KUSTOM ENTERTAINMENT, INC. 10-Q

Item 1 – Financial Statements. DIGITAL ALLY, INC. CONDENSED CONSOLIDATED BALANCE SHEETS MARCH 31, 2025 AND DECEMBER 31, 2024 March 31, 2025 December 31, 2024 (Unaudited) Assets Current assets: Cash and cash equivalents $ 3,762,608 $ 454,314 Accounts receivable-trade, less allowance for doubtful accounts of $ 131,500 – March 31, 2025 and $ 200,668 – December 31, 2024 1,247,019 1,301,253 Subscriptions receivable, net of $ 76,403 allowance – March 31, 2025 and $ 25,000 – December 31, 2024 3,674,494 3,988,994 Other receivables 1,678 155,851 Inventories, net 2,489,111 2,586,066 Prepaid expenses 2,868,351 1,867,258 Total current assets 14,043,261 10,353,736 Property, plant, and equipment, net 355,654 365,857 Goodwill and other intangible assets, net 10,332,105 10,654,325 Operating lease right of use assets, net 680,628 718,509 Subscriptions receivable – long-term 4,081,081 4,889,289 Other assets 763,607 754,857 Total assets $ 30,256,336 $ 27,736,573 Liabilities and Equity (Deficit) Current liabilities: Accounts payable $ 4,758,170 $ 11,486,947 Accrued expenses 531,553 1,514,508 Current portion of operating lease obligations 162,234 158,304 Deferred revenue – current 4,187,574 4,215,401 Notes payable – related party – current portion 358,431 2,840,000 Debt obligations – current 603,444 4,961,443 Warrant derivative liabilities 48,943 4,554,640 Income taxes payable 7,861 — Total current liabilities 10,658,210 29,731,243 Long-term liabilities: Debt obligations – long term 140,210 141,083 Operating lease obligation – long term 518,394 560,205 Deferred revenue – long term 5,687,976 6,317,472 Notes payable – related party – long-term portion 1,682,171 — Total liabilities 18,686,961 36,750,003 Commitments and contingencies - - Stockholders’ Equity (Deficit): 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: 5,780,248 – March 31, 2025 and 290,559 – December 31, 2024 5,780 291 Additional paid in capital 146,007,727 129,697,493 Noncontrolling interest in consolidated subsidiary ( 1,194,675 ) ( 1,198,286 ) Accumulated deficit ( 133,249,457 ) ( 137,512,928 ) Total equity (deficit) 11,569,375 ( 9,013,430 ) Total liabilities and equity (deficit) $ 30,256,336 $ 27,736,573 See Notes to Unaudited Condensed Consolidated Financial Statements. 3 DIGITAL ALLY, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2025 AND 2024 (Unaudited) 2025 2024 Revenue: Product $ 721,350 $ 1,565,846 Service and other 3,753,914 3,963,505 Total revenue 4,475,264 5,529,351 Cost of revenue: Product 675,639 1,567,393 Service and other 2,198,126 2,438,259 Total cost of revenue 2,873,765 4,005,652 Gross profit 1,601,499 1,523,699 Selling, general and administrative expenses: Research and development expense 84,417 487,466 Selling, advertising and promotional expense 108,041 761,118 General and administrative expense 2,383,721 3,914,149 Total selling, general and administrative expenses 2,576,179 5,162,733 Operating loss ( 974,680 ) ( 3,639,034 ) Other income (expense): Interest income 31,975 19,356 Interest expense ( 792,273 ) ( 648,567 ) Other income 16,700 27,602 Gain on extinguishment of debt – related party 1,249,372 — Gain on the extinguishment of liabilities 2,220,097 682,345 Gain on disposal of intangibles — 5,582 Change in fair value of warrant derivative liabilities 2,515,891 ( 348,891 ) Loss on sale of property, plant and equipment — ( 41,661 ) Total other income (expense) 5,241,762 ( 304,234 ) Income (loss) before income tax benefit (provision) 4,267,082 ( 3,943,268 ) Income tax expense benefit (provision) — — Net income (loss) 4,267,082 ( 3,943,268 ) Net income attributable to noncontrolling interests of consolidated subsidiary ( 3,611 ) ( 12,248 ) Net income (loss) attributable to common stockholders $ 4,263,471 $ ( 3,931,020 ) Net income (loss) per share attributable to common information: Basic $ 1.41 $ ( 27.48 ) Diluted $ 1.41 $ ( 27.48 ) Weighted average shares outstanding: Basic 3,032,208 143,061 Diluted 3,032,208 143,061 See Notes to Unaudited Condensed Consolidated Financial Statements. 4 DIGITAL ALLY, INC. CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (DEFICIT) FOR THE THREE MONTHS ENDED MARCH 31, 2025 AND 2024 (Unaudited) Shares Amount Capital subsidiary Deficit Total Noncontrolling Additional Interest in Common Stock Paid In consolidated Accumulated Shares Amount Capital subsidiary Deficit Total Balance, December 31, 2023 140,216 $ 140 $ 128,443,744 $ 673,292 $ ( 117,668,781 ) $ 11,448,395 Stock-based compensation — — 40,695 — — 40,695 Restricted common stock grant 4,010 4 ( 4 ) — — — Restricted common stock forfeitures ( 56 ) — — — — — 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 Net loss — — — ( 12,248 ) ( 3,931,020 ) ( 3,943,268 ) Net income (loss) — — — ( 12,248 ) ( 3,931,020 ) ( 3,943,268 ) Balance, March 31, 2024 144,170 $ 144 $ 128,484,435 $ 661,044 $ ( 121,599,801 ) $ 7,545,822 Balance, December 31, 2024 290,559 $ 291 $ 129,697,493 $ ( 1,198,286 ) $ ( 137,512,928 ) $ ( 9,013,430 ) Balance 290,559 $ 291 $ 129,697,493 $ ( 1,198,286 ) $ ( 137,512,928 ) $ ( 9,013,430 ) Stock-based compensation — — 13,824 — — 13,824 Sale of common stock and pre-funded warrants, net of offering costs 392,500 392 14,307,908 — — 14,308,300 Issuance of common stock upon exercise of pre-funded warrants 4,907,500 4,907 ( 4,907 ) — — — Fair value of pre-funded warrants issued along with sale of common stock — — ( 1,803 ) — — ( 1,803 ) Transition of warrant derivative liability to equity upon exercise of pre-funded warrants — — 1,803 — — 1,803 Issuance of common stock upon exercise of June 2024 Series B common stock purchase warrants 189,689 190 3,603 — — 3,793 Transition of warrant derivative liability to equity upon exercise of Series B warrants — — 1,989,806 — — 1,989,806 Net income — — — 3,611 4,263,471 4,267,082 Net income (loss) — — — 3,611 4,263,471 4,267,082 Balance, March 31, 2025 5,780,248 $ 5,780 $ 146,007,727 $ ( 1,194,675 ) $ ( 133,249,457 ) $ 11,569,375 Balance 5,780,248 $ 5,780 $ 146,007,727 $ ( 1,194,675 ) $ ( 133,249,457 ) $ 11,569,375 See Notes to Unaudited Condensed Consolidated Financial Statements. 5 DIGITAL ALLY, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS THREE MONTHS ENDED MARCH 31, 2025 AND 2024 (Unaudited) 2025 2024 Cash Flows from Operating Activities: Net income (loss) $ 4,267,082 $ ( 3,943,268 ) Adjustments to reconcile net income (loss) to net cash flows used in operating activities: Depreciation and amortization 417,870 550,991 Provision for doubtful accounts receivable ( 69,168 ) 34,059 Provision for doubtful subscriptions receivable 51,403 20,000 Provision for inventory obsolescence ( 521,113 ) ( 56,072 ) Stock based compensation 13,824 40,695 Non-cash interest expense 672,490 360,330 Gain on extinguishment of liabilities ( 2,220,097 ) ( 682,345 ) Gain on extinguishment of debt – related party ( 1,249,372 ) — Change in fair value of warrant derivative liability ( 2,515,891 ) 348,891 Loss on sale of property, plant and equipment — 41,661 Loss on disposal of intangible assets — ( 5,582 ) Change in operating assets and liabilities: (Increase) decrease in: Accounts receivable – trade 123,402 142,606 Subscriptions receivable 1,071,305 ( 503,174 ) Other receivables 154,173 591,309 ) Inventories 618,068 793,664 Prepaid expenses ( 1,001,093 ) ( 154,645 ) Operating lease right of use assets 37,881 54,137 Other assets ( 8,750 ) 49,606 Increase (decrease) in: Accounts payable ( 4,508,680 ) 1,569,346 Accrued expenses ( 496,696 ) ( 132,185 ) Accrued interest - related party 95,944 — Income taxes payable 7,861 ( 61 ) Operating lease obligations ( 37,881 ) ( 57,801 ) Deferred revenue ( 657,323 ) 19,293 Net cash used in operating activities ( 5,754,761 ) ( 918,545 ) Cash Flows from Investing Activities: Purchases of property, plant and equipment ( 42,474 ) ( 18,467 ) Additions to intangible assets ( 42,973 ) ( 61,882 ) Proceeds from sale of intangible assets — 90,535 Cash paid for acquisition of Country Stampede — ( 400,000 ) Proceeds from sale of land and building — 550,644 Net cash provided by (used in) investing activities ( 85,447 ) 160,830 Cash Flows from Financing Activities: Net proceeds of February 2025 public equity offering with detachable warrants 14,308,300 — Net proceeds of unsecured promissory note – entertainment segment 600,000 — Payments on Senior Secured Promissory Notes – Video Solutions Segment ( 3,600,000 ) — Payments of related party note payable ( 140,000 ) — Principal payments on EIDL loan ( 841 ) ( 810 ) Proceeds – Commercial Extension of Credit – Entertainment Segment — 275,000 Payments on Commercial Extension of Credit – Entertainment Segment ( 100,000 ) ( 87,928 ) Proceeds – Merchant Advances – Video Solutions Segment — 700,000 Payments on Merchant Advances – Video Solutions Segment ( 1,922,750 ) — Proceeds from issuance of common shares upon exercise of Series B warrants 3,793 — Proceeds – Merchant Advances – Entertainment Segment — 915,000 Payments on Merchant Advances – Entertainment Segment — ( 702,000 ) Principal payment on contingent consideration promissory notes — ( 94,235 ) Net cash provided by financing activities 9,148,502 1,005,027 Net increase in cash, cash equivalents and restricted cash 3,308,294 247,312 Cash, cash equivalents and restricted cash, beginning of period 454,314 778,149 Cash, cash equivalents, and restricted cash, end of period $ 3,762,608 $ 1,025,461 Supplemental disclosures of cash flow information: Cash payments for interest $ 31,606 $ 158,517 Cash payments for income taxes $ — $ — Supplemental disclosures of non-cash investing and financing activities: Restricted common stock grant $ — $ 80 Restricted common stock forfeitures $ — $ 1 Commercial extension of credit repaid through accrued revenue – Entertainment segment $ — $ 205,357 ROU and lease liability recorded on extension (termination) of lease $ — $ ( 73,894 ) Assets acquired in business acquisitions $ — $ 605,000 Goodwill acquired in business acquisitions $ — $ 225,959 Liabilities assumed in business acquisitions $ — $ 288,000 Adjustments of accounts payable with the sale proceeds of property, plant and equipment $ — $ 549,356 Fair value of warrants issued with sale of shares $ 1,803 $ — Transition of warrant derivative liability to equity upon exercise of warrants $ 1,993,600 $ — 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 $ 4,907 — See Notes to Unaudited Condensed Consolidated Financial Statements. 6 DIGITAL ALLY, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1. 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. On November 30, 2004, Vegas Petra, Inc. entered into a Plan of Merger with Digital Ally, Inc., at which time the merged entity was renamed Digital Ally, Inc. (such merged entity, the “Predecessor Registrant”). On August 23, 2022 (the “Effective Time”), the Predecessor Registrant merged with and into its wholly owned subsidiary, DGLY Subsidiary Inc., a Nevada corporation (the “Registrant”), pursuant to an agreement and plan of merger, dated as of August 23, 2022 (the “Merger Agreement”), between the Predecessor Registrant and the Registrant, with the Registrant as the surviving corporation in the merger (such transaction, the “Merger”). At the Effective Time, Articles of Merger were filed with the Secretary of State of the State of Nevada, pursuant to which the Registrant was renamed “Digital Ally, Inc.” and, by operation of law, succeeded to the assets, continued the business and assumed the rights and obligations of the Predecessor Registrant immediately prior to the Merger. Under the Nevada Revised Statutes, shareholder approval was not required in connection with the Merger Agreement or the transactions contemplated thereby. At the Effective Time, pursuant to the Merger Agreement, (i) each outstanding share of Predecessor Registrant’s common stock, par value $ 0.001 per share (the “Predecessor Common Stock”) automatically converted into one share of common stock, par value $ 0.001 per share, of the Registrant (“Registrant Common Stock”), (ii) each outstanding option, right or warrant to acquire shares of Predecessor Common Stock converted into an option, right or warrant, as applicable, to acquire an equal number of shares of Registrant Common Stock under the same terms and conditions as the original options, rights or warrants, and (iii) the directors and executive officers of the Predecessor Registrant were appointed as directors and executive officers, as applicable, of the Registrant, each to serve in the same capacity and for the same term as such person served with the Predecessor Registrant immediately before the Merger. 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 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 17. 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. 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 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. 7 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. 8 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. The Company 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 marketplace. The Company formed Kustom 440, Inc. in 2022 to create unique entertainment experiences directly for consumers. 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 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. 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 (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 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 been met. 9 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 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 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. 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. Other 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: SCHEDULE OF DEFERRED REVENUES March 31, 2025 December 31, 2024 Additions/ Reclass Recognized Revenue March 31, 2025 Deferred revenue, current $ 4,215,401 $ 432,622 $ 460,449 $ 4,187,574 Deferred revenue, non-current 6,317,472 106,101 735,597 5,687,976 $ 10,532,873 $ 538,723 $ 1,196,046 $ 9,875,550 10 December 31, 2024 December 31, 2023 Additions/ Reclass Recognized Revenue December 31, 2024 Deferred revenue, current $ 2,937,168 $ 2,799,956 $ 1,521,723 $ 4,215,401 Deferred revenue, non-current 7,340,459 1,814,351 2,837,338 6,317,472 $ 10,277,627 $ 4,614,307 $ 4,359,061 $ 10,532,873 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 period. Actual results could differ from those estimates. Management utilizes various other estimates, including but not limited to, determining the estimated lives of long-lived assets, determining the potential impairment of long-lived assets, the fair value of warrants, options, the recognition of revenue, inventory valuation reserve, 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 : 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 March 31, 2025 March 31, 2024 Cash and cash equivalents $ 3,762,608 $ 927,861 Long-term restricted cash included in other assets — 97,600 Total cash, cash equivalents and restricted cash in the statements of cash flows $ 3,762,608 $ 1,025,461 11 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. 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. 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. 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. 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 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. The Company 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. 12 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. Refer to Note 4. 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 of 2025. 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. If an event 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 performance. 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. Therefore, its operations are eliminated in consolidation and is not considered a separate business segment for financial reporting purposes. 13 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. The venture 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. 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. See Note 17, 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, 2025. 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. 14 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, 2025. 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. In that 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. During 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 operations. 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. During 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. Based on the 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 statements. 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. 15 NOTE 2. INVENTORIES Inventories consisted of the following at March 31, 2025 and December 31, 2024: SCHEDULE OF INVENTORIES March 31, 2025 December 31, 2024 Raw material and component parts– video solutions segment $ 2,590,526 $ 2,589,804 Work-in-process– video solutions segment 71,592 4,906 Finished goods – video solutions segment 1,301,474 1,655,317 Finished goods – entertainment segment 174,061 505,694 Subtotal 4,137,653 4,755,721 Reserve for excess and obsolete inventory– video solutions segment ( 1,600,459 ) ( 2,037,252 ) Reserve for excess and obsolete inventory – entertainment segment ( 48,083 ) ( 132,403 ) Total inventories $ 2,489,111 $ 2,586,066 NOTE 3. PREPAID EXPENSES Prepaid expenses were the following at March 31, 2025 and December 31, 2024: SCHEDULE OF PREPAID EXPENSE March 31, 2025 December 31, 2024 Prepaid inventory $ 1,292,352 $ 1,158,867 Prepaid advertising 133,549 334,882 Prepaid commissions 131,992 131,992 Prepaid common stock offering 828,000 — Other 482,458 241,517 Total prepaid expenses $ 2,868,351 $ 1,867,258 16 NOTE 4. 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 Gross value Accumulated amortization Accumulated impairment Net carrying value Amortized intangible assets: Patents and trademarks (video solutions segment) $ 483,521 $ 396,206 $ — $ 87,315 Sponsorship agreement network (entertainment segment) 5,600,000 4,013,333 — 1,586,667 SEO content (entertainment segment) 600,000 537,500 — 62,500 Personal seat licenses (entertainment segment) 117,339 14,016 — 103,323 Software 23,653 — — 23,653 Website enhancements (entertainment segment) 35,900 12,824 — 23,076 Client agreements (revenue cycle management segments) 999,034 351,647 — 647,387 7,859,447 5,325,526 — 2,533,921 Indefinite life intangible assets: Goodwill (Entertainment segment) 6,112,507 — 307,000 5,805,507 Goodwill (Revenue cycle management segment) 5,480,966 — 4,322,000 1,158,966 Trade name and trademarks (entertainment segment) 900,000 — 201,000 699,000 Patents and trademarks pending (video solutions segment) 134,711 — — 134,711 Total $ 20,487,631 $ 5,325,526 $ 4,830,000 $ 10,332,105 December 31, 2024 Gross value Accumulated amortization Accumulated impairment Net carrying value Amortized intangible assets: Patents and trademarks (video solutions segment) $ 483,521 $ 377,459 $ — $ 106,062 Sponsorship agreement network (entertainment segment) 5,600,000 3,733,333 — 1,866,667 SEO content (entertainment segment) 600,000 500,000 — 100,000 Personal seat licenses (entertainment segment) 117,339 13,037 — 104,302 Software 23,653 — — 23,653 Website enhancements (entertainment segment) 35,900 9,833 — 26,067 Client agreements (revenue cycle management segments) 999,034 326,671 — 672,363 7,859,447 4,960,333 — 2,899,114 Indefinite life intangible assets: Goodwill (Entertainment segment) 6,112,507 — 307,000 5,805,507 Goodwill (Revenue cycle management segment) 5,480,966 — 4,322,000 1,158,966 Trade name and trademarks (entertainment segment) 900,000 — 201,000 699,000 Patents and trademarks pending (video solutions segment) 91,738 — — 91,738 Total $ 20,444,658 $ 4,960,333 $ 4,830,000 $ 10,654,325 17 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) $ 1,042,528 2026 903,328 2027 109,328 2028 107,194 2029 107,194 2030 and thereafter 264,349 Total $ 2,533,921 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. The 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. 18 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. The 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 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 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 segment. 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 31, 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 March 31, 2025 and December 31, 2024. 19 NOTE 5. DEBT OBLIGATIONS Debt obligations is comprised of the following: SCHEDULE OF DEBT OBLIGATIONS March 31, 2025 December 31, 2024 Economic injury disaster loan (EIDL) $ 143,654 $ 144,495 Unsecured Promissory note – Entertainment Segment 600,000 — Commercial Extension of Credit- Entertainment Segment — 100,000 Merchant Advances – Video Solutions Segment — 1,922,750 Senior Secured Promissory Notes — 3,600,000 Unamortized debt issuance costs — ( 664,719 ) Debt obligations 743,654 5,102,526 Less: current maturities of debt obligations 603,444 4,961,443 Debt obligations, long-term $ 140,210 $ 141,083 Debt obligations mature on an annual basis as follows as of March 31, 2025: SCHEDULE OF MATURITY OF DEBT OBLIGATIONS March 31, 2025 2025 (April 1, 2025 to December 31, 2025) $ 603,444 2026 3,542 2027 3,676 2028 3,817 2029 and thereafter 129,175 Total $ 743,654 2020 Small Business Administration Notes . 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. 20 2024 Commercial Extension of Credit 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 Segment 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 31, 2024. 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. 21 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. The Company 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 Amount Allocated to the following: Senior secured promissory notes $ 2,129,795 Commitment shares 539,455 Total $ 2,669,250 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). Following is an analysis of the senior secured promissory notes balance: SCHEDULE OF SENIOR SECURED PROMISSORY NOTES BALANCE Amount Balance, as of December 31, 2023 $ — Issuance of senior secured promissory notes, at par 3,600,000 Discount recognized at issuance date ( 1,470,205 ) Amortization of discount 805,486 Balance, as of December 31, 2024 2,935,281 Amortization of discount 664,719 Principal payment ( 3,600,000 ) Balance, as of March 31, 2025 $ — 22 NOTE 6. FAIR VALUE MEASUREMENT 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 March 31, 2025 Level 1 Level 2 Level 3 Total Liabilities: Warrant derivative liabilities $ — $ — $ 48,943 $ 48,943 $ — $ — $ 48,943 $ 48,943 December 31, 2024 Level 1 Level 2 Level 3 Total Liabilities: Warrant derivative liabilities $ — $ — $ 4,554,640 $ 4,554,640 $ — $ — $ 4,554,640 $ 4,554,640 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 Warrant Derivative Liabilities Balance, December 31, 2024 $ 4,554,640 Issuance of pre-funded warrant derivative liabilities in February 2025 public equity offering 1,803 Transition of warrant derivative liability to equity due to exercise of pre-funded warrant derivative liabilities in February 2025 public equity offering ( 1,803 ) 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 ) Balance, March 31, 2025 $ 48,943 23 NOTE 7. ACCRUED EXPENSES Accrued expenses consisted of the following at March 31, 2025 and December 31, 2024: SCHEDULE OF ACCRUED EXPENSES March 31, 2025 December 31, 2024 Accrued warranty expense $ 11,615 $ 11,615 Accrued payroll and related fringes 87,703 428,380 Accrued sales returns and allowances 93,170 93,170 Accrued sales taxes 113,816 104,404 Accrued interest - related party 5,918 492,177 Accrued board of directors’ fees 40,000 197,000 Customer deposits 2,400 165,779 Other 176,931 21,983 Total accrued expenses $ 531,553 $ 1,514,508 NOTE 8. INCOME TAXES 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: SCHEDULE OF FEDERAL NET OPERATING LOSS CARRY FORWARDS Amount Tax years generated: 2017 and before $ 49,459,000 2018 and after 109,821,000 Federal net operating loss carry-forwards available $ 159,280,000 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. Federal net 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. 24 NOTE 9. COMMITMENTS AND CONTINGENCIES Litigation. 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 us. 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. 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 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. On February 21, 2023, the Clerk entered default against Culp McAuley. 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. 25 In 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. 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. 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. The Company 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. NOTE 10. STOCK-BASED COMPENSATION The 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 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. 26 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 Options Number of Shares Weighted Average Exercise Price Outstanding at January 1, 2025 2,625 $ 902.80 Granted — — Exercised — — Forfeited — — Outstanding at March 31, 2025 2,625 $ 902.80 Exercisable at March 31, 2025 2,625 $ 902.80 Options Number of Shares Weighted Average Exercise Price Outstanding at January 1, 2024 2,280 $ 911.00 Granted — — Exercised — — Forfeited — — Outstanding at March 31, 2024 2,280 $ 911.00 Exercisable at March 31, 2024 2,280 $ 911.00 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 Exercisable options Exercise price range Number of options Weighted average remaining contractual life Number of options Weighted average remaining contractual life $ 0.01 to $ 999.99 1,850 5.4 years 1,850 5.4 years $ 1,000.00 to $ 1,399.99 700 3.5 years 700 3.5 years $ 1,400.00 to $ 1,799.99 75 1.1 years 75 1.1 years Total 2,625 4.7 years 2,625 4.7 years 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 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. 27 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: SCHEDULE OF RESTRICTED STOCK ACTIVITY Number of Restricted shares Weighted average grant date fair value Nonvested balance, January 1, 2025 2,537 $ 109.60 Granted — — Vested ( 1,687 ) ( 70.60 ) Forfeited — — Nonvested balance, March 31, 2025 850 $ 187.20 Number of Restricted shares Weighted average grant date fair value Nonvested balance, January 1, 2024 2,694 $ 225.40 Granted 4,010 42.40 Vested ( 1,538 ) ( 201.20 ) Forfeited ( 56 ) ( 444.00 ) Nonvested balance, March 31, 2024 5,110 $ 86.80 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 Years ended Number of shares 2025 (April 1, 2025 to December 31, 2025) 75 2026 325 2027 250 2028 200 2029 — NOTE 11. 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 Warrants Weighted average exercise price Balance, January 1, 2025 544,744 $ 19.00 Issuance February 2025 – Prefunded Warrants 4,907,500 0.001 Exercise February 2025 – Prefunded Warrants ( 4,907,500 ) 0.001 Exercised June 2024 - Series B warrants ( 189,689 ) 0.001 Exercised - - Terminated/Cancelled — — Balance, March 31, 2025 355,055 $ 29.00 28 Warrants Weighted average exercise price Balance, January 1, 2024 56,250 $ 130.00 Issued — — Exercised — — Terminated/Cancelled — — Balance, March 31, 2024 56,250 $ 130.00 The total 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 and 52.3 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: SCHEDULE OF RANGE OF EXERCISE PRICES AND WEIGHTED AVERAGE REMAINING CONTRACTUAL LIFE OF WARRANTS Outstanding and exercisable warrants Exercise price Number of warrants Weighted average remaining contractual life $ 10.04 298,805 4.2 years $ 110,00 18,750 3.0 years $ 130.00 18,750 3.0 years $ 150.00 18,750 3.0 years 355,055 4.0 years 2025 Purchase Warrants 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. 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 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 assumptions Volatility – range 110.1 % Risk-free rate 4.27 % Dividend — % Remaining contractual term 0.03 years Exercise price $ 0.001 Common stock issuable under the warrants 4,907,500 29 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 date. The warrant derivative liability related to the pre-funded warrants was $- 0 - as of March 31, 2025. 2024 Purchase Warrants 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. The 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 is obtained. 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 assumptions Series B - December 31, 2024 assumptions Volatility – range 105.5 % 105.7 % Risk-free rate 4.26 % 4.38 % Dividend — % — % Remaining contractual term 4.5 years 4.48 years Exercise price $ 0.001 $ 0.001 Common stock issuable under the warrants 238,339 189,689 30 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 exercised. 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: Issuance date assumptions December 31, 2024 assumptions March 31, 2025 assumptions Volatility – range 72.1 - 101.1 % 105.7 % 105.5 % Risk-free rate 4.25 – 5.46 % 4.38 % 4.26 % Dividend — % — % — % Remaining contractual term 0.1 - 5.0 years 4.5 years 4.2 years Exercise price $ 50.20 $ 10.04 10.04 Common stock issuable under the warrants 88,411 298,844 298,844 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 assumptions March 31, 2025 assumptions Volatility – range 109.5 % 114.3 % Risk-free rate 4.38 % 3.96 % Dividend — % — % Remaining contractual term 3.3 years 3.0 years Exercise price 110.00 – 150.00 110.00 – 150.00 Common stock issuable under the warrants 56,250 56.250 31 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. (the “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 14, 2025. 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. served as 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, 2025. The final prospectus relating to the offering was filed with the SEC on February 13, 2025. 32 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 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 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 Amount Allocated to the following: Senior secured promissory notes $ 2,129,795 Commitment shares 539,455 Total $ 2,669,250 33 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 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 filing. 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 $ 3,611 and $ 12,248 for the three months ended March 31, 2025 and 2024, respectively. NOTE 13. RELATED PARTY TRANSACTIONS Transactions with Managing Member of Nobility Healthcare 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. The transaction was recorded as a related party note payable (the “TicketSmarter Related Party Note”). The TicketSmarter Related Party Note bears interest of 13.25 % per annum with repayment beginning January 2, 2024. As of December 31, 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. 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 condensed consolidated statement of operations. Additionally, these negotiations relieved TicketSmarter of numerous future obligations following fiscal year 2023. 34 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 31, 2025. 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. The Company 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. NOTE 14. GAIN ON EXTINGUISHMENT OF LIABILITIES The Company 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. The gain on 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. NOTE 15. 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 follows: SCHEDULE OF WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING AND LOSS PER SHARE OUTSTANDING Three Months ended March 31, 2025 2024 Numerator for basic and diluted income (loss) per share – Net loss attributable to common stockholders $ 4,263,471 $ ( 3,931,020 ) Denominator for basic income (loss) per share – weighted average shares outstanding 3,032,208 143,061 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 3,032,208 143,061 Net income (loss) per share: Basic $ 1.41 $ ( 27.48 ) Diluted $ 1.41 $ ( 27.48 ) 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. 35 NOTE 16. COUNTRY STAMPEDE ACQUISITION 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. 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. 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 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 As allocated (Final) Description March 1, 2024 Assets acquired (provisional): Tangible assets acquired $ 305,000 Identifiable intangible assets acquired (Trademarks and trade names) 300,000 Goodwill 225,959 Liabilities assumed ( 288,000 ) Net assets acquired and liabilities assumed $ 542,959 Consideration: Cash paid at Country Stampede Acquisition date $ 400,000 Cash paid subsequent to closing 142,959 Total Country Stampede Acquisition purchase price $ 542,959 36 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. NOTE 17. 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. Resources 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 charges. 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 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 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. 37 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 Three months ended March 31, 2025 Video Solutions Entertainment Revenue cycle Management Corporate and other Total Net revenues: Product $ 54,231 $ 667,119 $ — $ — $ 721,350 Service 868,050 1,535,313 1,350,551 — 3,753,914 Total segment net revenues $ 922,281 $ 2,202,432 $ 1,350,551 $ — $ 4,475,264 Less significant segment expenses: Cost of Revenue - Product $ 64,552 $ 611,087 $ — $ — $ 675,639 Cost of Revenue – Service and other 301,968 1,013,270 882,888 — 2,198,126 Research and development expense 84,417 — — — 84,417 Selling, advertising and promotional expense 20,517 75,864 11,660 — 108,041 General and administrative expense 283,547 806,789 448,633 844,752 2,383,721 Total segment operating income (loss) $ 167,280 $ ( 304,578 ) $ 7,370 $ ( 844,752 ) $ ( 974,680 ) Non-operating (expenses) income: Interest expense ( 792,273 ) Change in fair value of derivative liabilities 2,515,891 Gain on the extinguishment of liabilities 2,220,097 Gain on extinguishment of debt – related party 1,249,372 Other non-operating income (loss) 48,675 Total non-operating income (loss) 5,241,762 Income before income tax benefit (provision) $ 4,267,082 Depreciation and amortization expense $ 53,669 $ 340,597 $ 23,604 $ — $ 417,870 Total identifiable assets, net of eliminations $ 12,786,363 $ 4,898,381 $ 4,863,764 $ 7,707,828 $ 30,256,336 Three months ended March 31, 2024 Video Solutions Entertainment Revenue cycle Management Corporate and other Total Net revenues: Product $ 721,188 $ 844,658 $ — $ — $ 1,565,846 Service 997,105 1,531,801 1,434,598 — 3,963,505 Total segment net revenues $ 1,718,293 $ 2,376,460 $ 1,434,598 $ — $ 5,529,351 Less significant segment expenses: Cost of Revenue - Product $ 797,494 $ 769,899 $ — $ — $ 1,567,393 Cost of Revenue – Service and other 355,105 1,112,287 970,867 — 2,438,259 Research and development expense 487,466 — — — 487,466 Selling, advertising and promotional expense 423,894 330,519 6,705 — 761,118 General and administrative expense 1,101,217 805,974 481,057 1,525,901 3,914,149 Total segment operating income (loss) $ ( 1,446,883 ) $ ( 642,219 ) $ ( 24,031 ) $ ( 1,525,901 ) $ ( 3,639,034 ) Non-operating (expenses) income: Interest expense ( 648,567 ) Change in fair value of derivative liabilities ( 348,891 ) Gain on the extinguishment of liabilities 682,345 Other non-operating income (loss), net 10,879 Total non-operating income (loss) ( 304,234 ) Loss before income tax benefit (provision) $ ( 3,943,268 ) Depreciation and amortization expense $ 198,028 $ 326,248 $ 26,715 $ — $ 550,991 Total identifiable assets, net of eliminations $ 24,172,478 $ 6,482,510 $ 1,989,068 $ 12,520,139 $ 45,164,195 38 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 expenses. Identifiable assets are those assets used by each segment in its operations. Corporate assets primarily consist of cash, property, plant and equipment, accounts receivable, inventories, and other assets. Note 18. SUBSEQUENT EVENTS 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 approved. Proposal Two: Approval 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. The 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 filing. Notices of Failure to Satisfy a Continued Listing Rule 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. 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. 39 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 Approval. Stockholder approval was obtained on May 6, 2025 at the Special Meeting of Shareholders which activated both 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 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. *********************** 40