What changed in this filing

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Item 1. Financial Statements

2025-05-20 compared with 2024-12-30 · 1730 added, 1593 removed, 253 unchanged (93% of the section changed)

1 – Financial Statements.

CONSOLIDATED BALANCE SHEETS

30, 2024 AND DECEMBER 31, 2023

September 30, 2024

Item 1 – Financial Statements.

DIGITAL ALLY, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

MARCH 31, 2025 AND DECEMBER 31, 2024

March 31, 2025

December 31, 2024

1 unchanged sentence

Cash and cash equivalents

Accounts receivable – trade, net of $ 176,227 allowance – September 30, 2024 and $ 200,668 – December 31, 2023

Other receivables, net of $ 25,000 allowance – September 30, 2024 and $ 5,000 – December 31, 2023

Accounts receivable-trade, less allowance for doubtful accounts of $ 131,500 – March 31, 2025 and $ 200,668 – December 31, 2024

Subscriptions receivable, net of $ 76,403 allowance – March 31, 2025 and $ 25,000 – December 31, 2024

Other receivables

Inventories, net

4 unchanged sentences

Operating lease right of use assets, net

Liabilities and Stockholders’ Equity (Deficit)

Subscriptions receivable – long-term

Liabilities and Equity (Deficit)

Current liabilities:

2 unchanged sentences

Current portion of operating lease obligations

Contract liabilities – current portion

Deferred revenue – current

Notes payable – related party – current portion

Debt obligations – current portion

Debt obligations – current

Warrant derivative liabilities

4 unchanged sentences

Operating lease obligation – long term

Contract liabilities – long term

Lease Deposit

Deferred revenue – long term

Notes payable – related party – long-term portion

Total liabilities

1 unchanged sentence

Stockholders’ Equity (Deficit):

Preferred stock, $ 0.001 par value per share;

10,000,000 shares authorized;

none issued or outstanding at September 30, 2024 and December 31, 2023

Common stock, $ 0.001 par value per share;

Preferred stock, $ 0.001 par value per share, 10,000,000 shares authorized;

none issued or outstanding – March 31, 2025 and December 31, 2024

Common stock, $ 0.001 par value;

200,000,000 shares authorized;

shares issued:

4,025,092 shares issued – September 30, 2024 and 2,800,752 shares issued – December 31, 2023

5,780,248 – March 31, 2025 and 290,559 – December 31, 2024

Additional paid in capital

1 unchanged sentence

( 1,194,675 )

( 1,198,286 )

Accumulated deficit

1 unchanged sentence

( 137,512,928 )

Total stockholders’ equity (deficit)

Total equity (deficit)

( 9,013,430 )

Total liabilities and stockholders’ equity (deficit)

Notes to the Unaudited Condensed Consolidated Financial Statements.

CONSOLIDATED STATEMENTS OF OPERATIONS

THE THREE AND NINE MONTHS ENDED

30, 2024 AND 2023

For the three

months ended September 30,

Total liabilities and equity (deficit)

See Notes to Unaudited Condensed

Consolidated Financial Statements.

DIGITAL ALLY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS ENDED

MARCH 31, 2025 AND 2024

Service and other

7 unchanged sentences

General and administrative expense

Goodwill and intangible asset impairment charge

Total selling, general and administrative expenses

1 unchanged sentence

( 3,639,034 )

( 5,148,043 )

( 14,935,492 )

( 16,261,554 )

Other income (expense):

1 unchanged sentence

Interest expense

( 2,505,536 )

( 2,480,947 )

Other income (expense)

Loss on accrual for legal settlement

( 1,792,308 )

Loss on conversion of convertible note

Gain on extinguishment of debt – related party

Gain on the extinguishment of liabilities

Gain on disposal of intangibles

Change in fair value of warrant derivative liabilities

Change in fair value of contingent consideration promissory notes

Gain on extinguishment of liabilities

Loss on extinguishment of debt

Gain on sale of intangibles

Gain on sale of property, plant and equipment

Loss on sale of property, plant and equipment

Total other income (expense)

( 1,717,617 )

Income (loss) before income tax benefit

( 5,470,712 )

( 3,679,043 )

( 14,424,531 )

( 17,979,171 )

Income tax benefit

( 5,470,712 )

( 3,679,043 )

( 14,424,531 )

( 17,979,171 )

Net (income) loss attributable to noncontrolling interests of consolidated

Net loss attributable to common stockholders

$ ( 3,470,506 )

Income (loss) before income tax benefit (provision)

( 3,943,268 )

Income tax expense benefit (provision)

Net income (loss)

( 3,943,268 )

Net income attributable to noncontrolling interests of consolidated subsidiary

Net income (loss) attributable to common stockholders

$ ( 3,931,020 )

Net loss per share information:

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

Weighted average shares outstanding:

Notes to the Unaudited Condensed Consolidated Financial Statements.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023

See Notes to Unaudited Condensed

Consolidated Financial Statements.

DIGITAL ALLY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (DEFICIT)

FOR THE THREE MONTHS ENDED MARCH

31, 2025 AND 2024

Noncontrolling

4 unchanged sentences

Restricted common stock grant

Issuance due to rounding from reverse stock split

( 6,105,818 )

( 5,979,579 )

Balance, March 31, 2023

( 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

( 8,393,304 )

Sale of common stock and pre-funded warrants, net of offering costs

Sale of common stock and pre-funded warrants, net of offering costs, shares

Issuance of common stock upon exercise of pre-funded warrants

Issuance of common stock upon exercise of prefunded warrants, shares

Fair value of pre-funded warrants issued along with sale of common stock

Transition of warrant derivative liability to equity upon exercise of pre-funded warrants

Issuance of common stock upon exercise of Series B common stock purchase warrants

Issuance of common stock upon exercise of Series B common stock purchase warrants, shares

Transition of warrant derivative liability to equity upon exercise of Series B warrants

( 3,931,020 )

Balance, June 30, 2023

( 3,943,268 )

Stock-based compensation

Net income (loss)

( 3,931,020 )

( 3,943,268 )

Balance, September 30, 2023

Balance, March 31, 2024

$ 128,484,435

3 unchanged sentences

$ ( 1,198,286 )

Stock-based compensation

Restricted common stock grant

Restricted common stock forfeitures

$ ( 137,512,928 )

$ ( 9,013,430 )

Balance, March 31, 2024

$ 129,697,493

Stock-based compensation

Sale of common stock and pre-funded warrants, net of offering costs

Fair value of warrants issued along with sale of common stock

$ ( 1,198,286 )

1 unchanged sentence

$ ( 9,013,430 )

( 5,010,551 )

Balance, June 30, 2024

( 126,683,662 )

Stock-based compensation

Issuance of common stock upon exercise of prefunded warrants

Restricted common stock forfeitures

( 3,470,506 )

( 5,470,712 )

Balance, September 30, 2024

$ 128,967,685

$ ( 1,265,852 )

Sale of common stock and pre-funded warrants, net of offering costs

Issuance of common stock upon exercise of pre-funded warrants

Fair value of pre-funded warrants issued along with sale of common stock

Transition of warrant derivative liability to equity upon exercise of pre-funded warrants

Issuance of common stock upon exercise of June 2024 Series B common stock purchase warrants

Transition of warrant derivative liability to equity upon exercise of Series B warrants

Net income (loss)

Balance, March 31, 2025

$ 146,007,727

4 unchanged sentences

$ ( 133,249,457 )

Notes to the Unaudited Condensed Consolidated Financial Statements.

CONSOLIDATED STATEMENTS OF CASH FLOWS

THE NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023

For the nine months ended September 30,

See Notes to Unaudited Condensed

Consolidated Financial Statements.

DIGITAL ALLY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

THREE MONTHS ENDED MARCH 31, 2025 AND 2024

Cash Flows from Operating Activities:

$ ( 14,424,531 )

Net income (loss)

$ ( 3,943,268 )

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

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

Depreciation and amortization

Gain on sale of property, plant and equipment

Gain on sale on intangible

Goodwill and intangible asset impairment charge

Provision for doubtful accounts receivable

Provision for doubtful subscriptions receivable

Provision for inventory obsolescence

Stock based compensation

Amortization of debt issuance costs

Non-cash interest expense

Gain on extinguishment of liabilities

Loss on extinguishment of debt

Change in fair value of warrant derivative liabilities

( 2,220,097 )

Gain on extinguishment of debt – related party

( 1,249,372 )

Convertible debt discount amortization

Loss on conversion of debt

Provision for inventory obsolescence

Provision for doubtful accounts receivable

Allowance for doubtful lease reserve

Change in fair value of contingent consideration promissory note

Change in fair value of warrant derivative liability

( 2,515,891 )

Loss on sale of property, plant and equipment

Loss on disposal of intangible assets

Change in operating assets and liabilities:

1 unchanged sentence

Accounts receivable – trade

Other receivable

Subscriptions receivable

Other receivables

Prepaid expenses

Operating lease right of use assets

( 1,001,093 )

Operating lease right of use assets

Increase (decrease) in:

Accounts payable

( 4,508,680 )

Accrued expenses

Accrued expenses-related party

Accrued interest - related party

Income taxes payable

Lease deposit

Operating lease obligations

Contract liabilities

Deferred revenue

Net cash used in operating activities

( 5,754,761 )

( 5,842,158 )

Cash Flows from Investing Activities:

Purchases of property, plant and equipment

Purchase of intangible assets

Additions to intangible assets

Proceeds from sale of intangible assets

Cash paid for acquisition of Country Stampede

Proceeds from sale of intangible asset

Proceeds from sale of land and building

Proceeds from sale of property, plant and equipment

Net cash provided by (used in) investing activities

Cash Flows from Financing Activities:

Proceeds – Merchant Advances – Video Solutions Segment

Proceeds – Merchant Advances – Entertainment Segment

Net proceeds of equity offering with detachable warrants

Net proceeds of convertible debt with detachable warrants

Net proceeds of February 2025 public equity offering with detachable warrants

Net proceeds of unsecured promissory note – entertainment segment

Payments on Senior Secured Promissory Notes – Video Solutions Segment

( 3,600,000 )

Payments of related party note payable

Principal payments on EIDL loan

Proceeds – Commercial Extension of Credit – Entertainment Segment

Payments on Commercial Extension of Credit – Entertainment Segment

( 1,156,441 )

Proceeds – Merchant Advances – Video Solutions Segment

Payments on Merchant Advances – Video Solutions Segment

( 1,922,750 )

Net proceeds of related party note payable

Proceeds from issuance of common shares upon exercise of Series B warrants

Proceeds – Merchant Advances – Entertainment Segment

Payments on Merchant Advances – Entertainment Segment

Principal payment on EIDL loan

Principal payment on contingent consideration promissory notes

Net cash provided by financing activities

Net decrease in cash, cash equivalents, and restricted cash

( 1,324,368 )

Cash, cash equivalents, beginning of period

Cash, cash equivalents, end of period

Net increase 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:

2 unchanged sentences

Supplemental disclosures of non-cash investing and financing activities:

Restricted common stock grant

Restricted common stock forfeitures

Commercial extension of credit repaid through accrued revenue – Entertainment segment

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

Conversion of convertible notes payable into common stock

Fair value of warrants issued with sale of shares

Assets acquired in business acquisitions

Liabilities assumed in the business acquisition

Goodwill acquired in business acquisitions

Liabilities assumed in business acquisitions

Adjustments of accounts payable with the sale proceeds of property, plant and equipment

Reduction in proceeds from sale of building for loan, prepaid rent, and

other accrued expenses

Payments to vendors directly from proceeds of sale of common stock

Issuance of common stock upon exercise of re-funded warrants

Restricted common stock grant

Reverse stock split rounding issuances

Restricted common stock forfeitures

Debt discount on convertible note

Notes to the Unaudited Condensed Consolidated Financial Statements.

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

of Operations:

was originally incorporated in Nevada on December 13, 2000 as Vegas Petra, Inc.

Fair value of warrants issued with sale of shares

Transition of warrant derivative liability to equity upon exercise of warrants

Reduction in proceeds from sale of building for loan, prepaid rent, and other accrued expenses

Issuance of common stock upon exercise of pre-funded warrants

See Notes to Unaudited Condensed

Consolidated Financial Statements.

DIGITAL ALLY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT

ACCOUNTING POLICIES

Nature of Business:

Digital Ally, Inc.

was originally

incorporated in Nevada on December 13, 2000 as Vegas Petra, Inc.

and had no operations until 2004.

30, 2004, Vegas Petra, Inc.

entered into a Plan of Merger with Digital Ally, Inc., at which time the merged entity was renamed Digital

(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.

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

On November 30, 2004, Vegas Petra,

entered into a Plan of Merger with Digital Ally, Inc., at which time the merged entity was renamed Digital Ally, Inc.

entity, the “Predecessor Registrant”).

23, 2022 (the “Effective Time”), the Predecessor Registrant merged with and into its wholly owned subsidiary, DGLY Subsidiary

Inc., a Nevada corporation (the “Registrant”), pursuant to an agreement and plan of merger, dated as of August 23, 2022 (the

“Merger Agreement”), between the Predecessor Registrant and the Registrant, with the Registrant as the surviving corporation

in the merger (such transaction, the “Merger”).

At the Effective Time, Articles of Merger were filed with the Secretary of

State of the State of Nevada, pursuant to which the Registrant was renamed “Digital Ally, Inc.” and, by operation of law,

succeeded to the assets, continued the business and assumed the rights and obligations of the Predecessor Registrant immediately prior

to the Merger.

Under the Nevada Revised Statutes, shareholder approval was not required in connection with the Merger Agreement or the

transactions contemplated thereby.

At the Effective Time, pursuant to the Merger Agreement, (i) each outstanding share of Predecessor Registrant’s

common stock, par value $ 0.001 per share (the “Predecessor Common Stock”) automatically converted into one share of common

stock, par value $ 0.001 per share, of the Registrant (“Registrant Common Stock”), (ii) each outstanding option, right or warrant

to acquire shares of Predecessor Common Stock converted into an option, right or warrant, as applicable, to acquire an equal number of

2 unchanged sentences

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 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.

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 Ticketing Segment.

Video Solutions Segment is our legacy business that produces digital video imaging, storage products, disinfectant and related safety

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

This segment includes both service and product revenues through

our subscription models offering cloud and warranty solutions, and hardware sales for video and health safety solutions.

The Revenue Cycle

Management Segment provides working capital and back-office services to a variety of healthcare organizations throughout the country,

as a monthly service fee.

The Ticketing Segment acts as an intermediary between ticket buyers and sellers within our secondary ticketing

platform, ticketsmarter.com, and we also acquire tickets from primary sellers to then sell through various platforms.

The accounting guidance

on Segment Reporting establishes standards for reporting information regarding operating segments in annual financial statements and requires

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

Such required segment information is included in Note

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

a Delaware corporation (Nasdaq:

CLOE) (“Clover Leaf”), CL Merger Sub, Inc., a Nevada corporation and a wholly owned subsidiary

of Clover Leaf (“Merger Sub”), Yntegra Capital Investments LLC, a Delaware limited liability company, in the capacity as

the representative from and after the Effective Time (as defined in the Merger Agreement) for the stockholders of Clover Leaf in accordance

with the terms and conditions of the Merger Agreement, and Kustom Entertainment, Inc., a Nevada corporation, a wholly owned subsidiary

of the Company, with a focus and mission to own and produce events, festivals, and entertainment alongside its evolving primary and secondary

ticketing technologies (“Kustom”).

Pursuant to the Merger Agreement, subject to the terms and conditions set forth therein

upon the consummation of the transactions contemplated by the Merger Agreement (the “Closing”), Merger Sub will merge with

and into Kustom, with Kustom continuing as the surviving corporation in the Merger and a wholly owned subsidiary of Clover Leaf.

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

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

symbol that reflects the name “Kustom Entertainment”.

November 8, 2024, Clover Leaf and Kustom mutually agreed to terminate their previously announced Merger Agreement and Plan of Merger

effective as of November 7, 2024 by entering into a mutual termination and release agreement among the parties.

The parties released

each other of all obligations related to the Merger Agreement.

of Presentation :

unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles

in the United States for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X.

they do not include all the information and footnotes required by generally accepted accounting principles in the United States for complete

financial statements.

In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for

a fair presentation have been included.

Operating results for the three and nine-month period ended September 30, 2024 are not necessarily

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

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

information and footnotes required by generally accepted accounting principles in the United States for complete financial statements.

further information, refer to the audited consolidated financial statements and footnotes included in the Company’s annual

report on Form 10-K for the year ended December 31, 2023.

and Going Concern

the second quarter of 2014, the FASB issued ASU No.

2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40):

Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.

This update provided U.S.

GAAP guidance on

management’s responsibility in evaluating whether there is substantial doubt about a company’s ability to continue as a going

concern and about related footnote disclosures.

Under this standard, the Company is required to evaluate whether there is substantial

doubt about its ability to continue as a going concern each reporting period, including interim periods.

In evaluating the Company’s

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 (December

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 December 30 , 2025.

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

For the nine months ended September 30,

2024, the Company had a net loss attributable to common stockholders of $ 12,485,388 ,

net cash used in operating

activities of $ 4,086,023 ,

$ 392,523 provided

by investing activities and $ 3,330,482

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 Company.

Company is pursuing a significant capital raise to provide funding for its short and long-term liquidity needs.

The Company has implemented

an enhanced quality control program to detect and correct product issues before they result in significant rework expenditures affecting

its gross margins and has seen progress in that regard.

The Company has also implemented a marketing and advertisement reduction plan

for its entertainment segment, which will focus on reducing and alleviating current obligations from its media marketing agreements and

place a hold on entering into any new agreements.

The Company believes that its quality control, cost-cutting initiatives, and new product

introduction will eventually restore positive operating cash flows and profitability, although it can offer no assurances in this regard.

has evaluated the significance of the conditions described above in relation to the Company’s ability to meet its obligations and

concluded that, without additional funding, the Company will not have sufficient funds to meet its obligations within one year from the

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 financial statements.

The accompanying unaudited condensed consolidated

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, 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.

Reverse Stock Split

On May 6, 2025,

the Company, acting pursuant to authority received at an annual meeting of its stockholders on December 17, 2024, filed with the

Secretary of State of the State of Nevada a certificate of amendment (the “Charter Amendment”) to its articles of

incorporation, as amended (the “Articles of Incorporation”), which effected a one-for-twenty reverse stock split (the

“Reverse Stock Split”) of all of the Company’s outstanding shares of common stock, par value $ 0.001 per share (the

“Common Stock”).

Pursuant to the Charter Amendment, the Reverse Stock Split became effective as of 5:30 p.m.

Time on May 6, 2025.

As a result of the Reverse Stock Split, every twenty (20) shares of Common Stock were exchanged for one (1)

share of Common Stock.

The Common Stock began trading on the Nasdaq Capital Market on a split-adjusted basis at the start of trading

on May 7, 2025.

The Reverse Stock Split did not affect the total number of shares of capital stock, including the Common Stock, that

the Company is authorized to issue, which remain as set forth pursuant to the Articles of Incorporation.

No fractional shares of

Common Stock were issued in connection with the Reverse Stock Split.

Stockholders who otherwise were entitled to receive fractional

shares of Common Stock were automatically entitled to receive an additional fraction of a share of Common Stock to round up to the

next whole share, at a participant level.

The Reverse Stock Split also had a proportionate effect on all other options and warrants

of the Company outstanding as of the effective date of the Reverse Stock Split.

The Reverse Stock Split was effective as of the time

of this filing.

All historical share and per-share amounts reflected throughout the Company’s condensed 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.

The following is a summary of the Company’s

Significant Accounting Policies:

Basis of Presentation :

The unaudited condensed consolidated

financial statements have been prepared in accordance with generally accepted accounting principles in the United States for interim financial

information and with the instructions to Form 10-Q and Article 8 of Regulation S-X.

Accordingly, they do not include all the information

and footnotes required by generally accepted accounting principles in the United States for complete financial statements.

In the opinion

of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.

Operating results for the three-month period ended March 31, 2025 are not necessarily indicative of the results that may be expected for

the year ending December 31, 2025.

The balance sheet as of December

31, 2024 has been derived from the audited financial statements at that date, but does not include all the information and footnotes required

by generally accepted accounting principles in the United States for complete financial statements.

For further information, refer

to the audited consolidated financial statements and footnotes included in the Company’s annual report on Form 10-K for the year

ended December 31, 2024.

Basis of Consolidation :

The accompanying condensed consolidated

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, 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.

The Company formed Digital Ally

International, Inc.

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

The Company formed

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

line of temperature monitoring 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.

The Company formed Shield Products, LLC in May

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

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

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

The Company formed TicketSmarter, Inc.

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

The Company formed Worldwide

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

It will provide primarily liability insurance coverage to

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

formed Kustom 440, Inc.

in 2022 to create unique entertainment experiences directly for consumers.

Value of Financial Instruments :

carrying amounts of financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and subordinated

notes payable approximate fair value because of the short-term nature of these items.

Recognition :

Company applies the provisions of Accounting Standards Codification (ASC) 606-10, Revenue from Contracts with Customers , and all

related appropriate guidance.

The Company recognizes revenue under the core principle to depict the transfer of control to its customers

in an amount reflecting the consideration to which it expects to be entitled.

In order to achieve that core principle, the Company applies

the following five-step approach:

(1) identify the contract with a customer, (2) identify the performance obligations in the contract,

(3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize

revenue when a performance obligation is satisfied.

Company has two different revenue streams, product and service, represented through its three segments.

The Company reports all revenues

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 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 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

price to each distinct product based on its relative standalone selling price.

The product price as specified on the purchase order is

considered the standalone selling price as it is an observable input which depicts the price as if sold to a similar customer in similar

circumstances.

Revenue is recognized when control of the product is transferred to the customer (i.e.

when the Company’s performance

obligations is satisfied), which typically occurs at shipment.

Further in determining whether control has been transferred, the Company

considers if there is a present right to payment and legal title, along with risks and rewards of ownership having transferred to the

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 products.

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

product sales when incurred as the amortization period of the commission asset the Company would have otherwise recognized is less than

and other revenue is comprised of revenues from extended warranties, repair services, cloud revenue and software revenue.

recognized upon shipment of the product and acceptance of the service or materials by the end customer for repair services.

extended warranty, cloud service or other software-based products is over the term of the contract warranty or service period.

A time-elapsed

method is used to measure progress because the Company transfers control evenly over the contractual period.

Accordingly, the fixed consideration

related to these revenues is generally recognized on a straight-line basis over the contract term, as long as the other revenue recognition

criteria have been met.

Company’s multiple performance obligations may include future in-car or body-worn camera devices to be delivered at defined points

within a multi-year contract, and in those arrangements, the Company allocates total arrangement consideration over the life of the multi-year

contract to future deliverables using management’s best estimate of selling price.

Cycle Management

Company reports revenue cycle management revenues on a net basis, as its primary source of revenue is its end-to-end service fees which

is generally determined as a percentage of the invoice amounts collected.

These service fees are reported as revenue monthly upon completion

of the Company’s performance obligation to provide the agreed upon service.

Fair Value of Financial Instruments :

The carrying amounts of financial

instruments, including cash and cash equivalents, accounts receivable, accounts payable and subordinated notes payable approximate fair

value because of the short-term nature of these items.

Revenue Recognition :

The Company applies the provisions

of Accounting Standards Codification (ASC) 606-10, Revenue from Contracts with Customers , and all related appropriate guidance.

The Company recognizes revenue under the core principle to depict the transfer of control to its customers in an amount reflecting the

consideration to which it expects to be entitled.

In order to achieve that core principle, the Company applies the following five-step

(1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction

price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when a performance

obligation is satisfied.

The Company has two different

revenue streams, product and service, represented through its three segments.

The Company reports all revenues 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.

Video Solutions

The Company considers customer

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

In situations where

sales are to a distributor, the Company has 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 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 refunds or adjustment to determine the net consideration to which it expects to be entitled.

As the Company’s

standard payment terms are generally less than one year for product sales (although some subscriptions for services may reach out 3-5

years), 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 price to each distinct product based on its relative standalone selling price.

The product price,

as specified on the purchase order, is considered the standalone selling price as it is an observable input which depicts the price as

if sold to a similar customer in similar circumstances.

Revenue is recognized when control of the product is transferred to the customer

when the Company’s performance obligations is satisfied), which typically occurs at shipment.

Further in determining whether

control has been transferred, the Company considers if there is a present right to payment and legal title, along with risks and rewards

of ownership having transferred to the customer.

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 products.

The Company has also elected the practical expedient under ASC

340-40-25-4 to expense commissions for product sales when incurred as the amortization period of the commission asset the Company would

have otherwise recognized is less than one year.

Service and other revenue is comprised

of revenues from extended warranties, repair services, cloud revenue and software revenue.

Revenue is recognized upon shipment of the

product and acceptance of the service or materials by the end customer for repair services.

Revenue for extended warranty, cloud service

or other software-based products is over the term of the contract warranty or service period.

A time-elapsed method is used to measure

progress because the Company transfers control evenly over the contractual period.

Accordingly, the fixed consideration related to these

revenues is generally recognized on a straight-line basis over the contract term, as long as the other revenue recognition criteria have

The Company’s multiple performance

obligations may include future in-car or body-worn camera devices to be delivered at defined points within a multi-year contract, and

in those arrangements, the Company allocates total arrangement consideration over the life of the multi-year contract to future deliverables

using management’s best estimate of selling price.

Revenue Cycle Management

The Company reports revenue cycle

management revenues on a net basis, as its primary source of revenue is its end-to-end service fees which is generally determined as a

percentage of the invoice amounts collected.

These service fees are reported as monthly revenue upon completion of the Company’s

performance obligation to provide the agreed upon service.

Entertainment

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

the buyer upon confirmation of the order.

The Company acts as the principal in these transactions as the ticket is owned by the Company

at the time of sale, therefore controlling the ticket prior to transferring to the customer.

In these transactions, revenue is recorded

on a gross basis based on the value of the ticket and is recognized when an order is confirmed.

Payment is typically due upon delivery

of the ticket.

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

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 nine months ended September 30, 2024, the Company recognized revenue of $ 2.0 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.

Total contract liabilities consist of the following:

SCHEDULE OF CONTRACT LIABILITIES

September 30, 2024

September 30,

Contract liabilities, current

$ ( 557,628 )

Contract liabilities, non-current

( 1,476,186 )

$ ( 2,033,814 )

September 30, 2023

September 30,

Contract liabilities, current

$ ( 1,536,860 )

Contract liabilities, non-current

$ ( 2,163,708 )

returns and allowances aggregated $ 86,370 and $ 117,713 for the nine months ended September 30, 2024 and September 30, 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.

The 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

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.

The Company sells tickets held

in inventory, which consists of one performance obligation, being to transfer control of an event ticket to the buyer upon confirmation

of the order.

The Company acts as the principal in these transactions as the ticket is owned by the Company at the time of the sale, therefore

controlling the ticket prior to transferring to the customer.

In these transactions, revenue is recorded on a gross basis based on the

value of the ticket and is recognized when an order is confirmed.

Payment is typically due upon delivery of the ticket.

The Company also acts as an intermediary

between buyers and sellers through online secondary marketplace.

Revenues derived from this marketplace primarily consist of service fees

from ticketing operations, and consists of one primary performance obligation, which is facilitating the transaction between the buyer

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

As the Company does not control the ticket prior to the transfer,

the Company acts as an agent in these transactions.

Revenue is recognized on a net basis, net of the amount due to the seller when an

order is confirmed, the seller is then obligated to deliver the tickets to the buyer per the seller’s listing.

Payment is due at

the time of sale.

Deferred revenue include payments received in advance of performance under the contract and are reported separately as current liabilities

and non-current liabilities in the Condensed 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, 2025, the Company recognized revenue of $ 1,196,046 related to its deferred revenue Total deferred revenue consist of the following:

OF DEFERRED REVENUES

March 31, 2025

Deferred revenue, current

Deferred revenue, non-current

December 31, 2024

Deferred revenue, current

Deferred revenue, non-current

Sales returns

and allowances aggregated $ 71,446 for

the three months ended March 31, 2025.

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.

Use of Estimates :

The preparation of the condensed

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 condensed consolidated balance sheets and the reported amount of revenues and expenses during the reporting

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.

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.

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

at times may be in excess of the federally insured limit of $ 250,000 per bank.

The Company minimizes this risk by placing its cash deposits

with major financial institutions.

At September 30, 2024 and December 31, 2023, the uninsured balance amounted to $ 0 and $ 29,700 , respectively.

cash of $- 0 - and $ 97,600 was included in other assets as of September 30, 2024 and December 31, 2023, respectively.

Management utilizes various other estimates, including but not limited to, determining

the estimated lives of long-lived assets, determining the potential impairment of long-lived assets, the fair value of warrants, options,

the recognition of revenue, inventory valuation reserve, allowances for doubtful accounts and other receivables, incremental borrowing

rate on leases, the valuation allowance for deferred tax assets and other legal claims and contingencies.

The results of any changes in

accounting estimates are reflected in the condensed consolidated 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.

Cash and cash equivalents :

Cash and cash equivalents include

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

The Company maintains its cash

and cash equivalents in banks insured by the Federal Deposit Insurance Corporation (FDIC) in accounts that at times may be in excess of

the federally insured limit of $ 250,000 per bank.

The Company minimizes this risk by placing its cash deposits with major financial institutions.

At March 31, 2025 and December 31, 2024, the uninsured balance amounted to $ 3,009,668 and $- 0 -, respectively.

Restricted Cash :

consists of bank deposits that collateralize a debt obligation.

Such debt obligation was paid off as of September 30, 2024.

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

amounts on a weekly basis.

The Company determines the allowance for doubtful accounts by regularly evaluating individual customer receivables

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

receivables are written off when deemed uncollectible.

Recoveries of trade receivables previously written off are recorded when received.

A trade receivable is considered to be past due if any portion of the receivable balance is outstanding for more than thirty (30) days

beyond terms.

No interest is charged on overdue trade receivables.

and Other Intangibles :

- In connection with acquisitions, the Company applies the provisions of ASC 805, Business Combinations , using the acquisition

method of accounting.

The excess purchase price over the fair value of net tangible assets and identifiable intangible assets acquired

is recorded as goodwill.

In accordance with ASC 350, Intangibles - Goodwill and Other , the Company assesses goodwill for impairment

annually as of December 31st, and more frequently if events and circumstances indicate that goodwill might be impaired.

impairment testing is performed at the reporting unit level.

Goodwill is assigned to reporting units at the date the goodwill is initially

Once goodwill has been assigned to reporting units, it no longer retains its association with a particular acquisition, and

all of the activities within a reporting unit, whether acquired or internally generated, are available to support the value of the goodwill.

Traditionally,

goodwill impairment testing is a two-step process.

Step one involves comparing the fair value of the reporting units to its carrying

If the carrying amount of a reporting unit is greater than zero and its fair value is greater than its carrying amount, there

is no impairment.

If the reporting unit’s carrying amount is greater than the fair value, the second step must be completed to

measure the amount of impairment, if any.

Restricted cash of $- 0 - and $ 97,600

was included in other assets as of March 31, 2025 and 2024, respectively.

Restricted cash consists of bank deposits that collateralize

a debt obligation.

Such debt obligation was paid off as of December 31, 2024.

The following table provides a reconciliation of cash

and cash equivalents in the condensed consolidated balance sheets to cash, cash equivalents and restricted cash in the condensed consolidated

statements of cash flows:

SCHEDULE OF RECONCILIATION OF CASH AND CASH EQUIVALENTS

Cash and cash equivalents

Long-term restricted cash included in other assets

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

Goodwill and Other Intangibles :

Goodwill - In connection

with acquisitions, the Company applies the provisions of ASC 805, Business Combinations, using the acquisition method of accounting.

excess purchase price over the fair value of net tangible assets and identifiable intangible assets acquired is recorded as goodwill.

In accordance with ASC 350, Intangibles - Goodwill and Other, the Company assesses goodwill for impairment annually as of December 31st,

and more frequently if events and circumstances indicate that goodwill might be impaired.

Goodwill impairment testing is

performed at the reporting unit level.

Goodwill is assigned to reporting units at the date the goodwill is initially recorded.

Once goodwill

has been assigned to reporting units, it no longer retains its association with a particular acquisition, and all of the activities within

a reporting unit, whether acquired or internally generated, are available to support the value of the goodwill.

Traditionally, goodwill impairment

testing is a two-step process.

Step one involves comparing the fair value of the reporting units to its carrying amount.

If the carrying

amount of a reporting unit is greater than zero and its fair value is greater than its carrying amount, there is no impairment.

reporting unit’s carrying amount is greater than the fair value, the second step must be completed to measure the amount of impairment,

Step two involves calculating an implied fair value of goodwill.

The Company has adopted ASU

2017-04 which simplifies subsequent goodwill measurement by eliminating step two from the goodwill impairment test.

As a result, the

Company compares the fair value of a reporting unit with its respective carrying value and recognized an impairment charge for the amount

by which the carrying amount exceeded the reporting unit’s fair value.

Company determines the fair value of its reporting units using a weighting of the income and market valuation approaches.

The income approach applies a fair value methodology to each reporting

unit based on discounted cash flows.

This analysis requires significant judgments, including estimation of future cash flows, which is

dependent on internally-developed forecasts of revenue and profitability, estimation of the long-term rate of growth for our business,

estimation of the useful life over which cash flows will occur, and determination of our weighted average cost of capital, which is risk-adjusted

to reflect the specific risk profile of the reporting unit being tested.

Under the market approach, we estimate the fair value

based on multiples of comparable public companies and precedent transactions.

Significant estimates in the market approach include:

similar companies with comparable business factors such as size, growth, profitability, risk and return on investment, and assessing

comparable revenue and operating income multiples in estimating the fair value of the reporting unit.

and Other Intangible Assets - The Company periodically assesses potential impairments of its long-lived assets in accordance with

the provisions of ASC 360, Accounting for the Impairment or Disposal of Long-lived Assets .

An impairment review is performed whenever

events or changes in circumstances indicate that the carrying value of the assets may not be recoverable.

The Company groups its assets

at the lowest level for which identifiable cash flows are largely independent of the cash flows of the other assets and liabilities.

The Company has determined that the lowest level for which identifiable cash flows are available is the operating segment level.

considered by the Company include, but are not limited to, significant underperformance relative to historical or projected operating

significant changes in the manner of use of the acquired assets or the strategy for the overall business;

and significant negative

industry or economic trends.

When the carrying value of a long-lived asset may not be recoverable based upon the existence of one or

more of the above indicators of impairment, the Company estimates the future undiscounted cash flows expected to result from the use

of the asset and its eventual disposition.

If the sum of the expected future undiscounted cash flows and eventual disposition is less

than the carrying amount of the asset, the Company recognizes an impairment loss.

An impairment loss is reflected as the amount by which

the carrying amount of the asset exceeds the fair value of the asset, based on the fair value if available, or discounted cash flows,

if fair value is not available.

The Company 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 until the three months ended September 30, 2024, when events occurred that we considered triggering events.

During the third

fiscal quarter of 2024, management determined that triggering events had occurred resulting from the additional decline in demand for

our services, prolonged economic uncertainty, the split-off transaction did not occur when and as expected and a further decrease in

our stock price.

Therefore, we performed an interim impairment test as of September 30, 2024.

The Company has adopted ASU 2017-04 which simplifies subsequent

goodwill measurement by eliminating step two from the goodwill impairment test.

As a result, the Company compares the fair value of a

reporting unit with its respective carrying value and recognizes an impairment charge for the amount by which the carrying amount exceeded

the reporting unit’s fair value.

The Company determines the fair

value of its reporting units using a weighting of the income and market valuation approaches.

The income approach applies a fair value

methodology to each reporting unit based on discounted cash flows.

This analysis requires significant judgments, including estimation

of future cash flows, which is dependent on internally-developed forecasts of revenue and profitability, estimation of the long-term rate

of growth for our business, estimation of the useful life over which cash flows will occur, and determination of our weighted average

cost of capital, which is risk-adjusted to reflect the specific risk profile of the reporting unit being tested.

Under the market approach,

we estimate the fair value based on multiples of comparable public companies and precedent transactions.

Significant estimates in the

income and market approach include:

future levels of revenue growth, gross profit margin, EBITDA as a percentage of revenue, cash-free

debt-free net working capital as a percentage of revenue, capital expenditures as a percentage of revenue, discount rate, selection of

guideline public companies and revenue market multiples.

Long-lived and Other Intangible

Assets - The Company periodically assesses potential impairments of its long-lived assets in accordance with the provisions of ASC

360, Accounting for the Impairment or Disposal of Long-lived Assets.

An impairment review is performed whenever events or changes in circumstances

indicate that the carrying value of the assets may not be recoverable.

The Company groups its assets at the lowest level for which identifiable

cash flows are largely independent of the cash flows of the other assets and liabilities.

The Company has determined that the lowest level

for which identifiable cash flows are available is the operating segment level.

Factors considered by the Company

include, but are not limited to, significant underperformance relative to historical or projected operating results;

significant changes

in the manner of use of the acquired assets or the strategy for the overall business;

and significant negative industry or economic trends.

When the carrying value of a long-lived asset may not be recoverable based upon the existence of one or more of the above indicators of

impairment, the Company estimates the future undiscounted cash flows expected to result from the use of the asset and its eventual disposition.

If the sum of the expected future undiscounted cash flows and eventual disposition is less than the carrying amount of the asset, the

Company recognizes an impairment loss.

An impairment loss is reflected as the amount by which the carrying amount of the asset exceeds

the fair value of the asset, based on the fair value if available, or discounted cash flows, if fair value is not available.

assessed potential impairments of its long-lived assets as of an interim date of September 30, 2024 and concluded that there was an impairment

which was recorded during the year ended December 31, 2024.

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

in circumstances were noted that required an interim goodwill impairment test until the fiscal third quarter of 2024, when events occurred

that we considered triggering events.

During the third fiscal quarter

of 2024, management determined that triggering events had occurred resulting from the additional decline in demand for our services, prolonged

economic uncertainty, the split-off transaction did not occur when and as expected and a further decrease in our stock price.

we performed an interim impairment test as of September 30, 2024.

Refer to Note 4.

AND OTHER INTANGIBLE ASSETS for additional details on the interim impairment test, valuation methodologies, and inputs used in the

fair value measurements.

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.

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.

Operating segments are identified

as components of an enterprise for which separate discrete financial information is available for evaluation by the chief operating decision

Goodwill and Other Intangible Assets for additional

details on the interim impairment test, valuation methodologies, and inputs used in the fair value measurements.

The Company also assessed

potential impairments of its long-lived assets as of December 31, 2024 and concluded that there was no additional impairment as compared

to its September 30, 2024 interim assessment.

Subsequent to completing our annual impairment test as of December 31, 2024, no events or

changes in circumstances were noted that triggered the requirement for an interim goodwill impairment test for the fiscal first quarter

Intangible 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 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.

Fair value of assets and liabilities acquired in

business combinations :

The Company allocates the amount

it pays for each acquisition to the assets acquired and liabilities assumed based on their fair values at the date of acquisition, including

identifiable intangible assets which arise from a contractual or legal right or are separable from goodwill.

The Company bases the fair

value of identifiable intangible assets acquired in a business combination on detailed valuations that use information and assumptions

provided by management to valuation specialists, which consider management’s best estimates of inputs and assumptions that a market

participant would use.

The Company allocates any excess purchase price that exceeds the fair value of the net tangible and identifiable

intangible assets acquired to goodwill.

The use of alternative valuation assumptions, including estimated growth rates, cash flows, discount

rates and estimated useful lives could result in different purchase price allocations and amortization expense in current and future periods.

Transaction costs associated with these acquisitions are expensed as incurred through selling, general and administrative expense on the

condensed consolidated statement of operations.

In those circumstances where an acquisition involves a contingent consideration arrangement,

the Company recognizes a liability equal to the fair value of the contingent payments expected to be made as of the acquisition date.

The Company re-measures this liability each reporting period and records changes in the fair value through operating income within the

condensed consolidated statements of operations.

Warrant Derivative Liabilities :

In accordance with FASB ASC 815-40,

Derivatives and Hedging:

Contracts in an Entities Own Equity, entities must consider whether to classify contracts that may be settled

in its own stock, such as warrants to purchase shares of Common Stock, as equity of the entity or as an asset or liability.

that is not within the entity’s control could require net cash settlement, then the contract should be classified as an asset or

a liability rather than as equity.

We have determined that because the terms of the various warrants issued and remain outstanding, include

a provision that entitles all the warrant holders to receive cash for their warrants in the event of a qualifying cash tender offer, while

only certain of the holders of the underlying shares of Common Stock would be entitled to cash, our warrants should be classified as liability

measured at fair value, with changes in fair value each period reported in earnings.

Volatility in the price of our Common Stock may result

in significant changes in the value of the derivatives and resulting gains and losses on our condensed consolidated statement of operations.

Segment Reporting

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 the condensed consolidated financial statements.

Operating segments are identified as

components of an enterprise for which separate discrete financial information is available for evaluation by the chief operating decision

maker (the Company’s Chief Executive Officer or “CODM”) in making decisions on how to allocate resources and assess

2 unchanged sentences

Corporate expenses capture the Company’s corporate

administrative activities and are also to be reported in the segment information.

Consideration

circumstances where an acquisition involves a contingent consideration arrangement that meets the definition of a liability under the

Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 480, Distinguishing Liabilities

from Equity, the Company recognizes a liability equal to the fair value of the contingent payments the Company expects to make as of

the acquisition date.

The Company remeasures this liability each reporting period and records changes in the fair value through the consolidated

statement of operations.

Non-Controlling

Non-controlling

interests in the Company’s Consolidated Financial Statements represent the interest in subsidiaries held by our venture partner.

The venture partner holds a noncontrolling interest in the Company’s consolidated subsidiary Nobility Healthcare, LLC.

Company consolidates the financial statements of all wholly-owned and majority owned subsidiaries, the noncontrolling owners’ share

of each subsidiary’s results of operations are deducted and reported as net income or loss attributable to noncontrolling interest

in the Consolidated Statements of Operations.

Accounting Standards

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

administrative activities, is also to be reported in the segment information.

Therefore, its operations are eliminated in consolidation

and is not considered a separate business segment for financial reporting purposes.

The Company adopted ASU 2023-07

in 2024 and applied the amendment retrospectively to all periods presented in the Company’s condensed consolidated financial statements.

See Note 17, Operating Segments, for more information.

Non-Controlling Interests

Non-controlling interests in the

Company’s Condensed Consolidated Financial Statements represent the interest in subsidiaries held by venture partners.

partners hold noncontrolling interests in the Company’s consolidated subsidiary Nobility Healthcare, LLC.

Since the Company consolidates

the financial statements of all wholly-owned and majority owned subsidiaries, the noncontrolling owners’ share of each subsidiary’s

results of operations are deducted and reported as net income attributable to noncontrolling interest in the Condensed Consolidated Statements

of Operations.

New Accounting Standards

Recently Adopted Accounting

Standard Updates.

- ASU 2023-07, Improvements to Reportable Segment Disclosures , which requires companies to disclose significant

segment expenses provided to the chief operating decision maker (“CODM”) and a description of other segment items.

Additionally,

all existing annual disclosures must be provided on an interim basis.

This ASU is effective for annual periods 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 September 30, 2024 and December 31, 2023:

This ASU is required to be applied retrospectively

to all prior periods presented in the condensed consolidated financial statements.

The Company adopted ASU 2023-07 in 2024 and applied

the amendment retrospectively to all periods presented in the Company’s condensed consolidated financial statements.

Operating Segments, for more information.

Recently Issued Accounting

Pronouncements.

- ASU 2023-09, Improvements to Income Tax Disclosures, requires improved disclosures related to the rate reconciliation

and income taxes paid.

This ASU requires companies to reconcile the income tax expense attributable to continuing operations to the U.S.

statutory federal income tax rate applied to pre-tax income from continuing operations.

Additionally, this ASU requires companies to disclose

the total amount of income taxes paid during the period.

This ASU is effective for annual periods beginning after December 15, 2024, with

early adoption permitted.

The guidance is required to be applied on a prospective basis with the option to apply retrospectively to all

prior periods presented in the consolidated financial statements.

The Company is currently evaluating the impact to the Company’s

condensed consolidated financial statements.

ASU 2024-03, Disaggregation

of Income Statement Expenses, requires disaggregated disclosures in the notes to the consolidated financial statements of certain

categories of expenses that are included in expense line items on the Consolidated Statement of Income.

This ASU is effective for annual

periods beginning after December 15, 2026 and interim reporting periods beginning after December 15, 2027, with early adoption permitted.

The guidance is required to be applied on a prospective basis with the option to apply retrospectively to all prior periods presented

in the consolidated financial statements.

The Company is currently evaluating the impact to the Company’s condensed consolidated

financial statements.

ASU 2024-04, Induced Conversions

of Convertible Debt Instruments, clarifies the requirement for determining whether certain settlements of convertible debt instruments

should be accounted for as induced conversions or extinguishments.

This ASU is effective for annual periods beginning after December 15,

Early adoption is permitted and can be applied either on a prospective basis or retrospective basis.

The Company is currently evaluating

the impact of this ASU to the Company’s consolidated financial statements, however the Company does not anticipate this guidance

having a material impact to the condensed consolidated financial statements.

The other recent accounting pronouncements

issued by the Financial Accounting Standards Board (“FASB”) are not expected to have a significant impact on the Company’s

consolidated financial statements and related disclosures.

Going Concern Matters and Management’s Plans

The accompanying condensed consolidated

financial statements have been prepared on a going-concern basis, which contemplates the realization of assets and the satisfaction of

liabilities in the normal course of business.

The Company incurred substantial operating losses in the years ended December 31, 2024 and

2023 primarily due to reduced gross margins caused by a combination of competitors’ introduction of newer products with more advanced

features together with significant price cutting of their products and the recent acquisitions with much smaller margins than the video

solutions segment, historically.

The Company incurred operating losses of approximately $ 15.2 million for the year ended December

31, 2024 and $ 974,680 during the three months ended March 31, 2025 and it had an accumulated deficit of $ 133.2 million as of March 31,

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

In recent years the

Company has accessed the public and private capital markets to raise funding through the issuance of debt and equity.

regard, the Company raised approximately $ 14.3

million during the three months ended March 31, 2025 and $ 4.9

million in the year ended December 31, 2024 through a private placement transaction and two underwritten public offerings.

February 2025, the Company raised net proceeds of approximately $ 14.3

million through an underwritten public offering which has provided adequate levels of liquidity for the Company to execute its

business plans.

These equity raises were utilized to fund the repayment of debt obligations, payment of accounts payable and its

Management expects this pattern to continue until it achieves positive cash flow from operations on a consistent basis,

although it can offer no assurance in this regard.

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.

the three months ended March 31, 2025 the Company completed a program to reduce costs and expenditures and raised its short and long-term

liquidity position through the completion of the February 2025 public equity offering.

In that regard, the Company has significantly

cut costs in its entertainment segment through the removal of several large partnerships and sponsorships.

These partnerships and sponsorships

did not yield the results management expected;

thus, it is not expected that these costs will significantly hinder total revenues in

2025 and beyond.

In addition, the Company has significantly cut costs in its video segment through the reduction in headcount and relocating

to smaller and less costly facilities after completing the sale of its warehouse/office building.

The Company has increased its

deferred revenue to nearly $ 9.9 million as of March 31, 2025, which results in recurring revenue during the period of 2025 to 2027.

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

introduction will eventually restore positive operating cash flows and profitability, although it can offer no assurances in this regard.

As a result of the Company’s implementation of cost cutting measures and liquidity generated by the recent

public equity offerings, the Company has significantly improved its financial position.

During the three months ended March 31, 2025,

the Company generated $$ 4,267,082 of net income, improved its working capital position to a positive balance of $ 3,385,051 and improved

its stockholders equity to a positive balance of $ 11,569,375 .

These represent improvements from the negative working capital position

of $ 19,377,507 and stockholders’ deficit balance of $ 9,013,430 reported at December 31, 2024.

uncertainties described above and the corrective actions implemented by management, the Company believes its business plan including the implementation of corrective actions mitigates the existence of substantial doubt about

its ability to continue as a going concern within one year from the date of the issuance of these condensed consolidated financial

The accompanying condensed consolidated 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.

Inventories consisted of the following

at March 31, 2025 and December 31, 2024:

SCHEDULE OF INVENTORIES

September 30,

Raw material and component parts– video solutions segment

7 unchanged sentences

Total inventories

PREPAID EXPENSES

Prepaid expenses were the following

at March 31, 2025 and December 31, 2024:

SCHEDULE OF PREPAID EXPENSE

Prepaid inventory

Prepaid advertising

Prepaid commissions

Prepaid common stock offering

Total prepaid expenses

GOODWILL AND OTHER INTANGIBLE ASSETS

Intangible assets consisted of the following as of

March 31, 2025 and December 31, 2024:

SCHEDULE OF INTANGIBLE ASSETS

March 31, 2025

Accumulated amortization

Amortized intangible assets:

Patents and trademarks (video solutions segment)

Sponsorship agreement network (entertainment segment)

SEO content (entertainment segment)

Personal seat licenses (entertainment segment)

Website enhancements (entertainment segment)

Client agreements (revenue cycle management segments)

Indefinite life intangible assets:

Goodwill (Entertainment segment)

Goodwill (Revenue cycle management segment)

Trade name and trademarks (entertainment segment)

Patents and trademarks pending (video solutions segment)

December 31, 2024

Amortized intangible assets:

Patents and trademarks (video solutions segment)

Sponsorship agreement network (entertainment segment)

SEO content (entertainment segment)

Personal seat licenses (entertainment segment)

Website enhancements (entertainment segment)

Client agreements (revenue cycle management segments)

Indefinite life intangible assets:

Goodwill (Entertainment segment)

Goodwill (Revenue cycle management segment)

Trade name and trademarks (entertainment segment)

Patents and trademarks pending (video solutions segment)

Patents 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.

Amortization for the three months

ended March 31, 2025 and 2024 was $ 365,193 and $ 388,278 , respectively.

Estimated amortization for intangible assets with definite lives

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

SCHEDULE OF ESTIMATED AMORTIZATION FOR INTANGIBLE ASSETS

Year ending December 31:

2025 (April 1, 2025 to December 31, 2025)

2030 and thereafter

Annual impairment test

We performed an annual impairment

test as of December 31, 2024 for each of our reporting units with remaining goodwill.

Subsequent to completing our annual impairment test

as of December 31, 2024, no events or changes in circumstances were noted that triggered the requirement for an interim goodwill impairment

test for the fiscal first quarter of 2025.

The fair value of each reporting

unit was estimated using a weighting of the income and market valuation approaches.

The income approach applied a fair value methodology

to each reporting unit based on discounted cash flows.

This analysis requires significant judgments, including estimation of future cash

flows, which is dependent on internally-developed forecasts of revenue and profitability, estimation of the long-term rate of growth for

our business, estimation of the useful life over which cash flows will occur, and determination of our weighted average cost of capital,

which is risk-adjusted to reflect the specific risk profile of the reporting unit being tested.

The weighted average cost of capital used

in our most recent impairment test ranged from 18.3 % to 21.3 %.

We also applied a market approach, which develops a value correlation based

on the market capitalization of similar publicly traded companies, referred to as a multiple, to apply to the operating results of the

reporting units.

The primary market multiples used are revenue and earnings before interest, taxes, depreciation, and amortization.

income and market approaches were equally weighted in our most recent annual impairment test, for all of the reporting units.

The combined fair values for all

reporting units were then reconciled to our aggregate market value of our shares of Common Stock on the date of valuation, while considering

a reasonable control premium.

We consider a reporting unit’s fair value to be substantially in excess of the reporting unit’s

carrying value at a 25 % premium or greater.

Based on our most recent impairment test, the video solutions reporting unit’s fair

value was substantially in excess of its carrying value, while the revenue cycle management and entertainment segments were determined

not to be impaired, as well.

Interim impairment test at September 30, 2024

We performed an interim impairment

test as of the last day of the fiscal third quarter of 2024 as management determined that a triggering event had occurred resulting from

the additional decline in demand for our services, prolonged economic uncertainty, the fact that the split-off transaction did not occur

when and as expected and a further decrease in our stock price.

Therefore, we performed an interim impairment test as of September 30,

2024 for our reporting units with remaining goodwill.

The fair value of each reporting

unit was estimated using a weighting of the income and market valuation approaches.

The income approach applied a fair value methodology

to each reporting unit based on discounted cash flows.

This analysis requires significant judgments, including estimation of future cash

flows, which is dependent on internally-developed forecasts of revenue and profitability, estimation of the long-term rate of growth for

our business, estimation of the useful life over which cash flows will occur, and determination of our weighted average cost of capital,

which is risk-adjusted to reflect the specific risk profile of the reporting unit being tested.

The weighted average cost of capital used

in our most recent impairment test ranged from 20.9 % to 32.5 %.

We also applied a market approach, which develops a value correlation based

on the market capitalization of similar publicly traded companies, referred to as a multiple, to apply to the operating results of the

reporting units.

The primary market multiples used are revenue and earnings before interest, taxes, depreciation, and amortization.

income and market approaches were equally weighted in our most recent annual impairment test, for all of the reporting units.

The combined fair values for all

reporting units were then reconciled to our aggregate market value of our shares of Common Stock on the date of valuation, while considering

a reasonable control premium.

We consider a reporting unit’s fair value to be substantially in excess of the reporting unit’s

carrying value at a 25 % premium or greater.

Based on our most recent impairment test, the video solutions reporting unit’s fair

value was substantially in excess of its carrying value, while the revenue cycle management and entertainment segments were determined

to be impaired.

We held goodwill of $ 5,480,966

as of September 30, 2024, related to businesses within our revenue cycle management segment.

We held goodwill of $ 6,112,507 as of September

30, 2024, respectively, related to businesses within our entertainment segment.

As a result of our September 30, 2024 interim impairment

test, we concluded that the carrying amount of the revenue cycle management and the entertainment reporting units exceeded its estimated

Thus, we recorded a non-cash goodwill impairment charge of $ 4,322,000 , related to the goodwill carrying balance for the revenue

cycle management segment, and a non-cash goodwill impairment charge of $ 307,000 , related to the goodwill carrying balance for the entertainment

segment, both of which was included in goodwill and intangible asset impairment charge on our Condensed Consolidated Statements of Operations

for the three months ended September 30, 2024.

The goodwill impairment was primarily driven by recent performance of the revenue cycle

management and entertainment reporting units since our annual impairment testing date, as well as a delay in the projected timing of recovery.

The remaining balance for the goodwill carrying balance related to businesses within our revenue cycle management segment and entertainment

segment was $ 1,158,966 and $ 5,805,507 , respectively as of March 31, 2025 and December 31, 2024.

Indefinite-lived intangible assets

We held indefinite-lived trade

names/trademarks of $ 699,000 as of March 31, 2025 and December 31, 2024, respectively, related to businesses within our entertainment

As a result of our interim impairment

test as of the last day of the fiscal third quarter of 2024 management concluded that the carrying amount of a trade name/trademark related

to the entertainment segment exceeded its estimated fair value and we recorded a non-cash impairment charge of $ 201,000 , which was included

in goodwill and intangible asset impairment charge on our Condensed Consolidated Statements of Operations for the year ended December

The charge was primarily driven by the split-off transaction not being completed when and as expected and our recent revenue

and operating performance of the related business given a decline in demand and overall economic uncertainty.

The remaining balance for

this trade name/trademark was $ 699,000 as of March 31, 2025 and December 31, 2024.

DEBT OBLIGATIONS

obligations is comprised of the following:

Debt obligations is comprised of the following:

SCHEDULE OF DEBT OBLIGATIONS

September 30, 2024

Economic injury disaster loan (EIDL)

Contingent consideration promissory note – Nobility Healthcare Division Acquisition

Revolving Loan Agreement

Unsecured Promissory note – Entertainment Segment

Commercial Extension of Credit- Entertainment Segment

Merchant Advances – Video Solutions Segment

Merchant Advances – Entertainment Segment

Senior Secured Promissory Notes

Unamortized debt issuance costs

2 unchanged sentences

Debt obligations, long-term

obligations mature on an annual basis as follows as of September 30, 2024:

Debt obligations mature on an annual basis as follows

as of March 31, 2025:

SCHEDULE OF MATURITY OF DEBT OBLIGATIONS

September 30, 2024

2024 (October 1, 2024 to December 31, 2024)

2025 (April 1, 2025 to December 31, 2025)

2029 and thereafter

2020 Small Business Administration Notes .

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

term of such note is thirty years, though it may be payable sooner upon an event of default under such note.

Monthly principal and interest

payments began in November 2022, after being deferred for thirty months after the date of disbursement and total $ 731 per month thereafter.

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

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 $ 2,453 during the nine months ended September 30, 2024 and recorded interest expense of $ 1,368 and

$ 4,126 for the three and nine months ended September 30, 2024.

Consideration Promissory Notes

June 30, 2021, Nobility Healthcare, a subsidiary of the Company, issued a contingent consideration promissory note (the “June Contingent

Note”) in connection with a stock purchase agreement between Nobility Healthcare and a private company (the “June Seller”)

of $ 350,000 .

The June Contingent 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 nine 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

Projected Revenue”) and the cash basis revenue (the “June Measurement Period Revenue”) collected by the June Seller

in its normal course of business from the clients existing on June 30, 2021, during the period from October 1, 2021 through September

30, 2022 (the “June Measurement Period”) measured on a quarterly basis and annualized as of the relevant period.

Measurement Period Revenue is less than the June Projected Revenue, such amount will be subtracted from the principal balance of this

June Contingent Note on a dollar-for-dollar basis.

If the June Measurement Period Revenue is more than the June Projected Revenue, such

amount will be added to the principal balance of this June Contingent Note on a dollar-for-dollar basis.

In no event will the principal

balance of this June Contingent 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 June Contingent Note as a result of the

earn-out adjustments.

June Contingent 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 $ 350,000 at the acquisition date.

Total principal payments, since inception,

on this contingent consideration promissory note totalled $ 290,073 .

The estimated fair value of the June Contingent Note at September

30, 2024 is $- 0 -, representing a reduction in its estimated fair value of $ 58,819 as compared to its estimated fair value as of December

This reduction only relates to the principal payments made for the nine months ended September 30, 2024.

Therefore, the Company

recorded no gain or loss in the Consolidated Statements of Operations for the nine months ended September 30, 2024.

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

in connection with a stock purchase agreement between Nobility Healthcare and a private company (the “August Sellers”) of

The August 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 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 the $ 3,000,000

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

by the August Sellers in its normal course of business from the clients existing on September 1, 2021, during the period from December

1, 2021 through November 30, 2022 (the “August Measurement Period”) measured on a quarterly basis and annualized as of the

relevant period.

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

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

If the August Measurement Period Revenue is

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

a dollar-for-dollar basis.

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 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.

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

Principal payments, since its inception, on this contingent consideration promissory note totalled $ 681,907 .

The estimated fair value

of the August Contingent Note at September 30, 2024 is $- 0 -, representing a decrease in its estimated fair value of $ 129,651 as compared

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

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

September 30, 2024.

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

ended September 30, 2024.

Commercial Extension of Credit

February 23, 2023, the Company’s Entertainment segment entered into an extension of credit in the form of a loan to use in marketing

and operating its business in accordance with the Private Label Agreement previously entered into with the Lender.

The Lender agreed

to extend, subject to the conditions hereof, and Borrower agreed to take, a Loan for Principal Sum of $ 1,000,000 .

Lender retains 25 % of each remittance owed to Borrower under the terms of the Private Label Agreement.

Such remittances includes regular

weekly remittances and any additional incentive payments to which the Borrower may be entitled.

The 25% withholding of the Borrower’s

applicable remittance is deemed a “Payment” under the terms of this Note, and Payments shall continue until the earlier of

(i) repayment of the Principal Sum, accrued Interest, and a fee of $35,000 or (ii) expiration of the Private Label Agreement on December

the nine months ended September 30, 2024, the Entertainment segment Company’s Entertainment segment repaid the outstanding principal

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

On 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.

Under the terms of the note issued

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

The term of such note is thirty

years, though it may be payable sooner upon an event of default under such note.

Monthly principal and interest payments began in November

2022, after being deferred for thirty months after the date of disbursement and total $ 731 per month thereafter.

Such note may be prepaid

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

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.

Unsecured Promissory Note

On February 1, 2025, the Company’s

Entertainment Segment entered into a $ 600,000 unsecured promissory note with a third party.

The promissory note bears an interest rate

of 10.0 % per annum, compounded monthly.

Payments of principal and interest were originally due on May 5, 2025 .

The parties agreed to extend

the term for payments of principal and interest until June 4, 2025.

2024 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, an advance for a 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 nine months ended September 30, 2024 were $ 975,000 and payments made totalled $ 900,000 .

The outstanding balance as of September

30, 2024 was $ 75,000 .

August 7, 2024 and as amended on September 25, 2024, the Company’s Entertainment segment entered into an extension of credit

(the “Agreement”) with Vegas Tickets in the form of a prepayment for the rights to acquire certain Major League Baseball

and National Football League playoff and season tickets.

Vegas Tickets agreed to advance, subject to the conditions of the

Agreement, and the Company’s Entertainment segment agreed to take, an advance for a sum of $ 200,000 .

Under the Agreement, the Company’s Entertainment segment has the right to reacquire the tickets for a cash amount of $ 220,000

by November 1, 2024.

The repurchase date was extended to December 1, 2024 by an amendment dated October 31, 2024.

Company’s Entertainment segment intends to repurchase the tickets and has recorded the cash repurchase obligation amount of

as the outstanding extension of credit balance as of September 30, 2024, with $ 20,000

of such amount recorded as interest expense during the three and nine months ended September 30, 2024.

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

by a Securities Purchase Agreement, dated as of April 5, 2023 (the “Purchase Agreement”), between the Company and certain

investors (the “Purchasers”).

the First Closing, the Company issued and sold to the Purchasers Senior Secured Convertible Notes in the aggregate original principal

amount of $ 3,000,000 (the “Notes”) and warrants (the “Warrants”).

The Purchase Agreement provided for a ten percent

( 10 %) original interest discount resulting in gross proceeds to the Company of $ 2,700,000 .

No interest accrues under the Notes.

are exercisable for an aggregate 1,125,000 shares comprised of 375,000 warrants at an exercise price of $ 5.50 per share of the Company’s

common stock, par value $ 0.001 (the “Common Stock”), 375,000 warrants at an exercise price of $ 6.50 per share of Common Stock,

and 375,000 warrants at an exercise price of $ 7.50 per share of Common Stock.

to certain conditions, within 18 months from the effectiveness date and while the Notes remain outstanding, the Purchasers have the right

to require the Company to consummate a second closing of up to an additional $ 3,000,000 of Notes (the “Second Notes”) and

Warrants on the same terms and conditions as the First Closing, except that the Second Notes may be subordinate to a mortgage on the

Company’s headquarters building (the “Bank Mortgage”).

Notes are convertible into shares of Common Stock at the election of the Purchasers at any time at a fixed conversion price of $ 5.00

(the “Conversion Price”) per share of Common Stock.

The Conversion Price is subject to customary adjustments for stock dividends,

stock splits, reclassifications and the like, and subject to price-based adjustment in the event of any issuances of Common Stock, or

securities convertible, exercisable or exchangeable for, Common Stock at a price below the then-applicable Conversion Price (subject

to certain exceptions).

Subject to certain conditions, including certain equity conditions, the Company may redeem some or all of the

then outstanding principal amount of the Note for cash in an amount equal to 110 % of the outstanding principal amount of the Notes (the

“Optional Redemption Amount”).

In addition, the Purchasers may, at their option, demand repayment at the Optional Redemption

Amount upon five (5) business days’ written notice following (i) the closing by the Company of the Bank Mortgage, or (ii) a sale

by the Company of Common Stock or Common Stock equivalents.

Notes rank senior to all outstanding and future indebtedness of the Company and its subsidiaries, and are secured by substantially all

of the Company’s assets, as evidenced by (i) a security agreement entered into at the Closing, (ii) a trademark security agreement

entered into at the Closing, (iii) a patent security agreement entered into at the Closing, (iv) a guaranty executed by all direct and

indirect subsidiaries of the Company pursuant to which each of them has agreed to guaranty the obligations of the Company under the Notes,

and (v) a mortgage on the Company’s headquarters building in favor of the Purchasers.

at the Closing, the Company entered into a Registration Rights Agreement (the “Registration Rights Agreement”) with the Purchasers.

Pursuant to the terms of the Registration Rights Agreement, the Company has agreed to prepare and file with the SEC within the 10th business

day following the First Closing (the “Filing Date”) a registration statement covering the resale of the shares of Common

Stock issuable upon conversion of the Notes and exercise of the Warrants, and to use its best efforts to cause such Registration Statement

to be declared effective under the Securities Act of 1933, as amended (the “Securities Act”), as promptly as possible, but

in any event no later than 45 days following the Filing Date (the “Effectiveness Date”).

If the Registration Statement is

not filed by the Filing Date or is not declared effective by the Effectiveness Date, or under certain other circumstances described in

the Registration Rights Agreement, then the Company shall be obligated to pay, as partial liquidated damages, to each Purchaser an amount

in cash equal to 2 % of the original principal amount of the Notes each month until the applicable event giving rise to such payments

If the Company fails to pay any partial liquidated damages in full within seven days after the date payable, the Company will

pay interest thereon at a rate of 10 % per annum.

Company recognized the full warrant derivative value, with the remaining amount being allocated to the debt obligation.

As the warrant

derivative value exceeded the net proceeds from the issuance, the excess amount is recognized as a loss on the date of the issue date.

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

SCHEDULE OF WARRANT TO PURCHASE COMMON STOCK GRANTED

April 5, 2023

(issuance date)

Volatility – range

Risk-free rate

Remaining contractual term

Exercise price

On 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, an advance for a sum of $ 75,000 with monthly advances of $ 100,000 .

The advances made are recoupable

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

The Company paid the remaining balance in full during

the three months ended March 31, 2025.

The outstanding balance as of March 31, 2025 and December 31, 2024 was $- 0 - and $ 100,000 , respectively.

Merchant Cash Advances – Video Solutions

In 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 basis.

The Company will repay an aggregate of $ 1,512,000 to the lender.

The loan bears

interest at 2.9 % per week.

During the year ended December

31, 2024, the Company made repayments totaling $ 1,551,250 and received additional proceeds of $ 1,144,000 and recorded additional discount

of $ 980,000 .

The Company refinanced this loan in April 2024 resulting in the additional proceeds received during the year ended December

The refinancing was deemed to be an extinguishment of debt and a loss on extinguishment of debt was recorded during the year

ended December 31, 2024 of $ 68,827 .

As of December 31, 2024 the outstanding

principal balance was $ 1,922,750 which was paid in full during the three months ended March 31, 2025.

The remaining balance is $- 0 - as

of March 31, 2025.

Securities Purchase Agreement and Senior Secured

Promissory Notes

On November 6, 2024, the Company

entered into a Securities Purchase Agreement (the “SPA”) with certain institutional investors (the “Purchasers”),

pursuant to which the Company agreed to issue and sell to such Purchasers, in a private placement transaction, (i) senior secured promissory

notes in aggregate principal amount of $ 3,600,000 (the “Notes”), and (ii) 40,419 shares (the “Commitment Shares”)

of the Company’s Common Stock, for aggregate gross proceeds of approximately $ 3.0 million, before deducting placement agent fees

and other offering expenses payable by the Company.

This private placement closed on November 7, 2024 (the “Closing Date”).

Pursuant to the SPA, the Company

is required to file within 30 days of the Closing Date a registration statement with the SEC for a public offering and use its reasonable

best efforts to pursue and consummate a follow-on financing transaction within 90 days of the Closing Date.

The proceeds of the public

offering shall be first used for the repayment of the principal amounts of the Notes.

The Company is also required to file within 30 days

of the Closing Date a registration statement on Form S-1 (or other appropriate form if the Company is not then S-1 eligible) providing

for the resale by the Purchasers of the Commitment Shares issued under the SPA.

The Company is required to use commercially reasonable

efforts to cause such registration statement to become effective within 60 days following the filing thereof and to keep such registration

statement effective at all times until no Purchaser owns any Commitment Shares.

Furthermore, pursuant to the SPA,

the Company was required to complete the following:

(i) the Company’s board of directors shall approve an amendment to the Company’s

bylaws setting the quorum required for a special meeting of stockholders to one-third of all stockholders entitled to vote at such special

meeting and (ii) the Company shall file with the SEC a preliminary proxy statement on Schedule 14A announcing a meeting of stockholders

for the purpose of approving the Series A and Series B warrants issued by the Company on June 25, 2024.

The senior secured promissory

notes mature ninety (90) days following their issuance date (the “Maturity Date”) and shall accrue no interest unless and

until an Event of Default (as defined in the senior secured promissory notes) has occurred, in which case interest shall accrue at a rate

of 14% per annum during the pendency of such Event of Default.

In addition, upon customary Events of Default, the Purchasers may require

the Company to redeem all or any portion of the senior secured promissory notes in cash with a 125% redemption premium.

The Purchasers

may also require the Company to redeem all or any portion of the senior secured promissory notes in cash upon a Change of Control, as

defined in the senior secured promissory notes, at the prices set forth therein.

Upon a Bankruptcy Event of Default (as defined in the

senior secured promissory notes), the Company shall immediately pay to the Purchasers an amount in cash representing 100% of all outstanding

principal, accrued and unpaid interest , if any, in addition to any and all other amounts due under the senior secured promissory notes,

without the requirement for any notice or demand or other action by the Purchaser or any other person.

If the Company engages in one

or more subsequent financings while the senior secured promissory notes are outstanding, the Company will be required to use at least

100 % of the gross proceeds of such financing to redeem all or any portion of the senior secured promissory notes outstanding.

may also prepay the senior secured promissory notes in whole or in part at any time or from time to time.

The senior secured promissory

notes also contain customary representations and warranties and covenants of each of the parties.

Subject to certain exceptions, the senior

secured promissory notes are secured by a first lien and continuing security interest in and to the Collateral (as defined in the senior

secured promissory notes).

The net proceeds of the private

placement on November 7, 2024 was $ 2,669,250 (after $ 330,750 deduction of costs of the offering).

The Company allocated the net proceeds

from the private placement of the senior secured promissory notes and the commitment shares based upon their relative fair values as of

the date of issuance as follows:

SCHEDULE OF ALLOCATED NET PROCEEDS FROM PRIVATE PLACEMENT OF SENIOR SECURED PROMISSORY NOTES AND COMMITMENT SHARES

Allocated to the following:

Senior secured promissory notes

Commitment shares

The Company paid the senior secured

promissory notes off in full on February 13, 2025 with funds generated by the February 2025 public equity offering (See Note 12).

is an analysis of the senior secured promissory notes balance:

SCHEDULE OF SENIOR SECURED PROMISSORY NOTES BALANCE

Balance, as of December 31, 2023

Issuance of senior secured promissory notes, at par

Discount recognized at issuance date

( 1,470,205 )

Common stock issuable under the warrants

June 2, 2023, the Purchasers elected to convert $ 125,000 principal, at the fixed price of $ 5.00 per share of common stock, 25,000 shares

valued at $ 119,750 .

The loss on conversion of convertible note into common shares, of $ 93,386 , was recorded during the period.

October 26, 2023, the Company entered into a Revolving Loan Agreement of which a portion of the net proceeds were used to repay the principal

amount of the Convertible debt.

The 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.

August 12, 2024, the Company sold the Mortgaged Property and paid off the $ 4,880,000

outstanding principal balance together with all

accrued and unpaid interest.

In addition, upon origination of the Revolving Loan, the Company recorded debt issuance costs of $ 188,255

which was fully amortized as of the date the

Mortgage was paid in full.

The remaining unamortized discount was $- 0 - and $ 171,258 as September 30, 2024 and December 31, 2023, respectively.

Cash Advances – Video Solutions Segment

November 2023, the Company obtained a short-term merchant advance, which totalled $ 1,050,000 , from a single lender to fund operations.

These advances included origination fees totalling $ 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 basis.

The Company will repay an aggregate of

$ 1,512,000 to the lender.

The loan bears interest at 2.9 % per week.

the nine months ended September 30, 2024, the Company made repayments totalling $ 1,382,500

and received additional proceeds of $ 1,144,000 .

The Company refinanced this loan in April 2024 resulting in the additional proceeds received during the nine months ended September 30, 2024.

The refinancing was deemed to be an

extinguishment of debt and a loss on extinguishment of debt was recorded during the nine months ended September 30, 2024 of $ 68,827 .

of September 30, 2024 the outstanding principal balance was $ 2,091,500

which is expected to be repaid in 2024 and early 2025.

As of September 30, 2024 the remaining discount balance was $ 52,538 .

The remaining unamortized discount was $ 52,538 and $ 369,171 as September 30, 2024 and December 31, 2023, respectively.

Cash Advances – Entertainment Segment

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

from a single lender to fund operations.

These advances included origination and issuance fees totalling $ 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

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

to the lender.

The loan bears interest at an

40.4523 % annual effective rate based on latest debt modification.

During the three and nine months ended September 30, 2024, the Company

made repayments totalling $ 803,850

and $ 855,749 ,

respectively.

Company modified/amended the underlying loan agreement twice during the three months ended September 30, 2024, resulting in

additional proceeds totalling $ 393,836 .

The modifications were both deemed to be extinguishments of debt resulting in a $ 310,505 total loss on the extinguishment of debt

during the three and nine months ended September 30, 2024.

As of September 30, 2024 the outstanding balance was $ 1,101,569 which

is expected to be repaid in 2024.

SUBSEQUENT EVENTS for an update to this matter.

The remaining unamortized discount was $ 263,417 and $- 0 - as September 30, 2024 and December 31, 2023, respectively.

Company entered into the original agreement on March 1, 2024.

On July 13, 2024, the Company entered into a letter agreement with the

Purchaser, amending the terms of the note agreement, and on September 12, 2024, the Company entered into a second letter agreement

further amending the terms of the note agreement

July 13, 2024, the Company entered into a Letter Agreement with the note holder, which modified the note payable by increasing the principal

amount of the note payable from $ 1,425,000 to $ 1,725,000 ;

provided, however, that if the Borrowers repay the Note in full on or before

August 15, 2024, then the principal amount of the Note shall be reduced automatically by $ 100,000 .

Pursuant to the Letter Agreement,

the Borrowers’ failure to adhere to certain repayment requirements of the underlying note purchase agreement did not constitute

an event of default, as defined in the note purchase agreement.

Pursuant to the modified/amended note, the Company agreed to make a cash

payment to the note holder in the amount of $ 150,000 on or before July 26, 2024.

The Company also agreed to sell or enter into a firm

commitment to sell the office building owned by the Company and pay to the Purchaser:

(i) $ 325,000 , if the Company sells or enters into

a firm commitment to sell the building on or before August 7, 2024;

or (ii) $ 400,000 , if the Company sells or enters into a firm commitment

to sell the building after August 7, 2024.

Pursuant to the modified/amended note, the Company’s failure to sell or enter into a

firm commitment to sell the building prior to September 1, 2024 shall constitute an event of default, as defined in the note purchase

The Company also agreed to pay to the note holder $ 100,000 per month until the modified/amended note is repaid in full, with

the first such payment occurring on August 12, 2024, and each subsequent payment occurring on the 12th calendar day of each month thereafter.

September 25, 2024, the Company and the note holder agreed to an amended and restated senior secured promissory note with a new principal amount of up to $ 2,000,000 .

The amended note evidences the new principal amount and amends and restates in its entirety,

the terms and provisions of the Note.

Pursuant to the amended note the Company promised to pay to the note holder the new principal amount,

together with accrued interest or the amount outstanding under the amended note from time to time, to be computed from the date of the

amended note at the rates and in the amounts set forth in the amended note.

The amount of the unpaid balance, including such interest,

that shall be due and payable under the Amended Note may increase and decrease as advances and payments are made thereunder.

Note bears interest at a rate of 1.58 % per month.

Company can request advances in writing to the note holder and upon approval by the note holder to be determined in its sole

discretion, (but which shall not be unreasonably withheld), the note holder can either make payment directly to specified vendor(s)

or other creditors on behalf of the Company or deposit the advance into the Company’s account.

amended note, requires the Company to repay the amended note, in full, on the earlier of (i)

November 1, 2024, and (ii) the consummation of the merger between Kustom Entertainment and CL Merger Sub, Inc.

Sub”) pursuant to the merger agreement among the Company, Kustom Entertainment, Clover Leaf Capital Corp.

the Company is also

required to pay in arrears in cash an amount equal to 50% of revenues from all ticket sales generated by Kustom Entertainment, up to

nine thousand tickets sold, and thereafter equal to 10% of all revenues from all ticket sales until the earlier of the date on which

the amended note is repaid in full or the November 1, 2024 maturity date.

The Company has the right, but not the obligation, under the amended

note to prepay the amended note, upon written notice to the Company, by payment in full of the entire outstanding principal

balance plus interest.

pursuant to the amended note, the parties agreed to extend the repayment date of $ 100,000 , by the Company to the note holder, from September

26, 2024, to October 10, 2024.

As further described in NOTE

SUBSEQUENT EVENTS this payment was not made on a timely basis , however, the Note was paid in full

on November 7, 2024 .

Amortization of discount

Balance, as of December 31, 2024

Amortization of discount

Principal payment

( 3,600,000 )

Balance, as of March 31, 2025

FAIR VALUE MEASUREMENT

accordance with ASC Topic 820 — Fair Value Measurements and Disclosures (“ASC 820”), the Company utilizes the

market approach to measure fair value for its financial assets and liabilities.

The market approach uses prices and other relevant information

generated by market transactions involving identical or comparable assets, liabilities or a group of assets or liabilities, such as a

820 utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels.

The following is a brief description of those three levels:

1 — Quoted prices in active markets for identical assets and liabilities

2 — Other significant observable inputs (including quoted prices in active markets for similar assets or liabilities)

3 — Significant unobservable inputs (including the Company’s own assumptions in determining the fair value)

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, 2024 and December 31, 2023:

In accordance with ASC Topic 820

— Fair Value Measurements and Disclosures (“ASC 820”), the Company utilizes the market approach to measure fair

value for its financial assets and liabilities.

The market approach uses prices and other relevant information generated by market transactions

involving identical or comparable assets, liabilities or a group of assets or liabilities, such as a business.

ASC 820 utilizes a fair value

hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels.

The following is a brief

description of those three levels:

Level 1 — Quoted prices in active markets for identical assets and liabilities

Level 2 — Other significant observable inputs (including quoted prices in active markets for similar assets or liabilities)

Level 3 — Significant unobservable inputs (including the Company’s own assumptions in determining the fair value)

The following table represents

the Company’s hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2025

and December 31, 2024:

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

September 30, 2024

March 31, 2025

Warrant derivative liabilities

Contingent consideration promissory notes and contingent consideration earn-out agreement

December 31, 2024

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 September 30, 2024:

The following table represents the change in Level

3 tier value measurements for the three months ended March 31, 2025:

SCHEDULE OF FAIR VALUE MEASUREMENTS CHANGE IN LEVEL 3 INPUTS

Contingent Consideration

Promissory Notes

Warrant Derivative

Balance, December 31, 2024

Issuance of warrant derivative liabilities

Issuance of pre-funded warrant derivative liabilities in February 2025 public equity offering

Transition of warrant derivative liability to equity due to exercise of pre-funded warrant derivative liabilities in February 2025 public equity offering

Transition of warrant derivative liability to equity due to exercise of Series B common stock purchase warrants issued in June 2024 Private Placement

( 1,989,806 )

Change in fair value of warrant derivative liabilities

( 2,515,891 )

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, September 30, 2024

Balance, March 31, 2025

ACCRUED EXPENSES

expenses consisted of the following at September 30, 2024 and December 31, 2023:

Accrued expenses consisted of

the following at March 31, 2025 and December 31, 2024:

SCHEDULE OF ACCRUED EXPENSES

September 30, 2024

December 31, 2023

Accrued warranty expense

Accrued litigation costs

Accrued payroll and related fringes

Accrued sales returns and allowances

Accrued taxes

Accrued sales taxes

Accrued interest - related party

Accrued board of directors’ fees

Customer deposits

Total accrued expenses

warranty expense was comprised of the following for the nine months ended September 30, 2024:

SCHEDULE OF ACCRUED WARRANTY EXPENSE

Beginning balance

Provision for warranty expense

Charges applied to warranty reserve

Ending balance

effective tax rate for the three and nine months ended September 30, 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 September 30, 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 September 30,

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

the negative evidence of our three-year cumulative loss position under the guidance provided in ASC 740.

Therefore, it is determined

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

The Company expects to continue to maintain a full

valuation allowance until it determines that it can sustain a level of profitability that demonstrates its ability to realize these assets.

To the extent the Company determines that the realization of some or all of these benefits is more likely than not based upon expected

future taxable income, a portion or all of the valuation allowance will be reversed.

The Company has available to it approximately $ 140.9

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

PROPERTY, PLANT AND EQUIPMENT

plant and equipment consisted of the following at September 30, 2024 and December 31, 2023:

SCHEDULE OF PROPERTY, PLANT AND EQUIPMENT

September 30, 2024

December 31, 2023

Office furniture, fixtures, equipment, and aircraft

Warehouse and production equipment

Demonstration and tradeshow equipment

Building improvements

accumulated depreciation and amortization

The effective tax rate for the

three months ended March 31, 2025, and 2024 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, 2025, primarily because of the recent operating losses.

The Company incurred operating

losses in recent years and it continues to be in a three-year cumulative loss position at March 31, 2025.

Accordingly, the Company determined

there was not sufficient positive evidence regarding its potential for future profits to outweigh the negative evidence of our three-year

cumulative loss position under the guidance provided in ASC 740.

Therefore, it determined to fully reserve its deferred tax assets at

March 31, 2025.

The Company expects to continue to maintain a full valuation allowance until it determines that it can sustain a level

of profitability that demonstrates its ability to realize these assets.

To the extent the Company determines that the realization of some

or all of these benefits is more likely than not based upon expected future taxable income, a portion or all of the valuation allowance

will be reversed.

Such a reversal would be recorded as an income tax benefit and, for some portion related to deductions for stock option

exercises, an increase in shareholders’ equity.

As of March 31, 2025, the Company

had the following estimated Federal net operating loss carry-forwards available to offset future taxable income:

OF FEDERAL NET OPERATING LOSS CARRY FORWARDS

Tax years generated:

2017 and before

2018 and after

Federal net operating loss carry-forwards available

$ 159,280,000

Net property, plant and equipment

expense for the three months ended September 30, 2024 and September 30, 2023 was $ 127,474 and

respectively, and is included in general and administrative expenses.

Depreciation expense for the nine months ended September 30,

2024 and September 30, 2023 was $ 471,307 and

respectively, and is included in general and administrative expenses.

the nine months ended September 30, 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 of $ 41,661

in the Consolidated Statement of Operations.

the three and nine months ended September 30, 2024 the Company engaged a broker and sold its building for $ 5,900,000 less closing costs

The carrying amount of the building on the date of sale was $ 5,461,623 .

As a result of the sale the Company recorded a gain

of $ 431,183 in the Consolidated Statement of Operation during the three and nine months ended September 30, 2024.

GOODWILL AND OTHER INTANGIBLE ASSETS

assets consisted of the following as of September 30, 2024 and December 31, 2023:

SCHEDULE OF INTANGIBLE ASSETS

September 30, 2024

December 31, 2023

Accumulated Impairment

Amortized intangible assets:

Licenses (video solutions segment)

Patents and trademarks (video solutions segment)

Sponsorship agreement network (entertainment segment)

SEO content (entertainment segment)

Personal seat licenses (entertainment segment)

Website enhancements (entertainment segment)

Client agreements (revenue cycle management segments)

Indefinite life intangible assets:

Goodwill (Entertainment segment)

Goodwill (Revenue cycle management segment)

Trade name and trademarks (entertainment segment)

Patents and trademarks pending (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, 2024 and 2023 was $ 371,772 and $ 377,485 , respectively and $ 1,106,939 and $ 1,122,635

for the nine months ended September 30, 2024 and 2023, respectively.

Estimated amortization for intangible assets with definite lives

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

SCHEDULE OF ESTIMATED AMORTIZATION FOR INTANGIBLE ASSETS

Year ending December 31:

2024 (October 1, 2024 to December 31, 2024)

2028 and thereafter

Interim impairment test

We performed an interim impairment test as of the last day of the fiscal third quarter of 2024 as management determined that a triggering

event had occurred resulting from the additional decline in demand for our services, prolonged economic uncertainty, the fact that the

split-off transaction did not occur when and as expected and a further decrease in our stock price.

Therefore, we performed an interim

impairment test as of the September 30, 2024 for our reporting units with remaining goodwill.

The fair value

of each reporting unit was estimated using a weighting of the income and market valuation approaches.

The income approach applied a

fair value methodology to each reporting unit based on discounted cash flows.

This analysis requires significant judgments,

including estimation of future cash flows, which is dependent on internally-developed forecasts of revenue and profitability,

estimation of the long-term rate of growth for our business, estimation of the useful life over which cash flows will occur, and

determination of our weighted average cost of capital, which is risk-adjusted to reflect the specific risk profile of the reporting

unit being tested.

The weighted average cost of capital used in our most recent impairment test ranged from 21 % to 32.5 %.

applied a market approach, which develops a value correlation based on the market capitalization of similar publicly traded

companies, referred to as a multiple, to apply to the operating results of the reporting units.

The primary market multiples used

are revenue and earnings before interest, taxes, depreciation, and amortization.

The income and market approaches were equally

weighted in our most recent annual impairment test, for all of the reporting units.

fair values for all reporting units were then reconciled to our aggregate market value of our shares of common stock on the date of

valuation, while considering a reasonable control premium.

We consider a reporting unit’s fair value to be substantially in

excess of the reporting unit’s carrying value at a 20 %

premium or greater.

Based on our most recent impairment test, the video solutions reporting unit’s fair value was substantially in

excess of its carrying value, while the revenue cycle management and entertainment segments were determined to be impaired.

We held goodwill

of $ 5,480,966

as of September 30, 2024 and December 31, 2023, related to businesses within our revenue cycle management segment.

We held goodwill

of $ 6,112,507 and $ 5,886,548 as of September 30, 2024 and December 31, 2023, respectively, related to businesses within our

entertainment segment.

As a result of our September 30, 2024 interim impairment test, we concluded that the carrying amount of the

revenue cycle management and the entertainment reporting units exceeded its estimated fair values.

Thus, we recorded a non-cash

goodwill impairment charge of $ 4,322,000 ,

related to the goodwill carrying balance for the revenue cycle management segment, and a non-cash goodwill impairment charge of

$ 307,000 , related to the goodwill carrying balance for the entertainment segment, both of which was included in goodwill and

intangible asset impairment charge on our Condensed Consolidated Statements of Operations for the three and nine months ended

September 30, 2024.

The goodwill impairment was primarily driven by recent performance of the revenue cycle management and

entertainment reporting units since our annual impairment testing date, as well as a delay in the projected timing of recovery.

remaining balance for the goodwill carrying balance related to businesses within our revenue cycle management segment and

entertainment segment was $ 1,158,966 and $ 5,805,507 , respectively

as of September 30, 2024.

Indefinite-lived

intangible assets

We held indefinite-lived trade names/trademarks of $ 900,000 and $ 600,000 as of September 30, 2024 and December 31, 2023, respectively,

related to businesses within our entertainment segment.

During the three

months ended September 30, 2024, we concluded that the carrying amount of a trade name/trademark related to the entertainment

segment exceeded its estimated fair value and we recorded a non-cash impairment charge of $ 201,000 ,

which was included in goodwill and intangible asset impairment charge on our Condensed Consolidated Statements of Operations for the

three and nine months ended September 30, 2024.

The charge was primarily driven by the split-off transaction not being completed

when and as expected and our recent revenue and operating performance of the related business given a decline in demand and overall

economic uncertainty.

The remaining balance for this trade name/trademark was $ 699,000

as of September 30, 2024.

Such tax net operating loss carry-forwards

expire between 2025 and 2043 relative to Federal net operating loss carry-forwards generated in tax years 2017 and prior.

operating loss carry-forwards generated in tax years 2018 and after cannot be carried back to prior years and have an indefinite life

since the enactment of the Tax Cuts and Jobs Act of 2017.

The Tax Cuts and Jobs Act of 2017 further provides for an annual limitation

on usage equivalent to 80% of taxable income.

In addition, the Company had research and development tax credit carry-forwards totaling

$ 1,742,000 available as of March 31, 2025, which expire between 2025 and 2040.

The Company’s 2022 federal

tax return was recently examined by the Internal Revenue Service resulting in no proposed adjustments.

COMMITMENTS AND CONTINGENCIES

time to time, we are notified that we may be a party to a lawsuit or that a claim is being made against us.

It is our policy to not disclose

the specifics of any claim or threatened lawsuit until the summons and complaint are actually served on us.

After carefully assessing

the claim, and assuming we determine that we are not at fault or we disagree with the damages or relief demanded, we vigorously defend

any lawsuit filed against us.

From time to time, we are notified

that we may be a party to a lawsuit or that a claim is being made against us.

It is our policy to not disclose the specifics of any claim

or threatened lawsuit until the summons and complaint are actually served on us.

After carefully assessing the claim, and assuming we

determine that we are not at fault or we disagree with the damages or relief demanded, we vigorously defend any lawsuit filed against

We record a liability when losses are deemed probable and reasonably estimable.

When losses are deemed

reasonably possible but not probable, we determine whether it is possible to provide an estimate of the amount of the loss or range of

possible losses for the claim, if material for disclosure.

In evaluating matters for accrual and disclosure purposes, we take into consideration

factors such as our historical experience with matters of a similar nature, the specific facts and circumstances asserted, the likelihood

of our prevailing, the availability of insurance, and the severity of any potential loss.

We reevaluate and update accruals as matters

progress over time.

May 31, 2022, the Company filed a lawsuit against Culp McAuley, Inc.

(“Culp McAuley”) and four individuals (Brandon Culp,

Campbell McAuley, Mark Depew and Larry Roberts) (collectively the “defendants”) in the United States District Court for the

District of Kansas, seeking monetary damages and injunctive relief based on certain conduct by the defendants.

On July 18, 2022, Culp

McAuley filed its Answer to the Company’s Verified Complaint and included Counterclaims alleging breach of contract and seeking

monetary damages.

On August 8, 2022, the Company filed its Reply and Affirmative Defenses to the Counterclaims by, among other things,

denying the allegations and any and all liability.

December 20, 2022, the Company filed a motion for leave to file a second amended complaint to add additional claims against the defendants

to avoid fraudulent transfers, to pierce the corporate veil of Culp McAuley, and for remedies related to the claims for fraudulent transfers

and piercing the corporate veil.

On December 22, 2022, the Court issued an Order granting the Company’s motion for leave to file

a second amended complaint, which was filed with the Court on December 27, 2022.

Because Culp McAuley’s original counsel withdrew,

Culp McAuley was ordered to obtain new counsel on or before December 2, 2022.

On December 5, 2022, the Court ordered that Culp McAuley

show cause in writing by December 21, 2022, why the Court should not direct the Clerk to enter default against it.

On December 22, 2022,

the Court directed the Clerk to enter default against Culp McAuley.

When losses are deemed reasonably possible but not

probable, we determine whether it is possible to provide an estimate of the amount of the loss or range of possible losses for the claim,

if material for disclosure.

In evaluating matters for accrual and disclosure purposes, we take into consideration factors such as our

historical experience with matters of a similar nature, the specific facts and circumstances asserted, the likelihood of our prevailing,

the availability of insurance, and the severity of any potential loss.

We reevaluate and update accruals as matters progress over time.

On May 31, 2022, the Company filed

a lawsuit against Culp McAuley, Inc.

(“Culp McAuley”) and four individuals (Brandon Culp, Campbell McAuley, Mark Depew and

Larry Roberts) (collectively the “defendants”) in the United States District Court for the District of Kansas, seeking monetary

damages and injunctive relief based on certain conduct by the defendants.

On July 18, 2022, Culp McAuley filed its Answer to the Company’s

Verified Complaint and included Counterclaims alleging breach of contract and seeking monetary damages.

On August 8, 2022, the Company

filed its Reply and Affirmative Defenses to the Counterclaims by, among other things, denying the allegations and any and all liability.

On December 20, 2022, the Company

filed a motion for leave to file a second amended complaint to add additional claims against the defendants to avoid fraudulent transfers,

to pierce the corporate veil of Culp McAuley, and for remedies related to the claims for fraudulent transfers and piercing the corporate

On December 22, 2022, the Court issued an Order granting the Company’s motion for leave to file a second amended complaint,

which was filed with the Court on December 27, 2022.

Because Culp McAuley’s original counsel withdrew, Culp McAuley was ordered

to obtain new counsel on or before December 2, 2022.

On December 5, 2022, the Court ordered that Culp McAuley show cause in writing by

December 21, 2022, why the Court should not direct the Clerk to enter default against it.

On December 22, 2022, the Court directed the

Clerk to enter default against Culp McAuley.

On February 21, 2023, the Clerk entered default against Culp McAuley.

February and March, 2023, defendants Larry Roberts and Mark Depew filed separate motions to dismiss, respectively.

The Company opposed

both motions.

On July 7, 2023, the Court issued an Order granting Roberts’ motion to dismiss and denying Depew’s motion to

On December 7, 2023, the Company filed an application for the Clerk’s entry of default against defendant Brandon Culp.

On December 13, 2023, the Clerk entered default against Brandon Culp.

January 5, 2024, the Company filed a motion for summary judgment against defendants Campbell McAuley and Mark Depew.

On the same date,

the Company also filed separate motions for default judgment against Culp McAuley and Brandon Culp, respectively.

On January 5, 2024,

defendant Mark Depew filed a motion for summary judgment against the Company.

On May 17, 2024, the Court issued Orders which, respectively,

(i) granted defendant Mark Depew’s motion for summary judgment against the Company;

(ii) denied the Company’s motion for

summary judgment against Depew;

(iii) granted the Company’s motion for summary judgment against defendant Campbell McAuley;

(iv) granted the Company’s motions for default judgment against defendants Culp McAuley and Brandon Culp.

Finding that defendants

Brandon Culp and Campbell McAuley were each the alter ego of Culp McAuley, on June 4, 2024, the Court entered judgment in favor of the

Company in the amount of $ 3,999,984 against Culp McAuley, Brandon Culp, and Campbell McAuley, jointly and severally (the “judgment”).

The Company is currently uncertain as to what amount, if any, of the judgment amount it will ultimately be able to recover.

June 14, 2024, the Company filed a Notice of Appeal to the United States Court of Appeals for the Tenth Circuit from the Court’s

May 17, 2024 Order that granted summary judgment in favor of Mark Depew.

On December 10, 2024, the Company and Depew filed a Stipulation

of Dismissal in the Tenth Circuit that ended the appeal after the Company and Depew reached a settlement.

March 2024, the Company filed a complaint against Larry Roberts (“defendant”) in the Superior Court of the State of California,

County of Orange.

The lawsuit arises from the defendant’s multiple breaches of his obligations to the Company.

The Company seeks

monetary damages based on certain conduct by the defendant.

On May 28, 2024, the defendant filed a motion to strike portions of the complaint

and a motion for demurrer.

In February and March, 2023, defendants

Larry Roberts and Mark Depew filed separate motions to dismiss, respectively.

The Company opposed both motions.

On July 7, 2023, the Court

issued an Order granting Roberts’ motion to dismiss and denying Depew’s motion to dismiss.

On December 7, 2023, the Company

filed an application for the Clerk’s entry of default against defendant Brandon Culp.

On December 13, 2023, the Clerk entered default

against Brandon Culp.

On January 5, 2024, the Company

filed a motion for summary judgment against defendants Campbell McAuley and Mark Depew.

On the same date, the Company also filed separate

motions for default judgment against Culp McAuley and Brandon Culp, respectively.

On January 5, 2024, defendant Mark Depew filed a motion

for summary judgment against the Company.

On May 17, 2024, the Court issued Orders which, respectively, (i) granted defendant Mark Depew’s

motion for summary judgment against the Company;

(ii) denied the Company’s motion for summary judgment against Depew;

(iii) granted

the Company’s motion for summary judgment against defendant Campbell McAuley;

and (iv) granted the Company’s motions for default

judgment against defendants Culp McAuley and Brandon Culp.

Finding that defendants Brandon Culp and Campbell McAuley were each the alter

ego of Culp McAuley, on June 4, 2024, the Court entered judgment in favor of the Company in the amount of $ 3,999,984 against Culp McAuley,

Brandon Culp, and Campbell McAuley, jointly and severally (the “judgment”).

The Company is currently uncertain as to what

amount, if any, of the judgment amount it will ultimately be able to recover.

On June 14, 2024, the Company

filed a Notice of Appeal to the United States Court of Appeals for the Tenth Circuit from the Court’s May 17, 2024 Order that granted

summary judgment in favor of Mark Depew.

On December 10, 2024, the Company and Depew filed a Stipulation of Dismissal in the Tenth Circuit

that ended the appeal after the Company and Depew reached a settlement.

In March 2024, the Company filed

a complaint against Larry Roberts (“defendant”) in the Superior Court of the State of California, County of Orange.

arises from the defendant’s multiple breaches of his obligations to the Company.

The Company seeks monetary damages based on certain

conduct by the defendant.

On May 28, 2024, the defendant filed a motion to strike portions of the complaint and a motion for demurrer.

On October 4, 2024, the Court sustained in part and overruled in part defendant’s motion for demurrer.

The Court further denied the defendant’s motion to strike in its entirety.

The case is pending.

of September 30, 2024, we are able to estimate a range of reasonably possible loss related to the Culp McCauley case (when taking into account, among other things, the uncertainty of recovering the judgment amount owed to the Company

by Culp McAuley, Brandon Culp and Campbell McAuley, jointly and severally), our estimate

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

Our estimate with respect to the aggregate reasonably possible loss is based upon currently available information and is

subject to significant judgment and a variety of assumptions and known and unknown uncertainties, which may change quickly and

significantly from time to time, particularly if and as we engage with applicable governmental agencies or plaintiffs in connection

with a proceeding.

Also, the matters underlying the reasonably possible loss will change from time to time.

As a result, actual

results may vary significantly from the current estimate.

While the ultimate resolution is unknown, based on the information currently

available, we do not expect that the pending lawsuit or the enforcement of the judgment will have a material adverse effect on our operations,

financial condition or cash flows.

However, the outcome of any litigation is inherently uncertain and there can be no assurance that any

expense, liability or damages that may ultimately result from the resolution of the pending lawsuit or enforcement of the judgment will

be covered by our insurance or will not be in excess of amounts recognized or provided by insurance 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.

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 Period.

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.

SUBSEQUENT EVENTS for additional information pertaining to this matter.

The Court further denied

the defendant’s motion to strike in its entirety.

A jury trial has been scheduled for October 19, 2026.

As of March 31, 2025 and December

31, 2024, we are able to estimate a range of reasonably possible loss related to the Culp McCauley case (when taking into account, among

other things, the uncertainty of recovering the judgment amount owed to the Company by Culp McAuley, Brandon Culp and Campbell McAuley,

jointly and severally), our estimate of the aggregate reasonably possible loss could be the entire balance of the judgment.

has recorded an additional loss of $ 1,959,396 on this matter as of December 31, 2024 which together with the previously recorded losses

in prior years, reduces the Company’s net exposure to zero at March 31, 2025 and December 31, 2024.

Our estimate with respect to

the aggregate reasonably possible loss is based upon currently available information and is subject to significant judgment and a variety

of assumptions and known and unknown uncertainties, which may change quickly and significantly from time to time, particularly if and

as we engage with applicable governmental agencies or plaintiffs in connection with a proceeding.

Also, the matters underlying the reasonably

possible loss will change from time to time.

As a result, actual results may vary significantly from the current estimate.

While the ultimate resolution

is unknown, based on the information currently available, we do not expect that the pending lawsuit or the enforcement of the judgment

will have a material adverse effect on our operations, financial condition or cash flows.

However, the outcome of any litigation is inherently

uncertain and there can be no assurance that any expense, liability or damages that may ultimately result from the resolution of the pending

lawsuit or enforcement of the judgment will be covered by our insurance or will not be in excess of amounts recognized or provided by

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

STOCK-BASED COMPENSATION

Company recorded pre-tax compensation expense related to the grant of stock options and restricted stock issued of $ ( 27,789 ) and $ 84,586 for

the three months ended September 30, 2024 and 2023, and $ 73,678 and $ 378,917 for the nine months ended September 30, 2024 and

2023, respectively.

of September 30, 2024, the Company had adopted ten separate stock option and restricted stock plans:

(i) the 2005 Stock Option and Restricted

Stock Plan (the “2005 Plan”), (ii) the 2006 Stock Option and Restricted Stock Plan (the “2006 Plan”), (iii) the

2007 Stock Option and Restricted Stock Plan (the “2007 Plan”), (iv) the 2008 Stock Option and Restricted Stock Plan (the

“2008 Plan”), (v) the 2011 Stock Option and Restricted Stock Plan (the “2011 Plan”), (vi) the 2013 Stock Option

and Restricted Stock Plan (the “2013 Plan”), (vii) the 2015 Stock Option and Restricted Stock Plan (the “2015 Plan”),

(viii) the 2018 Stock Option and Restricted Stock Plan (the “2018 Plan”), (ix) the 2020 Stock Option and Restricted Stock

Plan (the “2020 Plan”), and (x) the 2022 Stock Option and Restricted Stock Plan (the “2022 Plan”).

The 2005 Plan,

2006 Plan, 2007 Plan, 2008 Plan, 2011 Plan, 2013 Plan, 2015 Plan, 2018 Plan, 2020 Plan and 2022 Plan are referred to as the “Plans.”

option grants.

Company recorded pre-tax compensation expense related to the grant of stock options and restricted stock issued of $ 13,824 and

$ 40,695 for the three months ended March 31, 2025 and 2024, respectively.

As of March 31, 2025, the Company

had adopted ten separate stock option and restricted stock plans:

(i) the 2005 Stock Option and Restricted Stock Plan (the “2005

Plan”), (ii) the 2006 Stock Option and Restricted Stock Plan (the “2006 Plan”), (iii) the 2007 Stock Option and Restricted

Stock Plan (the “2007 Plan”), (iv) the 2008 Stock Option and Restricted Stock Plan (the “2008 Plan”), (v) the

2011 Stock Option and Restricted Stock Plan (the “2011 Plan”), (vi) the 2013 Stock Option and Restricted Stock Plan (the “2013

Plan”), (vii) the 2015 Stock Option and Restricted Stock Plan (the “2015 Plan”), (viii) the 2018 Stock Option and Restricted

Stock Plan (the “2018 Plan”), (ix) the 2020 Stock Option and Restricted Stock Plan (the “2020 Plan”), and (x)

the 2022 Stock Option and Restricted Stock Plan (the “2022 Plan”).

The 2005 Plan, 2006 Plan, 2007 Plan, 2008 Plan, 2011 Plan,

2013 Plan, 2015 Plan, 2018 Plan, 2020 Plan and 2022 Plan are referred to as the “Plans.”

Stock option grants.

The Company believes that such awards better align the interests of our employees with those of its stockholders.

Option awards have been granted with an exercise price equal to the market price of its stock at the date of grant with such option awards

generally vesting based on the completion of continuous service and having ten-year contractual terms.

These option awards typically

provide for accelerated vesting if there is a change in control (as defined in the Plans).

The Company has registered all shares of common

stock that are issuable under its Plans with the SEC.

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

as of September 30, 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, 2024 is as follows:

OF STOCK OPTIONS OUTSTANDING

Option awards have been

granted with an exercise price equal to the market price of its stock at the date of grant with such option awards generally vesting based

on the completion of continuous service and having ten-year contractual terms.

These option awards typically provide for accelerated vesting

if there is a change in control (as defined in the Plans).

The Company has registered all shares of Common Stock that are issuable under

its Plans with the SEC.

A total of 6,852 shares remained available for awards under the various Plans as of March 31, 2024.

The fair value of each option

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

Activity in the various Plans

during the three months ended March 31, 2025 and 2024 is reflected in the following table:

SCHEDULE OF STOCK OPTIONS OUTSTANDING

Exercise Price

Outstanding at December 31, 2023

Forfeited/expired

Outstanding at September 30, 2024

Exercisable at September 30, 2024

Plans allow for the cashless exercise of stock options.

This provision allows the option holder to surrender/cancel options with an intrinsic

value equivalent to the purchase/exercise price of other options exercised.

There were no shares surrendered pursuant to cashless exercises

during the nine months ended September 30, 2024 and 2023.

aggregate intrinsic value of options outstanding was $- 0 - and $- 0 -, at September 30, 2024 and December 31, 2023, respectively.

The aggregate

intrinsic value of options exercisable was $- 0 - and $- 0 -, at September 30, 2024 and December 31, 2023, respectively.

of September 30, 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, 2024:

OF SHARES AUTHORIZED UNDER STOCK OPTION PLANS BY EXERCISE PRICE RANGE

Outstanding at January 1, 2025

Outstanding at March 31, 2025

Exercisable at March 31, 2025

Exercise Price

Outstanding at January 1, 2024

Outstanding at March 31, 2024

Exercisable at March 31, 2024

The fair value of each option

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

The Plans allow for the cashless

exercise of stock options.

This provision allows the option holder to surrender/cancel options with an intrinsic value equivalent to the

purchase/exercise price of other options exercised.

There were no shares surrendered pursuant to cashless exercises during the three months

ended March 31, 2025 and 2024.

At March 31, 2025 and December

31, 2024, the aggregate intrinsic value of options outstanding was approximately $- 0 - and $- 0 -, respectively, and the aggregate intrinsic

value of options exercisable was approximately $- 0 - and $- 0 -, respectively.

The 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 March 31, 2025:

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

Outstanding options

8 unchanged sentences

$ 1,400.00 to $ 1,799.99

stock grants.

Restricted stock grants.

The Board of Directors has granted restricted stock awards under the Plans.

Restricted stock awards are valued

on the date of grant and have no purchase price for the recipient.

Restricted stock awards typically vest over one to five years corresponding

to anniversaries of the grant date.

Under the Plans, unvested shares of restricted stock awards may be forfeited upon the termination

of service to or employment with the Company, depending upon the circumstances of termination.

Except for restrictions placed on the

transferability of restricted stock, holders of unvested restricted stock have full stockholder’s rights, including voting rights

and the right to receive cash dividends.

summary of all restricted stock activity under the Plans for the three months ended September 30, 2024 is as follows:

Restricted stock awards are valued on the date of grant and

have no purchase price for the recipient.

Restricted stock awards typically vest over one to four years corresponding to anniversaries

of the grant date.

Under the Plans, unvested shares of restricted stock awards may be forfeited upon the termination of service to or

employment with the Company, depending upon the circumstances of termination.

Except for restrictions placed on the transferability of

restricted stock, holders of unvested restricted stock have full stockholder’s rights, including voting rights and the right to

receive cash dividends.

A summary of all restricted stock

activity under the equity compensation plans for the three months ended March 31, 2025 and 2024 is as follows:

OF RESTRICTED STOCK ACTIVITY

Nonvested balance, December 31, 2023

Nonvested balance, September 30, 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, 2024, there were $ 88,399 of total unrecognized compensation costs related to all remaining non-vested restricted stock

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

nonvested balance of restricted stock vests as follows:

OF NON-VESTED BALANCE OF RESTRICTED STOCK

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

Nonvested balance, January 1, 2025

Nonvested balance, March 31, 2025

Nonvested balance, January 1, 2024

Nonvested balance, March 31, 2024

The Company estimated the fair

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

As of March 31, 2025, there

was $ 44,710 of total unrecognized compensation costs related to all remaining non-vested restricted stock grants, which will be amortized

over the next thirty-four months in accordance with their respective vesting scale.

The nonvested balance of restricted

stock vests as follows:

SCHEDULE OF NON-VESTED BALANCE OF RESTRICTED STOCK

2025 (April 1, 2025 to December 31, 2025)

COMMON STOCK PURCHASE WARRANTS

The following table summarizes

information about shares issuable under warrants outstanding during the three months ended March 31, 2025 and 2024:

SCHEDULE OF WARRANT ACTIVITY

exercise price

Balance, January 1, 2025

Issuance February 2025 – Prefunded Warrants

Exercise February 2025 – Prefunded Warrants

( 4,907,500 )

Exercised June 2024 - Series B warrants

Terminated/Cancelled

Balance, March 31, 2025

exercise price

Balance, January 1, 2024

Terminated/Cancelled

Balance, March 31, 2024

intrinsic value of all outstanding warrants aggregated $- 0 -

and $ 2,128,320

as of March 31, 2025 and December 31, 2024, respectively and the weighted average remaining term was 48.5

months as of March 31, 2025 and 2024, respectively.

The 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 March 31, 2025:

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

Outstanding and exercisable warrants

Exercise price

Number of warrants

contractual life

2025 Purchase Warrants

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

The warrant terms provide for net

cash settlement outside the control of the Company under certain circumstances.

As such, the Company is required to treat these warrants

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

changes reported in the consolidated statements of operations as the change in fair value of warrant derivative liabilities.

the Company re-values the fair value of warrant derivative liability as of the date the warrant is exercised with the resulting warrant

derivative liability transitioned to change in fair value of warrant derivative liabilities through the consolidated statement of operations.

Company has utilized the following assumptions in its Black-Scholes option valuation model to calculate the estimated fair value of the

warrant derivative liability relative to the 2023 Purchase Warrants as of their date of issuance and as of September 30, 2024:

OF WARRANT MODIFICATION

date assumptions

September 30, 2024

On February 13,

2025, the Company issued pre-funded units, each consisting of one-prefunded warrant (to purchase a total of 4,907,500

shares of Common Stock), one Series A warrant and one Series B warrant along with the sale of units, each consisting of one share of

Common Stock, one Series A warrant and one Series B warrant.

The Series A and Series B warrants were exercisable only upon receipt

of stockholder approval (the “Stockholder Approval”) to approve each of (i) certain terms in the Series A warrants and

Series B warrants and the issuance of the shares of Common Stock issuable upon the exercise of such warrants, as may be required by

the applicable rules and regulations of The Nasdaq Stock Market LLC and (ii) if necessary, a proposal to amend the Company’s

Articles of Incorporation, as amended, to increase the authorized share capital of the Company to an amount sufficient to cover the

shares of Common Stock issuable upon the exercise of the Series A warrants and Series B warrants.

The Series A Warrants were

exercisable commencing upon the date of public notice of the Stockholder Approval (the “Warrant Stockholder Approval

Date”) until five years after the Warrant Stockholder Approval Date, and the Series B Warrants were exercisable commencing

upon the Warrant Stockholder Approval Date until two and one-half years after the Warrant Stockholder Approval Date.

Both the Series

A and Series B warrants contain reset provisions that are activated upon the date Stockholder Approval is obtained.

terms provide for net cash settlement outside the control of the Company under certain circumstances.

As such, the Company is

required to treat these warrants as derivative liabilities which are valued at their estimated fair value at their issuance date and

at each reporting date with any subsequent changes reported in the condensed 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 condensed consolidated statement of operations.

The pre-funded

warrants were all exercised within days of their issuance therefore their total fair value was estimated to be $ 1,803 at the time of

their exercise which remained the same as their fair value as of the date of issuance.

The following are the assumptions used in

calculating the estimated fair value of the pre-funded warrants to purchase Common Stock which were effective and exercisable upon

issuance on February 13, 2025:

SCHEDULE OF WARRANT MODIFICATION

Pre funded warrants issuance date – February 13, 2025

Volatility – range

2 unchanged sentences

Exercise price

$ 5.50 – 7.50

Common stock issuable under the warrants

During the three months ended

March 31, 2025, the pre-funded warrants to purchase 4.907,500 shares of Common Stock were fully exercised.

In conjunction with the exercise

of the pre-funded warrants, the Company transitioned the related warrant derivative liability totaling $ 1,803 to equity as of their exercise

The warrant derivative liability related to the pre-funded warrants was $- 0 - as of March 31, 2025.

2024 Purchase Warrants

June 25, 2024, the Company issued Series A and prefunded warrants to purchase a total of 1,768,227

shares of Common Stock along with the sale of

common stock.

The Company also issued Series B Warrants that will be exercisable at any time or times on or after the date Stockholder

Approval is obtained.

Both the Series A and Series B warrants have reset provisions that are activated upon the date Stockholder Approval

SUBSEQUENT EVENTS for further information on such reset provisions.

The warrant terms provide for net

cash settlement outside the control of the Company under certain circumstances.

As such, the Company is required to treat these warrants

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

changes reported in the consolidated statements of operations as the change in fair value of warrant derivative liabilities.

the Company re-values the fair value of warrant derivative liability as of the date the warrant is exercised with the resulting warrant

derivative liability transitioned to change in fair value of warrant derivative liabilities through the consolidated statement of operations.

the three and nine months ended September 30, 2024, the prefunded warrants to purchase 573,008 shares of common stock were fully exercised.

Company has utilized the following assumptions in its Black-Scholes option valuation model to calculate the estimated fair value of the

derivative liability relative to the 2024 Purchase Warrants as of their date of issuance and as of September 30, 2024:

On June 25, 2024, the Company

issued Series A and prefunded warrants to purchase a total of 88,411 shares of Common Stock along with the sale of Common Stock.

Company also issued Series B Warrants that will be issuable and exercisable at any time or times on or after the date that relevant stockholder approval

is obtained in addition to the Series A warrants that are not included in outstanding warrants until such time as relevant stockholder approval

Both the Series A and Series B warrants have reset provisions that are activated upon the date relevant stockholder approval is obtained.

The warrant terms provide for net cash settlement outside the control of the Company under certain circumstances.

As such, the Company

is required to treat these warrants as derivative liabilities which are valued at their estimated fair value at their issuance date and

at each reporting date with any subsequent changes reported in the condensed 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 condensed consolidated statement of operations.

The Series B warrants issued in

this transaction become issuable and exercisable on the date that relevant stockholder approval is obtained, if ever.

Relevent stockholder approval was obtained

on December 17, 2024 which activated the Series A and B warrants.

Both the Series A and Series B warrants also contain price and warrant

reset provisions that were activated upon the date of relevant stockholder approval.

The reset provisions increased the number of common shares

issuable under the Series A warrant from 59,761 to 298,805 shares and the exercise price per Series A warrant was reduced from $ 50.20

to $ 10.04 per share effective December 17, 2024.

In addition, the Series B warrants became effective and exercisable upon relevant stockholder approval

on December 17, 2024 which resulted in 238,339 common shares issuable under the Series B warrants with an exercise price of $ 0.001 per

share effective December 17, 2024.

The Company recognized the full Series B warrant derivative liability value of $ 2,865,727 as of the

date of relevant stockholder approval when it became effective and exercisable of which $ 454,150 was recorded in equity and $ 2,411,577 was charged

as a loss in the consolidated statement of operations for the year ended December 31, 2024.

The following are the assumptions used in

calculating the estimated fair value of the detachable Series B warrants to purchase Common Stock which became effective and exercisable

upon relevant stockholder approval on December 17, 2024 and on December 31, 2024:

Series B issuance date - December 17, 2024

Series B - December 31, 2024

Volatility – range

Risk-free rate

Remaining contractual term

Exercise price

Common stock issuable under the warrants

During the year ended December

31, 2024, prefunded warrants to purchase 28,650 shares of Common Stock were fully exercised.

No pre-funded warrants were exercised during

the three months ended March 31, 2025.

In conjunction with the exercise of the Series B warrants, the Company transitioned the related

warrant derivative liability totaling $ 584,955 to equity as of their exercise date in 2024.

The warrant derivative liability related to

the remaining unexercised Series B warrants was $ 1,989,806 as of December 31, 2024.

The change in fair value of the Series B warrant derivative

liability from their issuance date through December 31, 2024 totaled $ 290,965 which was included as a loss in the condensed consolidated

statement of operations for the year ended December 31, 2024.

During the three months ended

March 31, 2025, Series B warrants to purchase 189,689 shares of Common Stock were fully exercised.

In conjunction with the exercise

of the Series B warrants, the Company transitioned the related warrant derivative liability totaling $ 1,989,806 to equity as of their

exercise date.

The warrant derivative liability related to the Series B warrants was $- 0 - as of March 31, 2025, as they are now fully

The Company has utilized the following

assumptions in its Black-Scholes option valuation model to calculate the estimated fair value of the derivative liability relative to

the prefunded warrants and Series A warrants as of their date of issuance and as of December 31, 2024 and March 31, 2025:

date assumptions

September 30, 2024

December 31, 2024

March 31, 2025

Volatility – range

6 unchanged sentences

Common stock issuable under the warrants

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

OF WARRANT ACTIVITY

Weighted average

Vested Balance, December 31, 2023

Forfeited/cancelled

Vested Balance, September 30, 2024

total intrinsic value of all outstanding warrants aggregated $- 0 - as of September 30, 2024.

The 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, 2024:

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

Outstanding and exercisable warrants

The Company recognized the fair

value of the Series A warrants of $ 1,998,074 as a warrant derivative liability as of the date of issuance.

There have been no Series A

warrants exercised through March 31, 2025.

The fair value of the warrant derivative liability related to the Series A warrants was $ 48,457

and $ 2,408,598 as of March 31, 2025 and December 31, 2024, respectively.

The change in fair value of the Series A warrant derivative liability

from December 31, 2024 to March 31, 2025 totaled $ 2,360,141 which was included as a gain in the condensed consolidated statements of operations

for the three months ended March 31, 2025.

2023 Purchase Warrants

On April 5, 2023, the Company

issued warrants to purchase a total of 56,250 shares of Common Stock.

The warrant terms provide for net cash settlement outside the

control of the Company under certain circumstances.

As such, the Company is required to treat these warrants as derivative liabilities

which are valued at their estimated fair value at their issuance date and at each reporting date with any subsequent changes reported

in the condensed 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 condensed consolidated statement of operations.

The 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 March 31, 2025 and as of December 31, 2024:

December 31, 2024

March 31, 2025

Volatility – range

Risk-free rate

Remaining contractual term

Exercise price

Number of warrants

Weighted average

remaining contractual life

STOCKHOLDERS’ EQUITY

Issuance of Restricted Common Stock

January 10, 2023, the board of directors approved the grant of 22,500 shares of common stock to officers of the Company.

will generally vest over a period of one to five years on their respective anniversary dates in January through January 2028, provided

that each grantee remains an officer or employee on such dates .

Additionally, the board of directors approved the grant of 12,500 restricted

common shares to certain new employees of the Company.

Such shares will generally vest over a period of one to two years on their respective

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

110.00 – 150.00

Common stock issuable under the warrants

NOTE 12 - STOCKHOLDERS’ EQUITY

February 2025 Public Equity Offering

On February 13,

2025, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with Aegis Capital Corp.

“Underwriter”) for the sale and issuance of (i) 392,500 units at a public offering price per

unit of $ 3.00 with each Unit consisting of one share of Common Stock, one Series A warrant to purchase

one share of Common Stock at an exercise price of $ 3.75 per share and one Series B warrant to purchase one share of Common Stock at

an exercise price of $ 6.00 and (ii) 4,607,500 pre-funded units at a public offering price of $ 2.98 per pre-funded unit, with each

pre-funded unit consisting of one pre-funded warrant exercisable for one share of Common Stock at an exercise price of $ 0.001 per

share, one Series A warrant and one Series B warrant.

The pre-funded warrants were immediately exercisable and may be exercised

at any time until all of the pre-funded warrants are exercised in full.

The Series A and

Series B warrants are exercisable only upon receipt of stockholder approval of (i) certain terms in the Series A and B warrants and

the issuance of the shares of Common Stock issuable upon the exercise of such Series A and Series B warrants, as may be required by

the applicable rules and regulations of The Nasdaq Stock Market LLC and (ii) if necessary, a proposal to amend the Company’s

Articles of Incorporation, to increase the authorized share capital of the Company to an amount sufficient to cover the shares of

Common Stock issuable upon the exercise of the Series A and Series B warrants.

The Series A warrants will be exercisable commencing

upon the date of public notice of Stockholder Approval until five years after such date, and the Series B Warrants will be

exercisable commencing upon the date of public notice of Stockholder Approval until two and one-half years after such date.

The offering closed on February

The net proceeds to the Company from the offering were approximately $ 13.48 million, after deducting underwriter’s fees

and the payment of other offering expenses associated with the offering payable by the Company.

The Company intends to use the net proceeds

from the offering for working capital and other general corporate purposes, to pay amounts owed under a short-term merchant advance and

to pay in full the aggregate face value of senior secured promissory notes that were previously issued as part of a private placement

that the Company entered into with certain institutional investors on November 6, 2024.

The Company granted the Underwriter

an option to purchase additional shares of Common Stock and/or Series A and Series B warrants of (i) up to 15.0 % of the number of shares

of Common Stock sold in the offering, (ii) up to 15.0 % of the number of Series A warrants sold in the offering and (iii) up to 15.0 % of

the number of Series B warrants sold in the offering.

The Underwriter may exercise this option in whole or in part at any time within

forty-five calendar days after the date of the final prospectus relating to the offering.

The Underwriter may exercise the over-allotment

option with respect to shares of Common Stock only, Series A and Series B warrants only, or any combination thereof.

The purchase price

to be paid per additional share of Common Stock will be equal to the public offering price of one Unit (less $ 0.00001 allocated to each

Series A and Series B warrant), as applicable, less the underwriting discount, and the purchase price to be paid per over-allotment Series

A and Series B warrant will be $ 0.00001 .

On February 14, 2025, the Underwriter exercised its over-allotment option with respect to 300,000

pre-funded warrants/common shares, 750,000 Series A warrants and 750,000 Series B warrants.

Settlement occurred on April 17, 2025.

Aegis Capital Corp.

the sole book-running manager in the offering, pursuant to the terms of the Underwriting Agreement, and received seven percent ( 7 %) of

the aggregate purchase price paid by investors in the offering, a one percent ( 1 %) non-accountable expense and reimbursement of the legal

fees of its counsel.

The units and pre-funded units were offered by the

Company pursuant to an effective registration statement on Form S-1, as amended, which was declared effective by the SEC on February 12,

The final prospectus relating to the offering was filed with the SEC on February 13, 2025.

The aggregate net proceeds to

the Company from the offering including the underwriters exercise of their overallotment option were approximately $ 14,308,300 , after

deducting underwriter’s fees and the payment of other offering expenses associated with the offering payable by the Company.

2024 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.

In January 2024, the board of

directors approved the grant of 2,750 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 1,260 restricted common shares to certain new employees

of the Company.

Such shares will generally vest over a period of one 1 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.

2024 Private Placement Transaction

June 24, 2024, the Company entered into a private placement transaction (the “Private Placement”), pursuant to a Securities

Purchase Agreement (the “Securities Purchase Agreement”) with certain institutional investors (the “Purchasers”)

for aggregate gross proceeds of approximately $ 2.9 million, before deducting fees to the placement agent and other expenses payable by

the Company in connection with the Private Placement.

part of the Private Placement, the Company issued an aggregate of 1,195,219 units and pre-funded units (collectively, the “Units”)

at a purchase price of $ 2.51 per unit (less $ 0.0001 per pre-funded unit).

Each Unit consists of (i) one share of common stock, par value

$ 0.001 per share, of the Company (the “Common Stock”) (or one pre-funded warrant to purchase one share of Common Stock (the

“Pre-Funded Warrants”)), (ii) one Series A warrant to purchase one share of Common Stock (the “Series A Warrant”)

and (iii) one Series B warrant to purchase such number of shares of Common Stock as will be determined on the Reset Date and in accordance with the terms therein (the “Series B Warrant”, and together with the Series A Warrant, the “Warrants”).

of Restricted Stock

the nine months ended September 30, 2024 and 2023, the Company cancelled 51,072

and 3,625 shares due to termination of employees, respectively.

On June 24, 2024, the Company

entered into a private placement transaction (the “Private Placement”), pursuant to a Securities Purchase Agreement (the “Securities

Purchase Agreement”) with certain institutional investors (the “Purchasers”) for aggregate gross proceeds of approximately

$ 2.9 million, before deducting fees to the placement agent and other expenses payable by the Company in connection with the Private Placement.

As part of the Private Placement,

the Company issued an aggregate of 59,761 units and pre-funded units (collectively, the “June Units”) at a purchase price

of $ 50.20 per unit (less $ 0.001 per pre-funded unit).

Each June Unit consists of (i) one share of Common Stock (or one pre-funded warrant to purchase one share of Common Stock (the “Pre-Funded

Warrants”)), (ii) one Series A warrant to purchase one share of Common Stock (the “Series A Warrant”) and (iii) one

Series B warrant to purchase such number of shares of Common Stock as will be determined on the Reset Date and in accordance with the

terms therein (the “Series B Warrant”, and together with the Series A Warrant, the “Warrants”).

Securities Purchase Agreement and Senior Secured

Promissory Notes

On November 6, 2024, the Company

entered into a Securities Purchase Agreement (the “SPA”) with certain institutional investors, pursuant to which the Company

agreed to issue and sell to such investors, in a private placement transaction, (i) senior secured promissory notes in aggregate principal

amount of $ 3,600,000 , and (ii) 40,419 shares (the “Commitment Shares”) of the Company’s Common Stock, for aggregate

gross proceeds of approximately $ 3.0 million, before deducting placement agent fees and other offering expenses payable by the Company.

This private placement closed on November 7, 2024.

The net proceeds of the private

placement on November 7, 2024 was $ 2,669,250 (after $ 330,750 deduction of costs of the offering).

The Company allocated the net proceeds

from the private placement of the senior secured promissory notes and the commitment shares based upon their relative fair values as of

the date of issuance as follows:

SCHEDULE OF NET PROCEEDS FROM THE PRIVATE PLACEMENT

Allocated to the following:

Senior secured promissory notes

Commitment shares

Cancellation of Restricted Stock

During the three months ended

March 31, 2025 and 2024, the Company cancelled - 0 - and 56 shares due to termination of employees, respectively.

Exercise of Prefunded Warrants

the nine months ended September 30, 2024, the prefunded warrants to purchase 573,008 shares of common stock were fully exercised.

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

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

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

The Reverse Stock Split was

effective as of time of filing.

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

Any fractional shares

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

connection with the Reverse Stock Split, our board approved appropriate and proportional adjustments to all outstanding securities

or other rights convertible or exercisable into shares of our Common Stock, including, without limitation, all preferred stock,

warrants, options, and other equity compensation rights.

All historical share and per-share amounts reflected throughout our

condensed consolidated financial statements and other financial information in this Report have been adjusted to reflect the Reverse

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

The par value per share of our common stock was not

affected by the Reverse Stock Split.

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”.

During the three months ended

March 31, 2025, prefunded warrants to purchase 4,907,500 shares of Common Stock that were issued in conjunction with the February 2025

public equity offering of Common Stock, were fully exercised at an exercise price of $ 0.001 per share.

During the three months ended

March 31, 2025, Series B warrants to purchase 189,689 shares of Common Stock that were issued in conjunction with the June 2024 public

equity offering of Common Stock, were fully exercised for total proceeds of $ 3,793 .

In conjunction with the exercise of the Series B warrants,

the Company transitioned the related warrant derivative liability totaling $ 1,989,806 to equity as of their exercise date.

Reverse Stock Split

On May 6, 2025, the Company, acting pursuant to authority received at an annual meeting of its stockholders on December 17, 2024, filed

with the Secretary of State of the State of Nevada the Charter Amendment to its Articles of Incorporation, which effected a one-for-twenty

reverse stock split of all of the Company’s outstanding shares of Common Stock.

Pursuant to the Charter Amendment, the Reverse Stock

Split became effective as of 5:30 p.m.

Eastern Time on May 6, 2025.

As a result of the Reverse Stock Split, every twenty (20) shares of

Common Stock were exchanged for one (1) share of Common Stock.

The Common Stock began trading on the Nasdaq Capital Market on a split-adjusted

basis at the start of trading on May 7, 2025.

The Reverse Stock Split did not affect the total number of shares of capital stock, including

the Common Stock, that the Company is authorized to issue, which remain as set forth pursuant to the Articles of Incorporation.

No fractional

shares of Common Stock were issued in connection with the Reverse Stock Split.

Stockholders who otherwise were entitled to receive fractional

shares of Common Stock were automatically entitled to receive an additional fraction of a share of Common Stock to round up to the next

whole share, at a participant level.

The Reverse Stock Split also had a proportionate effect on all other options and warrants of the

Company outstanding as of the effective date of the Reverse Stock Split.

The Reverse Stock Split was effective as of the time of this

Noncontrolling Interests

The 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 condensed consolidated statement of operations as “net income

(loss) attributable to noncontrolling interests of consolidated subsidiary”.

We reported net

loss (income) attributable to noncontrolling interests of consolidated subsidiary of $ 2,000,206 and

$( 29,360 ) for

the three months ended September 30, 2024 and 2023, and $ 1,939,143 and

$( 228,624 ) for

the nine months ended September 30, 2024 and 2023, respectively.

(loss) income attributable to noncontrolling interests of consolidated subsidiary of $ 3,611 and $ 12,248 for the three months ended March

31, 2025 and 2024, respectively.

RELATED PARTY TRANSACTIONS

Transactions with Managing Member of Nobility

The Company accrued reimbursable

expenses payable to Nobility, LLC totaling $ 271,487 and $ 245,716 as of March 31, 2025 and December 31, 2024, respectively.

Total management

fees accrued and payable in accordance with the operating agreement totaled $ 9,321 and $ 38,625 as of March 31, 2025 and December 31, 2024,

respectively.

The company recorded management fee expense of $ 9,321 and $ 12,379 for the three months ended March 31, 2025 and 2024, respectively.

Transactions with Related Party of TicketSmarter

On 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.

transaction was recorded as a related party note payable (the “TicketSmarter Related Party Note”).

The TicketSmarter Related

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

As of December 31, the entire TicketSmarter Related

Party note balance totaled $ 2,700,000 , and is classified as current, with an accrued interest balance of $ 488,711 , respectively.

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

to resolve such outstanding payables is recognized as a gain on extinguishment of liabilities on the condensed consolidated statement

of operations.

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

On August 19, 2024, the parties

agreed to amend the note whereby the repayment dates were extended to begin on January 2, 2025 and continue at $ 54,000 for 50 consecutive

weeks plus interest.

The parties did not change any other provisions or terms of the note.

The amendment was determined to be a modification

of the note rather than an extinguishment and reissuance of a new note.

No payments have been made to date in 2025.

On March 20, 2025, the parties

agreed to a second modification of the TicketSmarter Related Party Note.

The modification eliminated all accrued interest totaling $ 582,203

as of the date of the second modification, reduced the interest rate from 13.25 % per annum to 8 % per annum, and extended and reduced the

repayment amount from $ 54,000 per week to $ 11,000 per week beginning April 1, 2025.

The modification was deemed to be an extinguishment

of debt resulting in a gain on extinguishment of note payable – related party of $ 1,249,372 during the three months ended March

Company Related Party Note

On August 22, 2024, Digital Ally’s

Chief Executive Officer, made a loan in the amount of $ 100,000 to the Company to support its operations.

In addition, on October 24, 2024,

Digital Ally’s Chief Executive Officer, made an additional loan in the amount of $ 40,000 to the Company to support its operations.

These transactions were recorded as related party notes payable (the “Company Related Party Notes”).

The Company Related Party

Notes bear interest at prime rate ( 8.00 % as of March 31, 2025 and December 31, 2024) per annum with repayment due on demand.

paid off the Company Related Party Notes in full during the three months ended March 31, 2025.

As of December 31, 2024, the entire Company

Related Party note of $ 140,000 , is classified as current, with an accrued interest balance of $ 3,465 .

The Company Related Party Notes

balance is $- 0 - and $ 140,000 and an accrued interest balance of $- 0 - and $ 3,465 as of March 31, 2025 and December 31, 2024, respectively.

GAIN ON EXTINGUISHMENT OF LIABILITIES

recorded gains on the extinguishment of liabilities for the three months ended March 31, 2025 and 2024 of $ 2,220,097 ,

and $ 682,345 ,

respectively.

The gains reflect income related to the video solutions and entertainment segment’s ability to negotiate down

payables and other contract obligations during the three months ended March 31, 2025 utilizing funds generated by the closing of the

February 2025 public equity offering on February 13, 2025.

The discount received was recognized as a gain on extinguishment of

liabilities in the condensed consolidated statement of operations for the three months ended March 31, 2024.

extinguishment of liabilities was $ 682,345

for the three months ended March 31, 2024, reflects income related to the entertainment segment’s ability to negotiate down

payables and other contract obligations during the period.

The Company utilized funds from the related party note payable to resolve

numerous outstanding payables at a discounted rate, the discount received was recognized as a gain on extinguishment of liabilities

in the condensed consolidated statement of operations for the three months ended March 31, 2024.

NET INCOME (LOSS) PER SHARE

The calculation of the weighted

average number of shares outstanding and income (loss) per share outstanding for the three months ended March 31, 2025 and 2024 are as

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

Three Months ended

Numerator for basic and diluted income (loss) per share – Net loss attributable to common stockholders

$ ( 3,931,020 )

Denominator for basic income (loss) per share – weighted average shares 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

Net income (loss) per share:

Basic loss per share is based

upon the weighted average number of shares of Common Stock outstanding during the period.

For the three months ended March 31, 2025 and

2024, 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.

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”).

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.

On 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.

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.

The Company accounts for business

combinations using the acquisition method and that the Company has early adopted the amendments of Regulation S-X dated May 21, 2020 and

has concluded that this acquisition was not significant.

Accordingly, the presentation of the assets acquired, historical financial statements

under Rule 3-05 and related pro forma information under Article 11 of Regulation S-X, respectively, are not required to be presented.

Under the acquisition method, the purchase price of the 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 condensed

consolidated financial statements.

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 assets.

The preliminary estimated fair value of assets acquired, and liabilities assumed

in the Country Stampede Acquisition were as follows:

OF ESTIMATED FAIR VALUE OF ASSETS ACQUIRED AND LIABILITIES ASSUMED ACQUISITION

(Preliminary)

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.

of operations of acquired businesses are included in the condensed consolidated statement of operations from the acquisition date.

The 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 has finalized the estimated fair value of assets acquired,

and liabilities assumed in the Country Stampede Acquisition which are as follows:

SCHEDULE OF PRELIMINARY FAIR VALUE OF ASSETS ACQUIRED AND LIABILITIES ACQUISITION

March 1, 2024

3 unchanged sentences

Liabilities assumed

Liabilities assumed pursuant to stock purchase agreement

Net assets acquired and liabilities assumed

3 unchanged sentences

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

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.

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.

Operating segments are identified

as components of an enterprise for which separate discrete financial information is available for evaluation by the chief operating decision

maker (the Company’s Chief Executive Officer or “CODM”) in making decisions on how to allocate resources and assess

The Company’s three operating segments are Video Solutions, Revenue Cycle Management, and Entertainment, each of which

has specific personnel responsible for that business and reports to the CODM.

Corporate expenses capture the Company’s corporate

administrative activities, is also to be reported in the segment information.

The Company’s captive insurance subsidiary provides

services to the Company’s other business segments and not to outside customers.

Therefore, its operations are eliminated in consolidation

and is not considered a separate business segment for financial reporting purposes.

Video Solutions Segment encompasses our law, commercial, and Shield™ divisions.

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.

Company’s corporate administration activities are reported in the corporate line item.

These activities primarily include expense

related to certain corporate officers and support staff, certain accounting staff, expense related to the Company’s Board of Directors,

stock option expense for options granted to corporate administration employees, certain consulting expenses, investor relations activities,

and a portion of the Company’s legal, auditing and professional fee expenses.

Corporate identifiable assets primarily consist of

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, 2024, and 2023:

During 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.

OPERATING SEGMENTS

The Company adopted ASU 2023-07

in 2024 and applied the amendment retrospectively to all periods presented in the Company’s condensed consolidated financial statements.

Segment financial information is prepared in accordance with GAAP and our significant accounting policies described in Note 1.

are allocated and performance is assessed using segment operating income by our Chief Executive Officer, whom we have determined to be

our Chief Operating Decision Maker (“CODM”).

Our CODM utilizes segment operating income when making decisions about allocating

capital and personnel to the segments, predominantly in the annual budget and quarterly forecasting processes.

In addition, our CODM uses

operating income, including comparison of actual results to budget and forecast, in assessing the performance of each segment and in evaluating

product pricing, distribution strategies and marketing investments.

Our CODM reviews balance sheet information at a consolidated level.

We compute segment operating income based on net sales revenue, less cost of goods sold, SG&A, asset impairment charges and restructuring

The SG&A used to compute each segment’s operating income is directly associated with the segment.

We do not allocate

non-operating income and expense, including interest or income taxes, to operating segments.

We operate in three strategic

business segments.

The Video Solutions Segment encompasses our law, commercial, and shield divisions.

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

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

The Company’s corporate

administration activities are reported in the corporate line item.

These activities primarily include expense related to certain corporate

officers and support staff, certain accounting staff, expense related to the Company’s Board of Directors, stock option expense

for options granted to corporate administration employees, certain consulting expenses, investor relations activities, and a portion of

the Company’s legal, auditing and professional fee expenses.

Corporate identifiable assets primarily consist of cash, invested cash

(if any), refundable income taxes (if any), and deferred income taxes.

Summarized financial information

for the Company’s reportable business segments is provided for the three months ended March 31, 2025, and 2024:

SCHEDULE OF SEGMENT REPORTING

For the three months ended September 30,

For the nine months ended September 30,

Net Revenues:

Video Solutions

Revenue Cycle Management

Entertainment

Total Net Revenues

Gross Profit:

Three months ended March 31, 2025

Video Solutions

Revenue Cycle Management

Entertainment

Total Gross Profit

Operating Income (loss):

Video Solutions

$ ( 1,311,143 )

$ ( 1,909,246 )

cycle Management

Corporate and other

Net revenues:

Total segment net revenues

Less significant segment

Cost of Revenue - Product

Cost of Revenue – Service and

Research and development expense

Selling, advertising and

promotional expense

General and administrative

Total segment operating income (loss)

$ ( 304,578 )

Revenue Cycle Management

$ ( 844,752 )

$ ( 974,680 )

Non-operating (expenses) income:

Interest expense

Change in fair value of derivative liabilities

Gain on the extinguishment of liabilities

Gain on extinguishment of debt – related party

Other non-operating income (loss)

Total non-operating income (loss)

Income before income tax benefit (provision)

Depreciation and amortization expense

Total identifiable assets, net of

Three months ended March 31, 2024

Video Solutions

Entertainment

( 1,516,934 )

( 1,256,681 )

( 3,987,415 )

( 2,818,617 )

( 1,691,086 )

( 2,623,421 )

( 5,083,070 )

cycle Management

Corporate and other

Net revenues:

Total segment net revenues

Less significant segment

Cost of Revenue - Product

Cost of Revenue – Service and

Research and development

Selling, advertising and

promotional expense

General and administrative

Total segment operating

income (loss)

$ ( 1,446,883 )

Total Operating Income (Loss)

$ ( 642,219 )

1 unchanged sentence

$ ( 3,639,034 )

Non-operating (expenses) income:

Interest expense

Change in fair value of derivative liabilities

Gain on the extinguishment of liabilities

Other non-operating income (loss), net

Total non-operating income (loss)

Loss before income tax benefit (provision)

$ ( 3,943,268 )

Depreciation and amortization

Video Solutions

Revenue Cycle Management

Entertainment

Total Depreciation and Amortization

Assets (net of eliminations):

Video Solutions

Revenue Cycle Management

Entertainment

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 $ 4,144,749 and a reserve for the entertainment segment of $ 78,241 as of September 30, 2024.

segment net revenues reported above represent sales to external customers.

Segment gross profit represents net revenues less cost of

Segment operating income, which is used in management’s evaluation of segment performance, represents net revenues, less

cost of revenues, less all operating expenses.

Total identifiable assets, net of

The segment net revenues reported

above represent sales to external customers.

Segment gross profit represents net revenues less cost of revenues.

Segment operating income,

which is used in management’s evaluation of segment performance, represents net revenues, less cost of revenues, less all operating

Identifiable assets are those assets used by each segment in its operations.

assets primarily consist of cash, property, plant and equipment, accounts receivable, inventories, and other assets.

RELATED PARTY TRANSACTIONS

with Managing Member of Nobility Healthcare

Company accrued reimbursable expenses payable to Nobility, LLC totalling $ 294,715 and

of September 30, 2024 and $ 265,241 as of December 31, 2023 and management fees in accordance with the operating agreement of $ 6,877 as

of September 30, 2024 and $ 36,502 as of December 31, 2023.

The Company recorded management fees of $ 29,280 and

the nine months ended September 30, 2024 and 2023.

with Related Party of TicketSmarter

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 Note”).

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

As of September 30,

2024, the entire TicketSmarter Related Party note is $ 2,700,000 , is classified as current, with an accrued interest balance of $ 384,545 .

The use of proceeds of the TicketSmarter Related Party Note was to resolve numerous outstanding payables at a discounted rate, the discount

received to resolve such outstanding payables 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.

Company Related Party

On August 22, 2024, Digital Ally’s Chief Executive Officer, made a loan in the amount of $100,000 to the Company to support its

The transaction was recorded as a related party note payable (the “Company Related Party Note”).

The Company Related

Party Note bears interest at the prime Rate (8.00% as of September 30, 2024) per annum with repayment due on demand.

As of September 30,

2024, the entire Company Related Party note of $100,000, is classified as current, with an accrued interest balance of $854.

Corporate assets primarily consist of cash, property,

plant and equipment, accounts receivable, inventories, and other assets.

SUBSEQUENT EVENTS

and Reservation Letter

March 1, 2024, the Company entered into a Note Purchase Agreement (the “Agreement”), by and between the Company and its wholly-owned

subsidiary of the Company (the “Borrowers”), and Mosh Man, LLC, (the “Purchaser”), pursuant to which the Borrowers

issued to the Purchaser a Senior Secured Promissory Note (the “Original Note”), as modified pursuant to a Letter Agreement

dated July 13, 2024, as further modified by a Letter Agreement dated September 12, 2024, and as further modified pursuant to an Amended

and Restated Promissory Note, dated September 25, 2024 (the “Amended Note”, and together with the Original Note, the “Note”).

In connection with the Agreement, the Borrowers entered into a security agreement by and between the Borrowers, as grantor, and the Purchaser,

October 22, 2024, the Company received a Default and Reservation Letter (the “Default Notice”) from counsel for the administrative

agent for the Note, (i) notifying the Company that it is in default under the Note for, among other reasons, failing to make a $ 100,000

payment that was due on October 10, 2024, (ii) accelerating all principal and interest payments due under the Note, and (iii) demanding

the Borrowers enter into a lockbox control agreement within ten (10) business days of the date of the Default Notice.

As of the date

of the Default Notice, the outstanding obligation of the Company under the Note was approximately $ 1,600,000 .

October 24, 2024, the Company received a Notice of UCC Article 9 Public Sale (the “Sale Notice”) from counsel to the administrative

agent for the Note notifying the Company that it intended to conduct a public sale of the collateral securing the Company’s obligations

under the Note and Security Agreement on November 5, 2024.

further described below, the Company raised sufficient funds through a private placement which closed on November 7, 2024, to repay the

Note in full.

The Company’s full repayment of the outstanding obligations under such promissory note effectively cured all defaults

under the Agreement and terminated the public sale process of the collateral securing the Borrowers’ obligations thereunder.

Purchase Agreement

November 6, 2024, the Company entered into a Securities Purchase Agreement (the “SPA”) with certain institutional investors

(the “Purchasers”), pursuant to which the Company agreed to issue and sell to such Purchasers, in a private placement transaction,

(i) senior secured promissory notes in aggregate principal amount of $ 3,600,000 (the “Notes”), and (ii) 808,377 shares (the

“Commitment Shares”) of the Company’s common stock, for aggregate gross proceeds of approximately $ 3.0 million, before

deducting placement agent fees and other offering expenses payable by the Company.

This private placement closed on November 7, 2024

(the “Closing Date”).

to the SPA, the Company was required to use approximately $ 2,015,623 of the net proceeds from the private placement to pay, in full,

all liabilities, obligations and indebtedness owing by the Company and its subsidiary, Kustom Entertainment, Inc., to Mosh Man, LLC (the

Company’s full repayment of the outstanding obligations under such promissory note effectively cured all defaults under the promissory

note and terminated the public sale process of the collateral securing the Borrowers’ obligations thereunder.

Company anticipates that the remaining net proceeds from the Private Placement after repayment of the Mosh Man promissory note, and after

deducting placement agent fees and other offering expenses, will meet the Company’s capital needs for approximately three months,

subsequent to which the Company anticipates that it will need to raise additional funds to implement its business plan and to service

its ongoing operations.

The Company also anticipates pursuing the sale of its video solutions business in the short term.

to the SPA, the Company is required to file within 30 days of the Closing Date a registration statement with the SEC for a public offering

and use its reasonable best efforts to pursue and consummate a follow-on financing transaction within 90 days of the Closing Date.

proceeds of the public offering shall be first used for the repayment of the principal amounts of the Notes.

The Company is also required

to file within 30 days of the Closing Date a registration statement on Form S-1 (or other appropriate form if the Company is not then

S-1 eligible) providing for the resale by the Purchasers of the Commitment Shares issued under the SPA.

The Company is required to use

commercially reasonable efforts to cause such registration statement to become effective within 60 days following the filing thereof

and to keep such registration statement effective at all times until no Purchaser owns any Commitment Shares.

pursuant to the SPA, the Company was required to complete the following:

(i) the Company’s board of directors shall approve an

amendment to the Company’s bylaws setting the quorum required for a special meeting of stockholders to one-third of all stockholders

entitled to vote at such special meeting and (ii) the Company shall file with the SEC a preliminary proxy statement on Schedule 14A announcing

a meeting of stockholders for the purpose of approving the Series A and Series B warrants issued by the Company on June 25, 2024.

Secured Promissory Notes

Notes mature ninety (90) days following their issuance date (the “Maturity Date”) and shall accrue no interest unless and

until an Event of Default (as defined in the Notes) has occurred, in which case interest shall accrue at a rate of 14% per annum during

the pendency of such Event of Default.

In addition, upon customary Events of Default, the Purchasers may require the Company to redeem

all or any portion of the Notes in cash with a 125% redemption premium.

The Purchasers may also require the Company to redeem all or

any portion of the Notes in cash upon a Change of Control, as defined in the Notes, at the prices set forth therein.

Upon a Bankruptcy

Event of Default (as defined in the Notes), the Company shall immediately pay to the Purchasers an amount in cash representing 100% of

all outstanding principal, accrued and unpaid interest, if any, in addition to any and all other amounts due under the Notes, without

the requirement for any notice or demand or other action by the Purchaser or any other person.

the Company engages in one or more subsequent financings while the Notes are outstanding, the Company will be required to use at

least 100 % of the gross proceeds of such financing to redeem all or any portion of the Notes outstanding.

The Company may also

prepay the Notes in whole or in part at any time or from time to time.

The Notes also contain customary representations and

warranties and covenants of each of the parties.

Subject to certain exceptions, the Notes are secured by a first lien and continuing

security interest in and to the Collateral (as defined in the Notes).

of Failure to Satisfy a Continued Listing Rule

November 25, 2024, the Company received a notice (the “Notice”) from the Nasdaq Stock Market LLC, which indicated that, as

a result of the Company’s delay in filing its Quarterly Report on Form 10-Q for the period ended September 30, 2024, the Company

was not in compliance with Nasdaq Listing Rule 5250(c)(1), which requires Nasdaq-listed companies to timely file all required periodic

financial reports with the U.S.

Securities and Exchange Commission.

Notice states that the Company has until January 24, 2025, to submit to Nasdaq an update to its plan to regain compliance with the Rule.

The Notice also indicates that any additional exception to allow the Company to regain compliance with all delinquent filings will be

limited to up to 180 calendar days from the due date of the Initial Delinquent Filing, or until May 19, 2025.

The Notice has no immediate

effect on the listing of the Company’s securities on Nasdaq.

Company continues to work diligently to complete its Quarterly Report and plans to file its Quarterly Report as promptly as possible

to regain compliance with the Rule.

December 20, 2024, the Company

received a written notification from The Nasdaq Stock Market LLC indicating that the Company was not in compliance with Nasdaq Listing Rule

5550(a)(2) (the “Minimum Bid Price Requirement”), as the Company’s closing bid price for its common stock was below

$ 1.00 per share for the prior thirty (30) consecutive business days.

The Company has been granted a 180-calendar day compliance period,

or until June 18, 2025, to regain compliance with the Minimum Bid Price Requirement.

If the Company is not

in compliance by June 18, 2025, the Company may be afforded a second 180-calendar day compliance period.

If the Company does not regain

compliance within such compliance period, including any granted extensions, its common stock may be subject to delisting, which

Special Shareholder Meeting

On Tuesday, May 6, 2025, the Company

held its special meeting of stockholders.

Set forth below are each of the three proposals that were voted on at the Special Meeting and

the stockholder votes on each such proposal, as certified by the inspector of elections for the Special Meeting.

These proposals are described

in further detail in the Definitive Proxy Statement on Schedule 14A that the Company filed with the SEC on March 4, 2025.

Proposal One:

Approval of an

amendment to our Articles of Incorporation to increase the number of authorized shares of our capital stock that we may issue from

210,000,000 shares to 5,010,000,000 shares, of which 5,000,000,000 shares shall be classified as Common Stock.

The proposal was not

Proposal Two:

of a proposal to authorize the board of directors of the Company (the “Board”), in its sole and absolute discretion, and without

further action of the stockholders, to file an amendment to our Articles of Incorporation to effect a reverse stock split of our issued

and outstanding Common Stock at a ratio to be determined by the Board, ranging from one-for-five (1:5) to one-for-one hundred (1:100),

with such reverse stock split to be effected at such time and date, if at all, as determined by the Board in its sole discretion, but

no later than April 1, 2026, when the authority granted in this proposal to implement the reverse stock split would terminate.

proposal was approved.

Proposal Three:

Authorization,

for purposes of complying with Nasdaq listing rule 5635(d), of the issuance of Series A Warrants to purchase shares of Common Stock

(the “Series A Warrants”) and Series B Warrants to purchase shares of Common Stock (the “Series B Warrants”

and collectively with the Series A Warrants, the “Warrants”), shares of Common Stock underlying the Warrants and certain

provisions of the Warrants, issued in connection with an offering and sale of securities of the Company that was consummated on

February 14, 2025.

The proposal was approved

Reverse Stock Split

On May 6, 2025, the

Company, acting pursuant to authority received at an annual meeting of its stockholders on December 17, 2024, filed with the Secretary

of State of the State of Nevada the Charter Amendment to its Articles of Incorporation, which effected a one-for-twenty reverse stock split of all of the Company’s outstanding shares of Common Stock.

Pursuant to the Charter Amendment, the Reverse Stock Split became

effective as of 5:30 p.m.

Eastern Time on May 6, 2025.

As a result of the Reverse Stock Split, every twenty (20) shares of Common Stock

were exchanged for one (1) share of Common Stock.

The Common Stock began trading on the Nasdaq Capital Market on a split-adjusted basis

at the start of trading on May 7, 2025.

The Reverse Stock Split did not affect the total number of shares of capital stock, including

the Common Stock, that the Company is authorized to issue, which remain as set forth pursuant to the Articles of Incorporation.

No fractional

shares of Common Stock were issued in connection with the Reverse Stock Split.

Stockholders who otherwise were entitled to receive fractional

shares of Common Stock were automatically entitled to receive an additional fraction of a share of Common Stock to round up to the next

whole share, at a participant level.

The Reverse Stock Split also had a proportionate effect on all other options and warrants of the

Company outstanding as of the effective date of the Reverse Stock Split.

The Reverse Stock Split was effective as of the time of this

Notices of Failure to Satisfy a Continued Listing

Minimum Bid Price Requirement

- December 20, 2024, the Company received a written notification from The Nasdaq Stock Market LLC indicating that the Company was not

in compliance with Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Price Requirement”), as the Company’s closing bid

price for its Common Stock was below $ 1.00 per share for the prior thirty (30) consecutive business days.

The Company has been granted

a 180-calendar day compliance period, or until June 18, 2025, to regain compliance with the Minimum Bid Price Requirement.

If the Company

is not in compliance by June 18, 2025, the Company may be afforded a second 180-calendar day compliance period.

If the Company does not

regain compliance within such compliance period, including any granted extensions, its Common Stock may be subject to delisting, which

delisting may be appealed to a Nasdaq hearings panel.

Common Stock Warrant Reset

On June 24, 2024, the Company entered into a private placement transaction as previously described in NOTE 12.

STOCKHOLDERS’ EQUITY (the “June 2024 Private Placement”).

As part of the June 2024 Private Placement, the Company

issued an aggregate of 1,195,219 units and pre-funded units at a purchase price of $ 2.51 per unit (less $ 0.00001 per pre-funded unit).

Each Unit consisted of (i) one share of common stock, par value $ 0.001 per share, of the Company (the “Common Stock”) (or

one pre-funded warrant to purchase one share of Common Stock), (ii) one Series A warrant to purchase one share of Common Stock (the “Series

A Warrant”) and (iii) one Series B warrant to purchase such number of shares of Common Stock as will be determined on the Reset

Date (as defined below) and in accordance with the terms therein.

The Pre-Funded Warrants were immediately exercisable at an exercise

price of $ 0.0001 per share of Common Stock and were fully exercised in August 2024.

The Series A Warrants became issued and exercisable

on and after the date Stockholder Approval was obtained, has an initial exercise price of $ 2.51 per share of Common Stock and a term of

5 years after the date that the Company obtains Stockholder Approval.

Such Stockholder Approval was obtained at the annual meeting of

shareholders held on December 17, 2024 as described below.

The Series A and B Warrants are now issued and exercisable at any time after

the date Stockholder Approval was obtained (December 17, 2024).

Both the Series A and B warrants are subject to price and quantity resets

based on the lowest daily weighted average trading price of the shares of Common Stock during a period of 20 trading days, subject to

a pricing reset floor of $ 0.502 per share of Common Stock.

Based on the Stockholder Approval date of December 17, 2024 and the weighted

average trading price experienced, the Series A and B warrants both reset to the floor price of $ 0.502 per share and the number of shares

underlying the Series A Warrants and Series B Warrants were reset to approximately 5,976,095 shares and 4,780,877 shares, respectively.

Both the Series A and B warrants are now fully issued and exercisable subsequent to December 17, 2024 .

Common Stock Issuance

issued 698,000 shares

of common stock subsequent to September 30, 2024, upon the exercise of common stock purchase Series B warrants.

On November 6, 2024, the Company entered into a SPA with certain institutional

investors, pursuant to which the Company issued to such institutional investors, in a private placement transaction, (i) senior secured

promissory notes in aggregate principal amount of $ 3,600,000 , and (ii) 808,377 shares of the Company’s common stock, for aggregate

gross proceeds of approximately $ 3.0 million.

of Material Definitive Agreement.

June 1, 2023, the Company and its wholly owned subsidiary Kustom Entertainment, Inc.

(“Kustom”) entered into an Agreement

and Plan of Merger (the “Merger Agreement”) with Clover Leaf Capital Corp., (“Clover Leaf”), and their subsidiary

whereby Kustom and Clover Leaf would merge.

November 7, 2024, pursuant to provisions of the Merger Agreement, the Company, Clover Leaf, and related entities the parties entered

into a Mutual Termination and Release Agreement (the “Termination Agreement”) to terminate the Merger Agreement.

of the Termination Agreement, the Merger Agreement was fully terminated and is of no further force and effect.

to Company Bylaws

November 6, 2024, the Company adopted Amendment No.

1 to its Corporate Bylaws with the approval of the Company’s board of directors.

The Bylaws were amended to reduce the quorum requirement at any meeting of the Company’s stockholders to thirty-three and one-third

percent (33 1/3%) of the stock issued and outstanding and entitled to vote at such meeting.

Company held its annual meeting of stockholders (the “Annual Meeting”) on December 17, 2024 for the following purpose:

elect four directors;

ratify the appointment of RBSM LLP as our independent registered public accounting firm;

approve the transactions contemplated by the securities purchase agreement, entered into as of June 24, 2024, by and between the

Company and investors, including, the issuance of 20 % or more of our outstanding shares of common stock, par value $ 0.001 per share

(the “Common Stock”) upon (i) exercise of Series A Common Stock Purchase Warrant;

and (ii) exercise of Series B Common

Stock Purchase Warrant, each dated June 25, 2024 ;

To approve a proposal to authorize the board of directors of the Company, in its sole and absolute discretion, and without further action of the stockholders, to file an amendment to our articles of incorporation, to effect a reverse stock split of our issued and outstanding Common Stock at a ratio to be determined by the Board, ranging from one-for-five (1:5) to one-for-twenty (1:20) , with such reverse stock split to be effected at such time and date, if at all, as determined by the Board in its sole discretion, but no later than December 16, 2025, when the authority granted in this proposal to implement the reverse stock split would terminate.

above matters were approved by the stockholders at the Annual Meeting on December 17, 2024.

As a result, the Notice of

Failure to Satisfy a Continued Listing Rule described in NOTE 9.

COMMITMENTS AND CONTINGENCIES has been cured with the

election of four members to serve on our Board of Directors at the Annual Meeting on December 17, 2024.

Minimum Stockholders’

Equity Standard - On January 2, 2025, the Company received a notice (the “Notice”) from the staff of the Listing Qualifications

department (the “Staff”) of Nasdaq, which indicated that the Company was not in compliance with Nasdaq Listing Rule 5550(b)(1)

(the “Stockholders’ Equity Requirement”), as the Company’s stockholders’ equity of ($ 2,448,310 ) , as reported

in the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2024, was below the required minimum

of $ 2.5 million, and the Company did not meet either the alternative compliance standards relating to market value of listed securities

of at least $ 35 million or net income from continuing operations of at least $ 500,000 in the most recently completed fiscal year or in

two of the last three most recently completed fiscal years.

Under Nasdaq listing rules and

as specified in the Notice, the Company has 45 calendar days from the date of the Notice to submit to the Staff a plan to regain compliance

with the Stockholders’ Equity Requirement.

If the Company’s plan to regain compliance is accepted, Nasdaq may grant an extension

of up to 180 calendar days from the date of the Notice for the Company to evidence compliance.

The Company submitted its plan

to Nasdaq to regain compliance with the Stockholders’ Equity Requirement on February 17, 2025.

There can be no assurance that the

Company’s plan will be accepted or that if it is, that the Company will be able to regain compliance with the Stockholders’

Equity Requirement.

If the Company does not regain

compliance within the allotted compliance period(s), including any extensions that may be granted by Nasdaq, Nasdaq will provide notice

that the Common Stock will be subject to delisting from the Nasdaq Capital Market.

At that time, the Company may appeal any such delisting

determination to a Nasdaq hearings panel.

Minimum Bid Price Requirement

- On March 6, 2025, the Company received notice (the “March 6 Letter”) from the Nasdaq Staff that the Staff had determined

that as of March 5, 2025, the Company’s securities had a closing bid price of $ 0.10 or less for ten consecutive trading days triggering

application of Listing Rule 5810(c)(3)(A)(iii) which states in part:

if during any compliance period specified in Rule 5810(c)(3)(A),

a company’s security has a closing bid price of $ 0.10 or less for ten consecutive trading days, the Listing Qualifications Department

shall issue a Staff Delisting Determination under Rule 5810 with respect to that security (the “Low Priced Stocks Rule”).

As a result, the Staff determined to delist the Company’s securities from Nasdaq, unless the Company timely requests an appeal of

the Staff’s determination to a Hearings Panel (the “Panel”), pursuant to the procedures set forth in the Nasdaq Listing

Rule 5800 Series.

The Company must request a hearing no later than 4:00 p.m.

Eastern Time on March 13, 2025.

The Company timely requested a

hearing before the Panel to appeal the March 6 Letter and to address all outstanding matters, including compliance with the Minimum Bid

Price Requirement, the Low Priced Stocks Rule and the Stockholders’ Equity Requirement, which hearing date has not been set as of

the date of this Form 10-K.

While the appeal process is pending, the suspension of trading of the Company’s Common Stock, will be stayed and the Common Stock will continue to trade on the Nasdaq Capital Market

until the hearing process concludes and the Panel issues a written decision.

The Company held its hearing with the Panel as scheduled

on April 17, 2025.

On May 1, 2025, the Panel rendered its decision

which granted the Company’s request for continued listing on the Nasdaq Exchange.

Such decision is subject to the following conditions:

On or before May 2, 2025, the Company shall file Form 10-K for 2024 in compliance with Listing Rule 5250(c)(1).

On or before May 20, 2025, the Company must file a public disclosure describing any transactions undertaken by the Company to increase its equity and providing an indication of its equity following those transactions.

In addition, on or before May 20, 2025, the Company must provide the Panel with an update on its fundraising plans, and updated income projections for the next 12 months, with all underlying assumptions clearly stated.

On or before June 6, 2025,

the Company shall demonstrate compliance with the Minimum Bid Price Requirement.

If, prior to September 2, 2025, the Company becomes non-compliant with any Listing Rule, the Company will be delisted.

The Company continues to work diligently to regain and maintain compliance

with the Minimum Bid Price Requirement and Stockholders’ Equity Requirement as promptly as possible.

In that regard, management

believes that it has achieved compliance with the Stockholders’ Equity Requirement as reported in the accompanying Statement of

Stockholders’ Equity (Deficit) as of March 31, 2025.

There are no assurances however,

that the Company will be able to meet and maintain all such conditions required by the Panel.

Series A and B warrants issued in connection

with the February 2025 public equity offering

The Series A and B warrants issued

in the February 2025 public equity offering (See Note 12 – Stockholders Equity) become issuable and exercisable on the date of Stockholder

Stockholder approval was obtained on May 6, 2025 at the Special Meeting of Shareholders which activated both the Series A and

Both the Series A and Series B warrants also contain price and warrant reset provisions that were activated upon the date

of Stockholder Approval.

The reset provisions increased the number of common shares issuable under the Series A and B warrants as provided

for in their respective agreements and the exercise price was reduced from $ 3.75 per share to $ 0.62 per share relative to the Series

A warrants and $ 6.00 per share to $ 0.62 for the Series B warrants.

There have been no exercises

of the Series A warrants to date and the Series B warrants contained cashless exercise provisions.

The Series B warrant holders have

exercised a total of 161,068,935 of the total 166,935,591 Series B warrants available to be exercised on a cashless basis.

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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