What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2024-05-17 compared with 2023-11-14 · 682 added, 1072 removed, 836 unchanged (68% of the section changed)

2 unchanged sentences

31, 2024 AND DECEMBER 31, 2023

September 30, 2023

March 31, 2024

December 31, 2023

1 unchanged sentence

Cash and cash equivalents

Accounts receivable – trade, net of $ 200,667 allowance – September 30, 2023 and $ 152,736

– December 31, 2022

Other receivables, net of $ 5,000 allowance – September 30, 2023 and $ 0 –

December 31, 2022 (including $ 0 due from related parties – September 30, 2023 and $ 138,384 – December 31, 2022, refer

Accounts receivable – trade, net of $ 234,727 allowance – March 31, 2024 and $ 200,668 – December 31, 2023

Other receivables, net of $ 25,000 allowance – March 31, 2024 and $ 5,000 – December 31, 2023

Inventories, net

4 unchanged sentences

Operating lease right of use assets, net

Income tax receivable

Liabilities and Stockholders’ Equity

5 unchanged sentences

Notes payable – related party – current portion

Debt obligations, net – current portion

Debt obligations – current portion

Warrant derivative liabilities

5 unchanged sentences

Contract liabilities – long term

Notes payable – related party – long term

Lease Deposit

5 unchanged sentences

shares issued:

shares issued – September 30, 2023 and 2,720,170 shares issued – December 31, 2022

2,879,826 shares issued – March 31, 2024 and 2,800,754 shares issued – December 31, 2023

Additional paid in capital

7 unchanged sentences

CONSOLIDATED STATEMENTS OF OPERATIONS

THE THREE AND NINE MONTHS ENDED

30, 2023 AND 2022

THE THREE MONTHS ENDED

September 30,

the nine months ended

September 30,

31, 2024 AND 2023

Three months ended

March 31, 2024

Three months ended

March 31, 2023

Service and other

11 unchanged sentences

( 6,172,806 )

( 16,261,554 )

( 20,031,610 )

Other income (expense):

1 unchanged sentence

Interest expense

( 2,480,947 )

Other income (loss)

Loss on accrual for legal settlement

( 1,792,308 )

Loss on conversion of convertible note

Change in fair value of contingent consideration promissory notes

Change in fair value of short-term investments

Change in fair value of warrant derivative liabilities

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

Gain on extinguishment of liabilities

Gain on extinguishment of warrant derivative liabilities

Total other income (expense)

( 1,717,617 )

Loss before income tax benefit

( 3,679,043 )

( 1,919,071 )

Gain on sale of intangibles

Loss on sale of property, plant and equipment

Total other income

Income (loss) before income tax benefit

( 3,943,268 )

3 unchanged sentences

( 5,979,579 )

( 17,979,171 )

( 9,299,498 )

Net (income) attributable to noncontrolling interests of consolidated subsidiary

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

Net loss attributable to common stockholders

1 unchanged sentence

$ ( 6,105,818 )

$ ( 18,207,795 )

$ ( 9,568,134 )

Net loss per share information:

2 unchanged sentences

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022

THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023

Noncontrolling

4 unchanged sentences

Restricted common stock grant

Restricted common stock forfeitures

Repurchase and cancellation of common stock

( 2,063,674 )

( 2,063,768 )

Distribution to noncontrolling interest in consolidated subsidiary

( 6,600,148 )

( 6,698,242 )

Balance, March 31, 2022

$ 124,871,161

$ ( 77,336,028 )

Stock-based compensation

Restricted common stock forfeitures

Repurchase and cancellation of common stock

( 1,962,663 )

( 1,962,755 )

Net income (loss)

( 1,065,513 )

Balance, June 30, 2022

$ 125,252,766

$ ( 80,364,204 )

Issuance of common stock through warrant exchange agreement

Stock-based compensation

( 1,902,475 )

( 1,919,071 )

Balance, September 30, 2022

$ 129,999,695

$ ( 82,266,679 )

Balance, December 31, 2022

$ 127,869,342

$ ( 91,980,234 )

Stock-based compensation

Restricted common stock grant

Issuance due to rounding from reverse stock split

4 unchanged sentences

( 98,086,052 )

$ ( 98,086,052 )

$ 127,984,155

$ ( 98,086,052 )

Stock-based compensation

Restricted common stock forfeitures

Issuance due to rounding from reverse stock split

Conversion of convertible note into common stock

Net Income (loss)

Balance, December 31, 2023

$ 128,441,083

$ ( 117,668,781 )

Balance, June 30, 2023

$ 128,441,083

1 unchanged sentence

Stock-based compensation

Restricted common stock grant

Restricted common stock forfeitures

Net Income (loss)

1 unchanged sentence

( 3,943,268 )

Balance, September 30, 2023

Balance, March 31, 2024

$ 128,481,699

4 unchanged sentences

CONSOLIDATED STATEMENTS OF CASH FLOWS

THE NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022

For the nine months ended September

MONTHS ENDED MARCH 31, 2024 AND 2023

Three months ended

March 31, 2024

Three months ended

March 31, 2023

Cash Flows from Operating Activities:

3 unchanged sentences

Depreciation and amortization

Loss on sale of property, plant and equipment

Gain on sale of intangible

Stock-based compensation

Non-cash interest expense

Change in fair value of warrant derivative liabilities

( 1,803,560 )

( 6,726,638 )

Amortization of debt issuance costs

Gain on extinguishment of liabilities

Gain on extinguishment of warrant derivative liabilities

( 3,624,794 )

Convertible debt discount amortization

Loss on conversion of debt

Change in fair value of warrant derivative liabilities

Provision for inventory obsolescence

Provision for doubtful accounts receivable

Allowance for doubtful lease reserve

Provision for doubtful lease receivable

Change in fair value of contingent consideration promissory note

Change in operating assets and liabilities:

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

(Increase) decrease in:

Accounts receivable – trade

Accounts receivable – other

( 3,426,732 )

( 1,448,044 )

Other receivable

Prepaid expenses

1 unchanged sentence

( 2,445,206 )

( 4,125,776 )

Increase (decrease) in:

1 unchanged sentence

Accrued expenses

Operating lease obligations

Income taxes payable

Lease deposit

Operating lease obligations

Contract liabilities

2 unchanged sentences

Cash Flows from Investing Activities:

Purchases of property, plant and equipment

( 1,947,127 )

Purchases of furniture, fixtures and equipment

Additions to intangible assets

Cash paid for acquisition of Medical Billing Company

( 1,153,627 )

Cash paid for asset acquisition of Medical Billing Company

Net cash used in investing activities

( 3,488,972 )

Cash paid for acquisition of Country Stampede

Proceeds from sale of intangible assets

Proceeds from sale of property, plant and equipment

Net cash provided by (used in) investing activities

Cash Flows from Financing Activities:

Repurchase and cancellation of common stock

( 4,026,523 )

Distribution to noncontrolling interest in consolidated subsidiary

Net proceeds of convertible debt with detachable warrants

Net proceeds of related party note payable

Proceeds – Merchant Advances – Video Solutions Segment

Proceeds – Merchant Advances – Entertainment Segment

Proceeds – Commercial Extension of Credit – Entertainment Segment

Payments on Commercial Extension of Credit – Entertainment Segment

( 1,156,441 )

Principal payment on contingent consideration promissory

Net cash (used in) provided by financing activities

( 4,425,437 )

Net decrease in cash and cash equivalents

( 25,712,401 )

Cash, cash equivalents, beginning of period

Cash, cash equivalents, end of period

Payments on Merchant Advances – Video Solutions Segment

Principal payment on EIDL loan

Principal payment on contingent consideration promissory notes

Net cash provided by financing activities

Net increase (decrease) in cash, cash equivalents, and restricted cash

Cash, cash equivalents, and restricted cash, beginning of period

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

Supplemental disclosures of cash flow information:

Cash payments for interest

Cash payments for income taxes

Supplemental disclosures of non-cash investing and financing activities:

ROU and lease liability recorded on extension of lease

Conversion of convertible notes payable into common stock

Issuance of common stock through warrant exchange agreement

Issuance of contingent consideration promissory note for

business acquired

Assets acquired in business acquisitions

Liabilities assumed in the business acquisition

Goodwill acquired in business acquisitions

Restricted common stock grant

Reverse stock split rounding issuances

Restricted common stock forfeitures

Debt discount on convertible note

Adjustments of accounts payable

with the sale proceeds of property, plant and equipment

Assets acquired in business acquisitions

Goodwill acquired in business acquisitions

Liabilities assumed in business acquisitions

payable for Country Stampede acquisition

Commercial Extension of Credit repaid through accrued revenue – Entertainment Segment

ROU and lease liability recorded on extension (termination) of lease

Notes to the Unaudited Condensed Consolidated Financial Statements.

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(such merged entity, the “Predecessor Registrant”).

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.

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.

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.

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

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, 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

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.

(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, 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 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.

Such required segment information is included in Note 19.

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.

Such required

segment information is included in Note 18.

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

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

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

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

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

whole number.

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

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

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

All historical share and

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

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

The par value

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

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

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a fair presentation have been included.

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

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

Operating results for the three month period ended March 31, 2024 are not necessarily indicative

of the results that may be expected for the year ending December 31, 2024.

balance sheet at December 31, 2023 has been derived from the audited financial statements at that date, but does not include all the

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for the year ended December 31, 2023.

Uncertainty Due to Geopolitical Events

Due to the Hamas-Israel and Russia-Ukraine

conflicts, there has been uncertainty and disruption in the global economy.

Although these events did not have a direct material adverse

impact on the Company’s financial results for the three and nine months ended September 30, 2023, at this time the Company

is unable to fully assess the aggregate impact the Hamas-Israel and Russia-Ukraine conflicts will have on its business due to various

uncertainties, which include, but are not limited to, the duration of the conflicts, the conflicts’ effect on the economy, the impact

on the Company’s businesses and actions that may be taken by governmental authorities related to the conflicts.

and Going Concern

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

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

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

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

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

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

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

For the nine months ended September 30,

2023, the Company had a net loss attributable to common stockholders of $ 18,207,795 net cash used in operating activities of $ 5,842,158 ,

$ 197,241 used in investing activities and $ 4,715,031 provided by financing activities.

The Company will have to restore positive operating

cash flows and profitability over the next year and/or raise additional capital to fund its operational plans, meet its customary payment

obligations and otherwise execute its business plan.

There can be no assurance that it will be successful in restoring positive cash

flows and profitability, or that it can raise additional financing when needed, and obtain it on terms acceptable or favorable to the

For the three months ended March 31,

2024, the Company had a net loss attributable to common stockholders of $ 3,931,020 ,

net cash used in operating activities of $ 918,545 ,

$ 160,830 provided

by investing activities and $ 1,005,027 provided by financing

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

capital to fund its operational plans, meet its customary payment obligations and otherwise execute its business plan.

There can be no

assurance that it will be successful in restoring positive cash flows and profitability, or that it can raise additional financing when

needed, and obtain it on terms acceptable or favorable to the Company.

Company has implemented an enhanced quality control program to detect and correct product issues before they result in significant rework

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date the unaudited condensed consolidated financial statements were issued.

Such factors raise substantial doubt about the Company’s ability to sustain operations for at least one year

from the issuance of these unaudited condensed financial statements.

The accompanying unaudited condensed financial statements do not

include any adjustments related to the recoverability and classification of asset amounts or the classification of liabilities that might

be necessary should the Company be unable to continue as a going concern.

of Consolidation :

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

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

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

All intercompany balances and transactions have

been eliminated during consolidation.

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

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

All intercompany balances and transactions

have been eliminated during consolidation.

Company formed Digital Ally International, Inc.

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

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

ThermoVu® line of temperature monitoring equipment.

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

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

The Company formed

TicketSmarter, Inc.

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

global entertainment operations.

The Company formed Worldwide Reinsurance Ltd.

in December 2021, which is a captive insurance

company domiciled in Bermuda, the Company is in the process of unwinding these operations.

The Company formed Digital Connect, Inc.

BirdVu Jets, Inc.

for travel and transportation purposes in 2022.

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 Kustom 440, Inc.

in 2022 to create unique

entertainment experiences directly for consumers.

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

Entertainment, Inc.

in 2023 to serve as the participant in the Business Combination.

Value of Financial Instruments :

13 unchanged sentences

The Company reports all revenues

on a gross basis, other than service revenues from the Company’s entertainment and revenue cycle management segments.

on a gross basis, other than service revenues from the Company’s entertainment and revenue cycle management segments, Revenues

generated by all segments are reported net of sales taxes.

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

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

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

As part of its consideration for the

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

For each contract, the

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

In determining

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

to which it expects to be entitled.

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

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

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

In situation where sales are to a distributor, the Company had concluded its contracts are with the distributor as the Company

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

As part of part of its consideration for the contract,

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

For each contract, the Company

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

In determining the

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

it expects to be entitled.

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

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

The Company allocates the transaction

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when the Company’s performance

obligations are satisfied), which typically occurs at shipment.

obligations is satisfied), which typically occurs at shipment.

Further in determining whether control has been transferred, the Company

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

services or replacement product.

services or replacement products.

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

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Entertainment

Company reports entertainment revenue on a gross or net basis based on management’s assessment of whether the Company is acting

as a principal or agent in the transaction.

The determination is based upon the evaluation of control over the event ticket, including

the right to sell the ticket, prior to its transfer to the ticket buyer.

Company reports ticketing revenue on a gross or net basis based on management’s assessment of whether the Company is acting as

a principal or agent in the transaction.

The determination is based upon the evaluation of control over the event ticket, including the

right to sell the ticket, prior to its transfer to the ticket buyer.

Company sells tickets held in inventory, which consists of one performance obligation, being to transfer control of an event ticket to

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of the ticket.

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

Revenues derived from this

marketplace primarily consist of service fees from entertainment 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, and payment is due at the time of sale.

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

Payment is due at the time of sale.

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

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

During the nine months ended September 30, 2023, the Company recognized revenue of $ 2.2 million related to its contract liabilities.

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

separately as current liabilities and non-current liabilities in the Consolidated Balance Sheets.

Such amounts consist of extended warranty

contracts, prepaid cloud services and prepaid installation services and are generally recognized as the respective performance obligations

are satisfied.

During the three months ended March 31, 2024, the Company recognized revenue of $ 241,371 related to its contract liabilities.

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

as current liabilities and non-current liabilities in the Consolidated Balance Sheets.

Such amounts consist of extended warranty contracts,

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

Total contract liabilities consist of the following:

OF CONTRACT LIABILITIES

September 30, 2023

March 31, 2024

December 31, 2023

Additions/Reclass

Recognized Revenue

March 31, 2024

Contract liabilities, current

Contract liabilities, non-current

September 30, 2022

March 31, 2023

December 31, 2022

Additions/Reclass

Recognized Revenue

March 31, 2023

Contract liabilities, current

Contract liabilities, non-current

returns and allowances aggregated $ 116,543 and $ 118,029 for the nine months ended September 30, 2023 and December 31, 2022, respectively.

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

The accrual is determined

based upon historical return rates adjusted for known changes in key variables affecting these return rates.

returns and allowances aggregated $ 93,170 and $ 117,713 as of March 31, 2024 and December 31, 2023, respectively.

Obligations for estimated

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

The accrual is determined based upon historical

return rates adjusted for known changes in key variables affecting these return rates.

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, allowance for doubtful accounts, the estimate of

fair value of the lease liabilities and related right of use asset, 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.

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 March 31, 2024 and December

OF SHORT TERM INVESTMENTS

September 30, 2023

March 31, 2024

Demand deposits

9 unchanged sentences

with major financial institutions.

At September 30, 2023 and December 31, 2022, the uninsured balance amounted to $ 1,652,978 and $ 2,495,189 ,

respectively.

At March 31, 2024 and December 31, 2023, the uninsured balance amounted to $ 296,799 and $ 29,700 , respectively.

cash of $ 97,600 and $ 97,600 was included in other assets as of March 31, 2024 and December 31, 2023, 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

March 31, 2024

December 31, 2023

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

56 unchanged sentences

if fair value is not available.

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

concluded that there was no impairment.

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

Legal expenses incurred in preparation

of patent application have been deferred and will be amortized over the useful life of granted patents.

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

that there was no impairment.

Subsequent to completing our 2023 annual impairment test, no events or

changes in circumstances were noted that required an interim goodwill impairment test.

assets include deferred patent costs, license agreements, trademarks and trade names.

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.

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

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

14 unchanged sentences

statement of operations.

and Cancellation of Shares

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

Shares repurchased under Board authorizations are held in treasury

for general corporate purposes and cancelled when it is determined appropriate by management.

The Company accounts for repurchases of

common stock under the cost method.

Shares repurchased and cancelled during the period were recorded as a reduction to stockholders’

(deficit) equity.

See further discussion of the Company’s share repurchase program in Note 15 –Stockholders’ Equity.

Non-Controlling

6 unchanged sentences

Accounting Standards

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

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

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

Company’s financial position and results of operations.

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

SCHEDULE OF INVENTORIES

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.

consisted of the following at March 31, 2024 and December 31, 2023:

OF INVENTORIES

March 31, 2024

December 31, 2023

Raw material and component parts– video solutions segment

5 unchanged sentences

( 4,355,666 )

Reserve for excess and obsolete inventory – entertainment

Reserve for excess and obsolete inventory – entertainment segment

Total inventories

1 unchanged sentence

The cost of such units

totaled $ 164,029 and $ 171,071 as of September 30, 2023 and December 31, 2022, respectively.

totaled $ 51,099 and $ 42,797 as of March 31, 2024 and December 31, 2023, respectively.

DEBT OBLIGATIONS

1 unchanged sentence

OF DEBT OBLIGATIONS

March 31, 2024

December 31, 2023

Economic injury disaster loan (EIDL)

Convertible note payable, net of unamortized debt discount of $ 1,014,091

Contingent consideration promissory note – Nobility Healthcare Division Acquisition

Revolving Loan Agreement

Commercial Extension of Credit- Entertainment Segment

Merchant Advances – Video Solutions Segment

Merchant Advances – Entertainment Segment

Unamortized debt issuance costs

Debt obligations

1 unchanged sentence

Debt obligations, long-term

obligations mature as follows as of September 30, 2023:

OF MATURITY OF DEBT OBLIGATIONS

September 30, 2023

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

obligations mature as follows as of March 31, 2024:

SCHEDULE OF MATURITY OF DEBT OBLIGATIONS

March 31, 2024

2028 and thereafter

Small Business Administration Notes .

May 12, 2020, the Company received $ 150,000 in loan funding from the SBA under the EIDL program administered by the SBA, which program

May 12, 2020, the Company received $ 150,000 in loan funding from the SBA under the Economic Injury Disaster Loan (“EIDL”) program administered by the SBA, which program

was expanded pursuant to the recently enacted CARES Act.

The EIDL is evidenced by a secured promissory note, dated May 8, 2020, in the

original principal amount of $ 150,000 with the SBA, the lender.

The EIDL is evidenced by a secured promissory note, dated May 8, 2020, in

the original principal amount of $ 150,000 with the SBA, the lender.

the terms of the note issued under the EIDL program, interest accrues on the outstanding principal at the rate of 3.75 % per annum.

3 unchanged sentences

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

The Company granted the secured party a continuing interest

The Company granted the SBA 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 $ 810 during the three months ended March 31, 2024 and recorded interest expense of $ 1,383 .

Consideration Promissory Notes

4 unchanged sentences

Quarterly principal and

interest payments are deferred for nine months and is due in equal quarterly installments on the seventh business day of each quarter.

interest payments are deferred for six months and is due in equal quarterly installments on the seventh business day of each quarter.

The principal amount of the June Contingent Note is subject to an earn-out adjustment, being the difference between $ 975,000 (the “June

20 unchanged sentences

on this contingent consideration promissory note totaled $ 261,543 .

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

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

2024 is $ 29,409 , representing a reduction in its estimated fair value of $ 29,409 as compared to its estimated fair value as of December

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

Therefore, the

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

This reduction only relates to the principal payments made for the three months ended March 31, 2024.

Therefore, the Company

recorded no gain or loss in the Consolidated Statements of Operations for the three months ended March 31, 2024.

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

2 unchanged sentences

Quarterly principal

and interest payments are deferred for nine months and is due in equal quarterly installments on the seventh business day of each quarter.

The principal amount of the August Contingent Payment Note is subject to an earn-out adjustment, being the difference between $ 3,000,000

and interest payments are deferred for six months and is due in equal quarterly installments on the seventh business day of each quarter.

The principal amount of the August Contingent Payment Note is subject to an earn-out adjustment, being the difference between the $ 3,000,000

(the “August Projected Revenue”) and the cash basis revenue (the “August Measurement Period Revenue”) collected

8 unchanged sentences

In no event will the principal balance of this August Contingent Payment Note become a negative number.

maximum downward earn-out adjustment to the principal balance will be a reduction to zero.

There are no limits to the increases to the

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

maximum downward earn-out adjustment to the principal balance will be to zero.

There are no limits to the increases to the principal

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

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

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

with subsequent changes in fair value recorded as a gain or loss in the Consolidated Statements of Operations.

Management recorded the

contingent consideration promissory note at its estimated fair value of $ 650,000 at the acquisition date.

Total principal payments, since

inception, on this contingent consideration promissory note totaled $ 487,430 .

The estimated fair value of the August Contingent Note

at September 30, 2023 is $ 194,477 , representing a reduction in its estimated fair value of $ 194,477 as compared to its estimated fair

value as of December 31, 2022.

This reduction only relates to the principal payments made for the three and nine months ended September

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

ended September 30, 2023.

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

The January Contingent Payment Note has a two and a half year term and bears interest at a rate of 3.00 % per annum.

principal and interest payments are deferred for seven months and is due in equal quarterly installments on the tenth business day of

each quarter.

The principal amount of the January Contingent Payment Note is subject to an earn-out adjustment, being the difference

between $ 3,500,000 (the “January Projected Revenue”) and the cash basis revenue (the “January Measurement Period Revenue”)

collected by the January Sellers in its normal course of business from the clients existing on January 1, 2022, during the period from

April 1, 2022 through March 31, 2023 (the “January Measurement Period”) measured on a quarterly basis and annualized as of

the relevant period.

If the January Measurement Period Revenue is less than the January Projected Revenue, such amount will be subtracted

from the principal balance of this January Contingent Payment Note on a dollar-for-dollar basis.

If the January Measurement Period Revenue

is more than the January Projected Revenue, such amount will be added to the principal balance of this January Contingent Payment Note

on a dollar-for-dollar basis.

In no event will the principal balance of this January Contingent Payment Note become a negative number.

The maximum downward earn-out adjustment to the principal balance will be a reduction to zero.

There are no limits to the increases to

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

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 $ 650,000 at the acquisition date.

1 unchanged sentence

The estimated fair value

of the January Contingent Note at September 30, 2023 is $- 0 -, representing a reduction 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 nine months ended September 30, 2023.

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

of Operations for the nine months ended September 30, 2023.

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

Note”) in connection with an asset purchase agreement between Nobility Healthcare and a private company (the “February Sellers”)

of $ 105,000 .

The February Contingent Payment Note has a three-year term and bears interest at a rate of 3.00 % per annum.

Quarterly principal

and interest payments are deferred for seven months and is due in equal quarterly installments on the tenth business day of each quarter.

The principal amount of the February Contingent Payment Note is subject to an earn-out adjustment, being the difference between $ 440,000

(the “February Projected Revenue”) and the cash basis revenue (the “February Measurement Period Revenue”) collected

by the February Sellers in its normal course of business from the clients existing on February 1, 2022, during the period from May 1,

2022 through April 30, 2023 (the “February Measurement Period”) measured on a quarterly basis and annualized as of the relevant

If the February Measurement Period Revenue is less than the February Projected Revenue, such amount will be subtracted from the

principal balance of this February Contingent Payment Note on a dollar-for-dollar basis.

If the February Measurement Period Revenue is

more than the February Projected Revenue, such amount will be added to the principal balance of this February Contingent Payment Note

on a dollar-for-dollar basis.

In no event will the principal balance of this February Contingent Payment Note become a negative number.

The maximum downward earn-out adjustment to the principal balance will be a reduction to zero.

There are no limits to the increases to

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

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

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

Management has recorded the contingent consideration promissory note at its estimated fair value of $ 105,000 at the acquisition

Principal payments, since its inception, on this contingent consideration promissory note totaled $ 1,584 .

The estimated fair value

of the February Contingent Note at September 30, 2023 is $- 0 -, representing a decrease in its estimated 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 nine months ended September 30, 2023.

Therefore, the Company recorded a gain of $ 2,763 in the Consolidated Statements

of Operations for the nine months ended September 30, 2023.

of the August Contingent Note at March 31, 2024 is $ 64,826 , representing a decrease in its estimated fair value of $ 64,826 as compared

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

This reduction only relates to the principal payments made for the three months ended

March 31, 2024.

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

March 31, 2024.

Commercial Extension of Credit

10 unchanged sentences

December 31, 2023.

During the nine months

ended September 30, 2023, the Entertainment segment drew an additional $ 224,577 on this agreement, with the principal balance never

exceeding $ 1,000,000 .

During the nine months ended

September 30, 2023, the Company’s Entertainment segment had repaid $ 1,156,441

towards the principal on the loan through remittances and had an outstanding balance of $ 68,135 .

the three months ended March 31, 2024, the Entertainment segment Company’s Entertainment segment repaid the outstanding principal

of $ 87,928 and did not renew this agreement.

Commercial Extension of Credit

January 22, 2024, 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 Ticket Solution Agreement.

The Lender, Ticket Evolution, Inc., agreed

to extend, subject to the conditions hereof, and Borrower agreed to take, a Loan for Principal Sum of $ 75,000 with monthly advances of $ 100,000 .

advances made are recoupable from client service fees with no more than $ 25,000 being recouped in any one week.

The total advances received

for the three months ended March 31, 2024 were $ 275,000 and payments made totaled $ 205,357 .

The outstanding balance as of March 31, 2024

was $ 69,643 .

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

45 unchanged sentences

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.

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

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:

in connection with the Notes:

OF WARRANT TO PURCHASE COMMON STOCK GRANTED

April 5, 2023

(issuance date)

Volatility - range

3 unchanged sentences

Common stock issuable under the warrants

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

OF CONVERTIBLE NOTE ACTIVITY

Balance, December 31, 2022

Convertible Note, at par

Conversion of convertible note into common stock

Principal payments

Unamortized debt discount

( 1,014,091 )

Balance, September 30, 2023

the three and nine months ended September 30, 2023 the Company amortized $ 1,887,273 of debt discount under interest expense, compared

to $- 0 - for the three and nine months ended September 30, 2022.

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

1 unchanged sentence

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 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 were $ 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

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 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 three months ended March 31, 2024, the Company amortized $ 23,435 of debt

discount under interest expense.

Cash Advances – Video Solutions Segment

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, 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.

The loan bears interest at 2.9 %

During the three months ended March 31, 2024, the Company made repayments totaling $ 702,000

and received additional proceeds of $ 700,000 .

As of March 31, 2024 the outstanding balance was $ 1,348,000

which is expected to be repaid in 2024.

the three months ended March 31, 2024 the Company amortized $ 278,256 of debt discount under interest expense.

Cash Advances – Entertainment Segment

March 2024, the Company obtained a short-term merchant advance, which totaled $ 1,000,000 ,

from a single lender to fund operations.

These advances included origination and issuance fees totaling $ 85,000

for net proceeds of $ 915,000 .

The advance is, for the most part, is secured by expected future sales transactions of the Company with expected payments on a

weekly basis.

The Company will repay an aggregate of $ 1,425,000

to the lender.

The loan bears interest at 5.05 % per annum.

During the three months ended March 31, 2024, the Company made no

As of March 31, 2024 the outstanding balance was $ 1,425,000

which is expected to be repaid in 2024.

the three months ended March 31, 2024 the Company amortized $ 63,750 of debt discount and issuance costs under interest expense.

FAIR VALUE MEASUREMENT

9 unchanged sentences

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

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

basis as of March 31, 2024 and December 31, 2023:

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

September 30, 2023

Contingent consideration promissory notes and contingent consideration

earn-out agreement

March 31, 2024

Warrant derivative liabilities

Liabilities, fair value

Contingent consideration promissory notes and contingent consideration earn-out agreement

December 31, 2023

Contingent consideration promissory notes and contingent consideration

earn-out agreement

Warrant derivative liabilities

Liabilities, fair value

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

OF FAIR VALUE MEASUREMENTS CHANGE IN LEVEL 3 INPUTS

Contingent Consideration Promissory Notes

Warrant Derivative Liabilities

Contingent consideration promissory notes and contingent consideration earn-out agreement

following table represents the change in Level 3 tier value measurements for the three months ended March 31, 2024:

SCHEDULE OF FAIR VALUE MEASUREMENTS CHANGE IN LEVEL 3 INPUTS

Consideration

Promissory Notes and Earn-Out Agreement

Warrant Derivative

Balance, December 31, 2023

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, March 31, 2023

Issuance of warrant derivative liabilities

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

Change in fair value of warrant derivative liabilities

Balance, June 30, 2023

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

Change in fair value of contingent consideration promissory notes –

Revenue Cycle Management Acquisitions

Change in fair value of warrant derivative liabilities

( 1,863,326 )

Balance, September 30, 2023

Change in fair value of contingent consideration promissory notes - Revenue Cycle Management Acquisitions

Balance, March 31, 2024

ACCRUED EXPENSES

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

OF ACCRUED EXPENSES

expenses consisted of the following at March 31, 2024 and December 31, 2023:

SCHEDULE OF ACCRUED EXPENSES

March 31, 2024

December 31, 2023

Accrued warranty expense

4 unchanged sentences

Accrued taxes

Total accrued expenses

warranty expense was comprised of the following for the nine months ended September 30, 2023:

OF ACCRUED WARRANTY EXPENSE

Accrued interest - related party

Customer deposits

Total accrued

warranty expense was comprised of the following for the three months ended March 31, 2024:

SCHEDULE OF ACCRUED WARRANTY EXPENSE

Beginning balance

2 unchanged sentences

Ending balance

effective tax rate for the three months ended September 30, 2023 and 2022 varied from the expected statutory rate due to the Company

continuing to provide a 100 % valuation allowance on net deferred tax assets.

The Company determined that it was appropriate to continue

the full valuation allowance on net deferred tax assets as of September 30, 2023, primarily because of the Company’s history of

operating losses.

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

effective tax rate for the three months ended March 31, 2024 and 2023 varied from the expected statutory rate due to the Company continuing

to provide a 100 % valuation allowance on net deferred tax assets.

The Company determined that it was appropriate to continue the full

valuation allowance on net deferred tax assets as of March 31, 2024, primarily because of the Company’s history of operating losses.

Company has incurred operating losses in recent years, and it continues to be in a three-year cumulative loss position at March 31, 2024.

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

7 unchanged sentences

The Company has available to it approximately $ 140.9

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

million (based on its December 31, 2023 tax return) in net operating loss carryforwards to offset future taxable income as of March 31,

PREPAID EXPENSES

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

expenses were the following at March 31, 2024 and December 31, 2023:

OF PREPAID EXPENSE

March 31, 2024

December 31, 2023

Prepaid inventory

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PROPERTY, PLANT AND EQUIPMENT

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

plant and equipment consisted of the following at March 31, 2024 and December 31, 2023:

OF PROPERTY, PLANT AND EQUIPMENT

March 31, 2024

December 31, 2023

Office furniture, fixtures, equipment, and aircraft

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accumulated depreciation and amortization

( 1,551,601 )

( 1,503,857 )

Net property, plant and equipment

expense for the three months ended September 30, 2023 and September 30, 2022 was $ 188,100 and $ 73,686 , respectively, and is included

in general and administrative expenses.

Depreciation expense for the nine months ended September 30, 2023 and September 30, 2022 was

$ 533,992 and $ 381,014 , respectively, and is included in general and administrative expenses.

expense for the three months ended March 31, 2024 and 2023 was $ 162,712 and $ 171,631 , respectively, and is included in general and administrative

During the three

months ended March 31, 2024 the Company engaged a broker and sold its aircraft for $ 1,100,000 less closing costs of $ 1,500 .

The carrying amount of the

aircraft on the date of sale was $ 1,141,661 .

As a result of the sale the Company recorded a loss

in the Consolidated Statement of Operations.

OPERATING LEASE

May 13, 2020, the Company entered into an operating lease for new warehouse and office space, which the Company currently utilizes as

one of its office, assembly and warehouse locations.

The original lease agreement was amended on August 28, 2020 to correct the footage

under lease and monthly payment amounts resulting from such correction.

The lease terms, as amended, include no base rent for the first

nine months and monthly payments ranging from $ 12,398 to $ 14,741 thereafter, with a termination date of December 2026 .

The Company is

responsible for property taxes, utilities, insurance and its proportionate share of common area costs related to this location.

took possession of the leased facilities on June 15, 2020.

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

lease as of September 30, 2023, was thirty-nine months .

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

2020 and the Company paid holdover rent for the time period until it moved to and commenced occupying the new space on June 15, 2020.

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 the 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 September 30, 2023, was one month .

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

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

lease terms include monthly payments ranging from $ 2,648 to $ 2,774 , with a termination date of July 2024 .

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 June 30, 2021.

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

30, 2023, was ten months .

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

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

lease terms include monthly payments ranging from $ 11,579 to $ 11,811 , with a termination date of 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 Company signed an eighty-four-month extension for the lease, the extension

terms include monthly payments ranging from $ 7,436 to $ 8,877 , with a termination date of March 2030 .

The remaining lease term for the

Company’s operating lease as of September 30, 2023 was seventy-eight months .

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 March 31, 2024 was forty-three months.

May 13, 2020, the Company entered into an operating lease for new warehouse and office space, which served as its new principal executive

office and primary business location.

The original lease agreement was amended on August

28, 2020 to correct the footage under lease and monthly payment amounts resulting from such correction.

The lease terms, as amended include

no base rent for the first nine months and monthly payments ranging from $ 12,398 to $ 14,741 thereafter, with a termination date of December

The Company is responsible for property taxes, utilities, insurance and its proportionate share of common area costs related to

its new location.

The Company took possession of the leased facilities on June 15, 2020.

The remaining lease term for the Company’s

office and warehouse operating lease as of March 31, 2024 was thirty-three months .

June 30, 2021, the Company completed the acquisition of its first medical billing company, through Nobility Healthcare.

Upon completion

of this acquisition, Nobility Healthcare became responsible for the operating lease for the seller’s office space.

The lease terms

include monthly payments ranging from $ 2,648 to $ 2,774 thereafter, with a termination date in July 2024.

The Company is responsible for

property taxes, utilities, insurance and its proportionate share of common area costs related to this location.

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

as of March 31, 2024 was four months.

August 31, 2021, the Company completed the acquisition of its second acquired medical billing company, through Nobility Healthcare.

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-two months as of March 31, 2024.

September 1, 2021, the Company completed the acquisition of Goody Tickets, LLC and TicketSmarter, LLC through TicketSmarter.

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the leased facilities on September 1, 2021.

The Company signed a month-to-month extension for the lease, extending the remaining lease

term for the Company’s office until a new space is located.

The Company plans to relocate the entertainment operating segment acquired

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

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.

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

lease terms include monthly payments ranging from $ 4,233 to $ 4,626 , with a termination date of June 2025.

lease terms include monthly payments ranging from $ 4,233

with a termination

date of June 2025 .

The Company is responsible

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possession of the leased facilities on January 1, 2022.

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

September 30, 2023, was twenty-one months .

The Company terminated this lease in January 2024 and reversed the right of use asset and lease liability by $ 73,894 .

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

Total lease expense under the six operating leases was approximately $ 105,439 and $ 402,556 , during the three and nine months ended September

30, 2023, respectively.

weighted-average remaining lease term related to the Company’s lease liabilities as of September 30, 2023 was 4.5 years.

Total lease expense under the operating leases was approximately $ 108,879 during the three months ended March 31, 2023.

weighted-average remaining lease term related to the Company’s lease liabilities as of March 31, 2023 was 4.5 years.

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

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

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

following sets forth the operating lease right of use assets and liabilities as of March 31, 2024:

OF OPERATING LEASES RIGHT OF USE ASSETS AND LIABILITIES

Operating lease right of use assets, net

Operating lease right of use assets

Operating lease obligations-current portion

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Total operating lease obligations

components of lease expense were as follows for the nine months ended September 30, 2023:

components of lease expense were as follows for the three months ended March 31, 2024:

SCHEDULE OF LEASE EXPENSE

general and administrative expenses

Selling, general and administrative expenses

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

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Year ending December 31:

2023 (October 1, to December 31, 2023)

2023 (April 1, to December 31, 2024)

Total undiscounted minimum future lease payments

2 unchanged sentences

GOODWILL AND OTHER INTANGIBLE ASSETS

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

assets consisted of the following at March 31, 2024 and December 31, 2023:

and trademarks pending will be amortized beginning at the time they are issued by the appropriate authorities.

If issuance of the final

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

expense for the three months ended March 31, 2024 and 2023 was $ 388,278 and $ 371,478 , respectively.

Estimated amortization for intangible

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

OF INTANGIBLE ASSETS

September 30, 2023

March 31, 2024

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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(video solutions segment)

and trademarks pending will be amortized beginning at the time they are issued by the appropriate authorities.

If issuance of the final

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

expense for the three months ended September 30, 2023 and 2022 was $ 377,485 and $ 460,489 , respectively, and $ 1,122,635 and $ 1,177,759 ,

for the nine months ended September 30, 2023 and 2022, respectively.

Estimated amortization for intangible assets with definite lives

for the next five years ending December 31 and thereafter is as follows:

OF ESTIMATED AMORTIZATION FOR INTANGIBLE ASSETS

Year ending December 31:

2023 (October 1, to December 31, 2023)

2024 (April 1, to December 31, 2024)

2028 and thereafter

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

assets were the following at March 31, 2024 and December 31, 2023:

OF OTHER ASSETS

March 31, 2024

December 31, 2023

Lease receivable

Sponsorship network

Restricted Cash

Total other assets

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any and all liability.

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

the aggregate reasonably possible loss (in excess of any accrued amounts) was approximately $ 1.8 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 March 31, 2024, 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

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

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.

STOCK-BASED COMPENSATION

Company recorded pre-tax compensation expense related to the grant of stock options and restricted stock issued of $ 40,695 and $ 114,848

$ 251,733 for

the three months ended September 30, 2023 and 2022, and $ 378,917 and

$ 1,028,084 for

the nine months ended September 30, 2023 and 2022, respectively.

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

for the three months ended March 31, 2024 and 2023, respectively.

of March 31, 2024, the Company had adopted ten separate stock option and restricted stock plans:

(i) the 2005 Stock Option and Restricted

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are now unavailable for issuance.

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

2023 total 284 .

Stock options granted under the 2005 Plan that remain unexercised and outstanding as of March 31, 2024

The 2006 Plan terminated during 2016 with 2,739 shares not awarded or underlying options, which shares are now unavailable

for issuance.

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

Stock options granted under the 2006 Plan that remain unexercised and outstanding as of March 31, 2024 total 531 .

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 September 30, 2023.

The 2008 Plan

terminated during 2018 with 2,025 shares not awarded or underlying options, which shares are now unavailable for issuance.

no stock options granted under the 2008 Plan that remain unexercised and outstanding as of September 30, 2023.

are no stock options granted under the 2007 Plan that remain unexercised and outstanding as of March 31, 2024.

The 2008 Plan terminated

during 2018 with 2,025 shares not awarded or underlying options, which shares are now unavailable for issuance.

There are no stock options

granted under the 2008 Plan that remain unexercised and outstanding as of March 31, 2024.

option grants.

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

as of September 30, 2023.

as of March 31, 2024.

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

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

summary of all stock option activity under the Plans for the three months ended March 31, 2024 is as follows:

OF STOCK OPTIONS OUTSTANDING

Exercise Price

Outstanding at December 31, 2023

Outstanding at September 30, 2023

Exercisable at September 30, 2023

Outstanding at March 31, 2024

Exercisable at March 31, 2024

Plans allow for the cashless exercise of stock options.

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There were no shares surrendered pursuant to cashless exercises

during the nine months ended September 30, 2023 and 2022.

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

during the three months ended March 31, 2024 and 2023.

aggregate intrinsic value of options outstanding was $- 0 - and $- 0 -, at March 31, 2024 and December 31, 2023, respectively.

The aggregate

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

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

intrinsic value of options exercisable was $- 0 - and $- 0 -, at March 31, 2024 and December 31, 2023, respectively.

of March 31, 2024, the unrecognized portion of stock compensation expense on all existing stock options was $- 0 -.

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

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

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

options under the Company’s option plans as of March 31, 2024:

OF SHARES AUTHORIZED UNDER STOCK OPTION PLANS BY EXERCISE PRICE RANGE

Outstanding options

Exercisable options

Exercise price

Weighted average

contractual life

Weighted average

contractual life

$ 0.01 to $ 49.99

$ 50.00 to $ 69.99

$ 70.00 to $ 89.99

stock grants.

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and the right to receive cash dividends.

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

summary of all restricted stock activity under the Plans for the three months ended March 31, 2024 is as follows:

OF RESTRICTED STOCK ACTIVITY

of Restricted

Nonvested balance, December 31, 2023

Nonvested balance, September 30, 2023

Nonvested balance, March 31, 2024

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

September 30, 2023, there were $ 213,727 of total unrecognized compensation costs related to all remaining non-vested restricted stock

grants, which will be amortized over the next forty-nine months in accordance with their respective vesting scale.

March 31, 2024, there were $ 245,233 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:

OF NON-VESTED BALANCE OF RESTRICTED STOCK

Number of shares

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

2024 (April 1, 2024 through December 31, 2024)

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 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 September 30, 2023.

The warrants expire from July

31, 2023 through April 5, 2028 and under certain circumstances allow for cashless exercise.

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

terms provide for net cash settlement outside the control of the Company under certain circumstances in the event of tender offers.

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

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

in fair value of warrant derivative liabilities.

Furthermore, the Company re-values the fair value of warrant derivative liability as

of the date the warrant is exercised with the resulting warrant derivative liability transitioned to change in fair value of warrant

derivative liabilities through the consolidated statement of operations.

August 19, 2021, the Company entered into a Warrant Exchange Agreement (the “Exchange Agreement”) with the Investors cancelling

February Warrants exercisable for an aggregate of 384,077 shares of Common Stock (the “February Warrants”) in consideration

for its issuance of (i) new warrants (the “Exchange Warrants”) to the Investors exercisable for an aggregate of up to 384,077

shares of Common Stock.

The Company also issued warrants (the “Replacement Original Warrants”) replacing the February Warrants

for the remaining shares of Common Stock exercisable thereunder, representing an aggregate of 330,923 shares of Common Stock, and extended

the expiration date of the February Warrants to September 18, 2026.

The Exchange Warrants provide for an initial exercise price of $ 65.00

per share, subject to customary adjustments thereunder, and are immediately exercisable upon issuance for cash and on a cashless basis.

On the date of the exchange, the Company calculated the fair value, using the Black-Scholes method, of the cancelled February Warrants

and the newly issued Exchange Warrants, the difference in fair value measurement of the respective warrants was attributed to warrant

modification expense in the consolidated statement of operations.

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.

OF WARRANT MODIFICATION

Original terms

at August 19,

Modified terms

at August 19,

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

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 September 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.

August 23, 2022

Volatility - range

Risk-free rate

Remaining contractual term

Exercise price

Common stock issuable under the warrants

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

the stock price increases for each of the related derivative instruments, the value to the holder of the instrument generally increases,

therefore increasing the liability on the Company’s balance sheet.

Additionally, stock price volatility is one of the significant

unobservable inputs used in the fair value measurement of each of the Company’s derivative instruments.

The simulated fair value

of these liabilities is sensitive to changes in the Company’s expected volatility.

Increases in expected volatility would generally

result in higher fair value measurement.

A 10 % change in pricing inputs and changes in volatilities and correlation factors would not

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

Purchase Warrants

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

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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 September 30, 2023:

Issuance date assumptions

September 30, 2023

warrant derivative liabilities as of their date of issuance and as of March 31, 2024:

OF WARRANT MODIFICATION

date assumptions

March 31, 2024

Volatility - range

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Exercise price

$ 5.50 - 7.50

Common stock issuable under the warrants

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

following table summarizes information about shares issuable under warrants outstanding during the three months ended March 31, 2024

OF WARRANT ACTIVITY

Vested Balance, January 1, 2023

exercise price

Vested Balance, December 31, 2023

Forfeited/cancelled

Vested Balance, September 30, 2023

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

fifty-four months.

Vested Balance, March 31, 2024

total intrinsic value of all outstanding warrants aggregated $- 0 - as of March 31, 2024 and 2023, and the weighted average remaining term

was 48.2 months as of March 31, 2024, respectively.

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

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

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

and exercisable warrants

contractual life

warrants to purchase shares of common stock as of March 31, 2024:

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

Outstanding and exercisable warrants

Exercise price

Number of warrants

Weighted average

remaining contractual

STOCKHOLDERS’ EQUITY

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

Issuance of Restricted Common Stock

January 2024, the board of directors approved the grant of 55,000 shares of common stock to officers of the Company.

Such shares 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 25,197 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 2026, provided that each grantee remains an employee of the company on such dates.

Cancellation of Restricted

During the three months ended March 31, 2024, the Company cancelled 1,125

shares due to termination of employee.

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

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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

Company owns a 51 %

equity interest in its consolidated subsidiary, Nobility Healthcare.

As a result, the noncontrolling shareholders or minority

interest is allocated 49 %

of the income/loss of Nobility Healthcare which is reflected in the statement of (income) loss as “net (income) loss

attributable to noncontrolling interests of consolidated subsidiary”.

We reported net income (loss) attributable to

noncontrolling interests of consolidated subsidiary of $ 29,630

and $ ( 16,596 )

for the three months ended September 30, 2023 and 2022, and $ 228,624

and $ 268,636

for the nine months ended September 30, 2023 and 2022, respectively.

Cancellation of Common Stock

the nine months ended September 30, 2023, the Company cancelled 3,625 shares for various reasons.

of Convertible Note

the nine months ended September 30, 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 .

NET EARNINGS (LOSS) PER SHARE

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

Company owns a 51 % equity interest in its consolidated subsidiary, Nobility Healthcare.

As a result, the noncontrolling shareholders

or minority interest is allocated 49 % of the income/loss of Nobility Healthcare which is reflected in the statement of (income) loss

as “net (income) loss attributable to noncontrolling interests of consolidated subsidiary”.

We reported net (income) loss

attributable to noncontrolling interests of consolidated subsidiary of $ 12,248 and ($ 126,239 ) for the three months ended March 31, 2024

and 2023, respectively.

NET LOSS PER SHARE

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

2024 and 2023 are as follows:

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

For the three months ended

For the nine months ended

Numerator for basic and diluted income per share – Net loss

Three months ended March 31,

Numerator for basic and diluted loss per share – Net loss

attributable to common stockholders

1 unchanged sentence

$ ( 6,105,818 )

$ ( 18,207,795 )

$ ( 9,568,134 )

Denominator for basic loss per share – weighted average shares outstanding

Dilutive effect of shares issuable under stock options and warrants outstanding

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

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

1 unchanged sentence

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

For the three and nine

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

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

DIGITAL ALLY HEALTHCARE VENTURE

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

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

(“Nobility Healthcare”).

Digital Ally Healthcare is capitalizing the venture with $ 13.5 million to support the venture’s

business strategy to make acquisitions of RCM companies.

Digital Ally Healthcare owns 51% of the venture that entitles it to 51% of the

distributable cash as defined in the venture’s operating agreement plus a cumulative preferred return of 10% per annum on its invested

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

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

June 30, 2021, the Company’s revenue cycle management segment completed the acquisition of a private medical billing company (the

“Healthcare Acquisition”).

In accordance with the stock purchase agreement, the Company’s revenue cycle management

segment agreed to a non-refundable initial payment (the “June Initial Payment Amount”) of $ 850,000 .

In addition to the June

Initial Payment Amount, the Company’s revenue cycle management segment agreed to issue a promissory note to the stockholders of

the Healthcare Acquisition in the principal amount of $ 350,000 that is subject to an earn-out adjustment.

Management’s estimate

of the fair value of this contingent promissory note at December 31, 2021 is $ 317,212 .

The gain associated with the adjustment in the

estimated fair value of this contingent promissory note is recorded as a gain in the Consolidated Statements of Operations for the year

ended December 31, 2021.

Lastly, the Company’s revenue cycle management segment agreed to pay $ 162,552 representing the principal

and accrued interest balance due under a promissory note issued to the selling shareholders prior to the acquisition closing date.

Company’s revenue cycle management segment anticipates the estimated fair value of the contingent promissory note to be paid in

full and, therefore, the total aggregate purchase price was determined to be approximately $ 1,376,509 .

Total acquisition related costs

aggregated $ 164,630 , which was expensed as incurred.

Subsequent to the acquisition date, the Company received further information regarding

the purchased assets and assumed liabilities.

As a result, the initial allocation of the purchase price was adjusted by increasing accounts

receivable by $ 75,000 with a corresponding reduction of goodwill during the year ended December 31, 2021.

Company accounts for business combinations using the acquisition method and 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 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 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:

OF PRELIMINARY FAIR VALUE OF ASSETS ACQUIRED AND LIABILITIES ACQUISITION

Purchase price allocation

June 30, 2021

Assets acquired:

Tangible assets acquired, consisting of acquired cash, accounts receivable

and right of use asset

assets acquired – Client Agreements

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

Net assets acquired and liabilities assumed

Consideration:

Cash paid at Healthcare Acquisition date

Contingent consideration earn-out agreement

Total Healthcare Acquisition purchase price

following table sets forth the components of identifiable intangible assets acquired and their estimated useful lives in years as of

the date of acquisition:

OF IDENTIFIABLE INTANGIBLE ASSETS ACQUIRED AND THEIR ESTIMATED USEFUL LIVES

September 30,

Identifiable intangible assets:

Client agreements

the period from the date of the Healthcare Acquisition to June 30, 2022, the Company adjusted its preliminary fair value estimates

and estimated useful lives based upon information obtained through June 30, 2022, which resulted in adjustments to the preliminary

allocation of the purchase price.

These adjustments primarily related to estimated identifiable intangible asset fair values of client

agreements and goodwill.

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

conclude that such information is unavailable, not to exceed one year), additional assets or liabilities may be recognized, or there

could be changes to the amounts of assets or liabilities previously recognized on a preliminary basis, if new information is obtained

about facts and circumstances that existed as of the acquisition date that, if known, would have resulted in the recognition of these

assets or liabilities as of that date.

The change in fair value of the contingent consideration is more fully described in Note 3, “Debt

Obligations”.

August 31, 2021, the Company’s revenue cycle management segment completed the acquisition of another private medical billing company

(the “Medical Billing Acquisition”).

In accordance with the stock purchase agreement, Nobility Healthcare agreed to a non-refundable

initial payment (the “August Initial Payment Amount”) of $ 2,270,000 .

In addition to the August Initial Payment Amount, the

Company’s revenue cycle management segment agreed to issue a contingent promissory note to the stockholders of the Medical Billing

Acquisition in the principal amount of $ 650,000 that is subject to an earn-out adjustment.

The Company’s revenue cycle management

segment anticipates the estimated fair value of the contingent promissory note to be paid in full, therefore, the total aggregate purchase

price was determined to be approximately $ 2,920,000 .

Total acquisition related costs aggregated $ 5,602 , which was expensed as incurred.

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

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 Medical Billing 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 Medical Billing 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 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

Preliminary As

Purchase price

Preliminary As

September 30,

Assets acquired:

Tangible assets acquired

Identifiable intangible assets acquired – client agreements

Liabilities assumed pursuant to stock purchase agreement

Net assets acquired and liabilities assumed

Consideration:

Cash paid at Healthcare Acquisition date

Contingent consideration earn-out agreement

Total Healthcare Acquisition purchase price

following table sets forth the components of identifiable intangible assets acquired and their estimated useful lives in years as of

the date of acquisition:

OF IDENTIFIABLE INTANGIBLE ASSETS ACQUIRED AND THEIR ESTIMATED USEFUL LIVES

September 30,

Identifiable intangible assets:

Client agreements

the period from the date of the Healthcare Acquisition to August 31, 2022, the Company adjusted its preliminary fair value estimates

and estimated useful lives based upon information obtained through August 31, 2022, which resulted in adjustments to the preliminary

allocation of the purchase price.

These adjustments primarily related to estimated identifiable intangible asset fair values of client

agreements and goodwill.

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

conclude that such information is unavailable, not to exceed one year), additional assets or liabilities may be recognized, or there

could be changes to the amounts of assets or liabilities previously recognized on a preliminary basis, if new information is obtained

about facts and circumstances that existed as of the acquisition date that, if known, would have resulted in the recognition of these

assets or liabilities as of that date.

The change in fair value of the contingent consideration is more fully described in Note 3, “Debt

Obligations”.

January 1, 2022, the Company’s revenue cycle management segment completed the acquisition of another private medical billing company

(the “Medical Billing Acquisition”).

In accordance with the stock purchase agreement, Nobility Healthcare agreed to a non-refundable

initial payment (the “January Initial Payment Amount”) of $ 1,153,626 .

In addition to the January Initial Payment Amount,

the Company’s revenue cycle management segment agreed to issue a contingent promissory note to the stockholders of the Medical

Billing Acquisition in the principal amount of $ 750,000 that is subject to an earn-out adjustment.

The Company’s revenue cycle

management segment anticipates the estimated fair value of the contingent promissory note to be paid in full, therefore, the total aggregate

purchase price was determined to be approximately $ 1,903,626 .

Total acquisition related costs aggregated $ 7,996 , which was expensed as

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 Medical Billing 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 Medical Billing 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 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.

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

Assets acquired:

Tangible assets acquired

Liabilities assumed pursuant to stock purchase agreement

Total assets acquired and liabilities assumed

Consideration:

Cash paid at acquisition date

Contingent consideration promissory note

Total acquisition purchase price

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

conclude that such information is unavailable, not to exceed one year), additional assets or liabilities may be recognized, or there

could be changes to the amounts of assets or liabilities previously recognized on a preliminary basis, if new information is obtained

about facts and circumstances that existed as of the acquisition date that, if known, would have resulted in the recognition of these

assets or liabilities as of that date.

The change in fair value of the contingent consideration is more fully described in Note 3, “Debt

Obligations”.

February 1, 2022, the Company’s revenue cycle management segment completed an asset acquisition from another private medical billing

company (the “Medical Billing Asset Acquisition”).

In accordance with the asset purchase agreement, Nobility Healthcare agreed

to a non-refundable initial payment (the “February Initial Payment Amount”) of $ 230,000 .

In addition to the February Initial

Payment Amount, the Company’s revenue cycle management segment agreed to issue a contingent promissory note to the stockholders

of the Medical Billing Asset Acquisition in the principal amount of $ 105,000 that is subject to an earn-out adjustment.

The Company’s

revenue cycle management segment anticipates the estimated fair value of the contingent promissory note to be paid in full, therefore,

the total aggregate purchase price was determined to be approximately $ 335,000 .

Total acquisition related costs aggregated $ 10,322 , which

was expensed as incurred.

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

acquired is at fair value as of the acquisition dates.

All acquisition costs were expensed as incurred.

The consideration paid has been

allocated to the assets acquired based on their estimated fair values at the acquisition date.

The estimate of fair values for the intangible

assets acquired were agreed to by both buyer and seller.

The acquisition was structured as asset purchase and are included in the consolidated

financial statements from the acquisition date.

The preliminary estimated fair value of intangible assets acquired in the Medical Billing

Asset Acquisition were as follows:

OF PRELIMINARY FAIR VALUE OF ASSETS ACQUIRED AND LIABILITIES ACQUISITION

Assets acquired:

Intangible assets acquired – Client Agreements

Total assets acquired and liabilities assumed

Consideration:

Cash paid at acquisition date

Contingent consideration promissory note

Total acquisition purchase price

following table sets forth the components of identifiable intangible assets acquired and their estimated useful lives in years as of

the date of acquisition:

OF IDENTIFIABLE INTANGIBLE ASSETS ACQUIRED AND THEIR ESTIMATED USEFUL LIVES

September 30,

Identifiable intangible assets:

Client agreements

change in fair value of the contingent consideration is more fully described in Note 10, “Debt Obligations” and will be estimated

on a quarterly basis.

TICKETSMARTER ACQUISITION

September 1, 2021, the Company formed TicketSmarter, through which the Company completed the acquisition of Goody Tickets, LLC, a Kansas

limited liability company (“Goody Tickets”) and TicketSmarter, LLC, a Kansas limited liability company (“TicketSmarter

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

TicketSmarter, Inc.

comprises the Company’s

entertainment business segment.

In accordance with the stock purchase agreement, the Company agreed to an initial payment (the “TicketSmarter

Initial Payment Amount”) of $ 9,403,600 through a combination of cash and Common Stock.

In addition to the TicketSmarter Initial

Payment Amount, the Company agreed to issue an earn-out agreement to the stockholders of Goody Tickets and TicketSmarter LLC in the contingent

amount of $ 4,244,400 that is subject to an earn-out adjustment based on actual EBITDA achieved in 2021, of which the Company gave a fair

value of $ 3,700,000 on the date of acquisition.

However, following the completion of 2021, it was determined that the actual EBITDA threshold

for any earn-out adjustment to be paid was not met.

Thus, in accordance with U.S.

GAAP, the fair value of the contingent earn-out is

reduced to zero, and the associated gain related to this revaluation is recorded in our Consolidated Statements of Operations for the

year ended December 31, 2021.

Lastly, included in the agreement, the Company agreed to place $ 500,000 in escrow, subject to a working

capital adjustment based on actual working capital amounts on the acquisition date as defined in the agreement.

This amount was subject

to disbursement 45 days following the close of the acquisition.

The parties completed the working capital adjustment resulting in the

Company retaining $ 297,726 of the escrow amount with the $ 202,274 released to the sellers.

The total acquisition related costs aggregated

$ 40,625 , which was expensed as incurred.

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.

For the three months

ended March 31, 2024 and 2023, all shares issuable upon conversion of convertible debt and the exercise of outstanding stock options

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

COUNTRY 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”).

As consideration for acquiring the Purchased Assets, Kustom 440 paid JC

Entertainment the aggregate purchase price amount $ 542,959 ,

with the sum of $ 400,000 paid at the time of closing (“Closing”), and the remainder

to be paid on or before thirty days from the time of Closing.

Kustom 440 shall receive a credit for all non-refunded festival ticket sales

for the 2024 Country Stampede to be calculated immediately prior to Closing, and JC Entertainment shall be entitled to keep all ticket

sale proceeds made and/or received prior to Closing.

Kustom 440 shall be obligated, to the extent a refund is sought after Closing, to

provide such refund, if appropriate, to the customer requesting a refund, and shall indemnify and hold harmless JC Entertainment from

any and all claims, liabilities, costs, suits, or the like relating to such refund request.

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 Country Stampede

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 Country Stampede 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,

goodwill, identifiable intangible assets, and assumed liabilities based on their preliminary estimated fair values at the time of the

TicketSmarter Acquisition.

The Company retained the services of an independent valuation firm to determine the fair value of these identifiable

intangible assets.

The Company will continue to evaluate the fair value of the identified intangible assets.

The preliminary 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

Preliminary purchase price allocation

September 30,

Assets acquired:

Tangible assets acquired, including $ 51,432 of cash acquired

Identifiable intangible assets acquired

The Country Stampede

Acquisition was structured as an asset 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 Country Stampede Acquisition was allocated to tangible

assets, goodwill, identifiable intangible assets, and assumed liabilities based on their preliminary estimated fair values at the

time of the acquisition.

The Company retained the services of an independent valuation firm to determine the fair

value of these identifiable intangible assets.

The Company will continue to evaluate the fair value of the identified intangible

The preliminary estimated fair value of assets acquired, and liabilities assumed in the Country Stampede Acquisition were as

OF ESTIMATED FAIR VALUE OF ASSETS ACQUIRED AND LIABILITIES ASSUMED ACQUISITION

As allocated (Preliminary)

March 1, 2024

Assets acquired (provisional):

Tangible assets acquired

Identifiable intangible assets acquired (Trademarks and trade names)

Liabilities assumed

( 5,128,964 )

Liabilities assumed pursuant to stock purchase agreement

( 5,128,964 )

Net assets acquired and liabilities assumed

Consideration:

Cash paid at TicketSmarter Acquisition date

Common stock issued as consideration for TicketSmarter Acquisition at date of acquisition

Contingent consideration earn-out agreement

Cash paid at closing to escrow amount

Cash retained from escrow amount pursuant to settlement of

working capital target

Total TicketSmarter Acquisition purchase price

following table sets forth the components of identifiable intangible assets acquired and their estimated useful lives in years as of

the date of acquisition:

OF COMPONENTS OF IDENTIFIABLE INTANGIBLE ASSETS ACCRUED ACQUIRED

September 30,

Identifiable intangible assets:

Sponsorship agreement network

Search engine optimization/content

the period from the date of the TicketSmarter Acquisition to December 31, 2021, the Company adjusted its preliminary fair value estimates

and estimated useful lives based upon information obtained through December 31, 2021, which resulted in adjustments to the preliminary

allocation of the purchase price.

These adjustments primarily related to estimated identifiable intangible asset fair values (primarily

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

There were no adjustments to the allocation of the purchase price during the nine months ended September 30, 2022.

Cash paid at Country Stampede Acquisition date

Cash paid subsequent to closing

Total Country Stampede Acquisition purchase price

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

3 unchanged sentences

assets or liabilities as of that date.

The change in fair value of the contingent consideration is more fully described in Note 3, “Debt

Obligations”.

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

25 unchanged sentences

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 September

30, 2023, and September 30, 2022:

OF SEGMENT REPORTING

For the three months ended

September 30,

For the nine months ended

September 30,

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

2024, and March 31, 2023:

SCHEDULE OF SEGMENT REPORTING

Three Months Ended March 31,

Net Revenues:

12 unchanged sentences

$ ( 1,963,186 )

$ ( 4,639,316 )

$ ( 4,327,049 )

Revenue Cycle Management

3 unchanged sentences

( 3,080,379 )

( 5,915,953 )

( 2,623,421 )

( 3,054,407 )

( 9,102,631 )

( 10,025,236 )

Total Operating Income (Loss)

$ ( 5,148,043

$ ( 6,567,023 )

Total Operating Loss

$ ( 3,639,034 )

5 unchanged sentences

Total Depreciation and Amortization

September 30,

Assets (net of eliminations):

3 unchanged sentences

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 $ 4,466,748 and a reserve for the entertainment segment of $ 104,222 .

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 $ 4,315,132

and a reserve for the entertainment segment of $ 171,257 as of March 31, 2024.

segment net revenues reported above represent sales to external customers.

6 unchanged sentences

with Managing Member of Nobility Healthcare

LLC is currently the managing member of Nobility Healthcare, LLC.

The Company has advanced a total of $ 158,384 in the form of a working

capital loan to Nobility, LLC in order to fund capital expenditures necessary for the initial growth of the joint venture during 2021.

The outstanding balance of the working capital loan was $- 0 - as of September 30, 2023 as the Company received full repayment of this

Company accrued reimbursable expenses payable to Nobility, LLC totaling $ 576,690 and $ 265,241 for the three months ended March 31, 2024

and 2023 and management fees in accordance with the operating agreement of $ 12,379 and $ 32,181 for the three months ended March 31, 2024

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 the TicketSmarter’s operations.

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 September 30, 2023 the current portion of the TicketSmarter Related Party

note is $ 2,106,000 , and the long-term portion is $ 219,000 , with an accrued interest balance of $ 3,478 .

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.

September 22, 2023, a trust, the beneficiaries of which are TicketSmarter’s Chief Executive Officer and his spouse, made a loan in the amount of $ 2,325,000 to TicketSmarter to support TicketSmarter’s operations.

On October 2, 2023 an additional $ 375,000

was advanced to Ticketsmarter.

The transaction was recorded as a related party note payable (the “TicketSmarter Related Party

The TicketSmarter Related Party Note bears interest of 13.25 % per annum with repayment beginning January 2, 2024.

March 31 2024, the entire TicketSmarter Related Party note is $ 2,700,000 , is classified as current, with an accrued interest balance

of $ 187,346 .

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.

SUBSEQUENT EVENTS

Business Combination

In October 2023, Kustom Entertainment and Clover Leaf announced the

filing of a Registration Statement on Form S-4 by Clover Leaf with the SEC on October 4, 2023, relating to the previously announced proposed

business combination between Kustom Entertainment and Clover Leaf .

October 17, 2023, the Board of Directors appointed D.

Duke Daughtery as a member of the Board, effective immediately, to hold office

until the next meeting of shareholders of the Company at which directors are being elected or as set forth in the Company’s bylaws.

Agreement and Mortgage

October 26, 2023, the Company entered into a Loan and Security Agreement (the “ Loan Agreement ”) by and between the

Company, Digital Ally Healthcare (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

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 ”).

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.

The 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 Account ”).

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.

A Preferred Stock and Series B Preferred Stock Elimination

April 5, 2024, Digital Ally, Inc., a Nevada corporation (the “Company”), filed with the Secretary of State of the State of

Nevada an Elimination of Certificate of Designations of the Preferences, Rights and Limitations of the Series A Convertible Redeemable

Preferred Stock (the “Series A Elimination Certificate”) and Elimination of Certificate of Designations of the Preferences,

Rights and Limitations of the Series B Convertible Redeemable Preferred Stock (the “Series B Elimination Certificate”) in

order to eliminate and cancel all designations, rights, preferences and limitations of the shares of the Company’s Series A Convertible

Redeemable Preferred Stock, par value $ 0.001 per share (the “Series A Preferred Stock”) and Series B Convertible Redeemable

Preferred Stock, par value $ 0.001 per share (the “Series B Preferred Stock”).

In December 2022, all 1,400,000 shares of Series

A Preferred Stock that had originally been issued pursuant to the Certificate of Designations of the Preferences, Rights and Limitations

of the Series A Preferred Stock of the Company (the “Series A Certificate of Designations”) and all 100,000 shares of Series

B Preferred Stock that had originally been issued pursuant to the Certificate of Designations of the Preferences, Rights and Limitations

of the Series B Preferred Stock of the Company (the “Series B Certificate of Designations”) were exchanged for shares of

the Company’s common stock and warrants to purchase shares of the Company’s common stock.

Such shares of Series A Preferred

Stock and Series B Preferred Stock have resumed the status of authorized but unissued shares of preferred stock of the Company.

to the filing of the Series A Elimination Certificate, none of the 1,400,000 authorized shares of Series A Preferred Stock or 100,000

authorized shares of Series B Preferred Stock were issued and outstanding, and no shares of Series A Preferred Stock or Series B Preferred

Stock were to be issued subject to the Series A Certificate of Designations or Series B Certificate of Designations.

The Series A Elimination

Certificate and Series B Elimination Certificate became effective upon their filing with the Secretary of State of the State of Nevada.

Merchant Cash

Advances – Video Solutions Segment

In April 2024, the Company received

additional advances of $ 444,000 from the lender and agreed to new terms where total proceeds received since inception totaled $ 2,144,000 .

The Company will repay an aggregate of $ 2,880,000 to the lender.

The advances remain secured by expected future sales of the Company with

payments on a weekly basis and the full amount is expected to be repaid in 2024.

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

What changed 10-Q

Item 1. Financial Statements