Item 1. Business
Item
1.
Business.
Overview
We
were incorporated in Nevada on December 13, 2000 as Vegas Petra, Inc. From that date until November 30, 2004, when we entered into a
Plan of Merger with Digital Ally, Inc., a Nevada corporation which was formerly known as Trophy Tech Corporation (the “Predecessor
Registrant”), we had not conducted any operations and were a closely-held company. In conjunction with the merger, we were renamed
Digital Ally, Inc.
On
January 2, 2008, we commenced trading on the Nasdaq Capital Market under the symbol “DGLY.” We conduct our business from
14001 Marshall Drive, Lenexa, Kansas 66215. Our telephone number is (913) 814-7774. Our website address is www.digitalallyinc.com. The
contents of, or information accessible through, our website are not part of this Annual Report on Form 10-K. We make our filings with
the SEC, including our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to
those reports, as well as beneficial ownership filings available free of charge on our website as soon as reasonably practicable after
we file such reports with, or furnish such reports to, the SEC. Our filings with the SEC are available to the public through the SEC’s
website at www.sec.gov.
On
August 23, 2022 (the “Effective Time”), the Predecessor Registrant merged with and into its wholly owned subsidiary, DGLY
Subsidiary Inc., a Nevada corporation (the “Registrant”), pursuant to an agreement and plan of merger, dated as of August
23, 2022 (the “Merger Agreement”), between the Predecessor Registrant and the Registrant, with the Registrant as the surviving
corporation in the merger (such transaction, the “Merger”). At the Effective Time, Articles of Merger were filed with the
Secretary of State of the State of Nevada, pursuant to which the Registrant was renamed “Digital Ally, Inc.” and, by operation
of law, succeeded to the assets, continued the business and assumed the rights and obligations of the Predecessor Registrant immediately
prior to the Merger. Under the Nevada Revised Statutes, shareholder approval was not required in connection with the Merger Agreement
or the transactions contemplated thereby.
At
the Effective Time, pursuant to the Merger Agreement, (i) each outstanding share of Predecessor Registrant’s common stock, par
value $0.001 per share (the “Predecessor Common Stock”) automatically converted into one share of common stock, par value
$0.001 per share, of the Registrant (“Registrant Common Stock”), (ii) each outstanding option, right or warrant to acquire
shares of Predecessor Common Stock converted into an option, right or warrant, as applicable, to acquire an equal number of shares of
Registrant Common Stock under the same terms and conditions as the original options, rights or warrants, and (iii) the directors and
executive officers of the Predecessor Registrant were appointed as directors and executive officers, as applicable, of the Registrant,
each to serve in the same capacity and for the same term as such person served with the Predecessor Registrant immediately before the
Merger.
For
the purposes of this Annual Report on Form 10-K, unless the context otherwise requires, (i) the term “our,” or “us”
refers to the Predecessor Registrant and its subsidiaries with respect to the period prior to the Effective Time and to the Registrant
and its subsidiaries with respect to the period on and after the Effective Time; (ii) as of any period prior to the Effective Time, references
to the “directors” mean the directors of the Predecessor Registrant, and, as of any period at and after the Effective Time,
the directors of the Registrant, (iii) as of any period prior to the Effective Time, references to “stockholders” mean the
holders of Predecessor Common Stock, and, as of any period at and after the Effective Time, the holders of Registrant Common Stock, and
(iv) as of any period prior to the Effective Time, references to “Common Stock” means the Predecessor Common Stock, and,
as of any period at and after the Effective Time, Registrant Common Stock.
2
The
business of the Registrant, Digital Ally, Inc. (with its wholly-owned subsidiaries, Digital Ally International, Inc., Shield Products,
LLC, Digital Ally Healthcare, LLC (“Digital Ally Healthcare”), TicketSmarter, Inc. (“TicketSmarter”), Worldwide
Reinsurance, Ltd., Digital Connect, Inc., BirdVu Jets, Inc., Kustom 440 (“Kustom 440”), Inc., Kustom Entertainment, Inc.
(“Kustom”), and its majority-owned subsidiary Nobility Healthcare, LLC, collectively, “Digital Ally,” “Digital,”
and the “Company”), is divided into three reportable operating segments: 1) the Video Solutions Segment, 2) the Revenue Cycle
Management Segment and 3) the Entertainment Segment. The Video Solutions Segment is our legacy business that produces digital video imaging,
storage products, disinfectant and related safety products for use in law enforcement, security and commercial applications. This segment
includes both service and product revenues through our subscription models offering cloud and warranty solutions, and hardware sales
for video and health safety solutions. The Revenue Cycle Management Segment provides working capital and back-office services to a variety
of healthcare organizations throughout the country, as a monthly service fee. The Entertainment Segment acts as an intermediary between
ticket buyers and sellers within our secondary ticketing platform, ticketsmarter.com, and we also acquire tickets from primary sellers
to then sell through various platforms. The 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. The following table sets forth the Company’s total revenue and the revenue derived from each reportable operating segment:
Years Ended December 31,
2023
2022
Net Revenues:
Video Solutions
$ 7,471,285
$ 8,252,288
Revenue Cycle Management
6,713,678
7,886,107
Entertainment
14,063,381
20,871,500
Total Net Revenues
$ 28,248,344
$ 37,009,895
Additional
information regarding each reportable operating segment is also included in Note 23 entitled Segment Data of “Notes to Consolidated
Financial Statements”.
Video
Solutions Operating Segment
Within
our video solutions operating segment we supply technology-based products utilizing our portable digital video and audio recording capabilities
for the law enforcement and security industries and for the commercial fleet and mass transit markets. We have the ability to integrate
electronic, radio, computer, mechanical, and multi-media technologies to create positive solutions to our customers’ requests.
Our products include: the EVO-HD, DVM-800 and DVM-800 Lite, which are in-car digital video systems for law enforcement and commercial
markets; the FirstVu body-worn camera line, consisting of the FirstVu Pro, FirstVu II, and the FirstVu HD; our patented and revolutionary
VuLink product which integrates our body-worn cameras with our in-car systems by providing hands-free automatic activation for both law
enforcement and commercial markets; the FLT-250, DVM-250, and DVM-250 Plus, which are our commercial line of digital video mirrors that
serve as “event recorders” for the commercial fleet and mass transit markets; and FleetVu and VuLink, which are our cloud-based
evidence management systems. We further diversified and broadened our product offerings in 2020, by introducing two new lines of branded
products: (1) the ThermoVu® which is a line of self-contained temperature monitoring stations that provides alerts and controls facility
access when an individual’s temperature exceeds a pre-set threshold and (2) our Shield™ disinfectants and cleansers which
are for use against viruses and bacteria.
Our
video solutions segment revenue encompasses video recording products and services for our law enforcement and commercial customers and
the sale of Shield TM disinfectant and personal protective products. This segment generates revenues through our subscription
models offering cloud and warranty solutions, and hardware sales for video and personal protective safety products and solutions. Revenues
for product sales are recognized upon delivery of the product, and revenues from our cloud and warranty subscription plans are deferred
over the term of the subscription, typically 3 or 5 years.
Revenue
Cycle Management Operating Segment
We
entered the revenue cycle management business late in the second quarter of 2021 with the formation of our wholly owned subsidiary, Digital
Ally Healthcare, Inc. and its majority-owned subsidiary Nobility Healthcare, LLC (“Nobility Healthcare”). Nobility Healthcare
completed its first acquisition on June 30, 2021, when it acquired a private medical billing company, and has since completed three more
acquisitions of private medical billing companies, in which we assist in providing working capital and back-office services to healthcare
organizations throughout the country. Our assistance consists of insurance and benefit verification, medical treatment documentation
and coding, and collections. Through our expertise and experience in this field, we aim to maximize our customers’ service revenues
collected, leading to substantial improvements in their operating margins and cash flows.
3
Our
revenue cycle management segment consists of our medical billing subsidiaries. Revenues of this segment are recognized after we perform
the obligations of our revenue cycle management services. Our revenue cycle management services are services, performed and charged monthly,
generally based on a contractual percentage of total customer collections, for which we recognize our net service fees.
Entertainment
Operating Segment
We
also provide live entertainment and events ticketing services through the formation of our wholly owned subsidiary, TicketSmarter, Inc.
(“TicketSmarter”) and its completed acquisitions of Goody Tickets, LLC and TicketSmarter, LLC, on September 1, 2021. TicketSmarter
provides ticket sales, partnerships, and mainly, ticket resale services through its online ticketing marketplace for live events, TicketSmarter.com.
TicketSmarter offers tickets for over 125,000 live events through its platform, for a wide range of events, including concerts, sporting
events, theatres, and performing arts, throughout the country.
Our
entertainment operating segment consists of entertainment services provided through TicketSmarter and its online platform, TicketSmarter.com.
Revenues of this segment include ticketing service charges generally determined as a percentage of the face value of the underlying ticket
and ticket sales from our ticket inventory which are recognized when the underlying tickets are sold. Entertainment direct expenses include
the cost of tickets purchased for resale by the Company and held as inventory, credit card fees, ticketing platform expenses, website
maintenance fees, along with other administrative costs.
Business
Combination
On
June 1, 2023, the Company, entered into an Agreement and Plan of Merger (the “CLOE Merger Agreement”) with Clover Leaf Capital
Corp., a Delaware corporation (“Clover Leaf”), CL Merger Sub, Inc., a Nevada corporation and a wholly owned subsidiary of
Clover Leaf (“Merger Sub”), Yntegra Capital Investments LLC, a Delaware limited liability company (“Yntegra”),
in the capacity as the representative from and after the effective time for the stockholders of Clover Leaf in accordance with the terms
and conditions of the CLOE Merger Agreement (the “Sponsor” or the “Purchaser Representative”), and Kustom, with
a focus and mission to own and produce events, festivals, and entertainment alongside its evolving primary and secondary ticketing technologies.
Pursuant
to the CLOE Merger Agreement, subject to the terms and conditions set forth therein upon the consummation of the transactions contemplated
by the CLOE Merger Agreement (the “Closing”), Merger Sub will merge with and into Kustom (the “Merger” and, together
with the other transactions contemplated by the Merger Agreement, the “Business Combination”), with Kustom continuing as
the surviving corporation in the Merger and a wholly owned subsidiary of Clover Leaf. In the Merger, all of the issued and outstanding
capital stock of Kustom immediately prior to the effective time shall no longer be outstanding and shall automatically be cancelled and
shall cease to exist in exchange for the right for the Company to receive the Merger Consideration (as defined below). Upon consummation
of the Business Combination, Clover Leaf will change its name to “Kustom Entertainment, Inc.”
The
aggregate merger consideration to be paid pursuant to the CLOE Merger Agreement to the Company as of immediately prior to the effective
time will be an amount equal to (the “Merger Consideration”) (i) $125 million, minus (ii) the estimated consolidated indebtedness
of Kustom as of the Closing (“Closing Indebtedness”). The Merger Consideration to be paid to the Company will be paid solely
by the delivery of new shares of Clover Leaf Class A Common Stock, each valued at $11.14 per share (the “Merger Consideration Shares”).
The Closing Indebtedness (and the resulting Merger Consideration) is based solely on estimates determined shortly prior to the Closing
and is not subject to any post-Closing true-up or adjustment.
Kustom
is comprised of TicketSmarter and Kustom 440, both currently wholly owned subsidiaries. Both TicketSmarter and Kustom 440 will combine
their management teams and focus on concerts, entertainment and garnering additional ticketing partnerships in 2024 and beyond. Kustom
440 and TicketSmarter will use their existing sponsorships and sports property partnerships to develop alternative entertainment options
for consumers.
The
combined company will be known as Kustom Entertainment and will operate under the same management team as Kustom which is currently
led by Stanton E. Ross, the current CEO of the Company. The transaction contemplates an equity value of $125 million for Kustom. The
combined company is expected to have an implied initial pro forma equity value of approximately $222.2 million, with the proposed
Business Combination expected to provide approximately $18.1 million in gross proceeds from the cash held in trust by Clover Leaf, assuming
no redemptions. Additionally, the Company will distribute to its shareholders 20% of the Merger Consideration Shares obtained in Kustom
immediately following the closing of the Merger and intends to distribute the balance of such Merger Consideration Shares following a
six-month lock-up period.
The
transaction has been approved by the board of directors of the Company (the “Board” or “Board of Directors”)
and the board of directors of Clover Leaf and is subject to approval by the stockholders of Clover Leaf and other customary closing conditions.
The Company, as the sole holder of Kustom common stock, has approved the transaction.
Due
to the plan to consummate the Business Combination, the Company no longer expects to pursue a separation of Kustom into its own independent
publicly traded company via spin-off, as announced on December 8, 2022.
In
October 2023, Kustom Entertainment and Clover Leaf announced the filing of a Registration Statement on Form S-4 by Clover Leaf with the
Securities and Exchange Commission (the “SEC”) on October 4, 2023, relating to the previously announced proposed Business
Combination.
In
December 2023, Kustom Entertainment and Clover Leaf announced the filing of the Amendment No. 1 to the Registration Statement on Form
S-4 by Clover Leaf with the SEC on December 8, 2023, relating to the previously announced proposed Business Combination.
In
February 2024, Kustom Entertainment and Clover Leaf announced the filing of the Amendment No. 2 to the Registration Statement on Form
S-4 by Clover Leaf with the SEC on February 5, 2024, relating to the previously announced proposed Business Combination.
Our
Video Solutions Operating Segment Products and Services
Through
our video solutions operating segment we supply technology-based products utilizing our portable digital video and audio recording
capabilities for the law enforcement and security industries and for the commercial fleet and mass transit markets. We have the
ability to integrate electronic, radio, computer, mechanical, and multi-media technologies to create positive solutions to our
customers’ requests. Our products include: the EVO-HD, DVM-800 and DVM-800 Lite, which are in-car digital video systems for
law enforcement and commercial markets; the FirstVu body-worn camera line, consisting of the FirstVu Pro, FirstVu, and the FirstVu
HD; our patented and revolutionary VuLink product integrates our body-worn cameras with our in-car systems by providing hands-free
automatic activation for both law enforcement and commercial markets; the EVO Fleet, FLT-250, DVM-250, and DVM-250 Plus, which are
our commercial line of digital video products that serve as “event recorders” for the commercial fleet and mass transit
markets; and FleetVu and VuLink, which are our cloud-based evidence management systems. We further diversified and broadened our
product offerings in 2020, by introducing two new lines of branded products: (1) the ThermoVu® which is a line of self-contained
temperature monitoring stations that provides alerts and controls facility access when an individual’s temperature exceeds a
pre-set threshold and (2) our Shield™ disinfectants and cleansers which are for use against viruses and bacteria.
4
In-Car
Digital Video Mirror System for Law Enforcement – EVO-HD, DVM-800 and DVM-800 Lite
In-car
video systems for patrol cars are a necessity and have generally become standard. Current systems are primarily digital based systems
with cameras mounted on the windshield and the recording device generally in the trunk, headliner, dashboard, console or under the seat
of the vehicle.
The
Company launched its in-car digital video platform under the name EVO-HD during the second quarter of 2019. The EVO-HD is a revolutionary
in-car system that delivers versatility and reliability for law enforcement.
With
built-in, patented auto-activation technology, EVO-HD captures multiple recording angles in sync from a FirstVu PRO or FirstVu HD body-worn
camera and up to four HD in-car cameras – all from a single trigger. The EVO-HD maximizes space and offers top-end reliability
when paired with remote service capabilities. An internal cell modem will allow for connectivity to the VuVault.net cloud, powered by
Amazon Web Services (“AWS”) and real time metadata when in the field.
The
Company offers the DVM-800, a continuation in the family of highly successful digital video mirrored (DVM) systems developed by the Company.
The DVM-800 is a time-tested, compact, powerful and easy-to-use solution designed for law enforcement. The DVM-800 system has built-in
road and driver facing cameras and can record up to two external HD cameras. The DVM-800 is compatible with the patented VuLink®
auto-activation technology and can be paired with a FirstVu HD body-worn camera.
The
Company also offers the DVM-800 Lite, an entry level system is a self-contained video recorder, microphone and digital storage system
that is integrated into a rear-view mirror and is designed for law enforcement. The system can record up to two internal HD cameras.
In-Car
Digital Video “Event Recorder” System – EVO Fleet, DVM-250 Plus and FLT-250 for Commercial Fleets
Digital
Ally provides commercial fleets and commercial fleet managers with the digital video tools that they need to increase driver safety,
track assets in real-time and minimize the company’s liability risk while enabling fleet managers to operate the fleet at an optimal
level. We market a product designed to address these commercial fleet markets with our EVO Fleet, DVM-250 Plus and FLT-250 event recorders
that provide various types of commercial fleets with features and capabilities that are fully-customizable and consistent with their
specific application and inherent risks.
The
DVM-250 Plus is a part of the DVM family and is designed for commercial fleets featuring built-in digital audio and video recording technology
and other features to provide commercial fleet managers unmatched driver and asset management – all while aiming to deliver the
return on investment that matters most: the safety and security of drivers and passengers. The DVM-250 Plus is designed to capture events,
such as wrecks and erratic driving or other abnormal occurrences, for evidentiary or training purposes. The commercial fleet markets
may find our units attractive from both a feature and a cost perspective compared to other providers. Due to our marketing efforts, commercial
fleets are beginning to adopt this technology, and in particular, the ambulance and taxi-cab markets.
The
FLT-250 offers the same great features of the DVM-250 Plus in a new compact, non-mirrored form factor that allows for multiple mounting
options in any vehicle type for commercial fleets. The non-mirror-based aspect of this product, allowed the FLT-250 to become more attractive
for our potential customers, as it is a much simpler plug and play option compared to mirror-based products.
In
the fourth quarter of 2022, Digital Ally released the EVO Fleet, offering a full-featured solution utilizing the latest in telematics
technology, including immediate driver-assist feedback by recognizing pedestrians, distracted or drowsy driving, and lane shifting. We
believe that, due to the new technology, including the A.I. interface, live tracking capabilities, up to four streams of video, and video
on command, this product will become a very prominent product in the market and for our current and potential customers.
Digital
Ally offers a suite of data management web-based tools to assist fleet managers in the organization, archival, and management of videos
and telematics information. Within the suite, there are powerful mapping and reporting tools that are intended to optimize efficiency,
serve as training tools for teams on safety, and, ultimately, generate a significant return on investment for the organization.
5
The
EVO-HD has become the platform for a new family of in-car video solution products for the commercial markets. The innovative EVO-HD technology
replaces the current in-car mirror-based systems with a miniaturized system that can be custom-mounted in the vehicle, while offering
numerous hardware configurations to meet the varied needs and requirements of our commercial customers. In its commercial market application,
the EVO-HD can support up to four HD cameras, with two cameras having pre-event and ECA capabilities to allow customers to review entire
shifts. An internal cell modem will allow for connectivity to the FleetVu Manager cloud-based system for commercial fleet tracking and
monitoring, which is powered by AWS and real time metadata when in the field.
Body-Worn
Digital Video System – FirstVu Pro, FirstVu II, and FirstVu HD for Law Enforcement and Private Security
Digital
Ally launched two next generation body-worn cameras and docking stations, refreshing the Company’s complete ecosystem of evidence
recording devices. The latest body worn camera launched by the Company is the FirstVu Pro, the Company’s flagship product in its
family of next generation of technology. The light weight, one-piece unit captures full HD video and audio, while offering industry leading
features such as live streaming, a full-color touchscreen display, an advanced image sensor with IR LEDs, proprietary image distortion
reduction, IP67 rated resisting dust and wind and is water submersible for 30 minutes at a depth of 3 feet. It is also MIL-STD-810G compliant
capable of handling drops, shock, and vibration, and will function flawlessly in a wide temperature range.
In
addition to the FirstVu Pro, Digital Ally also added the FirstVu II to its family of next generation technology. The FirstVu II is a
one-piece device offering industry leading technology such as an articulating camera head, a full-color display, an advanced image sensor,
and GPS. It can be used in law enforcement, private and event security and commercial segments.
Digital
Ally still carries the FirstVu HD, the two-piece body-worn camera which allows for multiple mounting options while minimizing space and
weight. It can be used in law enforcement, private and event security and commercial segments. This system is also a derivative of our
in-car video systems, but is much smaller and lighter and more rugged and water-resistant to handle a hostile outdoor environment. The
FirstVu HD can be used in many applications in addition to law enforcement and private security and is designed specifically to be clipped
to an individual’s pocket or other outer clothing. The unit is self-contained and requires no external battery or storage devices.
Our FirstVU HD integrates with our in-car video systems through our patented VuLink system allowing for automatic activation of both
systems.
With
the newly introduced body-worn cameras, Digital Ally also introduced two new QuickVu docking stations compatible with the FirstVu PRO
and FirstVu II body-worn cameras. The QuickVu docking stations provide a comprehensive and elegant solution for storing and charging
body cameras while uploading video evidence to the cloud. QuickVu also allows for rapid reviewing of footage right from the interactive
touchscreen display, and is available in eight or twenty-four individual docking bays. For docking with the FirstVu HD body-worn cameras,
Digital Ally offers a 12-bay docking station and Mini-Docks. The 12-bay docking station includes a 1TB local memory hard drive which
simultaneously upload 4 hours of video from 12 FirstVu HD cameras within a 15-minute shift change and push configuration updates. The
Mini-Dock is a single unit, portable smart dock that uploads video evidence to VuVault from a FirstVu HD body camera.
Auto-activation
and Interconnectivity Between In-car Video Systems and Body-worn Camera Products – VuLink for Law Enforcement
Recognizing
a critical limitation in law enforcement camera technology, we pioneered the development of our VuLink ecosystem that provides intuitive
auto-activation functionality as well as coordination between multiple recording devices. The United States Patent and Trademark Office
(the “USPTO”) has recognized these pioneering efforts by granting us multiple patents with claims covering a variety of triggers,
including emergency lights and sirens, extreme acceleration or braking, g-force or any 12-volt relay. Additionally, the awarded patent
claims cover automatic coordination between multiple recording devices. Prior to our VuLink ecosystem, officers had to manually activate
each device while responding to emergency scenarios, a requirement that both decreased the usefulness of the existing camera systems
and diverted officers’ attention during critical moments.
6
EVO
Web and FleetVu Manager
EVO
Web is a web-based software, powered by and hosted on the AWS GovCloud platform, that enables police departments and security agencies
to manage digital video evidence quickly and easily. EVO Web is capable of playing back, reviewing, downloading, archiving, unit configuration
and management, running customizable reports and maintaining a chain of custody logs. AWS is the most secure cloud platform on the market
with features that go beyond simply storing and reviewing video evidence. AWS GovCloud platform is trusted by the Department of Justice,
Defense Digital Services for the US Air Force, U.S. Department of Treasury, and U.S. Department of Homeland Security. Our products that
are compatible with EVO Web include: FirstVu Pro, FirstVu II, FirstVu HD, QuickVu, EVO-HD, DVM-800 and DVM-800 Lite.
FleetVu
Manager is a web-based software that provides commercial fleet managers with the tools to increase driver safety, track assets in real-time
and minimize their companies’ liability risks. FleetVu Manager is able to generate driver reports, identify at risk behaviors before
an incident takes place, and enable commercial fleet managers to manage the entire fleet through a single, easy to use platform. Our
products compatible with FleetVu Manager include: EVO Fleet, DVM-250 Plus and FLT-250.
Shield TM
Heath Protection Products
The
Company’s Shield TM brand offers a variety of products to help keep you safe, including; Shield Cleansers, ThermoVu,
Shied Disinfectant, and a variety of personal protection equipment including masks, gloves and sanitizer wipes.
Shield
Cleansers is a full line of safe and effective hypochlorous acid (HOCl) based products - and is free of toxic bleach, ammonia, methanol,
ethanol, and alcohol ingredients. Shield Disinfectant is EPA approved and has shown effectiveness against SARS-COV-2, the virus that
causes the novel COVID-19 disease. Other products in the Shield brand include animal wellness products, wound care, and household cleaning
solutions.
ThermoVu
is a non-contact temperature-screening instrument that measures temperature through the wrist and controls entry to facilities when temperature
measurements exceed pre-determined parameters. ThermoVu has optional features such as facial recognition to improve facility security
by restricting access based on temperature and/or facial recognition reasons. ThermoVu provides an instant pass/fail audible tone with
its temperature display and controls access to facilities based on such results.
The
Company has been distributing other personal protective equipment and supplies, since the second quarter of 2021, such as masks and gloves
to supplement its Shield brand of products to health care workers as well as other consumers, consisting of vinyl and nitrile gloves,
level 3 and N95 NIOSH certified face masks, and disposable wipes.
Our
Revenue Cycle Management Operating Segment Products and Services
Through
our revenue cycle management segment, we provide assistance in providing working capital and back-office services to healthcare organizations
throughout the country. Our RCM operating segment services consist of insurance and benefit verification, medical treatment documentation
and coding, and collections. Through our expertise and experience in this field, we maximize our customers’ service revenues collected,
leading to substantial improvements in their operating margins and cash flows. We generally receive a service fee based on a percentage
of the service revenues collected by our customers.
Our
Entertainment Operating Segment Products and Services
Through
our entertainment segment, we provide customers with access to the online live event ticketing marketplace through our online platform
- TicketSmarter.com . Offering over 48 million tickets for sale for over 125,000 live events, TicketSmarter is a national ticket
marketplace offering tickets for live events featuring sports, concerts and theatre. TicketSmarter is the official ticket resale partner
of more than 35 collegiate conferences, over 300 universities, and hundreds of events and venues.
7
Established
in late 2022, Kustom 440 is another piece of the entertainment segment of the Company, whose mission it is to attract, manage and promote
concerts, sports and private events. Kustom 440 offers the production and promotion of live music events in third-party venues throughout
the country. These services begin with the logistical matters of an event, including artist booking and research, ticketing, staging,
on-site operations, vendor sourcing, and day of production. These events range in size from small corporate events to full stadium multi-day
events.
Our
entertainment operating segment primarily receives compensation for its services generally determined as a percentage of the face-value
of the tickets being purchased. Our entertainment operating segment also provides customers with access to tickets which it has purchased
or received in return for its sponsorship or partnership from the venue, event or owner.
Market
and Industry Overview – Video Solutions Operating Segment
Our
video solutions segment has historically had a primary market of domestic and international law enforcement agencies. We have since expanded
our scope by pursuing the commercial fleet vehicle and mass transit markets. Additionally, we have expanded into event security services
where we provide the hardware and software to supplement private security for NASCAR races, football and other sporting events, concerts
and other events where people gather. We continue to further expand our focus on private security, homeland security, mass transit, healthcare,
general retail, educational, general consumer and other commercial markets. In that regard, we have several installations involving private
security on cruise ships and similar markets. We believe there are many potential private uses of our product offerings. We continue
to have sales in the commercial fleet and ambulance service provider market, confirming that our EVO Fleet, DVM-250 Plus and FLT-250
products and FleetVu Manager can become a significant revenue producer for us. Additionally, our body-worn cameras have applications
in law enforcement, along with private and event security, as well as commercial segments. With the recent acquisitions we completed
in 2021 and 2022, we hope to utilize the connections we now have to live events, stadiums, and arenas, as well as new medical connections.
Market
and Industry Overview – Revenue Cycle Management Operating Segment
Our
revenue cycle management segment consists of end-to-end revenue cycle management services that focuses on claim reimbursement billing,
verification, and related services to medical providers throughout the country. We offer agreements with customers in which we provide
our services and bill the customers monthly for our services. The healthcare industry in the United States represents a strong portion
of the United States’ economy, offering a robust market for these services. Our current market includes many diverse specialties,
including radiology, oncology, orthopedics, pediatrics, internal medicine, and cardiology. We continue to investigate ways to expand
our market reach, although can make no assurances in that regard.
Market
and Industry Overview – Entertainment Operating Segment
Our
entertainment segment refers to the sale of event tickets primarily through our online and mobile platforms. We will buy inventory of
event tickets to then sell tickets through various platforms, including our own. Our resale services refer to the sale of tickets by
a holder, who originally obtained the tickets directly from a venue or entity, through our platform in which we then collect services
fees on the transaction. This is commonly referred to as secondary ticketing. We work directly with consumers looking to buy or sell
event tickets for particular shows, concerts, games, and other events, allowing a simple and effective platform to move tickets. We also
offer production and promotion of live music events in third-party venues throughout the country. These services begin with the logistical
matters of an event, including artist booking and research, ticketing, staging, on-site operations, vendor sourcing, and day of production.
Competition
- Video Solutions Operating Segment
Our
video solutions segment, consisting of law enforcement and security surveillance markets, is extremely competitive. Competitive factors
in these industries include ease of use, quality, portability, versatility, reliability, accuracy and cost. There are direct competitors
with technology and products in the law enforcement and surveillance markets for all of our products, including those that are in development.
Many of these competitors have significant advantages over us, including greater financial, technical, marketing and manufacturing resources,
more extensive distribution channels, larger customer bases and faster response times to adapt new or emerging technologies and changes
in customer requirements. Our primary competitors in the in-car video systems market include L-3 Mobile-Vision, Inc., Coban Technologies,
Inc., Enforcement Video, LLC d/b/a WatchGuard Video (“WatchGuard”), Kustom Signals, Panasonic System Communications Company,
International Police Technologies, Inc. and a number of other competitors who sell, or may in the future sell, in-car video systems to
law enforcement agencies. Our primary competitors in the body-worn camera market include Axon Enterprises, Inc. (“Axon”),
Reveal Media, WatchGuard, and VieVU, Inc., which was acquired by Axon in 2018. We face similar and intense competitive factors for our
event recorders in the commercial fleet and private security markets as we do in the law enforcement and security surveillance markets.
There can be no assurance that we will be able to compete successfully in these markets. Further, there can be no assurance that new
and existing companies will not enter the law enforcement and security surveillance markets in the future. The commercial fleet security
and surveillance markets likewise are also very competitive. There are direct competitors for our FLT-250 and DVM-250 Plus “event
recorders,” which may have greater financial, technical marketing, and manufacturing resources than we do. Our primary competitors
in the commercial fleet sector include Lytx, Inc. (previously DriveCam, Inc.) and SmartDrive Systems, among others.
8
Competition
– Revenue Cycle Management Operating Segment
Our
revenue cycle management segment is a highly competitive market that is only intensifying as the market continues to grow. We face competition
from a variety of sources, including internal revenue cycle management departments within healthcare organizations, as these organizations
are beginning to make internal investments in these departments to keep these services in-house. Additionally, other revenue cycle management
providers exist and offer similar services through software vendors, traditional consultants, and information technology sources.
Competition
– Entertainment Operating Segment
Our
entertainment segment faces robust competition from several sources throughout the industry. As the online and mobile ticketing market
continues to increase, it has allowed for more technology-based companies to offer ticketing services and systems. The online environment
consists of numerous other websites and platforms for all markets. With the market continuing to grow, resale marketplaces and websites
can reach a vastly larger audience with more convenient access to tickets for a wide variety of events. We continue to build our brand
and recognition, through numerous partnerships and sponsorships throughout the country, in attempt to become a preferred platform for
consumers. The event production portion of this segment faces strong competition ranging from small festival production companies to
large concert production companies and venues.
Worldwide
Reinsurance Ltd.
In
December 2021, the Company formed a wholly-owned subsidiary, Worldwide Reinsurance Ltd. (“Worldwide Re”), a Bermuda incorporated
captive insurance company that provided primarily liability insurance coverage to the Company for which insurance may not be currently
available or economically feasible in today’s insurance marketplace.
Worldwide
Re is subject to capital and other regulatory requirements imposed by the Bermuda Monetary Authority (“BMA”). Although these
capital requirements are generally less constraining than U.S. capital requirements, failure to satisfy these requirements could result
in regulatory actions from the BMA or loss of or modification of Worldwide Re’s Class 1 insurer license, which could adversely
impact our ability to support our insurance needs and to grow this business into another line of business for our holding company. To
date, our captive’s relatively immature claims history limits the predictive value of estimating the costs of incurred and future
claims. Accordingly, the captive could continue to incur significant fluctuations in financial results as the captive provides insurance
coverage to Digital Ally and its affiliated businesses and seeks to expand beyond our affiliated companies to offer coverage for third
parties.
Intellectual
Property – Video Solutions Operating Segment
Our
video solutions operating segment’s ability to compete effectively will depend on our success in protecting our proprietary technology,
both in the United States and abroad. We have filed for patent protection in the United States and certain other countries to cover certain
design aspects of our products.
9
Some
of our patent applications are still under review by the USPTO and, therefore, we have not yet been issued all the patents that we applied
for in the United States. We were issued several patents in recent years, including a patent on our VuLink product that provides automatic
triggering of our body-worn camera and our in-car video systems. No assurance can be given which, or any, of the patents relating to
our existing technology will be issued from the United States or any foreign patent offices. Additionally, no assurance can be given
that we will receive any patents in the future based on our continued development of our technology, or that our patent protection within
and/or outside of the United States will be sufficient to deter others, legally or otherwise, from developing or marketing competitive
products utilizing our technologies.
We
have entered into supply and distribution agreements with several companies that produce certain of our products, including our FirstVu
Pro & FirstVu II body cameras, QuickVu docking stations, EVO Fleet, DVM-250 and DVM-800 products. These supply and distribution agreements
contain certain confidentiality provisions that protect our proprietary technology, as well as that of the third-party manufacturers.
In
addition to seeking patent protection, we rely on trade secrets, know-how and continuing technological advancement to seek to achieve
and thereafter maintain a competitive advantage. Although we have entered into or intend to enter into confidentiality and invention
agreements with our employees, consultants and advisors, no assurance can be given that such agreements will be honored or that we will
be able to effectively protect our rights to our unpatented trade secrets and know-how. Moreover, no assurance can be given that others
will not independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade
secrets and know-how.
Intellectual
Property – Revenue Cycle Management Operating Segment
Our
revenue cycle management’s operating segment’s ability to compete effectively primarily depends on our trade secrets and
know-how and does not depend heavily on any proprietary technology or patents.
Intellectual
Property – Entertainment Operating Segment
Our
entertainment operating segment’s ability to compete effectively primarily depends on our trade secrets and know-how and does not
depend heavily on any proprietary technology or patents.
Human
Capital
As
of December 31, 2023, Digital Ally, and its subsidiaries, had approximately 170 full-time employees spread throughout the country, representing
the core values and objectives of the Company. These employees are spread amongst our operating segments as follows:
As of
December 31,
2023
Employee headcount:
Video Solutions
98
Revenue Cycle Management [1]
60
Entertainment
12
Total Employee Headcount
170
[1]
Our revenue cycle management operating segment has no direct employees. Nobility Healthcare, our minority interest partner provides all
human capital resources to manage and operate the Company’s revenue cycle management operating segment.
10
Our
employees are our most important assets and they set the foundation for our ability to achieve our strategic objectives. All of our employees
contribute to Digital Ally’s success and, in particular, the employees in our manufacturing, sales, research and development, and
quality assurance departments are instrumental in driving operational execution and strong financial performance, advancing innovation
and maintaining a strong quality and compliance program.
Our
employees are not covered by any collective bargaining agreement, and we have never experienced a work stoppage. We strive to create
a culture and work environment that enables us to attract, train, promote, and retain a diverse group of talented employees who together
can help us gain a competitive advantage. Our key programs and initiatives that are focused to attract, develop and retain our diverse
workforce include:
●
Compensation
Programs and Employee Benefits: the main objective of Digital Ally’s compensation program is to provide a compensation package
that will attract, retain, motivate and reward superior employees who must operate in a highly competitive and technologically challenging
environment. We seek to do this by linking annual changes in compensation to overall Company performance, as well as each individual’s
contribution to the results achieved. The emphasis on overall Company performance is intended to align the employee’s financial
interests with the interests of shareholders. Digital Ally also seeks fairness in total compensation with reference to external comparisons,
internal comparisons and the relationship between management and non-management remuneration. The structure of our compensation programs
balances incentive earnings for both short-term and long-term performance. Specifically:
●
We
provide employee wages that are competitive and consistent with employee positions, skill levels, experience, knowledge and geographic
location.
●
We
align our executives’ long-term equity compensation with our shareholders’ interests by linking realizable pay with stock
performance.
●
Annual
increases and incentive compensation are based on merit, which is communicated to employees at the time of hiring and documented
through our talent management process as part of our annual review procedures and upon internal transfer and/or promotion.
●
All
employees are eligible for health insurance, paid and unpaid leaves, short-term disability, worker’s compensation, long-term
disability, a retirement plan and life and disability/accident coverage. We also offer a variety of voluntary benefits that allow
employees to select the options that meet their needs.
Item
1A.
Risk
Factors.
Not
applicable.