right of redemption presently

or in the future, the preferred stock would be classified as a liability.

If redemption is contingently redeemable upon the occurrence

of an event that is outside of the issuer’s control, it should be classified as mezzanine equity.

The probability that the redemption

event will occur is irrelevant.

If no redemption features exist, or if a contingent redemption feature is within the Company’s

control, the preferred stock would be considered equity.

receivable are carried at the original invoice amount less the total payments received pertaining to each individual customer’s

lease agreement.

These agreements range from three to five years and are removed from lease receivables upon termination of the agreement.

The Company determines if an allowance for doubtful accounts by regularly evaluating individual customer lease receivables

and considering a customer’s financial condition, credit history, and current economic conditions.

No allowance was deemed necessary

for the year ended December 31, 2022.

Notes Receivable

The Company determines if an allowance for doubtful accounts by regularly evaluating individual customer lease receivables and considering

a customer’s financial condition, credit history, and current economic conditions.

No allowance was deemed necessary for the year

ended December 31, 2023.

receivable are carried at the original note amount less an estimate made for doubtful receivables based on a review of all outstanding

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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 Company adopted this update for the quarter ended March 31, 2021, with no material effect on the financials.

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, with no material effect on the financials.

December 2019, the FASB issued ASU No.

2019-12, Income Taxes - simplifying the accounting for income taxes (Topic 740), which is meant

to simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740, Income Taxes.

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

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

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

for financial assets and net investment in leases that are not accounted for at fair value through net income.

ASU 2016-13 replaces the

current incurred loss impairment methodology with a methodology that reflects expected credit losses.

In April 2019 and May 2019, the

FASB issued ASU No.

2019-04, “Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives

and Hedging, and Topic 825, Financial Instruments” and ASU No.

2019-05, “Financial Instruments-Credit Losses (Topic 326):

Targeted Transition Relief” which provided additional implementation guidance on the previously issued ASU.

In November 2019, the

FASB issued ASU 2019-10, “Financial Instruments - Credit Loss (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic

842),” which defers the effective date for public filers that are considered small reporting companies (“SRC”) as defined

by the Securities and Exchange Commission to fiscal years beginning after December 15, 2022, including interim periods within those fiscal

Since the Company is an SRC, implementation is not needed until January 1, 2023.

The Company will continue to evaluate the effect

of adopting ASU 2016-13 will have on the Company’s consolidated financial statements.

November 2023, the FASB issued Accounting Standards Update No.

2023-07, “Segment Reporting (Topic 280):

Improvements to Reportable

Segment Disclosures” (“ASU 2023-07”), which is intended to improve reportable segment disclosure requirements, primarily

through enhanced disclosures about significant segment expenses.

The guidance is effective for fiscal years beginning after December

15, 2023, and interim periods within fiscal years beginning after December 15, 2024.

Early adoption is permitted.

The guidance is to

be applied retrospectively to all prior periods presented in the financial statements.

Upon transition, the segment expense categories

and amounts disclosed in the prior periods should be based on the significant segment expense categories identified and disclosed in

the period of adoption.

We are currently evaluating the potential impact of adopting this new guidance on our consolidated financial

statements and related disclosures.

December 2023, the FASB issued Accounting Standards Update No.

2023-09, “Income Taxes (Topic 740):

Improvements to Income Tax Disclosures”

(“ASU 2023-09”), which modifies the rules on income tax disclosures to require entities to disclose (1) specific categories

in the rate reconciliation, (2) the income or loss from continuing operations before income tax expense or benefit (separated between

domestic and foreign) and (3) income tax expense or benefit from continuing operations (separated by federal, state and foreign).

2023-09 also requires entities to disclose their income tax payments to international, federal, state and local jurisdictions, among

other changes.

The guidance is effective for annual periods beginning after December 15, 2024.

Early adoption is permitted for annual

financial statements that have not yet been issued or made available for issuance.

ASU 2023-09 should be applied on a prospective basis,

but retrospective application is permitted.

We are currently evaluating the potential impact of adopting this new guidance on our consolidated

financial statements and related disclosures.

Concern Matters and Management’s Plans

accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets

and the satisfaction of liabilities in the normal course of business.

The Company incurred substantial operating losses in the years

ended December 31, 2022 and December 31, 2021 primarily due to reduced gross margins caused by a combination of competitors’ introduction

of newer products with more advanced features together with significant price cutting of their products and the recent acquisitions with

much smaller margins than the video solutions segment, historically.

The Company incurred operating losses of approximately $ 29.7 million

for the year ended December 31, 2022 and $ 14.8 million during the year ended December 31, 2021 and it had an accumulated deficit of $ 92.0

accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of

assets and the satisfaction of liabilities in the normal course of business.

The Company incurred substantial operating losses in

the years ended December 31, 2023 and December 31, 2022 primarily due to reduced gross margins caused by a combination of

competitors’ introduction of newer products with more advanced features together with significant price cutting of their

products and the recent acquisitions with much smaller margins than the video solutions segment, historically.

The Company incurred

operating losses of approximately $ 22.2

million for the year ended December 31, 2023 and $ 29.7

million during the year ended December 31, 2022 and it had an accumulated deficit of $ 117.7

million as of December 31, 2023.

In recent years the Company has accessed the public and private capital markets to raise funding through

the issuance of debt and equity.

In that regard, the Company raised approximately $ 66.6 million in the year ended December 31, 2021 through

two underwritten public offerings.

These equity raises were utilized to fund its operations and acquisitions.

Management expects to continue

this pattern until it achieves positive cash flows from operations, although it can offer no assurance in this regard.

These matters raise substantial doubt about Company’s ability to continue as a going

In recent years the Company has accessed the public and private capital markets to raise funding through the issuance of

debt and equity.

In that regard, the Company raised approximately $ 66.6 million

in the year ended December 31, 2021 through two underwritten public offerings.

These equity raises were utilized to fund its

operations and acquisitions.

Management expects to continue this pattern until it achieves positive cash flows from operations,

although it can offer no assurance in this regard.

Company will have to restore positive operating cash flows and profitability over the next year and/or raise additional capital to fund

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obtain it on terms acceptable or favorable to the Company.

Company has increased its contract liabilities to nearly $ 8.0 million as of December 31, 2022, which results in recurring revenue

during the period of 2023 to 2026.

Company has increased its contract liabilities to nearly $ 10.3 million as of December 31, 2023, which results in recurring revenue during

the period of 2023 to 2026.

The Company believes that its quality control and cost cutting initiatives, expansion to non-law enforcement

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from this process.

that regard, the Company, entered into an Agreement and Plan of Merger with Clover Leaf Capital Corp., with a focus and mission to own

and produce events, festivals, and entertainment alongside its evolving primary and secondary ticketing technologies.

Pursuant to the

Merger Agreement, the entertainment segment will become a separate publicly traded Company while the video and revenue cycle management

segments will be retained by Digital Ally, Inc.

on the uncertainties described above, the Company believes its business plan does not alleviate the existence of substantial doubt about

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receivable are presented net of an allowance for doubtful accounts.

The allowance for doubtful accounts totaled $ 152,736 as of December

31, 2022 and $ 113,234 as of December 31, 2021.

The allowance for doubtful accounts totaled $ 200,668

as of December 31, 2023 and

$ 152,736 as of December 31, 2022.

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

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OTHER RECEIVABLES

Other receivables were the following at December 31, 2022 and December 31, 2021:

receivables were the following at December 31, 2023 and December 31, 2022:

SCHEDULE OF OTHER

receivable increased by over $ 1.1

million at December 31, 2022 compared to December 31, 2021, primarily due to a note receivable issued by the Company during 2022.

The Company entered into a promissory note, through its entertainment segment, as part of a co-marketing agreement, with a principal

amount of $ 3,000,000 .

Principal payment, since its inception, on this promissory note totaled $ 1,401,660 as of December 31, 2022,

resulting in a remaining balance of $ 1,598,340 maturing December 31, 2023 .

Lease receivable increased by nearly $ 1.0

Notes receivable

Lease receivable, net

Total other receivables

receivable decreased by over $ 1.4 million at December 31, 2023 compared to December 31, 2022, primarily due to payments on a note receivable

issued by the Company during 2022.

The Company entered into a promissory note, through its entertainment segment, as part of a co-marketing

agreement, with a principal amount of $ 3,000,000 .

Principal payment, since its inception, on this promissory note totaled $ 2,849,846

as of December 31, 2023, resulting in a remaining balance of $ 150,154 maturing December 31, 2023.

Lease receivable increased by $ 0.6

million primarily due to increased sales under the Company’s subscription model during 2023.

The Company determines if an allowance for doubtful accounts by regularly evaluating notes receivable and individual

customer lease receivables, by considering a customer’s financial condition, credit history, and current economic conditions.

allowance was deemed necessary for the year ended December 31, 2022.

Other receivables relate to a related party receivable further described

The Company determines if an allowance

for doubtful accounts by regularly evaluating notes receivable and individual customer lease receivables, by considering a customer’s

financial condition, credit history, and current economic conditions.

The Company recorded an allowance of $ 5,000 and $- 0 - for the years

ended December 31, 2023 and 2022.

Other receivables relate to a related party receivable further described in Note 19.

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

OF INVENTORIES

December 31, 2022

December 31, 2021

Raw material and component parts– video solutions segment

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Total prepaid expenses

expenses decreased by nearly $ 1.3 million primarily due to a decline in prepaid inventory purchases and advertising expenses in 2022.

expenses decreased by approximately $ 2.1 million primarily due to a decline in prepaid inventory purchases and advertising in 2023.

PROPERTY, PLANT AND EQUIPMENT

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Building improvements

Rental equipment

accumulated depreciation and amortization

( 1,503,857 )

Net property, plant and equipment

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or charged to income.

The Company retired fixed assets during 2022 totaling $ 549,104 resulting in a gain on sale of assets of $ 212,831

for the year ended December 31, 2022 on the Company’s Consolidated Statement of Operations.

The Company retired fixed assets during 2021 totaling $ 391,535 all of which

were fully depreciated resulting in no gain or loss for the year ended December 31, 2021.

The Company retired fixed assets during 2023 totaling $ 89,562 resulting in no gain or loss for the year ended December

31, 2023 on the Company’s Consolidated Statement of Operations.

The Company retired fixed assets during 2022 totaling $ 549,104

resulting in a gain on sale of assets of $ 212,831 for the year ended December 31, 2022 on the Company’s Consolidated Statement

of Operations.

GOODWILL AND OTHER INTANGIBLE ASSETS

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

OF INTANGIBLE ASSETS

SCHEDULE OF INTANGIBLE ASSETS

December 31, 2023

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Personal seat licenses (entertainment

Website enhancements (entertainment segment)

Client agreements (revenue cycle management segments)

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OF ESTIMATED AMORTIZATION FOR INTANGIBLE ASSETS

Year ending December 31:

2028 and thereafter

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Sponsorship network

Restricted Cash

Total other assets

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Contingent consideration promissory note – Nobility Healthcare Division Acquisition

Revolving Loan Agreement

Commercial Extension of Credit- Entertainment Segment

Merchant Advances

Unamortized debt issuance costs

Debt obligations

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obligations mature as follows as of December 31, 2023:

OF MATURITY OF DEBT OBLIGATIONS

SCHEDULE OF MATURITY OF DEBT OBLIGATIONS

2028 and thereafter

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payments began in November 2022, after being deferred for thirty months after the date of disbursement and total $ 731.00 per month thereafter.

Such note may be prepaid

in part or in full, at any time, without penalty.

The Company granted the secured party a continuing interest in and to any and all collateral,

including but not limited to tangible and intangible personal property.

Such note may be prepaid in part or in full, at any time, without penalty.

The Company granted the secured party a continuing interest

in and to any and all collateral, including but not limited to tangible and intangible personal property.

Company made principal payments of $ 2,219 and $- 0 - for the years ended December 31, 2023 and 2022 and recorded interest expense of $ 5,606

Consideration Promissory Notes

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

Therefore, the Company recorded a gain of $ 27,139 and $ 32,789 in the Consolidated

Statements of Operations for the years ended December 31, 2022 and December 31, 2021, respectively.

This reduction only relates to the principal payments made for the year ended December

Therefore, the Company recorded a gain of $- 0 - and $ 27,139 in the Consolidated Statements of Operations for the years ended

December 31, 2023 and December 31, 2022, respectively.

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 December 31, 2022 is $ 388,954 , representing an increase in its estimated fair value of $ 31,907 as compared

of the August Contingent Note at December 31, 2023 is $ 129,651 , representing a decrease in its estimated fair value of $ 259,303 as compared

to is estimated fair value as of December 31, 2023.

Therefore, the Company recorded a loss of $ 31,907 and $- 0 - in the Consolidated Statements

of Operations for the years ended December 31, 2022 and December 31, 2021, respectively.

This reduction only relates to the principal payments made for the year ended December

Therefore, the Company recorded a loss of $- 0 - and $ 31,907 in the Consolidated Statements of Operations for the years ended

December 31, 2023 and December 31, 2022, respectively.

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

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

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

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

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

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

in connection with a stock purchase agreement between Nobility Healthcare and a private company (the “January Sellers”) of

Principal payments, since its inception, on this contingent consideration promissory note totaled $ 153,769 .

The estimated fair value

of the January Contingent Note at December 31, 2022 is $ 208,083 , representing a decrease in its estimated fair value of $ 421,085 as compared

to its estimated fair value as of the inception date.

Therefore, the Company recorded a gain of $ 421,085 and $- 0 - in the Consolidated

Statements of Operations for the years ended December 31, 2022 and December 31, 2021, respectively.

The estimated fair

value of the January Contingent Note at December 31, 2023 is $- 0 -, representing a decrease in its estimated fair value of $ 208,083 as

compared to its estimated fair value as of December 31, 2022, of which $ 32,936 represents payments made during the year ended December

Therefore, the Company recorded a gain of $ 175,146 and $ 421,085 in the Consolidated Statements of Operations for the years

ended December 31, 2023 and December 31, 2022, respectively.

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 December 31, 2023 is $- 0 -, representing a decrease in its estimated

fair value of $ 100,654 as compared to its estimated fair value as of the inception date.

Therefore, the Company recorded a gain of $ 100,654

and $- 0 - in the Consolidated Statements of Operations for the years ended December 31, 2022 and December 31, 2021, respectively.

fair value of $ 4,347 as compared to its estimated fair value as of December 31, 2022, of which $ 1,584 represents payments made during

the year ended December 31, 2023.

Therefore, the Company recorded a gain of $ 2,763 and $ 100,654 in the Consolidated Statements of Operations

for the years ended December 31, 2023 and 2022, respectively.

consideration earn-out Agreement – TicketSmarter Acquisition

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Therefore, the fair value of the contingent

consideration earn-out agreement was reduced to zero, and the resulting gain of $- 0 - and $ 3,700,000 was reported in our Consolidated

Statements of Operations for the years ended December 31, 2022 and December 31, 2021, respectively.

consideration earn-out agreement was reduced to zero, and the resulting gain of $- 0 - and $- 0 - was reported in our Consolidated Statements

of Operations for the years ended December 31, 2023 and December 31, 2022, respectively.

Commercial Extension of Credit

February 23, 2023, the Company’s Entertainment segment entered into an extension of credit in the form of a loan to use in marketing

and operating its business in accordance with the Private Label Agreement previously entered into with the Lender.

The Lender agreed

to extend, subject to the conditions hereof, and Borrower agreed to take, a Loan for Principal Sum of $ 1,000,000 .

shall retain 25 % of each remittance owed to Borrower under the terms of the Private Label Agreement.

Such remittances shall include regular

weekly remittances and any additional incentive payments to which the Borrower may be entitled.

The 25% withholding of the Borrower’s

applicable remittance shall be deemed a “Payment” under the terms of this Note, and Payments shall continue until the earlier

of (i) repayment of the Principal Sum, accrued Interest, and a fee of $35,000.00 or (ii) expiration of the Private Label Agreement on

December 31, 2023.

the year ended December 31, 2023, the Entertainment segment drew an additional $ 455,643 on this agreement, with the principal balance

never exceeding $ 1,000,000 .

During the year ended December 31, 2023, the Company’s Entertainment segment had repaid $ 1,367,715

towards the principal on the loan through remittances and had an outstanding balance of $ 87,928 .

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.

As the warrant

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

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

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.

October 26, 2023, the Company entered into a Revolving Loan Agreement of which a portion of the net proceeds were used to repay the principal

amount of the Convertible debt.

The Company made an aggregate payment of $ 3,162,500 from the proceeds, inclusive of fees to retire the

convertible notes.

In 2023, the Company amortized $ 2,169,545 in debt issuance costs associated with the convertible notes and expensed

the remaining balance of $ 731,819 upon extinguishment of the notes.

As a result a loss on extinguishment of debt totaling $ 1,019,319

was recorded in our Consolidated Statements of Operations for the year ended December 31, 2023.

The warrants associated with the convertible

debt remain outstanding.

Loan Agreement

October 26, 2023, the Company entered into a Loan and Security Agreement (the “Loan Agreement”)

by and between the Company, Digital Ally Healthcare, Inc., a Nevada corporation and wholly-owned subsidiary of the Company (“Digital

Ally Healthcare” and, together with the Company, the “Borrower”), and Kompass Kapital Funding, LLC, a Kansas limited

liability company (“Kompass”).

In connection with the Loan Agreement, on October 26, 2023, the Company entered into a Mortgage,

Assignment of Leases and Rents, Security Agreement and Fixture Filing (the “Mortgage”) by and between the Company, as grantor,

and Kompass, as grantee, and issued a Revolving Note (the “Revolving Note”) to Kompass.

The gross proceeds to the Company

are $ 4,880,000 before repaying those certain Senior Secured Convertible Notes issued on April 5, 2023 in the aggregate amount of $ 3,162,500

and paying customary fees and expenses.

to the Loan Agreement, Kompass agreed to make revolving loans (the “Revolving Loans”) available to the Borrower as the Borrower

may from time to time request until, but not including, October 26, 2025, and in such amounts as the Borrower may from time to time request,

provided, however, that the aggregate principal balance of the Revolving Loans outstanding at any time shall not exceed the lesser of

$ 4,880,000.00 or an amount equal to eighty percent of the value of the mortgaged property, which consists of the real property owned

by the Company having an address of 14001 Marshall Drive, Lenexa, KS 66215 (the “Mortgaged Property”).

Under the Loan Agreement,

the Revolving Loans made by Kompass may be repaid and, subject to customary terms and conditions, borrowed again up to, but not including

October 26, 2025, unless the Revolving Loans are otherwise accelerated, terminated or extended as provided in the Loan Agreement.

Revolving Loans shall be used by the Borrower for the purpose of working capital and to retire existing debt.

Under the Loan Agreement,

the Borrower is required to provide written notice to Kompass prior to creating, assuming or incurring any debt or becoming liable, whether

as endorser, guarantor, surety or otherwise, for any debt or obligation of any other party.

While obligations remain outstanding under

the Loan Agreement, the Borrower is required to maintain a minimum balance of $ 97,600 in a reserve account (the “Capital Reserve

Under the Loan Agreement, the Borrower is prohibited from creating, assuming, incurring or suffering or permitting to

exist any lien of any kind or character upon the collateral, which consists of the Mortgaged Property and the Company’s interest

in the Capital Reserve Account.

The Loan Agreement contains customary covenants, representations and warranties by the Borrower.

to the Loan Agreement, the Company issued the Revolving Note to Kompass whereby the Company and Digital Ally Healthcare jointly and severally

promise to pay to the order of Kompass the lesser of (i) $4,880,000.00, or (ii) the aggregate principal amount of all Revolving Loans

outstanding under and pursuant to the Loan Agreement at the maturity or maturities and in the amount or amounts stated on the records

of Kompass, together with interest (computed on the actual number of days elapsed on the basis of a 360 day year) at a floating per annum

rate equal to the greater of (i) the Prime Rate plus four percent or (ii) eight percent, on the aggregate principal amount of all Revolving

Loans outstanding from time to time as provided in the Loan Agreement.

Company entered into the Mortgage to secure its obligations under the Loan Agreement.

The property mortgaged under the Mortgage consists

of the Mortgaged Property.

The Mortgage contains customary covenants, representations and warranties by the Company.

In addition, the

Company recorded debt issuance costs of $ 188,255 .

During the year ended December 31, 2023, the Company amortized $ 16,997 of debt discount

under interest expense, compared to $- 0 - for the year ended December 31, 2022.

Cash Advances

November 2023, the Company obtained a short-term merchant advance, which totaled $ 1,050,000 ,

from a single lender to fund operations.

These advances included origination fees totaling $ 50,000

for net proceeds of $ 1,000,000 .

The advance is, for the most part, is secured by expected future sales transactions of the Company with expected payments on a weekly

The Company will repay an aggregate of $ 1,512,000

to the lender.

During 2023, the

Company made repayments totaling $ 162,000

and $ 1,350,000

remained outstanding, which is

expected to be repaid in 2024.

the year ended December 2023 the Company amortized $ 142,829 of debt discount under interest expense, compared to $- 0 - for year ended

December 31, 2022.

FAIR VALUE MEASUREMENT

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Promissory Notes and Earn-Out Agreement

December 31, 2021

of contingent consideration promissory note - Revenue Cycle Management Segment Business Acquisition

of contingent consideration promissory note - Revenue Cycle Management Segment Asset Acquisition

in fair value of warrant derivative liabilities

( 6,726,638 )

on extinguishment of warrant derivative liabilities

( 3,624,794 )

of common stock through warrant exchange agreement

Warrant Derivative

Balance, December 31, 2022

Issuance of warrant derivative liabilities

Change in fair value of warrant derivative liabilities

( 1,846,642 )

payments on contingent consideration promissory notes – Revenue Cycle Management Acquisitions

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

December 31, 2022

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

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

Balance, December 31, 2023

ACCRUED EXPENSES

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Accrued taxes

Total accrued expenses

Accrued interest - related party

Customer deposits

Total accrued

warranty expense was comprised of the following for the years ended December 31, 2023 and 2022:

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Contingent consideration for acquisition

Extinguishment of convertible debt

Income tax (provision) benefit

The effective tax rate for the

years ended December 31, 2022, and 2021 varied from the expected statutory rate due to the Company continuing to provide a 100 % valuation

allowance on net deferred tax assets.

The Company determined that it was appropriate to continue the full valuation allowance on net deferred

tax assets as of December 31, 2022, primarily because of the current year operating losses.

effective tax rate for the years ended December 31, 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 December 31, 2023, primarily because of the current year operating losses.

components of the Company’s deferred tax assets (liabilities) as of December 31, 2023 and 2022 are as follows:

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Total deferred tax liabilities

( 9,715,000 )

Net deferred tax assets (liability)

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assets will not be realized.

Company incurred operating losses in 2022 but generated income 2021 and it continues to be in a three-year cumulative loss position at

December 31, 2022 and 2021.

Accordingly, the Company determined there was not sufficient positive evidence regarding its potential for

future profits to outweigh the negative evidence of our three-year cumulative loss position under the guidance provided in ASC 740.

it determined to increase our valuation allowance by $ 17,220,000 but continue to fully reserve its deferred tax assets at December 31,

The Company expects to continue to maintain a full valuation allowance until it determines that it can sustain a level of profitability

that demonstrates its ability to realize these assets.

To the extent the Company determines that the realization of some or all of these

benefits is more likely than not based upon expected future taxable income, a portion or all of the valuation allowance will be reversed.

Such a reversal would be recorded as an income tax benefit and, for some portion related to deductions for stock option exercises, an

increase in shareholders’ equity.

of December 31, 2022, the Company had available approximately $ 113,315,000

of Federal net operating loss carry-forwards available to offset future taxable income generated.

Such tax net operating loss carry-forwards

expire between 2024 and 2042, with $ 63,726,000

of the tax net operating loss carry-forwards have an indefinite

life since the enactment of the Tax Cuts and Jobs Act of 2017.

In addition, the Company had research and development tax credit carry-forwards

totaling $ 1,795,000

available as of December 31, 2022, which expire

Company incurred operating losses in 2023 and 2022 and it continues to be in a three-year cumulative loss position at December 31, 2023

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

outweigh the negative evidence of our three-year cumulative loss position under the guidance provided in ASC 740.

Therefore, it determined

to increase our valuation allowance by $ 7,870,000 but continue to fully reserve its deferred tax assets at December 31, 2023.

expects to continue to maintain a full valuation allowance until it determines that it can sustain a level of profitability that demonstrates

its ability to realize these assets.

To the extent the Company determines that the realization of some or all of these benefits is more

likely than not based upon expected future taxable income, a portion or all of the valuation allowance will be reversed.

Such a reversal

would be recorded as an income tax benefit and, for some portion related to deductions for stock option exercises, an increase in shareholders’

of December 31, 2023, the Company had available approximately $ 140,940,000 of Federal net operating loss carry-forwards available to

offset future taxable income generated.

Such tax net operating loss carry-forwards expire between 2025 and 2043, with $ 91,352,000 of

the tax net operating loss carry-forwards have an indefinite life since the enactment of the Tax Cuts and Jobs Act of 2017.

the Company had research and development tax credit carry-forwards totaling $ 1,794,000 available as of December 31, 2023, which expire

between 2024 and 2040 .

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OPERATING LEASE

Company entered into an operating lease with a third party in October 2019 for copiers used for office and warehouse purposes.

of the lease include 48 monthly payments of $ 1,598 with a maturity date of October 2023.

The Company has the option to purchase such

equipment at maturity for its estimated fair market value at that point in time.

The lease for the Company’s copier operating lease

expired and was renewed in October 2023.

Company entered into an operating lease with a third party in October 2023 for copiers used for office and warehouse purposes.

of the lease include 48 monthly payments of $ 1,786 with a maturity date of October 2027.

The Company has the option to purchase such

equipment at maturity for its estimated fair market value at that point in time.

The remaining lease term for the Company’s copier

operating lease as of December 31, 2023 was forty-six months .

May 13, 2020, the Company entered into an operating lease for new warehouse and office space, which served as its new principal executive

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The remaining lease term for the Company’s

office and warehouse operating lease as of December 31, 2022 was forty-eight months .

Company entered into an operating lease with a third party in October 2019 for copiers used for office and warehouse purposes.

of the lease include 48 monthly payments of $ 1,598 with a maturity date of October 2023 .

The Company has the option to purchase such

equipment at maturity for its estimated fair market value at that point in time.

The remaining lease term for the Company’s copier

operating lease as of December 31, 2022 was ten months .

office and warehouse operating lease as of December 31, 2023 was thirty-six months .

June 30, 2021, the Company completed the acquisition of its first medical billing company, through Nobility Healthcare.

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The lease terms

include monthly payments ranging from $ 2,648

thereafter, with a termination

date in July 2024 .

The Company is responsible

for property taxes, utilities, insurance and its proportionate share of common area costs related to this location.

The remaining lease

term for the Company’s office and warehouse operating lease as of December 31, 2022 was nineteen

include monthly payments ranging from $ 2,648 to $ 2,774 thereafter, with a termination date in July 2024.

The Company is responsible for

property taxes, utilities, insurance and its proportionate share of common area costs related to this location.

The remaining lease term

for the Company’s office operating lease as of December 31, 2023 was seven months .

August 31, 2021, the Company completed the acquisition of its second acquired medical billing company, through Nobility Healthcare.

Upon completion of this acquisition, Nobility Healthcare became responsible for the operating lease for the seller’s office

The lease terms include monthly payments ranging from $ 11,579

thereafter, with a termination

date in March 2023 .

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

area costs related to this location.

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

The remaining lease

term for the Company’s office and warehouse operating lease as of December 31, 2022 was three

The Company plans to relocate the revenue cycle management operating segment

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

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

lease was renewed in April 2023 with favorable terms and payments ranging from $ 7,436 to $ 8,877 thereafter, with a termination date in

The Company is responsible for property taxes, utilities, insurance and its proportionate share of common area costs related

to this location.

The remaining term for the Company’s office operating lease was seventy-five months as of December 31, 2023.

September 1, 2021, the Company completed the acquisition of Goody Tickets, LLC and TicketSmarter, LLC through TicketSmarter.

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 and the remaining

lease term for the Company’s warehouse operating lease as of December 31, 2022 was six

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 currently rents this space on a month-to-month basis with intentions to relocate

upon the identification of suitable space.

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

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

lease as of December 31, 2022, was thirty months .

lease as of December 31, 2023, was seventeen months .

expense related to the office spaces and copier operating leases was recorded on a straight-line basis over the lease term.

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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 December 31, 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 million.

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.

On February 23, 2023, the Company received notice from Nasdaq confirming that the Company has cured its bid price deficiency

and has fully regained compliance with the Minimum Bid Price Requirement.

The Company sponsors a 401(k) retirement savings plan for the benefit of its employees.

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

(i) the 2005 Stock Option and

Restricted Stock Plan (the “2005 Plan”), (ii) the 2006 Stock Option and Restricted Stock Plan (the “2006

Plan”), (iii) the 2007 Stock Option and Restricted Stock Plan (the “2007 Plan”), (iv) the 2008 Stock Option and

Restricted Stock Plan (the “2008 Plan”), (v) the 2011 Stock Option and Restricted Stock Plan (the “2011

Plan”), (vi) the 2013 Stock Option and Restricted Stock Plan (the “2013 Plan”), (vii) the 2015 Stock Option and

Restricted Stock Plan (the “2015 Plan”), (viii) the 2018 Stock Option and Restricted Stock Plan (the “2018

Plan”), (ix) the 2020 Stock Option and Restricted Stock Plan (the “2020 Plan”), and (x) the 2022 Stock Option and

Restricted Stock Plan (the “2022 Plan”).

The 2005 Plan, 2006 Plan, 2007 Plan, 2008 Plan, 2011 Plan, 2013 Plan, 2015

Plan, 2018 Plan, 2020 Plan and 2022 Plan are referred to as the “Plans.”

(i) the 2005 Stock Option and Restricted

Stock Plan (the “2005 Plan”), (ii) the 2006 Stock Option and Restricted Stock Plan (the “2006 Plan”), (iii) the

2007 Stock Option and Restricted Stock Plan (the “2007 Plan”), (iv) the 2008 Stock Option and Restricted Stock Plan (the

“2008 Plan”), (v) the 2011 Stock Option and Restricted Stock Plan (the “2011 Plan”), (vi) the 2013 Stock Option

and Restricted Stock Plan (the “2013 Plan”), (vii) the 2015 Stock Option and Restricted Stock Plan (the “2015 Plan”),

(viii) the 2018 Stock Option and Restricted Stock Plan (the “2018 Plan”), (ix) the 2020 Stock Option and Restricted Stock

Plan (the “2020 Plan”), and (x) the 2022 Stock Option and Restricted Stock Plan (the “2022 Plan”).

The 2005 Plan,

2006 Plan, 2007 Plan, 2008 Plan, 2011 Plan, 2013 Plan, 2015 Plan, 2018 Plan, 2020 Plan and 2022 Plan are referred to as the “Plans.”

Plans permit the grant of stock options or restricted stock to its employees, non-employee directors and others for up to a total of

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Stock options granted under the 2006 Plan that remain unexercised and outstanding as of December 31, 2023 total 531 .

The 2007 Plan terminated during 2017 with 4,733 shares not awarded or underlying options, which shares are now unavailable for issuance.

2007 Plan terminated during 2017 with 4,733 shares not awarded or underlying options, which shares are now unavailable for issuance.

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

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Plan to date.

The 2020 Plan also authorizes us to grant (i) to the key employees’ incentive stock options to purchase shares

of Common Stock and non-qualified stock options to purchase shares of Common Stock and restricted stock awards and (ii) to non-employee

The 2020 Plan also authorizes us to grant (i) to the key employees’ incentive stock options to purchase shares of

Common Stock and non-qualified stock options to purchase shares of Common Stock and restricted stock awards and (ii) to non-employee

directors and consultants non-qualified stock options and restricted stock.

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Company’s stockholders approved the 2022 Plan at the Annual Meeting held on December 7, 2022.

The number of shares of Common Stock authorized and reserved

for issuance under the 2022 Plan totals 125,000 .

The 2022 Plan also authorizes us to grant (i) to the key employees’ incentive

stock options to purchase shares of Common Stock and non-qualified stock options to purchase shares of Common Stock and restricted stock

awards and (ii) to non-employee directors and consultants non-qualified stock options and restricted stock.

The number of shares of Common Stock

authorized and reserved for issuance under the 2022 Plan totals 125,000 .

The 2022 Plan also authorizes us to grant (i) to the key employees’

incentive stock options to purchase shares of Common Stock and non-qualified stock options to purchase shares of Common Stock and restricted

stock awards and (ii) to non-employee directors and consultants non-qualified stock options and restricted stock.

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

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in the various Plans during the years ended December 31, 2023 and 2022 is reflected in the following table:

OF STOCK OPTIONS OUTSTANDING

SUMMARY OF STOCK OPTIONS OUTSTANDING

Exercise Price

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value of the options during the years ended December 31, 2023 and 2022:

OF FAIR VALUE OF STOCK OPTIONS ASSUMPTION

SCHEDULE OF FAIR VALUE OF STOCK OPTIONS ASSUMPTION

Volatility – range

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$ 50.00 to $ 69.99

$ 70.00 to $ 89.99

stock grants.

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

As of December 31, 2022, there were $ 500,280 of total unrecognized compensation costs related to all remaining non-vested restricted

stock grants, which will be amortized over the next forty-eight months in accordance with their respective vesting scale.

As of December 31, 2023, there was $ 140,573 of total unrecognized compensation costs related to all remaining non-vested restricted stock

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

nonvested balance of restricted stock vests as follows:

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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

exercisable or have a delayed initial exercise date, no more than nine 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 December 31, 2023.

The warrants expire from February

23, 2023 through July 31, 2023 and certain of the outstanding warrants allow for cashless exercise.

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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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 .

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

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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

modified expiry date of the warrants, respectively, using the Black-Scholes method.

The difference of $ 295,780 was accordingly recorded

as a warrant modification expense in the consolidated statement of operations.

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

(the “Investors”), pursuant to which the Company agreed to issue to the Investors an aggregate of 303,750 shares of Common

Stock in exchange for the cancellation by the Investors of the January Warrants, the Exchange Warrants and the Replacement Originals

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

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

The remaining value of the warrant

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

of warrant derivative liabilities in the consolidated statement of operations.

On the date of the Warrant Exchange Agreement, using the

Black-Scholes method, the fair value of the warrant derivative liability was $ 8.1 million, compared to $ 9.3 million at June 30, 2022,

resulting in income from change in fair market value of warrant derivative liabilities of $ 1.2 million during the year ended December

Further, the value of the issued shares of Common Stock was $ 4.5 million, applied to additional paid in capital, resulting

in a gain on the extinguishment of warrant derivative liabilities of $ 3.6 million during the year ended December 31, 2022.

SCHEDULE OF WARRANT MODIFICATION

Original terms at August 19, 2021

Modified terms at August 19, 2021

Volatility - range

Risk-free rate

Remaining contractual term

Exercise price

Common stock issuable under the warrants

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

investors (the “Investors”), pursuant to which the Company agreed to issue to the Investors an aggregate of 303,750

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

Replacement Originals Warrants.

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

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

The remaining value of the warrant derivative liability was attributed to an income from change in fair market value of warrant

derivative liabilities and gain on extinguishment of warrant derivative liabilities in the consolidated statement of operations.

the date of the Warrant Exchange Agreement, using the Black-Scholes method, the fair value of the warrant derivative liability was

million, compared to $ 9.3

million at June 30, 2022, resulting in income from change in fair market value of warrant derivative liabilities of $ 1.2

million during the year ended December 31, 2022.

Further, the value of the issued shares of Common Stock was $ 4.5

million, applied to additional paid in capital, resulting in a gain on the extinguishment of warrant derivative liabilities of

million during the year ended December 31, 2022.

August 23, 2022

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

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.

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 December 31, 2023:

Issuance date assumptions

December 31, 2023 assumptions

Volatility - range

Risk-free rate

Remaining contractual term

Exercise price

Common stock issuable under the warrants

following table summarizes information about shares issuable under warrants outstanding during the years ended December 31, 2023 and

OF WARRANT ACTIVITY

SUMMARY OF WARRANT ACTIVITY

exercise price

Vested Balance, January 1, 2022

( 1,232,971 )

Vested Balance, December 31, 2022

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Forfeited/cancelled

( 1,232,971 )

Vested Balance, December 31, 2023

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18 - STOCKHOLDERS’ EQUITY

Direct Offerings

January 14, 2021, the Company consummated a registered direct offering (the “Offering”) of (i) 140,000 shares of common

stock (“Shares”), (ii) pre-funded warrants to purchase up to 360,000 shares of Common Stock (the “Pre-Funded Warrants”),

issuable to investors whose purchase of shares of Common Stock would otherwise result in such investor, together with its affiliates

and certain related parties, beneficially owning more than 4.99% (or, at the election of the holder, 9.99%) of the Company’s outstanding

Common Stock immediately following the consummation of the Registered Offering (“Pre-Funded Warrants”);

and (iii) common

stock purchase warrants (“Warrants”) to purchase up to an aggregate of 500,000 shares of Common Stock (the “Warrant

Shares”), which are exercisable for a period of five years after issuance at an initial exercise price $ 65.00 per share, subject

to certain adjustments, as provided in the Warrants.

The Offering was conducted pursuant to a placement agency agreement, dated January

12, 2021, between the Company and Kingswood Capital Markets, division of Benchmark Investments, Inc., who acted as the exclusive placement

agent in connection with the Offering pursuant to a placement agency agreement.

The Shares and accompanying Warrants in the Offering

were sold at a combined offering price of $ 61.90 per Share and accompanying Warrant and the Pre-Funded Warrants and accompanying Warrants

in the Offering were sold at a combined offering price of $ 61.70 per Pre-Funded Warrant and accompanying Warrant.

securities in the Offering were issued pursuant to a prospectus supplement to the Company’s effective shelf registration statement

on Form S-3 (File No.

The placement agency agreement contained customary representations, warranties and agreements by the

Company, customary conditions to closing, indemnification obligations of the Company and the placement agent.

The placement agent received

discounts and commissions of six percent ( 6 %) of the gross cash proceeds received by the Company from the sale of the securities sold

in the Offering and certain expenses.

Company received approximately $ 28,941,000 ($ 29,013,000 upon full exercise of the prefunded warrants) in net proceeds from the Offering

after deducting the discounts, commissions, and other estimated offering expenses payable by the Company.

As of December 31, 2021, all

pre-funded warrants have been fully exercised.

The Company plans to use the net proceeds from the Offering for working capital, product

development, order fulfilment and for general corporate purposes.

Company received net proceeds from this offering as follows:

SCHEDULE OF NET PROCEEDS FROM OFFERING

Net proceeds received:

Proceeds from the sale of 140,000 shares of Common Stock at $ 61.90 per share

Proceeds from the sale of pre-funded warrants to purchase 360,000 shares of Common Stock at $ 61.70 per share

Placement agent fees and other expenses of the offering

( 1,937,000 )

Net proceeds of the offering

conjunction with this Offering, the Company issued prefunded Common Stock purchase warrants to purchase up to 360,000 shares Common

Stock at $ 61.90 per share ($ 61.70 prefunded at closing) and Common Stock purchase warrants to purchase up to 500,000 shares of Common

Stock at $65.00 per share.

The underlying warrant terms provide for net cash settlement outside the control of the Company under certain

circumstances in the event of tender offers.

As such, the Company is required to treat these warrants as derivative liabilities which

are valued at their estimated fair value at their issuance date and at each reporting date with any subsequent changes reported in the

consolidated statements of operations as the change in fair value of warrant derivative liabilities.

Accordingly, the Company allocated

a portion of the net proceeds of this offering to warrant derivative liabilities based on their estimated fair value as follows (See

Notes 11 and 17):

SCHEDULE OF NET PROCEEDS FROM OFFERING

Warrant derivative liabilities

Pre-funded warrant derivative liabilities

Total allocation of the net proceeds of the offering to warrant derivative liabilities

Direct Offerings

February 1, 2021, the

Company consummated an registered direct offering (the “Second Offering”) of (i) 162,500

shares of common stock (“February 2021 Shares”), (ii) pre-funded warrants to purchase up to 552,500

shares of Common Stock (the “February 2021 Pre-Funded Warrants”), issuable to investors whose purchase of shares of

Common Stock would otherwise result in such investor, together with its affiliates and certain related parties, beneficially owning

more than 4.99% (or, at the election of the holder, 9.99%) of the Company’s outstanding Common Stock immediately following the

consummation of the Registered Offering;

and (iii) common stock purchase warrants (“February 2021 Warrants”) to purchase

up to an aggregate of 715,000

shares of Common Stock (the “February 2021 Warrant Shares”), which are exercisable for a period of five

years after issuance at an initial exercise price $ 65.00

per share, subject to certain adjustments, as provided in the February 2021 Warrants.

The Second Offering was conducted

pursuant to a placement agency agreement, dated January 28, 2021, between the Company and Kingswood Capital Markets, division of

Benchmark Investments, Inc., who acted as the exclusive placement agent in connection with the Second Offering pursuant to a

placement agency agreement.

The February 2021 Shares and accompanying February 2021 Warrants in the Second Offering were sold at a

combined offering price of $ 56.00

per February 2021 Share and accompanying February 2021 Warrant and the February 2021 Pre-Funded Warrants and accompanying February

2021 Warrants in the Offering were sold at a combined offering price of $ 55.80

per February 2021 Pre-Funded Warrant and accompanying February 2021 Warrant.

securities in the Second Offering were issued pursuant to a prospectus supplement to the Company’s effective shelf registration

statement on Form S-3 (File No.

The placement agency agreement contained customary representations, warranties and agreements

by the Company, customary conditions to closing, indemnification obligations of the Company and the placement agent.

The placement agent

received discounts and commissions of six percent ( 6 %) of the gross cash proceeds received by the Company from the sale of the securities

sold in the Second Offering and certain expenses.

Company received approximately $ 37,447,100 ($ 37,557,600 upon full exercise of the prefunded warrants) in net proceeds from the Second

Offering after deducting the discounts, commissions, and other estimated offering expenses payable by the Company.

As of December 31,

2021, all pre-funded warrants have been fully exercised.

The Company plans to use the net proceeds from the Second Offering for working

capital, product development, order fulfilment and for general corporate purposes.

Company received net proceeds from this offering as follows:

SCHEDULE OF NET PROCEEDS FROM OFFERING

Net proceeds received:

Proceeds from the sale of 162,500 shares of Common Stock at $ 56.00 per share

Proceeds from the sale of pre-funded warrants to purchase 552,500 shares of Common Stock at $ 55.80 per share

Placement agent fees and other expenses of the offering

( 2,482,400 )

Net proceeds of the offering

conjunction with the Second Offering, the Company issued prefunded Common Stock purchase warrants to purchase up to 552,500

shares of common Stock at $ 56.00

per share ($ 55.80

prefunded at closing) and Common Stock purchase

warrants to purchase up to 715,000

shares of Common Stock at $ 65.00

The underlying warrant terms provide

for net cash settlement outside the control of the Company under certain circumstances in the event of tender offers.

As such, the Company

is required to treat these warrants as derivative liabilities which are valued at their estimated fair value at their issuance date and

at each reporting date with any subsequent changes reported in the consolidated statements of operations as the change in fair value

of warrant derivative liabilities.

Accordingly, the Company allocated a portion of the net proceeds of this offering to warrant derivative

liabilities based on their estimated fair value as follows (See Notes 11 and 17):

SCHEDULE OF NET PROCEEDS FROM OFFERING

Warrant derivative liabilities

Pre-funded warrant derivative liabilities

Total allocation of the net proceeds of the offering to warrant derivative liabilities

Issuance of Restricted Common Stock.

January 7, 2022, the board of directors approved the grant of 26,250 shares of common stock to officers of the Company.

will vest over various periods ranging from one to five years on the anniversary of the grant date, provided that each grantee remains

an officer or employee on such dates .

Such shares will

vest over various periods ranging from one to five years on the anniversary of the grant date, provided that each grantee remains an

officer or employee on such dates.

various dates in January 2022, the board of directors approved the grant of 9,500 shares of common stock to employees of the Company.

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Stock Transaction

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

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

private placement (the “2022 Offering”), 1,400,000

shares of the Company’s Series A Convertible Redeemable Preferred Stock, par value $ 0.001

per share (the “Series A Preferred Stock”), and 100,000

shares of the Company’s Series B Convertible Redeemable Preferred Stock, par value $ 0.001

per share (the “Series B Preferred Stock”, and together with the Series A Preferred Stock, the “Preferred

Stock”), at an offering price of $ 9.50

per share, representing a 5% original issue discount to the stated value of $ 10.00

per share, for gross aggregate proceeds of $ 15

million in the 2022 Offering, before the deduction of discounts, fees and offering expenses.

The shares of Preferred Stock will,

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

Preferred Stock and, in certain circumstances, by the Company.

connection with the 2022 Offering, the Company paid A.G.P./Alliance Global Partners (the “Financial Advisor”) an

aggregate cash fee equal to $ 750,000

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

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

(the “2022 Offering”), 1,400,000 shares of the Company’s Series A Convertible Redeemable Preferred Stock, par value

$ 0.001 per share (the “Series A Preferred Stock”), and 100,000 shares of the Company’s Series B Convertible Redeemable

Preferred Stock, par value $ 0.001 per share (the “Series B Preferred Stock”, and together with the Series A Preferred Stock,

the “Preferred Stock”), at an offering price of $ 9.50 per share, representing a 5 % original issue discount to the stated

value of $ 10.00 per share, for gross aggregate proceeds of $ 15 million in the 2022 Offering, before the deduction of discounts, fees

and offering expenses.

The shares of Preferred Stock will, under certain circumstances, be convertible into shares of the Company’s

common stock, at the option of the holders of the Preferred Stock and, in certain circumstances, by the Company.

In connection with the

2022 Offering, the Company paid A.G.P./Alliance Global Partners (the “Financial Advisor”) an aggregate cash fee equal to

$ 750,000 and reimbursed the Financial Advisor for certain of its expenses in an amount not to exceed $135,000 .

Pursuant to the Purchase Agreement,

the Company filed on October 17, 2022 certificates of designation (the “Certificates of Designation”) with the Secretary of

the State of Nevada designating the rights, preferences and limitations of the shares of Series A Preferred Stock and Series B Preferred

The Certificate of Designation for the Series A Preferred Stock provides, in particular, that the Series A Preferred Stock will

have no voting rights other than the right to vote on the Amendments on an as-if-converted-to-Common-Stock basis.

The Certificate of Designation

for the Series B Preferred Stock provides, in particular, that the Series B Preferred Stock will have no voting rights other than the

right to vote on the Amendments and each share of Series B Preferred Stock entitles the holder thereof the right to cast 2,500 votes on

the Amendments .

The holders of Preferred Stock will be entitled to dividends, on an as-if

converted-to-Common-Stock basis, equal to dividends actually paid, if any, on shares of Common Stock.

The Preferred Stock is convertible,

at the option of the holders and, in certain circumstances, by the Company, into shares of Common Stock at a conversion price of $ 20.00

The conversion price can be adjusted pursuant to the Certificates of Designation for stock dividends and stock splits, subsequent

rights offering, pro rata distributions of dividends or other distribution of its assets, or the occurrence of a fundamental transaction

(as defined in the applicable Certificate of Designation).

to the Purchase Agreement, the Company filed on October 17, 2022 certificates of designation (the “Certificates of Designation”)

with the Secretary of the State of Nevada designating the rights, preferences and limitations of the shares of Series A Preferred Stock

and Series B Preferred Stock.

The Certificate of Designation for the Series A Preferred Stock provides, in particular, that the Series

A Preferred Stock will have no voting rights other than the right to vote on the Amendments on an as-if-converted-to-Common-Stock basis.

The Certificate of Designation for the Series B Preferred Stock provides, in particular, that the Series B Preferred Stock will have

no voting rights other than the right to vote on the Amendments and each share of Series B Preferred Stock entitles the holder thereof

the right to cast 2,500 votes on the Amendments .

holders of Preferred Stock will be entitled to dividends, on an as-if converted-to-Common-Stock basis, equal to dividends actually paid,

if any, on shares of Common Stock.

The Preferred Stock is convertible, at the option of the holders and, in certain circumstances, by

the Company, into shares of Common Stock at a conversion price of $ 20.00 per share.

The conversion price can be adjusted pursuant to

the Certificates of Designation for stock dividends and stock splits, subsequent rights offering, pro rata distributions of dividends

or other distribution of its assets, or the occurrence of a fundamental transaction (as defined in the applicable Certificate of Designation).

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

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

the receipt of stockholder approval of the Amendments and (2) sixty (60) days after the closing of the 2022 Offering and (ii) before

the date that is ninety (90) days after such closing.

The Company has the option to redeem the Series A Preferred Stock and Series B

Preferred Stock at a price per share equal to 105% of the stated value of such shares commencing after the 90th day following the

closing of the 2022 Offering, subject to the holders’ rights to convert the shares prior to such redemption .

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

receipt of stockholder approval of the Amendments and (2) sixty (60) days after the closing of the 2022 Offering and (ii) before the

date that is ninety (90) days after such closing.

The Company has the option to redeem the Series A Preferred Stock and Series B Preferred

Stock at a price per share equal to 105% of the stated value of such shares commencing after the 90th day following the closing of the

2022 Offering, subject to the holders’ rights to convert the shares prior to such redemption .

proceeds of the 2022 Offering were held in an escrow account, along with the additional amount that would be necessary to fund the 105 %

105% redemption price until the expiration of the redemption period for the Preferred Stock, as applicable, subject to the earlier

payment to redeeming holders.

Upon expiration of the redemption period, any proceeds remaining in the escrow account will be

disbursed to the Company.

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

to redeeming holders.

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

2022 Offering closed on October 19, 2022.

In December 2022, the Company redeemed 1,400,000

shares of Series A & 100,000

shares of Series B Preferred Stock, for a redemption price of $ 15,750,000 ,

with a $ 13,365,000

carrying amount, resulting in a $ 2,385,000 loss

on redemption.

In December 2022, the Company redeemed 1,400,000 shares of Series A & 100,000 shares of

Series B Preferred Stock, for a redemption price of $ 15,750,000 , with a $ 13,365,000 carrying amount, resulting in a $ 2,385,000 loss on

of Common Stock as Consideration for the Potential Spin-Off Transaction.

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2021, with the Company purchasing a total of 273,042 shares at a cost of $ 6,001,602 through June 30, 2022.

Issuance of Restricted Common Stock

January 10, 2023, the board of directors approved the grant of 22,500 shares of Common Stock to officers of the Company.

will generally vest over a period of one to five years on their respective anniversary dates in January through January 2028, provided

that each grantee remains an officer or employee on such dates.

Additionally, the board of directors approved the grant of 12,500 restricted

common shares to certain new employees of the Company.

Such shares will generally vest over a period of one to two years on their respective

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 Stock.

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.

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.

Therefore, the Company issued

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

Noncontrolling

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to noncontrolling interests of consolidated subsidiary of $ 224,598 and $ 407,933 for the year ended December 31, 2023 and 2022, respectively.

of Convertible Note

the year ended December 31, 2023, pursuant to the Convertible Note, 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 .

of Common Stock

the year ended December 31, 2023, the Company cancelled 3,625 shares for various reasons.

RELATED PARTY TRANSACTIONS

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

Company has advanced a total of $ 158,384

in the form of a working capital loan to Nobility,

LLC in order to fund capital expenditures necessary for the initial growth of the joint venture during 2022.

The outstanding balance

of the working capital loan was $ 138,384

as of December 31, 2022 and the Company anticipates

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

The Company paid distributions to the noncontrolling in consolidated

subsidiary totaling $ 15,692

for the years ended December 31, 2022 and 2021, respectively.

Company has advanced a total of $ 158,384 in the form of a working capital loan to Nobility, LLC in order to fund capital expenditures

necessary for the initial growth of the joint venture during 2022.

The outstanding balance of the working capital loan was $- 0 - as of

December 31, 2023.

The Company paid distributions to the noncontrolling in consolidated subsidiary totaling $- 0 - and $ 15,692 , for the

years ended December 31, 2023 and 2022, respectively.

The Company also

accrued reimbursable expenses payable to Nobility, LLC totaling $ 619,301 and $ 265,241 for the years ended December 31, 2023 and 2022

and management fees in accordance with the operating agreement of $ 49,014 and $ 36,502 for the years ended December 31, 2023 and 2022.

August 1, 2022, Mr.

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Nobility, LLC.

NET INCOME (LOSS) PER SHARE

with Related Party of TicketSmarter

September 22, 2023, a trust, the beneficiaries of which are TicketSmarter’s Chief Executive Officer and his spouse,

contributed cash in the amount of $ 2,325,000

to TicketSmarter to support TicketSmarter’s operations.

On October 2, 2023 an additional $ 375,000 was contributed to

Ticketsmarter.

The transaction was recorded as a related party note payable (the “TicketSmarter Related Party Note”).

The TicketSmarter Related Party Note bears interest of 13.25 %

per annum with repayment beginning January 2, 2024.

As of December 31, 2023, the entire TicketSmarter Related Party note is $ 2,700,000 ,

is classified as current, with an accrued interest balance of $ 95,031 .

The use of proceeds of the TicketSmarter Related Party Note was to resolve numerous outstanding payables at a discounted rate, the

discount received is recognized as a gain on extinguishment of liabilities on the statement of operations.

Additionally, these

negotiations relieved TicketSmarter of numerous future obligations following fiscal year 2023.

NET LOSS PER SHARE

calculation of the weighted average number of shares outstanding and loss per share outstanding for the years ended December 31, 2023

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Year ended December 31,

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

income (loss) attributable to common stockholders

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

$ ( 25,688,547 )

$ ( 21,666,691 )

Denominator for basic loss per share – weighted average shares outstanding

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

Net income (loss) per share:

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

years ended December 31, 2022 and 2021, all shares issuable upon conversion of convertible debt and the exercise of outstanding

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

Net loss per share:

Basic loss per share is based upon the weighted average number of shares of common stock outstanding during the period.

For the years

ended December 31, 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.

DIGITAL ALLY HEALTHCARE VENTURE

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

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

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

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

in the Healthcare Acquisition were as follows:

SCHEDULE OF PRELIMINARY

FAIR VALUE OF ASSETS ACQUIRED AND LIABILITIES ACQUISITION

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

estimated fair values at the time of the Healthcare Acquisition.

The preliminary and final estimated fair value of assets acquired and

liabilities assumed in the Healthcare Acquisition were as follows:

SCHEDULE OF PRELIMINARY FAIR VALUE OF ASSETS ACQUIRED AND LIABILITIES ACQUISITION

June 30, 2021

June 30, 2022

Purchase price allocation

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Tangible assets acquired, consisting of acquired cash, accounts receivable and right of use asset

assets acquired – Client Agreements

Tangible assets acquired

Intangible assets acquired – client agreements

Liabilities assumed consisting of a promissory note issued by the selling shareholders which was paid off at closing, net of lease liability assumed

Liabilities assumed pursuant to stock purchase agreement

Liabilities assumed pursuant

to stock purchase agreement

Net assets acquired and liabilities assumed

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the date of acquisition:

OF IDENTIFIABLE INTANGIBLE ASSETS ACQUIRED AND THEIR ESTIMATED USEFUL LIVES

SCHEDULE OF IDENTIFIABLE INTANGIBLE ASSETS ACQUIRED AND THEIR ESTIMATED USEFUL LIVES

Amortization through

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Total acquisition related costs aggregated $ 5,602 , which was expensed as incurred.

The Company accounts for business combinations using the acquisition method

and that the Company has early adopted the amendments of Regulation S-X dated May 21, 2020 and has concluded that this acquisition was

not significant.

Accordingly, the presentation of the assets acquired, historical financial statements under Rule 3-05 and related pro

forma information under Article 8 of Regulation S-X, respectively, are not required to be presented.

Under the acquisition method, the

purchase price of the Healthcare Acquisition has been allocated to the acquired tangible and identifiable intangible assets and assumed

liabilities based on their estimated fair values at the time of the Healthcare Acquisition.

This allocation involves a number of assumptions,

estimates, and judgments that could materially affect the timing or amounts recognized in our financial statements.

Our assumptions and

estimates are based upon information obtained from the management of the Company’s revenue cycle management segment.

The acquisition

was structured as stock purchase, therefore the excess purchase price over the fair value of net tangible assets acquired was recorded

as goodwill, which will not be amortized for income tax filing purposes.

The results of operations of acquired businesses are included

in the consolidated financial statements from the acquisition date.

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

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

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

assumed in the Medical Billing Acquisition were as follows:

OF PRELIMINARY FAIR VALUE OF ASSETS ACQUIRED AND LIABILITIES ACQUISITION

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

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

Accordingly, the presentation of the assets acquired,

historical financial statements under Rule 3-05 and related pro forma information under Article 8 of Regulation S-X, respectively, are

not required to be presented.

Under the acquisition method, the purchase price of the Healthcare Acquisition has been allocated to the

acquired tangible and identifiable intangible assets and assumed liabilities based on their estimated fair values at the time of the

Healthcare Acquisition.

This allocation involves a number of assumptions, estimates, and judgments that could materially affect the timing

or amounts recognized in our financial statements.

Our assumptions and estimates are based upon information obtained from the management

of the Company’s revenue cycle management segment.

The acquisition was structured as stock purchase, therefore the excess purchase

price over the fair value of net tangible assets acquired was recorded as goodwill, which will not be amortized for income tax filing

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

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

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

The preliminary and final estimated fair value of assets acquired,

and liabilities assumed in the Medical Billing Acquisition were as follows:

SCHEDULE OF PRELIMINARY FAIR VALUE OF ASSETS ACQUIRED AND LIABILITIES ACQUISITION

Preliminary As

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the date of acquisition:

OF IDENTIFIABLE INTANGIBLE ASSET ACQUIRED AND THEIR ESTIMATED USEFUL LIVES

SCHEDULE OF IDENTIFIABLE INTANGIBLE ASSETS ACQUIRED AND THEIR ESTIMATED USEFUL LIVES

Amortization through

December 31, 2023

Identifiable intangible assets:

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Total acquisition related costs aggregated $ 7,996 , which was expensed as incurred.

The Company accounts for

business combinations using the acquisition method and that the Company has early adopted the amendments of Regulation S-X dated May

21, 2020 and has concluded that this acquisition was not significant.

Accordingly, the presentation of the assets acquired, historical

financial statements under Rule 3-05 and related pro forma information under Article 8 of Regulation S-X, respectively, are not required

to be presented.

Under the acquisition method, the purchase price of the Healthcare Acquisition has been allocated to the acquired tangible

and identifiable intangible assets and assumed liabilities based on their estimated fair values at the time of the Healthcare Acquisition.

This allocation involves a number of assumptions, estimates, and judgments that could materially affect the timing or amounts recognized

in our financial statements.

Our assumptions and estimates are based upon information obtained from the management of the Company’s

revenue cycle management segment.

The acquisition was structured as stock purchase, therefore the excess purchase price over the fair

value of net tangible assets acquired was recorded as goodwill, which will not be amortized for income tax filing purposes.

of operations of acquired businesses are included in the consolidated financial statements from the acquisition date.

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

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

Accordingly, the presentation of the assets acquired,

historical financial statements under Rule 3-05 and related pro forma information under Article 8 of Regulation S-X, respectively, are

not required to be presented.

Under the acquisition method, the purchase price of the Healthcare Acquisition has been allocated to the

acquired tangible and identifiable intangible assets and assumed liabilities based on their estimated fair values at the time of the

Healthcare Acquisition.

This allocation involves a number of assumptions, estimates, and judgments that could materially affect the timing

or amounts recognized in our financial statements.

Our assumptions and estimates are based upon information obtained from the management

of the Company’s revenue cycle management segment.

The acquisition was structured as stock purchase, therefore the excess purchase

price over the fair value of net tangible assets acquired was recorded as goodwill, which will not be amortized for income tax filing

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

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

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

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

and liabilities assumed in the Healthcare Acquisition, those value were as follows:

OF PRELIMINARY FAIR VALUE OF ASSETS ACQUIRED AND LIABILITIES ACQUISITION

There was no change from the preliminary estimated fair value to

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

SCHEDULE OF PRELIMINARY FAIR VALUE OF ASSETS ACQUIRED AND LIABILITIES ACQUISITION

Assets acquired:

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Asset Acquisition were as follows:

OF PRELIMINARY FAIR VALUE OF ASSETS ACQUIRED AND LIABILITIES ACQUISITION

SCHEDULE OF PRELIMINARY FAIR VALUE OF ASSETS ACQUIRED AND LIABILITIES ACQUISITION

Assets acquired:

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the date of acquisition:

SCHEDULE OF IDENTIFIABLE

INTANGIBLE ASSETS ACQUIRED AND THEIR ESTIMATED USEFUL LIVES

SCHEDULE OF IDENTIFIABLE INTANGIBLE ASSETS ACQUIRED AND THEIR ESTIMATED USEFUL LIVES

Amortization through

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costs aggregated $ 40,625 , which was expensed as incurred.

The Company accounts for business combinations using the acquisition method

and that the Company has early adopted the amendments of Regulation S-X dated May 21, 2020 and has concluded that this acquisition was

not significant.

Accordingly, the presentation of the assets acquired, historical financial statements under Rule 3-05 and related pro

forma information under Article 11 of Regulation S-X, respectively, are not required to be presented.

Under the acquisition method, the

purchase price of the TicketSmarter Acquisition has been allocated to Goody Tickets’ and TicketSmarter LLC’s acquired tangible

and identifiable intangible assets and assumed liabilities based on their estimated fair values at the time of the TicketSmarter Acquisition.

This allocation involves a number of assumptions, estimates, and judgments that could materially affect the timing or amounts recognized

in our financial statements.

The TicketSmarter Acquisition was structured as a stock purchase;

however the parties agreed to coordinate

the election to invoke IRS Section 338(h)(10) relative to this transaction for tax purposes.

Therefore, the excess purchase price over

the fair value of net tangible assets acquired was recorded as goodwill, which will be amortized over 15 years for income tax filing purposes.

Likewise, the other acquired assets were stepped up to fair value and is deductible for income tax purposes.

The results of operations

of acquired businesses are included in the consolidated financial statements from the acquisition date.

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

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

Accordingly, the presentation of the assets acquired,

historical financial statements under Rule 3-05 and related pro forma information under Article 11 of Regulation S-X, respectively, are

not required to be presented.

Under the acquisition method, the purchase price of the TicketSmarter Acquisition has been allocated to

Goody Tickets’ and TicketSmarter LLC’s acquired tangible and identifiable intangible assets and assumed liabilities based

on their estimated fair values at the time of the TicketSmarter Acquisition.

This allocation involves a number of assumptions, estimates,

and judgments that could materially affect the timing or amounts recognized in our financial statements.

The TicketSmarter Acquisition

was structured as a stock purchase;

however the parties agreed to coordinate the election to invoke IRS Section 338(h)(10) relative to

this transaction for tax purposes.

Therefore, the excess purchase price over the fair value of net tangible assets acquired was recorded

as goodwill, which will be amortized over 15 years for income tax filing purposes.

Likewise, the other acquired assets were stepped up

to fair value and is deductible for income tax purposes.

The results of operations of acquired businesses are included in the consolidated

financial statements from the acquisition date.

purchase price of the TicketSmarter Acquisition was allocated to Goody Tickets’ and TicketSmarter LLC’s tangible assets,

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intangible assets.

The preliminary and final estimated

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

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

were as follows:

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

Final as allocated

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Liabilities assumed pursuant to stock purchase agreement

( 5,128,964 )

Net assets acquired and liabilities assumed

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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 ACQUIRED

Amortization through

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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 December 31,

2022, and December 31, 2021:

financial information for the Company’s reportable business segments is provided for the years ended December 31, 2023, and 2022:

SCHEDULE OF SEGMENT REPORTING

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Total Net Revenues

Total net revenues

Gross Profit:

Gross Profit (loss):

Video Solutions

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Total Gross Profit

Total gross profit

Operating Income (loss):

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( 11,750,742 )

Total Operating Income (Loss)

( 13,443,001 )

$ ( 14,760,910 )

Total Operating Income (Loss)

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Total Depreciation and Amortization

Total depreciation and amortization

Assets (net of eliminations):

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Total Identifiable Assets

segments recorded noncash items effecting the gross profit and operating income (loss) through the established inventory reserves

based on estimates of excess and/or obsolete current and non-current inventory.

The Company recorded a reserve for excess and

obsolete inventory in the video solutions segment of $ 5,230,261

and a reserve for the entertainment segment of $ 259,280 as of December 31, 2022 .

segments recorded noncash items affecting the gross profit and operating income (loss) through the established inventory reserves based

on estimates of excess and/or obsolete current and non-current inventory.

The Company recorded a reserve for excess and obsolete inventory

in the video solutions segment of $ 4,355,666 and $ 5,230,261 and a reserve for the entertainment segment of $ 186,795 and $ 259,280 as of

December 31, 2023 and 2022.

segment net revenues reported above represent sales to external customers.

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Issuance of Restricted Common Stock

January 9, 2023, the compensation committee (“the “Compensation Committee”) of the board of directors awarded

shares of restricted common stock that will vest one half on January 10, 2024 and one half on January 10, 2025 provided that he

January 31, 2024, the Compensation Committee of the Board of Directors (the “Committee”) awarded Stanton E.

Ross 20,000 shares

of restricted common stock, half of these share will vest on January 31, 2025 and half on January 1, 2026, or in full at the completion

of the previously disclosed Transaction entered into by the Company’s wholly-owned subsidiary, Kustom Entertainment, pursuant to

the Merger Agreement with Clover Leaf, and the Company, whichever occurs first, provided that he remains an officer on such dates.

Han was awarded 15,000 shares of restricted common stock that will vest 3,000 shares on January 31, 2024, January 31, 2025, January 31,

2026, January 31, 2027 and January 31, 2028, or in full at the completion of the Transaction, whichever occurs first, provided that he

remains an officer on such dates.

Peng Han was awarded 5,000

shares of restricted common stock that will vest 1,000

shares on January 10, 2024, January 10, 2025, January 10, 2026, January 10, 2027 and January 10, 2028 provided that he remains an

officer on such dates.

The Compensation Committee awarded employees a total of 12,500

shares of restricted common stock that will vest one half on January 10, 2024 and one half on January 10, 2025 provided that they

remain employees on such dates.

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

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

No fractional shares were issued in connection

with the Reverse Stock Split.

Any fractional shares of our Common Stock that would have otherwise resulted from the Reverse Stock Split

were rounded up to the nearest whole number.

In connection with the Reverse Stock Split, our board approved appropriate and proportional

adjustments to all outstanding securities or other rights convertible or exercisable into shares of our Common Stock, including, without

limitation, all preferred stock, warrants, options, and other equity compensation rights.

All historical share and per-share amounts

reflected throughout our consolidated financial statements and other financial information in this Report have been adjusted to reflect

the Reverse Stock Split as if the split occurred as of the earliest period presented.

The par value per share of our common stock was

not affected by the Reverse Stock Split.

Nasdaq Compliance

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.

of Michael J.

January 31, 2024, Michael J.

Caulfield notified the Board of Directors (the “Board”) of Digital Ally, Inc.

(the “Company”)

that he resigns as a director of the Board, effective immediately.

Stampede Acquisition

March 1, 2024, Kustom 440, entered into an Asset Purchase Agreement (the “Acquisition Agreement”) with JC Entertainment,

LLC, a Kansas limited liability company (“JC Entertainment”).

Pursuant to the Acquisition Agreement, Kustom 440 acquired

certain assets associated with a music entertainment event (“Country Stampede”), including all intellectual property arising

out of and relating to Country Stampede (“Country Stampede Intellectual Property”) and certain contracts in which JC Entertainment

is a party to host and operate the 2024 Country Stampede (the “Assumed Contracts”, and together with the Country Stampede

Intellectual Property, the “Purchased Assets”).

Secured Promissory Note

March 1, 2024, the Company entered into a Note Purchase Agreement (the “Note Agreement”), by and between the Company, Kustom

Entertainment (together with the Company, the “Borrowers”), and Mosh Man, LLC, a New Jersey limited liability company (the

“Purchaser”), pursuant to which the Borrowers issued to the Purchaser a Senior Secured Promissory Note (the “Note”)

with a principal amount of $ 1,425,000 .

In connection with the Agreement, the Borrowers entered into a Security Agreement (the “Security Agreement”) by and between

the Borrowers, as grantor, and the Purchaser, as grantee.

The gross proceeds to the Company are $ 1,000,000 ,

before paying customary fees and expenses.

to the Note, the Borrowers shall repay the Note, in full, on the earlier of (i)

November 1, 2024, and (ii) the consummation of the merger between Kustom Entertainment and Clover Leaf pursuant to the Merger Agreement

among the Company, Kustom Entertainment, Clover Leaf Capital Corp., Yntegra Capital Investments LLC and CL Merger Sub, dated as of June

The Borrowers shall pay in arrears in cash an amount equal to 50% of revenues from all ticket sales generated by Kustom Entertainment,

up nine thousand tickets sold, and thereafter equal to 10% of all revenues from all ticket sales until the earlier of the date on which

the Note is repaid in full or the Maturity Date.

The Note bears interest at a rate of 1.58% per month.

The Borrowers have the right,

but not the obligation, under the Note to prepay the Note, upon written notice to the Purchaser, by payment in full of the entire outstanding

principal balance plus interest.

Upon a change of control of either Borrower or a sale or all or substantially all of either Borrower’s

assets, the Purchaser may require the Borrowers to repay the Note, upon written notice to the Borrowers, by payment in full of the entire

outstanding principal balance plus interest.

addition, upon the receipt of proceeds from any financing or extraordinary receipts, the Borrowers are required to repay the Note as

(A) if the aggregate proceeds of all such financings and extraordinary receipts are less than $ 3,000,000 ,

the Borrowers shall prepay an amount equaling to 50% of the outstanding principal of the Note, and (B) if the aggregate proceeds of all

such financings and extraordinary receipts are equal to or greater than $ 3,000,000 ,

the Borrowers shall prepay the Note in full.

to the Security Agreement, the Borrowers’ obligations under the Note and Agreement are secured by substantially all of the assets

of the Borrowers, other than any real property.

of Failure to Satisfy a Continued Listing Rule

March 14, 2024, the Nasdaq Listing Qualifications staff notified Digital Ally, Inc.

(the “Company”), that due to resignation

Caulfield from the Company’s board of directors (the “Board”) effective on January 31, 2024, the

Company no longer complies with the audit committee and compensation committee requirements as set forth in Listing Rule 5605 of The

Nasdaq Stock Market LLC (“Nasdaq”), including the requirements that there are at least three independent directors on the

Company’s audit committee and at least two independent directors on the Company’s compensation committee.

notification has no immediate effect on the Company’s listing on the Nasdaq Capital Market.

In accordance with Nasdaq Listing Rules,

the Company is provided a cure period until the earlier of the Company’s next annual shareholders’ meeting (or July 29, 2024

if the next shareholders’ meeting will be held before July 29, 2024) or January 31, 2025 (the “Cure Period”).

Company does not regain compliance by within the Cure Period, Nasdaq will provide written notice that the Company’s common stock,

par value $ 0.001 per share, will be subject to delisting from the Nasdaq Capital Market, at which time, the Company may appeal the delisting

determination to a Hearings Panel.

management of the Company has resolved to take commercially reasonable steps to fill the vacancy on the Board with a new director who

qualifies as independent under the Nasdaq Listing Rules as soon as is practical and anticipates regaining compliance during the Cure

However, there can be no assurance that the Company will be able to satisfy Nasdaq Listing Rule 5605 or will otherwise be in

compliance with other Nasdaq listing criteria.

February 2024, Kustom Entertainment and Clover Leaf announced the filing of Amendment No.

2 to a Registration Statement on Form S-4 by

Clover Leaf with the SEC on February 5, 2024, relating to the previously announced proposed Business Combination.

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-K

Item 9A. Controls and Procedures