What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-05-17 compared with 2023-11-14 · 330 added, 693 removed, 558 unchanged (65% of the section changed)

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(the “Company”, “we”, “us”,

or “our”) contains forward-looking statements within the meaning of Section 27A of the Securities Act, and Section 21E of

the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

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

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

The words “aim,” “anticipate,”

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affected include, but are not limited to:

(1) our losses in recent years, and the substantial doubt about our ability to continue as

a going concern;

(2) economic and other risks for our business from the effects of the COVID-19 pandemic, including the impacts on our

law-enforcement and commercial customers, suppliers and employees and on our ability to raise capital as required;

(3) our ability to

increase revenues, increase our margins and return to consistent profitability in the current economic and competitive environment;

our operation in developing markets and uncertainty as to market acceptance of our technology and new products;

(5) the availability

of funding from federal, state and local governments to facilitate the budgets of law enforcement agencies, including the timing, amount

and restrictions on such funding;

(6) our ability to maintain or expand our share of the market for our products in the domestic and

international markets in which we compete, including increasing our international revenues;

(7) our ability to produce our products in

a cost-effective manner;

(8) competition from larger, more established companies with far greater economic and human resources;

ability to attract and retain quality employees;

(1) our losses in recent years, including fiscal years 2024 and 2023;

(2) economic and other

risks for our business from the effects of the COVID-19 pandemic, including the impacts on our law-enforcement and commercial customers,

suppliers and employees and on our ability to raise capital as required;

(3) our ability to increase revenues, increase our margins and

return to consistent profitability in the current economic and competitive environment;

(4) our operation in developing markets and uncertainty

as to market acceptance of our technology and new products;

(5) the availability of funding from federal, state and local governments

to facilitate the budgets of law enforcement agencies, including the timing, amount and restrictions on such funding;

(6) our ability

to maintain or expand our share of the market for our products in the domestic and international markets in which we compete, including

increasing our international revenues;

(7) our ability to produce our products in a cost-effective manner;

(8) competition from larger,

more established companies with far greater economic and human resources;

(9) our ability to attract and retain quality employees;

risks related to dealing with governmental entities as customers;

(11) our expenditure

of significant resources in anticipation of sales due to our lengthy sales cycle and the potential to receive no revenue in return;

characterization of our market by new products and rapid technological change;

(13) our dependence on sales of our EVO-HD, DVM-800, DVM-250

and FirstVU products;

(14) that stockholders may lose all or part of their investment if we are unable to compete in our markets and

return to profitability;

(15) defects in our products that could impair our ability to sell our products or could result in litigation

and other significant costs;

(16) our dependence on a few manufacturers and suppliers for components of our products and our dependence

on domestic and foreign manufacturers for certain of our products;

(17) our ability to protect technology through patents and to protect

our proprietary technology and information, such as trade secrets, through other similar means;

(18) our ability to generate more recurring

cloud and service revenues;

(19) risks related to our license arrangements;

(20) the fluctuation of our operation results from quarter

(21) sufficient voting power by coalitions of a few of our larger stockholders, including directors and officers, to make

corporate governance decisions that could have a significant effect on us and the other stockholders;

(22) the issuance or sale of substantial

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

price of our securities;

(23) potential dilution from the issuance of Common Stock underlying outstanding options and warrants;

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

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

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

(27) our ability to maintain the listing of our

Common Stock on the Nasdaq Capital Market.

(11) our expenditure of significant resources in anticipation of sales

due to our lengthy sales cycle and the potential to receive no revenue in return;

(12) characterization of our market by new products

and rapid technological change;

(13) our dependence on sales of our EVO-HD, DVM-800, DVM-250 and FirstVU products;

(14) that stockholders

may lose all or part of their investment if we are unable to compete in our markets and return to profitability;

(15) defects in our

products that could impair our ability to sell our products or could result in litigation and other significant costs;

(16) our dependence

on a few manufacturers and suppliers for components of our products and our dependence on domestic and foreign manufacturers for certain

of our products;

(17) our ability to protect technology through patents and to protect our proprietary technology and information, such

as trade secrets, through other similar means;

(18) our ability to generate more recurring cloud and service revenues;

(19) risks related

to our license arrangements;

(20) the fluctuation of our operation results from quarter to quarter;

(21) sufficient voting power by coalitions

of a few of our larger stockholders, including directors and officers, to make corporate governance decisions that could have a significant

effect on us and the other stockholders;

(22) the issuance or sale of substantial amounts of our Common Stock, or the perception that

such sales may occur in the future, which may have a depressive effect on the market price of our securities;

(23) potential dilution

from the issuance of Common Stock underlying outstanding options and warrants;

(24) our additional securities available for issuance,

which, if issued, could adversely affect the rights of the holders of our Common Stock;

(25) the volatility of our stock price due to

a number of factors, including, but not limited to, a relatively limited public float;

(26) our ability to integrate and realize the

anticipated benefits from acquisitions;

(27) our ability to maintain the listing of our Common Stock on the Nasdaq Capital Market

Trends and Recent Developments for the Company

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video systems for law enforcement and commercial markets;

the FirstVu body-worn camera line, consisting of the FirstVu Pro, FirstVu II,

the FirstVU body-worn camera line, consisting of the FirstVu Pro, FirstVu,

and the FirstVU HD;

our patented and revolutionary VuLink product which integrates our body-worn cameras with our in-car systems by providing

our patented and revolutionary VuLink product integrates our body-worn cameras with our in-car systems by providing

hands-free automatic activation for both law enforcement and commercial markets;

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term of the subscription, typically 3 or 5 years.

Cycle Management Operating Segment – We have entered the revenue cycle management business late in the second quarter of 2021

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

Cycle Management Operating Segment – We entered the revenue cycle management business late in the second quarter of 2021 with

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

and its majority-owned subsidiary Nobility Healthcare.

Nobility Healthcare completed its first acquisition on June 30, 2021, when it acquired a private medical billing company, and a second

acquisition on August 31, 2021 upon the completion of its acquisition of another private medical billing company, along with two more

acquisitions completed during the first quarter of 2022, in which we assist in providing working capital and back-office services to

healthcare organizations throughout the country.

Our assistance consists of insurance and benefit verification, medical treatment documentation

and coding, and collections.

Through our expertise and experience in this field, we aim to maximize our customers’ service revenues

collected, leading to substantial improvements in their operating margins and cash flows.

Healthcare completed its first acquisition in June 2021, when it acquired a private medical billing company, and has since completed

three additional acquisitions of private medical billing companies, in which we will assist in providing working capital and back-office

services to healthcare organizations throughout the country.

Our assistance consists of insurance and benefit verification, medical treatment

documentation and coding, and collections.

Through our expertise and experience in this field, we maximize our customers’ service

revenues collected, leading to substantial improvements in their operating margins and cash flows.

revenue cycle management segment consists of our medical billing subsidiaries.

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Entertainment

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

owned subsidiary, TicketSmarter and its completed acquisitions of Goody Tickets, LLC and TicketSmarter, LLC, on September 1, 2021.

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

subsidiary, TicketSmarter and its completed acquisitions of Goody Tickets, LLC and TicketSmarter, LLC, on September 1, 2021.

TicketSmarter

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events, theatres, and performing arts, throughout the country.

We also offer production and promotion of live music events in third-party

venues throughout the country.

These services begin with the logistical matters of an event, including artist booking and research, ticketing,

staging, on-site operations, vendor sourcing, and day of production.

entertainment operating segment consists of entertainment services provided through TicketSmarter and its online platform, TicketSmarter.com.

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maintenance fees, along with other administrative costs.

June 2023, the Company, entered into the Merger Agreement with Clover Leaf, Merger Sub, Yntegra Capital Investments LLC, a Delaware limited

liability company, in the capacity as the representative from and after the Effective Time (as defined in the Merger Agreement) for the

stockholders of Clover Leaf in accordance with the terms and conditions of the Merger Agreement, and Kustom Entertainment.

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

the Merger Agreement, Merger Sub will merge with and into Kustom, with Kustom continuing as the surviving corporation in the Merger and

a wholly owned subsidiary of Clover Leaf.

Upon the Closing which is subject to the approval of Clover Leaf’s shareholders and the

satisfaction or waiver of certain other customary closing conditions, the common stock of the combined company is expected to be listed

on the Nasdaq under a mutually agreed new ticker symbol that reflects the name “Kustom Entertainment”.

Agreement and Mortgage

October 26, 2023, the Company entered into the Loan Agreement by and between the Company, Digital Ally Healthcare, and Kompass.

In connection

with the Loan Agreement, on October 26, 2023, the Company entered into the Mortgage by and between the Company, as grantor, and

Kompass, as grantee, and issued the Revolving Note to Kompass.

The gross proceeds to the Company are $4,880,000 before repaying those

certain Senior Secured Convertible Notes issued on April 5, 2023 in the aggregate amount of $3,162,500 and paying customary fees and

to the Loan Agreement, Kompass agreed to make 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.

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.

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.

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.

of Operations

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:

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 three months ended March 31, 2024, and

Three Months Ended March 31,

Net Revenues:

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$ (1,963,186 )

$ (1,481,048 )

$ (4,639,316 )

$ (4,327,049 )

Revenue Cycle Management

Entertainment

(10,025,236 )

Total Operating Income (Loss)

$ (6,567,023 )

Total Operating Loss

$ (3,639,034 )

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Results of Operations

experienced operating losses for the first three quarters of 2023 and last half of 2022.

experienced operating losses for the first quarter of 2024 and all quarters during 2023.

The following is a summary of our recent operating

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Total selling, general and administrative expenses

Operating loss

Operating loss %

Operating income (loss)

Operating income (loss) %

Net income (loss)

$ (3,943,268 )

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$ (8,320,549 )

business is subject to substantial fluctuations on a quarterly basis as reflected in the significant variations in revenues and

operating results in the above table.

$ (5,979,579 )

business is subject to substantial fluctuations on a quarterly basis as reflected in the significant variations in revenues and operating

results in the above table.

These variations result from various factors, including but not limited to:

(1) the timing of

large individual orders;

(2) the traction gained by products, such as the recently released FirstVu Pro, FirstVu II, FLT-250, EVO

HD, the ThermoVu™ and the Shield™ lines;

(3) production, quality and other supply chain issues affecting our cost of

(4) unusual increases in operating expenses, such as the timing of trade shows and stock-based and bonus compensation;

(5) the timing of patent infringement litigation settlements (6) ongoing patent and other litigation and related expenses respecting

outstanding lawsuits;

(7) the impact of COVID-19 on the economy and our businesses;

and (8) the completion of corporate

acquisitions.

We reported a net loss of $3,679,043 on revenues of $6,337,699 for third quarter of 2023.

(1) the timing of large individual

(2) the traction gained by products, such as the recently released FirstVu Pro, FirstVu II, FLT-250, EVO HD, the ThermoVu™

and the Shield™ lines;

(3) production, quality and other supply chain issues affecting our cost of goods sold;

(4) unusual increases

in operating expenses, such as the timing of trade shows and stock-based and bonus compensation;

(5) the timing of patent infringement

litigation settlements (6) ongoing patent and other litigation and related expenses respecting outstanding lawsuits;

and (7) the completion

of corporate acquisitions including the recent purchases in the revenue cycle management and entertainment operating segments.

a net loss of $3,943,268 on revenues of $5,529,351 for first quarter of 2024.

Sheet Arrangements

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that represent commitments to future payments for goods and services.

the Three Months Ended September 30, 2023 and 2022

the Three Months Ended March 31, 2024 and 2023

of Operations

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

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

For the three months ended

September 30,

ended March 31, 2024 and 2023, represented as a percentage of total revenues for each such quarter:

Three Months Ended March 31,

Cost of revenue

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Operating loss

Change in fair value of derivative liabilities

Gain on extinguishment of debt

Interest expense

Change in fair value of contingent consideration promissory notes

Change in fair value of warrant derivative liabilities

Gain on extinguishment of liabilities

Other income and interest income (expense), net

Income (loss) before income tax benefit

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may discount our prices on specific orders based upon the size of the order, the specific customer and the competitive landscape.

revenues by operating segment is as follows:

For the three months ended

revenues by operating segment are as follows:

Three Months Ended March 31,

Product Revenues:

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Total Product Revenues

revenues for the three months ended September 30, 2023 and 2022 were $2,095,237 and $3,062,373 respectively, a decrease of $967,136 (32%),

revenues for the three months ended March 31, 2024 and 2023 were $1,565,846 and $2,453,810 respectively, an decrease of $887,964 (36%),

due to the following factors:

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

The new entertainment operating segment generated $1,118,044 in product revenues for the three months ended September 30, 2023, compared

to $1,713,808 for the three months ended September 30, 2022, a decrease of $595,764 (35%).

This product revenue relates to the resale

of tickets purchased for live events, including sporting events, concerts, and theatre, then sold through various platforms to customers.

Company’s video segment operating segment generated revenues totaling $977,193 during the three months ended September 30,

2023 compared to $1,348,565 for the three months ended September 30, 2022, a decrease of $371,372 (28%).

In general, our video solutions

operating segment has experienced pressure on its product revenues as our in-car and body-worn systems are facing increased competition

because our competitors have released new products with advanced features.

Additionally, our law enforcement revenues declined compared

to the same period in 2022 due to price-cutting and competitive actions by our competitors, adverse marketplace effects related to

our patent litigation proceedings and our recent financial condition.

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

entertainment operating segment generated $844,658 in product revenues for the three months ended March 31, 2024, compared to $1,260,789

for the three months ended March 31, 2023.

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

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

Company’s video segment operating segment generated revenues totaling $721,188 during the three months ended March 31, 2024

compared to $1,193,021 for the three months ended March 31, 2023.

In general, our video solutions operating segment has experienced

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

released new products with advanced features.

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

2023 due to price-cutting and competitive actions by our competitors, adverse marketplace effects related to our patent litigation

proceedings and our recent financial condition.

video solutions operating segment management has continued to focus on migrating commercial customers, from a hardware sale to a

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revenues over a span of three to five years.

and other revenues by operating segment is as follows:

For the three months ended

and other revenues by operating segment are as follows:

Three Months Ended March 31,

Service and Other Revenues:

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Total Service and Other Revenues

and other revenues for the three months ended September 30, 2023 and 2022 were $4,242,462 and $5,421,780, respectively, a decrease of

and other revenues for the three months ended March 31, 2024 and 2023 were $3,963,505 and $5,243,380, respectively, a decrease of $1,279,875

(24%), due to the following factors:

revenues generated by the video solutions operating segment were $526,401 and $412,819 for the three months ended September 30, 2023

revenues generated by the video solutions operating segment were $616,488 and $422,823 for the three months ended March 31, 2024

and 2023, respectively, an increase of $193,665 (46%).

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

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

contributed to our increased cloud revenues in the three months ended March 31, 2024.

We expect this trend to continue throughout

2024 as the migration from local storage to cloud storage continues in our customer base.

solutions operating segment revenues from extended warranty services were $226,056 and $201,118 for the three months ended September

30, 2023 and 2022, respectively, an increase of $24,938 (12%).

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

resulting in an increase in their associated extended warranty.

entertainment operating segment generated service revenues totaling $1,785,764 and $2,662,306 for the three months ended September

solutions operating segment revenues from extended warranty services and other services were $380,618 and $283,520 for the three

months ended March 31, 2024 and 2023, respectively, an increase of $97,098 (34%).

This correlates with the increase in sales of DVM-800

hardware systems resulting in an increase in their associated extended warranty.

entertainment operating segment generated service revenues totaling $1,531,801 and $2,755,447 for the three months ended March 31,

2024 and 2023, respectively, a decrease of $1,223,646 (44%).

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

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

TicketSmarter collects fees on transactions administered

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

We expect our

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

TicketSmarter collects fees on transactions administered through the

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

We expect our entertainment

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

revenue cycle management operating segment generated service revenues totaling $1,434,599 and $1,781,590 for the three months ended

September 30, 2023 and 2022, respectively, a decrease of $378,569 (19%).

Our revenue cycle management operating segment has completed

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

September 30, 2022.

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

to healthcare organizations throughout the country.

The slight decrease in revenue is due to refinement within one of the recent

acquisitions, as they strive to maximize profitability rather than focus on top line revenue.

revenues for the three months ended September 30, 2023 and 2022 were $6,337,699 and $8,484,153, respectively, a decrease of $2,146,454

March 31, 2024 and 2023, respectively, a decrease of $346,991 (20%).

Our revenue cycle management operating segment provides revenue

cycle management solutions and back-office services to healthcare organizations throughout the country.

We expect our revenue cycle

management segment to continue to present a strong revenue outlook moving forward.

revenues for the three months ended March 31, 2024 and 2023 were $5,529,351 and $7,697,190, respectively, a decrease of $2,167,839 (28%),

due to the reasons noted above.

of Product Revenue

cost of product revenue sold for the three months ended September 30, 2023,

and 2022 was $2,587,750 and $3,262,457, respectively, a decrease of $674,707 (21%).

Overall cost of goods sold for products as a percentage

of product revenues for the three months ended September 30, 2023, and 2022 were 124% and 107%, respectively.

Cost of products sold by operating

segment is as follows:

For the three months ended

cost of product revenue sold for the three months ended March 31, 2024, and 2023 was $1,567,393 and $2,301,100, respectively, a decrease

of $733,707 (32%).

Overall cost of goods sold for products as a percentage of product revenues for the three months ended March 31, 2024,

and 2023 were 100% and 94%, respectively.

Cost of products sold by operating segment is as follows:

Three Months Ended March 31,

Cost of Product Revenues:

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

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

In addition, the Video Solutions Segment

recorded valuation allowances for its older product lines and a portion of its Shield products during the first quarter of 2023.

of product sold as a percentage of product revenues for the video solutions segment worsened to 98% for the three months ended September

30, 2023 as compared to 94% for the three months ended September 30, 2022.

the three months ended March 31, 2024 compared to the three months ended March 31, 2023.

In addition, the Video Solutions Segment recorded

valuation allowances for its older product lines and a portion of its Shield™ products during the first quarter of 2023.

Cost of product

sold as a percentage of product revenues for the video solutions segment increased to 111% for the three months ended March 31, 2024

as compared to 87% for the three months ended March 31, 2023.

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

months ended September 30, 2023 compared to September 30, 2022, resulting in cost of product revenue of $1,629,763 for the three months

ended September 30, 2023, compared to $2,001,162 for the three months ended September 30, 2022.

Cost of product sold as a percentage

of product revenues for the entertainment segment was 146% for the three months ended September 30, 2023 as compared to 117% for the

three months ended September 30, 2022.

recorded $4,570,970 and $5,489,541 in reserves for obsolete and excess

inventories at September 30, 2023 and December 31, 2022, respectively.

Total raw materials, component parts, and work-in-progress were

$3,722,014 and $4,512,329 at September 30, 2023 and December 31, 2022, respectively, a decrease of $790,315 (18%).

Finished goods balances

were $6,043,735 and $7,816,618 at September 30, 2023 and December 31, 2022, respectively, a decrease of $1,772,883 (23%) which was attributable

to a decrease in finished goods from our entertainment segment.

The decrease in the inventory reserve is primarily due to the reduction

in finished goods and movement of excess inventory, as well as a decrease in reserve at the entertainment segment.

We believe the reserves

are appropriate given our inventory levels as of September 30, 2023.

months ended March 31, 2024 compared to March 31, 2023, resulting in cost of product revenue of $769,899 for the three months ended March

31, 2024, compared to $1,263,506 for the three months ended March 31, 2023.

Cost of product sold as a percentage of product revenues

for the entertainment segment was 91% for the three months ended March 31, 2024 as compared to 100% for the three months ended March

recorded $4,486,389 and $4,542,461 in reserves for obsolete and excess inventories at March 31, 2024 and December 31, 2023, respectively.

Total raw materials, component parts, and work-in-progress were $2,964,525 and $3,065,049 at March 31, 2024 and December 31, 2023, respectively,

a decrease of $100,524 (3%).

Finished goods balances were $4,670,553 and $5,322,693 at March 31, 2024 and December 31, 2023, respectively,

a decrease of $652,140 (12%) which was attributable to a decrease in finished goods from our entertainment segment.

The small decrease

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

in reserve at the entertainment segment.

We believe the reserves are appropriate given our inventory levels as of March 31, 2024.

of Service Revenue

cost of service revenue sold for the three months ended September 30, 2023,

and 2022 was $2,523,800 and $4,626,196, respectively, a decrease of $2,102,396 (45%).

Overall cost of goods sold for services as a percentage

of service revenues for the three months ended September 30, 2023, and 2022 were 59% and 85%, respectively.

Cost of service revenues by

operating shipment is as follows:

For the three months ended

cost of service revenue sold for the three months ended March 31, 2024, and 2023 was $2,438,259 and $3,851,298, respectively, a decrease

of $1,413,039 (37%).

Overall cost of goods sold for services as a percentage of service revenues for the three months ended March 31,

2024, and 2023 was 62% and 73%, respectively.

Cost of service revenues by operating shipment is as follows:

Three Months Ended March 31,

Cost of Service Revenues:

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

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

Cost of service revenues as a percentage of service

revenues for the video solutions segment increased to 47% for the three months ended September 30, 2023 as compared to 42% for the three

months ended September 30, 2022.

months ended March 31, 2024 compared to the three months ended March 31, 2023.

Cost of service revenues as a percentage of service revenues

for the video solutions segment decreased to 36% for the three months ended March 31, 2024 as compared to 46% for the three months ended

March 31, 2023.

of service revenues as a percentage of service revenues for the revenue cycle management operating segment was 68% for the three months

ended September 30, 2023 as compared to 57% for the three months ended September 30, 2022.

ended March 31, 2024 as compared to 56% for the three months ended March 31, 2023.

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

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

Cost of service revenues as a percentage of service

revenues for the entertainment segment was 63% for the three months ended September 30, 2023 as compared to 119% for the three months

ended September 30, 2022.

gross profit for the three months ended September 30, 2023 and 2022 was

$1,226,149 and $595,500, respectively, an increase of $630,649 (106%).

months ended March 31, 2024, compared to the three months ended March 31, 2023.

Cost of service revenues as a percentage of service revenues

for the entertainment segment was 73% for the three months ended March 31, 2024 as compared to 91% for the three months ended March 31,

gross profit for the three months ended March 31, 2024 and 2023 was $1,523,699 and $1,544,792, respectively, a decrease of $21,093 (1%).

Gross profit by operating segment was as follows:

For the three months ended

September 30,

Three Months Ended March 31,

Gross Profit:

3 unchanged sentences

Total Gross Profit

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

30, 2023 along with a decrease in the overall cost of sales as a percentage of overall revenues to 81% for the three months ended September

30, 2023 from 93% for the three months ended September 30, 2022.

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

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

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

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

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

and increased efficiency utilizing fixed manufacturing overhead components.

We plan to continue our initiative to more efficiently management

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

overall decrease is attributable to the decrease in revenues for the three months ended March 31, 2024 and a decrease in the overall

cost of sales as a percentage of overall revenues to 72% for the three months ended March 31, 2024 from 80% for the three months ended

March 31, 2023.

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

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

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

offering, provided that they gain traction in the marketplace.

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

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

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

purchases and more effective purchasing practices.

General and Administrative Expenses

general and administrative expenses were $6,374,192 and $7,162,523 for the three months ended September 30, 2023 and 2022, respectively,

general and administrative expenses were $5,162,732 and $7,717,598 for the three months ended March 31, 2024 and 2023, respectively,

a decrease of $2,554,865 (33%).

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

Our selling, general and administrative expenses as a percentage of sales increased to 101% for the three months ended September

The decrease was primarily attributable to the reduction in sponsorships and advertising being by the

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

31, 2024 compared to 100% in the same period in 2023.

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

For the three months ended September

The significant components of selling, general and administrative expenses are

Three months ended March 31,

Research and development expense

3 unchanged sentences

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

Our research and development expenses totaled $564,146 and $616,174 for the three months ended September 30, 2023 and 2022,

respectively.

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

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

We expect our research and development

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

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

We consider our research and development capabilities

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

our financial resources.

Our research and development expenses totaled $487,466 and $934,939 for the three months ended March 31, 2024 and 2023, respectively,

a decrease of $447,473 (48%).

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

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

We expect our research

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

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

We consider our research and development

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

consistent with our financial resources.

advertising and promotional expenses.

Selling, advertising and promotional expense totaled $1,932,982 and $1,832,916 for the

three months ended September 30, 2023 and 2022, respectively, an increase of $100,066 (6%).

The increase is primarily attributable to

TicketSmarter remaining active in sponsorship and advertising, as it continues to build its brand and gain recognition.

Selling, advertising and promotional expense totaled $761,118 and $1,847,489 for the three

months ended March 31, 2024 and 2023, respectively, a decrease of $1,086,371 (59%).

Promotional and advertising expenses represent the

primary component of these costs and totaled $377,231 during the three months ended March 31, 2024, compared to $1,460,823 during the

three months ended March 31, 2023, a decrease of $1,083,592 (74%).

The decrease is primarily attributable to the reduction in sponsorships

being entered into by the Company.

and administrative expense .

General and administrative expenses totaled $3,914,149 and $4,935,170 for the three months ended

September 30, 2023 and 2022, respectively.

The decrease in general and administrative expenses in the three months ended September 30,

2023 compared to the same period in 2022 is primarily attributable to a decrease in administrative salaries, as payroll begins to adjust

from the new acquisitions completed by the Company.

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

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

the reasons stated above, our operating loss was $5,148,043 and $6,567,023 for the three months ended September 30, 2023 and 2022, respectively,

an improvement of $1,418,980 (22%).

Operating loss as a percentage of revenues increased to 81% in the three months ended September 30,

March 31, 2024 and 2023, respectively, a decrease of $1,021,021 (21%).

The decrease in general and administrative expenses in the three

months ended March 31, 2024 compared to the same period in 2023 is primarily attributable to a decrease in administrative salaries, as

payroll begins to adjust from the new acquisitions completed by the Company and reductions in headcount.

General and administrative expenses

also decreased due to a decline in rent expenses for the three months ended March 31, 2024 compared to the same period in 2023.

the reasons stated above, our operating loss was $3,639,034 and $6,172,806 for the three months ended March 31, 2024 and 2023, respectively,

a decrease of $2,533,772 (41%).

Operating loss as a percentage of revenues decreased to 66% in the three months ended March 31, 2024

from 80% in the same period in 2023.

income decreased to $12,986 for the three months ended September 30,

2023, from $13,333 in the same period of 2022, which reflects our change in cash and cash equivalent levels in the third quarter of 2023

compared to the third quarter of 2022.

incurred interest expenses of $959,898 and $14,255 during the three

months ended September 30, 2023 and 2022, respectively.

The increase is attributable to the convertible note issued in the second quarter,

along with interest incurred on the contingent earn-out notes associated with the four Nobility Healthcare acquisitions.

income decreased to $14,938 for the three months ended March 31, 2024, from $15,477 in the same period of 2023, which primarily represents

interest charges on our subscription receivables.

incurred interest expenses of $648,567 and $5,664 during the three months ended March 31, 2024 and 2023, respectively.

The increase is

attributable to interest charges and the amortization of debt issuance and discounts associated with several debt issuances.

in Fair Value of Contingent Consideration Promissory Notes

Company recognized a gain on the change in fair value of contingent consideration promissory notes of $19,888 and ($138,877) during the

three months ended September 30, 2023 and 2022, respectively.

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

management segment.

Company recognized a gain on the change in fair value of contingent consideration promissory notes of $-0- compared to a loss of $158,021

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

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

cycle management segment.

in Fair Value of Derivative Liabilities

5 unchanged sentences

warrants as derivative liabilities which are valued at their estimated fair value at their issuance date and at each reporting date with

any subsequent changes reported in the condensed consolidated statement of operations as the change in fair value of warrant derivative

The change in fair value of the warrant derivative liabilities from June 30, 2023, to September 30, 2023, totaled $1,863,326

which was recognized as a gain in the third quarter of 2023.

any subsequent changes reported in the consolidated statement of operations as the change in fair value of warrant derivative liabilities.

The change in fair value of the warrant derivative liabilities during three months ended March 31, 2024 totaled $348,891, compared to

$-0- for the three months March 31, 2023, which was recognized as a loss on the Consolidated Statements of Operations.

on Extinguishment of Liabilities

on extinguishment of liabilities increased to $507,304 for the three months ended September 30, 2023, from $-0- during the three months

ended September 30, 2022, which reflects income related to the entertainment segment’s ability to negotiate down payables and contract

liabilities during the third quarter of 2023.

This gain relates to the TicketSmarter Related Party Note payable for the entertainment segment, as 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.

Those funds were then utilized 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, which will result in much more significant saving over the next several years.

income (loss)

income (loss) increased to $25,394 for the three months ended September 30, 2023, from ($1,892) during the three months ended September

30, 2022, which reflects income related to a warehouse lease within the corporate headquarters.

on extinguishment of liabilities increased to $682,345 for the period ended March 31, 2024, from $-0- during the period ended March 31,

2023, which reflects income related to the video segment’s ability to negotiate down payables and contract liabilities during the

on sale of fixed asset

Company recorded a loss on sale of fixed assets of $41,661 and $-0- for the three months ended March 31, 2024 and 2023.

income increased to $27,602 for the three months ended March 31, 2024, from $25,393 during the three months ended March 31, 2023, which

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

before Income Tax Benefit

a result of the above results of operations, we reported a loss before

income tax benefit of $3,679,043, and $1,919,071 for the three months ended September 30, 2023 and 2022, respectively, a decrease of $1,759,972

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

a result of the above results of operations, we reported a loss before income tax benefit of $3,943,268 and $5,979,579 for the three

months ended March 31, 2024 and 2023, respectively, a decrease of $2,036,311 (34%).

did not record an income tax expense related to our income for the three months ended March 31, 2024 due to our overall net operating

loss carryforwards available.

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

as of September 30, 2023.

as of March 31, 2024.

We had approximately $145.0 million of net operating loss carryforwards and $1.8 million of research and development

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

a result of the above results of operations, we reported a net loss of

$3,679,043 and $1,919,071 for the three months ended September 30, 2023 and 2022, respectively, a decrease of $1,759,792 (92%).

tax credit carryforwards as of March 31, 2024 available to offset future net taxable income.

a result of the above results of operations, we reported a net loss of $3,943,268 and $5,979,579 for the three months ended March 31,

2024 and 2023, respectively, a decrease of $2,036,311 (34%).

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

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

Nobility Healthcare.

As a result, the noncontrolling shareholders or minority interest is allocated 49% of the income of Nobility Healthcare

which is reflected in the statement of income as “net income attributable to noncontrolling interests of consolidated subsidiary”.

We reported net income (loss) attributable to noncontrolling interests of consolidated subsidiary of $29,630 and ($16,596) for the three

months ended September 30, 2023 and 2022, respectively.

Loss Attributable to Common Stockholders

a result of the above, we reported a net loss attributable to common stockholders of $3,708,673 and $1,902,475

for the years three months September 30, 2023 and 2022, respectively, a decrease of $1,806,198 (95%).

and Diluted Loss per Share

basic and diluted loss per share was $1.32 and $0.76 for the three months ended September 30, 2023 and 2022, respectively.

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

For the three 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 loss per share.

the Nine months Ended September 30, 2023 and 2022

of Operations

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

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

For the nine months ended

September 30,

Cost of revenue

Selling, general and administrative expenses:

Research and development expense

Selling, advertising and promotional expense

General and administrative expense

Total selling, general and administrative expenses

Operating loss

Interest income

Interest expense

Loss on accrual for legal settlement

Change in fair value of contingent consideration promissory notes

Change in fair value of derivative liabilities

Gain on extinguishment of liabilities

Income (loss) before income tax benefit

Income tax (provision)

Net income/(loss)

Net loss attributable to noncontrolling interests of consolidated subsidiary

Net income (loss) attributable to common stockholders

Net income/(loss) per share information:

revenues by operating segment is as follows:

For the nine months ended

September 30,

Product Revenues:

Video Solutions

Revenue Cycle Management

Entertainment

Total Product Revenues

revenues for the nine months ended September 30, 2023 and 2022 were $7,626,706 and $7,682,614 respectively, a decrease of $55,908 (1%),

due to the following factors:

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

The new entertainment operating segment generated $4,307,891 in product revenues for the nine months ended September 30, 2023, compared

to $3,593,577 for the nine months ended September 30, 2022.

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

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

platforms to customers.

Company’s video segment operating segment generated revenues totaling $3,318,815 during the nine months ended September 30,

2023 compared to $4,089,037 for the nine months ended September 30, 2022.

In general, our video solutions operating segment has experienced

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

released new products with advanced features.

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

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

proceedings and our recent financial condition.

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

a hardware sale to a service fee model.

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

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

as part of a recurring monthly service fee.

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

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

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

This program has continued to gain traction,

resulting in decreased product revenues and increased service revenues.

We expect this program to continue to gain momentum, resulting

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

and other revenues by operating segment is as follows:

For the nine months ended

September 30,

Service and Other Revenues:

Video Solutions

Revenue Cycle Management

Entertainment

Total Service and Other Revenues

and other revenues for the nine months ended September 30, 2023 and 2022 were $14,687,813 and $20,447,778, respectively, a decrease of

$5,759,965 (28%), due to the following factors:

revenues generated by the video solutions operating segment were $1,421,174 and $1,012,129 for the nine months ended September 30,

2023 and 2022, respectively, an increase of $409,045 (40%).

We have experienced increased interest in our cloud solutions for law

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

which contributed to our increased cloud revenues in the nine months ended September 30, 2023.

We expect this trend to continue throughout

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

solutions operating segment revenues from extended warranty services were $659,130 and $601,460 for the nine months ended September

30, 2023 and 2022, respectively, an increase of $57,670 (10%).

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

resulting in an increase in their associated extended warranty.

new entertainment operating segment generated service revenues totaling

$7,267,424 and $12,344,275 for the nine months ended September 30, 2023 and 2022, respectively, a decrease of $5,076,851 (41%).

completed the acquisitions of Goody Tickets, LLC and TicketSmarter, LLC on September 1, 2021, thus resulting in a new revenue stream for

TicketSmarter collects fees on transactions administered through the TicketSmarter.com platform for the buying and selling

of tickets for live events throughout the country.

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

new revenue cycle management operating segment generated service revenues totaling $5,142,904 and $6,039,807 for the nine months

ended September 30, 2023 and 2022, respectively, a decrease of $896,903 (15%).

Our revenue cycle management operating segment has

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

ended September 30, 2023.

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

services to healthcare organizations throughout the country.

The slight decrease in revenue is due to refinement within one of the

recent acquisitions, as they strive to maximize profitability rather than focus on top line revenue.

revenues for the nine months ended September 30, 2023 and 2022 were $22,314,519 and $28,130,392, respectively, a decrease of $5,815,873

(21%), due to the reasons noted above.

of Product Revenue

cost of product revenue sold for the nine months ended September 30, 2023, and 2022 was $7,108,366 and $8,154,984, respectively, a decrease

of $1,046,618 (13%).

Overall cost of goods sold for products as a percentage of product revenues for the nine months ended September

30, 2023, and 2022 were 93% and 106%, respectively.

Cost of products sold by operating segment is as follows:

For the nine months ended

September 30,

Cost of Product Revenues:

Video Solutions

Revenue Cycle Management

Entertainment

Total Cost of Product Revenues

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

the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022.

In addition, the video solutions segment

recorded valuation allowances for its older product lines and a portion of its Shield products during the first nine months of 2023,

directly increasing cost of goods sold for the period.

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

segment improved to 103% for the nine months ended September 30, 2023 as compared to 105% for the nine months ended September 30, 2022.

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

months ended September 30, 2023 compared to September 30, 2022, resulting in cost of product revenue of $3,449,876 for the nine months

ended September 30, 2023, compared to $4,386,571 for the nine months ended September 30, 2022.

Cost of product sold as a percentage of

product revenues for the entertainment segment was 85% for the three months ended September 30, 2023 as compared to 107% for the nine

months ended September 30, 2022.

recorded $4,570,970 and $5,489,541 in reserves for obsolete and excess inventories at September 30, 2023 and December 31, 2022, respectively.

Total raw materials, component parts, and work-in-progress were $3,722,014 and $4,512,329 at September 30, 2023 and December 31, 2022,

respectively, a decrease of $790,315 (18%).

Finished goods balances were $6,043,735 and $7,816,618 at September 30, 2023 and December

31, 2022, respectively, a decrease of $1,772,883 (23%) which was attributable to a decrease in finished goods from our entertainment

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

offset by the increase in reserve at the entertainment segment.

We believe the reserves are appropriate given our inventory levels as

of September 30, 2023.

of Service Revenue

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

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

Overall cost of goods sold for services as a percentage of service revenues for the nine months ended September

30, 2023, and 2022 were 69% and 74%, respectively.

Cost of service revenues by operating segment is as follows:

For the nine months ended

September 30,

Cost of Service Revenues:

Video Solutions

Revenue Cycle Management

Entertainment

Total Cost of Service Revenues

decrease in cost of service revenues for our video solutions segment is commensurate with the decrease in service revenues in the nine

months ended September 30, 2023 compared to the nine months ended September 30, 2022.

Cost of service revenues as a percentage of service

revenues for the video solutions segment increased to 45% for the nine months ended September 30, 2023 as compared to 41% for the nine

months ended September 30, 2022.

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

in the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022.

Cost of service revenues as a percentage

of service revenues for the revenue cycle management operating segment was 57% for the nine months ended September 30, 2023 as compared

to 58% for the nine months ended September 30, 2022.

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

months ended September 30, 2023 compared to the nine months ended September 30, 2022.

Cost of service revenues as a percentage of service

revenues for the entertainment operating segment was 79% for the nine months ended September 30, 2023 as compared to 92% for the nine

months ended September 30, 2022.

gross profit for the nine months ended September 30, 2023 and 2022 was

$5,507,978 and $4,254,198, respectively, an increase of $1,253,780 (29%).

Gross profit by operating segment was as follows:

For the nine months ended

September 30,

Gross Profit:

Video Solutions

Revenue Cycle Management

Entertainment

Total Gross Profit

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

in the overall cost of sales as a percentage of overall revenues to 75% for the nine months ended September 30, 2023 from 85% for the

nine months ended September 30, 2022.

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

by our new recent revenue cycle management and entertainment operating segments together with our video solutions operating segment and

its expected margins from our EVO-HD, DVM-800, VuLink, FirstVu Pro, FirstVu II, ShieldTM disinfectants and our cloud evidence storage

and management offering, provided that they gain traction in the marketplace.

In addition, if revenues from the video solutions segment

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

overhead components.

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

quantity purchases and more effective purchasing practices.

General and Administrative Expenses

general and administrative expenses were $21,769,532 and $24,285,808

for the nine months ended September 30, 2023 and 2022, respectively, a decrease of $2,516,276 (10%).

The decrease was primarily attributable

to the reduction in new sponsorships being entered into by the Company.

Our selling, general and administrative expenses as a percentage of sales increased to 97% for the nine months ended September

30, 2023 compared to 86% in the same period in 2022.

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

For the nine months ended

September 30,

Research and development expense

Selling, advertising and promotional expense

General and administrative expense

and development expense.

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

Our research and development expenses totaled $2,039,361 and $1,654,395 for the nine months ended September 30, 2023 and 2022,

respectively, an increase of $384,966 (23%).

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

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

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

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

We consider our research

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

basis and consistent with our financial resources.

advertising and promotional expenses.

Selling, advertising and promotional expense totaled $5,885,097 and $7,375,364 for the

nine months ended September 30, 2023 and 2022, respectively, a decrease of $1,490,267 (20%).

The decrease is primarily attributable to

the reduction in new sponsorships being entered into by the Company.

Additionally, TicketSmarter remains active in sponsorship and advertising,

as it continues to build its brand and gain recognition.

and administrative expense .

General and administrative expenses totaled $13,845,074 and $15,256,049

for the nine months ended September 30, 2023 and 2022, respectively, a decrease of $1,410,975 (9%).

The decrease in general and administrative

expenses in the nine months ended September 30, 2023 compared to the same period in 2022 is primarily attributable to a decrease in administrative

salaries, as payroll begins to adjust from the new acquisitions completed by the Company.

General and administrative expenses also decreased

due to a decline in rent expenses, and legal and professional expenses for the three months ended September 30, 2023 compared to the same

period in 2022.

the reasons stated above, our operating loss was $16,261,554 and $20,031,610

for the nine months ended September 30, 2023 and 2022, respectively, an improvement of $3,770,056 (19%).

Operating loss as a percentage

of revenues changed to 73% in the nine months ended September 30, 2023 from 71% in the same period in 2022.

income decreased to $84,071 for the nine months ended September 30,

2023, from $116,928 in the same period of 2022, which reflects our change in cash and cash equivalent levels throughout 2023 compared

incurred interest expenses of $2,480,947 and $39,766 during the nine months ended September 30, 2023 and 2022, respectively.

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

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

on Accrual for Legal Settlement

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

2022, respectively.

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

on conversion of convertible debt

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

respectively.

This is in connection with the convertible note issued during the nine months ended September 30, 2023 and the conversion

from debt to equity during the period.

in Fair Value of Contingent Consideration Promissory Notes

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

notes of $177,909 and $347,169 during the nine months ended September 30, 2023 and 2022, respectively.

This is in connection with the

four acquisitions made by our revenue cycle management segment.

in Fair Value of Short-Term Investments

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

30, 2023 and 2022, respectively.

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

of ninety (90) days or less.

in Fair Value of Derivative Liabilities

the second quarter of 2023, the Company issued detachable warrants to purchase a total of 1,125,000 shares of Common Stock in association

with the two secured convertible notes previously described.

The underlying warrant agreement terms provide for net cash settlement outside

the control of the Company in the event of tender offers under certain circumstances.

As such, the Company is required to treat these

warrants as derivative liabilities which are valued at their estimated fair value at their issuance date and at each reporting date with

any subsequent changes reported in the condensed consolidated statement of operations as the change in fair value of warrant derivative

The change in fair value of the warrant derivative liabilities from December 31, 2022, to September 30, 2023, totaled $1,803,560

which was recognized as a gain in the nine months ended September 30, 2023.

on Extinguishment of Liabilities

on extinguishment of liabilities increased to $507,304 for the nine months ended September 30, 2023, from $-0- during the nine

months ended September 30, 2022, which reflects income related to the entertainment segment’s ability to negotiate down

payables and contract liabilities during the period.

This gain relates to the TicketSmarter Related Party Note payable for the

entertainment segment, as 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.

Those funds were then utilized 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

Additionally, these negotiations relieved TicketSmarter of numerous future obligations following fiscal year 2023, which

will result in much more significant saving over the next several years.

on Extinguishment of Warrant Derivative Liabilities

Company recognized a gain on the change in fair value of contingent consideration promissory notes of $-0- and $3,624,794 during the

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

This is in connection with the Warrant Exchange Agreement executed by the

Company on August 23, 2022.

income increased to $76,180 for the nine months ended September 30, 2023, from $41,167 during the nine months ended September 30, 2022,

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

before Income Tax Benefit

a result of the above results of operations, we reported a loss before

income tax benefit of $17,979,171 and $9,299,498 for the nine months ended September 30, 2023 and 2022, respectively, a decline of $8,679,673

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

loss carryforwards available.

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

as of September 30, 2023.

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

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

a result of the above results of operations, we reported a net loss

of $17,979,171 and $9,299,498 for the nine months ended September 30, 2023 and 2022, respectively, a decline of $8,679,673 (93%).

Income Attributable to Noncontrolling Interests of Consolidated Subsidiary

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

As a result, the noncontrolling shareholders

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

income attributable to noncontrolling interests of consolidated subsidiary”.

We reported net income attributable to noncontrolling interests of

consolidated subsidiary of $228,624 and $268,636 for the nine months ended September 30, 2023 and 2022, respectively.

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.

Loss Attributable to Common Stockholders

As a result of the above, we reported a net loss attributable to common

stockholders of $18,207,795 and $9,568,134 for the nine months September 30, 2023 and 2022, respectively, a deterioration of $8,639,661

a result of the above, we reported a net loss attributable to common stockholders of $3,931,020 and $6,105,818 for the three months March

31, 2024 and 2023, respectively, a decrease of $2,174,798 (36%).

and Diluted Loss per Share

basic and diluted loss per share was $6.55 and $3.83 for the nine months ended September 30, 2023 and 2022, respectively.

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

For the 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 loss per share.

basic and diluted loss per share was $1.37 and $2.22 for the three months ended March 31, 2024 and 2023, respectively.

Basic loss per

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

For the three months ended March 31,

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 loss per share.

and Capital Resources

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concerning our ability to raise additional capital, raise substantial doubt about our ability to continue as a going concern.

cash equivalents:

As of September 30, 2023, we had cash and cash equivalents with an aggregate balance of $2,207,831, a decrease

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

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

are the main elements of the $1,324,368 net decrease in cash during the nine months ended September 30, 2023:

Common Stock is currently listed on The Nasdaq Capital Market.

In order to maintain our listing, we must satisfy minimum financial and

other continued listing requirements and standards, including those regarding director independence and independent committee requirements,

minimum stockholders’ equity, minimum share price, and certain corporate governance requirements.

There can be no assurances that

we will be able to comply with the applicable listing standards.

See “Nasdaq Listing” below.

cash equivalents, and restricted cash:

As of March 31, 2024, we had cash, cash equivalents, and restricted cash with an aggregate balance of $1,025,461, an increase from

a balance of $778,149 at December 31, 2023.

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

the main elements of the $247,312 net increase in cash during the three months ended March 31, 2024:

of net cash used in operating activities.

Net cash used in operating

activities was $5,842,158 and $17,797,992 for the nine months ended September 30, 2023 and 2022, respectively, a decrease of $11,955,834.

The improvement is attributable a significant decrease in the non-cash gain attributable to the change in value of the warrant derivative

liability in 2023 compared to 2022, as well as the decline in the usage of cash to increase inventories, prepaid expenses, and other operating

assets during the nine months ended September 30, 2023 compared to the same period in 2022.

$197,241 of net cash used in investing activities.

Cash used in investing

activities was $197,241 and $3,488,972 for the nine months ended September 30, 2023 and 2022, respectively.

During the nine months ended

September 30, 2023, we made capital expenditures for:

(i) building improvements of the newly purchased office and warehouse building;

and (ii) patent applications on our proprietary technology utilized in our new products and included in intangible assets.

Net cash used in operating activities was $918,545 and $1,216,876 for the three months

ended March 31, 2024 and 2023, respectively, a decrease of $298,331.

The decrease is attributable to the decrease in net loss and a

decrease in the usage of cash for operating assets during the three months ended March 31, 2024 compared to the same period in

of net cash provided by investing activities.

Cash provided by investing activities was $160,830 for the three months ended March

31, 2024 compared to cash used in investing activities of $70,645 for the three months ended March 31, 2023.

During the three months

ended March 31, 2024, we made capital expenditures for:

(i) acquired Country Stampede;

(ii) sold an aircraft;

and (iii) sold

personal seat licenses.

of net cash provided by financing activities.

Cash provided

by (used in) financing activities was $4,715,031 and ($4,425,437) for the nine months ended September 30, 2023 and 2022, respectively.

During the first nine months of 2023, we completed a convertible note agreement, a related party note payable, made principal payments

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

payments on that extension of credit.

During the first nine months of 2022 the Company repurchased its common stock on the open market

pursuant to the stock repurchase plan, as well as principal payments on contingent consideration promissory notes.

had $2,207,831 of cash and cash equivalents and net negative working capital of ($4,779,820) as of September 30, 2023.

Accounts receivable

and other receivables balances represented $4,640,542 of our net working capital at September 30, 2023.

We intend to collect our outstanding

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

operations during 2023.

Inventory represents $5,194,779 of our net working capital at September 30, 2023.

We are actively managing the

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

provide additional cash flow to help support our operations during 2023.

Cash provided by financing activities was $1,005,027 and $615,045 for the three months

ended March 31, 2024 and 2023, respectively.

During the first three months of 2024, we most notably made principal payments on

contingent consideration promissory notes and merchant advances, received additional funds from the merchant advance and entered

into an additional advance agreement.

During the first three months of 2023 we received proceeds from a Commercial Extension of

Credit agreement and the Company made principal payments on contingent consideration promissory notes and the credit

had $1,025,461 of cash and cash equivalents, including restricted cash of $97,600, and net negative working capital $9,624,118 as of

March 31, 2024.

Accounts receivable and other receivables balances represented $4,421,492 of our net working capital at March 31, 2024.

We intend to collect our outstanding receivables on a timely basis and reduce the overall level during 2024, which would help to provide

positive cash flow to support our operations during 2024.

Inventory represents $3,148,689 of our net working capital at March 31, 2024.

We are actively managing the level of inventory and our goal is to reduce such level during the balance of 2024 by our sales activities,

the increase of which should provide additional cash flow to help support our operations during 2024.

Expenditures:

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

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.

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

Operating lease right of use assets, net

had the following material commitments for capital expenditures at March 31, 2024:

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

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

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:

general and administrative expenses

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

Selling, general and administrative expenses

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

Year ending December 31:

2023 (October 1, to December 31, 2023)

2023 (April 1, to December 31, 2024)

Total undiscounted minimum future lease payments

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Total operating lease liability

obligations – Outstanding debt obligations comprises the following:

obligations is comprised of the following:

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

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Debt obligations, long-term

obligations mature as follows as of September 30, 2023:

September 30,

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

obligations mature as follows as of March 31, 2024:

2028 and thereafter

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for Excess and Obsolete Inventory;

and other intangible assets;

Goodwill, other intangible assets, fair value of assets and liabilities acquired in business combinations;

value of warrant derivative liabilities;

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

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

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

Raw material and component parts– video solutions segment

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Reserve for excess and obsolete inventory– video solutions segment

Reserve for excess and obsolete inventory – entertainment

Reserve for excess and obsolete inventory – entertainment segment

Total inventories

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As reflected above, our inventory reserves represented

47% of the gross inventory balance at September 30, 2023, compared to 45% of the gross inventory balance at December 31, 2022.

$4,570,970 and $5,489,541 in reserves for obsolete and excess inventories at September 30, 2023 and December 31, 2022, respectively.

Total raw materials, component parts, and work-in-process were $3,722,014 and $4,512,329 at September 30, 2023 and December 31, 2022,

respectively, a decrease of $790,315 (18%).

Finished goods balances were $6,043,735 and $7,816,618 at September 30, 2023 and December

31, 2022, respectively, a decrease of $1,772,883 (23%).

The decrease in the inventory reserve is primarily due to the reduction in finished

goods within the entertainment segment and movement of excess inventory.

Additionally, the Company determined a reasonable reserve for

inventory held at the ticket operating segment, in which some inventory items sell below cost or go unsold, thus having to be fully written-off

following the event date.

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

59% of the gross inventory balance at March 31, 2024, compared to 54% of the gross inventory balance at December 31, 2023.

We had $4,486,389

and $4,542,461 in reserves for obsolete and excess inventories at March 31, 2024 and December 31, 2023, respectively.

Total raw materials,

component parts, and work-in-process were $2,964,525 and $3,065,049 at March 31, 2024 and December 31, 2023, respectively, a decrease

of $100,524 (3%).

Finished goods balances were $4,670,553 and $5,322,693 at March 31, 2024 and December 31, 2023, respectively, a decrease

of $652,140 (12%).

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

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

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

We believe the reserves are

appropriate given our inventory levels as of March 31, 2024.

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

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quality and minimize claims.

Our warranty reserves were increased to $16,543 as of September 30, 2023 compared to $15,694 as of December

Our warranty reserves were increased to $20,529 as of March 31, 2024 compared to $17,699 as of December

31, 2023 due to newer products gaining a long history of claims to consider, which was slightly offset as we begin to slow our warranty

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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:

date assumptions

March 31, 2024

Volatility - range

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

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

and there were no stock options granted during the three months ended March 31, 2024.

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

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

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

As of March 31, 2024, we have fully reserved all of our deferred

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

1 unchanged sentence

We determined

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

that it was appropriate to continue to provide a full valuation reserve on our net deferred tax assets as of March 31, 2024, because

of the overall net operating loss carryforwards available.

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financial reporting purposes.

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

We have no recorded liability as of March 31, 2024 representing uncertain tax positions.

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

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We do not believe that our Video Solutions and Revenue Cycle Management segments

business is seasonal in nature, however;

business are seasonal in nature, however;

the Entertainment Segment is expected to generate higher revenues during the second half of

2 unchanged sentences

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis