# EDGAR Filing Document

**Accession Number:** 0001342958
**File Stem:** 0001493152-23-004134
**Filing Date:** 2023-2
**Character Count:** 1130276
**Document Hash:** b0936fbdc76eb5bdab07c022bba6c72f
**Contains OCR:** False
**Source Format:** 

## Filing Content

## Filing Summary
**0001493152-23-004134.hdr.sgml**: 20230209

**ACCESSION NUMBER**: 0001493152-23-004134

**CONFORMED SUBMISSION TYPE**: S-1/A

**PUBLIC DOCUMENT COUNT**: 11

**FILED AS OF DATE**: 20230209

**DATE AS OF CHANGE**: 20230209

**FILER**: 

**COMPANY DATA:**
- **COMPANY CONFORMED NAME:** DIGITAL ALLY, INC.
- **CENTRAL INDEX KEY:** 0001342958
- **STANDARD INDUSTRIAL CLASSIFICATION:** RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [3663]
- **IRS NUMBER:** 200064269
- **STATE OF INCORPORATION:** NV
- **FISCAL YEAR END:** 1231

**FILING VALUES:**
- **FORM TYPE:** S-1/A
- **SEC ACT:** 1933 Act
- **SEC FILE NUMBER:** 333-269392
- **FILM NUMBER:** 23607470

**BUSINESS ADDRESS:**
- **STREET 1:** 14001 MARSHALL DRIVE
- **CITY:** LENEXA
- **STATE:** KS
- **ZIP:** 66215
- **BUSINESS PHONE:** 913-232-5349

**MAIL ADDRESS:**
- **STREET 1:** 14001 MARSHALL DRIVE
- **CITY:** LENEXA
- **STATE:** KS
- **ZIP:** 66215

**FORMER COMPANY:**
- **FORMER CONFORMED NAME:** DIGITAL ALLY INC
- **DATE OF NAME CHANGE:** 20051031

**As filed with the Securities and Exchange Commission on February 9, 2023**

**Registration No. 333-269392** 

**UNITED STATES<br> SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

 **AMENDMENT NO. 1**

 **to**

**FORM S-1** ****

<br> **REGISTRATION STATEMENT**

***UNDER THE<br> SECURITIES ACT OF 1933***

**DIGITAL ALLY, INC.**

**(Exact name of registrant as specified in its charter)**

---

| | | |
|:---|:---|:---|
| **Nevada** | **3663** | **20-0064269** |
| **(State or other jurisdiction of**<br> **incorporation or organization)** | **(Primary Standard Industrial**<br> **Classification Code Number)** | **(IRS Employer**<br> **Identification No.)** |

---

**14001 Marshall Drive<br> Lenexa, Kansas 66215 <br> (913) 814-7774**

**(Address, including zip code and telephone number, including area code, of registrant's principal executive offices)**

**Stanton E. Ross<br> Chief Executive Officer<br> DIGITAL ALLY, Inc.<br> 14001 Marshall Drive<br> Lenexa, Kansas 66215<br> (913) 814-7774<br> (Name, address, including zip code, and telephone number, including area code, of agent for service)**

**Copies to:**

---

| | |
|:---|:---|
| **David E. Danovitch<br> Aaron M. Schleicher<br> Sullivan & Worcester LLP<br> 1633 Broadway<br> New York, NY 10019<br> (212)660-3060** | **Peter Jaslow**<br> **Gerald Guarcini**<br> **Ballard Spahr LLP**<br> **1735 Market Street, 51<sup>st</sup> Floor**<br> **Philadelphia, PA 19103**<br> **(215) 665-8500** |

---

**Approximate date of commencement of proposed sale to the public:** As soon as practicable after this registration statement is declared effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box: ☒

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer", "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer: ☐ Accelerated filer: ☐ <br> Non-accelerated filer: ☒ Smaller reporting company: ☒ <br> Emerging growth company: ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐

**The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Securities and Exchange Commission acting pursuant to said Section 8(a), may determine.**

**The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.**

---

| | |
|:---|:---|
| **SUBJECT TO COMPLETION** | **PROSPECTUS DATED FEBRUARY 9, 2023** |

---

![](forms-1_001.jpg)

**DIGITAL ALLY, INC.**

**Up to 1,342,281 Units**

 **(Each Unit Consisting of One Share of Common Stock and a Warrant**

**<br> to Purchase One Share of Common Stock)** 

 **Up to 1,342,281 Pre-Funded Units**

**(Each Pre-Funded Unit Consisting of a Pre-Funded Warrant to Purchase One Share of Common Stock and a Warrant to Purchase One Share of Common Stock)**

**Shares of Common Stock Underlying the Pre-Funded Warrants and Common Warrants**

We are offering on a reasonable best-efforts basis up to 1,342,281 units ("Units"), each consisting of one share of our common stock, par value $0.001 per share ("Common Stock") and a warrant to purchase one share of our Common Stock (each, a "Warrant") at an exercise price of $ per share. The Units have no stand-alone rights and will not be certificated or issued as stand-alone securities. The Common Stock and Warrants are immediately separable and will be issued separately in this offering. The Warrants offered hereby will be immediately exercisable on the date of issuance and will expire five years from the date of issuance.

We are also offering to those purchasers, if any, whose purchase of Units in this offering would otherwise result in the purchaser, together with its affiliates and related parties, beneficially owning more than 4.99% of our outstanding Common Stock immediately following the consummation of this offering, the opportunity to purchase, if they so choose, pre-funded units ("Pre-Funded Units") in lieu of the Units that would otherwise result in ownership in excess of 4.99% (or, at the election of the purchaser, 9.99%) of our outstanding Common Stock, with each Pre-Funded Unit consisting of a pre-funded warrant to purchase one share of our Common Stock (each, a "Pre-Funded Warrant"), and a Warrant. The purchase price of each Pre-Funded Unit will equal the price per Unit, minus $0.001, and the exercise price of each Pre-Funded Warrant included in the Pre-Funded Unit will be $0.001 per share of our Common Stock. The Pre-Funded Units have no stand-alone rights and will not be certificated or issued as stand-alone securities. The Pre-Funded Warrants and Warrants are immediately separable and will be issued separately in this offering. There can be no assurance that we will sell any of the Pre-Funded Units being offered. The Pre-Funded Warrants offered hereby will be immediately exercisable and may be exercised at any time until exercised in full. For each Pre-Funded Unit we sell, the number of Units we are offering will be decreased on a one-for-one basis. Because we will issue a Warrant as part of each Unit or Pre-Funded Unit, the number of Warrants sold in this offering will not change as a result of a change in the mix of the Units and Pre-Funded Units sold.

This offering also includes the Common Stock issuable from time to time upon exercise of the Warrants and Pre-Funded Warrants. We refer to the shares of our Common Stock, the Warrants, the Pre-Funded Warrants and the shares of our Common Stock issued or issuable upon exercise of the Warrants and Pre-Funded Warrants, collectively, as the securities.

On February 6, 2023, the Company, acting pursuant to authority received at the annual meeting of its stockholders on December 7, 2022, filed a certificate of amendment (the "Certificate of Amendment") to its articles of incorporation, as amended (the "Articles of Incorporation"), to effect a one-for-twenty reverse stock split (the "Reverse Stock Split") of all of its outstanding Common Stock. The Certificate of Amendment did not change the number of authorized shares of our Common Stock or the par value of our Common Stock. Unless otherwise noted, the share and per share information in this prospectus reflects, other than in our historical financial statements and the notes thereto, the Reverse Stock Split.

Our shares of Common Stock are listed on The Nasdaq Capital Market under the symbol "DGLY." On February 7, 2023, the last reported sale price of our shares of Common Stock on The Nasdaq Capital Market was $5.96 per share.

There is no established public trading market for the Units, Pre-Funded Units, Warrants or Pre-Funded Warrants, and we do not expect a market to develop. Without an active trading market, the liquidity of such securities will be limited. In addition, we do not intend to list the Warrants or Pre-Funded Warrants on The Nasdaq Capital Market, any other national securities exchange or any other trading system.

**Investing in our securities involves substantial risks. Please read carefully the section entitled "Risk Factors" beginning on page 8 of this prospectus, as well as the other information included in this prospectus, before buying any of our securities.**

We have retained the placement agent to act as our sole placement agent in connection with the securities offered by this prospectus. The placement agent is not purchasing or selling any of these securities nor is it required to sell any specific number or dollar amount of securities, but has agreed to use its reasonable best efforts to sell the securities offered by this prospectus. We may not sell all of the securities in this offering. We have agreed to pay the placement agent the placement agent fees set forth in the table below.

There is no minimum number of securities or minimum aggregate amount of proceeds for this offering to close. We expect this offering to be completed not later than two business days following the commencement of this offering and we will deliver all securities to be issued in connection with this offering delivery versus payment ("DVP")/receipt versus payment ("RVP") upon receipt of investor funds received by us. Accordingly, neither we nor the placement agent have made any arrangements to place investor funds in an escrow account or trust account since the placement agent will not receive investor funds in connection with the sale of the securities offered hereunder.

---

| | | | |
|:---|:---|:---|:---|
|  | **Per Unit** | **Per Pre-Funded Unit** | **Total** |
| Public offering price | $| $| $|
| Placement Agent Fees<sup>(1)</sup> | $| $| $|
| Proceeds, before fees and expenses, to us<sup>(2)</sup> | $| $| $|

---

(1) Represents a cash fee equal to 7.0% of the aggregate purchase price paid by investors in this offering. We have also agreed to reimburse the placement agent for its accountable offering-related legal expenses in an amount up to $85,000 and pay the placement agent a non-accountable expense allowance of $10,000. See "Plan of Distribution" beginning on page 92 of this prospectus for a description of the compensation to be received by the placement agent.

(2) Does not include proceeds from the exercise of the Warrants and Pre-Funded Warrants in cash, if any.

**Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.**

Delivery of the securities is expected to be made on or about , 2023.

*Sole Placement Agent*

**A.G.P.**

The date of this prospectus is , 2023

**TABLE OF CONTENTS**

---

| | |
|:---|:---|
| [ABOUT THIS PROSPECTUS](#Ha_001) | 1 |
| [INDUSTRY AND MARKET DATA](#Ha_002) | 1 |
| [PROSPECTUS SUMMARY](#Ha_003) | 2 |
| [THE OFFERING](#Ha_004) | 5 |
| [SUMMARY CONSOLIDATED FINANCIAL DATA](#digi_001) | 7 |
| [RISK FACTORS](#Ha_006) | 8 |
| [CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS](#ss_001) | 24 |
| [USE OF PROCEEDS](#ss_002) | 25 |
| [DILUTION](#ss_003) | 26 |
| [UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS](#Naresh_001) | 27 |
| [MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](#vi_001) | 32 |
| [BUSINESS](#vi_002) | 64 |
| [MANAGEMENT](#vi_003) | 74 |
| [EXECUTIVE COMPENSATION](#ss_006) | 81 |
| [DIVIDEND POLICY](#vi_005) | 88 |
| [CAPITALIZATION](#vi_006) | 88 |
| [CERTAIN RELATIONS AND RELATED PERSON TRANSACTIONS](#s-1_001) | 89 |
| [DESCRIPTION OF THE SECURITIES WE ARE OFFERING](#ss_007) | 90 |
| [PLAN OF DISTRIBUTION](#s-1_002) | 92 |
| [PRINCIPAL STOCKHOLDERS](#ss_008) | 94 |
| [DESCRIPTION OF CAPITAL STOCK](#ss_009) | 95 |
| [MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES](#ss_010) | 97 |
| [LEGAL MATTERS](#ss_012) | 103 |
| [EXPERTS](#ss_013) | 103 |
| [INCORPORATION OF CERTAIN INFORMATION BY REFERENCE](#digi_002) | 103 |
| [WHERE YOU CAN FIND MORE INFORMATION](#ss_015) | 103 |
| [INDEX TO FINANCIAL STATEMENTS](#vi_004) | F-1 |

---

i

**ABOUT THIS PROSPECTUS**

You should rely only on the information that we have provided in this prospectus, any related free writing prospectus that we may authorize to be provided to you and the other information to which we refer you. We have not authorized anyone to provide you with different or additional information. No dealer, salesperson or other person is authorized to give any information or to represent anything not contained in this prospectus or any related free writing prospectus that we may authorize to be provided to you. If anyone provides you with different or additional information, you should not rely on it. You should assume that the information in this prospectus or any related free writing prospectus is accurate only as of the date on the cover of the document, regardless of the time of delivery of this prospectus or any related free writing prospectus, or any sale of a security. Our business, financial condition, results of operations and prospects may have changed since those dates.

We urge you to carefully read this prospectus, together with the information under the heading "Where You Can Find More Information."

In this prospectus, unless otherwise specified or the context requires otherwise, we use the terms "Digital Ally," "Company," "we," "us" and "our" or similar references to refer to Digital Ally, Inc., a Nevada corporation, together with its consolidated subsidiaries.

**INDUSTRY AND MARKET DATA**

Market data and certain industry data and forecasts used throughout this prospectus were obtained from sources we believe to be reliable, including market research databases, publicly available information, reports of governmental agencies and industry publications and surveys. We have relied on certain data from third-party sources, including internal surveys, industry forecasts and market research, which we believe to be reliable based on our management's knowledge of the industry. Forecasts are particularly likely to be inaccurate, especially over long periods of time. In addition, we do not necessarily know what assumptions regarding general economic growth were used in preparing the third-party forecasts we cite. Statements as to our market position are based on the most currently available data. While we are not aware of any misstatements regarding the industry data presented in this prospectus, our estimates involve risks and uncertainties and are subject to change based on various factors, including those discussed under the heading "Risk Factors" in this prospectus.

**PROSPECTUS SUMMARY**

*This summary contains basic information about us and this offering. Because it is a summary, it does not contain all of the information that you should consider before deciding to invest in our securities. Before you decide to invest in our securities, you should read this entire prospectus carefully, any related free writing prospectus that we have authorized for use in connection with the offering, including the information included under the heading titled "Risk Factors" and our financial statements and the related notes included elsewhere in this prospectus.* 

**Our Company**

The Company has recently expanded beyond its legacy business digital video recording system for use in the law enforcement and security markets to two new reportable operating segments. Currently, the Company's reportable operating segments are: 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.

***Video Solutions Operating Segment***

Within the Video Solutions reportable operating segment we supply technology-based products utilizing our portable digital video and audio recording capabilities for the law enforcement and security industries and for the commercial fleet and mass transit markets. We have the ability to integrate electronic, radio, computer, mechanical, and multi-media technologies to create positive solutions to our customers' requests. Our products include: the EVO-HD, DVM-800 and DVM-800 Lite, which are in-car digital video systems for law enforcement and commercial markets; the FirstVu body-worn camera line, consisting of the FirstVu Pro, FirstVu II, and the FirstVu HD; our patented and revolutionary VuLink product, which integrates our body-worn cameras with our in-car systems by providing hands-free automatic activation for both law enforcement and commercial markets; the FLT-250, DVM-250, and DVM-250 Plus, which are our commercial line of digital video mirrors that serve as "event recorders" for the commercial fleet and mass transit markets; FleetVu, EVO Web, and VuVault are our cloud-based evidence management systems.

***Revenue Cycle Management Operating Segment***

We entered the revenue cycle management operating segment late in the second quarter of 2021 with the formation of our wholly owned subsidiary, Digital Ally Healthcare, Inc. and its majority-owned subsidiary Nobility Healthcare, LLC ("Nobility Healthcare"). Nobility Healthcare completed its first acquisition on June 30, 2021, when it acquired a private medical billing company, and a second acquisition on August 31, 2021 upon the completion of its acquisition of another private medical billing company, in which we will assist in providing working capital and back-office services to healthcare organizations throughout the country. Our assistance consists of insurance and benefit verification, medical treatment documentation and coding, and collections. Through our expertise and experience in this field, we aim to maximize our customers' service revenues collected, leading to substantial improvements in their operating margins and cash flows.

***Ticketing Operating Segment***

We entered into the ticketing operating segment through the formation of our wholly owned subsidiary, TicketSmarter, Inc. ("TicketSmarter") and its completed acquisitions of Goody Tickets, LLC and TicketSmarter, LLC, on September 1, 2021. TicketSmarter provides ticket sales, partnerships, and mainly, ticket resale services through its online ticketing marketplace for live events, TicketSmarter.com. TicketSmarter offers tickets for over 125,000 live events through its platform, for a wide range of events, including concerts, sporting events, theatres, and performing arts, throughout the country.

**Corporate Information**

We were incorporated in Nevada on December 13, 2000. We conduct our business from 14001 Marshall Drive, Lenexa, Kansas 66215. Our telephone number is (913) 814-7774. Our website address is www.digitalallyinc.com. The information contained in, or accessible through, our website is not incorporated by reference into this prospectus or the registration of which it forms a part and is intended for informational purposes only. You should not consider such website information to be a part of this prospectus and such registration statement.

**Recent Developments**

***Spin-off***

On December 8, 2022, the Company announced that its Board of Directors has unanimously approved a plan to pursue a separation into two independent, publicly-traded companies to optimize investment and capital allocation, accelerate growth, and unlock shareholder value. Specifically, the Company plans to spin off its ticketing operating segment into Kustom Entertainment, Inc., which will become a stand-alone publicly traded company in connection with the transaction (the "Spin-off").

Kustom Entertainment, Inc. was incorporated in the State of Nevada on December 8, 2022. All of the outstanding shares of common stock of Kustom Entertainment, Inc. are currently held by us. We will enter into a Separation Agreement and a Tax Matters Agreement and a number of other agreements with Kustom Entertainment, Inc. for the purpose of accomplishing the Spin-off and setting forth various matters governing our relationship with Kustom Entertainment, Inc. after the completion thereof. The Spin-off is expected to occur in the second quarter of 2023. Upon completion of the Spin-off, the Company's stockholders will own equity in two focused and streamlined businesses as follows:

*Digital Ally, Inc.*

Digital Ally, Inc. will continue to be a provider of video solution technology for law enforcement agencies, commercial fleets, and situational event security solutions. Digital Ally will also continue to provide working capital and back-office services to a variety of healthcare organizations throughout the country through its revenue cycle management subsidiary.

For the year ending December 31, 2022, these standalone businesses are expected to generate approximately $15-$17 million in annual revenues. We believe that Digital Ally, as a stand-alone entity, will be well-positioned to accelerate organic growth in its large and attractive end markets, benefit from favorable secular trends, and begin to apply discipline and focus throughout the company to enhance profitability and continue to drive growth, new product development and expansion.

As an independent company, we believe that Digital Ally, Inc. will have greater strategic focus and operational flexibility, while building on its recent momentum and emphasizing the improvement of its profit margins and profitability. Additionally, the Company expects to benefit from dedicated resources and management, with an attention to brand building, innovation, and extended opportunities domestically as well as internationally. As Digital Ally has continued to build its portfolio of subscriptions and customers that are already in place, we believe that we can continue to maintain stable sales through our deferred revenue model; however, there will be an equal expectation for growth and expansion across several high-growth adjacent markets.

Upon completion of the Spin-off, Digital Ally, Inc. will be led by Brody J. Green, who will serve as Chief Executive Officer. The Company intends to continue to be listed on the NASDAQ under its current ticker symbol, "DGLY".

 *Kustom Entertainment, Inc.*

Kustom Entertainment, Inc. will be a multi-disciplinary entertainment company, anchored by a premier ticketing technology business, which we believe is poised to achieve substantial scaling opportunities, through its TicketSmarter, Inc. subsidiary, which offers unique primary and secondary ticketing products to the market. Additionally, Kustom Entertainment's offerings will include a distinctive event marketing and production company, with numerous customization options for events, festivals, and concerts, through its Kustom 440, Inc., subsidiary.

For the year ending December 31, 2022, these standalone businesses are expected to achieve approximately $20-22 million in annual revenues. We believe that this business can achieve above-average growth by exploiting its relationships in the sporting and entertainment industries that are intended to support its primary ticketing-related opportunities, along with the expectation of the full deployment of the Kustom 440 brand and its line of service offerings. Kustom Entertainment, Inc. will be able to differentiate itself through its ability to provide event services of all sizes, ranging from corporate events to multi-day festivals. Furthermore, the ability to offer venue, ticketing, marketing, and production capabilities will make this company a unique and attractive option for many partners and investors.

With the planned separation, TicketSmarter is expected to enhance its leadership position in the national secondary ticketing marketplace, while also building a stronger position in the primary ticketing market. Furthermore, as Kustom 440 was formed in mid-2022, the event marketing and production business will be fully able to execute and produce the planned events throughout 2023, as production and investments have already begun.

Kustom Entertainment, Inc. will be led by Stanton E. Ross, who will serve as the President and Chief Executive Officer. Kustom Entertainment's shares are expected to be listed on a national exchange under a ticker symbol to be determined and announced at a later date.

 ***Reverse Stock Split***

On January 13, 2023, our Board of Directors approved a 1-for-20 reverse stock split of our outstanding shares of Common Stock. On February 6, 2023, acting pursuant to authority received at the annual meeting of our stockholders on December 7, 2022, we filed the Certificate of Amendment to our Articles of Incorporation, to effect the 1-for-20 Reverse Stock Split or all of our outstanding shares of Common Stock.

The Reverse Stock Split will not impact the number of authorized shares of Common Stock which will remain at 200,000,000 shares. Unless otherwise noted, the share and per share information in this prospectus reflects, other than in our financial statements and the notes thereto the Reverse Stock Split.

***Preliminary Financial Results***

We have not yet completed our closing procedures for the year ended December 31, 2022. Presented below are certain estimated preliminary financial results for the year ended December 31, 2022. These amounts are based on the information available to us at this time. We have provided estimated ranges, rather than specific amounts, because these results are preliminary and subject to change. As such, our actual results may differ from the estimated preliminary results presented in this prospectus and will not be finalized until after we complete our normal year-end accounting procedures, which will occur after the consummation of this offering. Our preliminary results set forth below reflect our management's best estimate of the impact of events during the year.

These estimates should not be viewed as a substitute for our full interim or annual financial statements prepared in accordance with accounting principles generally accepted in the United States ("GAAP"). Accordingly, you should not place undue reliance on these preliminary financial results. These estimated preliminary results should be read in conjunction with the "Risk Factors" section and our consolidated financial statements, including the notes thereto.

The preliminary financial results included in this prospectus have been prepared by, and are the responsibility of, our management. RBSM LLP, the Company's independent registered public accounting firm, has not audited, reviewed, compiled or applied agreed-upon procedures with respect to the preliminary financial results and key operating metrics. Accordingly, RBSM LLP does not express an opinion or any other form of assurance with respect thereto.

The following are our estimated preliminary financial results for the year ended December 31, 2022:

● We expect preliminary unaudited revenue for the year ended December 31, 2022 to be in the range of $36 million to $38 million, as compared to approximately $21.4 million for the same period in 2021.

● We expect preliminary unaudited net loss for the year ended December 31, 2022 to be in the range of $25 million to $27 million, as compared to approximately $25.5 million net income for the same period in 2021.

**Risk Factors Summary**

Our business is subject to numerous risks, as more fully described in the section entitled "Risk Factors" immediately following this prospectus summary. You should read these risks in full before you invest in our securities. The following is a summary of such risks.

● The market price for our Common Stock is particularly volatile given our status as a relatively unknown company with a small and thinly traded public float, and lack of profits, which could lead to wide fluctuations in the share price of our Common Stock. You may be unable to sell any shares of Common Stock that you hold at or above your purchase price, which may result in substantial losses to you.

● There is no public market for the Pre-Funded Warrants or the Warrants being offered in this offering. Holders of the Pre-Funded Warrants and Warrants will have no rights as a common stockholder until they acquire shares of our Common Stock.

● Our management will have broad discretion over the use of the net proceeds from this offering, you may not agree with how we use the proceeds and the proceeds may not be invested successfully.

● You may experience immediate and substantial dilution in the net tangible book value per share of Common Stock included as part of the Units sold in this offering or that may be issued upon the exercise of any Pre-Funded Warrants included as part of the Pre-Funded Units sold in this offering.

● This is a best efforts offering, no minimum amount of securities is required to be sold, and we may not raise the amount of capital we believe is required for our business plans.

● We have incurred losses in recent years.

● We face risks related to health epidemics and other outbreaks, which could significantly disrupt our operations and could have a material adverse impact on us, and the recent coronavirus outbreak has and could continue to materially and adversely affect our business.

● We are operating in a developing market and there is uncertainty as to market acceptance of our technology and products.

● We expend significant resources in anticipation of a sale due to our lengthy sales cycle and may receive no revenue in return.

● We are uncertain of our ability to protect technology through patents.

● We are a party to several lawsuits both as a plaintiff and as a defendant in which we may ultimately not prevail, resulting in losses and which may cause our stock price to decline.

● We may need to raise additional capital in the future, and if we are unable to secure adequate funds on terms acceptable to us, we could be unable to execute our business plan.

● We are dependent on key personnel.

● Our historical and pro forma financial information is not necessarily representative of the results that we would have achieved as a business should the Spin-off have had occurred and may not be a reliable indicator of our future results.

● There can be no assurance that our review of the Spin-off will result in a transaction satisfactory to holders of our common stock or any change at all.

● The Company may not achieve some or all of the expected benefits of the Spin-off, and the Spin-off may materially and adversely affect our financial position, results of operations and cash flows.

● After the Spin-off, certain members of management, directors and holders of Common Stock will hold stock in both Digital Ally and Kustom Entertainment, Inc., and as a result may face actual or potential conflicts of interest.

● The allocation of intellectual property rights and data between the Company and Kustom Entertainment, Inc. as part of the Spin-off, the shared use of certain intellectual property rights and data following the Spin-off and restrictions on the use of intellectual property rights, could adversely impact our reputation, our ability to enforce certain intellectual property rights that are important to us and our competitive position.

● Without obtaining adequate capital funding or improving our financial performance, we may not be able to continue as a going concern.

● We have been notified by The Nasdaq Stock Market LLC of our failure to comply with certain continued listing requirements and, if we are unable to regain compliance with all applicable continued listing requirements and standards of Nasdaq, our Common Stock could be delisted from Nasdaq.

**THE OFFERING**

---

| | |
|:---|:---|
| Units offered by us | Up to 1,342,281 Units, each consisting of one share of our Common Stock and a Warrant to purchase one share of our Common Stock. The Units have no stand-alone rights and will not be certificated or issued as stand-alone securities. The Common Stock and Warrants are immediately separable and will be issued separately in this offering. |
| Pre-Funded Units offered by us | We are also offering to those purchasers, if any, whose purchase of Units in this offering would otherwise result in the purchaser, together with its affiliates and certain related parties, beneficially owning more than 4.99% of our outstanding Common Stock immediately following the consummation of this offering, Pre-Funded Units, each consisting of one Pre-Funded Warrant to purchase one share of our Common Stock and a Warrant to purchase one share of our Common Stock. The Pre-Funded Units have no stand-alone rights and will not be certificated or issued as stand-alone securities. The Pre-Funded Warrants and Warrants are immediately separable and will be issued separately in this offering. For each Pre-Funded Unit we sell, the number of Units we are offering will be decreased on a one-for-one basis. Because we will issue a Warrant as part of each Unit or Pre-Funded Unit, the number of Warrants sold in this offering will not change as a result of a change in the mix of the Units and Pre-Funded Units sold. |
| Warrants | Each Warrant will have an exercise price of $ per share of Common Stock, will be immediately exercisable and will expire five years from the date of issuance. To better understand the terms of the Warrants, you should carefully read the "Description of the Securities We are Offering" section of this prospectus. You should also read the form of Warrant, which is filed as an exhibit to the registration statement of which this prospectus forms a part. This offering also relates to the shares of Common Stock issuable upon exercise of the Warrants.  |
| Pre-Funded Warrants | Each Pre-Funded Warrant will be immediately exercisable at an exercise price of $0.001 per share of our Common Stock and may be exercised at any time until exercised in full. To better understand the terms of the Pre-Funded Warrants, you should carefully read the "Description of the Securities We are Offering" section of this prospectus. You should also read the form of Pre-Funded Warrant, which is filed as an exhibit to the registration statement of which this prospectus forms a part. This offering also relates to the shares of Common Stock issuable upon exercise of the Pre-Funded Warrants. |
| Reasonable best efforts | We have agreed to issue and sell the securities offered hereby to the purchasers through the placement agent. The placement agent is not required to buy or sell any specific number or dollar amount of the securities offered hereby, but it will use its reasonable best efforts to solicit offers to purchase the securities offered by this prospectus. See "Plan of Distribution" on page 92 of this prospectus. |

---

---

| | |
|:---|:---|
| Common Stock outstanding immediately after the offering | 4,097,451 shares (assuming the sale of the maximum number of securities and the exercise of all Pre-Funded Warrants sold in this offering). |
| Use of proceeds | We intend to use the net proceeds of this offering for new product development, general corporate purposes including legal and marketing matters, and other working capital purposes. See "Use of Proceeds" for a more complete description of the intended use of proceeds from this offering. |
| Nasdaq Stock Market symbol | DGLY |
| Transfer agent | Securities Transfer Corporation, 2901 N. Dallas Parkway, Suite 380, Plano, Texas 75093. |
| Risk factors | Investing in our securities involves substantial risks. Please read carefully the section entitled "Risk Factors" beginning on page 8 of this prospectus, as well as the other information included in this prospectus, before buying any of our securities. |

---

The number of shares of our Common Stock that will be outstanding immediately after this offering as shown above is based on 2,755,170 shares outstanding as of February 7, 2023, and includes or excludes the following as of such date:

● excludes up to 53,950 shares of our Common Stock issuable upon exercise of outstanding options with a weighted average exercise price of $45.80 per share;

● includes 83,250 shares of our Common Stock subject to forfeiture pursuant to outstanding non-vested restricted stock grants; and

● excludes up to 67,459 shares of our Common Stock issuable upon exercise of warrants outstanding, having a weighted average exercise price of $60.26 per share.

Unless otherwise indicated, all information in this prospectus assumes or gives effects to:

● the exercise of all Pre-Funded Warrants included in the Pre-Funded Units sold in this offering; and

● no exercise of the Warrants included in the Units and the Pre-Funded Units sold in this offering.

**summary consolidated financial data**

The following summary consolidated financial data as of and for the years ended December 31, 2021 and 2020 has been derived from our audited consolidated financial statements and the related notes included elsewhere in this prospectus. The following summary consolidated financial data as of September 30, 2022 and for the nine months ended September 30, 2022 and 2021 has been derived from our unaudited consolidated financial statements and the related notes included elsewhere in this prospectus. The unaudited condensed consolidated interim financial statement data has been prepared on a basis consistent with which our audited consolidated financial statements have been prepared, except income taxes for the interim period which are based on the estimated effective tax for the full year. These interim results are not necessarily indicative of results to be expected for the full year.

You should read this table in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and related notes and the other financial and statistical information. The summary consolidated financial and other data provided below does not purport to indicate results of operations as of any future date or for any future period.

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **Nine Months Ended<br> September 30,** | **Nine Months Ended<br> September 30,** | **Year Ended** <br> **December 31,**  | **Year Ended** <br> **December 31,**  |
|  | **2022** | **2021** | **2021** | **2020** |
| **Statement of Operations Data** | **(unaudited, $)** | **(unaudited, $)** | **$** | **$** |
| Net revenues | 28130392 | 9669323 |  |  |
| Gross profit | 4254198 | 3473254 |  |  |
| Operating loss | (20031610) | (9081553) |  |  |
| Income (loss) before income tax expenses | (9299498) | 24388307 |  |  |
| Net income (loss) attributable to common stockholders (1) | (9568134) | 24408170 |  |  |
| Net income (loss) per share attributable to common stockholders: Basis and diluted (1) | (0.19) | 0.49 |  |  |

---

---

| | | | |
|:---|:---|:---|:---|
|  | | **As of** <br> **December 31,**  | **As of** <br> **December 31,**  |
|  | **As of** <br> **September 30,** <br> **2022** | **2021** | **2020** |
| **Balance Sheet Data** | **(unaudited, $)** | **$** | **$** |
| Cash and cash equivalents | 6295391 | 32007792 | 4361758 |
| Total assets | 68397464 | 82989197 | 20797527 |
| Total liabilities | 20352356 | 27125958 | 6441021 |
| Total stockholders' equity | 48045108 | 55863239 | 14356506 |

---

(1) As adjusted to give effect for the 1:20 Reverse Stock Split (unaudited):

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **Nine Months Ended <br> September 30,**  | **Nine Months Ended <br> September 30,**  | **Years Ended** <br> **December 31,**  | **Years Ended** <br> **December 31,**  |
|  | **2022** | **2021** | **2021** | **2020** |
| Net income (loss) attributable to common stockholders | $(9299498) | $24408170 | $25474508 | $(2625881) |
| Net income (loss) per share attributable to common stockholders—basic and diluted | $(3.83) | $9.8 | $10.14 | $(2.43) |
| Shares used in the calculation of net income (loss) per share—basic and diluted | 2428067 | 2490630 | 2511114 | 1080182 |

---

**Risk factorS**** 

*Investing in our securities involves a high degree of risk. You should carefully consider the risks described below and all of the information contained in this prospectus, before deciding whether to purchase the securities offered hereby. Our business, financial condition, results of operations and prospects could be materially and adversely affected by these risks.*

**Risks Related to This Offering and our Securities**

**The market price for our Common Stock is particularly volatile given our status as a relatively unknown company with a small and thinly traded public float, and lack of profits, which could lead to wide fluctuations in the share price of our Common Stock. You may be unable to sell any shares of Common Stock that you hold at or above your purchase price, which may result in substantial losses to you.**

The market for our Common Stock is characterized by significant price volatility when compared to the shares of larger, more established companies that trade on a national securities exchange and have large public floats, and we expect that the share price of our Common Stock will continue to be more volatile than the shares of such larger, more established companies for the indefinite future. The volatility in the share price of our Common Stock is attributable to a number of factors. First, as noted above, our Common Stock is, compared to the shares of such larger, more established companies, sporadically and thinly traded. The price for our shares of share price of our Common Stock could, for example, decline precipitously in the event that a large number of shares of our Common Stock is sold on the market without commensurate demand. Secondly, an investment in our securities is a speculative or "risky" investment due to our lack of profits to date. As a consequence of this enhanced risk, more risk-adverse investors may, under the fear of losing all or most of their investment in the event of negative news or lack of progress, be more inclined to sell their shares of share price of our Common Stock on the market more quickly and at greater discounts than would be the case with the stock of a larger, more established company that trades on a national securities exchange and has a large public float. Many of these factors are beyond our control and may decrease the market price of our Common Stock regardless of our operating performance.

**Holders of the Pre-Funded Warrants and Warrants will not be entitled to any rights with respect to our Common Stock but will be subject to all changes made with respect to our Common Stock.**

Holders of the Pre-Funded Warrants and Warrants will not be entitled to any rights with respect to our Common Stock (including, without limitation, voting rights and rights to receive any dividends or other distributions on our Common Stock), but holders of the Pre-Funded Warrants and Warrants will be subject to all changes affecting our Common Stock. For example, if an amendment is proposed to our Articles of Incorporation, requiring stockholder approval and the record date for determining the stockholders of record entitled to vote on the amendment occurs prior to the relevant holder acquiring shares of our Common Stock as a result of exercise of such holder's Pre-Funded Warrants and Warrants, such holder will not be entitled to vote on the amendment, although such holder will nevertheless be subject to any changes in the powers, preferences or special rights of our Common Stock.

**There is no public market for the Units, Pre-Funded Units, Pre-Funded Warrants or the Warrants being offered in this offering.**

There is no established public trading market for the Units, Pre-Funded Units, Pre-Funded Warrants or the Warrants being offered in this offering, and we do not expect a market to develop. In addition, we do not intend to apply to list the Pre-Funded Warrants or the Warrants on any securities exchange or nationally recognized trading system, including Nasdaq. Without an active market, the liquidity of the Pre-Funded Warrants or the Warrants will be limited.

**The Pre-Funded Warrants and the Warrants are speculative in nature.**

Following this offering, the market value of the Pre-Funded Warrants and Warrants, if any, is uncertain and there can be no assurance that the market value of the Pre-Funded Warrants and Warrants will equal or exceed their imputed public offering price. In the event that our Common Stock price does not exceed the exercise price of the Warrants during the period when such Warrants are exercisable, such Warrants may not have any value. Furthermore, each Warrant will expire five years from its date of issuance.

**We have been notified by The Nasdaq Stock Market LLC of our failure to comply with certain continued listing requirements and, if we are unable to regain compliance with all applicable continued listing requirements and standards of Nasdaq, our Common Stock could be delisted from Nasdaq.** 

Our Common Stock is currently listed on Nasdaq. In order to maintain that listing, we must satisfy minimum financial and other continued listing requirements and standards, including those regarding director independence and independent committee requirements, minimum stockholders' equity, minimum share price, and certain corporate governance requirements. There can be no assurances that we will be able to comply with the applicable listing standards of The Nasdaq Stock Market LLC.

On July 7, 2022, we received a written notification from the Listing Qualifications Department (the "Staff") of The Nasdaq Stock Market LLC ("Nasdaq") notifying us that we were not in compliance with the minimum bid price requirement for continued listing on Nasdaq, as set forth under Nasdaq Listing Rule 5550(a)(2) (the "Minimum Bid Price Requirement"), because the closing bid price of our Common Stock was below $1.00 per share for the previous thirty (30) consecutive business days. We were granted 180 calendar days, or until January 3, 2023 (the "First Compliance Period"), to regain compliance with the Minimum Bid Price Requirement. In order to regain compliance, the closing bid price of our Common Stock must be at least $1 per share for a minimum of 10 consecutive business days during the First Compliance Period. The Company's Common Stock has not regained compliance with the Minimum Bid Price Requirement as of January 3, 2023. On December 29, 2022, the Company requested an extension of an additional 180 days in which to regain compliance with the Minimum Bid Price Requirement.

On January 4, 2023, the Company received notice (the "Second Notice") from Nasdaq indicating that, while the Company has not regained compliance with the Minimum Bid Price Requirement, Staff has determined that the Company is eligible for an additional 180-day period, or until July 3, 2023 (the "Second Compliance Period"), to regain compliance. Staff's determination was based on (i) our meeting the continued listing requirement for market value of our publicly held shares and all other initial listing standards for The Nasdaq Capital Market, with the exception of the Minimum Bid Price Requirement, and (ii) our providing written notice to Nasdaq of our intent to cure the deficiency during the Second Compliance Period, if necessary, by effecting a reverse stock split. If at any time during the Second Compliance Period, the closing bid price of the Company's Common Stock is at least $1 per share for at least a minimum of 10 consecutive business days, Nasdaq will provide the Company with written confirmation of compliance with the Minimum Bid Price Requirement and the matter will be closed. If compliance cannot be demonstrated by the end of the Second Compliance Period, Staff will provide written notification that the Common Stock will be delisted. At that time, the Company may appeal Staff's determination to a hearings panel. We can give no assurance that the Company will regain or demonstrate compliance by July 3, 2023.

On February 6, 2023, the Company effected the Reverse Stock Split in order to allow the Company to regain compliance with the Minimum Bid Price Requirement.

There can be no assurances that we will be able to regain compliance, or, in the event we regain compliance, maintain continued compliance, with the Minimum Bid Price Requirement following the Reverse Stock Split. If we are unable to regain or maintain compliance with the Nasdaq continued listing requirements, our Common Stock will be delisted from Nasdaq.

In the event that our Common Stock is delisted from Nasdaq, as a result of our failure to comply with the Minimum Bid Price Requirement, or due to our failure to continue to comply with any other requirement for continued listing on Nasdaq, and is not eligible for listing on another exchange, trading in the shares of our Common Stock could be conducted in the over-the-counter market or on an electronic bulletin board established for unlisted securities such as the Pink Sheets or the OTC Bulletin Board. In such event, it could become more difficult to dispose of, or obtain accurate price quotations for, our Common Stock, and it would likely be more difficult to obtain coverage by securities analysts and the news media, which could cause the price of our Common Stock to decline further. Also, it may be difficult for us to raise additional capital if we are not listed on a national exchange.

**In the event that our Common Stock is delisted from Nasdaq, U.S. broker-dealers may be discouraged from effecting transactions in shares of our Common Stock because they may be considered penny stocks and thus be subject to the penny stock rules.**

The SEC has adopted a number of rules to regulate a "penny stock" that restricts transactions involving stock which is deemed to be penny stock. Such rules include Rules 3a51-1, 15g-1, 15g-2, 15g-3, 15g-4, 15g-5, 15g-6, 15g-7, and 15g-9 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These rules may have the effect of reducing the liquidity of penny stocks. "Penny stocks" generally are equity securities with a price of less than $5.00 per share (other than securities registered on certain national securities exchanges or traded on Nasdaq if current price and volume information with respect to transactions in such securities is provided by the exchange or system). Our shares of Common Stock have in the past constituted, and may again in the future constitute, a "penny stock" within the meaning of the rules. The additional sales practice and disclosure requirements imposed upon U.S. broker-dealers may discourage such broker-dealers from effecting transactions in shares of our Common Stock, which could severely limit the market liquidity of such shares of Common Stock and impede their sale in the secondary market.

A U.S. broker-dealer selling a penny stock to anyone other than an established customer or "accredited investor" (generally, an individual with a net worth in excess of $1,000,000 or an annual income exceeding $200,000, or $300,000 together with his or her spouse) must make a special suitability determination for the purchaser and must receive the purchaser's written consent to the transaction prior to sale, unless the broker-dealer or the transaction is otherwise exempt. In addition, the "penny stock" regulations require the U.S. broker-dealer to deliver, prior to any transaction involving a "penny stock", a disclosure schedule prepared in accordance with SEC standards relating to the "penny stock" market, unless the broker-dealer or the transaction is otherwise exempt. A U.S. broker-dealer is also required to disclose commissions payable to the U.S. broker-dealer and the registered representative and current quotations for the securities. Finally, a U.S. broker-dealer is required to submit monthly statements disclosing recent price information with respect to any "penny stock" held in a customer's account and information with respect to the limited market in "penny stocks".

You should be aware that, according to the SEC, the market for "penny stocks" has suffered in recent years from patterns of fraud and abuse. Such patterns include (i) control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer; (ii) manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; (iii) "boiler room" practices involving high-pressure sales tactics and unrealistic price projections by inexperienced sales persons; (iv) excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and (v) the wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, resulting in investor losses. Our management is aware of the abuses that have occurred historically in the penny stock market. Although we do not expect to be in a position to dictate the behavior of the market or of broker-dealers who participate in the market, management will strive within the confines of practical limitations to prevent the described patterns from being established with respect to our securities.

***If and when a larger trading market for our Common Stock develops, the market price of our Common Stock is still likely to be highly volatile and subject to wide fluctuations, and you may be unable to resell your shares at or above the price at which you acquired them.***

The market price of our Common Stock may be highly volatile and could be subject to wide fluctuations in response to a number of factors that are beyond our control, including, but not limited to:

● variations in our revenues and operating expenses;

● actual or anticipated changes in the estimates of our operating results or changes in stock market analyst recommendations regarding our Common Stock, other comparable companies or our industry generally;

● market conditions in our industry, the industries of our customers and the economy as a whole;

● actual or expected changes in our growth rates or our competitors' growth rates;

● developments in the financial markets and worldwide or regional economies;

● announcements of innovations or new products or services by us or our competitors;

● announcements by the government relating to regulations that govern our industry;

● sales of our Common Stock or other securities by us or in the open market;

● changes in the market valuations of other comparable companies; and

● other events or factors, many of which are beyond our control, including those resulting from such events, or the prospect of such events, including war, terrorism and other international conflicts, public health issues including health epidemics or pandemics, such as the recent outbreak of COVID-19, and natural disasters such as fire, hurricanes, earthquakes, tornados or other adverse weather and climate conditions, whether occurring in the United States or elsewhere, could disrupt our operations, disrupt the operations of our suppliers or result in political or economic instability.

In addition, if the market for technology stocks or the stock market in general experiences loss of investor confidence, the trading price of our Common Stock could decline for reasons unrelated to our business, financial condition or operating results. The trading price of our shares of Common Stock might also decline in reaction to events that affect other companies in our industry, even if these events do not directly affect us. Each of these factors, among others, could harm the value of your investment in our securities. In the past, following periods of volatility in the market, securities class-action litigation has often been instituted against companies. Such litigation, if instituted against us, could result in substantial costs and diversion of management's attention and resources, which could materially and adversely affect our business, operating results and financial condition.

**Our ability to use our net operating loss carry-forwards and certain other tax attributes may be limited.**

Under Section 382 of the Internal Revenue Code of 1986, as amended, if a corporation undergoes an "ownership change" (generally defined as a greater than 50% change (by value) in its equity ownership over a three-year period), the corporation's ability to use its pre-change net operating loss carry-forwards and other pre-change tax attributes (such as research tax credits) to offset its post-change income may be limited. We may experience ownership changes in the future as a result of subsequent shifts in our stock ownership, including as a result of the completion of this offering when it is taken together with other transactions we may consummate in the succeeding three-year period. As a result, if we earn net taxable income, our ability to use our pre-change net operating loss carry-forwards to offset U.S. federal taxable income may be subject to limitations, which potentially could result in increased future tax liability to us.

**We do not anticipate paying dividends on our Common Stock in the foreseeable future; you should not buy our securities if you expect dividends.**

The payment of dividends on our Common Stock will depend on earnings, financial condition and other business and economic factors affecting us at such time as our Board may consider relevant. If we do not pay dividends, our Common Stock may be less valuable because a return on your investment will only occur if our stock price appreciates.

We currently intend to retain our future earnings to support operations and to finance expansion and, therefore, we do not anticipate paying any cash dividends on our Common Stock in the foreseeable future.

**Our Articles of Incorporation and Nevada law could prevent a takeover that stockholders consider favorable and could also reduce the market price of our Common Stock.**

Provisions of Nevada anti-takeover law (NRS 78.378 et seq.) could have the effect of delaying or preventing a third-party from acquiring us, even if the acquisition arguably could benefit our stockholders. Various provisions of our by-laws may delay, defer or prevent a tender offer or takeover attempt of us that a stockholder might consider in his or her best interest. Our by-laws may be adopted, amended or repealed by the affirmative vote of the holders of at least a majority of our outstanding shares of capital stock entitled to vote for the election of directors, and except as provided by Nevada law, our Board shall have the power to adopt, amend or repeal the bylaws by a vote of not less than a majority of our directors. The interests of these stockholders and directors may not be consistent with your interests, and they may make changes to the by-laws that are not in line with your concerns.

Subject to applicable Nasdaq rules regarding the issuance of 20% or more of our Common Stock, our authorized but unissued shares of Common Stock are available for our Board to issue without stockholder approval. We may use these additional shares for a variety of corporate purposes, however, faced with an attempt to obtain control of us by means of a proxy context, tender offer, merger or other transaction our Board acting alone and without approval of our stockholders can issue large amounts of capital stock as part of a defense to a take-over challenge.

The existence of the foregoing provisions and other potential anti-takeover measures could limit the price that investors might be willing to pay in the future for shares of our Common Stock. They could also deter potential acquirers of our company, thereby reducing the likelihood that you could receive a premium for your Common Stock in an acquisition.

**If securities or industry analysts do not publish or cease publishing research or reports about us, our business or our market, or if they change their recommendations regarding our Common Stock adversely, our Common Stock price and trading volume could decline.**

The trading market for our shares of Common Stock will be influenced by the research and reports that industry or securities analysts may publish about us, our business, our market or our competitors. If any of the analysts who may cover us change their recommendation regarding our Common Stock adversely, or provide more favorable relative recommendations about our competitors, our share price would likely decline. If any analyst who may cover us were to cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our Common Stock price or trading volume to decline.

**The requirements of being a U.S. public company may strain our resources and divert management's attention.**

As a U.S. public company, we are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Act, the listing requirements of Nasdaq, and other applicable securities rules and regulations. Compliance with these rules and regulations will increase our legal and financial compliance costs, make some activities more difficult, time-consuming, or costly, and increase demand on our systems and resources. The Exchange Act requires, among other things, that we file annual and current reports with respect to our business and operating results.

As a result of disclosure of information in this prospectus, as well as in filings required of a public company, our business and financial condition is more visible, which we believe may result in threatened or actual litigation, including by competitors and other third parties. If such claims are successful, our business and operating results could be harmed, and even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert resources of our management and harm our business and operating results.

**Our management will have broad discretion over the use of the net proceeds from this offering, you may not agree with how we use the proceeds and the proceeds may not be invested successfully.**

Our management will have broad discretion as to the use of the net proceeds from this offering and could use them for purposes other than those contemplated at the time of commencement of this offering. Accordingly, you will be relying on the judgment of our management regarding the use of these net proceeds, and you will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used appropriately. It is possible that, pending their use, we may invest the net proceeds in a way that does not yield a favorable, or any, return for us. The failure of our management to use such funds effectively could have a material adverse effect on our business, financial condition, operating results and cash flows.

***You may experience immediate and substantial dilution in the net tangible book value per share of the Common Stock included as part of the Units sold in this offering or that may be issued upon the exercise of any Pre-Funded Warrants included as parts of the Pre-Funded Units sold in this offering.***

The price per share of our Common Stock being offered as part of the Units or that may be issued upon the exercise of any Pre-Funded Warrants included as part of the Pre-Funded Units is higher than the net tangible book value per share of our Common Stock. Therefore, you will suffer immediate and substantial dilution in the net tangible book value of the Common Stock if you purchase securities in this offering. See the section entitled "Dilution" below for a more detailed discussion of the dilution you will incur if you invest in this offering.

***This is a best efforts offering, no minimum amount of securities is required to be sold, and we may not raise the amount of capital we believe is required for our business plans.***

The placement agent has agreed to use its reasonable best efforts to solicit offers to purchase the securities being offered in this offering. The placement agent has no obligation to buy any of the securities from us or to arrange for the purchase or sale of any specific number or dollar amount of the securities. There is no required minimum number of securities or amount of proceeds that must be sold as a condition to completion of this offering. Because there is no minimum offering amount required as a condition to the closing of this offering, the actual offering amount, placement agent fees and proceeds to us are not presently determinable and may be substantially less than the maximum amounts set forth above. We may sell fewer than all of the securities offered hereby, which may significantly reduce the amount of proceeds received by us, and investors in this offering will not receive a refund in the event that we do not sell an amount of securities sufficient to fund for our operations as described in the "Use of Proceeds" section herein. Thus, we may not raise the amount of capital we believe is required for our operations in the short-term and may need to raise additional funds, which may not be available or available on terms acceptable to us.

**You may experience future dilution as a result of future equity offerings and other issuances of our Common Stock or other securities. In addition, this offering and future equity offerings and other issuances of our Common Stock or other securities may adversely affect our Common Stock price.**

In order to raise additional capital, we may in the future offer additional shares of our Common Stock or other securities convertible into or exchangeable for our Common Stock at prices that may not be the same as the price per Unit or Pre-Funded Unit in this offering. We may not be able to sell shares or other securities in any other offering at a price per share that is equal to or greater than the price per Unit or Pre-Funded Unit paid by the investors in this offering, and investors purchasing shares or other securities in the future could have rights superior to existing stockholders. The price per share at which we sell additional shares of our Common Stock or securities convertible into Common Stock in future transactions may be higher or lower than the price per Unit or Pre-Funded Unit in this offering. You may incur dilution upon exercise of any outstanding stock options, warrants or upon the issuance of shares of Common Stock under our equity incentive programs. In addition, the sale of securities in this offering and any future sales of a substantial number of shares of our Common Stock in the public market, or the perception that such sales may occur, could adversely affect the price of our Common Stock. We cannot predict the effect, if any, that market sales of those shares of Common Stock or the availability of those shares for sale will have on the market price of our Common Stock.

***Without obtaining adequate capital funding or improving our financial performance, we may not be able to continue as a going concern.***

Our recurring losses from operations and negative cash flows raise substantial doubt about our ability to continue as a going concern without additional capital-raising activities. As a result, we have concluded that there is substantial doubt about our ability to continue as a going concern. Failure to secure additional funding may require us to modify, delay, or abandon some of our planned future expansion or development, or to otherwise enact operating cost reductions available to management, which could have a material adverse effect on our business, operating results, financial condition, and ability to achieve our intended business objectives.

**Risks Related to Our Business and Operations**

**We have incurred losses in recent years.**

We have had net losses for several years and had an accumulated deficit of $68,670,497 at December 31, 2021, which includes our net income of $25,474,508 for the year ended December 31, 2021, as compared to our net loss of $2,625,881 for the year ended December 31, 2020. As of September 30, 2022, had an accumulated deficit of $82,261,430, which includes net losses of $9,568,134 for the nine months ended September 30, 2022. Our management has concluded that our historical recurring losses from operations and unstable cash flows from operations, as well as our dependence on private equity and other financings, raise substantial doubt about our ability to continue as a going concern and our auditor has included an explanatory paragraph relating to our ability to continue as a going concern in its audit report for the years ended December 31, 2021 and 2020. With the $7.3 million of net proceeds from this offering (assuming the sale of all securities in this offering), we believe that the net proceeds from this offering, together with our existing cash and cash equivalents, will meet our capital needs into September 2023. If we raise an additional $10.0 million in net proceeds through the sale of securities or otherwise throughout 2023, we believe that we will then meet our capital needs through February 2024. We have implemented several initiatives intended to improve our revenues and reduce our operating costs with a goal of restoring profitability. If we are unsuccessful in this regard, it will have a material adverse impact on our business, prospects, operating results and financial condition.

**We do not have any revolving credit facilities and it may be difficult for us to enter into one.**

We have no revolving credit facility to fund our operating needs should it become necessary. It will be difficult to obtain an institutional line of credit facility given our recent operating losses and the current banking environment, which may adversely affect our ability to finance our business, grow or be profitable. Further, even if we could obtain a new credit facility, in all likelihood it would not be on terms favorable to us.

**If we are unable to manage our current business activities, our prospects may be limited and our future profitability may be adversely affected.**

We experienced operating losses each year from 2009 to 2021, as well as through the nine months ended September 30, 2022. Our revenues have been unpredictable, which poses significant burdens on us to be proactive in managing production, personnel levels and related costs. We will need to improve our revenues, margins, operations, financial and other systems to manage our business effectively, and any failure to do so may lead to inefficiencies and redundancies which reduce our prospects to return to profitability.

**We face risks related to health epidemics and other outbreaks, which could significantly disrupt our operations and could have a material adverse impact on us, and the recent coronavirus outbreak could materially and adversely affect our business.**

The COVID-19 pandemic has resulted in hundreds of millions of infections and millions of deaths worldwide, as of the date of filing of the registration statement of which this prospectus forms a part, and continues to spread across the globe, including throughout the law enforcement and commercial fleets channels in the United States, the major market in which we operate. The COVID-19 pandemic or the outbreak of any other pandemic or epidemic could materially and adversely affect our business, financial condition and results of operations. If COVID-19 worsens in the United States and Asia, or in any other regions in which we have material operations or sales, our business activities originating from affected areas, including sales, manufacturing and supply chain related activities, could be adversely affected. Although we have been deemed by the State of Kansas to be an "essential business", our supply chain has been and continues to be disrupted and our customers, in particular our commercial customers, have been and continue to be significantly impacted, which has in turn reduced our operations and activities. Disruptive activities from COVID-19 could still include the temporary closure of our manufacturing facilities and those used in our supply chain processes, restrictions on the export or shipment of our products, significant cutback of ocean container delivery from Asia, business closures in impacted areas, and restrictions on our employees' and consultants' ability to travel and to meet with customers. Additionally, the recent decline in COVID-19 infection rates due to increased vaccination rates in the U.S. and abroad has resulted in a reduction in sales of our Shield™ and ThermoVU™ products since the first quarter of 2021, which has continued through the second quarter of 2021. Recently, variants of COVID-19 have increased infection and hospitalization rates which may lead to higher sales as the government and health authorities consider new actions and restrictions to combat the spread of the new variants. The extent to which COVID-19 impacts our results will depend on future developments, which are highly uncertain and cannot be predicted, including vaccination and infection rates, new information which may emerge concerning the severity of the virus and any other actions to contain it or treat its impact, among others. COVID-19 could also result in social, economic and labor instability in the countries in which we or our customers and suppliers operate.

If workers at one or more of our offices or the offices of our suppliers or manufacturers become ill or are quarantined and in either or both events are therefore unable to work, our operations could be subject to disruption. Further, if our manufacturers become unable to obtain necessary raw materials or components, we may incur higher supply costs or our manufacturers may be required to reduce production levels, either of which may negatively affect our financial condition or results of operations. In addition, the capital markets have been disrupted and our efforts to raise necessary capital will likely be adversely impacted by COVID-19. As a result, we cannot forecast with any certainty when the disruptions caused by such pandemic will cease to impact our business and the results of our operations. The extent to which COVID-19 affects our results will depend on future developments that are highly uncertain and cannot be predicted, including actions to contain COVID-19 or address and treat its effects, among others.

**There are risks related to dealing with domestic governmental entities as customers.**

One of the principal target markets for our products is the law enforcement community. In this market, the sale of products will be subject to budget constraints of governmental agencies purchasing these products, which could result in a significant reduction in our anticipated revenues. Such governmental agencies have experienced budgetary pressures because of the recent recession and its impact on local sales, property and income taxes that provide funding for purchasing our products. These agencies also may experience political pressure that dictates the way they spend money. Thus, even if an agency wants to acquire our products, it may be unable to purchase them due to budgetary or political constraints, even if such agencies have the necessary funds, we may experience delays and relatively long sales cycles due to their internal decision-making policies and procedures.

**There are risks related to dealing with foreign governmental entities as customers.**

We target the law enforcement community in foreign countries for the sale of many of our products. While foreign countries vary, generally the sale of our products will be subject to political and budgetary constraints of foreign governments and agencies purchasing these products, which could result in a significant reduction in our anticipated revenues. Some foreign governments are experiencing budgetary pressures because of various reasons specific to them and their impact on taxes and tariffs that in many cases provide funding for purchasing our products. Law enforcement agencies within these countries also may experience political pressure that dictates the way they spend money. Thus, even if a foreign country or its law enforcement agencies want to acquire our products, it may be unable to purchase them due to budgetary or political constraints. We cannot assure investors that such governmental agencies will have the necessary funds to purchase our products even though they may want to do so. Further, even if such agencies have the necessary funds, we may experience delays and relatively long sales cycles due to their internal decision-making policies and procedures.

International law enforcement and other agencies that may consider using our products must analyze a wide range of issues before committing to purchase products like ours, including training costs, product reliability and budgetary constraints. The length of our sales cycle may range from a few months to a year or more. We may incur substantial selling costs and expend significant effort in connection with the evaluation of our products by potential customers before they place an order. Initial orders by foreign governments and agencies typically are for a small number of units that are used to evaluate the products. If these potential customers do not purchase our products, we will have expended significant resources and receive no revenue in return. In addition, we may be selected as the vendor of choice by these foreign customers but never receive the funding necessary to purchase our product due to political or economic reasons.

***We are marketing our DVM-250, DVM-250 Plus event recorder and FirstVU HD products to commercial customers, which is a relatively new sales channel for us and we may experience problems in gaining acceptance.***

The principal target commercial market for our event recorder products is commercial fleet operators, such as taxi cabs, limousine services, transit buses, ambulance services and a variety of delivery services, and the principal target commercial market for our disinfectant/sanitizer and temperature monitoring products are healthcare centers and direct consumer businesses such as bars and restaurants. We have been marketing our FirstVU HD and EVO-HD to commercial customers for approximately one year and have been marketing our Shield™ and ThermoVU™ products to commercial customers for approximately the same period of time. While we have continued to try to capitalize on the existing market for our event recorder products, the markets for these newer products have represented relatively new sales channels for us and we may experience difficulty gaining acceptance of such products by the targeted customers. Our sales of such products will be subject to budget constraints of both the large and small prospective customers, which could result in a significant reduction in our anticipated revenues. Certain of such companies have experienced budgetary and financial pressures for various reasons specific to them or the applicable industries in which they operate, which may negatively impact their ability to purchase our products. Thus, even if prospective customers want to acquire our products, they may be unable to do so because of such factors. Further, even if such companies have the necessary funds, we may experience delays and relatively long sales cycles due to their internal decision-making policies and procedures.

**We are operating in a developing market and there is uncertainty as to market acceptance of our technology and products.**

The markets for our new and enhanced products and technology are developing and rapidly evolving. They are characterized by an increasing number of market entrants who have developed or are developing a wide variety of products and technologies, a number of which offer certain of the features that our products offer. Because of these factors, demand and market acceptance for new products are subject to a high level of uncertainty. There can be no assurance that our technology and products will become widely accepted. It is also difficult to predict with any assurance the future growth rate, if any, and size of the market. If a substantial market fails to develop, develops more slowly than expected or becomes saturated with competitors or if our products do not achieve or continue to achieve market acceptance, our business, operating results and financial condition will be materially and adversely affected.

Our technology may also be marketed and licensed to device manufacturers for inclusion in the products and equipment they market and sell as an embedded solution. As with other new products and technologies designed to enhance or replace existing products or technologies or change product designs, these potential partners may be reluctant to integrate our digital video recording technology into their systems unless the technology and products are proven to be both reliable and available at a competitive price. Even assuming product acceptance, our potential partners may be required to redesign their systems to effectively use our digital video recording technology. The time and costs necessary for such redesign could delay or prevent market acceptance of our technology and products. A lack of, or delay in, market acceptance of our digital video recording technology and products would adversely affect our operations. There can be no assurance that we will be able to market our technology and products successfully or that any of our technology or products will be accepted in the marketplace.

**We expend significant resources in anticipation of a sale due to our lengthy sales cycle and may receive no revenue in return.**

Generally, law enforcement and other agencies and commercial fleet and mass transit operators that may consider using our products must analyze a wide range of issues before committing to purchase products like ours, including training costs, product reliability and budgetary constraints. The length of our sales cycle may range from several months to a year or more. We may incur substantial selling costs and expend significant effort in connection with the evaluation of our products by potential customers before they place an order. Initial orders by agencies typically are for a small number of units that are used to evaluate the products. If these potential customers do not purchase our products, we will have expended significant resources and have received no revenue in return.

**Defects in our products could impair our ability to sell our products or could result in litigation and other significant costs.**

Any significant defects in our products may result in, among other things, delay in time-to-market, loss of market acceptance and sales of our products, diversion of development resources, and injury to our reputation, or increased warranty costs. Because our products are technologically complex, they may contain defects that cannot be detected prior to shipment. These defects could harm our reputation and impair our ability to sell our products. The costs we may incur in correcting any product defects may be substantial and could decrease our profit margins. In 2018 and 2017, we had certain product quality issues with the DVM-800 and FirstVU HD, which adversely affected our revenues and operating results however, these issues have been successfully mitigated at this time.

In addition, errors, defects or other performance problems could result in financial or other damages to our customers, which could result in litigation. Product liability litigation, even if we prevail, would be time consuming and costly to defend. Our product liability insurance may not be adequate to cover claims. Our product liability insurance coverage per occurrence is $1,000,000, with a $2,000,000 aggregate for our general business liability coverage and an additional $1,000,000 per occurrence. Our excess or umbrella liability coverage per occurrence and in aggregate is $5,000,000.

Product defects can be caused by design errors, programming bugs, or defects in component parts or raw materials. This is common to every product manufactured which is based on modern electronic and computer technology. Because of the extreme complexity of digital in-car video systems, one of the key concerns is operating software robustness. Some of the software modules are provided to us by outside vendors under license agreements, while other portions are developed by our own software engineers. As with any software-dependent product, "bugs" can occur, even with rigorous testing before release of the product. The software included in our digital video rear view mirror products is designed to be "field upgradeable" so that changes or fixes can be made by the end user by downloading new software through the internet. We intend to incorporate this technology into any future products as well, providing a quick resolution to potential software issues that may arise over time.

As with all electronic devices, hardware issues can arise from many sources. The component electronic parts that we utilize come from many sources around the world. We attempt to mitigate the possibility of shipping defective products by fully testing sub-assemblies and thoroughly testing assembled units before they are shipped out to our customers. Because of the nature and complexity of some of the electronic components used, such as microprocessor chips, memory systems, and zoom video camera modules, it is not technically or financially realistic to attempt to test every single aspect of every single component and their potential interactions. By using components from reputable and reliable sources, and by using professional engineering, assembly, and testing methods, we seek to limit the possibility of defects slipping through. In addition to internal testing, we now have thousands of units in the hands of law enforcement departments and in use every day. Over the past years of field use, we have addressed a number of subtle issues and made refinements requested by the end-user.

**We are dependent on key personnel.**

Our success will be largely dependent upon the efforts of our executive officers, Stanton E. Ross and Thomas J. Heckman. We do not have employment agreements with Messrs. Ross or Heckman, although we entered into retention agreements with such officers on December 23, 2008, which were amended in April 2018. The loss of the services of either of these individuals could have a material adverse effect on our business and prospects. There can be no assurance that we will be able to retain the services of such individuals in the future. We have not obtained key-man life insurance policies on these individuals. We are also dependent to a substantial degree on our technical, research and development staff. Our success will be dependent upon our ability to hire and retain additional qualified technical, research, management, marketing and financial personnel. We will compete with other companies with greater financial and other resources for such personnel. Although we have not had trouble in attracting qualified personnel to date, there can be no assurance that we will be able to retain our present personnel or acquire additional qualified personnel as and when needed.

**We are dependent on manufacturers and suppliers.**

We purchase, and intend to continue to purchase, substantially all the components for our products and some entire products, from a limited number of manufacturers and suppliers, most of whom are located outside the United States. Our internal process is principally to assemble the various components and subassemblies manufactured by our suppliers and test the assembled product prior to shipping to our customers. We do not intend to directly manufacture any of the equipment or parts to be used in our products. Our reliance upon outside manufacturers and suppliers, including foreign suppliers, is expected to continue, increase in scope and involves several risks, including limited control over the availability of components, and products themselves and related delivery schedules, pricing and product quality. We may be subject to political and social risks associated with specific regions of the world including those that may be subject to changes in tariffs that may have substantial effects on our product costs and supply chain reliability and availability. We may experience delays, additional expenses and lost sales if we are required to locate and qualify alternative manufacturers and suppliers.

A few of the semiconductor chip components for our products are produced by a very small number of specialized manufacturers. Currently, we purchase one essential semiconductor chip from a single manufacturer who currently sources such chipsets from the Philippines, China, Taiwan and South Korea, among other countries. While we believe that there are alternative sources of supply, if, for any reason, we are precluded from obtaining such a semiconductor chip from this manufacturer, we may experience long delays in product delivery due to the difficulty and complexity involved in producing the required component and we may also be required to pay higher costs for our components.

While we do the final assembly, testing, packaging, and shipment of certain of our products in-house, a number of our component parts are manufactured by subcontractors. These subcontractors include: raw circuit board manufacturers; circuit board assembly houses; injection plastic molders; metal parts fabricators; and other custom component providers. While we are dependent upon these subcontractors to the extent that they are producing custom subassemblies and components necessary for manufacturing our products, we still own the designs and intellectual property involved. This means that the failure of any one contractor to perform may cause delays in production. However, we can mitigate potential interruptions by maintaining "buffer stocks" of critical parts and subassemblies and by using multiple sources for critical components. We also can move our subcontracting to alternate providers. Being forced to use a different subcontractor could cause production interruptions ranging from negligible, such as a few weeks, to very costly, such as four to six months. Further, the failure of a foreign manufacturer to deliver products to us timely, in sufficient quantities and with the requisite quality would have a material adverse impact on our business, operations and financial condition.

The only components that would require a complete redesign of our digital video electronics package are the chips manufactured by Texas Instruments Incorporated ("Texas Instruments"). While there are competitive products available, each chip has unique characteristics that would require extensive tailoring of product designs to use it. The Texas Instruments chip is the heart of our video processing system. If Texas Instruments became unwilling or unable to provide us with these chips, we would be forced to redesign our digital video encoder and decoder systems. Such a complete redesign could take substantial time (over six months) to complete. We attempt to mitigate the potential for interruption by maintaining continuous stocks of these chips to support several months' worth of production. In addition, we regularly check on the end-of-life status of these parts to make sure that we will know well in advance of any decisions by Texas Instruments to discontinue these parts. There are other semiconductors that are integral to our product design and which could cause delays if discontinued, but not to the same scale as the Texas Instruments chips.

Although we have not historically had significant supply chain issues with these manufacturers, suppliers, and subcontractors, there can be no assurance that we will be able to retain our present relationships and should we lose these manufacturers, suppliers, and subcontractors, our business would be adversely affected.

**We are uncertain of our ability to protect technology through patents.**

Our ability to compete effectively will depend on our success in protecting our proprietary technology, both in the United States and abroad. We have filed for at least 50 patents for protection in the United States and certain other countries to cover certain design aspects of our products.

We have been issued at least 38 patents to date by the USPTO. In addition, we have at least 12 patent applications that are still under review by the U.S. Patent Office and, therefore, we have not yet been issued all the patents that we applied for in the United States. No assurance can be given that any patents relating to our existing technology will be issued from the United States or any foreign patent offices, that we will receive any patents in the future based on our continued development of our technology, or that our patent protection within and/or outside of the United States will be sufficient to deter others, legally or otherwise, from developing or marketing competitive products utilizing our technologies.

If our patents were to be denied as filed, we would seek to obtain different patents for other parts of our technology. If our main patent, which relates to the placement of the in-car video system in a rear-view mirror, were to be challenged and denied, it could potentially allow our competitors to build very similar devices. Currently, this patent is not being challenged. However, we believe that very few of our competitors would be capable of this because of the level of technical sophistication and level of miniaturization required. Even if we obtain patents, there can be no assurance that they will be enforceable to prevent others from developing and marketing competitive products or methods. If we bring an infringement action relating to any future patents, it may require the diversion of substantial funds from our operations and may require management to expend efforts that might otherwise be devoted to our operations. Furthermore, there can be no assurance that we will be successful in enforcing our patent rights.

Further, if any patents are issued there can be no assurance that patent infringement claims in the United States or in other countries will not be asserted against us by a competitor or others, or if asserted, that we will be successful in defending against such claims. If one of our products is adjudged to infringe patents of others with the likely consequence of a damage award, we may be enjoined from using and selling such product or be required to obtain a royalty-bearing license, if available on acceptable terms. Alternatively, if a license is not offered, we might be required, if possible, to redesign those aspects of the product held to infringe to avoid infringement liability. Any redesign efforts we undertake might be expensive, could delay the introduction or the re-introduction of our products into certain markets, or may be so significant as to be impractical.

**We are uncertain of our ability to protect our proprietary technology and information.**

In addition to seeking patent protection, we rely on trade secrets, know-how and continuing technological advancement to seek to achieve and thereafter maintain a competitive advantage. Although we have entered into or intend to enter into confidentiality and invention agreements with our employees, consultants and advisors, no assurance can be given that such agreements will be honored or that we will be able to effectively protect our rights to our unpatented trade secrets and know-how. Moreover, no assurance can be given that others will not independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets and know-how.

***Cyber-security incidents, including data security breaches or computer viruses, could harm our business by disrupting our delivery of products or services, damaging our reputation or exposing us to liability.***

We receive, process, and store, electronically, the data of our customers and others, much of which is confidential. Unauthorized access to our computer systems or stored data could result in the theft, including cyber-theft, or improper disclosure of confidential information, and the deletion or modification of records could cause interruptions in our operations. These cyber-security risks increase when we transmit information from one location to another, including over the internet or other electronic networks. Despite the security measures we have implemented, our facilities, systems and procedures, and those of our third-party service providers, may be vulnerable to security breaches, acts of vandalism, software viruses, misplaced or lost data, programming or human errors or other similar events which may disrupt our delivery of services or expose the confidential information of our customers and others. Any security breach involving the misappropriation, loss or other unauthorized disclosure or use of confidential information of our customers or others, whether by us or a third party, could subject us to civil and criminal penalties, have a negative impact on our reputation, or expose us to liability to our customers, third parties or government authorities. We are not aware of such breaches to date. There can be no assurance that we will be able to effectively handle a failure of our information systems, or that we will be able to restore our operational capacity in a timely manner to avoid disruption to our business. Any of these developments could have a material adverse effect on our business, financial condition and results of operations.

***Foreign currency fluctuations may affect our competitiveness and sales in foreign markets.***

The relative change in currency values creates fluctuations in our product pricing for potential international customers. These changes in foreign end-user costs may result in lost orders and reduce the competitiveness of our products in certain foreign markets. These changes may also negatively affect the financial condition of some existing or potential foreign customers and reduce or eliminate their future orders of our products. We also import selected components which are used in the manufacturing of some of our products. Although our purchase orders are in the United States dollar, weakness in the United States dollar could lead to price increases for the components.

**Our revenues and operating results may fluctuate unexpectedly from quarter to quarter, which may cause our stock price to decline.**

Our revenues and operating results have varied significantly in the past and may continue to fluctuate significantly in the future due to various factors that are both in and outside our control. Thus, we believe that period-to-period comparisons of our operating results may not be meaningful in the short-term, and our performance in a particular period may not be indicative of our performance in any future period.

**The digital video recording market is characterized by new products and rapid technological change.**

The market for our digital video recording technology products is characterized by rapidly changing technology and frequent new product introductions. Our future success will depend in part on our ability to enhance our existing technologies and products and to introduce new products and technologies to meet changing customer requirements. We are currently devoting, and intend to continue to devote, significant resources toward the development of new digital video recording technology and products both as stand-alone products and embedded solutions in third party products and systems. There can be no assurance that we will successfully complete the development of these technologies and related products in a timely fashion or that our current or future products will satisfy the needs of the digital video recording market. There can also be no assurance that digital video recording products and technologies developed by others will not adversely affect our competitive position or render our products or technologies non-competitive or obsolete.

***The markets for our new branded Shield™ disinfectant/sanitizer and ThermoVU™ temperature monitoring solution are characterized by new products and rapid technological change.***

The markets for our new branded Shield™ disinfectant/sanitizer and ThermoVU™ temperature monitoring solution products are characterized by rapidly changing technology and frequent new product introductions given the COVID-19 pandemic. Our future success will depend in part on our ability to enhance our existing products and to introduce new products and technologies to meet changing customer requirements. We are currently devoting, and intend to continue to devote, significant resources toward the development of new applications for our disinfectant/sanitizer and temperature monitoring solutions and products both as stand-alone products and embedded solutions in third party products and systems. Our current development activities include, among others, electrostatic sprayer systems to more efficiently disburse our Shield™ disinfectant/sanitizer. There can be no assurance that we will successfully complete the development of these technologies and related products in a timely fashion or that our current or future products will satisfy the needs of the market. There can also be no assurance that the disinfectant/sanitizer and temperature monitoring products and technologies developed by others will not adversely affect our competitive position or render our products or technologies non-competitive or obsolete.

***We depend on sales from our in-car video products and body-worn cameras and if these products become obsolete or not widely accepted, our growth prospects will be diminished.***

We derived our revenues in 2020, 2021 and 2022 predominantly from sales of our in-car video systems, including the DVM-800, our largest selling product, and the FirstVu Pro body-worn camera, our second largest selling product. We expect to continue to depend on sales of these products during 2023, as well as our newly launched EVO-HD in-car system to gain traction in 2023. A decrease in the prices of, or the demand for our in-car video products, or the failure to achieve broad market acceptance of our new product offerings, would significantly harm our growth prospects, operating results and financial condition.

**We are a party to several lawsuits both as a plaintiff and as a defendant in which we may ultimately not prevail, resulting in losses and which may cause our stock price to decline.**

We are involved as a plaintiff and defendant in routine litigation and administrative proceedings incidental to our business from time to time, including customer collections, vendor and employment-related matters. See "Prospectus Summary" for additional information. We believe that the likely outcome of any other pending cases and proceedings will not be material to our business or financial condition. However, there can be no assurance that we will prevail in the litigation or proceedings or that we may not have to pay damages or other awards to the other party.

**We are vulnerable to continued global economic uncertainty and volatility in financial markets.**

Our business is highly sensitive to changes in general economic conditions as a seller of capital equipment to end users in dental professional practices. Financial markets inside the United States and internationally have experienced extreme disruption in recent times, including, among other things, extreme volatility in security prices, severely diminished liquidity and credit availability, and declining valuations of investments. We believe these disruptions are likely to have an ongoing adverse effect on the world economy. A continued economic downturn and financial market disruptions could have a material adverse effect on our business, financial condition and results of operations. Also, the imposition of economic sanctions on Russia as a result of the conflict in Ukraine could prevent us from performing existing contracts and pursuing new growth opportunities, which could adversely affect our business, financial condition and results of operations.

**We may need to raise additional capital in the future, and if we are unable to secure adequate funds on terms acceptable to us, we could be unable to execute our business plan.**

Even after this offering, we may need to raise additional funds through the issuance of equity or debt securities in the public or private markets, or through a collaborative arrangement or sale of assets. Additional financing opportunities may not be available to us, or if available, may not be on favorable terms. The availability of financing opportunities will depend, in part, on market conditions, and the outlook for our business. Any future issuance of equity securities or securities convertible into equity securities could result in substantial dilution to our stockholders, and the securities issued in such a financing could have rights, preferences or privileges senior to those of our Common Stock. In addition, if we raise additional funds through debt financing, we could be subject to debt covenants that place limitations on our operations. We could not be able to raise additional capital on reasonable terms, or at all, or we could use capital more rapidly than anticipated. If we cannot raise the required capital when needed, we may not be able to satisfy the demands of existing and prospective customers, we could lose revenue and market share and we may have to curtail our capital expenditures.

If we are unable to obtain sufficient capital in the future, we could have to curtail our capital expenditures. Any curtailment of our capital expenditures could result in a reduction in net revenue, reduced quality of our products, increased manufacturing costs for our products, harm to our reputation, or reduced manufacturing efficiencies and could have a material adverse effect on our business, financial condition and results of operations.

**Risks Relating to the Spin-off**

***Our historical and pro forma financial information is not necessarily representative of the results we would have achieved as a business should the Spin-off have had occurred, and may not be a reliable indicator of our future results.***

The historical financial information included in the registration statements of which this prospectus forms a part refers to the business as operated by us before the Spin-off. The historical and pro forma financial information included, is derived from the consolidated financial statements and accounting records of Digital Ally, Inc., with the historical financial information including each of our three distinct business segments and the pro forma financial information giving effect to the Spin-off as if it occurred on the dates indicates. This pro forma financial information does not necessarily reflect the financial position, results of operations and cash flows that the Company would have achieved as a business should the Spin-off have had occurred during the periods presented or those that we will achieve in the future primarily.

***The Company may not achieve some or all of the expected benefits of the Spin-off, and the Spin-off may materially and adversely affect our financial position, results of operations and cash flows.***

The Company may be unable to achieve the full strategic and financial benefits expected to result from the Spin-off, or such benefits may be delayed or not occur at all. The Spin-off is expected to provide the following benefits, among others:

● The Spin-off will allow investors to separately value Digital Ally and Kustom Entertainment, Inc. based on each company's unique investment identities, including the merits, strategy, performance and future prospects of their respective businesses. The Spin-off will also provide investors with two distinct and targeted investment opportunities.

● The Spin-off will allow each business to more effectively pursue its own distinct operating priorities and strategies and will enable the management of both companies to pursue unique opportunities for long-term growth and profitability.

● The Spin-off will permit each company to concentrate its financial resources solely on its own operations, providing greater flexibility to invest capital in its business at a time and in a manner appropriate for its distinct strategy and business needs. This will facilitate a more efficient allocation of capital based on each company's profitability, cash flow and growth opportunities and allow each company to pursue an optimal mix of return of capital to stockholders, reinvestment in leading-edge technology and value-enhancing M&A opportunities.

● The Spin-off will create independent public companies that will afford each company direct access to capital markets and facilitate the ability to capitalize on its unique growth opportunities.

● The Spin-off will facilitate incentive compensation arrangements for employees and management that are more directly tied to the performance of each relevant company's business and enhance employee hiring and retention by, among other things, improving the alignment of management and employee incentives with performance and growth objectives.

The Company may not achieve these and other anticipated benefits for a variety of reasons, including, among others, that the Spin-off will require significant amounts of management's time and effort, which may divert management's attention from operating and growing our business.

***Digital Ally or Kustom Entertainment, Inc. may fail to perform under the transaction agreements that will be executed as part of the Spin-off.***

In connection with the Spin-off, Digital Ally and Kustom Entertainment, Inc. will enter into a Separation Agreement and a Tax Matters Agreement. The Separation Agreement and the Tax Matters Agreement will determine the allocation of assets and liabilities between the companies following the Spin-off for those respective areas and will include any necessary indemnifications related to liabilities and obligations. Digital Ally will rely on Kustom Entertainment, Inc. to satisfy its obligations under these agreements. If Kustom Entertainment, Inc. is unable to satisfy its obligations under these agreements, including its indemnification obligations, the Company could incur operational difficulties or losses.

***After the Spin-off, certain members of management, directors and holders of Common Stock will hold stock in both Digital Ally and Kustom Entertainment, Inc., and as a result may face actual or potential conflicts of interest.***

After the Spin-off, certain management and directors of each of Digital Ally and Kustom Entertainment, Inc. may own both Digital Ally Common Stock and Kustom Entertainment, Inc. common stock. This ownership overlap could create, or appear to create, potential conflicts of interest when our management and directors and Kustom Entertainment, Inc.'s management and directors face decisions that could have different implications for us and Kustom Entertainment, Inc. For example, potential conflicts of interest could arise in connection with the resolution of any dispute between Digital Ally and Kustom Entertainment, Inc. regarding the terms of the agreements governing the Spin-off and our relationship with Kustom Entertainment, Inc. thereafter.

***In connection with the Spin-off, Kustom Entertainment, Inc. will indemnify Digital Ally for certain liabilities, and we will indemnify Kustom Entertainment, Inc. for certain liabilities. If we are required to pay under these indemnities to Kustom Entertainment, Inc., our financial results could be negatively impacted. The Kustom Entertainment, Inc. indemnity may not be sufficient to hold us harmless from the full amount of liabilities for which Kustom Entertainment, Inc. will be allocated responsibility, and Kustom Entertainment, Inc. may not be able to satisfy its indemnification obligations in the future.***

Any amounts we are required to pay pursuant to these indemnification obligations and other liabilities could require us to divert cash that would otherwise have been used in furtherance of our operating business. Further, the indemnity from Kustom Entertainment, Inc. may not be sufficient to protect us against the full amount of such liabilities, and Kustom Entertainment, Inc. may not be able to fully satisfy its indemnification obligations. Moreover, even if we ultimately succeed in recovering from Kustom Entertainment, Inc. any amounts for which we are held liable, we may be temporarily required to bear these losses ourselves. Each of these risks could have a material adverse effect on our financial position, results of operations and cash flows.

***Transfer or assignment to us of some contracts and other assets may require the consent of a third party. If such consent is not given, we may not be entitled to the benefit of such contracts, investments, and other assets in the future.***

Transfer or assignment of some of the contracts and other assets in connection with the Spin-off may require the consent of a third party to the transfer or assignment. Similarly, in some circumstances, we may be the joint beneficiaries of contracts, and may need to enter into a new agreement with the third party to replicate the existing contract or assign the portion of the existing contract related to our business. While we anticipate that most of these contract assignments and new agreements, if needed, will be obtained prior to the Spin-off, we may not be able to obtain all required consents or enter into all such new agreements, as applicable, until after execution of the Spin-off. Some parties may use the requirement of a consent to seek more favorable contractual terms from us, which could include our having to obtain letters of credit or other forms of credit support. If we are unable to obtain such consents or such credit support on commercially reasonable and satisfactory terms, we may be unable to obtain some of the benefits, assets, and contractual commitments that are intended to be allocated to us as part of the Spin-off. In addition, where we do not intend to obtain consent from third-party counterparties based on our belief that no consent is required, the third-party counterparties may challenge the transaction on the basis that the terms of the applicable commercial arrangements require their consent. We may incur substantial litigation and other costs in connection with any such claims and, if we do not prevail, our ability to use these assets could be adversely impacted.

We cannot provide assurance that all such required third-party consents and new agreements will be procured or put in place, as applicable, prior to the execution of the Spin-off. Consequently, we may not realize certain of the benefits that are intended to be allocated to us as part of the Spin-off.

**CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS**

This prospectus contain various forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities and Exchange Act of 1934, as amended, which represent our expectations or beliefs concerning future events. Forward-looking statements include statements that are predictive in nature, which depend upon or refer to future events or conditions, and/or which include words such as "believes," "plans," "intends," "anticipates," "estimates," "expects," "may," "will" or similar expressions. In addition, any statements concerning future financial performance, ongoing strategies or prospects, and possible future actions, including any potential strategic transaction involving us, which may be provided by our management, are also forward-looking statements. Forward-looking statements are based on current expectations and projections about future events and are subject to risks, uncertainties, and assumptions about our company, economic and market factors, and the industry in which we do business, among other things. These statements are not guarantees of future performance, and we undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law. Actual events and results may differ materially from those expressed or forecasted in forward-looking statements due to a number of factors. Factors that could cause our actual performance, future results and actions to differ materially from any forward-looking statements include, but are not limited to, those discussed under the headings "Prospectus Summary", "Risk Factors", "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business" in this prospectus and in any of our filings with the SEC pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act of 1934. The forward-looking statements in this prospectus represent our views as of the date such statements are made. These forward-looking statements should not be relied upon as representing our views as of any date subsequent to the date such statements are made.

**USE OF PROCEEDS**

We estimate that the net proceeds to us from the offering will be approximately $7.3 million, after deducting the placement agent fees and estimated offering expenses payable by us, and assuming the exercise of all Pre-Funded Warrants sold in this offering. This estimate excludes the proceeds, if any, from the exercise of the Warrants sold in this offering. If all of the Warrants sold in this offering were exercised for cash, we would receive additional net proceeds of approximately $ million. We cannot predict when or if these Warrants will be exercised. It is possible that these Warrants may expire and may never be exercised.

A $1.00 increase (decrease) in the assumed public offering price of $5.96 per Unit (or $5.959 per Pre-Funded Unit) would increase (decrease) the net proceeds to us from this offering by approximately $1.2 million, assuming that the number of Units (and Pre-Funded Units) offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting the placement agent fee and estimated offering expenses payable by us.

Similarly, a 100,000 increase (decrease) in the number of Units (or Pre-Funded Units) offered by us, as set forth on the cover page of this prospectus, would increase (decrease) the net proceeds to us by approximately $0.6 million, assuming the public offering price of $5.96 Unit (or $5.959 per Pre-Funded Unit) remains the same, and after deducting estimated placement agent fees and estimated offering expenses payable by us.

The precise amount and timing of the application of such net proceeds will depend upon our funding requirements and the availability and cost of other funds. Our Board and management will have considerable discretion in the application of the net proceeds from this offering, and it is possible that we may allocate the proceeds differently than investors in this offering may desire or that we may fail to maximize the return on these proceeds. You will be relying on the judgment of our management with regard to the use of proceeds from this offering, and you will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used appropriately.

We intend to use the proceeds of this offering for new product development, general corporate purposes including legal and marketing matters, and other working capital purposes.

We may temporarily invest the net proceeds in short-term, interest-bearing instruments or other investment-grade securities.

**DILUTION**

If you purchase securities in this offering, you will experience immediate dilution to the extent of the difference between the public offering price per share included as part of the Units or that may be issued upon the exercise of any Pre-Funded Warrants included as part of the Pre-Funded Units and our net tangible book value per share immediately after the offering. Net tangible book value per share is equal to the amount of our total tangible assets, less total liabilities, divided by the number of outstanding shares of our Common Stock. As of September 30, 2022, our net tangible book value (prior to adjustment for the Reverse Stock Split) was approximately $29,814,570, or approximately $0.55 per share.

Pro forma net tangible book value per share represents the amount of our total tangible assets as adjusted to take into account (i) net cash proceeds of approximately $15,000,000 from our private placement of Series A Convertible Redeemable Preferred Stock and Series B Convertible Redeemable Preferred Stock, which closed on October 19, 2022; (ii) redemption of all shares of Series A Convertible Redeemable Preferred Stock and Series B Convertible Redeemable Preferred Stock at a price per share equal to 105% of the stated value of each such series of Preferred Stock on December 7, 2022; and (iii) the Reverse Stock Split. After giving effect to these transactions, our pro forma net tangible book value per share as of September 30, 2022 was approximately $11.06 per share.

After giving effect to the issuance and sale of the securities offered by us in this offering, assuming the exercise of any Pre-Funded Warrants that are sold in this offering, no exercise of any of the Warrants issued pursuant to this offering, and after deducting the placement agent's fees and estimated offering expenses payable by us, the pro forma as adjusted net tangible book value would have been approximately $37.1 million, or $9.06 per share of Common Stock. This represents an immediate decrease in net tangible book value of $2.00 per share to existing stockholders and an immediate dilution of $3.10 per share to new investors purchasing Units or Pre-Funded Units in this offering.

The following table illustrates this dilution on a per-share basis (unaudited):

---

| | |
|:---|:---|
| Assumed public offering price Unit Stock | $5.96 |
| Pro forma net tangible book value per share at September 30, 2022, before giving effect to this offering | $11.06 |
| Increase (decrease) in pro forma as adjusted net tangible per share attributable to investors in this offering | $(2.00) |
| Pro forma as adjusted net tangible book value per share, as adjusted to give effect to this offering | $9.06 |
| Dilution to pro forma as adjusted net tangible book value per share to investors in this offering | $3.10 |

---

The dilution information discussed above is illustrative only and will change based on the actual public offering price and other terms of this offering determined at pricing. A $1.00 increase or decrease in the assumed public offering price of $5.96 per Unit (and $5.959 Pre-Funded Unit) would increase or decrease the pro forma, as adjusted net tangible book value per share by approximately $38.4 million, and increase or decrease the pro forma, as adjusted net tangible book value per share to investors participating in this offering by approximately $9.37 per share, assuming the number of Units (and Pre-Funded Units) offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting the placement agent fee and estimated offering expenses payable by us.

The information above is as of September 30, 2022, and includes or excludes the following as of such date:

● excludes up to 53,950 shares of our Common Stock issuable upon exercise of outstanding options with a weighted average exercise price of $45.80 per share ;

● includes 83,250 shares of our Common Stock subject to forfeiture pursuant to outstanding non-vested restricted stock grants; and

● excludes up to 67,459 shares of our Common Stock issuable upon exercise of warrants outstanding, having a weighted average exercise price of $60.26 per share.

To the extent that our outstanding options or warrants are exercised or converted, as applicable, you could experience further dilution. To the extent that we raise additional capital through the sale of additional equity, the issuance of any of our shares of Common Stock could result in further dilution to our stockholders.

**UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS**

The unaudited pro forma combined financial information of the Company gives effect to the Spin-off and related adjustments in accordance with Article 8 of the SEC's Regulation S-X. In May 2020, the SEC adopted Release No.33-10786 "Amendments to Financial Disclosures about Acquired and Disposed Businesses," or the Final Rule. The Final Rule was effective on January 1, 2021 and the unaudited pro forma combined financial information herein is presented in accordance therewith.

The unaudited pro forma combined financial information presented below has been derived from our historical combined financial statements included in this prospectus. While the historical combined financial statements reflect the historical financial results of Digital Ally, Inc., these pro forma statements give effect to the separation of Kustom Entertainment, Inc. into an independent, publicly traded company.

The unaudited pro forma combined balance sheet gives effect to the Spin-off and related transactions described below as if they had occurred on September 30, 2022. The unaudited pro forma adjustments to the combined statement of operations for the nine months ended September 30, 2022 and year ended December 31, 2021 assume that the Spin-off and related transactions occurred as of January 1, 2021.

The unaudited pro forma combined statement of operations for the nine months ended September 30, 2022 and year ended December 31, 2021 and the unaudited pro forma combined balance sheet as of September 30, 2022 have been prepared to reflect adjustments to the Company's historical combined financial information for the following transaction accounting and autonomous entity adjustments:

● the issuance of approximately 2,695,170 common shares of the Company as part of the Spin-off;

● the one-time expenses associated with the separation of the Company; and

● the impact of the aforementioned adjustments on the Company's operations.

The pro forma adjustments are based on available information and assumptions that management believes are reasonable given the information that is currently available. The unaudited pro forma combined financial statements are for informational purposes only and do not purport to represent what the Company's financial position and results of operations actually would have been had the Spin-off occurred on the dates indicated, or to project the Company's financial performance for any future period. The historical audited combined annual and unaudited combined interim financial statements of Digital Ally, Inc. have been derived from the consolidated company's historical accounting records and reflect certain allocations of expenses. All of the allocations and estimates in such financial statements are based on assumptions that Digital Ally, Inc.'s management believes are reasonable. The historical combined financial statements do not necessarily represent the financial position or results of operations of Digital Ally, Inc. had it been operated as a standalone company during the periods or at the dates presented. As a result, autonomous entity adjustments have been reflected in the unaudited pro forma combined financial information.

The unaudited pro forma combined financial information should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our historical audited combined annual and unaudited combined interim financial statements and corresponding notes in this prospectus.

**DIGITAL ALLY, INC.**

**UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET**

---

| | | | |
|:---|:---|:---|:---|
|  | **Digital Ally, Inc.**<br> **As reported**<br> **September 30, 2022** | **Pro Forma <br> Adjustments** | **Digital Ally, Inc. <br>Post Spin-off <br>Pro Forma** |
| **Assets** |  |  |  |
| Current assets: |  |  |  |
| &nbsp;&nbsp;&nbsp;Cash and cash equivalents | $6295391 | $(5467) (a) | $6289924 |
| &nbsp;&nbsp;&nbsp;Accounts receivable – trade, net | 2744354 | (786721) (a) | 1957633 |
| &nbsp;&nbsp;&nbsp;Other receivables (including $138,384 due from related parties – September 30, 2022) | 5448545 | (3000000) (a) | 2448545 |
| &nbsp;&nbsp;&nbsp;Inventories, net | 10963916 | (1375116) (a) | 9588800 |
| &nbsp;&nbsp;&nbsp;Prepaid expenses | 9227985 | (3452520) (a) | 5775465 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total current assets | 34680191 | (8619824) | 26060367 |
| Property, plant, and equipment, net | 8407139 | (1258112) (a)(b) | 7149027 |
| Goodwill and other intangible assets, net | 18230538 | (11484295) (a) | 6746243 |
| Operating lease right of use assets, net | 846521 | (21017) (a) | 825504 |
| Other assets | 6233075 | (1733264) (a)(c) | 4499811 |
| &nbsp;&nbsp;&nbsp;Total assets | $68397464 | $(23116512) | $45280952 |
| **Liabilities and Stockholders' Equity** |  |  |  |
| Current liabilities: |  |  |  |
| &nbsp;&nbsp;&nbsp;Accounts payable | $9902259 | $(8305662) (a)(d) | $1596597 |
| &nbsp;&nbsp;&nbsp;Accrued expenses | 1097065 | (121787) (a) | 975278 |
| &nbsp;&nbsp;&nbsp;Current portion of operating lease obligations | 304294 | (21017) (a) | 283277 |
| &nbsp;&nbsp;&nbsp;Contract liabilities – current portion | 2049704 |  | 2049704 |
| &nbsp;&nbsp;&nbsp;Debt obligations – current portion | 569934 |  | 569934 |
| &nbsp;&nbsp;&nbsp;Warrant derivative liabilities |  |  |  |
| &nbsp;&nbsp;&nbsp;Income taxes payable | 11796 |  | 11796 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total current liabilities | 13935052 | (8448466) | 5486586 |
| Long-term liabilities: |  |  |  |
| &nbsp;&nbsp;&nbsp;Debt obligations – long term | 671887 |  | 671887 |
| &nbsp;&nbsp;&nbsp;Operating lease obligation – long term | 610422 |  | 610422 |
| &nbsp;&nbsp;&nbsp;Contract liabilities – long term | 5134995 | - | 5134995 |
| Total liabilities | 20352356 | - | 11903890 |
| Commitments and contingencies |  |  |  |
| Stockholders' Equity: |  |  |  |
| &nbsp;&nbsp;&nbsp;Common stock, $0.001 par value per share; 100,000,000 shares authorized; shares issued: 2,695,170 shares issued and outstanding – September 30, 2022 | 2695 |  | 2695 |
| &nbsp;&nbsp;&nbsp;Additional paid in capital | 129994446 |  | 129994446 |
| &nbsp;&nbsp;&nbsp;Noncontrolling interest in consolidated subsidiary | 309397 |  | 309397 |
| &nbsp;&nbsp;&nbsp;Accumulated deficit | (82261430) | (14668046) | (96929476) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total stockholders' equity | 48045108 | (14668046) | 33377062 |
| &nbsp;&nbsp;&nbsp;Total liabilities and stockholders' equity | $68397464 | $(23116512) | $45280952 |

---

**DIGITAL ALLY, INC.**

**UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS**

---

| | | | |
|:---|:---|:---|:---|
|  | **Digital Ally, Inc.**<br> **As reported**<br> **Nine months**<br> **ended**<br> **September 30,**<br> **2022** | **Pro Forma <br>Adjustments** | **Digital Ally, Inc. <br>Post Spin-off Pro <br>Forma** |
| Revenue: |  |  |  |
| &nbsp;&nbsp;&nbsp;Product | $7682614 | $(3593577) (a) | $4089037 |
| &nbsp;&nbsp;&nbsp;Service and other | 20447778 | (12344275) (a) | 8103503 |
| &nbsp;&nbsp;&nbsp;Total revenue | 28130392 | (15937852) | 12192540 |
| Cost of revenue: |  |  |  |
| &nbsp;&nbsp;&nbsp;Product | 8154984 | (4166252) (a) | 3988732 |
| &nbsp;&nbsp;&nbsp;Service and other | 15721210 | (11360849) (a) | 4360361 |
| &nbsp;&nbsp;&nbsp;Total cost of revenue | 23876194 | (15527101) | 8349093 |
| &nbsp;&nbsp;&nbsp;Gross profit | 4254198 | (410751) | 3843447 |
| Selling, general and administrative expenses: |  |  |  |
| &nbsp;&nbsp;&nbsp;Research and development expense | 1654395 |  | 1654395 |
| &nbsp;&nbsp;&nbsp;Selling, advertising and promotional expense | 7375364 | (5449874) (a)(b) | 1925490 |
| &nbsp;&nbsp;&nbsp;General and administrative expense | 15256049 | (5165533) (a)(c) | 10090516 |
| Total selling, general and administrative expenses | 24285808 | (10615407) | 13670401 |
| &nbsp;&nbsp;&nbsp;Operating loss | (20031610) | 10204656 | (9826954) |
| Other income (expense): |  |  |  |
| Interest income | 116928 |  | 116928 |
| Interest expense | (39766) | 23094 (a) | (16672) |
| Other income (loss) | 41167 | 1892 (a) | 43059 |
| Change in fair value of contingent consideration promissory notes | 347169 |  | 347169 |
| Change in fair value of short-term investments | (84818) |  | (84818) |
| Change in fair value of warrant derivative liabilities | 6726638 |  | 6726638 |
| Gain on extinguishment of warrant derivative liabilities | 3624794 | - | 3624794 |
| Total other income | 10732112 | 24986 | 10757098 |
| Income (loss) before income tax benefit | (9299498) | 10229642 | 930144 |
| Income tax benefit |  | - |  |
| Net income (loss) | (9299498) | 10229642 | 930144 |
| Net loss (income) attributable to noncontrolling interests of consolidated subsidiary | (268636) |  | (268636) |
| Net income (loss) attributable to common stockholders | $(9568134) | $10229642 | $661508 |
| Net loss per share information: |  |  |  |
| &nbsp;&nbsp;&nbsp;Basic | $(3.83) | $4.09 | $0.26 |
| &nbsp;&nbsp;&nbsp;Diluted | $(3.83 ) | $4.09 | $0.26 |
| Weighted average shares outstanding: |  |  |  |
| &nbsp;&nbsp;&nbsp;Basic | 2498681 | 2498681  | 2498681 |
| &nbsp;&nbsp;&nbsp;Diluted | 2498681 | 2498681 | 2498681 |

---

**DIGITAL ALLY, INC.**

**UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS**

**FOR THE YEAR ENDED DECEMBER 31, 2021**

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **Digital Ally, Inc. as<br> reported** | **Pro Forma <br> Adjustments** | **Transaction<br> Accounting<br> Adjustments** | **Digital Ally, Inc.<br> Post Spin-off Pro Forma** |
| Revenue: |  |  |  |  |
| Product | $9180287 | $(2787237) (a) | $— | $6393050 |
| Service and other | 12233147 | (7922523) (a) |  | 4310624 |
| Total revenue | 21413434 | (10709760) |  | 10703674 |
| Cost of revenue: |  |  |  |  |
| Product | 8635047 | (2437986) (a) |  | 6197061 |
| Service and other | 7114612 | (5131392) (a) |  | 1983220 |
| Total cost of revenue | 15749659 | (7569378) |  | 8180281 |
| Gross profit | 5663775 | (3140382) |  | 2523393 |
| Selling, general and administrative expenses: |  |  |  |  |
| Research and development expense | 1930784 |  |  | 1930784 |
| Selling, advertising and promotional expense | 5717824 | (3630679) (a)(b) |  | 2087145 |
| General and administrative expense | 12776077 | (3333876) (a)(c)(d) | 1500000 | 10942201 |
| Total selling, general and administrative expenses | 20424685 | (6964556) | 1500000 | 14960129 |
| Operating loss | (14760910) | 3824173 | (1500000) | (12436737) |
| Other income (expense): |  |  |  |  |
| Interest income | 310200 |  |  | 310200 |
| Interest expense | (28600) |  |  | (28600) |
| Gain on extinguishment of debt | 10000 |  |  | 10000 |
| Change in fair value of contingent consideration promissory notes | 3732789 | (3700000) (a) |  | 32789 |
| Change in fair value of short-term investments | (101645) |  |  | (101645) |
| Change in fair value of warrant derivative liabilities | 36664907 |  |  | 36664907 |
| Warrant modification expense | (295780) |  |  | (295780) |
| Total other income | 40291871 | (3700000) |  | 36591871 |
| Income (loss) before income tax benefit | 25530961 | 124173 | (1500000) | 24155134 |
| Income tax benefit |  |  |  |  |
| Net income (loss) | 25530961 | 124173 | (1500000) | 24155134 |
| Net loss (income) attributable to noncontrolling interests of consolidated subsidiary | (56453) |  |  | (56453) |
| Net income (loss) attributable to common stockholders | $25474508 | $124173 | $(1500000) | $24098681 |
| Net loss per share information: |  |  |  |  |
| Basic | $10.14 | $0.05 | $(0.60) | $9.60 |
| Diluted | $10.14 | $0.05 | $(0.60) | $9.60 |
| Weighted average shares outstanding: |  |  |  |  |
| Basic | 2511114 | 2511114 | 2511114 | 2511114 |
| Diluted | 2511114 | 2511114 | 2511114 | 2511114 |

---

**Notes to Unaudited Pro Forma Combined Financial Data**

**1. Basis of Presentation**

The unaudited pro forma condensed combined financial statements are based on Digital Ally, Inc.'s historical financial statements and the newly formed Kustom Entertainment, Inc., as adjusted to give effect to the Spin-off. The unaudited pro forma combined statements of operations for the nine months ended September 30, 2022 and year ended December 31, 2021, respectively, give effect to the Spin-off as if it had occurred on January 1, 2021. The unaudited pro forma combined balance sheet as of September 30, 2022, gives effect to the Spin-off as if it had occurred on September 30, 2022. Kustom Entertainment, Inc. ("Spun-off Subsidiary") has historically operated as part of Digital Ally, Inc. ("the Company") and not as a standalone company. Financial statements representing the historical operations have been derived from the Company's historical accounting records and are presented on a carve-out basis. All revenues and costs as well as assets and liabilities directly associated with the business activity of the Spun-off Subsidiary are included in the financial statements. The financial statements also include allocations of certain general, administrative, sales and marketing expenses and cost of sales from the Company. However, amounts recognized by the Spun-off Subsidiary are not necessarily representative of the amounts that would have been reflected in the financial statements had the Spun-off Subsidiary operated independently of the Company. The Company allocations are discussed further in Note 2. As part of the Company, the Spun-off Subsidiary has historically been dependent upon the Company for a majority of its working capital and financing requirements as the Company uses a centralized approach to cash management and financing of its operations. Financial transactions relating to the Spun-off Subsidiary are accounted for through the Company due to/from account.

**2. Pro Forma Adjustments**

Pro forma adjustments are based on our preliminary estimates and assumptions that are subject to change. The following correspond to the footnotes in the above financial statements.

*<u>Balance Sheet – September 30, 2022</u>*

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) Reflects
 the stand-alone financial balances of TicketSmarter, Inc., separate from the Company. As Kustom 440, Inc. and BirdVu Jets,
 Inc. did not have operations during the nine months ended September 30, 2022, they have no impact on the period's balance sheet.

(b) Reflects
 the allocation of $1.3 million in particular fixed assets, at net carrying value, to Kustom Entertainment, Inc. at the Spin-off
 date.

(c) Reflects
 the allocation of $0.7 million in other assets to Kustom Entertainment, Inc. at the Spin-off date.

(d) Reflects
 the allocation of $0.8 million in accounts payable to Kustom Entertainment, Inc. as of September 30, 2022. These payables shall be charged to and paid by Kustom Entertainment, thus shall be deemed to be the
 Spun-off Subsidiary's liabilities.

*<u>Statement of Operations - Nine months ended September 30, 2022</u>*

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) Reflects
 the stand-alone statement of operations of TicketSmarter, Inc., separate from the Company. As Kustom 440, Inc. and BirdVu Jets,
 Inc. did not have operations during the nine months ended September 30, 2022, they have no impact on the period's statement
 of operations.

(b) Reflects
 the allocation of $2.1 million in advertising expenses to Kustom Entertainment, Inc. at the Spin-off date.

(c) Reflects
 the allocation of $2.4 million in general and administrative expenses, mostly payroll and travel related, to Kustom Entertainment,
 Inc. at the Spin-off date.

*<u>Statement of Operations - Year ended December 31, 2021</u>*

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) Reflects
 the stand-alone statement of operations of TicketSmarter, Inc., separate from the Company. As Kustom 440, Inc. and BirdVu Jets,
 Inc. did not have operations during the year ended December 31, 2021, they have no impact on the period's statement of operations.

(b) Reflects
 the allocation of $2.1 million in advertising expenses to Kustom Entertainment, Inc. at the Spin-off date.

(c) Reflects
 the allocation of $1.6 million in general and administrative expenses, mostly payroll and travel related, to Kustom Entertainment,
 Inc. at the Spin-off date.

(d) Reflects
 the allocation of one half of the anticipated transactions costs, as if the Spin-off had occurred on January 1,
 2021.

**MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL <br> CONDITION AND RESULTS OF OPERATIONS**

*You should read the following discussion together with our financial statements and the related notes included elsewhere in this prospectus. This discussion contains forward-looking statements that are based on our current expectations, estimates and projections about our business and operations. Our actual results may differ materially from those currently anticipated and expressed in such forward-looking statements as a result of a number of factors, including those which we discuss under "Risk Factors" and elsewhere in this prospectus. See "Cautionary Note Regarding Forward-Looking Statements."*

**<u>Current Trends and Recent Developments for the Company</u>**

**Overview**

The Company has recently expanded beyond its legacy business digital video recording system for use in the law enforcement and security markets to two new reportable operating segments. Currently, the Company's reportable operating segments are: 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.

***Video Solutions Operating Segment***

Within the Video Solutions reportable operating segment we supply technology-based products utilizing our portable digital video and audio recording capabilities for the law enforcement and security industries and for the commercial fleet and mass transit markets. We have the ability to integrate electronic, radio, computer, mechanical, and multi-media technologies to create positive solutions to our customers' requests. Our products include: the EVO-HD, DVM-800 and DVM-800 Lite, which are in-car digital video systems for law enforcement and commercial markets; the FirstVu body-worn camera line, consisting of the FirstVu Pro, FirstVu II, and the FirstVu HD; our patented and revolutionary VuLink product, which integrates our body-worn cameras with our in-car systems by providing hands-free automatic activation for both law enforcement and commercial markets; the FLT-250, DVM-250, and DVM-250 Plus, which are our commercial line of digital video mirrors that serve as "event recorders" for the commercial fleet and mass transit markets; FleetVu, EVO Web, and VuVault are our cloud-based evidence management systems.

***Revenue Cycle Management Operating Segment***

We entered the revenue cycle management operating segment late in the second quarter of 2021 with the formation of our wholly owned subsidiary, Digital Ally Healthcare, Inc. and its majority-owned subsidiary Nobility Healthcare, LLC ("Nobility Healthcare"). Nobility Healthcare completed its first acquisition on June 30, 2021, when it acquired a private medical billing company, and a second acquisition on August 31, 2021 upon the completion of its acquisition of another private medical billing company, in which we will assist in providing working capital and back-office services to healthcare organizations throughout the country. Our assistance consists of insurance and benefit verification, medical treatment documentation and coding, and collections. Through our expertise and experience in this field, we aim to maximize our customers' service revenues collected, leading to substantial improvements in their operating margins and cash flows.

***Ticketing Operating Segment***

We entered into the ticketing operating segment through the formation of our wholly owned subsidiary, TicketSmarter, Inc. ("TicketSmarter") and its completed acquisitions of Goody Tickets, LLC and TicketSmarter, LLC, on September 1, 2021. TicketSmarter provides ticket sales, partnerships, and mainly, ticket resale services through its online ticketing marketplace for live events, TicketSmarter.com. TicketSmarter offers tickets for over 125,000 live events through its platform, for a wide range of events, including concerts, sporting events, theatres, and performing arts, throughout the country.

**Comparison of the Nine Months Ended September 30, 2022 and 2021**

**Results of Operations**

Summarized financial information for the Company's reportable business segments is provided for the indicated periods and as of September 30, 2022, and September 30, 2021:

---

| | | |
|:---|:---|:---|
|  | **Nine months ended September 30** | **Nine months ended September 30** |
|  | **2022** | **2021** |
| **Net Revenues:** |  |  |
| &nbsp;&nbsp;&nbsp; Video Solutions | $6152733 | $7058161 |
| &nbsp;&nbsp;&nbsp; Revenue Cycle Management | 6039807 | 560483 |
| &nbsp;&nbsp;&nbsp; Ticketing | 15937852 | 2050679 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total Net Revenues | $28130392 | $9669323 |
| **Gross Profit (Loss):** |  |  |
| &nbsp;&nbsp;&nbsp; Video Solutions | $1543057 | $2663131 |
| &nbsp;&nbsp;&nbsp; Revenue Cycle Management | 2520709 | 197681 |
| &nbsp;&nbsp;&nbsp; Ticketing | 190432 | 612442 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total Gross Profit | $4254198 | $3473254 |
| **Operating Income (loss):** |  |  |
| &nbsp;&nbsp;&nbsp; Video Solutions | $(4327049) | $(1919559) |
| &nbsp;&nbsp;&nbsp; Revenue Cycle Management | 236628 | (40537) |
| &nbsp;&nbsp;&nbsp; Ticketing | (5915953) | 44026 |
| &nbsp;&nbsp;&nbsp; Corporate | (10025236) | (7165483) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total Operating Income (Loss) | $(20031610) | $(9081553) |
| **Depreciation and Amortization:** |  |  |
| &nbsp;&nbsp;&nbsp; Video Solutions | $584266 | $236131 |
| &nbsp;&nbsp;&nbsp; Revenue Cycle Management | 959366 | 2890 |
| &nbsp;&nbsp;&nbsp; Ticketing | 102575 | 609 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total Depreciation and Amortization | $1646207 | $239630 |

---

---

| | | |
|:---|:---|:---|
|  | **September 30,** <br> **2022**  | **December 31,** <br> **2021**  |
| **Assets (net of eliminations):** |  |  |
| &nbsp;&nbsp;&nbsp; Video Solutions | $33656285 | $25983348 |
| &nbsp;&nbsp;&nbsp; Revenue Cycle Management | 2446740 | 934095 |
| &nbsp;&nbsp;&nbsp; Ticketing | 15072548 | 12260780 |
| &nbsp;&nbsp;&nbsp; Corporate | 17221891 | 43810974 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total Identifiable Assets | $68397464 | $82989197 |

---

Segment net revenues reported above represent only sales to external customers. Segment gross profit represents net revenues less cost of revenues. Segment operating income (loss), 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.

**<u>For the Nine Months Ended September 30, 2022 and 2021</u>**

**Results of Operations**

Summarized immediately below and discussed in more detail in the subsequent subsections is an analysis of our operating results for the nine months ended September 30, 2022 and 2021, represented as a percentage of total revenues for each such quarter:

---

| | | |
|:---|:---|:---|
|  | **Nine Months Ended** <br> **September 30,**  | **Nine Months Ended** <br> **September 30,**  |
|  | **2022** | **2021** |
| Revenue | 100% | 100% |
| Cost of revenue | 85% | 64% |
| &nbsp;&nbsp;&nbsp; Gross profit | 15% | 36% |
| Selling, general and administrative expenses: |  |  |
| &nbsp;&nbsp;&nbsp; Research and development expense | 6% | 15% |
| &nbsp;&nbsp;&nbsp; Selling, advertising and promotional expense | 26% | 31% |
| &nbsp;&nbsp;&nbsp; General and administrative expense | 54% | 84% |
| Total selling, general and administrative expenses | 86% | 130% |
| &nbsp;&nbsp;&nbsp; Operating loss | (71)% | (94)% |
| Change in fair value of contingent consideration promissory notes | 1% | —% |
| Change in fair value of derivative liabilities | 37% | 344% |
| Other income and interest income (expense), net | — % | 2% |
| Income (loss) before income tax benefit | (33)% | 252% |
| Income tax (provision) | — % | — % |
| Net income/(loss) | (33)% | 252% |
| Net loss attributable to noncontrolling interests of consolidated subsidiary | (1)% | — % |
| Net income (loss) attributable to common stockholders | (34)% | 252% |
| Net income/(loss) per share information: |  |  |
| Basic | $(3.83) | $9.80 |
| Diluted | $(3.83) | $9.80 |

---

Product revenues by operating segment is as follows:

---

| | | |
|:---|:---|:---|
|  | **Nine months Ended<br> September 30,** | **Nine months Ended<br> September 30,** |
|  | **2022** | **2021** |
| **Product Revenues:** |  |  |
| Video Solutions | $4089037 | $4988364 |
| Revenue Cycle Management |  |  |
| Ticketing | 3593577 |  |
| Total Product Revenues | $7682614 | $4988364 |

---

Product revenues for the nine months ended September 30, 2022 and 2021 were $7,682,614 and $4,988,364 respectively, an increase of $2,694,250 (54%), due to the following factors:

● Revenues generated by the new ticketing operating segment began with the Company's September 2021 acquisition of TicketSmarter. The new ticketing operating segment generated $3,593,577 in product revenues for the nine months ended September 30, 2022, compared to $-0- for the nine months ended September 30, 2021. This product revenue relates to the resale of tickets purchased for live events, including sporting events, concerts, and theatre, then sold through various platforms to customers.

● The Company's video segment operating segment generated revenues totaling $4,089,037 during the nine months ended September 30, 2022 compared to $4,988,364 for the nine months ended September 30, 2021 due to slowing sales of our ThermoVuTM product lines related to our COVID-19 response. The Company launched two product lines in direct response to the increased safety precautions that organizations and individuals are taking due to the COVID-19 pandemic. ThermoVu™ was launched as a non-contact temperature-screening instrument that measures temperature through the wrist and controls entry to facilities when temperature measurements exceed pre-determined parameters. ThermoVu™ has optional features such as facial recognition to improve facility security by restricting access based on temperature and/or facial recognition reasons. ThermoVu™ provides an instant pass/fail audible tone with its temperature display and controls access to facilities based on such results. ThermoVuTM has been applied in schools, dental office, hospitals, office buildings, and other public venues. The Company also launched its Shield™ disinfectant/sanitizer product lines to fulfill demand by current customers and others for a disinfectant and sanitizer that is less harsh than many of the traditional products now widely distributed. The Shield™ Cleanser product line contains a cleanser with no harsh chemicals or fumes. The Company is beginning to experience decreased demand on these product lines as the COVID-19 pandemic begins to subside.

● In general, our video solutions operating segment has experienced decreased demand on its product revenues due to price-cutting and competitive actions by our competitors, adverse marketplace effects related to our patent litigation proceedings and our recent financial condition. We introduced our new body-worn cameras, the FirstVu Pro and FirstVu II, in the fourth quarter of 2021, and we have begun to see increased traction with these products in the first nine months of 2022. The Company hopes the interest throughout the marketplace continues to grow for these new products as the market is able to review and test these new products.

● Our video solutions operating segment management has been focusing on migrating customers, and in particular commercial customers, from a hardware sale to a service fee model. Therefore, we expect a reduction in commercial hardware sales (principally DVM-250's, FLT-250's, and our body-worn camera line) as we convert these customers to a service model under which we provide the hardware as part of a recurring monthly service fee. In that respect, we introduced a monthly subscription agreement plan for our body worn cameras and related equipment during the second quarter of 2020 that allowed law enforcement agencies to pay a monthly service fee to obtain body worn cameras without incurring a significant upfront capital outlay. This program has continued to gain traction, resulting in decreased product revenues and increased service revenues. We expect this program to continue to gain momentum, resulting in recurring revenues over a span of three to five years.

Service and other revenues by operating segment is as follows:

---

| | | |
|:---|:---|:---|
|  | **Nine months Ended<br> September 30,** | **Nine months Ended<br> September 30,** |
|  | **2022** | **2021** |
| **Service and Other Revenues:** |  |  |
| Video Solutions | $2063696 | $2069796 |
| Revenue Cycle Management | 6039807 | 560484 |
| Ticketing | 12344275 | 2050679 |
| Total Service and Other Revenues | $20447778 | $4680959 |

---

Service and other revenues for the nine months ended September 30, 2022 and 2021 were $20,447,778 and $4,680,959, respectively, an increase of $15,766,819 (337%), due to the following factors:

● Cloud revenues generated by the video solutions operating segment were $1,012,129 and $753,332 for the nine months ended September 30, 2022 and 2021, respectively, an increase of $258,797 (34%). We have experienced increased interest in our cloud solutions for law enforcement primarily due to the deployment of our cloud-based EVO-HD in-car system and our next generation body-worn camera products, which contributed to our increased cloud revenues in the nine months ended September 30, 2022. We expect this trend to continue throughout 2022 as the migration from local storage to cloud storage continues in our customer base.

● Video solutions operating segment revenues from extended warranty services were $601,460 and $786,147 for the nine months ended September 30, 2022 and 2021, respectively, a decrease of $184,687 (23%). The continued effects from the COVID-19 pandemic have adversely affected our sales of DVM-800 hardware systems resulting in a decrease in their sales in the nine months ended September 30, 2022 compared to the same period in 2021.

● Our new ticketing operating segment generated service revenues totaling $12,344,275 and $2,050,679 for the nine months ended September 30, 2022 and 2021, respectively, an increase of $10,293,596 (502%). The Company completed the acquisitions of Goody Tickets, LLC and TicketSmarter, LLC on September 1, 2021, thus resulting in the new revenue stream for the Company. TicketSmarter collects fees on transactions administered through the TicketSmarter.com platform for the buying and selling of tickets for live events throughout the country. We expect our ticketing operating segment to continue to present a strong revenue outlook moving forward.

● Our new revenue cycle management operating segment generated service revenues totaling $6,039,807 and $560,484 for the nine months ended September 30, 2022 and 2021, respectively, an increase of $5,479,324 (978%). Our revenue cycle management operating segment has completed four acquisitions since formation in June of 2021, thus resulting in the new service revenue stream added in the nine months ended September 30, 2022. Our revenue cycle management operating segment provides revenue cycle management solutions and back-office services to healthcare organizations throughout the country. We expect our revenue cycle management segment to continue to present a strong revenue outlook moving forward.

Total revenues for the nine months ended September 30, 2022 and 2021 were $28,130,392 and $9,669,323, respectively, an increase of $18,461,069 (191%), due to the reasons noted above.

**Cost of Product Revenue**

Overall cost of product revenue sold for the nine months ended September 30, 2022, and 2021 was $8,154,984 and $3,776,185, respectively, an increase of $4,378,799 (116%). Overall cost of goods sold for products as a percentage of product revenues for the nine months ended September 30, 2022, and 2021 were 106% and 76%, respectively. Cost of products sold by operating segment is as follows:

---

| | | |
|:---|:---|:---|
|  | **Nine months Ended<br> September 30,** | **Nine months Ended<br> September 30,** |
|  | **2022** | **2021** |
| **Cost of Product Revenues:** |  |  |
| Video Solutions | $3768413 | $3776185 |
| Revenue Cycle Management |  |  |
| Ticketing | 4386571 |  |
| Total Cost of Product Revenues | $8154984 | $3776185 |

---

The decrease in cost of goods sold for our video solutions segment products is directly correlated with the decrease in product sales for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021. In addition, the video solutions segment recorded valuation allowances for its older product lines and a portion of its Shield products during the first nine months of 2022, directly increasing cost of goods sold for the period. Cost of product sold as a percentage of product revenues for the video solutions segment increased to 92% for the nine months ended September 30, 2022 as compared to 76% for the nine months ended September 30, 2021.

The increase in ticketing operating segment cost of product sold is due to the acquisition of TicketSmarter in the third quarter of 2021, resulting in an increase to cost of product revenue of $4,386,571 for the nine months ended September 30, 2022, compared to $-0- for the nine months ended September 30, 2021. Cost of product sold as a percentage of product revenues for the ticketing solutions was 122% for the nine months ended September 30, 2022. The Ticketing Segment recorded an allowance for unsold and under-market tickets during the first quarter 2022 due to event cancellations and restrictions imposed on the size and type of gatherings related to the Omicron variant.

We recorded $3,771,424 and $3,915,089 in reserves for obsolete and excess inventories at September 30, 2022 and December 31, 2021, respectively. Total raw materials and component parts were $4,960,740 and $3,062,046 at September 30, 2022 and December 31, 2021, respectively, an increase of $1,898,694 (62%). Finished goods balances were $9,769,951 and $10,512,577 at September 30, 2022 and December 31, 2021, respectively, a decrease of $742,626 (7%) which was attributable to a decrease in finished goods from our newly acquired ticketing segment. The small decrease in the inventory reserve is primarily due to the reduction in finished goods and movement of excess inventory. We believe the reserves are appropriate given our inventory levels as of September 30, 2022.

**Cost of Service Revenue**

Overall cost of service revenue sold for the nine months ended September 30, 2022, and 2021 was $15,721,210 and $2,419,884, respectively, an increase of $13,301,326 (550%). Overall cost of goods sold for services as a percentage of service revenues for the nine months ended September 30, 2022, and 2021 were 77% and 52%, respectively. Cost of service revenues by operating segment is as follows:

---

| | | |
|:---|:---|:---|
|  | **Nine months Ended** <br> **September 30,**  | **Nine months Ended** <br> **September 30,**  |
|  | **2022** | **2021** |
| **Cost of Service Revenues:** |  |  |
| Video Solutions | $841263 | $618845 |
| Revenue Cycle Management | 3519098 | 362802 |
| Ticketing | 11360849 | 1438237 |
| Total Cost of Service Revenues | $15721210 | $2419884 |

---

The increase in cost of service revenues for our video solutions segment is commensurate with the increase in service revenues in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021. Cost of service revenues as a percentage of service revenues for the video solutions segment increased to 41% for the nine months ended September 30, 2022 as compared to 30% for the nine months ended September 30, 2021.

The increase in revenue cycle management operating segment cost of service revenue is due to the four acquisitions of medical billing companies completed since June 2021. Cost of service revenues as a percentage of service revenues for the revenue cycle management operating segment was 58% for the nine months ended September 30, 2022.

The increase in ticketing operating segment cost of service revenues is the due to the 2021 acquisition of TicketSmarter, resulting in an increase to cost of service revenue of $11,360,849 for the nine months ended September 30, 2022, compared to $1,438,237 for the nine months ended September 30, 2021. Cost of service revenues as a percentage of service revenues for the ticketing segment was 92% for the nine months ended September 30, 2022.

**Gross Profit**

Overall gross profit for the nine months ended September 30, 2022 and 2021 was $4,254,198 and $3,473,254, respectively, an increase of $780,944 (22%). Gross profit by operating segment was as follows:

---

| | | |
|:---|:---|:---|
|  | **Nine months Ended** <br> **September 30,**  | **Nine months Ended** <br> **September 30,**  |
|  | **2022** | **2021** |
| **Gross Profit:** |  |  |
| Video Solutions | $1543057 | $2663131 |
| Revenue Cycle Management | 2520709 | 197681 |
| Ticketing | 190432 | 612442 |
| Total Gross Profit | $4254198 | $3473254 |

---

The overall increase is attributable to the large overall increase in revenues for the nine months ended September 30, 2022 and an increase in the overall cost of sales as a percentage of overall revenues to 85% for the nine months ended September 30, 2022 from 64% for the nine months ended September 30, 2021. Our goal is to improve our margins over the longer term based on the expected margins generated by our new recent revenue cycle management and ticketing operating segments together with our video solutions operating segment and its expected margins from our EVO-HD, DVM-800, VuLink, FirstVu Pro, FirstVu II, FirstVu HD, ThermoVu<sup>TM</sup>, Shield<sup>TM</sup> disinfectants and our cloud evidence storage and management offering, provided that they gain traction in the marketplace and subject to a normalizing economy in the wake of the COVID-19 pandemic and current inflationary concerns. In addition, if revenues from the video solutions segment increase, we will seek to further improve our margins from this segment through expansion and increased efficiency utilizing fixed manufacturing overhead components. We plan to continue our initiative to more efficient management of our supply chain through outsourcing production, quantity purchases and more effective purchasing practices.

**Selling, General and Administrative Expenses**

Selling, general and administrative expenses were $24,285,808 and $12,554,807 for the nine months ended September 30, 2022 and 2021, respectively, an increase of $11,731,001 (93%). The increase was primarily attributable to the recent acquisitions completed in the third quarter of 2021. Our selling, general and administrative expenses as a percentage of sales decreased to 86% for the nine months ended September 30, 2022 compared to 130% in the same period in 2021. The significant components of selling, general and administrative expenses are as follows:

---

| | | |
|:---|:---|:---|
|  | **Nine months ended** <br> **September 30,**  | **Nine months ended** <br> **September 30,**  |
|  | **2022** | **2021** |
| Research and development expense | $1654395 | $1402185 |
| Selling, advertising and promotional expense | 7375364 | 2978620 |
| General and administrative expense | 15256049 | 8174002 |
| Total | $24285808 | $12554807 |

---

***Research and development expense.*** We continue to focus on bringing new products to market, including updates and improvements to current products. Our research and development expenses totaled $1,654,395 and $1,402,185 for the nine months ended September 30, 2022 and 2021, respectively, an increase of $252,210 (18%). Most of our engineers are dedicated to research and development activities for new products, primarily the new generation of body-worn cameras, EVO-HD and non-mirror based DVM-250 that can be located in multiple places in a vehicle. We expect our research and development activities will continue to trend higher in future quarters as we continue to expand our product offerings based on our new body-worn camera and EVO-HD product platform and as we outsource more development projects. We consider our research and development capabilities and new product focus to be a competitive advantage and intend to continue to invest in this area on a prudent basis and consistent with our financial resources.

***Selling, advertising and promotional expenses.*** Selling, advertising and promotional expense totaled $7,375,364 and $2,978,620 for the nine months ended September 30, 2022 and 2021, respectively, an increase of $4,396,744 (148%). Promotional and advertising expenses represent the primary component of these costs and totaled $6,119,294 during the nine months ended September 30, 2022, compared to $1,677,455 during the nine months ended September 30, 2021, an increase of $4,441,839 (265%). The increase is primarily attributable to the 2022 sponsorship of NASCAR and IndyCar. Additionally, TicketSmarter remains in sponsorship and advertising. TicketSmarter accounted for $3,335,723 of the total promotional and advertising expense for the nine months ended September 30, 2022.

***General and administrative expense***. General and administrative expenses totaled $15,256,049 and $8,174,002 for the nine months ended September 30, 2022 and 2021, respectively, an increase of $7,082,047 (87%). The increase in general and administrative expenses in the nine months ended September 30, 2022 compared to the same period in 2021 is primarily attributable to an increase in administrative salaries, as payroll continues to increase with the new acquisition completed by the Company's healthcare venture during the first half of 2022. General and administrative expense also increased due to a substantial increase in depreciation and amortization, rent expenses, and legal and professional expenses for the nine months ended September 30, 2022 compared to the same period in 2021, as a result of the numerous acquisitions completed by the Company that were not relevant to the same period in 2021.

**Operating Loss**

For the reasons stated above, our operating loss was $20,031,610 and $9,081,553 for the nine months ended September 30, 2022 and 2021, respectively, a decrease of $10,950,057 (121%). Operating loss as a percentage of revenues improved to 71% in the nine months ended September 30, 2022 from 94% in the same period in 2021.

**Interest Income**

Interest income decreased to $116,928 for the nine months ended September 30, 2022, from $222,497 in the same period of 2021, which reflects our change in cash and cash equivalent levels in the third quarter of 2022 compared to the third quarter of 2021. The Company held significant cash and cash equivalents throughout the third quarter of 2021, allowing a full nine months of interest income due to the two completed registered direct offerings in the first quarter of 2021 which yielded net proceeds of approximately $66.4 million.

**Interest Expense**

We incurred interest expense of $39,766 and $8,466 during the nine months ended September 30, 2022 and 2021, respectively. The increase is attributable to the contingent earn-out notes associated with the four Nobility Healthcare acquisitions, currently at a total balance of $1,091,821 for the four notes, with interest rates of 3.00% per annum.

**Change in Fair Value of Short-Term Investments**

We recognized a loss on change in fair value of short-term investments totaling $84,818 and $28,210 during the nine months ended September 30, 2022 and 2021, respectively. Such short-term investments are included in cash and cash equivalents as they contain original maturities of ninety (90) days or less.

**Change in Fair Value of Contingent Consideration Promissory Notes**

The Company recognized a gain on the change in fair value of contingent consideration promissory notes of $347,169 and $-0- during the nine months ended September 30, 2022 and 2021, respectively. This is in connection with the four acquisitions made by our revenue cycle management segment.

**Change in Fair Value of Derivative Liabilities**

During the first quarter of 2021, the Company issued detachable warrants to purchase a total of 2,127,500 shares of Common Stock in association with the two registered direct offerings previously described. The underlying warrant agreement terms provide for net cash settlement outside the control of the Company in the event of tender offers under certain circumstances. As such, the Company is required to treat these warrants as derivative liabilities which are valued at their estimated fair value at their issuance date and at each reporting date with any subsequent changes reported in the condensed consolidated statement of operations as the change in fair value of warrant derivative liabilities. The change in fair value of the warrant derivative liabilities from December 31, 2021, to September 30, 2022, totaled $6,726,638 which was recognized as a gain in the third quarter of 2022. The Company determined the fair value of such warrants as of December 31, 2021, and as of August 23, 2022, to be $14,846,932 and $0, respectively.

**Gain on Extinguishment of Warrant Derivative Liabilities**

The Company recognized a gain on the change in fair value of contingent consideration promissory notes of $3,624,794 and $-0- during the nine months ended September 30, 2022 and 2021, respectively. This is in connection with the Warrant Exchange Agreement executed by the Company on August 23, 2022.

**Income/(Loss) before Income Tax Benefit**

As a result of the above results of operations, we reported an income/(loss) before income tax benefit of ($9,299,498) and $24,388,307 for the nine months ended September 30, 2022 and 2021, respectively, a decrease of $33,687,805 (138.1%).

**Income Tax Benefit**

We did not record an income tax expense related to our income for the nine months ended September 30, 2022 due to our overall net operating loss carryforwards available. We have further determined to continue providing a full valuation reserve on our net deferred tax assets as of September 30, 2022. We had approximately $81.4 million of net operating loss carryforwards and $1.8 million of research and development tax credit carryforwards as of September 30, 2022 available to offset future net taxable income.

**Net Income/(Loss)**

As a result of the above results of operations, we reported a net income/(loss) of $(9,299,498) and $24,388,307 for the nine months ended September 30, 2022 and 2021, respectively, a decrease of $33,687,805 (138.1%).

**Net Income Attributable to Noncontrolling Interests of Consolidated Subsidiary**

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 of Nobility Healthcare which is reflected in the statement of income as "net income attributable to noncontrolling interests of consolidated subsidiary". We reported net income attributable to noncontrolling interests of consolidated subsidiary of $268,636 and net loss of $19,863 for the nine months ended September 30, 2022 and 2021, respectively.

**Net Income/(Loss) Attributable to Common Stockholders**

As a result of the above, we reported a net income/(loss) attributable to common stockholders of ($9,568,134) and $24,408,170 for the years nine months September 30, 2022 and 2021, respectively, a decrease of $33,976,304 (139.2%).

**Basic and Diluted Income/(Loss) per Share**

The basic and diluted loss per share was ($3.83) and $9.80 for the nine months ended September 30, 2022 and 2021, respectively. Basic loss per share is based upon the weighted average number of common shares outstanding during the period. For the nine months ended September 30, 2022 and 2021, 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.

**<u>Comparison of the Fiscal Years Ended December 31, 2021 and 2020</u>**

**Results of Operations**

Summarized financial information for the Company's reportable business segments is provided for the years ended December 31, 2021, and 2020:

---

| | | |
|:---|:---|:---|
|  | **Years Ended December 31,** | **Years Ended December 31,** |
|  | **2021** | **2020** |
| **Net Revenues:** |  |  |
| &nbsp;&nbsp;&nbsp; Video Solutions | $9073626 | $10514868 |
| &nbsp;&nbsp;&nbsp; Revenue Cycle Management | 1630048 |  |
| &nbsp;&nbsp;&nbsp; Ticketing | 10709760 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total Net Revenues | $21413434 | $10514868 |
| **Gross Profit:** |  |  |
| &nbsp;&nbsp;&nbsp; Video Solutions | $2002345 | $4062594 |
| &nbsp;&nbsp;&nbsp; Revenue Cycle Management | 521047 |  |
| &nbsp;&nbsp;&nbsp; Ticketing | 3140382 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total Gross Profit | $5663774 | $4062594 |
| **Operating Income (loss):** |  |  |
| &nbsp;&nbsp;&nbsp; Video Solutions | $(4497196) | $(578417) |
| &nbsp;&nbsp;&nbsp; Revenue Cycle Management | 93763 |  |
| &nbsp;&nbsp;&nbsp; Ticketing | 235432 |  |
| &nbsp;&nbsp;&nbsp; Corporate | (10592909) | (7085234) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total Operating Income (Loss) | $(14760910) | $(7663651) |
| **Depreciation and Amortization:** |  |  |
| &nbsp;&nbsp;&nbsp; Video Solutions | $395361 | $250156 |
| &nbsp;&nbsp;&nbsp; Revenue Cycle Management |  |  |
| &nbsp;&nbsp;&nbsp; Ticketing | 427128 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total Depreciation and Amortization | $822489 | $250156 |
| **Assets (net of eliminations):** |  |  |
| &nbsp;&nbsp;&nbsp; Video Solutions | $25983348 | $16435769 |
| &nbsp;&nbsp;&nbsp; Revenue Cycle Management | 934095 |  |
| &nbsp;&nbsp;&nbsp; Ticketing | 12260780 |  |
| &nbsp;&nbsp;&nbsp; Corporate | 43810974 | 4361758 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total Identifiable Assets | $82989197 | $20797527 |

---

Segment net revenues reported above represent only sales to external customers. Segment gross profit represents net revenues less cost of revenues. Segment operating income (loss), 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.

**Off-Balance Sheet Arrangements**

We do not have any off-balance sheet debt, nor did we have any transactions, arrangements, obligations (including contingent obligations) or other relationships with any unconsolidated entities or other persons that may have a material current or future effect on financial conditions, changes in the financial conditions, results of operations, liquidity, capital expenditures, capital resources, or significant components of revenue or expenses.

We are a party to operating leases and license agreements that represent commitments for future payments (described in Note 13, "Commitments and Contingencies," elsewhere in this prospectus) and we have issued purchase orders in the ordinary course of business that represent commitments to future payments for goods and services.

Summarized immediately below and discussed in more detail in the subsequent sub-sections is an analysis of our operating results for the years ended December 31, 2021 and 2020, represented as a percentage of total revenues for each respective year:

---

| | | |
|:---|:---|:---|
|  | **Years Ended December 31,** | **Years Ended December 31,** |
|  | **2021** | **2020** |
| Revenue | 100% | 100% |
| Cost of revenue | 74% | 61% |
| &nbsp;&nbsp;&nbsp; Gross profit | 26% | 39% |
| Selling, general and administrative expenses: |  |  |
| &nbsp;&nbsp;&nbsp; Research and development expense | 9% | 18% |
| &nbsp;&nbsp;&nbsp; Selling, advertising and promotional expense | 27% | 25% |
| &nbsp;&nbsp;&nbsp; General and administrative expense | 60% | 69% |
| Total selling, general and administrative expenses | 96% | 112% |
| &nbsp;&nbsp;&nbsp; Operating loss | (69)% | (73)% |
| Change in fair value of derivative liabilities | 171% | —% |
| Change in fair value of contingent consideration promissory notes and earn-out agreements | 17% | —% |
| Warrant modification expense | (1)% | —% |
| Change in fair value of short-term investments | —% | —% |
| Change in fair value of note payable | —% | (12)% |
| Change in fair value of proceeds investment agreement | —% | 50% |
| Gain on extinguishment of debt | —% | 13% |
| Secured convertible note payable issuance expenses | —% | (1)% |
| Interest income (expense) and other income, net | 1% | — % |
| Income (loss) before income tax benefit | 119% | (25)% |
| Income tax expense (benefit) | — % | — % |
| Net income (loss) | 119% | (25)% |
| Net loss attributable to noncontrolling interests of consolidated subsidiary | — % | — % |
| Net income (loss) attributable to common stockholders | 119% | 107% |
| Net income (loss) per share information: |  |  |
| &nbsp;&nbsp;&nbsp; Basic | $10.14 | $(2.43) |
| &nbsp;&nbsp;&nbsp; Diluted | $10.14 | $(2.43) |

---

**Revenues**

***Revenues by Type and by Operating Segment***

 ****

Our operating segments generate two types of revenues:

**Product revenues** primarily includes video operating segment hardware sales of in-car and body-worn cameras, along with sales of our ThermoVu<sup>TM</sup> units, disinfectants, and personal protective equipment. Additionally, product revenues also include the sale of tickets by our ticketing operating segment that have been purchased or received through our sponsorships and partnerships and held in inventory by our ticketing segment until their sale.

**Service and other revenues** consist of cloud and warranty services revenues from our subscription plan and storage offerings of our video solutions segment. Our ticketing operating segments' secondary ticketing marketplace revenues are included in service revenue. We recognize service revenue from sales generated through its secondary ticketing marketplace as we collect net services fees on secondary ticketing marketplace transactions. Lastly, our revenue cycle management segment revenues are included in the service revenues for services provided to medical providers throughout the country.

The following table presents revenues by type and segment:

---

| | | | |
|:---|:---|:---|:---|
|  | **Year Ended December 31,** | **Year Ended December 31,** | **Year Ended December 31,** |
|  | **2021** | **% Change** | **2020** |
| **Product revenues:** |  |  |  |
| &nbsp;&nbsp;&nbsp; Video solutions | $6393050 | (20.4)% | $8029457 |
| &nbsp;&nbsp;&nbsp; Ticketing | 2787237 | 100% |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total product revenues | 9180287 | 14.3% | 8029457 |
| **Service and other revenues:** |  |  |  |
| &nbsp;&nbsp;&nbsp; Video solutions | 2680576 | 7.9% | 2485411 |
| &nbsp;&nbsp;&nbsp; Ticketing | 7922523 | 100% |  |
| &nbsp;&nbsp;&nbsp; Revenue cycle management | 1630048 | 100% |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total service and other revenues | 12233147 | 392.2% | 2485411 |
| Total revenues | $21413434 | 103.6% | $10514868 |

---

Current product offerings from our video operating segment include the following:

---

| | |
|:---|:---|
| **Product** | **Description** |
| EVO-HD | An in-car digital audio/video system which records in 1080P HD video and is designed for law enforcement and commercial fleet customers. This system includes two cameras and can use up to four external cameras for a total of four video streams. This system includes integrated, patented VuLink technology, internal GPS, and an internal Wi-Fi Module. The system includes the choice between a Wireless Microphone Kit or the option to use the, FirstVy PRO, FirstVu II, or FirstVu HD Body Camera as the wireless microphone. This system also includes a three-year advanced exchange warranty. We offer a cloud storage solution to manage the recorded evidence and charge a monthly device license fee for our cloud storage. |
| DVM-750 | An in-car digital audio/video system that is integrated into a rear-view mirror primarily designed for law enforcement customers. We offer local storage as well as cloud storage solutions to manage the recorded evidence. We charge a monthly storage fee for our cloud storage option and a one-time fee for the local storage option. This product is being discontinued and phased out of our product line but we are supporting existing customers with new products and repair and parts. |
| DVM-250 Plus/DVM-250 | An in-car digital audio/video system that is integrated into a rear-view mirror primarily designed for commercial fleet customers. We offer a web-based, driver management and monitoring analytics package for a monthly service fee that is available for our DVM-250 customers. |
| FLT-250 | The same great features of the DVM-250 in a new compact, non-mirrored form factor that allows for multiple mounting options in any vehicle type for commercial fleets. |
| DVM-800 | An in-car digital audio/video system which records in 480P standard definition video that is integrated into a rear-view mirror primarily designed for law enforcement customers. This system can use an internal fixed focus camera or two external cameras for a total of four video streams. This system also includes the premium package which has additional warranty. We offer local storage as well as cloud storage solutions to manage the recorded evidence. We charge a monthly storage fee for our cloud storage option and a one-time fee for the local storage option. |
| DVM-800 Lite | An in-car digital audio/video system which records in 480P standard definition video that is integrated into a rear view mirror primarily designed for law enforcement customers. This system can use an internal fixed focus camera or two external cameras for a total of four video streams. We offer local storage as well as cloud storage solutions to manage the recorded evidence. We charge a monthly storage fee for our cloud storage option and a one-time fee for the local storage option. This system is replacing the DVM-100 and DVM-400 product offerings and allows the customer to configure the system to their needs. |
| FirstVu Pro | A body-worn camera system that is light weight, one-piece unit that captures full HD video and audio, while offering industry leading features such as live streaming, a full-color touchscreen display, an advanced image sensor with IR LEDs, proprietary image distortion reduction, IP67 rated resisting dust & wind and is water submersible for 30 minutes at a depth of 3 feet. It is MIL-STD-810G compliant capable of handling drops, shock, and vibration, and will function flawlessly in a wide temperature range. We also offer a cloud-based evidence storage and management solution for our FirstVu Pro customers for a monthly service fee. |
| FirstVu II | A body-worn camera system that is a one-piece device and offers industry leading technology such as an articulating camera head, a full-color display, an advanced image sensor, and GPS. It can be used by law enforcement, private and event security and commercial customers. We also offer a cloud-based evidence storage and management solution for our FirstVu II customers for a monthly service fee. |
| FirstVu HD | A body-worn digital audio/video camera system primarily designed for law enforcement customers. We also offer a cloud-based evidence storage and management solution for our FirstVu HD customers for a monthly service fee. |
| VuLink | An in-car device that enables an in-car digital audio/video system and a body worn digital audio/video camera system to automatically and simultaneously start recording. |
| QuickVu Docking Stations | Compatible with the FirstVu PRO and FirstVu II, the QuickVu docking stations provide a comprehensive and elegant solution for storing and charging body cameras while uploading video evidence to the cloud. QuickVu also allows for rapid reviewing of footage right from the interactive touchscreen display. Available in eight (8) or twenty-four (24) individual docking bays. |
| 12-Bay Docking Stations & Mini-Docks | Compatible with the FirstVu HD body-worn camera, the 12-bay docking station includes a 1TB local memory hard drive and can simultaneously upload 4 hours of video from 12 FirstVu HD cameras within a 15-minute shift change and push configuration updates. The Mini-Dock is a single unit, portable smart dock that uploads video evidence to VuVault.com from a FirstVu HD body camera. |
| ThermoVu<sup>TM</sup> | A non-contact temperature-screening instrument that measures temperature through the wrist and controls entry to facilities when temperature measurements exceed pre-determined parameters. |
| Shield<sup>TM</sup> line | Disinfectant and cleanser line, which is for use against viruses and bacteria, that is less harsh than many of the traditional products now widely distributed. Offered in a variety of sizes and quantities. Also offering personal protective equipment, including nitrile and vinyl gloves, level 3 and N95 NIOSH certified face masks, as well as the electrostatic sprayer. |
| Event Ticketing | TicketSmarter offers ticket to over 125,000 live events through their ticket marketplace, including sporting events, concerts, and theatre. TicketSmarter is the official resale partner of more than 35 collegiate conferences, 300+ universities, and hundreds of events and venues. |

---

Our video operating segment sells our products and services to customers in the following manner:

● Sales to domestic customers are made directly to the end customer (typically a law enforcement agency or a commercial customer) through our sales force, comprised of our employees. Revenue is recorded when the product is shipped to the end customer.

● Sales to international customers are made through independent distributors who purchase products from us at a wholesale price and sell to the end user (typically law enforcement agencies or a commercial customer) at a retail price. The distributor retains the margin as its compensation for its role in the transaction. The distributor generally maintains product inventory, customer receivables and all related risks and rewards of ownership. Revenue is recorded when the product is shipped to the distributor consistent with the terms of the distribution agreement.

● Repair parts and services for domestic and international customers are generally handled by our inside customer service employees. Revenue is recognized upon shipment of the repair parts and acceptance of the service or materials by the end customer.

Our revenue cycle management operating segment sells its services to customers in the following manner:

● Our revenue cycle management operating segment generates service revenues through relationships with medium to large healthcare organizations, in which the underlying service revenue is recognized upon execution of services. Service revenues are generally determined as a percentage of the amount of medical billings collected by the customer.

Our ticketing operating segment sells our products and services to customers in the following manner:

● Our ticketing operating segment generates product revenues from the sale of tickets directly to consumers for a particular event that the ticketing operating segment has previously purchased and held in inventory for ultimate resale to the end consumer. Service sales through TicketSmarter, are driven largely in part to the usage of the TicketSmarter.com marketplace by buyers and sellers, in which the Company collects service fees for each transaction completed through this platform.

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

The COVID-19 pandemic had an impact on all of our operating segment revenue streams for the year ended December 31, 2021. In particular, it had a negative impact generally on our video solutions operating segment legacy products and, specifically, our commercial event recorder hardware (DVM-250 Plus) and in-car hardware for law enforcement (DVM-800) during the year. Ticketing operating segment revenues were also negatively impacted due to the cancellation of a number of live events and government-imposed restrictions and large gatherings. Our revenue cycle management operating segment was also affected due to the higher level of healthcare service utilization due to the pandemic while certain elective and routine healthcare services were reduced due to COVID-19 pandemic restrictions.

Product revenues for the years ended December 31, 2021 and 2020 were $9,180,287 and $8,029,457, respectively, an increase of $1,150,830 (14.3%), due to the following factors:

● Revenues generated by the new ticketing operating segment began with the Company's recent acquisition of TicketSmarter on September 1, 2021. The new ticketing operating segment generated $2,787,237 in product revenues for the year ended December 31, 2021, compared to $-0- for the year ended December 31, 2020. This relates to the resale of tickets purchased for live events, including sporting events, concerts, and theatre, then sold through various platforms to customers.

● The Company's video segment operating segment generated revenues totaling over $6,393,050 during the years ended December 31, 2021 compared to $8,029,457 for the year ended December 31, 2020 due to new product lines in 2020 related to our COVID-19 response. Late in the second quarter of 2020, the Company launched two product lines in direct response to the increased safety precautions that organizations and individuals are taking due to the COVID-19 pandemic. ThermoVu™ was launched as a non-contact temperature-screening instrument that measures temperature through the wrist and controls entry to facilities when temperature measurements exceed pre-determined parameters. ThermoVu™ has optional features such as facial recognition to improve facility security by restricting access based on temperature and/or facial recognition reasons. ThermoVu™ provides an instant pass/fail audible tone with its temperature display and controls access to facilities based on such results. ThermoVuTM has been applied in schools, dental office, hospitals, office buildings, and other public venues. The Company also launched its Shield™ disinfectant/sanitizer product lines to fulfill demand by current customers and others for a disinfectant and sanitizer that is less harsh than many of the traditional products now widely distributed. The Shield™ Cleanser product line contains a cleanser with no harsh chemicals or fumes.

● The Company's video solution operating segment began offering the Shield™ line of disinfecting products to its first responder customers including police, fire and paramedics late in the second quarter of 2020. Commercial customers such as hospitals, dental offices, office buildings, retail stores, and restaurants have applied these products. The Company has enhanced the line of disinfectant products through the newly designed Shield Electrostatic Sprayer to efficiently and effectively dispense the disinfectants. The Company is hopeful that its law enforcement and commercial customers will adopt this new product offering to combat the spread of the COVID-19 virus as well as other bacteria and viruses.

● The video solutions operating segment shipped seven individual orders in excess of $100,000, for a total of approximately $986,062 in revenue for the year ended December 31, 2021, compared to four individual orders in excess of $100,000, for a total of approximately $903,910 in revenue for the year ended December 31, 2020.

● In general, our video solutions operating segment has experienced pressure on its product revenues as our in-car and body-worn systems are facing increased competition because our competitors have released new products with advanced features. Additionally, our law enforcement revenues declined over the prior period due to price-cutting and competitive actions by our competitors, adverse marketplace effects related to our patent litigation proceedings and our recent financial condition. We introduced our EVO-HD late in the second quarter of 2019 with the goal of enhancing our product line features to meet these competitive challenges and we started to see traction in late 2019. We expect customers and potential customers to review and test the EVO-HD prior to committing to this new product platform, all of which has been delayed due to the COVID-19 pandemic. Additionally, we introduced or new body-worn cameras, the FirstVu Pro and FirstV II, in the fourth quarter of 2021, with the goal of shipping these products in the first quarter of 2022. We hope to see increased traction with these products into 2022 after the market is able to review and test these new products.

● Our video solutions operating segment product shipments have been particularly impacted by the COVID-19 pandemic because of delays in the shipment of certain law enforcement orders since the first quarter of 2020 as police forces and governments deal with its impact. Our product sales to law enforcement decreased for the year ended December 31, 2021 compared to the year ended December 31, 2020, as the impact of the COVID-19 pandemic continues to impact our business.

● The COVID-19 pandemic impact remains relevant, as the shipment of commercial orders during the year ended December 31, 2021 remain slow, and cruise lines, taxi cabs, paratransit and other commercial customers continue to deal with its impact. Our product sales to commercial customers decreased for the year ended December 31, 2021 compared to the year ended December 31, 2020 due to the impact of the COVID-19 pandemic.

● Our video solutions operating segment management has been focusing on migrating customers, and in particular commercial customers, from a hardware sale to a service fee model. Therefore, we expect a reduction in commercial hardware sales (principally DVM-250's, FLT-250's, and our body-worn camera line) as we convert these customers to a service model under which we provide the hardware as part of a recurring monthly service fee. In that respect, we introduced a monthly subscription agreement plan for our body worn cameras and related equipment during the second quarter of 2020 that allowed law enforcement agencies to pay a monthly service fee to obtain body worn cameras without incurring a significant upfront capital outlay. This program has gained some traction, resulting in decreased product revenues and increasing our service revenues. We expect this program to continue to hold traction, resulting in recurring revenues over a span of three to five years.

Service and other revenues for the years ended December 31, 2021 and 2020 were $12,233,147 and $2,485,411, respectively, an increase of $9,747,736 (392.2%), due to the following factors:

● Cloud revenues generated by the video solutions operating segment were $1,055,965 and $954,873 for the years ended December 31, 2021 and 2020, respectively, an increase of $101,092 (11%). We have experienced increased interest in our cloud solutions for law enforcement primarily due to the deployment of our cloud-based EVO-HD in-car system and our next generation body-worn camera products, which contributed to our increased cloud revenues in the year ended December 31, 2021. We expect this trend to continue for 2022 as the migration from local storage to cloud storage continues in our customer base.

● Video solutions operating segment revenues from extended warranty services were $978,018 and $1,173,169 for the years ended December 31, 2021 and 2020, respectively, a decrease of $195,151 (17%). We have many customers that have purchased extended warranty packages, primarily in our DVM-800 premium service program. However, the fallout from the COVID-19 pandemic and related restrictions on travel adversely affected our sales of DVM-800 hardware systems resulting in a decrease in their sales of 15% in the 2021 period compared to 2020.

● Video solutions operating segment installation service revenues were $204,701 and $180,319 for the years ended December 31, 2021 and 2020, respectively, an increase of $24,382 (14%). Installation revenues tend to vary more than other service revenue types and are dependent on larger customer implementations. The slight increase in installation revenues in the years ended December 31, 2021 compared to the same period 2020 was attributable to the resumption of previous projects pending install due to the effects related to the COVID-19 pandemic.

● Revenues from building rental income were $290,012 and $-0- for the years ended December 31, 2021 and 2020, respectively, an increase of $290,012 (100%). The Company completed the purchase of an office/warehouse building during the years ended December 31, 2021, in which current tenants were under existing agreements. The agreement terminated at the end of August 2021.

● Our new ticketing operating segment generated service revenues totaling $7,922,523 and $-0- for the years ended December 30, 2021 and 2020, respectively, an increase of $7,922,523 (100%). The Company completed the acquisitions of Goody Tickets, LLC and TicketSmarter, LLC on September 1, 2021, thus resulting in the new revenue stream for the Company. TicketSmarter collects fees on transactions administered through the TicketSmarter.com platform for the buying and selling of tickets for live events throughout the country. This increase reflects just four months of service revenues by our ticketing operating segment, which we hope will present a strong revenue outlook moving forward.

● Our new revenue cycle management operating segment generated service revenues totaling $1,630,048 and $-0- for the years ended December 31, 2021 and 2020, respectively, an increase of $1,630,048 (100%). Our revenue cycle management operating segment completed the acquisitions of its first medical billing company on June 30, 2021 and the second medical billing company on August 31, 2021, thus resulting in the new service revenue stream added in the year ended December 31, 2021 for the Company. Our revenue cycle management operating segment provides revenue cycle management solutions and back-office services to healthcare organizations throughout the country. This increase reflects three months of the first medical billing company revenues and just one month of the second medical billing company revenues within the new revenue cycle management operating segment, which we home will present a strong revenue outlook moving forward.

Total revenues for the years ended December 31, 2021, and 2020 were $21,413,434 and $10,514,868, respectively, an increase of $10,898,566 (103.6%), due to the reasons noted above.

**Cost of Product Revenue**

Overall cost of product revenue sold for the years ended December 31, 2021, and 2020 was $8,635,047 and $5,739,572, respectively, an increase of $2,895,475 (50.4%). Overall cost of goods sold for products as a percentage of product revenues for the years ended December 31, 2021, and 2020 were 94.1% and 71.5%, respectively. Cost of products sold by operating segment is as follows:

---

| | | |
|:---|:---|:---|
|  | **Years Ended December 31,** | **Years Ended December 31,** |
|  | **2021** | **2020** |
| **Cost of Product Revenues:** |  |  |
| &nbsp;&nbsp;&nbsp; Video Solutions | $6197061 | $5739572 |
| &nbsp;&nbsp;&nbsp; Revenue Cycle Management |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Ticketing | 2437986 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total Cost of Product Revenues | $8635047 | $5739572 |

---

The increase in cost of goods sold for our video solutions segment products is due to numerous factors including higher sales of the lower margin Shield disinfectant and personal protective products during 2021 and increases in the allowance for excess and obsolete inventory. Cost of product sold as a percentage of product revenues for the video solutions segment increased to 96.9% for the year ended December 31, 2021 as compared to 71.5% for the year ended December 31, 2020.

The increase in ticketing operating segment cost of product sold is the due to the September 1, 2021 acquisition of TicketSmarter, resulting in an increase to cost of product revenue of $2,437,986 for the year ended December 31, 2021, compared to $-0- for the year ended December 31, 2020. Cost of product sold as a percentage of product revenues for the ticketing solutions was 87.5% for the year ended December 31, 2021.

We recorded $3,353,458 and $1,960,351 in reserves for obsolete and excess inventories for the years ended December 31, 2021 and 2020, respectively. Total raw materials and component parts were $3,062,046 and $3,186,426 for the years ended December 31, 2021 and 2020, respectively, a decrease of $124,380 (4%). Finished goods balances were $10,512,577 and $6,974,291 for the years ended December 31, 2021 and December 31, 2020, respectively, an increase of $3,538,286 (51%) which was attributable to accumulating inventory for the expanded Shield and video solutions product lines, along with $2,102,272 in finished goods from our newly acquired ticketing segment. The increase in the inventory reserve is primarily due to inventory obsolescence for the level of component parts of the older versions of our printed circuit boards and the phase out of our DVM-750, DVM-500 Plus, LaserAlly legacy products, and ThermoVu products. Additionally, the Company determined a reasonable reserve for inventory held at the ticket operating segment, in which some inventory items sell below cost or go unsold, thus having to be fully written-off following the event date. We believe the reserves are appropriate given our inventory levels as of December 31, 2021.

**Cost of Service Revenue**

Overall cost of service revenue sold for the years ended December 31, 2021, and 2020 was $7,114,612 and $712,702, respectively, an increase of $6,401,910 (898.3%). Overall cost of goods sold for services as a percentage of service revenues for the years ended December 31, 2021, and 2020 were 58.2% and 28.7%, respectively. Cost of service revenues by operating shipment is as follows:

---

| | | |
|:---|:---|:---|
|  | **Years Ended December 31,** | **Years Ended December 31,** |
|  | **2021** | **2020** |
| **Cost of Service Revenues:** |  |  |
| &nbsp;&nbsp;&nbsp; Video Solutions | $874219 | $712702 |
| &nbsp;&nbsp;&nbsp; Revenue Cycle Management | 1109001 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Ticketing | 5131392 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total Cost of Service Revenues | $7114612 | $712702 |

---

The increase in cost of service revenues for our video solutions segment is commensurate with the increase in service revenues in the year ended December 31, 2021 compared to the year ended December 31, 2020. Cost of service revenues as a percentage of service revenues for the video solutions segment increased to 32.6% for the year ended December 31, 2021 as compared to 28.7% for year ended December 31, 2020.

The increase in revenue cycle management operating segment cost of service revenue is the due to the 2021 acquisitions of two medical billing companies in late 2021 The revenue cycle management operating segment was formed in 2021 and did not exist in 2020. Cost of service revenues as a percentage of product revenues for the revenue cycle management operating segment was 68.0% for 2021.

The increase in ticketing operating segment cost of service revenues is the due to the September 1, 2021 acquisition of TicketSmarter, resulting in an increase to cost of service revenue of $5,131,392 for the year ended December 31, 2021, compared to $-0- for the year ended December 31, 2020. Cost of service revenues as a percentage of service revenues for the ticketing increased to 64.8% for the year ended December 31, 2021.

**Gross Profit**

Overall gross profit for the years ended December 31, 2021 and 2020 was $5,663,775 and $4,062,594, respectively, an increase of $1,601,181 (39.4%). Gross profit by operating segment was as follows:

---

| | | |
|:---|:---|:---|
| **Gross Profit:** | | |
| &nbsp;&nbsp;&nbsp; Video Solutions | $2002345 | $4062594 |
| &nbsp;&nbsp;&nbsp; Revenue Cycle Management | 521047 |  |
| &nbsp;&nbsp;&nbsp; Ticketing | 3140383 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total Gross Profit | $5663775 | $4062594 |

---

The overall increase is attributable to the large overall increase in revenues for the year ended December 31, 2021 and an increase in the overall cost of sales as a percentage of overall revenues to 73.6% for the year ended December 31, 2021 from 61.4% for the year ended December 31, 2020. Our goal is to improve our margins over the longer term based on the expected margins generated by our new recent revenue cycle management and ticketing operating segments together with our video solutions operating segment and its expected margins from our EVO-HD, DVM-800, VuLink, FirstVu Pro, FirstVu II, FirstVu HD, ThermoVuTM, ShieldTM disinfectants and our cloud evidence storage and management offering, provided that they gain traction in the marketplace and subject to a normalizing economy in the wake of the COVID-19 pandemic. In addition, if revenues from the video solutions segment increase, we will seek to further improve our margins from this segment through expansion and increased efficiency utilizing fixed manufacturing overhead components. We plan to continue our initiative to more efficient management of our supply chain through outsourcing production, quantity purchases and more effective purchasing practices.

**Selling, General and Administrative Expenses**

Overall selling, general and administrative expenses were $20,424,685 and $11,726,245 for the years ended December 31, 2021 and 2020, respectively, an increase of $8,698,440 (74.2%). The increase was primarily attributable to the recent acquisitions completed in the third quarter of 2021. Our selling, general and administrative expenses as a percentage of sales decreased to 95% for 2021 compared to 112% in the same period in 2020. The significant components of selling, general and administrative expenses are as follows:

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

---

| | | |
|:---|:---|:---|
|  | **Year ended December 31,** | **Year ended December 31,** |
|  | **2021** | **2020** |
| Research and development expense | $1930784 | $1842800 |
| Selling, advertising and promotional expense | 5717824 | 2607242 |
| Professional fees and expense | 1513862 | 990975 |
| Executive, sales, and administrative staff payroll | 3288360 | 2449690 |
| Other | 7973855 | 3835538 |
| &nbsp;&nbsp;&nbsp; Total | $20424685 | $11726245 |

---

Selling, general and administrative expenses by operating segment are as follows:

---

| | | |
|:---|:---|:---|
|  | **Years Ended December 31,** | **Years Ended December 31,** |
|  | **2021** | **2020** |
| **Selling, general and administrative expenses:** |  |  |
| &nbsp;&nbsp;&nbsp; Video Solutions | $6231254 | $4641011 |
| &nbsp;&nbsp;&nbsp; Revenue Cycle Management | 427284 |  |
| &nbsp;&nbsp;&nbsp; Ticketing | 2904951 |  |
| &nbsp;&nbsp;&nbsp; Corporate | 10861196 | 7085234 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total selling, general and administrative expenses | $20424685 | $11726245 |

---

***Research and development expense.*** Our video solutions operating segment continues to focus on bringing new products to market, including updates and improvements to current products. Our research and development expenses totaled $1,930,784 and $1,842,800 for the years ended December 31, 2021 and 2020, respectively, an increase of $87,984 (4.8%). We employed 17 engineers at December 31, 2021 compared to 15 engineers at December 31, 2020, most of whom are dedicated to research and development activities for new products and primarily the FirstVu Pro, FirstVu II, QuickVu docking stations, ThermoVu<sup>TM</sup>, Shield<sup>TM</sup>, EVO-HD and non-mirror based DVM-250 that can be located in multiple places in a vehicle. We expect our research and development activities will continue to trend higher in future quarters as we continue to expand our product offerings based on our new EVO-HD product platform and we continue to outsource more development projects. We consider our research and development capabilities and new product focus to be a competitive advantage and will continue to invest in this area on a prudent basis and consistent with our financial resources.

***Selling, advertising and promotional expenses.*** Selling, advertising and promotional expense totaled $5,717,824 and $2,607,242 for the years ended December 31, 2021 and 2020, respectively, an increase of $3,110,582 (119.3%). Salesman salaries and commissions for our video solutions segment represent the primary components of these costs and were $1,605,034 and $1,616,267 for the years ended December 31, 2021 and 2020, respectively, a slight decrease of $11,233 (1%). The effective commission rate was 7.5% for the year ended December 31, 2021 compared to 15.4% for the year ended December 31, 2020. We reduced the number of salesmen in our law enforcement and commercial channels in 2021 compared to 2020. In addition, we are utilizing third-party distributors as a major component of our new Shield and ThermoVu sales channel. Lastly, our recent acquisitions require minimal salespeople, due to their specific service offerings and platforms.

Promotional and advertising expenses totaled $4,112,790 during the year ended December 31, 2021 compared to $990,975 during the year ended December 31, 2020, an increase of $3,121,815 (315%). The overall increase is primarily attributable to our 2021 sponsorship of NASCAR and IndyCar, compared to the reduced expense due to the ultimate suspension of the 2020 NASCAR season during 2020, and a reduction in attendance at trade shows as a result of the COVID-19 pandemic during 2020. Additionally, TicketSmarter is very active in sponsorship and advertising, as they are continuing to build a brand and gaining recognition. TicketSmarter accounted for $1,541,670 of the total promotional and advertising expense for the year ended December 31, 2021.

***Professional fees and expense***. Professional fees and expenses totaled $1,513,862 and $990,975 for the years ended December 31, 2021 and 2020, respectively, an increase of $522,887 (52.8%). The increase in professional fees is primarily attributable to increased legal fees surrounding the two registered direct offerings during the year ended December 31, 2021, along with increased legal and broker fees associated with the Company's numerous acquisitions in 2021, paired with other current due diligence items and opportunities the Company is exploring. Additionally, increased board fees, audit fees, and service fees are attribute to this increase.

***Executive, sales and administrative staff payroll.*** Executive, sales and administrative staff payroll expenses totaled $3,288,360 and $2,449,690 for the years ended December 31, 2021 and 2020, respectively, an increase of $838,670 (34.2%). The primary reason for the increase in executive, sales and administrative staff payroll was the recent formation of the revenue cycle management and ticketing operating segments and their acquisitions of the medical billing companies and TicketSmarter which occurred in 2021 and therefore had no impact on 2020 expenses. This increase is also due to a return to regular staff levels compared to the same period in 2020, in which the Company experienced a reduction in technical support staffing in response to the COVID-19 pandemic during the second quarter of 2020, as the COVID-19 pandemic had significantly impacted the Company's new event security business channel in 2020 because many sporting venues were closed including those served by these service technicians. Additionally, this trend is expected to continue because of the acquisitions completed during the year ended December 31, 2021, which resulted in additional payroll expenses with expanded executive positions, sales, and administrative staff numbers compared to 2020. Additionally, the acquisitions completed during the year ended December 31, 2021, resulted in additional payroll expenses with expanded executive positions, sales, and administrative staff numbers.

***Other***. Other selling, general and administrative expenses totaled $7,973,854 and $3,835,538 for the years ended December 31, 2021 and 2020, respectively, an increase of $4,138,316 (108%). The increase in other expenses in the year ended December 31, 2021 compared to the same period in 2020 is primarily attributable to the increased expenses related to the two new operating segments and their acquisitions, and associated operating expenses, completed during the year ended December 31, 2021, that were not relevant to the year ended December 31, 2020. Additionally, this increase is also attributable to an increase in travel costs as COVID-19 restrictions begin to ease, as well as substantially increased insurance costs compared to the same period in 2020. The increased insurance costs are primarily in general liability and related coverages which premiums have been increased to address the exposure to the COVID-19 pandemic.

**Operating Loss**

For the reasons previously stated, our operating loss was $14,760,910 and $7,663,651 for the years ended December 31, 2021 and 2020, respectively, an increase of $7,100,764 (93%). Operating loss as a percentage of revenues improved to 69% in 2021 from 73% in 2020.

**Interest and Other Income**

Interest income increased to $310,200 for the year ended December 31, 2021, from $47,893 in 2020, which reflects our overall higher cash and cash equivalent levels in 2021 compared to 2020. The Company completed two registered direct offerings in the year ended December 31, 2021 which yielded net proceeds of approximately $66.4 million which balances have earned increased interest income when compared to the same period in 2020. Additionally, this increase is a result of interest incurred on debt that the Company has issued, as well as interest incurred on leased products.

**Interest Expense**

We incurred interest expense of $28,600 and $342,379 during the years ended December 31, 2021 and 2020, respectively. The decrease was attributable to utilizing a portion of the net proceeds from the registered direct offerings to eliminate substantially all interest-bearing debt balances outstanding in the year ended December 31, 2021 as compared to the year ended December 31, 2020. On May 12, 2020, the Company received $150,000 in additional loan funding under the Economic Injury Disaster Loans ("EIDL") program administered by the Small Business Administration ("SBA"). Under the terms of the EIDL promissory note, interest accrues on the outstanding principal at the rate of 3.75% per annum. The term of the EIDL promissory note is thirty years and monthly principal and interest payments are deferred for twelve months after the date of disbursement and total $731.00 per month thereafter. Additionally, the increase is attributable to the contingent earn-out notes associated with the two Nobility Healthcare acquisitions, currently at a total balance of $967,211 for the two notes, with interest rates of 3.00% per annum.

**Change in Fair Value of Secured Convertible Notes**

We recognized a loss on change in fair value of secured convertible notes totaling $-0- and $1,300,252 during the years ended December 31, 2021 and 2020, respectively.

We elected to account for the secured convertible notes that were issued on April 17, 2020 on their fair value basis. Therefore, we determined the fair value of the secured convertible notes as of their issuance date of April 17, 2020 and through June 12, 2020, when they were paid in full. The change in fair value from their issuance date of April 17, 2020 to their pay-off date was $887,807, which was recognized as a charge in the Consolidated Statement of Operations for the year ended December 31, 2020. No similar changes in fair value occurred during the year ended December 31, 2021.

We elected to account for the secured convertible notes that were issued in August 2019 on its fair value basis. Therefore, we determined the fair value of the secured convertible notes as of their issuance date on December 31, 2019 until they were paid in full March 3, 2020. The change in fair value from December 31, 2019 to their pay-off date was $412,445, which was recognized as a charge in the Consolidated Statement of Operations at December 31, 2020. No similar changes in fair value occurred during the year ended December 31, 2021.

**Change in Fair Value of Proceeds Investment Agreement**

We recorded a gain on the change in fair value of proceeds investment agreement of $-0- and $5,250,000 during the years ended December 31, 2021 and 2020, respectively.

We elected to account for the PIA that we entered into with BKI in July 2018 on its fair value basis. Therefore, we determined the fair value of the 2018 PIA as of December 30, 2021, and December 31, 2020 to be $-0- and $5,250,000, respectively. The change in fair value from December 21, 2019, to December 31, 2020 was $5,250,000, which was recognized as a gain in the Consolidated Statement of Operations for the years ended December 31, 2020. No similar changes in fair value occurred during the year ended December 31, 2021.

**Change in Fair Value of Short-Term Investments**

We recognized a loss on change in fair value of short-term investments totaling $101,645 and $-0- during the years ended December 31, 2021 and 2020, respectively. Such short-term investments are included in cash and cash equivalents as they contain original maturities of ninety (90) days or less. The increase reflects our overall higher cash and cash equivalent levels in 2021 compared to 2020. The Company completed two registered direct offerings in the year ended December 31, 2021 which yielded net proceeds of approximately $66.4 million, a portion of which was invested in short-term securities with original maturities of 90 days or less.

**Change in Fair Value of Warrant Derivative Liabilities**

During the year ended December 31, 2021, the Company issued detachable warrants to purchase a total of 2,127,500 shares of Common Stock in association with the two registered direct offerings previously described. The underlying warrant agreement terms provide for net cash settlement outside the control of the Company in the event of tender offers under certain circumstances. As such, the Company is required to treat these warrants as derivative liabilities which are valued at their estimated fair value at their issuance date and at each reporting date with any subsequent changes reported in the condensed consolidated statement of operations as the change in fair value of warrant derivative liabilities. The change in fair value of the warrant derivative liabilities from their issuance date to December 31, 2021 totaled $36,664,907 which was recognized as a gain in the year ended December 31, 2021. The Company determined the fair value of such warrants as of their issuance date, and as of December 31, 2021, to be $51,216,058 and $14,846,932, respectively.

**Change in Fair Value of Contingent Consideration Promissory Notes and Earn-Out Agreements**

During the year ended December 31, 2021, the Company issued a contingent consideration earn-out agreement in connection with the Stock Purchase Agreement between TicketSmarter, Inc., Goody Tickets, LLC and TicketSmarter of $3,700,000. As of December 31, 2021, Management determined that the actual Measurement Period EBITDA generated by TicketSmarter was less than 70% of the Projected EBITDA threshold provided in such agreement. Therefore, no TicketSmarter earn-out payments were due under such agreement. Therefore, the fair value of the contingent consideration earn-out agreement was reduced to zero, and the resulting gain of $3,700,000 was reported in our Consolidated Statements of Operations for the year ended December 31, 2021.

Additionally, during the year ended December 31, 2021, the Company issued a contingent consideration promissory note in connection with the Stock Purchase Agreement between our revenue cycle management segment and a private company of $350,000. Management's estimate of the fair value of this contingent promissory note at December 31, 2021 is $317,211 representing a reduction in its estimated fair value of $32,789. The Company recorded a gain of $32,789 in the Consolidated Statements of Operations for the year ended December 31, 2021.

**Gain on Extinguishment of Debt**

We recognized a gain on extinguishment of debt totaling $10,000 and $1,417,413 during the years ended December 31, 2021 and 2020, respectively. During the year ended December 31, 2021 the Company was notified that its $10,000 EIDL advance received with the Payroll Protection Program (the "PPP") Loan was fully forgiven, thus included in "Gain on Extinguishment of Debt" in our Consolidated Statements of Operations for the year ended December 31, 2021.

As discussed in **Note 8**, **"Debt Obligations**," on May 4, 2020 the Company received a $1,418,900 promissory note under the SBA's PPP Loan through the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"). On December 10, 2020, we were informed that the Company's SBA Loan had been forgiven, resulting in the remaining balance has been released resulting in a gain on extinguishment of debt. In accordance with ASC Topic No. 470, "Debt – Modifications and Extinguishments" (Topic 470), the transactions noted above were determined to be an extinguishment of the existing debt. As a result, we recorded a gain on the extinguishment of debt in the amount of $1,417,413, which is included in "Gain on Extinguishment of Debt" in our Consolidated Statements of Operations for the year ended December 31, 2020.

**Secured Convertible Notes Issuance Expenses**

We recognized secured convertible note issuance expenses of $-0- and $34,906 during the years ended December 31, 2021 and 2020, respectively.

We elected to account for and record our $1,667,000 principal amount of secured convertible notes on April 17, 2020 on a fair value basis. Accordingly, we were required to expense the related issuance costs to other expense in the consolidated statements of operations. Such costs totaled $34,906 for the year ended December 31, 2020 and primarily included related legal and accounting fees. No similar debt issuances occurred during the year ended December 31, 2021.

**Income/(Loss) before Income Tax Benefit**

As a result of the above, we reported a net income/(loss) before income tax benefit of $25,530,961 and ($2,625,881) for the years ended December 31, 2021 and 2020, respectively, an improvement of $28,156,843 (1,072%).

**Income Tax Benefit**

We recorded an income tax benefit of $-0- for the years ended December 31, 2021 and 2020, respectively. The effective tax rate for both 2021 and 2020 varied from the expected statutory rate due to our continuing to provide a 100% valuation allowance on net deferred tax assets. We determined that it was appropriate to continue the full valuation allowance on net deferred tax assets as of December 31, 2021 and 2020 primarily because of the recurring operating losses.

We have further determined to continue providing a full valuation reserve on our net deferred tax assets as of December 31, 2021. During 2021, we decreased our valuation reserve on deferred tax assets by $7,615,000 whereby our deferred tax assets continue to be fully reserved due to our recent operating losses.

We had approximately $81,385,000 of federal net operating loss carryforwards and $1,795,000 of research and development tax credit carryforwards as of December 31, 2021 available to offset future net taxable income.

**Net Income/(Loss)**

As a result of the above, we reported a net income/(loss) of $25,530,961 and ($2,625,882) for the years ended December 31, 2021 and 2020, respectively, an improvement of $28,156,843 (1,072%).

**Net Income Attributable to Noncontrolling Interests of Consolidated Subsidiary**

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 statement of income (loss) as "net income (loss) attributable to noncontrolling interests of consolidated subsidiary". We reported net income (loss) attributable to noncontrolling interests of consolidated subsidiary of $56,453 and $-0- for the years ended December 31, 2021 and 2020, respectively.

**Net Income/(Loss) Attributable to Common Stockholders**

As a result of the above, we reported a net income/(loss) of $25,474,508 and ($2,625,882) for the years ended December 31, 2021 and 2020, respectively, an improvement of $28,100,390 (1,070%).

**Basic and Diluted Income/(Loss) per Share**

The basic and diluted income/(loss) per share was $10.14 and ($2.43) for the years ended December 31, 2021 and 2020, respectively, for the reasons previously noted. All outstanding stock options and common stock purchase warrants were considered antidilutive and therefore excluded from the calculation of diluted loss per share for the years ended December 31, 2021 and 2020 because all potentially dilutive securities during 2021 had exercise prices in excess of the market value of the company's common stock and because of the net loss reported for 2020.

**Consolidated Results of Operations**

The following is a summary of our recent operating results on a quarterly basis:

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | **For the Three Months Ended:** | **For the Three Months Ended:** | **For the Three Months Ended:** | **For the Three Months Ended:** | **For the Three Months Ended:** |
|  | **September 30,** <br> **2022**  | **June 30,** <br> **2022**  | **March 31,** <br> **2022**  | **December 31,** <br> **2021**  | **September 30,** <br> **2021**  |
| **Total revenue** | $8484153 | $9351457 | $10294781 | $11744112 | $4639822 |
| **Gross profit** | 595500 | 1719078 | 1939619 | 2190523 | 1400570 |
| **Gross profit margin %** | 7.0% | 18.4% | 18.8% | 18.7% | 30.2% |
| **Total selling, general and administrative expenses** | 7162523 | 8380330 | 8742957 | 7869883 | 4999543 |
| **Operating income (loss)** | (6567023) | (6661252) | (6803338) | (5679360) | (3598973) |
| **Operating income (loss) %** | (77.4)% | (71.2)% | (66.1)% | (48.4)% | (77.6)% |
| **Net income (loss) attributable to common stockholders** | $(1902475) | $(1065513) | $(6698242) | $1122791 | $8068799 |

---

Our business is subject to substantial fluctuations on a quarterly basis as reflected in the significant variations in revenues and operating results in the above table. These variations result from various factors, including but not limited to: (1) the timing of large individual orders; (2) the traction gained by products, such as the recently released FirstVu Pro, FirstVu II, FLT-250, and EVO HD; (3) production, quality and other supply chain issues affecting our cost of goods sold; (4) unusual increases in operating expenses, such as the timing of trade shows and stock-based and bonus compensation; (5) the timing of patent infringement litigation settlements (6) ongoing patent and other litigation and related expenses respecting outstanding lawsuits; (7) the impact of COVID-19 and inflation related factors on the economy and our businesses; and (8) the completion of corporate acquisitions. We reported a net loss of $1,902,475 on revenues of $8,484,153 for the third quarter 2022.

**Off-Balance Sheet Arrangements**

We do not have any off-balance sheet debt, nor did we have any transactions, arrangements, obligations (including contingent obligations) or other relationships with any unconsolidated entities or other persons that may have a material current or future effect on financial conditions, changes in the financial conditions, results of operations, liquidity, capital expenditures, capital resources, or significant components of revenue or expenses other than the following:

We are a party to operating leases and license agreements that represent commitments for future payments (described in Note 9, "Operating Leases," elsewhere in this prospectus) and we have issued purchase orders in the ordinary course of business that represent commitments to future payments for goods and services.

**Liquidity and Capital Resources**

**Overall:**

***Management's Liquidity Plan.*** We have experienced net losses and cash outflows from operating activities since inception. Based upon our current operating forecast, we anticipate that we will need to restore positive operating cash flows and/or raise additional capital in the short-term to fund operations, meet our customary payment obligations and otherwise execute our business plan over the next 12 months. We are continuously in discussions to raise additional capital, which may include a variety of equity and debt instruments; however, there can be no assurance that our capital raising initiatives will be successful. Our recurring losses and level of cash used in operations, along with uncertainties concerning our ability to raise additional capital, raise substantial doubt about our ability to continue as a going concern.

**Cash, cash equivalents:** As of September 30, 2022, we had cash and cash equivalents with an aggregate balance of $6,295,391, a decrease from a balance of $32,007,792 at December 31, 2021. Summarized immediately below and discussed in more detail in the subsequent subsections are the main elements of the $25,712,401 net decrease in cash during the nine months ended September 30, 2022:

● **Operating activities**: $17,797,992 of net cash used in operating activities. Net cash used in operating activities was $17,797,992 for the nine months ended September 30, 2022 and 2021, respectively, an increase of $5,567,211. The decrease is attributable to the net loss incurred for the first nine months of 2022, the non-cash gain attributable to the change in value of the warrant derivative liability, and the usage of cash to increase accounts receivable, prepaid expenses, and other operating assets during the nine months ended September 30, 2022 compared to the same period in 2021.

● **Investing activities**: $3,488,972 of net cash used in investing activities. Cash used in investing activities was $3,488,972 and $17,958,520 for the nine months ended September 30, 2022 and 2021, respectively. During the nine months ended September 30, 2022, we made capital expenditures for: (i) building improvements of the newly purchased office and warehouse building, and transportation assets; (ii) patent applications on our proprietary technology utilized in our new products and included in intangible assets; and (iii) the closing of a business and asset acquisition.

● **Financing activities**: $4,425,437 of net cash used in financing activities. Cash used in financing activities was $4,425,437 and cash provided by financing activities was $66,570,600 for the nine months ended September 30, 2022 and 2021, respectively. During the first nine months of 2022, the Company repurchased its common stock on the open market pursuant to the stock repurchase plan, and made principal payments on contingent consideration promissory notes. During 2021, we raised substantial funds through the completion of two registered direct offerings of our common stock.

**Commitments:**

We had $6,295,391 of cash and cash equivalents and net positive working capital $20,745,139 as of September 30, 2022. Accounts receivable and other receivables balances represented $8,192,899 of our net working capital at September 30, 2022. We believe we will be able to collect our outstanding receivables on a timely basis and reduce the overall level during the balance of 2022, which could provide positive cash flow to support our operations during 2022. Inventory represents $10,963,916 of our net working capital at September 30, 2022, and finished goods represented $9,769,951 of total inventory at September 30, 2022. We are actively managing the level of inventory and our goal is to reduce such level during the balance of 2022 by our sales activities, the increase of which should provide additional cash flow to help support our operations during 2022.

**Capital Expenditures:**

We had the following material commitments for capital expenditures at September 30, 2022:

***Stock Repurchase Program*** - On December 6, 2021, the board of directors of the Company authorized the repurchase of up to $10.0 million of the Company's outstanding common stock under the specified terms of a share repurchase program (the "Program"). During the nine months ended September 30, 2022, the Company repurchased 186,299 shares of its common stock for $4,026,523, in accordance with the Program.

On June 30, 2022, the board of directors of the Company elected to terminate the Program, effective immediately. The Program began in December 2021, with the Company purchasing a total of 273,041 shares at a cost of $6,001,602 through June 30, 2022.

***Lease commitments.*** Total lease expense under the six operating leases was approximately $415,269, during the nine months ended September 30, 2022. The following sets forth the operating lease right of use assets and liabilities as of September 30, 2022:

The following sets forth the operating lease right of use assets and liabilities as of September 30, 2022:

---

| | |
|:---|:---|
| **Assets:** | |
| Operating lease right of use assets | $846521 |
| **Liabilities:** |  |
| Operating lease obligations-current portion | $304294 |
| Operating lease obligations-less current portion | 610422 |
| Total operating lease obligations | $914716 |

---

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

---

| | |
|:---|:---|
| **Year ending December 31** | |
| 2022 (October 1, to December 31, 2022) | $125174 |
| 2023 | 305627 |
| 2024 | 245761 |
| 2025 | 196462 |
| Thereafter | 175113 |
| Total undiscounted minimum future lease payments | 1048137 |
| Imputed Interest | (133421) |
| Total operating lease liability | $914716 |

---

***Debt obligations –*** Outstanding debt obligations comprises the following:

---

| | | |
|:---|:---|:---|
|  | **September 30,<br> 2022** | **December 31,<br> 2021** |
| Economic injury disaster loan (EIDL) | $150000 | $150000 |
| Contingent consideration promissory note – Nobility Healthcare Division Acquisition | 205865 | 317212 |
| Contingent consideration promissory note – Nobility Healthcare Division Acquisition | 436449 | 650000 |
| Contingent consideration promissory note – Nobility Healthcare Division Acquisition | 449507 |  |
| Contingent consideration promissory note – Nobility Healthcare Division Acquisition |  |  |
| Debt obligations | 1241821 | 1117212 |
| Less: current maturities of debt obligations | 569934 | 389934 |
| Debt obligations, long-term | $671887 | $727278 |

---

Debt obligations mature as follows as of September 30, 2022:

---

| | |
|:---|:---|
|  | **September 30,** <br> **2022**  |
| 2022 (October 1, 2022 to December 31, 2022) | $142477 |
| 2023 | 569983 |
| 2024 | 386585 |
| 2025 | 3412 |
| 2026 | 3542 |
| 2027 and thereafter | 135822 |
| Total | $1241821 |

---

**Critical Accounting Estimates**

Our significant accounting policies are summarized in **Note 1, "Nature of Business and Summary of Significant Accounting Policies**," to our consolidated financial statements. While the selection and application of any accounting policy may involve some level of subjective judgments and estimates, we believe the following accounting policies and estimates are the most critical to our financial statements, potentially involve the most subjective judgments in their selection and application, and are the most susceptible to uncertainties and changing conditions:

Revenue Recognition / Allowance for Doubtful Accounts;

● Allowance for Excess and Obsolete Inventory;

● Goodwill and other intangible assets;

● Warranty Reserves;

● Fair value of warrant derivative liabilities;

● Stock-based Compensation Expense;

● Fair value of warrants;

● Fair value of assets and liabilities acquired in business combinations; and

● Accounting for Income Taxes.

***Revenue Recognition / Allowances for Doubtful Accounts.*** Revenue is recognized for the shipment of products or delivery of service when all five of the following conditions are met:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) Identify
 the contract with the customer;

(ii) Identify
 the performance obligations in the contract;

(iii) Determine
 the transaction price;

(iv) Allocate
 the transaction price to the performance obligations in the contract; and

(v) Recognize
 revenue when a performance obligation is satisfied.

We consider the terms and conditions of the contract and our customary business practices in identifying our contracts under ASC 606. We determine we have a contract when the customer order is approved, we can identify each party's rights regarding the services to be transferred, we can identify the payment terms for the services, we have determined the customer has the ability and intent to pay and the contract has commercial substance. At contract inception we evaluate whether the contract includes more than one performance obligation. We apply judgment in determining the customer's ability and intent to pay, which is based on a variety of factors, including the customer's historical payment experience or, in the case of a new customer, credit and financial information pertaining to the customer.

Performance obligations promised in a contract are identified based on the services and the products that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the service either on its own or together with other resources that are readily available from third parties or from us, and are distinct in the context of the contract, whereby the transfer of the services and the products is separately identifiable from other promises in the contract. Our performance obligations consist of (i) products, (ii) professional services, and (iii) extended warranties.

The transaction price is determined based on the consideration to which we expect to be entitled in exchange for transferring services to the customer. Variable consideration is included in the transaction price if, in our judgment it is probable that a significant future reversal of cumulative revenue under the contract will not occur. None of our contracts contain a significant financing component.

If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on the relative standalone selling price ("SSP").

Revenue for our video solutions segment is recognized at the time the related performance obligation is satisfied by transferring the control of the promised service to a customer. Revenue is recognized when control of the service is transferred to the customer, in an amount that reflects the consideration that we expect to receive in exchange for our services. We generate all our revenue from contracts with customers.

Revenue for our revenue cycle management segment is recorded on a net basis, as its primary source of revenue is its end-to-end service fees. These service fees are reported as revenue monthly upon completion of our performance obligation to provide the agreed upon services.

Revenue for our ticketing segment is recorded on a gross or net basis based on management's assessment of whether we are 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.

We sell our 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. We act as the principal in these transactions as we own the ticket at the time of sale, therefore we control 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.

We also act as an intermediary between buyers and sellers through the 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 we do not control the ticket prior to the transfer, we act 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.

We review all significant, unusual, or nonstandard shipments of product or delivery of services as a routine part of our accounting and financial reporting process to determine compliance with these requirements. Extended warranties are offered on selected products, and when a customer purchases an extended warranty, the associated proceeds are treated as contract liability and recognized over the term of the extended warranty.

For our video solutions segment, our principal customers are state, local, and federal law enforcement agencies, which historically have been low risks for uncollectible accounts. However, we have commercial customers and international distributors that present a greater risk for uncollectible accounts than such law enforcement customers and we consider a specific reserve for bad debts based on their individual circumstances. Our historical bad debts have been negligible, with less than $258,000 charged off as uncollectible on cumulative revenues of $256.5 million since we commenced deliveries during 2006.

For our ticketing segment, our customers are mainly online visitors that pay at the time of the transaction, and we collect the service fees charged with the transaction, thus leading to minimal risk for uncollectible accounts, to which we then consider a specific reserve for bad debts based on their individual circumstances. As we continue to learn more about the collectability related to this recent acquisition, we will track historical bad debts and continue to assess appropriate reserves.

For our revenue cycle management segment, our customers are mainly medium to large healthcare organizations that are charged monthly upon the execution of our services. Being these customers are healthcare organizations with minimal risk for uncollectible accounts, we consider a specific reserve for bad debts based on their individual circumstances. As we continue to learn more about the collectability related to this recently added segment, we will track historical bad debts and continue to assess appropriate reserves.

***Allowance for Excess and Obsolete Inventory.*** We record valuation reserves on our inventory for estimated excess or obsolete inventory items. The amount of the reserve is equal to the difference between the cost of the inventory and the estimated market value based upon assumptions about future demand and market conditions. On a quarterly basis, management performs an analysis of the underlying inventory to identify reserves needed for excess and obsolescence. Management uses its best judgment to estimate appropriate reserves based on this analysis. In addition, we adjust the carrying value of inventory if the current market value of that inventory is below its cost.

Inventories consisted of the following at September 30, 2022 and December 31, 2021:

---

| | | |
|:---|:---|:---|
|  | **September 30,<br> 2022** | **December 31,<br> 2021** |
| Raw material and component parts– video solutions segment | $4960740 | $3062046 |
| Work-in-process– video solutions segment | 4649 |  |
| Finished goods – video solutions segment | 8071218 | 8410307 |
| Finished goods – ticketing segment | 1698733 | 2102272 |
| Subtotal | 14735340 | 13574625 |
| Reserve for excess and obsolete inventory– video solutions segment | (3227488) | (3353458) |
| Reserve for excess and obsolete inventory – ticketing segment | (543936) | (561631) |
| Total inventories | $10963916 | $9659536 |

---

We balance the need to maintain strategic inventory levels to ensure competitive delivery performance to our customers against the risk of inventory obsolescence due to changing technology and customer requirements. As reflected above, our inventory reserves represented 25.6% of the gross inventory balance at September 30, 2022, compared to 28.8% of the gross inventory balance at December 31, 2021. We had $3,771,424 and $3,915,089 in reserves for obsolete and excess inventories at September 30, 2022 and December 31, 2021, respectively. Total raw materials and component parts were $4,960,740 and $3,062,046 at September 30, 2022 and December 31, 2021, respectively, an increase of $1,898,694 (62.0%). Finished goods balances were $9,769,951 and $10,512,579 at September 30, 2022 and December 31, 2021, respectively, a decrease of $742,628 (7.1%). The decrease in finished goods was primarily attributable to a reduction in ticketing inventory of $403,539 at September 30, 2022 compared to December 31, 2021. The slight decrease in the inventory reserve is primarily due to the reduction in finished goods that had a reserve placed on them prior to sale. The remaining reserve for inventory obsolescence is generally provided for the level of component parts of the older versions of our printed circuit boards and the phase out of our DVM-750, DVM-500 Plus and LaserAlly legacy products. Additionally, the Company determined a reasonable reserve for inventory held at the ticket operating segment, in which some inventory items sell below cost or go unsold, thus having to be fully written-off following the event date. We believe the reserves are appropriate given our inventory levels at September 30, 2022.

If actual future demand or market conditions are less favorable than those projected by management or there are significant engineering changes to our products that are not anticipated and appropriately managed, additional inventory write-downs may be required in excess of the inventory reserves already established.

 ****

***Goodwill and other intangible assets.*** When we acquire a business, we determine the fair value of the assets acquired and liabilities assumed on the date of acquisition, which may include a significant amount of intangible assets such as customer relationships, software and content, as well as goodwill. When determining the fair values of the acquired intangible assets, we consider, among other factors, analyses of historical financial performance and an estimate of the future performance of the acquired business. The fair values of the acquired intangible assets are primarily calculated using an income approach that relies on discounted cash flows. This method starts with a forecast of the expected future net cash flows for the asset and then adjusts the forecast to present value by applying a discount rate that reflects the risk factors associated with the cash flow streams. We consider this approach to be the most appropriate valuation technique because the inherent value of an acquired intangible asset is its ability to generate future income. In a typical acquisition, we engage a third-party valuation expert to assist us with the fair value analyses for acquired intangible assets.

Determining the fair values of acquired intangible assets requires us to exercise significant judgment. We select reasonable estimates and assumptions based on evaluating a number of factors, including, but not limited to, marketplace participants, consumer awareness and brand history. Additionally, there are significant judgments inherent in discounted cash flows such as estimating the amount and timing of projected future cash flows, the selection of discount rates, hypothetical royalty rates and contributory asset capital charges. Specifically, the selected discount rates are intended to reflect the risk inherent in the projected future cash flows generated by the underlying acquired intangible assets.

Determining an acquired intangible asset's useful life also requires significant judgment and is based on evaluating a number of factors, including, but not limited to, the expected use of the asset, historical client retention rates, consumer awareness and trade name history, as well as any contractual provisions that could limit or extend an asset's useful life.

The Company's goodwill is evaluated in accordance with FASB ASC Topic 350, which requires goodwill to be assessed for impairment at least annually and whenever events or changes in circumstances indicate that the carrying value of goodwill may not be recoverable. In addition, an impairment evaluation of our amortizable intangible assets may also be performed if events or circumstances indicate potential impairment. Among the factors that could trigger an impairment review are current operating results that do not align with our annual plan or historical performance; changes in our strategic plans or the use of our assets; restructuring changes or other changes in our business segments; competitive pressures and changes in the general economy or in the markets in which we operate; and a significant decline in our stock price and our market capitalization relative to our net book value.

When performing our annual assessment of the recoverability of goodwill, we initially perform a qualitative analysis evaluating whether any events or circumstances occurred or exist that provide evidence that it is more likely than not that the fair value of any of our reporting units is less than the related carrying amount. If we do not believe that it is more likely than not that the fair value of any of our reporting units is less than the related carrying amount, then no quantitative impairment test is performed. However, if the results of our qualitative assessment indicate that it is more likely than not that the fair value of a reporting unit is less than its respective carrying amount, then we perform a two-step quantitative impairment test.

Evaluating the recoverability of goodwill requires judgments and assumptions regarding future trends and events. As a result, both the precision and reliability of our estimates are subject to uncertainty. Among the factors that we consider in our qualitative assessment are general economic conditions and the competitive environment; actual and projected reporting unit financial performance; forward-looking business measurements; and external market assessments. To determine the fair values of our reporting units for a quantitative analysis, we typically utilize detailed financial projections, which include significant variables, such as projected rates of revenue growth, profitability and cash flows, as well as assumptions regarding discount rates, the Company's weighted average cost of capital and other data.

Our most recent annual impairment test of goodwill was a qualitative analysis conducted as of December 31, 2021 that indicated no impairment. Subsequent to completing our 2021 annual impairment test, no events or changes in circumstances were noted that required an interim goodwill impairment test. Note 1 — Nature of Business and Summary of Significant Accounting Policies and Note 10 — Goodwill and Other Intangible Assets in the Notes to Consolidated Financial Statements provide additional information regarding the Company's goodwill and other intangible assets.

***Warranty Reserves.*** We generally provide up to a two-year parts and labor standard warranty on our products to our customers. Provisions for estimated expenses related to product warranties are made at the time products are sold. These estimates are established using historical information on the nature, frequency, and average cost of claims. We actively study trends of claims and take action to improve product quality and minimize claims. Our warranty reserves were decreased to $10,040 as of September 30, 2022 compared to $13,742 as of December 31, 2021 as we began to slow our warranty exposures through the roll-off of DVM-750 and DVM-800 units from warranty coverage. Standard warranty exposure on the DVM-800 and DVM-250plus are the responsibility of the contract manufacturers which reduced our overall warranty exposure as these are very popular products in our line. There is a risk that we will have higher warranty claim frequency rates and average cost of claims than our history has indicated on our legacy mirror products on our new products for which we have limited experience. Actual experience could differ from the amounts estimated requiring adjustments to these liabilities in future periods.

***Warrant derivative liabilities.*** On January 14, 2021 and February 1, 2021, the Company issued warrants to purchase a total of 2,127,500 shares of Common Stock. The warrant terms provide for net cash settlement outside the control of the Company under certain circumstances in the event of tender offers. As such, the Company is required to treat these warrants as derivative liabilities which are valued at their estimated fair value at their issuance date and at each reporting date with any subsequent changes reported in the consolidated statements of operations as the change in fair value of warrant derivative liabilities. Furthermore, the Company revalues the fair value of warrant derivative liability as of the date the warrant is exercised with the resulting warrant derivative liability transitioned to equity.

On August 23, 2022, the Company entered into a Warrant Exchange Agreement (the "Warrant Exchange Agreements") with each of the Investors, pursuant to which the Company agreed to issue to the Investors an aggregate of 303,750 shares of Common Stock in exchange for the cancellation by the Investors of the January Warrants, the Exchange Warrants and the Replacement Originals Warrants. On the date of the exchange, the Company calculated the fair value of the issuance of common shares pursuant to the Warrant Exchange Agreements, attributing that value to common stock and additional paid in capital. The remaining value of the warrant derivative liability was attributed to an income from change in fair market value of warrant derivative liabilities and gain on extinguishment of warrant derivative liabilities in the consolidated statement of operations. On the date of the Warrant Exchange Agreement, the fair value of the warrant derivative liability was $8.1 million, compared to $9.3 million at June 30, 2022, resulting in income from change in fair market value of warrant derivative liabilities of $1.2 million during the three months ended September 30, 2022. Further, the value of the issued shares of Common Stock was $4.5 million, applied to additional paid in capital, resulting in a gain on the extinguishment of warrant derivative liabilities of $3.6 million during the three months ended September 30, 2022. 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 their date of issuance and as of August 23, 2022:

---

| | | |
|:---|:---|:---|
|  | **Issuance date assumptions** | **August 23, 2022 assumptions** |
| Volatility - range | 106.6 – 166.6% | 103.7% |
| Risk-free rate | 0.08 – 0.49% | 3.17 – 3.36% |
| Dividend | 0% | 0% |
| Remaining contractual term | 0.01 – 5 years | 3.4 – 4.1 years |
| Exercise price | $2.80 - 3.25 | $3.25 |
| Common stock issuable under the warrants | 2127500 | 1215000 |

---

***Stock-based Compensation Expense*.** We grant stock options to our employees and directors and such benefits provided are share-based payment awards which require us to make significant estimates related to determining the value of our share-based compensation. Our expected stock-price volatility assumption is based on historical volatilities of the underlying stock that are obtained from public data sources and there were 1,250 stock options granted during the nine months ended September 30, 2022.

If factors change and we develop different assumptions in future periods, the compensation expense that we record in the future may differ significantly from what we have recorded in the current period. There is a high degree of subjectivity involved when using option pricing models to estimate share-based compensation. Changes in the subjective input assumptions can materially affect our estimates of fair values of our share-based compensation. Certain share-based payment awards, such as employee stock options, may expire worthless or otherwise result in zero intrinsic value compared to the fair values originally estimated on the grant date and reported in our financial statements. Alternatively, values may be realized from these instruments that are significantly in excess of the fair values originally estimated on the grant date and reported in our financial statements. Although the fair value of employee share-based awards is determined using an established option pricing model, that value may not be indicative of the fair value observed in a willing buyer/willing seller market transaction. In addition, we account for forfeitures as they occur.

***Accounting for Income Taxes.*** Accounting for income taxes requires significant estimates and judgments on the part of management. Such estimates and judgments include, but are not limited to, the effective tax rate anticipated to apply to tax differences that are expected to reverse in the future, the sufficiency of taxable income in future periods to realize the benefits of net deferred tax assets and net operating losses currently recorded and the likelihood that tax positions taken in tax returns will be sustained on audit.

As required by authoritative guidance, we record deferred tax assets or liabilities based on differences between financial reporting and tax bases of assets and liabilities using currently enacted rates that will be in effect when the differences are expected to reverse. Authoritative guidance also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that all or some portion of the deferred tax asset will not be realized. As of September 30, 2022, we have fully reserved all of our deferred tax assets. Based on a review of our deferred tax assets and recent operating performance, we determined that our valuation allowance should be decreased by $7,615,000 to a balance of $16,980,000 to fully reserve our deferred tax assets at December 31, 2021. We determined that it was appropriate to continue to provide a full valuation reserve on our net deferred tax assets as of September 30, 2022, because of the overall net operating loss carryforwards available. We expect to continue to maintain a full valuation allowance until we determine that we can sustain a level of profitability that demonstrates our ability to realize these assets. To the extent we determine 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 required by authoritative guidance, we have performed a comprehensive review of our portfolio of uncertain tax positions in accordance with recognition standards established by the FASB, an uncertain tax position represents our expected treatment of a tax position taken in a filed tax return or planned to be taken in a future tax return, that has not been reflected in measuring income tax expense for financial reporting purposes. We have no recorded liability as of September 30, 2022 representing uncertain tax positions.

We have generated substantial deferred income tax assets related to our operations primarily from the charge to compensation expense taken for stock options, certain tax credit carryforwards and net operating loss carryforwards. For us to realize the income tax benefit of these assets, we must generate sufficient taxable income in future periods when such deductions are allowed for income tax purposes. In some cases where deferred taxes were the result of compensation expense recognized on stock options, our ability to realize the income tax benefit of these assets is also dependent on our share price increasing to a point where these options have intrinsic value at least equal to the grant date fair value and are exercised. In assessing whether a valuation allowance is needed in connection with our deferred income tax assets, we have evaluated our ability to generate sufficient taxable income in future periods to utilize the benefit of the deferred income tax assets. We continue to evaluate our ability to use recorded deferred income tax asset balances. If we fail to generate taxable income for financial reporting in future years, no additional tax benefit would be recognized for those losses, since we will not have accumulated enough positive evidence to support our ability to utilize net operating loss carryforwards in the future. Therefore, we may be required to increase our valuation allowance in future periods should our assumptions regarding the generation of future taxable income not be realized.

**Inflation and Seasonality**

As inflation in the United States and abroad has increased and become more prominent, inflationary pressures adversely affected all of the Company's reporting segments' gross margins during the first nine months of fiscal year 2022, and are expected to persist for the remainder of fiscal year 2022 and beyond. We do not believe that our Video Solutions and Revenue Cycle Management segments business is seasonal in nature; however, the Ticketing Segment is expected to generate higher revenues during the second half of the calendar year than in the first half due to the increased sporting events throughout the country during the second half of the calendar year in comparison to the first half.

**BUSINESS**

***Overview***

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 "Merge<u>r</u>"). At the Effective Time, Articles of Merger were filed with the Secretary of State of the State of Nevada, pursuant to which the Registrant was renamed "Digital Ally, Inc." and, by operation of law, succeeded to the assets, continued the business and assumed the rights and obligations of the Predecessor Registrant immediately prior to the Merger. Under the Nevada Revised Statutes, shareholder approval was not required in connection with the Merger Agreement or the transactions contemplated thereby.

At the Effective Time, pursuant to the Merger Agreement, (i) each outstanding share of Predecessor Registrant's common stock, par value $0.001 per share (the "Predecessor Common Stock") automatically converted into one share of common stock, par value $0.001 per share, of the Registrant ("Registrant Common Stock"), (ii) each outstanding option, right or warrant to acquire shares of Predecessor Common Stock converted into an option, right or warrant, as applicable, to acquire an equal number of shares of Registrant Common Stock under the same terms and conditions as the original options, rights or warrants, and (iii) the directors and executive officers of the Predecessor Registrant were appointed as directors and executive officers, as applicable, of the Registrant, each to serve in the same capacity and for the same term as such person served with the Predecessor Registrant immediately before the Merger. For the purposes of this Registration Statement, unless the context otherwise requires, the term "our," the "Company" or "us" refers to the Predecessor Registrant and its subsidiaries with respect to the period prior to the Effective Time and to the Registrant and its subsidiaries with respect to the period on and after the Effective Time.

The business of the Registrant, Digital Ally, Inc. (with 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, 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. The following table sets forth the Company's total revenue and the revenue derived from each reportable operating segment:

---

| | | |
|:---|:---|:---|
|  | **Years Ended December 31,** | **Years Ended December 31,** |
|  | **2021** | **2020** |
| **Net Revenues:** |  |  |
| Video Solutions | $9073626 | $10514868 |
| Revenue Cycle Management | 1630048 |  |
| Ticketing | 10709760 |  |
| Total Net Revenues | $21413434 | $10514868 |

---

Additional information regarding each reportable operating segment is also included in Note 21 entitled Segment Data of "Notes to Consolidated Financial Statements" elsewhere in this prospectus.

***Video Solutions Operating Segment***

Within the Video Solutions reportable operating segment we supply technology-based products utilizing our portable digital video and audio recording capabilities for the law enforcement and security industries and for the commercial fleet and mass transit markets. We have the ability to integrate electronic, radio, computer, mechanical, and multi-media technologies to create positive solutions to our customers' requests. Our products include: the EVO-HD, DVM-800 and DVM-800 Lite, which are in-car digital video systems for law enforcement and commercial markets; the FirstVu body-worn camera line, consisting of the FirstVu Pro, FirstVu II, and the FirstVu HD; our patented and revolutionary VuLink product, which integrates our body-worn cameras with our in-car systems by providing hands-free automatic activation for both law enforcement and commercial markets; the FLT-250, DVM-250, and DVM-250 Plus, which are our commercial line of digital video mirrors that serve as "event recorders" for the commercial fleet and mass transit markets; FleetVu, EVO Web, and VuVault are our cloud-based evidence management systems. We further diversified and broadened our product offerings in 2020, by introducing two new lines of branded products: (1) the ThermoVu® which is a line of self-contained temperature monitoring stations that provides alerts and controls facility access when an individual's temperature exceeds a pre-set threshold and (2) our Shield™ disinfectants and cleansers which are for use against viruses and bacteria. We began offering our Shield™ disinfectants and cleansers to our law enforcement and commercial customers late in the second quarter of 2020.

***Revenue Cycle Management Operating Segment***

We entered the revenue cycle management operating segment late in the second quarter of 2021 with the formation of our wholly owned subsidiary, Digital Ally Healthcare, Inc. and its majority-owned subsidiary Nobility Healthcare, LLC ("Nobility Healthcare"). Nobility Healthcare completed its first acquisition on June 30, 2021, when it acquired a private medical billing company, and a second acquisition on August 31, 2021 upon the completion of its acquisition of another private medical billing company, in which we will assist in providing working capital and back-office services to healthcare organizations throughout the country. Our assistance consists of insurance and benefit verification, medical treatment documentation and coding, and collections. Through our expertise and experience in this field, we maximize our customers' service revenues collected, leading to substantial improvements in their operating margins and cash flows.

We plan to continue growing our revenue cycle management operating segment primarily through a roll-up strategy. Our revenue cycle management operating segment's acquisition targets include the approximate 6,000 medical billing companies in the United States, most of which are relatively small and closely-held private concerns. Each year a portion of these company owners sell because they want to retire or exit the business for other pursuits. The revenue cycle management market is quite fragmented with the largest companies having less than an estimated 5% of the total market. The Company formed the revenue cycle management operating segment and will provide the capital to make acquisitions and pursue the revenue cycle management company roll-up strategy.

Upon completion of the acquisitions our revenue cycle management operating segment processes and submits the medical reimbursement claims of its physician clients to commercial health insurance companies and Medicare/Medicaid for the services the physicians have rendered to their patients so they can receive payments. Our revenue cycle management operating segment receives a percentage of the cash collected for its service fees. The revenue cycle management agreements with physician clients generally renew automatically on an annual basis.

***Ticketing Operating Segment***

We entered into the ticketing operating segment through the formation of our wholly owned subsidiary, TicketSmarter, Inc. ("TicketSmarter") and its completed acquisitions of Goody Tickets, LLC and TicketSmarter, LLC, on September 1, 2021. TicketSmarter provides ticket sales, partnerships, and mainly, ticket resale services through its online ticketing marketplace for live events, TicketSmarter.com. TicketSmarter offers tickets for over 125,000 live events through its platform, for a wide range of events, including concerts, sporting events, theatres, and performing arts, throughout the country.

TicketSmarter has grown rapidly since its launch in early 2019, and currently boasts more than 48 million tickets for sale over 125,000 live events, primarily serving the North American market. It has built its brand with a number of high-profile partnerships, which include being the official ticket resale partner of Rose Bowl Stadium in California and the title sponsor of the TicketSmarter Birmingham Bowl. It is also the official ticket resale partner of more than 35 collegiate conferences and 250 individual universities. Goody Tickets was launched as a ticket brokerage nearly a decade earlier in Overland Park, Kansas, where it has remained.

The Company plans to grow the Ticketing operating segment through organic growth of its existing business lines. The Company will also provide the working capital necessary to expand its sponsorships and partnerships with other sporting teams and other entertainment venues and organizations,

***COVID – 19 Pandemic***

The COVID-19 pandemic represents a fluid situation that presents a wide range of potential impacts of varying durations for different global geographies, including locations where the Company has offices, employees, customers, vendors and other suppliers and business partners.

Like most US-based businesses, the COVID-19 pandemic and efforts to mitigate the same began to have impacts on our business in March 2020. Since that time, the COVID-19 pandemic has dramatically impacted the global health and economic environment, including millions of confirmed cases, business slowdowns or shutdowns, labor shortages, supply chain challenges, changes in government spending and requirements, regulatory challenges, inflationary pressures and market volatility.

We operate within the complex integrated global supply chain for both vendors and customers. As the COVID-19 pandemic dissipates at varying times and rates in different regions around the world, there could be a prolonged negative impact on these global supply chains. Our ability to continue operations at specific facilities will be impacted by the interdependencies of the various participants of these global supply chains, which are largely beyond our direct control. A prolonged shut down of these global supply chains could have a material adverse effect on our business, results of operations, cash flows and financial condition.

If our suppliers have increased challenges with their workforce (including as a result of illness, absenteeism, reactions to health and safety or government requirements), facility closures, timely access to necessary components, materials and other supplies at reasonable prices, access to capital, and access to fundamental support services (such as shipping and transportation), they may be unable to provide the agreed-upon goods and services in a timely, compliant and cost-effective manner. We have incurred and may in the future incur additional costs and delays in our business resulting from the COVID-19 pandemic, including as a result of higher prices, schedule delays or the need to identify and develop alternative suppliers. In some instances, we may be unable to identify and develop alternative suppliers, incurring additional liabilities under our current contracts and hampering new ones. Our customers have experienced, and may continue to experience, disruptions in their operations and supply chains as a result of the COVID-19 pandemic, which can result in delayed, reduced, or canceled orders, or collection risks, and which may adversely affect our results of operations. Similarly, current, and future restrictions or disruptions of transportation, such as reduced availability of air transport, port closures or delays, and increased border controls, delays or closures, can also impact our ability to meet demand and could materially adversely affect us.

***Our Video Operating Segment Products and Services***

Through our video operating segment we supply technology-based products utilizing our portable digital video and audio recording capabilities for the law enforcement and security industries and for the commercial fleet and mass transit markets. We have the ability to integrate electronic, radio, computer, mechanical, and multi-media technologies to create positive solutions to our customers' requests. Our products include: the EVO-HD, DVM-800 and DVM-800 Lite, which are in-car digital video systems for law enforcement and commercial markets; the FirstVu body-worn camera line, consisting of the FirstVu Pro, FirstVu, and the FirstVu HD; our patented and revolutionary VuLink product integrates our body-worn cameras with our in-car systems by providing hands-free automatic activation for both law enforcement and commercial markets; the FLT-250, DVM-250, and DVM-250 Plus, which are our commercial line of digital video mirrors that serve as "event recorders" for the commercial fleet and mass transit markets; and FleetVu and VuLink, which are our cloud-based evidence management systems. We further diversified and broadened our product offerings in 2020, by introducing two new lines of branded products: (1) the ThermoVu® which is a line of self-contained temperature monitoring stations that provides alerts and controls facility access when an individual's temperature exceeds a pre-set threshold and (2) our Shield™ disinfectants and cleansers which are for use against viruses and bacteria. We began offering our Shield™ disinfectants and cleansers to our law enforcement and commercial customers late in the second quarter of 2020.

We have recently entered the revenue cycle management business late in the second quarter of 2021 with the formation of our wholly owned subsidiary, Digital Ally Healthcare, Inc. and its majority-owned subsidiary Nobility Healthcare. Nobility Healthcare completed its first acquisition on June 30, 2021, when it acquired a private medical billing company, and a second acquisition on August 31, 2021, upon the completion of its acquisition of another private medical billing company, in which we will assist in providing working capital and back-office services to healthcare organizations throughout the country. Additionally, through the formation of our wholly owned subsidiary, TicketSmarter and its completed acquisitions of Goody Tickets, LLC and TicketSmarter, LLC, on September 1, 2021, we have entered into the online ticketing marketplace for live events, through the online platform TicketSmarter.com.

***In-Car Digital Video Mirror System for Law Enforcement – EVO-HD, DVM-800 and DVM-800 Lite***

In-car video systems for patrol cars are a necessity and have generally become standard. Current systems are primarily digital based systems with cameras mounted on the windshield and the recording device generally in the trunk, headliner, dashboard, console or under the seat of the vehicle.

The Company offers the DVM-800, a continuation in the family of highly successful digital video mirrored (DVM) systems developed by the Company. The DVM-800 is a time-tested, compact, powerful and easy-to-use solution designed for law enforcement. The DVM-800 system has built-in road and driver facing cameras and can record up to two external HD cameras. The DVM-800 is compatible with the patented VuLink® auto-activation technology and can be paired with a FirstVu HD body-worn camera.

The Company also offers the DVM-800 Lite, an entry level system is a self-contained video recorder, microphone and digital storage system that is integrated into a rear-view mirror and is designed for law enforcement. The system can record up to two internal HD cameras.

***In-Car Digital Video "Event Recorder" System – DVM-250 Plus and FLT-250 for Commercial Fleets***

Digital Ally provides commercial fleets and commercial fleet managers with the digital video tools that they need to increase driver safety, track assets in real-time and minimize the company's liability risk while enabling fleet managers to operate the fleet at an optimal level. We market a product designed to address these commercial fleet markets with our DVM-250 Plus and FLT-250 event recorders that provide various types of commercial fleets with features and capabilities that are fully-customizable and consistent with their specific application and inherent risks.

The DVM-250 Plus is a part of the DVM family and is designed for commercial fleets featuring built-in digital audio and video recording technology and other features to provide commercial fleet managers unmatched driver and asset management – all while delivering the return on investment that matters most: the safety and security of drivers and passengers. The DVM-250 Plus is designed to capture events, such as wrecks and erratic driving or other abnormal occurrences, for evidentiary or training purposes. The commercial fleet markets may find our units attractive from both a feature and a cost perspective compared to other providers. Due to our marketing efforts, commercial fleets are beginning to adopt this technology, and in particular, the ambulance and taxi-cab markets.

In the first quarter of 2021, Digital Ally released the FLT-250, offering the same great features of the DVM-250 Plus in a new compact, non-mirrored form factor that allows for multiple mounting options in any vehicle type for commercial fleets. We believe that, due to non-mirror-based aspect of this product, the FLT-250 will become more attractive for our potential customers, as it is a much simpler plug and play option compared to mirror-based products.

Digital Ally offers a suite of data management web-based tools to assist fleet managers in the organization, archival, and management of videos and telematics information. Within the suite, there are powerful mapping and reporting tools that are intended to optimize efficiency, serve as training tools for teams on safety, and, ultimately, generate a significant return on investment for the organization.

***Miniature Body-Worn Digital Video System – FirstVu Pro, FirstVu II, and FirstVu HD for Law Enforcement and Private Security***

During 2021, Digital Ally launched two next generation body-worn cameras and docking stations, refreshing the Company's complete ecosystem of evidence recording devices. The latest body worn camera launched by the Company is the FirstVu Pro, the Company's flagship product in its family of next generation of technology. The light weight, one-piece unit captures full HD video and audio, while offering industry leading features such as live streaming, a full-color touchscreen display, an advanced image sensor with IR LEDs, proprietary image distortion reduction, IP67 rated resisting dust & wind and is water submersible for 30 minutes at a depth of 3 feet. It is also MIL-STD-810G compliant capable of handling drops, shock, and vibration; and will function flawlessly in a wide temperature range.

In addition to the FirstVu Pro, Digital Ally also added the FirstVu II to its family of next generation technology. The FirstVu II is a one-piece device offering industry leading technology such as an articulating camera head, a full-color display, an advanced image sensor, and GPS. It can be used in law enforcement, private and event security and commercial segments.

Digital Ally still carries the FirstVu HD, the two-piece body-worn camera which allows for multiple mounting options while minimizing space and weight. It can be used in law enforcement, private and event security and commercial segments. This system is also a derivative of our in-car video systems, but is much smaller and lighter and more rugged and water-resistant to handle a hostile outdoor environment. The FirstVu HD can be used in many applications in addition to law enforcement and private security and is designed specifically to be clipped to an individual's pocket or other outer clothing. The unit is self-contained and requires no external battery or storage devices. Our FirstVU HD integrates with our in-car video systems through our patented VuLink system allowing for automatic activation of both systems.

With the newly introduced body-worn cameras, Digital Ally also introduced two new QuickVu docking stations compatible with the FirstVu PRO and FirstVu II body-worn cameras. The QuickVu docking stations provide a comprehensive and elegant solution for storing and charging body cameras while uploading video evidence to the cloud. QuickVu also allows for rapid reviewing of footage right from the interactive touchscreen display, and is available in eight or twenty-four individual docking bays. For docking with the FirstVu HD body-worn cameras, Digital Ally offers a 12-bay docking station and Mini-Docks. The 12-bay docking station includes a 1TB local memory hard drive which simultaneously upload 4 hours of video from 12 FirstVu HD cameras within a 15-minute shift change and push configuration updates. The Mini-Dock is a single unit, portable smart dock that uploads video evidence to VuVault from a FirstVu HD body camera.

***Auto-activation and Interconnectivity Between In-car Video Systems and Body-worn Camera Products – VuLink for Law Enforcement***

Recognizing a critical limitation in law enforcement camera technology, we pioneered the development of our VuLink ecosystem that provides intuitive auto-activation functionality as well as coordination between multiple recording devices. The United States Patent and Trademark Office (the "USPTO") has recognized these pioneering efforts by granting us multiple patents with claims covering a variety of triggers, incuding emergency lights and sirens, extreme acceleration or braking, g-force or any 12-volt relay. Additionally, the awarded patent claims cover automatic coordination between multiple recording devices. Prior to our VuLink ecosystem, officers had to manually activate each device while responding to emergency scenarios, a requirement that both decreased the usefulness of the existing camera systems and diverted officers' attention during critical moments.

***EVO Web and FleetVu Manager***

FleetVu Manager is a web-based software that provides commercial fleet managers with the tools to increase driver safety, track assets in real-time and minimize their companies' liability risks. FleetVu Manager is able to generate driver reports, identify at risk behaviors before an incident takes place, and enable commercial fleet managers to manage the entire fleet through a single, easy to use platform. Our products compatible with FleetVu Manager include: DVM-250 and FLT-250.

***ShieldTM Heath Protection Products***

The Company's ShieldTM brand, offers a variety of products to help keep you safe, including; Shield Cleansers, ThermoVu, Shield Electrostatic Sprayer, Shied Disinfectant, and a variety of personal protection equipment including masks, gloves and sanitizer wipes.

Shield Cleansers is a full line of safe and effective hypochlorous acid (HOCl) based products - and is free of toxic bleach, ammonia, methanol, ethanol, and alcohol ingredients. Shield Disinfectant is EPA approved and has shown effectiveness against SARS-COV-2, the virus that causes the novel COVID-19 disease. Other products in the Shield brand include animal wellness products, wound care, and household cleaning solutions.

ThermoVu is a non-contact temperature-screening instrument that measures temperature through the wrist and controls entry to facilities when temperature measurements exceed pre-determined parameters. ThermoVu has optional features such as facial recognition to improve facility security by restricting access based on temperature and/or facial recognition reasons. ThermoVu provides an instant pass/fail audible tone with its temperature display and controls access to facilities based on such results.

Shield Electrostatic Sprayer is a compact and lightweight disinfecting sprayer utilizing electrostatic induction. The charged particles repel each other and affix to surfaces more evenly, eliminating large droplets for better disinfecting coverage. It is ideal for use in office buildings, schools, and other populated areas.

The Company has been distributing other personal protective equipment and supplies, since the second quarter of 2021, such as masks and gloves to supplement its Shield brand of products to health care workers as well as other consumers, consisting of vinyl and nitrile gloves, level 3 and N95 NIOSH certified face masks, and disposable wipes.

***Our Revenue Management Operating Segment Products and Services***

Through our revenue cycle management segment, we provide assistance in providing working capital and back-office services to healthcare organizations throughout the country. Our RCM operating segment services consist of insurance and benefit verification, medical treatment documentation and coding, and collections. Through our expertise and experience in this field, we maximize our customers' service revenues collected, leading to substantial improvements in their operating margins and cash flows. We generally receive a service fee based on a percentage of the service revenues collected by our customers.

***Our Ticketing Operating Segment Products and Services***

Through our ticketing segment, we provide customers with access to the online live event ticketing marketplace through our online platform - TicketSmarter.com. Offering over 48 million tickets for sale for over 125,000 live events TicketSmarter is a national ticket marketplace offering tickets for live events featuring sports, concerts and theatre. TicketSmarter is the official ticket resale partner of more than 35 collegiate conferences, over 300 universities, and hundreds of events and venues.

Our ticketing operating segment primarily receives compensation for its services generally determined as a percentage of the face-value of the tickets being purchased. Our ticketing operating segment also provides customers with access to tickets which it has purchased or received in return for its sponsorship or partnership from the venue, event or owner.

***Market and Industry Overview – Video Solutions Operating Segment***

Our video solutions segment has historically had a primary market of domestic and international law enforcement agencies. We have since expanded our scope by pursuing the commercial fleet vehicle and mass transit markets. Additionally, we have expanded into event security services where we provide the hardware and software to supplement private security for NASCAR races, football and other sporting events, concerts and other events where people gather. We continue to further expand our focus on private security, homeland security, mass transit, healthcare, general retail, educational, general consumer and other commercial markets. In that regard, we have several installations involving private security on cruise ships and similar markets. We believe there are many potential private uses of our product offerings. We continue to have sales in the commercial fleet and ambulance service provider market, confirming that our DVM-250 Plus and FLT-250 products and FleetVu Manager can become a significant revenue producer for us. Additionally, our body-worn cameras have applications in law enforcement, along with private and event security, as well as commercial segments. With the recent acquisitions we completed in 2021, we hope to utilize the connections we now have to live events, stadiums, and arenas, as well as new medical connections.

***Market and Industry Overview – Revenue Cycle Management Operating Segment***

Our revenue cycle management segment consists of end-to-end revenue cycle management services that focuses on claim reimbursement billing, verification, and related services to medical providers throughout the country. We offer agreements with customers in which we provide our services and bill the customers monthly for our services. The healthcare industry in the United States represents a strong portion of the United States' economy, offering a robust market for these services. Our current market includes many diverse specialties, including radiology, oncology, orthopedics, pediatrics, internal medicine, and cariology. We continue to investigate ways to expand our market reach, although can make no assurances in that regard.

***Market and Industry Overview – Ticketing Operating Segment***

Our ticketing segment refers to the sale of event tickets primarily through our online and mobile platforms. We will buy inventory of event ticket to then sell tickets through various platforms, including our own. Our resale services refer to the sale of tickets by a holder, who originally obtained the tickets directly from a venue or entity, through our platform in which we then collect services fees on the transaction. This is commonly referred to as secondary ticketing. We work directly with consumers looking to buy or sell event tickets for particular shows, concerts, games, and other events, allowing a simple and effective platform to move tickets. We also currently partner with more than 35 collegiate conferences, over 300 universities, and hundreds of events and venues.

***Competition - Video Solutions Operating Segment***

Our video solutions segment, consisting of law enforcement and security surveillance markets, is extremely competitive. Competitive factors in these industries include ease of use, quality, portability, versatility, reliability, accuracy and cost. There are direct competitors with technology and products in the law enforcement and surveillance markets for all of our products, including those that are in development. Many of these competitors have significant advantages over us, including greater financial, technical, marketing and manufacturing resources, more extensive distribution channels, larger customer bases and faster response times to adapt new or emerging technologies and changes in customer requirements. Our primary competitors in the in-car video systems market include L-3 Mobile-Vision, Inc., Coban Technologies, Inc., Enforcement Video, LLC d/b/a WatchGuard Video ("WatchGuard"), Kustom Signals, Panasonic System Communications Company, International Police Technologies, Inc. and a number of other competitors who sell, or may in the future sell, in-car video systems to law enforcement agencies. Our primary competitors in the body-worn camera market include Axon Enterprises, Inc. ("Axon"), Reveal Media, WatchGuard, and VieVU, Inc., which was acquired by Axon in 2018. We face similar and intense competitive factors for our event recorders in the commercial fleet and private security markets as we do in the law enforcement and security surveillance markets. There can be no assurance that we will be able to compete successfully in these markets. Further, there can be no assurance that new and existing companies will not enter the law enforcement and security surveillance markets in the future. The commercial fleet security and surveillance markets likewise are also very competitive. There are direct competitors for our FLT-250 and DVM-250 Plus "event recorders," which may have greater financial, technical marketing, and manufacturing resources than we do. Our primary competitors in the commercial fleet sector include Lytx, Inc. (previously DriveCam, Inc.) and SmartDrive Systems, among others.

***Competition – Revenue Cycle Management Operating Segment***

Our revenue cycle management segment is a highly competitive market that is only intensifying as the market continues to grow. We face competition from a variety of sources, including internal revenue cycle management departments within healthcare organizations, as these organizations are beginning to make internal investments in these departments to keep these services in house. Additionally, other revenue cycle management providers exist and offer similar services through software vendors, traditional consultants, and information technology sources.

***Competition – Ticketing Operating Segment***

Our ticketing segment faces robust competition from several sources throughout the industry. As the online and mobile ticketing market continues to increase, it has allowed for more technology-based companies to offer ticketing services and systems. The online environment consists of numerous other websites and platforms for all markets. With the market continuing to grow, resale marketplaces and websites can reach a vastly larger audience with more convenient access to tickets for a wide variety of events. We continue to build our brand and recognition, through the numerous partnerships and sponsorships throughout the country, in attempt to become a preferred platform for consumers.

***Worldwide Reinsurance Ltd.***

In December 2021, the Company formed a wholly-owned subsidiary, Worldwide Reinsurance Ltd. ("Worldwide Re"), a Bermuda incorporated captive insurance company that 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.

Worldwide Re is subject to capital and other regulatory requirements imposed by the Bermuda Monetary Authority ("BMA"). Although these capital requirements are generally less constraining than U.S. capital requirements, failure to satisfy these requirements could result in regulatory actions from the BMA or loss of or modification of Worldwide Re's Class 1 insurer license, which could adversely impact our ability to support our insurance needs and to grow this business into another line of business for our holding company. To date, our captive's relatively immature claims history limits the predictive value of estimating the costs of incurred and future claims. Accordingly, the captive could continue to incur significant fluctuations in financial results as the captive provides insurance coverage to Digital Ally and its affiliated businesses and seeks to expand beyond our affiliated companies to offer coverage for third parties.

***Intellectual Property – Video Solutions Operating Segment***

Our video solutions operating segment's ability to compete effectively will depend on our success in protecting our proprietary technology, both in the United States and abroad. We have filed for patent protection in the United States and certain other countries to cover certain design aspects of our products.

Some of our patent applications are still under review by the USPTO and, therefore, we have not yet been issued all the patents that we applied for in the United States. We were issued several patents in recent years, including a patent on our VuLink product that provides automatic triggering of our body-worn camera and our in-car video systems. No assurance can be given which, or any, of the patents relating to our existing technology will be issued from the United States or any foreign patent offices. Additionally, no assurance can be given that we will receive any patents in the future based on our continued development of our technology, or that our patent protection within and/or outside of the United States will be sufficient to deter others, legally or otherwise, from developing or marketing competitive products utilizing our technologies.

We have entered into supply and distribution agreements with several companies that produce certain of our products, including our DVM-250 and DVM-800 products. These supply and distribution agreements contain certain confidentiality provisions that protect our proprietary technology, as well as that of the third-party manufacturers.

In addition to seeking patent protection, we rely on trade secrets, know-how and continuing technological advancement to seek to achieve and thereafter maintain a competitive advantage. Although we have entered into or intend to enter into confidentiality and invention agreements with our employees, consultants and advisors, no assurance can be given that such agreements will be honored or that we will be able to effectively protect our rights to our unpatented trade secrets and know-how. Moreover, no assurance can be given that others will not independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets and know-how.

***Intellectual Property – Revenue Cycle Management Operating Segment***

Our revenue cycle management's operating segment's ability to compete effectively primarily depends on our trade secrets and know-how and does not depend heavily on any proprietary technology or patents.

***Intellectual Property – Ticketing Operating Segment***

Our ticketing operating segment's ability to compete effectively primarily depends on our trade secrets and know-how and does not depend heavily on any proprietary technology or patents.

***Human Capital***

As of December 31, 2022, Digital Ally, and its subsidiaries, had approximately full-time 201 employees spread throughout the country, representing the core values and objectives of the Company. These employees are spread amongst our operating segments as follows:

---

| | |
|:---|:---|
|  | **As of** <br> **December 31,** <br> **2022** |
| **Employee headcount:** |  |
| Video Solutions | 109 |
| Revenue Cycle Management (1) | 78 |
| Ticketing | 14 |
| Total Employee Headcount | 201 |

---

(1) Our revenue cycle management operating segment has no direct employees. Nobility Healthcare, LLC, our minority interest partner provides all human capital resources to manage and operate the Company's revenue cycle management operating segment.

Our employees are our most important assets and they set the foundation for our ability to achieve our strategic objectives. All of our employees contribute to Digital Ally's success and, in particular, the employees in our manufacturing, sales, research and development, and quality assurance departments are instrumental in driving operational execution and strong financial performance, advancing innovation and maintaining a strong quality and compliance program.

Our employees are not covered by any collective bargaining agreement, and we have never experienced a work stoppage. We strive to create a culture and work environment that enables us to attract, train, promote, and retain a diverse group of talented employees who together can help us gain a competitive advantage. Our key programs and initiatives that are focused to attract, develop and retain our diverse workforce include:

● Compensation Programs and Employee Benefits: the main objective of Digital Ally's compensation program is to provide a compensation package that will attract, retain, motivate and reward superior employees who must operate in a highly competitive and technologically challenging environment. We seek to do this by linking annual changes in compensation to overall Company performance, as well as each individual's contribution to the results achieved. The emphasis on overall Company performance is intended to align the employee's financial interests with the interests of shareholders. Digital Ally also seeks fairness in total compensation with reference to external comparisons, internal comparisons and the relationship between management and non-management remuneration. The structure of our compensation programs balances incentive earnings for both short-term and long-term performance. Specifically:

ο We provide employee wages that are competitive and consistent with employee positions, skill levels, experience, knowledge and geographic location.

ο We align our executives' long-term equity compensation with our shareholders' interests by linking realizable pay with stock performance.

---

| | |
|:---|:---|
| ο | Annual increases and incentive compensation are based on merit, which is communicated to employees at the time of hiring and documented through our talent management process as part of our annual review procedures and upon internal transfer and/or promotion. |

---

---

| | |
|:---|:---|
| ο | All employees are eligible for health insurance, paid and unpaid leaves, short-term disability, worker's compensation, long-term disability, a retirement plan and life and disability/accident coverage. We also offer a variety of voluntary benefits that allow employees to select the options that meet their needs. |

---

● Employee Health and Safety: the health and safety of our employees are top priorities. Digital Ally is committed to operating in a safe, secure and responsible manner for the benefit of its employees, customers and communities Digital Ally serves. Our safety focus is evident in our response to the COVID-19 pandemic:

ο Expanding work from home flexibility;

ο Initiating regular communication regarding impacts of the COVID-19 pandemic, including health and safety protocols and procedures;

ο Implementing temperature screening of employees at the majority of our manufacturing facilities;

ο Increasing cleaning protocols across all locations;

ο Providing additional personal protective equipment and cleaning supplies; and <br> ο Implementing protocols to address actual and suspected COVID-19 cases and potential exposure.

**MANAGEMENT**

 **Executive Officers, Directors and Director Nominees**

The following table sets forth the names and ages, as of the date of this prospectus, and titles of the individuals who will serve as our executive officers and members of our Board of Directors at the time of the offering.

---

| | | |
|:---|:---|:---|
| **Name** | **Position** | **Age** |
| Stanton E. Ross | Chairman, President and Chief Executive Officer | 61 |
| Thomas J. Heckman | CFO, Treasurer and Secretary | 64 |
| Peng Han | COO | 49 |
| Leroy C. Richie | Independent Director | 81 |
| Daniel F. Hutchins | Independent Director | 66 |
| Michael J. Caulfield | Independent Director | 67 |

---

The following is a summary of the biographical information about our officers and directors.

 ***Stanton E. Ross*** has served as Chairman, President and Chief Executive Officer since September 2005. From March 1992 to June 2005, Mr. Ross was the Chairman and President of Infinity Energy Resources, Inc., a publicly held oil and gas exploration and development company ("Infinity") and served as an officer and director of each of Infinity's subsidiaries. He resigned from all his positions with Infinity in June 2005, except Chairman, but was reappointed President in October 2006. From 1991 until March 1992, he founded and served as President of Midwest Financial, a financial services corporation involved in mergers, acquisitions, and financing for corporations in the Midwest. From 1990 to 1991, Mr. Ross was employed by Duggan Securities, Inc., an investment banking firm in Lenexa, Kansas, where he primarily worked in corporate finance. From 1989 to 1990, he was employed by Stifel, Nicolaus & Co., a member of the New York Stock Exchange, where he was an investment executive. From 1987 to 1989, Mr. Ross was self-employed as a business consultant. From 1985 to 1987, Mr. Ross was President and founder of Kansas Microwave, Inc., which developed a radar detector product. From 1981 to 1985, he was employed by Birdview Satellite Communications, Inc., which manufactured and marketed home satellite television systems, initially as a salesman and later as National Sales Manager. Mr. Ross estimates he devoted most of his time to Digital Ally and the balance to Infinity in 2020. In late 2007, Infinity sold a substantial portion of its operating assets and has not required a substantial amount of his time since such point. Mr. Ross holds no public company directorships other than with the Company and Infinity and has not held any others during the previous five years. The Company believes that Mr. Ross's broad entrepreneurial, financial, and business expertise and his experience with micro-cap public companies and his role as President and Chief Executive Officer give him the qualifications and skills to serve as a Director.

***Leroy C. Richie*** has been the Lead Outside Director of Digital Ally since September 2005. He is also the Chairman of the Compensation Committee and Nominating and Governance Committee and a member of the Audit Committee. Since June 1, 1999, Mr. Richie has been a director of Infinity Energy Resources, Inc., a publicly held oil and gas exploration and development company. Additionally, until 2017, Mr. Richie served as a member of the board of directors of Columbia Mutual Funds, (or mutual fund companies acquired by or merged with Columbia Mutual Funds), a family of investment companies managed by Ameriprise Financial, Inc. From 2004 to 2015, he was of counsel to the Detroit law firm of Lewis & Munday, P.C. From 2007 to 2014, Mr. Richie served as a member of the board of directors of OGE Energy Corp. He holds no other public directorships and has not held any others during the previous five years. Until 2019, Mr. Richie served as the Vice-Chairman of the Board of Trustees and Chairman of the Compensation Committee for the Henry Ford Health System, in Detroit. Mr. Richie was formerly Vice President of Chrysler Corporation and General Counsel for automotive legal affairs, where he directed all legal affairs for its automotive operations from 1986 until his retirement in 1997. Before joining Chrysler, he was an associate with the New York law firm of White & Case (1973-1978) and served as director of the New York office of the Federal Trade Commission (1978-1983). Mr. Richie received a B.A. from City College of New York, where he was valedictorian, and a J.D. from the New York University School of Law, where he was awarded an Arthur Garfield Hays Civil Liberties Fellowship. The Company believes that Mr. Richie's extensive experience as a lawyer and as an officer or director of public companies gives him the qualifications and skills to serve as a Director.

***Daniel F. Hutchins*** was elected a Director in December 2007. He serves as Chairman of the Audit Committee and is the Board's financial expert. Mr. Hutchins, a Certified Public Accountant, is a Principal with the accounting firm of Hutchins & Haake, LLC and currently serves as a director and the Chief Financial Officer of Infinity Energy Resources, Inc., a publicly held oil and gas exploration and development company, of which Stanton E. Ross is the Chairman and President. Mr. Hutchins has served as an instructor for the Becker CPA exam with the Keller Graduate School of Management and has over 17 years of teaching experience preparing CPA candidates for the CPA exam. He has over 40 years of public accounting experience, including five years with Deloitte & Touche, LLP. He has served on the boards of various non-profit groups and is a member of the American Institute of Certified Public Accountants. Mr. Hutchins earned his Bachelor of Business Administration degree in Accounting at Washburn University in Topeka, Kansas. Mr. Hutchins holds no other public company directorships and has not held any others during the previous five years. The Company believes that Mr. Hutchins' significant experience in finance and accounting gives him the qualifications and skills to serve as a Director.

***Michael J. Caulfield*** was elected a Director in May 2016. He is a member of the Audit Committee, Compensation Committee and Nominating and Governance Committee. He served as Vice President – Strategic Development of the Company from June 1, 2009 to January 11, 2012. Mr. Caulfield was most recently (2012-2016) a Vice-Chairman at Teneo Holdings, LLC, a global advisory firm where he was responsible for the firm's investment banking relationships with a broad range of industrial companies. From 2006 to 2009, Mr. Caulfield served as a Managing Director at Banc of America Securities ("BAS"), where he was responsible for the merger, acquisition, divestiture and restructuring advisory services for a number of large public and private companies. He was also in charge of BAS's global investment banking activities involving the Safety, Security, Engineering and Construction Industries. Prior to joining BAS, Mr. Caulfield spent six years (2000-2006) as a Managing Director with Morgan Stanley in New York City, leading that global investment banking firm's efforts in the Aerospace and Defense Industries. He was also responsible for the investment banking relationships with a number of Morgan Stanley's largest clients. From 1989 to 2000, he worked at General Electric Capital Corp., where he served as a Managing Director and head of the Corporate Finance Group. In this capacity, he advised GE Capital and the industrial divisions of General Electric on such issues as capital structuring, mergers and acquisitions, and private equity transactions. Mr. Caulfield received an MBA from the Wharton School of the University of Pennsylvania and a B.S. Degree from the University of Minnesota. The Company believes that Mr. Caulfield's significant experience in investment banking and the public market gives him the qualifications and skills to serve as a Director.

 ***Thomas J. Heckman*** has served as our Chief Financial Officer, Secretary and Treasurer since September 2007. During the years 2001-2007, Mr. Heckman provided consulting and business investment services to publicly traded and private companies. He has been involved in the successful completion of a number of initial public offerings (IPOs), reverse mergers and other transactions; drafted, filed and achieved SEC effectiveness for Form SB-2 filings; assisted in the raising of capital for private companies in a variety of industries; and developed multiple private placement memorandums. From 1983 until 2001, Mr. Heckman was employed by Deloitte and Touche, LLP, a subsidiary of Deloitte Touche Tohmatsu, one of the largest auditing, consulting, and financial advisory, risk management, and tax services organizations in the world. During his 18 years with Deloitte and Touche, LLP, including six years as Accounting and Auditing Partner in the Kansas City office, Mr. Heckman specialized in IPOs and public reporting entities. He served as partner in charge of a high-technology and emerging/high-growth company market segment for cross-discipline marketing efforts, assisted companies in preparing for public offerings and other liquidity events, and was involved in numerous initial/secondary financings and merger / acquisition transactions for public and private companies. He is experienced in all facets of SEC financial reporting and compliance matters. Mr. Heckman earned his Bachelor of Arts degree in Accounting at the University of Missouri – Columbia.

 ***Peng Han*** has served as our Chief Operating Officer since December 2021. Mr. Han joined the Company in 2010 and has served in the roles of Vice President of Engineering and Chief Technology Officer. Mr. Han, with over two decades of developing innovative and cutting-edge hardware and software products, is responsible for outlining Digital Ally's technological vision, aligning these visions and implementing technical strategies that align with business needs in order to achieve success. Mr. Han specializes in video technology, real-time embedded systems, telecommunications and intellectual property management. Mr. Han holds a Master of Science degree in Computer Science from Iowa State University.

**Family Relationships**

There are no family relationships between or among any of the current directors, executive officers or persons nominated to become directors or executive officers.

**Board Composition**

Our board of directors consists of four members. Our board of directors has determined that Messrs. Caulfield, Hutchins and Richie are independent directors as that term is defined in Nasdaq Listing Rule 5605(a)(2).Each of our current directors will continue to serve as a director until the election and qualification of his successor, or until his earlier death, disqualification, resignation, or removal.

**Committees of the Board of Directors**

Our Board of Directors currently has three committees: an Audit Committee, a Compensation Committee, and a Nominating and Governance Committee. Each committee has a written charter approved by the Board of Directors outlining the principal responsibilities of the committee. These charters are also available on the Investor Relations page of our website.

***Audit Committee***

Our Audit Committee appoints the Company's independent auditors, reviews audit reports and plans, accounting policies, financial statements, internal controls, audit fees, and certain other expenses and oversees our accounting and financial reporting process. Specific responsibilities include selecting, hiring and terminating our independent auditors; evaluating the qualifications, independence and performance of our independent auditors; approving the audit and non-audit services to be performed by our auditors; reviewing the design, implementation, adequacy and effectiveness of our internal controls and critical accounting policies; overseeing and monitoring the integrity of our financial statements and our compliance with legal and regulatory requirements as they relate to financial statements or accounting matters; reviewing any earnings announcements and other public announcements regarding our results of operations in conjunction with management and our public auditors; conferring with management and the independent auditors regarding the effectiveness of internal controls, financial reporting processes and disclosure controls; consulting with management and the independent auditors regarding Company policies governing financial risk management; reviewing and discussing reports from the independent auditors on critical accounting policies used by the Company; establishing procedures, as required under applicable law, for the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls or auditing matters and the confidential and anonymous submission by employees of concerns regarding questionable accounting or auditing matters; reviewing and approving related-person transactions in accordance with the Company's policies and procedures with respect to related-person transactions and applicable rules; reviewing the financial statements to be included in our Annual Report on Form 10-K; discussing with management and the independent auditors the results of the annual audit and the results of quarterly reviews and any significant changes in our accounting principles; and preparing the report that the SEC requires in our annual proxy statement.

The Audit Committee is comprised of three Directors, each of whom is independent, as defined by the rules and regulations of the SEC and The Nasdaq Stock Market LLC ("Nasdaq") Rule 5605(a)(2). On September 22, 2005, the Company created the Audit Committee and adopted a written charter for it. The members of our Audit Committee are Daniel F. Hutchins, Leroy C. Richie and Michael J. Caulfield. The Board of Directors determined that Mr. Hutchins qualifies as an "audit committee financial expert," as defined under the rules and regulations of the SEC and is independent as noted above.

Under the Sarbanes-Oxley Act of 2002, all audit and non-audit services performed by the Company's independent registered public accounting firm must be approved in advance by the Audit Committee to assure that such services do not impair the auditor's independence from the Company. Accordingly, the Audit Committee has adopted an Audit and Non-Audit Services Pre-Approval Policy (the "Policy") that sets forth the procedures and the conditions pursuant to which services to be performed by the independent auditors are to be pre-approved. Pursuant to the Policy, certain services described in detail in the Policy may be pre-approved on an annual basis together with pre-approved maximum fee levels for such services. The services eligible for annual pre-approval consist of services that would be included under the categories of Audit Fees, Audit-Related Fees and Tax Fees in the table, as well as services for limited review of actuarial reports and calculations. If not pre-approved on an annual basis, proposed services must otherwise be separately approved prior to being performed by the independent registered public accounting firm. In addition, any services that receive annual pre-approval but exceed the pre-approved maximum fee level also will require separate approval by the Audit Committee prior to being performed. The Audit Committee may delegate authority to pre-approve audit and non-audit services to any member of the Audit Committee but may not delegate such authority to management.

***Compensation Committee***

Our Compensation Committee assists our Board of Directors in determining the development plans and compensation of our officers, directors and employees. Specific responsibilities include approving the compensation and benefits of our executive officers; reviewing the performance objectives and actual performance of our officers; administering our stock option and other equity compensation plans; and reviewing and discussing with management the compensation discussion and analysis that the SEC requires in our future Form 10-Ks and proxy statements.

Our Compensation Committee is comprised of two Directors, whom the Board considers to be independent under the rules of the SEC. The members of our Compensation Committee are Leroy C. Richie, Chairman, and Michael J. Caulfield. Mr. Ross, our Chief Executive Officer, does not participate in the determination of his own compensation or the compensation of directors. However, he makes recommendations to the Compensation Committee regarding the amount and form of the compensation of the other executive officers and key employees, and he often participates in the Compensation Committee's deliberations about such persons' compensation.

Thomas J. Heckman, our Chief Financial Officer, also assists the Compensation Committee in its deliberations regarding executive officer, director and employee compensation. No other executive officers participate in the determination of the amount or the form of the compensation of executive officers or directors. The Compensation Committee does not utilize the services of an independent compensation consultant to assist in its oversight of executive and director compensation. On September 22, 2007, the Board of Directors adopted a written charter for the Compensation Committee.

***Nominating and Governance Committee***

Our Nominating and Governance Committee assists our Board of Directors by identifying and recommending individuals qualified to become members of our Board of Directors, reviewing correspondence from our stockholders, and establishing, evaluating, and overseeing our corporate governance guidelines. Specific responsibilities include the following: evaluating the composition, size and governance of our Board of Directors and its committees and making recommendations regarding future planning and appointing directors to our committees; establishing a policy for considering stockholder nominees for election to our Board of Directors; and evaluating and recommending candidates for election to our Board of Directors.

Our Nominating and Governance Committee strives for a Board composed of individuals who bring a variety of complementary skills, expertise, or background and who, as a group, will possess the appropriate skills and experience to oversee our business. The diversity of the members of the Board relates to the selection of its nominees. While the Committee considers diversity and variety of experiences and viewpoints to be important factors, it does not believe that a director nominee should be chosen or excluded solely or largely because of race, color, gender, national origin or sexual orientation or identity. In selecting a director nominee for recommendation to our Board, our Nominating and Governance Committee focuses on skills, expertise or background that would complement the existing members on the Board. Accordingly, although diversity may be a consideration in the Committee's process, the Committee and the Board of Directors do not have a formal policy regarding the consideration of diversity in identifying director nominees.

When the Nominating and Governance Committee has either identified a prospective nominee or determined that an additional or replacement director is required, the Nominating and Governance Committee may take such measures as it considers appropriate in connection with its evaluation of a director candidate, including candidate interviews, inquiry of the person or persons making the recommendation or nomination, engagement of an outside search firm to gather additional information, or reliance on the knowledge of the members of the Board of Directors or management. In its evaluation of director candidates, including the members of the Board eligible for re-election, the Nominating and Governance Committee considers a number of factors, including: the current size and composition of the Board of Directors, the needs of the Board of Directors and the respective committees of the Board, and such factors as judgment, independence, character and integrity, age, area of expertise, diversity of experience, length of service and potential conflicts of interest.

The Nominating and Governance Committee selects director nominees and recommends them to the full Board of Directors. In relation to such nomination process, the Nominating and Governance Committee:

● determines the criteria for the selection of prospective directors and committee members;

● reviews the composition and size of the Board and its committees to ensure proper expertise and diversity among its members;

● evaluates the performance and contributions of directors eligible for re-election;

● determines the desired qualifications for individual directors and desired skills and characteristics for the Board;

● identifies persons who can provide needed skills and characteristics;

● screens possible candidates for Board membership;

● reviews any potential conflicts of interests between such candidates and the Company's interests; and

● shares information concerning the candidates with the Board and solicits input from other directors.

The Nominating and Governance Committee has specified the following minimum qualifications that it believes must be met by a nominee for a position on the Board: the highest personal and professional ethics and integrity; proven achievement and competence in the nominee's field and the ability to exercise sound business judgment; skills that are complementary to those of the existing Board; the ability to assist and support management and make significant contributions to our success; the ability to work well with the other directors; the extent of the person's familiarity with the issues affecting our business; an understanding of the fiduciary responsibilities that are required of a member of the Board; and the commitment of time and energy necessary to diligently carry out those responsibilities. A candidate for director must agree to abide by our Code of Ethics and Conduct.

After completing its evaluation, the Nominating and Governance Committee makes a recommendation to the full Board of Directors as to the persons who should be nominated to the Board, and the Board determines the nominees after considering the recommendation and report of the Committee.

**Board of Directors' Role in the Oversight of Risk Management**

We face a variety of risks, including credit, liquidity, and operational risks. In fulfilling its risk oversight role, our Board of Directors focuses on the adequacy of our risk management process and overall risk management system. Our Board of Directors believes that an effective risk management system will (i) adequately identify the material risks that we face in a timely manner; (ii) implement appropriate risk management strategies that are responsive to our risk profile and specific material risk exposures; (iii) integrate consideration of risk and risk management into our business decision-making; and (iv) include policies and procedures that adequately transmit necessary information regarding material risks to senior executives and, as appropriate, to the Board or relevant committee.

The Board of Directors has designated the Audit Committee to take the lead in overseeing risk management at the Board of Directors level. Accordingly, the Audit Committee schedules time for periodic review of risk management, in addition to its other duties. In this role, the Audit Committee receives reports from management, independent registered public accounting firm, outside legal counsel, and other advisors, and strives to generate serious and thoughtful attention to our risk management process and system, the nature of the material risks we face, and the adequacy of our policies and procedures designed to respond to and mitigate these risks.

Although the Board of Directors has assigned the primary risk oversight to the Audit Committee, it also periodically receives information about our risk management system and the most significant risks that we face. This is principally accomplished through Audit Committee reports to the Board of Directors and summary versions of the briefings provided by management and advisors to the Audit Committee.

In addition to the formal compliance program, our Board of Directors and the Audit Committee encourage management to promote a corporate culture that understands risk management and incorporates it into our overall corporate strategy and day-to-day business operations. Our risk management structure also includes an ongoing effort to assess and analyze the most likely areas of future risk for us. As a result, the Board of Directors and the Audit Committee periodically ask our executives to discuss the most likely sources of material future risks and how we are addressing any significant potential vulnerability.

**Board Leadership Structure**

Our Board of Directors does not have a policy on whether the roles of Chief Executive Officer and Chairman of the Board of Directors should be separate and, if they are to be separate, whether the Chairman of the Board should be selected from the non-employee directors or be an employee. Our Board of Directors believes that it should be free to make a choice from time to time in any manner that is in the best interest of us and our stockholders. The Board of Directors believes that Mr. Ross's service as both Chief Executive Officer and Chairman of the Board is in the best interest of us and our stockholders. Mr. Ross possesses detailed and in-depth knowledge of the issues, opportunities and challenges we face and is thus best positioned to develop agendas, with the input of Mr. Richie, the lead director, to ensure that the Board's time and attention are focused on the most critical matters. His combined role enables decisive leadership, ensures clear accountability, and enhances our ability to communicate our message and strategy clearly and consistently to our stockholders, employees, customers, and suppliers, particularly during times of turbulent economic and industry conditions.

Our Board of Directors also believes that a lead director is part of an effective Board leadership structure. To this end, the Board has appointed Mr. Richie as the lead director. The independent directors meet regularly in executive sessions at which only they are present, and the lead director chairs those sessions. As the lead director, Mr. Richie calls meetings of the independent directors as needed; sets the agenda for meetings of the independent directors; presides at meetings of the independent directors; is the principal liaison on Board issues between the independent directors and the Chairman and between the independent directors and management; provides feedback to the Chairman and management on the quality, quantity and timeliness of information sent to the Board; is a member of the Compensation Committee that evaluates the CEO's performance; and oversees the directors' evaluation of the Board's overall performance. The Nominating and Governance Committee and the Board believe that its leadership structure, which includes the appointment of an independent lead director, is appropriate because it, among other things, provides for an independent director who gives board member leadership and each of the directors, other than Mr. Ross, is independent. Our Board of Directors believes that the independent directors provide effective oversight of management.

**Indemnification of Directors and Officers**

Under Nevada law, a corporation may include in its articles of incorporation a provision that eliminates or limits the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duties as a director, but no such provision may eliminate or limit the liability of a director (a) for any breach of his or her fiduciary duty as a director, (b) for acts or omissions not in good faith or that involve intentional misconduct, fraud or a knowing violation of law, (c) for conduct violating the NRS, or (d) for any transaction from which the director will personally receive a benefit in money, property or services to which the director is not legally entitled.

Section 78.7502 of the NRS provides, in general, that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, except an action by or in the right of the corporation, by reason of the fact that the person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses, including attorneys' fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by the person in connection with the action, suit or proceeding if the person acted in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe the conduct was unlawful.

NRS Section 78.4502 also provides, in general, that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that the person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses, including amounts paid in settlement and attorneys' fees actually and reasonably incurred by the person in connection with the defense or settlement of the action or suit if the person acted in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the corporation; provided, however, that indemnification may not be made for any claim, issue or matter as to which such a person has been adjudged by a court of competent jurisdiction, after exhaustion of all appeals therefrom, to be liable to the corporation or for amounts paid in settlement to the corporation, unless and only to the extent that the court in which the action or suit was brought or other court of competent jurisdiction determines upon application that in view of all the circumstances of the case, the person is fairly and reasonably entitled to indemnity for such expenses as the court deems proper.

Any indemnification pursuant to the above provisions may be made by the corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances. The determination must be made: (a) by the stockholders; (b) by the Board of Directors by majority vote of a quorum consisting of directors who were not parties to the action, suit or proceeding; (c) if a majority vote of a quorum consisting of directors who were not parties to the action, suit or proceeding so orders, by independent legal counsel in a written opinion; or (d) if a quorum consisting of directors who were not parties to the action, suit or proceeding cannot be obtained, by independent legal counsel in a written opinion.

Our Articles of Incorporation and Bylaws provide, among other things, that a director or officer of the corporation may be indemnified against expenses, liability, and loss (including attorneys' fees inclusive of any appeal), judgments, fines and amounts paid in settlement reasonably incurred by such person in connection with any claim, action, suit or proceeding, whether civil, criminal, or investigative, to the fullest extent permitted under the NGCL, unless it is ultimately determined by a court of competent jurisdiction that he is not entitled to be indemnified by the corporation. Directors and officers of the corporation cannot be personally liable for damages for breach of fiduciary duty, except (a) for acts of omissions involving intentional misconduct, fraud, or knowing violation of law, or (b) the payment of dividends in violation of Section 78.300 of the NRS.

Insofar as indemnification for liabilities arising under the Securities Act may be provided for directors, officers, employees, agents or persons controlling an issuer pursuant to the foregoing provisions, the opinion of the Securities and Exchange Commission (the "SEC") is that such indemnification is against public policy as expressed in the Securities Act, and is therefore unenforceable. In the event that a claim for indemnification by such director, officer or controlling person of us in the successful defense of any action, suit or proceeding is asserted by such director, officer or controlling person in connection with the securities being offered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by us is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

At the present time, there is no pending litigation or proceeding involving a director, officer, employee or other agent of ours in which indemnification would be required or permitted. We are not aware of any threatened litigation or proceeding, which may result in a claim for such indemnification.

The Placement Agent Agreement filed as Exhibit 1.1 to this registration statement provides for indemnification of us and our directors and officers by the Placement Agent against certain liabilities under the Securities Act of 1934 and the Exchange Act of 1934.

**Code of Ethics and Conduct**

Our Board of Directors has adopted a *Code of Ethics and Conduct* that is applicable to all of our employees, officers and directors. Our *Code of Ethics and Conduct* is intended to ensure that our employees, officers and directors act in accordance with the highest ethical standards. The *Code of Ethics and Conduct* is available on the Investor Relations page of our website at *http://www.digitalally.com* and the *Code of Ethics and Conduct* was filed as an exhibit to our Annual Report on Form 10-K filed on March 4, 2008.

**Compensation and Organization Committee Interlocks and Insider Participation**

None of our executive officers has served as a member of a compensation committee (or if no committee performs that function, the Board of Directors) of any other entity that has an executive officer serving as a member of our Board of Directors.

**Executive compensation**

The following table presents information concerning the total compensation of the Company's Chief Executive Officer ("CEO"), Chief Financial Officer ("CFO") and Chief Operating Officer ("COO") and collectively with the CEO and the CFO, the "Named Executive Officers") for services rendered to the Company in all capacities for the years ended December 31, 2022 and 2021, as required by Item 402(m)(2) of Regulation S-K.

**Summary Compensation Table**

---

| | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|
| **Name and Principal Position** | **Year** | **Salary ($)** | **Bonus ($)** | **Stock awards ($)** |  | **Option awards<br> ($) (1)** | **All other compensation ($) (2)** | **Total ($)** |
| Stanton E. Ross | 2021 | $250000 | $250000 | $828000 | (1)(3) | $– $| 30805 | $1358805 |
| Chairman, CEO and President | 2022 | $300000 | $100000 | $374500 | (6) | $– $| 32034 | $806534 |
| Thomas J. Heckman | 2021 | $230000 | $115000 | $414000 | (1)(4) | $– $| 23329 | $782329 |
| CFO, Treasurer and Secretary | 2022 | $120000 | $— | $80250 | (7) | $– $| 16292 | $216542 |
| Peng Han (9) | 2021 | $165000 | $— | $63000 | (1)(5) | $– $| 5428 | $233428 |
| COO | 2022 | $250000 | $— | $107000 | (8) | $– $| 10576 | $367576 |

---

(1) Represents aggregate grant date fair value pursuant to ASC Topic 718 for the respective year for stock options granted.

(2) Amounts included in all other compensation include the following items: the employer contribution to the Company's 401(k) Retirement Savings Plan (the "401(k) Plan") on behalf of the named executive. We are required to provide a 100% matching contribution for all who elect to contribute up to 3% of their compensation to the plan and a 50% matching contribution for all employees' elective deferral between 4% and 5%. The employee (i) is 100% vested at all times in the employee contributions and employer matching contributions; (ii) receives Company paid healthcare insurance; (iii) receives Company paid contributions to health savings accounts; and (iv) receives Company paid life, accident and disability insurance. See "All Other Compensation Table" below.

(3) Stock awards include the following restricted stock granted during 2021 to Mr. Ross: 15,000 shares at $55.20 per share that vest 50% on January 6, 2022 and 50% on January 6, 2023, subject to Mr. Ross remaining an employee of the Company at that point in time.

(4) Stock awards include the following restricted stock granted during 2021 to Mr. Heckman: 7,500 shares at $55.20 per share that vest 50% on January 6, 2022 and 50% on January 6, 2023, subject to Mr. Heckman remaining an employee of the Company at that point in time.

(5) Stock awards include the following restricted stock granted during 2021 to Mr. Han: 2,500 shares at $25.20 per share that vest ratably over the two-year period ending September 20, 2023.

(6) Stock awards include the following restricted stock granted during 2022 to Mr. Ross: 17,500 shares at $21.40 per share that vest 50% on January 7, 2023 and 50% on January 7, 2024, subject to Mr. Ross remaining an employee of the Company at that point in time.

(7) Stock awards include the following restricted stock granted during 2022 to Mr. Heckman: 3,750 shares at $21.40 per share that on January 7, 2023, subject to Mr. Heckman remaining an employee of the Company at that point in time.

(8) Stock awards include the following restricted stock granted during 2022 to Mr. Han: 5,000 shares at $21.40 per share that vest 20% annually on the anniversary of January 7 from 2023 to 2027, subject to Mr. Han remaining an employee of the Company at that point in time.

(9) Mr. Han was appointed Chief Operating Officer on December 13, 2021, thus Mr. Han's 2021 compensation was set by management prior to his appointment as a named executive officer of the Company.

**All Other Compensation Table**

---

| | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|
| **Name and Principal Position** | **Year** | **401(k) Plan**<br> **contribution**<br> **by**<br> **Company** | **Company**<br> **paid**<br> **healthcare**<br> **insurance** | **Flexible &**<br> **health**<br> **savings**<br> **account**<br> **contributions**<br> **by Company** | **Company**<br> **paid life,**<br> **accident**<br> **&**<br> **disability**<br> **insurance** | **Other**<br> **Contractual**<br> **payments** | **Total**<br> **($)** |
| Stanton E. Ross | 2021 | $8606 | $20556 | $1100 | $543 | $– $| 30805 |
| Chairman, CEO and President | 2022 | $10039 | $20319 | $1100 | $576 | $– $| 32034 |
| Thomas J. Heckman | 2021 | $9138 | $12848 | $800 | $543 | $– $| 23329 |
| CFO, Treasurer and Secretary | 2022 | $4800 | $10021 | $895 | $576 | $– $| 16292 |
| Peng Han (9) | 2021 | $4885 | $- | $- | $543 | $– $| 5428 |
| COO | 2022 | $10000 | $- | $- | $576 | $– $| 10576 |

---

***Compensation Policy.*** Our executive compensation plan is based on attracting and retaining qualified professionals who possess the skills and leadership necessary to enable us to achieve earnings and profitability growth to satisfy its stockholders. We must, therefore, create incentives for these executives to achieve both our and individual performance objectives using performance-based compensation programs. No one component is considered by itself, but all forms of the compensation package are considered in total. Wherever possible, objective measurements will be utilized to quantify performance, but many subjective factors still come into play when determining performance.

***Compensation Components.*** The main elements of its compensation package consist of base salary, stock options or restricted stock awards and bonus.

***Base Salary.*** The base salary for each executive officer is reviewed and compared to the prior year, with considerations given for increase or decrease. The review is generally on an annual basis but may take place more often in the discretion of the Compensation Committee.

On January 7, 2021, the Compensation Committee restored the annual base salaries of Stanton E. Ross, President and Chief Executive Officer, Thomas J. Heckman, Chief Financial Officer, Treasurer and Secretary, at $250,000 and $230,000, respectively for 2021.

The Compensation Committee plans to review the base salaries for possible adjustments on an annual basis. Base salary adjustments will be based on both individual and our performances and will include both objective and subjective criteria specific to each executive's role and responsibility with us.

***Stock Options and Restricted Stock Awards.*** The Compensation Committee determined stock option and restricted stock awards based on numerous factors, some of which include responsibilities incumbent with the role of each executive with us, tenure with us, as well as our performance. The vesting period of options and restricted stock is also tied, in some instances, to our performance directly related to certain executive's responsibilities with us. The Compensation Committee determined that Messrs. Ross and Heckman were eligible for awards of stock options or restricted stock in 2021 based on their performance. Refer to the "Grants of Plan-Based Awards" table below for restricted stock awards made in 2021. The Committee also determined that Messrs. Ross, Heckman, and Han would be eligible in 2022 for awards of restricted stock or stock options.

***Bonuses.*** The Compensation Committee determined to award bonuses to each of the executive officers in 2022 and 2021, as set forth in the foregoing table. Refer to the "Summary Compensation Table" above for the bonuses paid to Messrs. Ross and Heckman in 2021 and 2020. In fiscal 2021, Messrs. Ross and Heckman were eligible for bonuses of up to $250,000 and $230,000, respectively. Mr. Ross was awarded his full 2021 bonus of $250,000. The Compensation Committee reviews each executive officer's performance on a quarterly basis and determines what, if any, portion of the bonus he has earned and will be paid as of such point.

***Other.*** In July 2008, we amended and restated our 401(k) Plan. The amended 401(k) Plan requires us to provide a 100% matching contribution for employees who elect to contribute up to 3% of their compensation to the plan and a 50% matching contribution for employees' elective deferrals between 4% and 5%. We have made matching contributions for executives who elected to contribute to the 401(k) Plan during 2021. Each participant is 100% vested at all times in employee and employer matching contributions. As of December 31, 2021, a total of 12,324 shares of our Common Stock were held in the 401(k) Plan. Mr. Heckman, as trustee of the 401(k) Plan, holds the voting power as to the shares of our Common Stock held in the 401(k) Plan. We have no profit sharing plan in place for our employees. However, we may consider adding such a plan to provide yet another level of compensation to our compensation plan.

The following table presents information concerning the grants of plan-based awards to the Named Executive Officers during the year ended December 31, 2022:

**Grant of Plan-Based Awards**

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
| **Name** | **Grant date** | **Date**<br> **approved by**<br> **Compensation**<br> **Committee** | **All other stock**<br> **awards: Number**<br> **of shares of stock**<br> **or units:<br> (#) (1)**<br> **(2)(3)** |  | **Exercise or base**<br> **price of option**<br> **awards**<br> **($/Share)** | **Grant date fair**<br> **value of stock**<br> **awards ($) (4)** |
| Stanton E. Ross |  |  |  |  |  |  |
| Chairman, CEO and President | January 7, 2022 | January 7, 2022 | 17500 | (1) | $21.40 | $374500 |
| Thomas J. Heckman |  |  |  |  |  |  |
| CFO, Treasurer and Secretary | January 7, 2022 | January 7, 2022 | 3750 | (2) | $21.40 | $80250 |
| Peng Han |  |  |  |  |  |  |
| COO | January 7, 2022 | January 7, 2022 | 5000 | (3) | $21.40 | $107000 |

---

(1) These restricted stock awards were made under the Digital Ally, Inc. Stock Option and Restricted Stock Plans and vest over a two-year period (50% on January 7, 2023 and 50% on January 7, 2024) contingent upon whether the individual is still employed by us at that point.

(2) These restricted stock awards were made under the Digital Ally, Inc. Stock Option and Restricted Stock Plans and vest over a one-year period contingent upon whether the individual is still employed by us at that point.

(3) These restricted stock awards were made under the Digital Ally, Inc. Stock Option and Restricted Stock Plans and vest over a five-year period (20% on each anniversary of January 7 from 2023 to 2027) contingent upon whether the individual is still employed by us at that point.

(4) Stock awards noted represent the aggregate amount of grant date fair value as determined under ASC Topic 718.

**Employment Contracts; Termination of Employment and Change-in-Control Arrangements**

We do not have any employment agreements with any of our executive officers. However, on December 23, 2008, we entered into retention agreements with the following executive officers: Stanton E. Ross and Thomas J. Heckman. In April 2018 we amended these agreements.

**Retention Agreements - Potential Payments upon Termination or Change of Control**

The following table sets forth for each named executive officer potential post-employment payments and payments on a change in control and assumes that the triggering event took place on January 1, 2023 and that the amendments to the retention agreements of each person were in effect.

**Retention Agreement Compensation**

---

| | | | |
|:---|:---|:---|:---|
| **Name** | **Change in control**<br> **payment due based**<br> **upon successful**<br> **completion of**<br> **transaction** | **Severance payment**<br> **due based on**<br> **termination after**<br> **Change of**<br> **Control occurs** | **Total** |
| Stanton E. Ross | $125000 | $500000 | $625000 |
| Thomas J. Heckman | $115000 | $460000 | $575000 |
| Total | $240000 | $960000 | $1200000 |

---

The retention agreements guarantee the executive officers' specific payments and benefits upon a Change in Control of the Company. The retention agreements also provide for specified severance benefits if, after a Change in Control of the Company occurs, the executive officer voluntarily terminates employment for "Good Reason" or is involuntarily terminated without "Cause."

Under the retention agreements, a "Change in Control" means (i) one party alone, or acting with others, has acquired or gained control over more than 50% of the voting shares of the Company; (ii) the Company merges or consolidates with or into another entity or completes any other corporate reorganization, if more than 50% of the combined voting power of the surviving entity's securities outstanding immediately after such merger, consolidation or other reorganization is owned by persons who were not stockholders of the Company immediately prior to such merger, consolidation or other reorganization; (iii) a majority of the Board of Directors is replaced and/or dismissed by the stockholders of the Company without the recommendation of or nomination by the Company's current Board of Directors; (iv) the Company's Chief Executive Officer (the "CEO") is replaced and/or dismissed by stockholders without the approval of the Board of Directors; or (v) the Company sells, transfers or otherwise disposes of all or substantially all of the consolidated assets of the Company and the Company does not own stock in the purchaser or purchasers having more than 50% of the voting power of the entity owning all or substantially all of the consolidated assets of the Company after such purchase.

"Good Reason" means either (i) a material adverse change in the executive's status as an executive or other key employee of the Company, including without limitation, a material adverse change in the executive's position, authority, or aggregate duties or responsibilities; (ii) any adverse change in the executive's base salary, target bonus or benefits; or (iii) a request by the Company to materially change the executive's geographic work location.

"Cause" means (i) the executive has acted in bad faith and to the detriment of the Company; (ii) the executive has refused or failed to act in accordance with any specific lawful and material direction or order of his or her supervisor; (iii) the executive has exhibited, in regard to employment, unfitness or unavailability for service, misconduct, dishonesty, habitual neglect, incompetence, or has committed an act of embezzlement, fraud or theft with respect to the property of the Company; (iv) the executive has abused alcohol or drugs on the job or in a manner that affects the executive's job performance; and/or (v) the executive has been found guilty of or has plead nolo contendere to the commission of a crime involving dishonesty, breach of trust, or physical or emotional harm to any person. Prior to termination for Cause, the Company shall give the executive written notice of the reason for such potential termination and provide the executive a 30-day period to cure such conduct or act or omission alleged to provide grounds for such termination.

If any Change in Control occurs and the executive continues to be employed as of the completion of such Change in Control, upon completion of such Change in Control, as payment for the executive's additional efforts during such Change in Control, the Company shall pay the executive a Change in Control benefit payment equal to three months of the his base salary at the rate in effect immediately prior to the Change in Control completion date, payable in a lump sum net of required tax withholdings. If any Change in Control occurs, and if, during the one-year period following the Change in Control, the Company terminates the executive's employment without Cause or the executive submits a resignation for Good Reason (the effective date of such termination or resignation, the "Termination Date"), then:

&nbsp;&nbsp;&nbsp;&nbsp;a) The
 Company shall pay the executive severance pay equal to 12 months of his base salary at the
 higher of the rate in effect immediately prior to the Termination Date or the rate in effect
 immediately prior to the occurrence of the event or events constituting Good Reason, payable
 on the Termination Date in a lump sum net of required tax withholdings, plus all other amounts
 then payable by the Company to the executive less any amounts then due and owing from the
 executive to the Company;

&nbsp;&nbsp;&nbsp;&nbsp;b) The
 Company shall provide continuation of the executive's health benefits at the Company's
 expense for 18 months following the Termination Date; and

&nbsp;&nbsp;&nbsp;&nbsp;c) The
 executive's outstanding employee stock options shall fully vest and be exercisable
 for a 90-day period following the Termination Date.

The executive is not entitled to the above severance benefits for a termination based on death or disability, resignation without Good Reason or termination for Cause. Following the Termination Date, the Company shall also pay the executive all reimbursements for expenses in accordance with the Company' policies, within ten days of submission of appropriate evidence thereof by the executive.

The following table presents information concerning the outstanding equity awards for the Named Executive Officers as of December 31, 2022:

**Outstanding Equity Awards at Fiscal Year-End**

---

| | | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|
| | **Option Awards** | **Option Awards** | **Option Awards** | **Option Awards** | | **Stock Awards** | **Stock Awards** | **Stock Awards** | **Stock Awards** |
| <br>**Name** | **Number of**<br> **securities**<br> **underlying**<br> **unexercised**<br> **options (#)**<br> **exercisable**<br> **(1)** | **Number of**<br> **securities**<br> **underlying**<br> **unexercised**<br> **options (#)**<br> **unexercisable** | **Equity**<br> **incentive**<br> **plan**<br> **awards:**<br> **Number of**<br> **securities**<br> **underlying**<br> **unexercised**<br> **unearned**<br> **options (#)** | **Option**<br> **exercise**<br> **price**<br> **($)** |<br>**Option**<br> **expiration**<br> **date** | **Number**<br> **of**<br> **shares**<br> **or units**<br> **of stock**<br> **that**<br> **have**<br> **not**<br> **vested**<br> **(1)** | **Market**<br> **value**<br> **of**<br> **shares**<br> **or**<br> **units of**<br> **stock**<br> **that**<br> **have**<br> **not**<br> **vested**<br> **(2)** | **Equity**<br> **incentive**<br> **plan**<br> **awards:**<br> **Number**<br> **of**<br> **unearned**<br> **shares,**<br> **units or**<br> **other**<br> **rights**<br> **that have**<br> **not**<br> **vested** | **Equity**<br> **incentive**<br> **plan**<br> **awards:**<br> **Market**<br> **or**<br> **Payout**<br> **value of**<br> **unearned**<br> **shares,**<br> **units or**<br> **other**<br> **rights**<br> **that have**<br> **not**<br> **vested** |
| Stanton E. Ross |  |  |  |  |  |  |  |  |  |
| Chairman, CEO and President |  |  |  |  |  | 25000 | $115000 |  | $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;- |
| Thomas J. Heckman |  |  |  |  |  |  |  |  |  |
| CFO, Treasurer and Secretary |  |  |  |  |  | 7500 | $34500 |  | $- |
| Peng Han (9) |  |  |  |  |  |  |  |  |  |
| COO |  |  |  |  |  | 6250 | $28750 |  | $- |

---

(1) These stock option and restricted stock awards were made under the Digital Ally, Inc. Stock Option and Restricted Stock Plans and vest over the prescribed period contingent upon whether the individual is still employed by the Company at that point.

(2) Market value based upon the closing market price of $4.60 on December 31, 2022.

The following table presents information concerning the stock options exercised and the vesting of restricted stock awards during 2021 for the Named Executive Officers for the year ended December 31, 2022:

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | **Option Exercises and Restricted Stock Vested** | **Option Exercises and Restricted Stock Vested** | **Option Exercises and Restricted Stock Vested** | **Option Exercises and Restricted Stock Vested** |  |
|  | **Option Awards** | **Option Awards** | **Stock Awards** | **Stock Awards** |  |
|  | **Number of Shares acquired realized on exercise (#)** | **Value realized**<br> **on exercise ($)** | **Number of**<br> **Shares**<br> **acquired on**<br> **vesting (#)** | **Value on**<br> **vesting ($)** |  |
| Stanton E. Ross |  |  |  |  |  |
| Chairman, CEO and President |  | $- | 7500 | $160500 | (1) |
| Thomas J. Heckman |  |  |  |  |  |
| CFO, Treasurer and Secretary |  | $- | 3750 | $80250 | (1) |
| Peng Han |  |  |  |  |  |
| COO | 331 | $28520 | 1250 | $15000 | (2) |

---

&nbsp;&nbsp;&nbsp;&nbsp;(1) Based on the closing market
 price of our Common Stock of $21.40 on January 7, 2022, the date of vesting for 7,500 shares of Common Stock for Mr.
 Ross, and 3,750 shares of Common Stock for Mr. Heckman.

(2) Based on the closing market
 price of our Common Stock of $12.00 on September 20, 2022, the date of vesting for 1,250 shares of Common Stock for
 Mr. Han.

The number of stock options and restricted stock awards that an employee, director, or consultant may receive under our Plans (defined below under "Information Regarding Plans and Other Arrangements Not Subject to Security Holder Action") is in the discretion of the administrator and therefore cannot be determined in advance. The Board of Directors' policy in 2022 was to grant officers an award of 17,500 restricted shares of Common Stock to our CEO/President and 3,750 restricted shares of Common Stock to our CFO/Treasurer and each non-employee director an award of options to purchase 5,000 shares of Common Stock, all subject to vesting requirements.

The following table sets forth (a) the aggregate number of shares of Common Stock subject to options granted under the Plans during the year ended December 31, 2022 and (b) the average per share exercise price of such options.

**Stock Options and Restricted Stock Grants**

---

| | | | |
|:---|:---|:---|:---|
| **Name of Individual or Group** | **Number of Restricted**<br> **Shares of Common**<br> **Stock Granted** | **Number of**<br> **Options**<br> **Granted** | **Average per**<br> **Share Exercise**<br> **Price** |
| Stanton E. Ross, Chairman of the Board of Directors, CEO & President | 17500 | – $|  |
| Leroy C. Richie, Director |  | – $|  |
| Daniel F. Hutchins, Director |  | – $|  |
| Michael J. Caulfield, Director |  | – $|  |
| Thomas J. Heckman, Vice President, CFO, Treasurer & Secretary | 3750 | – $|  |
| Peng Han | 5000 | – $|  |
| All executive officers, as a group | 26250 | – $|  |
| All directors who are not executive officers, as a group |  | – $|  |
| All employees who are not executive officers, as a group | 5500 | – $|  |

---

**Director Compensation**

Our non-employee directors received the stock option grants noted in the "Director Compensation" table below for their service on the Board of Directors in 2022, including on the Audit, Nominating and Governance, and Compensation Committees.

**Director compensation for the year ended December 31, 2022 was as follows:**

---

| | | | | |
|:---|:---|:---|:---|:---|
| **Name** | **Fees earned or paid in cash ($)** | **Stock awards** | **Option Awards** | **Total** |
| Stanton E. Ross, Chairman of the Board of Directors | $- | $– $|  | $- |
| Leroy C. Richie, Director | $95000 | $– $| 167000 | $262000 |
| Daniel F. Hutchins, Director | $90000 | $– $| 167000 | $257000 |
| Michael J. Caulfield, Director | $82500 | $– $| 167000 | $249500 |

---

**Stock Option and Restricted Stock Grants to Directors**

---

| | | | |
|:---|:---|:---|:---|
| **Name** | **Number of Restricted Shares of Common Stock Granted** | **Number of Options Granted** | **Average per Share Exercise Price** |
| Stanton E. Ross, Chairman of the Board of Directors | – |  | $- |
| Leroy C. Richie, Director | – | 5000 | $33.40 |
| Daniel F. Hutchins, Director | – | 5000 | $33.40 |
| Michael J. Caulfield, Director | – | 5000 | $33.40 |

---

**Outstanding Stock Options Held by Directors**

The following table presents information concerning the outstanding equity awards for the Directors as of December 31, 2022:

**Outstanding Equity Awards at Fiscal Year-End**

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
| **Name** | **Number of securities underlying unexercised options (#) exercisable** | **Number of securities underlying unexercised options (#) unexercisable** | **Equity incentive plan awards: Number of securities underlying unexercised unearned** <br> **options (#)**  | **Option exercise price<br> ($)** | **Option <br> expiration date** |
| Stanton E. Ross Chairman, CEO and President |  | – |  | $— |  |
| Leroy C. Richie Lead Outside Director | 5000 | – |  | $33.40 | 7/8/2031 |
|  | 3750 | – |  | $41.80 | 5/1/2030 |
|  | 3000 | – |  | $60.20 | 5/24/2029 |
|  | 2500 | – |  | $44.00 | 7/5/2028 |
|  | 1500 | – |  | $60.00 | 8/14/2027 |
|  | 500 | – |  | $78.40 | 5/11/2026 |
| Daniel F. Hutchins Director | 5000 | – |  | $33.40 | 7/8/2031 |
|  | 3750 | – |  | $41.80 | 5/1/2030 |
|  | 3000 | – |  | $60.20 | 5/24/2029 |
|  | 2500 | – |  | $44.00 | 7/5/2028 |
|  | 1500 | – |  | $60.00 | 8/14/2027 |
|  | 500 | – |  | $78.40 | 5/11/2026 |
| Michael J. Caulfield Director | 5000 | – |  | $33.40 | 7/8/2031 |
|  | 3750 | – |  | $41.80 | 5/1/2030 |
|  | 3000 | – |  | $60.20 | 5/24/2029 |
|  | 2500 | – |  | $44.00 | 7/5/2028 |
|  | 1500 | – |  | $60.00 | 8/14/2027 |
|  | 500 | – |  | $78.40 | 5/11/2026 |

---

**DIVIDEND POLICY**

To date, we have not declared or paid cash dividends on our shares of Common Stock. The holders of our Common Stock will be entitled to non-cumulative dividends on the shares of Common Stock, when and as declared by our Board in its discretion. We intend to retain all future earnings, if any, for our business and do not anticipate paying cash dividends in the foreseeable future. Any future determination to pay cash dividends will be at the discretion of our Board and will be dependent upon our financial condition, results of operations, capital requirements, general business conditions and such other factors as our Board may deem relevant.

**CAPITALIZATION**

The following table sets forth our consolidated cash and cash equivalents and capitalization as of September 30, 2022:

● on an actual basis;

● on an adjusted basis after giving effect to (i) the receipt of net cash proceeds of approximately $15,000,000 from our private placement of Series A Convertible Redeemable Preferred Stock and Series B Convertible Redeemable Preferred Stock, which closed on October 19, 2022, (ii) redemption of all shares of Series A Convertible Redeemable Preferred Stock and Series B Convertible Redeemable Preferred Stock at a price per share equal to 105% of the stated value of each such Preferred Stock on December 7, 2022, (iii) the increase in the number of authorized shares of our Common Stock from 100,000,000 shares to 200,000,000 shares, upon filing of a certificate of amendment to our articles of incorporation with the Secretary of State of the State of Nevada on December 8, 2022, and (iv) the Reverse Stock Split; and

● on an as further adjusted basis to give effect to the transactions described above and the sale of 1,342,282 Units and 1,342,282 Pre-Funded Units in this offering, after deducting commissions and estimated offering expenses payable by us, and assuming no exercise of any Warrants or Pre-Funded Warrants.

You should read the following table in conjunction with the sections entitled "Use of Proceeds" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this prospectus and our unaudited consolidated financial statements and related notes included elsewhere in this prospectus.

---

| | | | |
|:---|:---|:---|:---|
|  | **As of September 30, 2022** | **As of September 30, 2022** | **As of September 30, 2022** |
|  | **Actual (unaudited)** | **As Adjusted** | **As further Adjusted** |
| Cash and cash equivalents | $6295391 | $3910391 | $11910391 |
| Liabilities: |  |  |  |
| Current liabilities | $13935052 | $13935052 | $13935052 |
| &nbsp;&nbsp;&nbsp; Total liabilities | $20352356 | $20352356 | $20352356 |
| Stockholders' equity: |  |  |  |
| &nbsp;&nbsp;&nbsp; Common stock, $0.001 par value per share; 100,000,000 shares authorized and 53,903,405 shares issued and outstanding – actual; 200,000,000 shares authorized, 2,695,170 shares issued and outstanding – as adjusted; and 200,000,000 shares authorized, 2,755,169 shares issued and outstanding – as further adjusted | $53903 | $2755 | $4097 |
| &nbsp;&nbsp;&nbsp; Additional paid-in capital | $129943238 | $127610586 | $134924244 |
| &nbsp;&nbsp;&nbsp; Noncontrolling interest in consolidated subsidiary | $309397 | $309397 | $309397 |
| &nbsp;&nbsp;&nbsp; Accumulated deficit | $(82261430) | $(82261430) | $(82261430) |
| Total stockholders' equity | $48045108 | $45661308 | $52976308 |
| **Total liabilities and stockholders' equity** | $68397464 | $66013664 | $73328664 |

---

**Certain relations and related person transactions**

We engaged in no reportable transactions with related persons since the year ended December 31, 2020 that involved an amount that exceeds the lesser of $120,000 or one percent of the average of the Company's total assets at year-end for the last two completed fiscal years, other than the following:

During February and April 2020, the Company borrowed a total of $319,000 from Mr. Ross, the Company's Chairman, CEO & President under an unsecured promissory note bearing interest at 6% through its May 28, 2020 maturity date. The proceeds from the note were used for general corporate purposes. The principal balance and related accrued interest were paid in full during the nine months ended September 30, 2020. Total interest accrued and paid on this note was $5,236.

On October 1, 2020, the Company advanced $250,000 to American Rebel Holdings, Inc. ("AREB") under a secured promissory note. The CEO, President and Chairman of AREB is the brother of the Company's CEO, President and Chairman. Such note bears interest at 8% and is secured by all the tangible and intangible assets of the Company that are not currently secured by other indebtedness. The Company also received warrants to purchase 1,250,000 shares of AREB common stock at an exercise price of $0.10 per share with a five-year term. This note had an original maturity date of January 2, 2021; however, additional provisions within the note provided for an extension of the maturity date for fourteen months due to AREB's failure to raise $300,000 in new debt or equity financing prior to the original maturity date. Upon this extension, the AREB was obligated to make equal monthly payments of principal and interest over the extended period of the note.

On October 21, 2020, the Company advanced $250,000 to AREB under a second secured promissory note. Such note bears interest at 8% and is secured by inventory manufactured and revenue/accounts receivable derived from a specific purchase order. The Company also received warrants to purchase 1,250,000 shares of AREB common stock at an exercise price of $0.10 per share with a five-year term. This note has a maturity date of April 21, 2021, subject to full repayment upon AREB closing on debt or equity financings of at least $600,000, and the receipt of revenue from the sale of inventory sold under the specific purchase order serving as collateral. On March 1, 2021, the Company advanced an additional $117,600 to AREB on terms similar to the previously issued notes.

On April 21, 2021, the parties agreed to the terms of a Debt Settlement Agreement and Mutual Release regarding the following: (a) the secured promissory note dated October 1, 2020; (b) the secured promissory note dated October 21, 2020; and (c) an advance made by the Company on March 1, 2021. The parties arranged for a lump sum payment aggregating $639,956 to liquidate all outstanding debt including accrued interest for the two delinquent notes and the advance which lump-sum payment was made on April 21, 2021. No gain or loss was determined on this transaction.

On January 27, 2022, the Board of Directors appointed Christian J. Hoffmann, III as a member of the Board, effective immediately. Mr. Hoffmann is a principal owner and manager of Nobility, LLC which is currently the managing member of our consolidated subsidiary Nobility Healthcare, LLC.

Nobility, LLC is currently the managing member of Nobility Healthcare, LLC. The Company has advanced a total of $158,384 in the form of a working capital loan to Nobility, LLC in order to fund capital expenditures necessary for the initial growth of the joint venture during 2021. The outstanding balance of the working capital loan was $138,384 as of September 30, 2022 and the Company anticipates full repayment of this advance during the year ended December 31, 2022. During the nine months ended September 30, 2022, the Company paid distributions to the noncontrolling in consolidated subsidiary totaling $15,692.

On August 1, 2022, Mr. Hoffmann resigned as a member of the Board, effective immediately. He remains as a principal owner and manager of Nobility, LLC which is currently the managing member of our consolidated subsidiary Nobility Healthcare, LLC.

**DESCRIPTION OF THE SECURITIES WE ARE OFFERING**

We are offering up to 1,342,282 Units, with each Unit consisting of one share of our Common Stock and a Warrant to purchase one share of our Common Stock at an exercise price equal to $ per share; and up to 1,342,281 Pre-Funded Units, with each Pre-Funded Unit consisting of a Pre-Funded Warrant to purchase one share of our Common Stock at an exercise price equal to $0.001 per Pre-Funded Warrant, and a Warrant. The Units and Pre-Funded Units have no stand-alone rights and will not be certificated or issued as stand-alone securities. The shares of our Common Stock included in the Units will be issued separately from the Warrants included in the Units and the Pre-Funded Warrants included in the Pre-Funded Units will be issued separately from the Warrants included in the Pre-Funded Units. We are also registering the shares of our Common Stock issuable from time to time upon exercise of the Warrants and Pre-Funded Warrants offered hereby. The following descriptions of our Common Stock, Pre-Funded Warrants and Warrants and certain provisions of our Articles of Incorporation, our by-laws and Nevada law are summaries. You should also refer to our Articles of Incorporation, by-laws, form of Warrant and form of Pre-Funded Warrant, which are filed as exhibits to the registration statement of which this prospectus is part.

**Common Stock**

The material terms of our Common Stock are described under the caption "Description of Capital Stock" in this prospectus.

**Warrants**

*Exercisability. The Warrants are exercisable at any time after their original issuance and at any time up to the date that is five years after their original issuance. The Warrants will be exercisable, at the option of each holder, in whole or in part by delivering to us a duly executed exercise notice and, at any time a registration statement registering the issuance of the Common Stock underlying the warrants under the Securities Act is effective and available for the issuance of such shares, by payment in full in immediately available funds for the number of shares of Common Stock purchased upon such exercise. If a registration statement registering the issuance of the Common Stock underlying the Warrants under the Securities Act is not effective or available the holder may, in its sole discretion, elect to exercise the Warrant through a cashless exercise, in which case the holder would receive upon such exercise the net number of shares of Common Stock determined according to the formula set forth in the Warrant. No fractional shares will be issued in connection with the exercise of a Warrant. In lieu of fractional shares, we will pay the holder an amount in cash equal to the fractional amount multiplied by the exercise price.* 

 *Exercise Limitation*. A holder will not have the right to exercise any portion of the warrant if the holder (together with its affiliates) would beneficially own in excess of 4.99% of the number of shares of our Common Stock outstanding immediately after giving effect to the exercise, as such percentage ownership is determined in accordance with the terms of the Warrants. However, any holder may increase or decrease such percentage to any other percentage not in excess of 9.99%, provided that any increase in such percentage shall not be effective until 61 days following notice from the holder to us.

Exercise Price. The exercise price per whole share of our Common Stock purchasable upon exercise of the Warrants is $ per Warrant. The exercise price is subject to appropriate adjustment in the event of certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting our Common Stock and also upon any distributions of assets, including cash, stock or other property to our stockholders.

 *Transferability*. Subject to applicable laws, the Warrants may be offered for sale, sold, transferred or assigned without our consent.

 *No Listing*. There is no established public trading market for the Warrants and we do not expect a market to develop. In addition, we do not intend to apply for listing of the Warrants on any securities exchange or trading system. Without an active market, the liquidity of the Warrants will be limited.

*Fundamental* 

 *Transactions*. In the event of a "fundamental transaction," as defined in the Warrants and generally including any reorganization, recapitalization or reclassification of our Common Stock, the sale, transfer or other disposition of all or substantially all of our properties or assets, our consolidation or merger with or into another person, the acquisition of more than 50% of our outstanding Common Stock, or any person or group becoming the beneficial owner of 50% of the voting power represented by our outstanding Common Stock, the holders of the Warrants will be entitled to receive upon exercise of the Warrants the kind and amount of securities, cash or other property that the holders would have received had they exercised the Warrants immediately prior to such fundamental transaction.

 *Rights as a Stockholder.* Except as otherwise provided in the Warrants or by virtue of such holder's ownership of our Common Stock, the holder of a Warrant does not have the rights or privileges of a holder of our Common Stock, including any voting rights, until the holder exercises the Warrant.

Governing Law. The Warrants are governed by New York law.

***Pre-Funded Warrants***

 ****

The term "pre-funded" refers to the fact that the purchase price of our Common Stock in this offering includes almost the entire exercise price that will be paid under the Pre-Funded Warrants, except for a nominal remaining exercise price of $0.001. The purpose of the Pre-Funded Warrants is to enable investors that may have restrictions on their ability to beneficially own more than 4.99% (or, upon election of the holder, 9.99%) of our outstanding Common Stock following the consummation of this offering the opportunity to make an investment in the Company without triggering their ownership restrictions, by receiving Pre-Funded Warrants in lieu of our Common Stock which would result in such ownership of more than 4.99% (or 9.99%), and receive the ability to exercise their option to purchase the shares underlying the Pre-Funded Warrants at such nominal price at a later date.

*Exercise of Pre-Funded Warrants*. Each Pre-Funded Warrant is exercisable for one share of our Common Stock, with an exercise price equal to $0.001 per share, at any time that the Pre-Funded Warrant is outstanding. There is no expiration date for the Pre-Funded Warrants. The holder of a Pre-Funded Warrant will not be deemed a holder of our underlying Common Stock until the Pre-Funded Warrant is exercised.

*Exercise Limitation*. Subject to limited exceptions, a holder of Pre-Funded Warrants will not have the right to exercise any portion of its Pre-Funded Warrants if the holder (together with such holder's affiliates, and any persons acting as a group together with such holder or any of such holder's affiliates) would beneficially own a number of shares of Common Stock in excess of 4.99% (or, at the election of the purchaser prior to the date of issuance, 9.99%) of the Common Stock then outstanding after giving effect to such exercise.

*Exercise Price*. The exercise price and the number of shares of Common Stock issuable upon exercise of the Pre-Funded Warrants is subject to appropriate adjustment in the event of recapitalization events, stock dividends, stock splits, stock combinations, reclassifications, reorganizations or similar events affecting our Common Stock. The Pre-Funded Warrant holders must pay the exercise price in cash upon exercise of the Pre-Funded Warrants.

*Transferability*. Subject to applicable laws, the Pre-Funded Warrants may be offered for sale, sold, transferred or assigned without our consent.

*No Listing*. There is no established public trading market for the Pre-Funded Warrants and we do not expect a market to develop. In addition, we do not intend to apply for listing of the Pre-Funded Warrants on any securities exchange or trading system. Without an active market, the liquidity of the Pre-Funded Warrants will be limited.

*Fundamental Transactions.*

In the event of a "fundamental transaction," as defined in the Pre-Funded Warrants and generally including any reorganization, recapitalization or reclassification of our Common Stock, the sale, transfer or other disposition of all or substantially all of our properties or assets, our consolidation or merger with or into another person, the acquisition of more than 50% of our outstanding Common Stock, or any person or group becoming the beneficial owner of 50% of the voting power represented by our outstanding Common Stock, the holders of the Pre-Funded Warrants will be entitled to receive upon exercise of the Pre-Funded Warrants the kind and amount of securities, cash or other property that the holders would have received had they exercised the Pre-Funded Warrants immediately prior to such fundamental transaction.

*Rights as a Stockholder*. Prior to the exercise of any Pre-Funded Warrants to purchase Common Stock, holders of the Pre-Funded Warrants will not have any of the rights of holders of Common Stock purchasable upon exercise, including the right to vote, except as set forth therein.

*Governing Law*. The Pre-Funded Warrants are governed by New York law.

**PLAN OF DISTRIBUTION**

A.G.P./Alliance Global Partners, which we refer to herein as the placement agent, located at 590 Madison Ave 28th Floor, New York, NY 10022, has agreed to act as our exclusive placement agent in connection with this offering subject to the terms and conditions of the placement agency agreement dated , 2023. The placement agent is not purchasing or selling any of the securities offered by this prospectus, nor is it required to arrange the purchase or sale of any specific number or dollar amount of securities, but it has agreed to use its reasonable best efforts to arrange for the sale of all of the securities offered hereby. Therefore, we will enter into a securities purchase agreement directly with purchasers in connection with this offering and may not sell the entire amount of securities offered pursuant to this prospectus.

We will deliver the securities being issued to the investors upon receipt of investor funds for the purchase of the securities offered pursuant to this prospectus. We expect to deliver the shares of Common Stock, Pre-Funded Warrants and Warrants being offered pursuant to this prospectus on or about , 2023.

We have agreed to indemnify the placement agent and specified other persons against specified liabilities, including liabilities under the Securities Act and to contribute to payments the placement agent may be required to make in respect thereof.

**Fees and Expenses**

This offering is being conducted on a "reasonable best efforts" basis and the placement agent has no obligation to buy any of the securities from us or to arrange for the purchase or sale of any specific number or dollar amount of securities. We have agreed to pay the placement agent fees set forth in the table below.

---

| | | | |
|:---|:---|:---|:---|
|  | Per Unit  | Per Pre-Funded <br> Unit  | Total |
| Public offering price | $| $| $|
| Placement Agent Fees | $| $| $|
| Proceeds, before fees and expenses, to us<sup>(1)</sup> | $| $| $|

---

(1) Does not include proceeds from the exercise of the warrants in cash. if any.

We have agreed to pay to the placement agent a cash fee equal to 7.0% of the aggregate gross proceeds raised in this offering. Because there is no minimum offering amount required as a condition to closing in this offering, the actual aggregate cash placement fee, if any, is not presently determinable and may be substantially less than the maximum amount set forth above.

We estimate the total expenses payable by us for this offering to be approximately $942,500, which amount includes: (i) a placement agent's fee of $560,000 assuming the purchase of all of the securities we are offering; (ii) a non-accountable expense allowance payable to the placement agent of $85,000 ; (iii) reimbursement of the accountable expenses of the placement agent of up to $10,000 related to the legal fees of the placement agent being paid by us (none of which has been paid in advance); and (iv) other estimated expenses of approximately $287,500 which include our legal, accounting, and printing costs and various fees associated with the registration and listing of our securities.

The placement agent may be deemed to be an underwriter within the meaning of Section 2(a)(ii) of the Securities Act. and any commissions received by it and any profit realized on the resale of the shares sold by it while acting as principal might be deemed to be underwriting discounts or commissions under the Securities Act. As an underwriter, the placement agent would be required to comply with the requirements of the Securities Act and the Exchange Act, including, without limitation, Rule 4l5(a)(4) under the Securities Act and Rule I 06-5 and Regulation M under the Exchange Act. These rules and regulations may limit the timing of purchases and sales of securities by the placement agent acting as principal. Under these rules and regulations, the placement agent:

● may not engage in any stabilization activity in connection with our securities; and

● may not bid for or purchase any of our securities or attempt to induce any person to purchase any of our securities, other than as permitted under the Exchange Act, until it has completed its participation in the distribution.

**Lock-Up Agreements**

Our directors and officers will enter into lock-up agreements in connection with the closing of this offering. Under these agreements, these individuals have agreed, subject to specified exceptions, not to sell or transfer any shares of Common Stock or securities convertible into, or exchangeable or exercisable for, our shares of Common Stock during a period ending 90 days after the date of this prospectus, without first obtaining the written consent of the placement agent, subject to certain exceptions. Specifically, these individuals have agreed, in part, not to:

● offer, pledge, sell, contract to sell or otherwise dispose of Digital Ally's securities or any securities convertible into or exercisable or exchangeable for shares of Common Stock;

● enter into any swap or other arrangement that transfers to another. in whole or in part, any of the economic consequences of ownership of our securities, whether any such transaction is to be settled by delivery of our securities, in cash or otherwise;

● make any demand for or exercise any right with respect to the registration of any of our securities;<br>

● publicly disclose the intention to make any offer, sale, pledge or disposition of, or to enter into any transaction, swap, hedge, or other arrangement relating to any of our securities.

Notwithstanding these limitations, our securities may be transferred under limited circumstances, including, without limitation, by gift. will or intestate succession.

We have agreed with the placement agent to be subject to a lock-up period of 90 days following the date of closing of the offering pursuant to this prospectus. This means that, during the applicable lock-up period, subject to certain limited exceptions, including but not limited to the Spin-off, we may not, without the prior written consent of the placement agent: (i) issue, enter into any agreement to issue or announce the issuance or proposed issuance of any shares of Common Stock or Common Stock equivalents, or (ii) file any registration statement or amendment or supplement thereto, other than the prospectus, filing a registration statement on Form S-8 in connection with any equity incentive plan, or filing of a post-effective amendment to adopt the registration statements of Digital Ally, Inc., as predecessor of the Company, in connection with the short-form merger consummated by the Company on August 23, 2022. In addition, subject to certain exceptions, we have agreed to not issue any securities that are subject to a price reset based on the trading prices of our shares of Common Stock or upon a specified or contingent event in the future, or enter into any agreement to issue securities at a future determined price for a period of 180 days following the closing date of this offering.

**Determination of Offering Price**

The public offering price of the securities we are offering was negotiated between us and the investors, in consultation with the placement agent based on the trading of our shares of Common Stock prior to the offering, among other things. Other factors considered in determining the public offering price of the securities we are offering include our history and prospects, the industry in which we operate, our past and present operating results, the stage of development of our business, our business plans for the future and the extent to which they have been implemented, the previous experience of our executive officers, general conditions of the securities markets at the time of the offering and such other factors as were deemed relevant.

**Listing**

Our shares of Common Stock are listed on The Nasdaq Capital Market under the trading symbol "DGLY." We do not plan to list the Pre-Funded Warrants or Warrants on The Nasdaq Capital Market or any other securities exchange or trading market.

**Discretionary Accounts**

The placement agent does not intend to confirm sales of the securities offered hereby to any accounts over which it has discretionary authority.

**Other Activities and Relationships**

The placement agent and certain of its affiliates are full service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, investment research, principal investment, hedging, financing and brokerage activities. The placement agent and certain of its affiliates have, from time to time, performed, and may in the future perform, various commercial and investment banking and financial advisory services for us and our affiliates, for which they received or will receive customary fees and expenses.

In the ordinary course of their various business activities, the placement agent and certain of its affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the· accounts of their customers, and such investment and securities activities may involve securities and/or instruments issued by us and our affiliates. If the placement agent or its affiliates enter into a lending relationship with us, they will routinely hedge their credit exposure to us consistent with their customary risk management policies. The placement agent and its affiliates may hedge such exposure by entering into transactions that consist of either the purchase of credit default swaps or the creation of short positions in our securities or the securities of our affiliates, including potentially the Common Stock offered hereby. Any such short positions could adversely affect future trading prices of the Common Stock offered hereby. The placement agent and certain of its affiliates may also communicate independent investment recommendations, market color or trading ideas and/or publish or express independent research views in respect of such securities or instruments and may at any time hold, or recommend to clients that they acquire, long and/or short positions in such securities and instruments.

This prospectus in electronic format may be made available on a website maintained by the placement agent, and the placement agent may distribute this prospectus electronically.

The foregoing does not purport to be a complete statement of the terms and conditions of the placement agency agreement or the securities purchase agreement, copies of which are attached to the registration statement of which this prospectus is a part. See "Where You Can Find More Information".

**PRINCIPAL STOCKHOLDERS**

As of February 7, 2023, there was no person, entity or group known to the Company to be the beneficial owner of more than five percent (5%) of the outstanding shares of our Common Stock based on a review of publicly available statements of beneficial ownership filed with the SEC and Company records.

The following table sets forth the beneficial ownership of shares of our Common Stock as of February 7, 2023, and as adjusted to reflect the sale of the maximum amount of securities offered by us in this offering (assuming the exercise of all Pre-Funded Warrants and no exercise of Warrants), by (i) each current director and director nominee, (ii) each named executive officer and (iii) all current directors and executive officers as a group. The persons named in the table have sole voting and investment power with respect to all shares of our Common Stock shown as beneficially owned by them, subject to community property laws, where applicable. Percentage ownership is based on 2,755,170 shares of our Common Stock outstanding as of February 7, 2023. Shares underlying stock options or warrants exercisable within 60 days of February 7, 2023 are deemed outstanding for the purpose of computing the percentage ownership of the person or persons holding such options or warrants, but are not deemed outstanding for computing the percentage ownership of any other persons.

Except as otherwise indicated, the address of each of the persons in this table is c/o Digital Ally, Inc., 14001 Marshall Drive, Lenexa, Kansas 66215.

---

| | | | | |
|:---|:---|:---|:---|:---|
| | **Common Stock Beneficially Owned Prior to this Offering** | **Common Stock Beneficially Owned Prior to this Offering** | **Common Stock Beneficially Owned After this Offering** | **Common Stock Beneficially Owned After this Offering** |
| <br>**Name of Beneficial Owner<sup>(1)</sup>** | **Shares** | **%** | **Shares** | **%** |
| Stanton E. Ross<sup>(2)</sup> | 116065 | 4.2% | 116065 | 2.8% |
| Leroy C. Richie<sup>(3)</sup> | 18211 | \* | 18211 | \* |
| Daniel F. Hutchins<sup>(4)</sup> | 17885 | \* | 17885 | \* |
| Michael J. Caulfield<sup>(5)</sup> | 16393 | \* | 16393 | \* |
| Thomas J. Heckman<sup>(6)</sup> | 76687 | 2.8% | 76687 | 1.9% |
| Peng Han<sup>(7)</sup> | 13781 | \* | 13781 | \* |
| All directors and exec. officers as a group (6 persons) | 259022 | 9.4% | 259022 | 6.3% |

---

\* Represents less than 1%.

(1) Based on 2,755,170 shares of Common Stock issued and outstanding as of February 7, 2023 and, with respect only to the ownership by all executive officers and directors as a group.

(2) Mr. Ross's total shares of Common Stock include 26,250 restricted shares that are subject to forfeiture to us.

(3) Mr. Richie's total shares of Common Stock include 16,250 shares of Common Stock to be received upon the exercise of vested options.

(4) Mr. Hutchins' total shares of Common Stock include 16,250 shares of Common Stock to be received upon the exercise of vested options.

(5) Mr. Caulfield's total shares of Common Stock include 16,250 shares of Common Stock to be received upon the exercise of vested options.

(6) Mr. Heckman's total shares of Common Stock include (i) 3,750 restricted shares that are subject to forfeiture to us and (ii) 23,120 shares of Common Stock held in the Company's 401(k) Plan (on December 31, 2022) as to which Mr. Heckman has voting power as trustee of the 401(k) Plan.

(7) Mr. Han's total shares of Common Stock include (i) 10,250 restricted shares that are subject to forfeiture to us and (ii) 331 shares of Common Stock to be received upon the exercise of vested options.

**DESCRIPTION OF CAPITAL STOCK**

The following summary description sets forth some of the general terms and provisions of our capital stock. Because this is a summary description, it does not contain all of the information that may be important to you. For a more detailed description of our capital stock, you should refer to the applicable provisions of the Nevada Revised Statutes ("NRS") and our Articles of Incorporation and bylaws ("Bylaws") as in effect at the time of any offering. Copies of our Articles of Incorporation and our Bylaws are included as exhibits to the registration statement of which this prospectus forms a part.

**Our Authorized Capital Stock**

Under our Articles of Incorporation, we are authorized to issue 210,000,000 shares of capital stock consisting of (a) 200,000,000 shares of our Common Stock, par value $0.001 per share, and (b) 10,000,000 shares of "blank check" preferred stock, par value $0.001 per share. As of February 7, 2023, there were 2,755,170 shares of our Common Stock issued and outstanding and no shares of our preferred stock were issued and outstanding.

**Common Stock**

*Voting Rights*. Each share of our Common Stock entitles the owner to one vote. There is no cumulative voting. A simple majority can elect all of the directors at a given meeting, and the minority would not be able to elect any director at that meeting.

*Dividend Rights*. Each share of our Common Stock is entitled to receive an equal dividend, if one is declared. We cannot provide any assurance that we will declare or pay cash dividends on our Common Stock in the future. Any future determination to declare cash dividends will be made at the discretion of our Board, subject to applicable laws, and will depend on our financial condition, results of operations, capital requirements, general business conditions and other factors that our Board may deem relevant. Our Board may determine it to be necessary to retain future earnings (if any) to finance our growth. See "Risk Factors" and "Dividend Policy."

*Liquidation*. If the Company is liquidated, then assets that remain (if any) after the creditors are paid and the owners of any securities with liquidation preferences senior to the Common Stock are paid will be distributed to the owners of our Common Stock pro rata.

*Preemptive Rights*. Owners of our Common Stock have no preemptive rights. We may sell shares of our Common Stock to third parties without first offering such shares to current stockholders.

*Redemption Rights*. We do not have the right to buy back shares of our Common Stock except in extraordinary transactions, such as mergers and court approved bankruptcy reorganizations. Owners of our Common Stock do not ordinarily have the right to require us to buy their Common Stock. We do not have a sinking fund to provide assets for any buy back.

*Conversion Rights*. Shares of our Common Stock cannot be converted into any other kind of stock except in extraordinary transactions, such as mergers and court approved bankruptcy reorganizations.

*Nonassessability*. All outstanding shares of our Common Stock are fully paid and nonassessable.

*Listing*. Our Common Stock trades on Nasdaq under the symbol "DGLY."

**Preferred Stock**

Our Board is authorized to provide by resolution or resolutions from time to time for the issuance, out of the unissued shares of preferred stock, of one or more series of preferred stock, without stockholder approval, by filing a certificate pursuant to the applicable law of the State of Nevada (the "Preferred Stock Designation"), setting forth such resolution and, with respect to each such series, establishing the number of shares to be included in such series, and fixing the voting powers, full or limited, or no voting power of the shares of such series, and the designation, preferences and relative, participating, optional or other special rights, if any, of the shares of each such series and any qualifications, limitations or restrictions thereof. The powers, designation, preferences and relative, participating, optional and other special rights of each series of preferred stock, and the qualifications, limitations and restrictions thereof, if any, may differ from those of any and all other series at any time outstanding.

It is not possible to state the actual effect of any future series of preferred stock upon the rights of holders of the Common Stock because our Board has the power to determine the specific rights of the holders of any future series of preferred stock. Our Board's authority to issue preferred stock provides a convenient vehicle in connection with possible acquisitions and other corporate purposes, but could have the effect of making it more difficult for a third party to acquire a majority of our outstanding voting stock. Accordingly, the issuance of the preferred stock may be used as an "anti-takeover" device without further action on the part of our stockholders and may adversely affect the holders of the common stock.

**Options and Warrants**

As of February 7, 2023, there were outstanding Common Stock options entitling the holders to purchase 53,950 shares of Common Stock at a weighted average exercise price of $45.80 per share with a weighted average remaining contractual life of 6.7 years, and warrants entitling the holders to purchase up to 67,459 shares of Common Stock at a weighted average exercise price of $60.26 per share with a weighted average remaining contractual life of 0.2 years.

**Nevada Anti-Takeover Statutes**

Nevada law provides that an acquiring person who acquires a controlling interest in a corporation may only exercise the voting rights of control shares if those voting rights are conferred by a majority vote of the corporation's disinterested stockholders at a special meeting held upon the request of the acquiring person. If the acquiring person is accorded full voting rights and acquires control shares with at least a majority of all the voting power, then stockholders who did not vote in favor of authorizing voting rights for those control shares are entitled to payment for the fair value of such stockholders' shares. A "controlling interest" is an interest that is sufficient to enable the acquiring person to exercise at least one-fifth of the voting power of the corporation in the election of directors. "Control shares" are outstanding voting shares that an acquiring person or associated persons acquire or offer to acquire in an acquisition and those shares acquired during the 90-day period before the person involved became an acquiring person.

These provisions of Nevada law apply only to "issuing corporations" as defined therein. An "issuing corporation" is a Nevada corporation that (a) has 200 or more stockholders, with at least 100 of such stockholders being both stockholders of record and residents of Nevada, and (b) does business in Nevada directly or through an affiliated corporation. As of the date of this prospectus supplement, we do not have 100 stockholders of record that are residents of Nevada. Therefore, these provisions of Nevada law do not apply to acquisitions of our shares and will not so apply until such time as both of the foregoing conditions are satisfied. At such time as these provisions of Nevada law may apply to us, they may discourage companies or persons interested in acquiring a significant interest in or control of our company, regardless of whether such acquisition may be in the interest of our stockholders.

Nevada law also restricts the ability of a corporation to engage in any combination with an interested stockholder for three years from when the interested stockholder acquires shares that cause the stockholder to become an interested stockholder, unless the combination or purchase of shares by the interested stockholder is approved by the Board of Directors before the stockholder became an interested stockholder. If the combination was not previously approved, then the interested stockholder may only effect a combination after the three-year period if the stockholder receives approval from a majority of the disinterested shares or the offer satisfies certain fair price criteria.

An "interested stockholder" is a person who is:

● the beneficial owner, directly or indirectly, of 10% or more of the voting power of the outstanding voting shares of the corporation; or

● an affiliate or associate of the corporation and, at any time within three years immediately before the date in question, was the beneficial owner, directly or indirectly of 10% or more of the voting power of the then outstanding shares of the corporation.

Our Articles of Incorporation and Bylaws do not exclude us from these restrictions.

These provisions are intended to enhance the likelihood of continuity and stability in the composition of the Board of Directors and in the policies formulated by the Board of Directors and to discourage some types of transactions that may involve the actual or threatened change of control of our company. These provisions are designed to reduce our vulnerability to an unsolicited proposal for the potential restructuring or sale of all or a part of our company. However, these provisions could discourage potential acquisition proposals and could delay or prevent a change in control of our company. They also may have the effect of preventing changes in our management.

**Transfer Agent**

The transfer agent for our Common Stock is Securities Transfer Corporation, 2901 N. Dallas Parkway, Suite 380, Plano, Texas 75093.

**MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES**

The following is a general discussion of the material U.S. federal income tax considerations applicable to the ownership and disposition of shares of our Common Stock, Pre-Funded Warrants and Warrants acquired in this offering. This discussion is for general information only and is not tax advice. Accordingly, all prospective holders of our Common Stock and Warrants should consult their own tax advisors with respect to the U.S. federal, state, local and non-U.S. tax consequences of the purchase, ownership and disposition of our Common Stock and Warrants. This discussion is based on current provisions of the U.S. Internal Revenue Code of 1986, as amended, which we refer to as the Code, existing and proposed U.S. Treasury Regulations promulgated thereunder, current administrative rulings and judicial decisions, all as in effect as of the date of this prospectus, all of which are subject to change or to differing interpretation, possibly with retroactive effect. Any change could alter the tax consequences described in this prospectus. We assume in this discussion that each holder holds shares of our Common Stock, Pre-Funded Warrants and Warrants as capital assets within the meaning of Section 1221 of the Code (generally property held for investment).

This discussion does not address all aspects of U.S. federal income taxation that may be relevant to a particular holder in light of that holder's individual circumstances, does not address the alternative minimum or Medicare contribution taxes, and does not address any aspects of U.S. state, local or non-U.S. taxes or any U.S. federal taxes other than income tax. This discussion also does not consider any specific facts or circumstances that may apply to a holder and does not address aspects of U.S. federal income taxation that may be applicable to holders that are subject to special tax rules, including without limitation:

● insurance companies;

● tax-exempt organizations;

● financial institutions;

● brokers or dealers in securities;

● regulated investment companies;

● real estate investment trusts;

● pension plans, individual retirement accounts and other tax deferred accounts;

● persons that mark their securities to market;

● controlled foreign corporations;

● passive foreign investment companies;

● "dual resident" corporations;

● persons that receive our Common Stock or Warrants as compensation for the performance of services;

● owners that hold our Common Stock or Warrants as part of a straddle, hedge, conversion transaction, synthetic security or other integrated investment;

● owners that own, or are deemed to own, more than 5% of our capital stock (except to the extent specifically set forth below);

● persons that have a functional currency other than the U.S. dollar; and

● certain U.S. expatriates.

In addition, this discussion does not address the tax treatment of partnerships or other pass-through entities for U.S. federal income tax purposes, or persons who hold our Common Stock, Pre-Funded Warrants or Warrants through partnerships or other pass-through entities for U.S. federal income tax purposes. A partner in a partnership or other pass-through entity that will hold our Common Stock, Pre-Funded Warrants or Warrants should consult his, her or its own tax advisor regarding the tax consequences of acquiring, holding and disposing of our Common Stock, Pre-Funded Warrants or Warrants through a partnership or other pass-through entity, as applicable.

As used in this prospectus, the term "U.S. holder" means a beneficial owner of Common Stock, Pre-Funded Warrants or Warrants that is for U.S. federal income tax purposes:

● a citizen or individual resident of the United States;

● a corporation (or other entity properly classified as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States, any state within the United States, or the District of Columbia;

● an estate, the income of which is subject to U.S. federal income taxation regardless of its source; or

● a trust, if (i) a U.S. court is able to exercise primary supervision over the trust's administration and one or more "United States persons" (as defined in the Code) have the authority to control all substantial decisions of the trust, or (ii) in the case of a trust that was treated as a domestic trust under the laws in effect before 1997, a valid election is in place under applicable U.S. Treasury regulations to treat such trust as a domestic trust.

The term "non-U.S. holder" means any beneficial owner of shares of Common Stock, Pre-Funded Warrants or Warrants that is not a U.S. holder and is not a partnership or other entity properly classified as a partnership for U.S. federal income tax purposes. For the purposes of this prospectus, U.S. holders and non-U.S. holders are referred to collectively as "holders." =There can be no assurance that the Internal Revenue Service, which we refer to as the IRS, will not challenge one or more of the tax consequences described herein. We have not obtained, nor do we intend to obtain, a ruling from the IRS with respect to the U.S. federal income tax consequences of the purchase, ownership or disposition of our Common Stock or Warrants.

**Allocation of Purchase Price Between Each Share of Common Stock, Pre-Funded Warrant and Warrant**

The purchase price for each Unit will be allocated between each share of Common Stock (or, in lieu of Common Stock, each Pre-Funded Warrant) and accompanying Warrant in proportion to their relative fair market values at the time the Unit is purchased by the holder. This allocation will establish a holder's initial tax basis for U.S. federal income tax purposes in his, her or its share of Common Stock (or, in lieu of Common Stock, Pre-Funded Warrant) and Warrant included in each investment unit. We will not be providing holders with such allocation, and it is possible that different holders will reach different determinations regarding such allocation. A holder's allocation of purchase price between each share of Common Stock (or, in lieu of Common Stock, each Pre-Funded Warrant) and the accompanying Warrant is not binding on the IRS or the courts, and no assurance can be given that the IRS or the courts will agree with a holder's allocation.

Accordingly, each prospective holder should consult his, her or its own tax advisor with respect to the allocation, and the risks associated with such allocation, of the holder's purchase price for the investment unit between our shares of Common Stock (or, in lieu of Common Stock, Pre-Funded Warrants) and Warrants..

**Treatment of Pre-Funded Warrants**

Although it is not entirely free from doubt, a Pre-Funded Warrant should be treated as a share of our Common Stock for U.S. federal income tax purposes and a holder of Pre-Funded Warrants should generally be taxed in the same manner as a holder of Common Stock, as described below.

Accordingly, no gain or loss should be recognized upon the exercise of a Pre-Funded Warrant and, upon exercise, the holding period of a Pre-Funded Warrant should carry over to the share of Common Stock received. Similarly, the tax basis of the Pre-Funded Warrant should carry over to the share of Common Stock received upon exercise, increased by the exercise price of $0.001 per share. Each holder should consult his, her or its own tax advisor regarding the risks associated with the acquisition of Pre-Funded Warrants pursuant to this offering (including potential alternative characterizations). The balance of this discussion generally assumes that the characterization described above will be respected for U.S. federal income tax purposes.

**Tax Consequences to U.S. Holders**

**Exercise or Expiration of Warrants**

Subject to the discussion below with respect to the cashless exercise of a Warrant, a U.S. holder will not recognize income, gain or loss on the exercise of a Warrant. A U.S. holder's tax basis in the Common Stock received upon the exercise of a Warrant will equal the sum of (i) the initial tax basis of the Warrant exercised (as determined pursuant to the rules discussed above under "Allocation of Purchase Price Between Share of Common Stock or Pre-Funded Warrant and Accompanying Warrant") and (ii) the exercise price of the Warrant. The U.S. holder's holding period for the Common Stock received upon exercise of a Warrant will begin on the day after such exercise (or possibly on the date of exercise) and will not include the period during which the U.S. holder held the Warrant.

If a registration statement registering the issuance of the Common Stock underlying the Warrants under the Securities Act is not effective or available the holder may, in its sole discretion, elect to exercise the Warrant through a cashless exercise. The tax consequences of a cashless exercise of a Warrant are not clear under current U.S. tax law. U.S. holders should consult their own tax advisors regarding the tax consequences of a cashless exercise.

If a Warrant is allowed to lapse unexercised, a U.S. holder generally will recognize a capital loss equal to such holder's tax basis in the Warrant. The deductibility of capital losses is subject to significant limitations.

**Distributions on Our Common Stock**

We have never paid cash dividends on our Common Stock and we do not anticipate paying any cash dividends in the foreseeable future. See "Dividend Policy." If we do make distributions on our Common Stock to a U.S. holder, those distributions generally will constitute dividends for U.S. federal income tax purposes to the extent paid from our current or accumulated earnings and profits as determined under U.S. federal income tax principles. If a distribution exceeds our current and accumulated earnings and profits, the excess will be treated as a tax-free return of the U.S. holder's investment, up to such U.S. holder's tax basis in the Common Stock. Any remaining excess will be treated as capital gain, subject to the tax treatment described below in "—Sale, Exchange or Other Taxable Disposition of Our Common Stock or Warrants." Dividends paid by us generally will be eligible for the reduced rates of tax for qualified dividend income allowed to individual U.S. holders and for the dividends received deduction allowed to corporate U.S. holders, in each case assuming that certain holding period and other requirements are satisfied.

**Constructive Distributions on Our Warrants**

Under Section 305 of the Code, an adjustment to the number of shares of Common Stock that will be issued on the exercise of our Warrants (whether Pre-Funded Warrants or Warrants), or an adjustment to the exercise price of such Warrants, may be treated as a constructive distribution to a U.S. Holder of the Warrants if, and to the extent that, such adjustment has the effect of increasing such U.S. Holder's proportionate interest in our "earnings and profits" or assets, depending on the circumstances of such adjustment (for example, if such adjustment is to compensate for a distribution of cash or other property to holders of our Common Stock). Adjustments to the exercise price of a Warrant made pursuant to a bona fide reasonable adjustment formula that has the effect of preventing dilution of the interest of the holder of the Warrant should generally not result in a constructive distribution. Any constructive distributions generally would be subject to the tax treatment described above under "—Distributions on our Common Stock".

**Sale, Exchange or Other Taxable Disposition of Our Common Stock, Pre-Funded Warrants or Warrants**

Upon the sale, exchange, or other taxable disposition of our Common Stock or Warrants (whether Pre-Funded Warrants or Warrants), a U.S. holder will recognize gain or loss equal to the difference between the amount realized upon the disposition and the U.S. holder's tax basis in the Common Stock or Warrants sold or exchanged.

Any gain or loss generally will be capital gain or loss, and will be long-term capital gain or loss if the U.S. holder's holding period for the Common Stock or Warrants exceeded one year at the time of the disposition. Certain U.S. holders (including individuals) are currently eligible for preferential rates of U.S. federal income taxation in respect of long-term capital gains. The deductibility of capital losses is subject to significant limitations.

**Information Reporting and Backup Withholding**

In general, information reporting requirements may apply to distributions (whether actual or constructive) paid to a U.S. holder on our Common Stock or Warrants, and to the proceeds of the sale, exchange or other disposition of our Common Stock and Warrants, unless the U.S. holder is an exempt recipient. Backup withholding will apply to such payments if the U.S. holder fails to provide a taxpayer identification number, a certification of exempt status or has been notified by the IRS that it is subject to backup withholding (and such notification has not been withdrawn). Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules will be allowed as a refund or a credit against a U.S. holder's U.S. federal income tax liability provided the required information is timely furnished to the IRS.

**Tax Consequences to Non-U.S. Holders**

**Exercise or Expiration of Warrants**

In general, a non-U.S. holder will not be required to recognize income, gain or loss upon the exercise of a Warrant by payment of the exercise price. To the extent that a cashless exercise results in a taxable exchange, the consequences would be similar to those described below under "Sale, Exchange or Other Taxable Disposition of our Common Stock or Warrants".

The expiration of a Warrant will be treated as if the non-U.S. holder sold or exchanged the Warrant and recognized a capital loss equal to the non-U.S. holder's basis in the Warrant. A non-U.S. holder will not be able to utilize a loss recognized upon expiration of a Warrant against the Non-U.S. holder's U.S. federal income tax liability, however, unless the loss (i) is effectively connected with the non-U.S. holder's conduct of a trade or business within the United States (and, if an income tax treaty applies, is attributable to a "permanent establishment" or "fixed base" in the United States) or (ii) is treated as a U.S. source loss and the non-U.S. holder is present in the United States 183 days or more in the taxable year of disposition and certain other conditions are met.

**Distributions on Our Common Stock**

We have never paid cash dividends on our Common Stock and we do not anticipate paying any cash dividends in the foreseeable future. See "Dividend Policy." If we do make distributions to holders of our Common Stock or if we are treated as making a constructive distribution to holders of our Warrants or Pre-Funded Warrants, those distributions generally will constitute dividends for U.S. federal income tax purposes to the extent paid from our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. If a distribution exceeds our current and accumulated earnings and profits, the excess will be treated as a tax-free return of the non-U.S. holder's investment, up to such non-U.S. holder's tax basis in the Common Stock. Any remaining excess will be treated as capital gain, subject to the tax treatment described below in "—Sale, Exchange or Other Taxable Disposition of Our Common Stock or Warrants."

Distributions (including constructive distributions) made to a non-U.S. holder that are treated as dividends generally will be subject to withholding of U.S. federal income tax at a rate of 30% of the gross amount or such lower rate as may be specified by an applicable income tax treaty between the United States and such holder's country of residence, unless such dividends are effectively connected with a trade or business conducted by a non U.S. holder within the United States (as discussed below). A non-U.S. holder of our Common Stock who claims the benefit of an applicable income tax treaty between the United States and such holder's country of residence generally will be required to provide a properly executed IRS Form W-8BEN or W- 8BEN-E (or successor form), as applicable, and satisfy applicable certification and other requirements. Non-U.S. holders are urged to consult their own tax advisors regarding their entitlement to benefits under a relevant income tax treaty. A non-U.S. holder that is eligible for a reduced rate of U.S. withholding tax under an income tax treaty may be able to obtain a refund or credit of any excess amounts withheld by timely filing the required information with the IRS.

Dividends that are treated as effectively connected with a trade or business conducted by a non-U.S. holder within the United States and, if an applicable income tax treaty so provides, that are attributable to a "permanent establishment" or a "fixed base" maintained by the non-U.S. holder within the United States, generally are exempt from the 30% withholding tax if the non-U.S. holder satisfies applicable certification and disclosure requirements.

U.S. effectively connected income, net of specified deductions and credits, is generally taxed at the same graduated U.S. federal income tax rates applicable to United States persons (as defined in the Code). Any U.S. effectively connected income received by a non-U.S. holder that is a corporation may also be subject to an additional "branch profits tax" at a 30% rate or such lower rate as may be specified by an applicable income tax treaty between the United States and such holder's country of residence.

**Constructive Distributions on Our Warrants**

As described above under "—Tax Consequences to U.S. Holders—Constructive Distributions on our Warrants," an adjustment to the Warrants could result in a constructive distribution to a non-U.S. holder, which would be treated as described under "—Distributions on Our Common Stock" above. Any resulting withholding tax attributable to deemed dividends would be collected from other amounts payable or distributable to the non-U.S. holder. Non U.S. holders should consult their tax advisors regarding the proper treatment of any adjustments to the Warrants.

In addition, regulations governing "dividend equivalents" under Section 871(m) of the Code may apply to the Pre-Funded Warrants. Under those regulations, an implicit or explicit payment made to the holder of Pre-Funded Warrants that references a distribution on our Common Stock would generally be taxable to a non-U.S. holder in the manner described under "Distributions on our Common Stock" above. Such dividend equivalent amount would be taxable and subject to withholding whether or not there is actual payment of cash or other property, and we may satisfy any withholding obligations by withholding from other amounts due to the non-U.S. holder.

Non-U.S. holders are encouraged to consult their own tax advisors regarding the application of Section 871(m) of the Code to the Pre-Funded Warrants.

**Sale, Exchange or Other Taxable Disposition of Our Common Stock, Pre-Funded Warrants or Warrants**

In general, a non-U.S. holder will not be subject to any U.S. federal income tax on any gain realized upon such holder's sale, exchange or other taxable disposition of shares of our Common Stock or Warrants (whether Pre-Funded Warrants or Warrants) unless:

● the gain is effectively connected with the non-U.S. holder's conduct of a U.S. trade or business and, if an applicable income tax treaty so provides, is attributable to a "permanent establishment" or a "fixed base" maintained by such non-U.S. holder in the United States, in which case the non-U.S. holder generally will be taxed on such gain at the graduated U.S. federal income tax rates applicable to United States persons (as defined in the Code) and, if the non-U.S. holder is a foreign corporation, the branch profits tax described above in "—Tax Consequences to Non-U.S. Holders—Distributions on Our Common Stock" also may apply to such gain;

● the non-U.S. holder is a nonresident alien individual who is present in the United States for 183 days or more in the taxable year of the taxable disposition and certain other conditions are met, in which case the non-U.S. holder will be subject to a 30% tax (or such lower rate as may be specified by an applicable income tax treaty between the United States and such holder's country of residence) on the net gain derived from the taxable disposition, which may be offset by certain U.S. source capital losses of the non-U.S. holder, if any; or

● we are, or have been, at any time during the five-year period preceding such taxable disposition (or the non-U.S. holder's holding period, if shorter) a "U.S. real property holding corporation," unless our Common Stock is regularly traded on an established securities market and the non-U.S. holder holds no more than 5% of our outstanding Common Stock, directly or indirectly, during the shorter of the 5-year period ending on the date of the taxable disposition or the period that the non-U.S. holder held our Common Stock. Generally, a corporation is a U.S. real property holding corporation only if the fair market value of its U.S. real property interests equals or exceeds 50% of the sum of the fair market value of its worldwide real property interests plus its other assets used or held for use in a trade or business. Although there can be no assurance, we do not believe that we are, or have been, a U.S. real property holding corporation, or that we are likely to become one in the future. No assurance can be provided that our Common Stock will be regularly traded on an established securities market for purposes of the rules described above.

**Information Reporting and Backup Withholding**

We must report annually to the IRS and to each non-U.S. holder the gross amount of the distributions paid on our Common Stock (and constructive distributions on our Warrants) to such holder and the tax withheld, if any, with respect to such distributions. Non-U.S. holders may have to comply with specific certification procedures to establish that the holder is not a United States person (as defined in the Code) in order to avoid backup withholding at the applicable rate with respect to dividends on our Common Stock or Warrants. Dividends paid to non-U.S. holders subject to the U.S. withholding tax, as described above in "Non-U.S. Holders—Distributions on Our Common Stock," generally will be exempt from U.S. backup withholding.

Information reporting and backup withholding generally will apply to the proceeds of a disposition of our Common Stock and Warrants by a non-U.S. holder effected by or through the U.S. office of any broker, U.S. or foreign, unless the holder certifies its status as a non-U.S. holder and satisfies certain other requirements, or otherwise establishes an exemption. Generally, information reporting and backup withholding will not apply to a payment of disposition proceeds to a non-U.S. holder where the transaction is effected outside the United States through a non-U.S. office of a broker. However, for information reporting purposes, dispositions effected through a non-U.S. office of a broker with substantial U.S. ownership or operations generally will be treated in a manner similar to dispositions effected through a U.S. office of a broker. Non-U.S. holders should consult their own tax advisors regarding the application of the information reporting and backup withholding rules to them.

Copies of information returns may be made available to the tax authorities of the country in which the non-U.S. holder resides or is incorporated under the provisions of a specific treaty or agreement.

Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules from a payment to a non-U.S. holder can be refunded or credited against the non-U.S. holder's U.S. federal income tax liability, if any, provided that an appropriate claim is filed with the IRS.

**Foreign Accounts**

The Foreign Account Tax Compliance Act, or FATCA, generally imposes a 30% withholding tax on dividends(including constructive dividends) on, and gross proceeds from the sale or other disposition of, our Common Stock and Warrants if paid to a non-U.S. entity unless (i) if the non-U.S. entity is a "foreign financial institution," the non-U.S. entity undertakes certain due diligence, reporting, withholding, and certification obligations, (ii) if the non-U.S. entity is not a "foreign financial institution," the non-U.S. entity identifies certain of its U.S. investors, if any, or (iii) the non-U.S. entity is otherwise exempt under FATCA.

Withholding under FATCA generally will apply to payments of dividends (including constructive dividends) on our Common Stock and Warrants.

An intergovernmental agreement between the United States and an applicable foreign country may modify the requirements described in this section. Under certain circumstances, a holder may be eligible for refunds or credits of the tax. Non-U.S. holders should consult their own tax advisors regarding the possible implications of FATCA on their investment in our Common Stock or Warrants.

***The preceding discussion of material U.S. federal income tax considerations is for informational purposes only. It is not tax advice. Prospective investors should consult their own tax advisors regarding the particular U.S. federal, state, local and non-U.S. tax consequences of purchasing, holding and disposing of our Common Stock or Warrants, including the consequences of any proposed changes in applicable laws.***

**LEGAL MATTERS**

Sullivan & Worcester LLP will pass upon the validity of the securities being registered by the registration statement of which this prospectus is a part. Ballard Spahr LLP is acting as counsel to the placement agent in connection with certain legal matters related to this offering.

**EXPERTS**

The consolidated financial statements of Digital Ally, Inc. as of December 31, 2021 and 2020, and for the years ended December 31, 2021 and 2020, appearing in this prospectus have been audited by RBSM LLP, an independent registered public accounting firm, as stated in their report thereon, appearing elsewhere in this prospectus, are included in reliance upon such report and upon the authority of such firm as experts in accounting and auditing.

**INCORPORATION OF CERTAIN INFORMATION BY REFERENCE**

We incorporate by reference into this prospectus additional documents we may file with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act on or after the date of this prospectus but before the completion or termination of this offering (excluding any information not deemed "filed" with the SEC). Any statement contained in a previously filed document is deemed to be modified or superseded for purposes of this prospectus to the extent that a statement contained in this prospectus or in a subsequently filed document incorporated by reference herein modifies or supersedes the statement, and any statement contained in this prospectus is deemed to be modified or superseded for purposes of this prospectus to the extent that a statement contained in a subsequently filed document incorporated by reference herein modifies or supersedes the statement.

Upon written or oral request, we will provide without charge to each person, including any beneficial owner, to whom a copy of the prospectus is delivered a copy of the documents incorporated by reference in this prospectus (other than exhibits to such documents unless such exhibits are specifically incorporated by reference in this prospectus). You may request a copy of these filings, at no cost, by writing or telephoning us at the following address: Digital Ally, Inc., 14001 Marshall Drive, Lenexa, Kansas 66215, Attention: Investor Relations, telephone: (913) 814-7774. You may also access these documents on our website at www.digitalallyinc.com.

Information on any Digital Ally, Inc. website, any subsection, page, or other subdivision of any Digital Ally, Inc. website, or any website linked to by content on any Digital Ally, Inc. website, is not part of this prospectus and you should not rely on that information unless that information is also in this prospectus or incorporated by reference in this prospectus.

**WHERE YOU CAN FIND MORE INFORMATION**

We are subject to the informational requirements of the Exchange Act and in accordance therewith file reports, proxy statements and other information with the SEC. Our filings are available to the public over the Internet at the SEC's website at www.sec.gov, as well as at our website at www.digitalallyinc.com.

Information on any Digital Ally, Inc. website, any subsection, page, or other subdivision of any Digital Ally, Inc. website, or any website linked to by content on any Digital Ally, Inc. website, is not part of this prospectus and you should not rely on that information unless that information is also in this prospectus.

**INDEX TO FINANCIAL STATEMENTS**

---

| | |
|:---|:---|
| [Report of Independent Registered Public Accounting Firm](#f_001) (PCAOB ID No: 587) | F-2 |
| Consolidated Financial Statements: |  |
| [Consolidated Balance Sheets – December 31, 2021 and 2020](#f_002) | F-4 |
| [Consolidated Statements of Operations for the Years Ended December 31, 2021 and 2020](#f_003) | F-5 |
| [Consolidated Statements of Stockholders' Equity (Deficit) for the Years Ended December 31, 2021 and 2020](#f_004) | F-6 |
| [Consolidated Statements of Cash Flows for the Years Ended December 31, 2021 and 2020](#f_005) | F-7 |
| [Notes to the Consolidated Financial Statements](#tor_006) | F-8 |
| [Condensed Consolidated Balance Sheets – September 30, 2022 (Unaudited) and December 31, 2021](#tor_007) | F-47 |
| [Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2022 and 2021 (Unaudited)](#tor_008) | F-48 |
| [Condensed Consolidated Statements of Stockholders' Equity for the Three and Nine Months Ended September 30, 2022 and 2021 (Unaudited)](#tor_009) | F-49 |
| [Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2022 and 2021 (Unaudited)](#tor_010) | F-50 |
| [Notes to the Condensed Consolidated Financial Statements (Unaudited)](#tor_011) | F-51 |

---

**Report of Independent Registered Public Accounting Firm**

To the Stockholders and the Board of Directors of Digital Ally, Inc.

**Opinion on the Financial Statement**

We have audited the accompanying consolidated balance sheets of Digital Ally, Inc. and its subsidiaries (the Company) as of December 31, 2021 and 2020, the related consolidated statements of operations, stockholders' equity (deficit) and cash flows for each of the years in the two year period ended December 31, 2021, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flow for each of the years in the two year period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

**Basis for Opinion**

These financial statement are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

**Critical Audit Matters**

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

**Goodwill and Other Intangibles arising from the acquisition of TicketSmarter – Refer to Notes 1 and 20 to the consolidated financial statements**

***Critical Audit Matter Description***

 ****

As disclosed in Note 1, Goodwill arises in connection with acquisitions. The excess purchase price over the fair value of net tangible assets and identifiable intangible assets acquired is recorded as goodwill.

As disclosed in Note 20, on September 1, 2021, the Company completed an acquisition referred to as the TicketSmarter Acquisition in accordance with the stock purchase agreement. The consideration included an initial payment through a combination of cash and common stock. In addition to the Initial Payment Amount, the Company agreed to issue an earn-out agreement to the selling stockholders in the contingent amount of $4,244,400 that is subject to an earn-out adjustment based on actual EBITDA achieved in 2021. The Company gave a fair value of approximately $3,700,000 to the earn-out on the date of acquisition which is considered a contingent liability. However, following the completion of 2021, it was determined that the actual EBITDA threshold for any earn-out adjustment to be paid was not met, therefore, the contingent earn-out is reduced to zero resulting in a gain related to this revaluation is recorded in the Company's consolidated statements of operations for the year ended December 31, 2021. Auditing the accounting for the acquisition was complex due to the significant estimation uncertainty in determining the fair values of identified intangible assets, which consisted of Sponsorship agreement network of $5,600,000, Trademarks of $600,000, Search engine optimization/content of $600,000 and Goodwill of $5,675,280.

Given the significant judgments made by management to estimate the earn-out as well as intangible assets acquired with the TicketSmarter Acquisition, performing audit procedures to evaluate the reasonableness of management's estimates and assumptions required a high degree of auditor judgment and an increased effort, including the need to involve our fair value specialists.

 **

***How the Critical Audit Matter Was Addressed in the Audit***

 **

● We utilized personnel with specialized knowledge and skill in valuation to assist in; a) assessing the appropriateness and relative weighting of valuation methodology for the various intangible assets, including the With-and-Without Method, Cost to Replace, Relief from Royalty and Monte Carlo Simulation, b) evaluating the reasonableness of the growth rates, percent of revenues lost without existing agreements, discount rate used in the income approach, c) evaluating the reasonableness of the assumptions and estimates used in the various valuation methodologies.

● Evaluate the reasonableness of management's significant estimates and assumptions including revenue growth rates and EBITDA margins, discount rates and futures market conditions.

● Evaluate if there have been events and circumstances that might indicate Goodwill has been impaired.

● Reviewed and assessed the appropriateness of adjustments to Goodwill, Other Intangibles and other Assets and Liabilities acquired based on changes to their estimated fair values.

**Value of Inventories – Refer to Notes 1 and 4 to the consolidated financial statements**

***Critical Audit Matter Description***

 ****

Inventories for the video solutions segment are held at the lower of cost or net realizable value, with cost determined by standard cost methods, which approximate the first-in, first-out method. Inventory costs include material, labor and manufacturing overhead.

Inventories for the ticketing segment are held at the lower of cost or net realizable value, and written-off after the event has occurred. Event tickets for the ticketing segment are carried at the lower of cost or net realizable value, and fully written off at the time the event occurs if the ticket is unsold and remaining in inventory. Management has established inventory reserves based on estimates of excess and/or obsolete current and non-current inventory.

Manufacturing inventory for the video solutions segment is reviewed for obsolescence and excess quantities on a quarterly basis, based on estimated future use of quantities on hand, which is determined based on past usage, planned changes to products and known trends in markets and technology. Changes in support plans or technology could have a significant impact on obsolescence.

As these service parts age over the related product group's post-production service life, the Company reduces the net carrying value of its repairable spare part inventory on the consolidated balance sheet to account for the excess that builds over the service life. The post-production service life of systems is generally seven to twelve years and, at the end of twelve years, the carrying value for these parts in consolidated balance sheet is reduced to zero. The Company also perform periodic monitoring of its installed base for premature end of service life events and expense, through cost of sales, the remaining net carrying value of any related spare parts inventory in the period incurred.

At December 31, 2021, the Company recorded a reserve for excess and obsolete inventory in the video solutions segment of $3,353,458 and a reserve for the ticketing segment of $561,631. Given the judgments made by management, a high degree of subjective and complex auditor judgment was required to evaluate the estimates and assumptions related to the reserve for excess and obsolete inventory.

***How the Critical Audit Matter Was Addressed in the Audit***

Our audit procedures related to the inventory reserve for the video solutions segment included the following, among others:

● We evaluated the appropriateness and consistency of management's methods and assumptions used in developing their estimate of the inventory reserves.

● We performed analysis over key product metrics, inventory turnover, and margins, to identify and evaluate slow-moving inventory categories, negative margins, or other trends which may indicate a requirement to reserve.

Our audit procedures related to the inventory reserve for ticketing segment included the following, among others:

● We evaluated the appropriateness and consistency of management's methods and assumptions used in developing their estimate of the inventory reserves.

● We tested the reasonableness of the reserve for events which have not occurred by analyzing historical activity prior to the acquisition and during the period ended December 31, 2021. Additionally, we analyzed activity subsequent to the balance sheet date for events that have already occurred to determine the amount written down to net realizable value on the date of the event.

---

| |
|:---|
| */s/ RBSM LLP* |
| We have served as the Company's auditor since 2019. |
| New York, NY |
| April 15, 2022<br>PCAOB ID Number 587 |

---

**DIGITAL ALLY, INC.**

**CONSOLIDATED BALANCE SHEETS**

**DECEMBER 31, 2021 AND 2020**

---

| | | |
|:---|:---|:---|
|  | **2021** | **2020** |
| **Assets** |  |  |
| Current assets: |  |  |
| &nbsp;&nbsp;&nbsp;Cash and cash equivalents | $32007792 | $4361758 |
| &nbsp;&nbsp;&nbsp;Accounts receivable-trade, less allowance for doubtful accounts of $113,234 – 2021 and $123,224 – 2020 | 2727052 | 1705461 |
| &nbsp;&nbsp;&nbsp;Other Receivables (including $158,384 due from related parties – 2021 and $500,000 – 2020, refer to Note 17) | 2021813 | 1529920 |
| &nbsp;&nbsp;&nbsp;Inventories, net | 9659536 | 8202274 |
| &nbsp;&nbsp;&nbsp;Prepaid expenses | 9728782 | 2030693 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total current assets | 56144975 | 17830106 |
| Property, plant, and equipment, net | 6841026 | 666800 |
| Goodwill and other intangible assets, net | 16902513 | 392564 |
| Operating lease right of use assets, net | 993384 | 753175 |
| Other assets | 2107299 | 1154882 |
| &nbsp;&nbsp;&nbsp;Total assets | $82989197 | $20797527 |
| **Liabilities and Equity** |  |  |
| Current liabilities: |  |  |
| &nbsp;&nbsp;&nbsp;Accounts payable | $4569106 | $1144675 |
| &nbsp;&nbsp;&nbsp;Accrued expenses | 1175998 | 796094 |
| &nbsp;&nbsp;&nbsp;Current portion of operating lease obligations | 373371 | 113484 |
| &nbsp;&nbsp;&nbsp;Contract liabilities – current | 1665519 | 1647469 |
| &nbsp;&nbsp;&nbsp;Debt obligations – current | 389934 | 11727 |
| &nbsp;&nbsp;&nbsp;Warrant derivative liabilities | 14846932 |  |
| &nbsp;&nbsp;&nbsp;Income taxes payable | 1827 | 7158 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total current liabilities | 23022687 | 3720607 |
| Long-term liabilities: |  |  |
| &nbsp;&nbsp;&nbsp;Debt obligations – long term | 727278 | 148273 |
| &nbsp;&nbsp;&nbsp;Operating lease obligation – long term | 688207 | 723272 |
| &nbsp;&nbsp;&nbsp;Contract liabilities – long term | 2687786 | 1848869 |
| Total liabilities | 27125958 | 6441021 |
| Commitments and contingencies |  |  |
| Equity: |  |  |
| &nbsp;&nbsp;&nbsp;Common stock, $0.001 par value; 100,000,000 shares authorized; shares issued: 50,904,391 – 2021 and 26,834,709 – 2020 | 50904 | 26835 |
| &nbsp;&nbsp;&nbsp;Additional paid in capital | 124426379 | 106501396 |
| &nbsp;&nbsp;&nbsp;Treasury stock, at cost |  | (2157225) |
| &nbsp;&nbsp;&nbsp;Noncontrolling interest in consolidated subsidiary | 56453 |  |
| &nbsp;&nbsp;&nbsp;Accumulated deficit | (68670497) | (90014500) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total equity | 55863239 | 14356506 |
| Total liabilities and equity | $82989197 | $20797527 |

---

See Notes to Consolidated Financial Statements.

**DIGITAL ALLY, INC.**

**CONSOLIDATED STATEMENTS OF OPERATIONS**

**FOR THE YEARS ENDED**

**DECEMBER 31, 2021 AND 2020**

---

| | | |
|:---|:---|:---|
|  | **2021** | **2020** |
| Revenue: |  |  |
| &nbsp;&nbsp;&nbsp;Product | $9180287 | $8029457 |
| &nbsp;&nbsp;&nbsp;Service and other | 12233147 | 2485411 |
| &nbsp;&nbsp;&nbsp;Total revenue | 21413434 | 10514868 |
| Cost of revenue: |  |  |
| &nbsp;&nbsp;&nbsp;Product | 8635047 | 5739572 |
| &nbsp;&nbsp;&nbsp;Service and other | 7114612 | 712702 |
| &nbsp;&nbsp;&nbsp;Total cost of revenue | 15749659 | 6452274 |
| &nbsp;&nbsp;&nbsp;Gross profit | 5663775 | 4062594 |
| Selling, general and administrative expenses: |  |  |
| &nbsp;&nbsp;&nbsp;Research and development expense | 1930784 | 1842800 |
| &nbsp;&nbsp;&nbsp;Selling, advertising and promotional expense | 5717824 | 2607242 |
| &nbsp;&nbsp;&nbsp;General and administrative expense | 12776077 | 7276203 |
| Total selling, general and administrative expenses | 20424685 | 11726245 |
| &nbsp;&nbsp;&nbsp;Operating loss | (14760910) | (7663651) |
| Other income (expense): |  |  |
| Interest income | 310200 | 47893 |
| Interest expense | (28600) | (342379) |
| Change in fair value of secured convertible notes |  | (1300252) |
| Change in fair value of proceeds investment agreement |  | 5250000 |
| Change in fair value of short-term investments | (101645) |  |
| Change in fair value of warrant derivative liabilities | 36664907 |  |
| Change in fair value of contingent consideration promissory notes and earn-out agreements | 3732789 |  |
| Warrant modification expense | (295780) |  |
| Gain on the extinguishment of debt | 10000 | 1417413 |
| Secured convertible notes issuance expense |  | (34906) |
| Total other income (expense) | 40291871 | 5037769 |
| Income (loss) before income tax expense (benefit) | 25530961 | (2625881) |
| Income tax expense (benefit) |  |  |
| Net income (loss) | 25530961 | (2625881) |
| Net income attributable to noncontrolling interests of consolidated subsidiary | (56453) |  |
| Net income (loss) attributable to common stockholders | $25474508 | $(2625881) |
| Net income (loss) per share attributable to common information: |  |  |
| &nbsp;&nbsp;&nbsp;Basic | $0.51 | $(0.12) |
| &nbsp;&nbsp;&nbsp;Diluted | $0.51 | $(0.12) |
| Weighted average shares outstanding: |  |  |
| &nbsp;&nbsp;&nbsp;Basic | 50222289 | 21603635 |
| &nbsp;&nbsp;&nbsp;Diluted | 50222289 | 21603635 |

---

See Notes to Consolidated Financial Statements.

**DIGITAL ALLY, INC.**

**CONSOLIDATED STATEMENTS OF EQUITY (DEFICIT)**

**YEARS ENDED DECEMBER 31, 2021 AND 2020**

---

| | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|
|  | **Common Stock** | **Common Stock** | | | | | |
|  | **Shares** | **Amount** |<br>**Additional**<br>**Paid In**<br>**Capital** |<br>**Treasury**<br>**stock** | **Noncontrolling**<br>**Interest in**<br>**consolidated**<br>**subsidiary** |<br>**Accumulated**<br>**deficit** |<br><br>**Total** |
| Balance, December 31, 2019 | 12079095 | $12079 | $83216387 | $(2157225) | $— | $(87388619) | $(6317378) |
| Stock-based compensation |  |  | 1462270 |  |  |  | 1462270 |
| Restricted common stock grant | 846591 | 846 | (846) |  |  |  |  |
| Restricted common stock forfeitures | (36750) | (37) | 37 |  |  |  |  |
| Issuance of common stock upon conversion of secured convertible notes and interest | 2624212 | 2625 | 3022060 |  |  |  | 3024685 |
| Issuance of common stock through underwritten public offering at $1.15 per share (net of offering expenses and underwriters' discount) | 2521740 | 2522 | 2499614 |  |  |  | 2502136 |
| Issuance of common stock through underwritten public offering at $1.65 per share (net of offering expenses and underwriters' discount) | 3554545 | 3554 | 5346859 |  |  |  | 5350413 |
| Issuance of common stock through underwritten public offering at $2.15 per share (net of offering expenses and underwriters' discount) | 2539534 | 2540 | 4974152 |  |  |  | 4976692 |
| Issuance of common stock upon exercise of common stock purchase warrants | 2693867 | 2694 | 5200428 |  |  |  | 5203122 |
| Issuance of common stock purchase warrants in connection with issuance of secured convertible notes |  |  | 721141 |  |  |  | 721141 |
| Issuance of common stock upon exercise of stock options | 1875 | 2 | 7798 |  |  |  | 7800 |
| Issuance of common stock for services rendered | 10000 | 10 | 30690 |  |  |  | 30700 |
| Issuance of common stock purchase warrants in connection with issuance of unsecured promissory note payable |  |  | 20806 |  |  |  | 20806 |
| Net loss |  |  |  |  |  | (2625881) | (2625881) |
| Balance, December 31, 2020 | 26834709 | 26835 | 106501396 | (2157225) |  | (90014500) | 14356506 |
| Stock-based compensation |  |  | 1605949 |  |  |  | 1605949 |
| Restricted common stock grant | 856000 | 856 | (856) |  |  |  |  |
| Restricted common stock forfeitures | (7700) | (8) | 8 |  |  |  |  |
| Issuance of common stock through registered direct offering at $3.095 per share and accompanying warrants (net of offering expenses and placement agent discount) | 2800000 | 2800 | 6726200 |  |  |  | 6729000 |
| Issuance of common stock through registered direct offering at $2.80 per share and accompanying warrants (net of offering expenses and placement agent discount) | 3250000 | 3250 | 6614350 |  |  |  | 6617600 |
| Exercise of pre-funded common stock purchase warrants at $3.095 per share | 7200000 | 7200 | 22276800 |  |  |  | 22284000 |
| Exercise of pre-funded common stock purchase warrants at $2.80 per share | 11050000 | 11050 | 30928950 |  |  |  | 30940000 |
| Issuance of pre-funded common stock purchase warrants in connection with the registered direct offerings |  |  | (1817548) |  |  |  | (1817548) |
| Issuance of common stock purchase warrants at exercise price of $3.25 per share in connection with the registered direct offerings |  |  | (49398510) |  |  |  | (49398510) |
| Issuance of common stock as consideration for acquisition | 719738 | 720 | 989640 |  |  |  | 990360 |
| Repurchase and cancellation of common stock | (1734838) | (1735) |  |  |  | (1973344) | (1975079) |
| Cancellation of treasury stock | (63518) | (64) |  | 2157225 |  | (2157161) |  |
| Net income |  |  |  |  | 56453 | 25474508 | 25530961 |
| Balance, December 31, 2021 | 50904391 | $50904 | $124426379 | $— | $56453 | $(68670497) | $55863239 |

---

See Notes to Consolidated Financial Statements.

**DIGITAL ALLY, INC.**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**YEARS ENDED DECEMBER 31, 2021 AND 2020**

---

| | | |
|:---|:---|:---|
|  | **2021** | **2020** |
| Cash Flows from Operating Activities: |  |  |
| &nbsp;&nbsp;&nbsp;Net income (loss) | $25530961 | $(2625881) |
| &nbsp;&nbsp;&nbsp;Adjustments to reconcile net income (loss) to net cash flows used in operating activities: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Depreciation and amortization | 822489 | 250156 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Stock based compensation | 1605949 | 1462270 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Issuance of common stock for services |  | 30700 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Amortization of debt discount |  | 86867 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Provision for doubtful accounts receivable | 9990 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interest paid through issuance of common stock |  | 99945 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Gain on extinguishment of debt | (10000) | (1417413) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Secured convertible debentures issuance expense |  | 34906 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Change in fair value of secured convertible debentures |  | 1300252 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Change in fair value of proceeds investment agreement |  | (5250000) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Change in fair value of contingent consideration promissory notes and earn-out agreements | (3732789) |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Change in fair value of warrant derivative liability | (36664907) |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Warrant modification expense | 295780 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Provision for inventory obsolescence | 1954738 | 275690 |
| &nbsp;&nbsp;&nbsp;Change in operating assets and liabilities: |  |  |
| &nbsp;&nbsp;&nbsp;(Increase) decrease in: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts receivable – trade | (29838) | (634443) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts receivable – other (including related party) | (693992) | (1015191) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Inventories | (1431080) | (3197552) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prepaid expenses | (3839458) | (1649603) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Income tax refund receivable |  | 44650 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Operating lease right of use assets | 180497 | (630716) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other assets | (738466) | 177619 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Increase (decrease) in: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts payable | (1907608) | (1195310) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accrued expenses | 166874 | (41274) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Income taxes payable | (5331) | 1224 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Operating lease obligations | (195884) | 633136 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Contract liabilities | 856967 | (14747) |
| &nbsp;&nbsp;&nbsp;Net cash used in operating activities | (17825108) | (13274715) |
| Cash Flows from Investing Activities: |  |  |
| &nbsp;&nbsp;&nbsp;Purchases of property, plant and equipment | (6428225) | (621860) |
| &nbsp;&nbsp;&nbsp;Additions to intangible assets | (1189132) | (77329) |
| &nbsp;&nbsp;&nbsp;Cash paid for acquisition of Medical Billing Company | (1026508) |  |
| &nbsp;&nbsp;&nbsp;Cash paid for acquisition of Medical Billing Company | (2270000) |  |
| &nbsp;&nbsp;&nbsp;Cash paid for acquisition of TicketSmarter | (8615514) |  |
| &nbsp;&nbsp;&nbsp;Repayment (issuance) of notes receivable | 405000 | (800000) |
| &nbsp;&nbsp;&nbsp;Net cash used in investing activities | (19124379) | (1499189) |
| Cash Flows from Financing Activities: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Proceeds from issuance of common stock upon exercise of pre-funded warrants | 53224000 |  |
| &nbsp;&nbsp;&nbsp;Net proceeds from sale of common stock in registered direct offerings | 13346600 |  |
| &nbsp;&nbsp;&nbsp;Repurchase and cancellation of common stock | (1975079) |  |
| &nbsp;&nbsp;&nbsp;Proceeds from unsecured promissory note payable, related party |  | 319000 |
| &nbsp;&nbsp;&nbsp;Proceeds from unsecured promissory note payable |  | 100000 |
| &nbsp;&nbsp;&nbsp;Proceeds from PPP/EIDL Loans |  | 1568900 |
| &nbsp;&nbsp;&nbsp;Repayment of proceeds investment agreement |  | (1250000) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Proceeds from issuance of common stock and warrants, net of issuance costs |  | 12829241 |
| &nbsp;&nbsp;&nbsp;Proceeds from secured convertible debentures |  | 1500000 |
| &nbsp;&nbsp;&nbsp;Secured convertible debenture issuance expense |  | (34906) |
| &nbsp;&nbsp;&nbsp;Principal payments on related party note payable |  | (319000) |
| &nbsp;&nbsp;&nbsp;Principal payment on unsecured notes payable |  | (400000) |
| &nbsp;&nbsp;&nbsp;Principal payment on secured convertible debentures |  | (748180) |
| &nbsp;&nbsp;&nbsp;Proceeds from issuance of common stock upon exercise of warrants |  | 5203122 |
| &nbsp;&nbsp;&nbsp;Proceeds from exercising stock options |  | 7800 |
| Net cash provided by financing activities | 64595521 | 18775977 |
| Net increase in cash and cash equivalents | 27646034 | 4002073 |
| Cash, cash equivalents, beginning of year | 4361758 | 359685 |
| Cash, cash equivalents, end of year | $32007792 | $4361758 |
| Supplemental disclosures of cash flow information: |  |  |
| &nbsp;&nbsp;&nbsp;Cash payments for interest | $— | $128911 |
| &nbsp;&nbsp;&nbsp;Cash payments for income taxes | $1224 | $4776 |
| Supplemental disclosures of non-cash investing and financing activities: |  |  |
| &nbsp;&nbsp;&nbsp;Restricted common stock grant | $856 | $846 |
| &nbsp;&nbsp;&nbsp;Restricted common stock forfeitures | $8 | $37 |
| &nbsp;&nbsp;&nbsp;Amounts allocated to common stock purchase warrants in connection with proceeds from secured convertible debentures | $— | $741947 |
| &nbsp;&nbsp;&nbsp;Issuance of common stock upon conversion of secured convertible notes | $— | $2924740 |
| &nbsp;&nbsp;&nbsp;Issuance of contingent consideration earn-out agreement for business acquisitions | $3700000 | $— |
| &nbsp;&nbsp;&nbsp;Issuance of contingent consideration promissory note for business acquisitions | $1000000 | $— |
| &nbsp;&nbsp;&nbsp;Assets acquired in business acquisitions | $6324189 | $— |
| &nbsp;&nbsp;&nbsp;Identifiable intangible assets acquired in business acquisitions | $6800000 | $— |
| &nbsp;&nbsp;&nbsp;Goodwill acquired in business acquisitions | $9931547 | $— |
| &nbsp;&nbsp;&nbsp;Liabilities assumed in business acquisitions | $5453353 | $— |
| &nbsp;&nbsp;&nbsp;Common stock issued as consideration for business acquisitions | $990360 | $— |
| &nbsp;&nbsp;&nbsp;Amounts allocated to initial measurement of warrant derivative liabilities in connection to the warrants and pre-funded warrants | $51216058 | $— |
| &nbsp;&nbsp;&nbsp;Cancellation of treasury stock | $2157225 | $— |

---

See Notes to Consolidated Financial Statements.

**DIGITAL ALLY, INC.**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**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.

The business of Digital Ally, Inc. (with its wholly-owned subsidiaries, Digital Ally International, Inc., Shield Products, LLC, Digital Ally Healthcare, LLC, TicketSmarter, Inc., Worldwide Reinsurance, Ltd., 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 we act 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 21.

The Company also formed Worldwide Reinsurance Ltd., during 2021 which is a captive insurance company incorporated during 2021 and domiciled in Bermuda. This wholly-owned subsidiary 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 following is a summary of the Company's Significant Accounting Policies:**

**Basis of Consolidation:**

The accompanying financial statements include the consolidated accounts of Digital Ally, its wholly-owned subsidiaries, Digital Ally International, Inc., Shield Products, LLC, Digital Ally Healthcare, LLC, TicketSmarter, Inc, and Worldwide Reinsurance, Ltd. and its majority-owned subsidiary Nobility Healthcare, LLC. All intercompany balances and transactions have been eliminated during consolidation.

The Company formed Digital Ally International, Inc. during August 2009 to facilitate the export sales of its products. The Company formed Shield Products, LLC in May 2020 to facilitate the sales of its Shield™ line of disinfectant/cleanser products and ThermoVu® line of temperature monitoring equipment. The Company formed Nobility Healthcare, LLC in June 2021 to facilitate the operations of its revenue cycle management solutions and back-office services for healthcare organizations. Lastly, the Company formed TicketSmarter, Inc. upon its acquisition of Goody Tickets, LLC and TicketSmarter, LLC, to facilitate the global ticketing operations. The Company formed Worldwide Reinsurance Ltd., which is a captive insurance company incorporated during 2021 and 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.

**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. The Company accounts for its secured convertible debentures and proceeds investment agreement on a fair value basis.

**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 ticketing 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 situation where sales are to a distributor, the Company had concluded its contracts are with the distributor as the Company holds a contract bearing enforceable rights and obligations only with the distributor. As part of part of its consideration for the contract, the Company evaluates certain factors including the customers' ability to pay (or credit risk). For each contract, the Company considers the promise to transfer products, each of which is distinct, to be the identified performance obligations. In determining the transaction price, the Company evaluates whether the price is subject to refund or adjustment to determine the net consideration to which it expects to be entitled. As the Company's standard payment terms are less than one year, it has elected the practical expedient under ASC 606-10-32-18 to not assess whether a contract has a significant financing component. The Company allocates the transaction 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 product. 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.

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 revenue monthly upon completion of the Company's performance obligation to provide the agreed upon service.

***Ticketing***

 ****

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 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 the 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***

Contract liabilities consist of deferred revenue and include payments received in advance of performance under the contract and are reported separately as current liabilities and non-current liabilities in the Consolidated Balance Sheets. Such amounts consist of extended warranty contracts, prepaid cloud services and prepaid installation services and are generally recognized as the respective performance obligations are satisfied. During the year ended December 31, 2021, the Company recognized revenue of $1.7 million related to its contract liabilities. Contract liabilities consist of deferred revenue and include payments received in advance of performance under the contract and are reported separately as current liabilities and non-current liabilities in the Consolidated Balance Sheets. Such amounts consist of extended warranty contracts, prepaid cloud services and prepaid installation services and are generally recognized as the respective performance obligations are satisfied. Total contract liabilities consist of the following:

SCHEDULE OF CONTRACT LIABILITIES

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **December 31, 2021** | **December 31, 2021** | **December 31, 2021** | **December 31, 2021** |
|  | **December 31, 2020** | **Additions/Reclass** | **Recognized Revenue** | **December 31, 2021** |
| Contract liabilities, current | $1647469 | $696936 | $678886 | $1665519 |
| Contract liabilities, non-current | 1848869 | 2432884 | 1593967 | 2687786 |
|  | $3496338 | $3129820 | $2272853 | $4353305 |

---

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **December 31, 2020** | **December 31, 2020** | **December 31, 2020** | **December 31, 2020** |
|  | **December 31, 2019** | **Additions/Reclass** | **Recognized Revenue** | **December 31, 2020** |
| Contract liabilities, current | $1707943 | $880036 | $940510 | $1647469 |
| Contract liabilities, non-current | 1803143 | 1543898 | 1498172 | 1848869 |
|  | $3511086 | $2423934 | $2438682 | $3496338 |

---

Sales returns and allowances aggregated $45,298 and $26,069 for the years ended December 31, 2021 and 2020, respectively. Obligations for estimated sales returns and allowances are recognized at the time of sales on an accrual basis. The accrual is determined based upon historical return rates adjusted for known changes in key variables affecting these return rates.

**Use of Estimates:**

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates. Management utilizes various other estimates, including but not limited to determining the estimated lives of long-lived assets, determining the potential impairment of long-lived assets, the fair value of warrants, options, proceeds investment agreement and convertible debt, the recognition of revenue, inventory valuation reserve, fair value of assets and liabilities acquired in a business combination, incremental borrowing rate on leases, the valuation allowance for deferred tax assets and other legal claims and contingencies. The results of any changes in accounting estimates are reflected in the financial statements in the period in which the changes become evident. Estimates and assumptions are reviewed periodically, and the effects of revisions are reflected in the period that they are determined to be necessary.

**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 following table shows the Company's cash and cash equivalents by significant investment category as of December 31, 2021 and 2020:

SCHEDULE OF SHORT TERM INVESTMENTS

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **December 31, 2021** | **December 31, 2021** | **December 31, 2021** | **December 31, 2021** |
|  | **Adjusted <br> Cost** | **Unrealized <br> Gains** | **Unrealized<br> Losses** | **Fair Value** |
| **Demand deposits** | $5031246 | $— | $— | $5031246 |
| Short-term investments with original maturities of 90 days or less (Level 1)<sup>(1)</sup>: |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Money market funds | 14928526 |  |  | 14928526 |
| &nbsp;&nbsp;&nbsp;Mutual funds | 12079901 |  | (31881) | 12048020 |
|  | $32039673 | $— | $(31881) | $32007792 |

---

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **December 31, 2020** | **December 31, 2020** | **December 31, 2020** | **December 31, 2020** |
|  | **Adjusted <br> Cost** | **Unrealized <br> Gains** | **Unrealized<br> Losses** | **Fair Value** |
| **Demand deposits** | $4361758 | $— | $— | $4361758 |
| Short-term investments with original maturities of 90 days or less (Level 1)<sup>(1)</sup>: |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Money market funds |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Mutual funds |  |  |  |  |
|  | $4361758 | $— | $— | $4361758 |

---

(1): Level 1 fair value estimates are based on quoted prices in active markets for identical assets.

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 numerous major financial institutions. At December 31, 2021 and 2020, the uninsured balance amounted to $29,836,142 and $3,653,192, respectively.

**Accounts Receivable:**

Accounts receivable are carried at original invoice amount less an estimate made for doubtful receivables based on a review of all outstanding amounts on a weekly basis. The Company determines the allowance for doubtful accounts by regularly evaluating individual customer receivables and considering a customer's financial condition, credit history, and current economic conditions.

Trade receivables are written off when deemed uncollectible. Recoveries of trade receivables previously written off are recorded when received. A trade receivable is considered to be past due if any portion of the receivable balance is outstanding for more than thirty (30) days beyond terms. No interest is charged on overdue trade receivables.

**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 31, 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 recognized 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 an income approach. Under the income approach, the Company determined fair value based on estimated discounted future cash flows of each reporting unit. Determining the fair value of a reporting unit is judgmental in nature and requires the use of significant estimates and assumptions, including revenue growth rates and EBITDA margins, discount rates and future market conditions, among others.

*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 December 31, 2021 and concluded that there was no impairment.

Intangible assets include deferred patent costs and license agreements. Legal expenses incurred in preparation of patent application have been deferred and will be amortized over the useful life of granted patents. Costs incurred in preparation of applications that are not granted will be charged to expense at that time. The Company has entered into several sublicense agreements under which it has been assigned the exclusive rights to certain licensed materials used in its products. These sublicense agreements generally require upfront payments to obtain the exclusive rights to such material. The Company capitalizes the upfront payments as intangible assets and amortizes such costs over their estimated useful life on a straight-line method.

**Inventories:**

Inventories for the video solutions segment consist of electronic parts, circuitry boards, camera parts and ancillary parts (collectively, "components"), work-in-process and finished goods. Finished goods that are manufactured and assembled by the Company are carried at the lower of cost or market, with cost determined by standard cost methods, which approximate the first-in, first-out method. Inventories for the ticketing segment consists of tickets to live events purchased, which are held at the lower of cost or net realizable value, and written-off after the event has occurred. Inventory costs include material, labor and manufacturing overhead. Event tickets for the ticketing segment are carried at the lower of cost or net realizable value, and fully written off at the time the event occurs if the ticket is unsold and remaining in inventory. Management has established inventory reserves based on estimates of excess and/or obsolete current and non-current inventory.

Manufacturing inventory for the video solutions segment is reviewed for obsolescence and excess quantities on a quarterly basis, based on estimated future use of quantities on hand, which is determined based on past usage, planned changes to products and known trends in markets and technology. Changes in support plans or technology could have a significant impact on obsolescence.

To support our world-wide service operations for the video solutions segment, we maintain service spare parts inventory, which consists of both consumable and repairable spare parts. Consumable service spare parts are used within our service business to replace worn or damaged parts in a system during a service call and are generally classified in current inventory as our stock of this inventory turns relatively quickly. However, if there has been no recent usage for a consumable service spare part, but the part is still necessary to support systems under service contracts, the part is considered to be non-current and included within non-current inventories within our consolidated balance sheet. Consumables are charged to cost of goods sold when issued during the service call.

As these service parts age over the related product group's post-production service life, we reduce the net carrying value of our repairable spare part inventory on the consolidated balance sheet to account for the excess that builds over the service life. The post-production service life of our systems is generally seven to twelve years and, at the end of twelve years, the carrying value for these parts in our consolidated balance sheet is reduced to zero. We also perform periodic monitoring of our installed base for premature end of service life events and expense, through cost of sales, the remaining net carrying value of any related spare parts inventory in the period incurred.

**Property, plant and equipment:**

Property, plant and equipment is stated at cost net of accumulated depreciation. Additions and improvements are capitalized while ordinary maintenance and repair expenditures are charged to expense as incurred. Depreciation is recorded by the straight-line method over the estimated useful life of the asset, which ranges from three to thirty years, other than the infinite useful life of land. Amortization expense on capitalized leases is included with depreciation expense. The cost and accumulated depreciation related to assets sold or retired are removed from the accounts and any gain or loss is credited or charged to income.

**Leases:**

The Company determines if an arrangement contains a lease at inception. For arrangements where the Company is the lessee, the Company will evaluate whether to account for the lease as an operating or finance lease. Operating leases are included in the right of use assets (ROU) and operating lease liabilities on the consolidated balance sheet as of December 31, 2021. Finance leases would be included in property, plant and equipment, net and long-term debt and finance lease obligations on the balance sheet. The Company had operating leases for copiers and its office and warehouse space at December 31, 2021 but no financing leases.

ROU assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. The Company uses its incremental borrowing rate based on the information available at the commencement date in determining the operating lease liabilities if the operating lease does not provide an implicit rate. Lease terms may include the option to extend when Company is reasonably certain that the option will be exercised. Lease expense for operating leases is recognized on a straight-line basis over the lease term.

The Company elected to apply the short-term lease measurement and recognition exemption in which ROU assets and lease liabilities are not recognized for short term leases.

**Proceeds investment agreement:**

The Company has elected to record its proceeds investment agreement at its fair value. Accordingly, the proceeds investment agreement will be marked-to-market at each reporting date with the change in fair value reported as a gain (loss) in the Consolidated Statement of Operations. All issuance costs related to the proceeds investment agreement were expensed as incurred in the Consolidated Statement of Operations.

**Secured** **Convertible Notes** **:**

The Company has elected to record its senior convertible notes at its fair value. Accordingly, the senior convertible notes will be marked-to-market at each reporting date with the change in fair value reported as a gain (loss) in the Consolidated Statement of Operations. All issuance costs related to the senior convertible notes were expensed as incurred in the Consolidated Statement of Operations.

**Long-Lived Assets:**

Long-lived assets such as property, plant and equipment and purchased intangible assets subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset or asset group be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by that asset or asset group to its carrying value. If the carrying value of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques, including discounted cash flow models, quoted market values and third-party appraisals, as considered necessary.

**Warranties:**

The Company's video solutions segment products carry explicit product warranties that extend up to two years from the date of shipment. The Company records a provision for estimated warranty costs based upon historical warranty loss experience and periodically adjusts these provisions to reflect actual experience. Accrued warranty costs are included in accrued expenses. Extended warranties are offered on selected products and when a customer purchases an extended warranty the associated proceeds are treated as contract liabilities and recognized over the term of the extended warranty.

**Shipping and Handling Costs:**

Shipping and handling costs video solutions segment for outbound sales orders totaled $79,763 and $74,721 for the years ended December 31, 2021 and 2020, respectively. Such costs are included in selling, general and administrative expenses in the Consolidated Statements of Operations.

**Advertising Costs:**

Advertising expense video solutions segment and ticketing segments includes costs related to trade shows and conventions, promotional material and supplies, and media costs. Advertising costs are expensed in the period in which they are incurred. The Company incurred total advertising expense of approximately $4,110,032 and $990,975 for the years ended December 31, 2021 and 2020, respectively. Such costs are included in selling, advertising and promotional expenses in the Consolidated Statements of Operations.

**Income Taxes:**

Deferred taxes are provided for by the liability method in which deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax basis. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

The Company applies the provisions of the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") No. 740 - Income Taxes that provides a framework for accounting for uncertainty in income taxes and provided a comprehensive model to recognize, measure, present, and disclose in its financial statements uncertain tax positions taken or expected to be taken on a tax return. It initially recognizes tax positions in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions are initially and subsequently measured as the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and all relevant facts. Application requires numerous estimates based on available information. The Company considers many factors when evaluating and estimating its tax positions and tax benefits, and it recognized tax positions and tax benefits may not accurately anticipate actual outcomes. As it obtains additional information, the Company may need to periodically adjust its recognized tax positions and tax benefits. These periodic adjustments may have a material impact on its Consolidated Statements of Operations.

The Company's policy is to record estimated interest and penalties related to the underpayment of income taxes as income tax expense in the Consolidated Statements of Operations. There was no interest expense related to the underpayment of estimated taxes during the years ended December 31, 2021 and 2020. There were no penalties in 2021 and 2020.

The Company is subject to taxation in the United States and various states. As of December 31, 2021, the Company's tax returns filed for 2018, 2019 and 2020 and to be filed for 2021 are subject to examination by the relevant taxing authorities. With few exceptions, as of December 31, 2021, the Company is no longer subject to Federal, state, or local examinations by tax authorities for taxable years prior to 2018.

**Research and Development Expenses:**

The Company expenses all research and development costs as incurred, which is generally incurred by the video solutions segment. Development costs of computer software to be sold, leased, or otherwise marketed are subject to capitalization beginning when a product's technological feasibility has been established and ending when a product is available for general release to customers. In most instances, the Company's products are released soon after technological feasibility has been established. Costs incurred subsequent to achievement of technological feasibility were not significant, and software development costs were expensed as incurred during 2021 and 2020.

***Issuance of Debt Instruments with Detachable Stock Purchase Warrants***

Proceeds from the issuance of a debt instrument with stock purchase warrants (detachable call options) are allocated to the two elements based on the relative fair values of the debt instrument without the warrants and of the warrants themselves at time of issuance. The portion of the proceeds so allocated to the warrants are recorded as additional paid-in capital. The remainder of the proceeds are allocated to the debt instrument portion of the transaction. Such issuances generally result in a discount (or, occasionally, a reduced premium) relative to the debt instrument, which is amortized to interest expense using the effective interest rate method.

**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 because the terms of the warrants issued during the first quarter of 2021, 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 statement of operations.

**Stock-Based Compensation:**

The Company grants stock-based compensation to its employees, board of directors and certain third-party contractors. Share-based compensation arrangements may include the issuance of options to purchase common stock in the future or the issuance of restricted stock, which generally are subject to vesting requirements. The Company records stock-based compensation expense for all stock-based compensation granted based on the grant-date fair value. The Company recognizes these compensation costs on a straight-line basis over the requisite service period of the award.

The Company estimates the grant-date fair value of stock-based compensation using the Black-Scholes valuation model. Assumptions used to estimate compensation expense are determined as follows:

● Expected term is determined using the contractual term and vesting period of the award;

● Expected volatility of award grants made in the Company's plan is measured using the weighted average of historical daily changes in the market price of the Company's common stock over the period equal to the expected term of the award;

● Expected dividend rate is determined based on expected dividends to be declared;

● Risk-free interest rate is equivalent to the implied yield on zero-coupon U.S. Treasury bonds with a maturity equal to the expected term of the awards; and

● Forfeitures are accounted for as they occur.

**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 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 Ticketing, each of which has specific personnel responsible for that business and reports to the CODM. Corporate expenses capture the Company's corporate administrative activities, is also to be reported in the segment information. The Company's captive insurance subsidiary provides services to the Company's other business segments and not to outside customers; however, had no activity in 2021. Therefore, its operations are eliminated in consolidation and is not considered a separate business segment for financial reporting purposes.

**Contingent Consideration**

In circumstances where an acquisition involves a contingent consideration arrangement that meets the definition of a liability under the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 480, Distinguishing Liabilities from Equity, the Company recognizes a liability equal to the fair value of the contingent payments the Company expects to make as of the acquisition date. The Company remeasures this liability each reporting period and records changes in the fair value through the consolidated statement of operations.

**Repurchase and Cancellation of Shares**

From time to time, the Company's Board of Directors (the "Board") may authorize share repurchases of common stock. Shares repurchased under Board authorizations are held in treasury for general corporate purposes and cancelled when it is determined appropriate by management. The Company accounts for repurchases of common stock under the cost method. Shares repurchased and cancelled during the period were recorded as a reduction to stockholders' (deficit) equity. See further discussion of the Company's share repurchase program in Note 15–Stockholders' Equity.

**Non-Controlling Interests**

Non-controlling interests in the Company's Consolidated Financial Statements represents 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 Consolidated Statements of Operations.

**New Accounting Standards**

In 2020, FASB issued ASU No. 2020-06 to simplify the accounting for convertible debt instruments as the current accounting guidance was determined to be unnecessarily complex and difficult to navigate. The ASU primarily does three things: (1) The ASU eliminates the beneficial conversion feature model and the cash conversion model. The elimination of these models will result in more convertible instruments (convertible debt instruments or convertible preferred stock instruments) being reported as a single liability instrument. The ASU also makes targeted improvements to the related disclosures, (2) The ASU eliminates certain settlement conditions that are required to qualify for derivative scope exception which will allow for less equity contracts to be accounted for as a derivative and (3) The ASU aligns the diluted EPS calculation for convertible instruments by requiring the use of the if-converted method and requiring share settlement be included in the calculation when the contract includes an option of cash or share settlement. ASU No. 2020-06 is effective for fiscal years beginning after December 15, 2021 with early adoption permitted for fiscal years beginning after December 15, 2020. Based on a preliminary analysis, the Company does not expect the adoption of this new accounting standard will have a significant impact on the Company's financial position and results of operations.

In 2020, FASB issued ASU No. 2020-01 which represents a consensus of the Emerging Issues Task Force and it clarifies certain items related to ASU 2016-01, Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The ASU (1) clarifies that when an entity is either applying the equity method or upon discontinuing the equity method it should consider observable price changes in orderly transactions for the identical or a similar investment with the same issuer for valuing basis of the investment and (2) clarifies that when determining the accounting for certain forward contracts and purchased options an entity should not consider, whether upon settlement or exercise, if the underlying securities would be accounted for under the equity method or fair value option. ASU No. 2020-01 is effective for fiscal years beginning after December 15, 2020 with early adoption permitted. The Company adopted this update for the quarter ended March 31, 2021, with no material effect on the financials.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes - simplifying the accounting for income taxes (Topic 740), which is meant to simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740, Income Taxes. The amendment also improves consistent application and simplifies GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The adoption of this standard did not have a significant impact on the Company's financial position and results of operations.

For financial liabilities measured using the fair value option in ASC 825, ASU 2016-01, Financial Instruments — Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, issued in January 2016, requires entities to recognize the changes in fair value of liabilities caused by a change in instrument specific credit risk (own credit risk) in other comprehensive income. The ASU is effective for calendar-year public business entities beginning in 2018. For all other calendar-year entities, it is effective for annual periods beginning in 2019 and interim periods beginning in 2020. Entities can early adopt certain provisions of the new standard, including this provision related to financial liabilities measured under the fair value option. We have considered this guidance and its impact on this debt accounted for at fair value. Based on discussions with our valuation expert and knowledge of the Company there was no change in valuation caused by a change in the Company's credit risk during the period ending December 31, 2020.

ASU 2018-09, Codification improvements, clarifies the accounting for a debt extinguishment when the fair value option is elected. Upon extinguishment an entity shall include in net income the cumulative amount of the gain or loss previously recorded in other comprehensive income for the extinguished debt that resulted from changes in instrument-specific credit risk. The ASU is effective for calendar-year public business entities beginning in 2019. For all other calendar-year entities, it is effective for annual periods beginning in 2020 and interim periods beginning in 2021. Early adoption is permitted for any fiscal year or interim period for which an entity's financial statements have not yet been issued or have not been made available to be issued. We have considered this guidance and its impact on this debt accounted for at fair value. Based on discussions with our valuation expert and knowledge of the Company there was no change in valuation caused by a change in the Company's credit risk during the period ending December 31, 2020. Since there is no change accounted for as a change in Credit Risk (included in other comprehensive income/loss) there is no impact to the Company's financial statements from this new guidance.

In June 2016, the FASB issued ASU 2016-13, "Financial Instruments – Credit Losses" to improve information on credit losses for financial assets and net investment in leases that are not accounted for at fair value through net income. ASU 2016-13 replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses. In April 2019 and May 2019, the FASB issued ASU No. 2019-04, "Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments" and ASU No. 2019-05, "Financial Instruments-Credit Losses (Topic 326): Targeted Transition Relief" which provided additional implementation guidance on the previously issued ASU. In November 2019, the FASB issued ASU 2019-10, "Financial Instruments - Credit Loss (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842)," which defers the effective date for public filers that are considered small reporting companies ("SRC") as defined by the Securities and Exchange Commission to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Since the Company is an SRC, implementation is not needed until January 1, 2023. The Company will continue to evaluate the effect of adopting ASU 2016-13 will have on the Company's consolidated financial statements.

In August 2018, the Financial Accounting Standards Board ("FASB") issued ASU No. 2018-13, *Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement*, to improve the effectiveness of disclosures. The amendments remove, modify, and add certain disclosure requirements in Topic 820, "Fair Value Measurement." The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. The amendments are effective for fiscal years beginning after December 15, 2019. The Company adopted this standard in the first quarter of fiscal 2020. The impact of the adoption of ASU 2018-13 is further described in **Note 9**, "**Fair Value Measurement**," to our consolidating financial statements.

In August 2018, the FASB issued ASU No. 2018-15, *Intangible-Goodwill and Other Internal-Use Software (Subtopic 350-40)*, or ASU 2018-15. ASU 2018-15 updates guidance regarding accounting for implementation costs associated with a cloud computing arrangement that is a service contract. The amendments under ASU 2018-15 are effective for interim and annual fiscal periods beginning after December 15, 2019, with early adoption permitted. The Company does not expect the adoption of ASU 2018-15 to have a material impact on its financial statements.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes - simplifying the accounting for income taxes (Topic 740), which is meant to simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740, Income Taxes. The amendment also improves consistent application and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. We do not expect the adoption of this standard to have a significant impact on our financial position and results of operations.

**NOTE 2. CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS**

Financial instruments that potentially subject the Company to concentrations of credit risk consist of accounts receivable. Sales to domestic customers are typically made on credit and the Company generally does not require collateral while sales to international customers require payment before shipment or backing by an irrevocable letter or credit. The Company performs ongoing credit evaluations of its customers' financial condition and maintains an allowance for estimated losses. Accounts are written off when deemed uncollectible and accounts receivable are presented net of an allowance for doubtful accounts. The allowance for doubtful accounts totaled $113,234 as of December 31, 2021 and $123,224 as of December 31, 2020.

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 December 31, 2021 and 2020, the uninsured balance amounted to $29,836,142 and $3,653,192, respectively. The Company uses primarily a network of unaffiliated distributors for international sales and employee-based direct sales force for domestic sales. No international distributor individually exceeded 10% of total revenues. One individual customer receivable balance exceeded 10% of total accounts receivable as of December 31, 2021 and 2020, which totaled $352,603 or 13% and $319,000 or 19% of total accounts receivable, respectively.

The Company's video solutions segment purchases finished circuit boards and other proprietary component parts from suppliers located in the United States and on a limited basis from Asia. Although the Company obtains certain of these components from single source suppliers, it generally owns all tooling and management has located alternative suppliers to reduce the risk in most cases to supplier problems that could result in significant production delays. The Company has not historically experienced significant supply disruptions from any of its principal vendors and does not anticipate future supply disruptions. The Company acquires most of its components on a purchase order basis and does not have long-term contracts with its suppliers.

**NOTE 3. ACCOUNTS RECEIVABLE – ALLOWANCE FOR DOUBTFUL ACCOUNTS**

The allowance for doubtful accounts receivable was comprised of the following for the years ended December 31, 2021 and 2020:

SCHEDULE OF ALLOWANCE FOR DOUBTFUL ACCOUNTS

---

| | | |
|:---|:---|:---|
|  | **December 31,<br> 2021** | **December 31,<br> 2020** |
| Beginning balance | $123224 | $123224 |
| Provision for bad debts | 7154 |  |
| Charge-offs to allowance, net of recoveries | (17144) |  |
| Ending balance | $113234 | $123224 |

---

**NOTE 4. INVENTORIES**

Inventories consisted of the following at December 31, 2021 and 2020:

SCHEDULE OF INVENTORIES

---

| | | |
|:---|:---|:---|
|  | **December 31,<br> 2021** | **December 31,<br> 2020** |
| Raw material and component parts– video solutions segment | $3062046 | $3186426 |
| Work-in-process– video solutions segment |  | 1907 |
| Finished goods – video solutions segment | 8410307 | 6974291 |
| Finished goods – ticketing segment | 2102272 |  |
| Subtotal | 13574625 | 10162625 |
| &nbsp;&nbsp;&nbsp;Reserve for excess and obsolete inventory– video solutions segment | (3353458) | (1960351) |
| &nbsp;&nbsp;&nbsp;Reserve for excess and obsolete inventory – ticketing segment | (561631) |  |
| Total inventories | $9659536 | $8202274 |

---

Finished goods inventory includes units held by potential customers and sales agents for test and evaluation purposes. The cost of such units totaled $153,976 and $138,263 as of December 31, 2021 and 2020, respectively.

**NOTE 5. PREPAID EXPENSES**

Prepaid expenses were the following at December 31, 2021 and 2020:

SCHEDULE OF PREPAID EXPENSE

---

| | | |
|:---|:---|:---|
|  | **December 31,<br> 2021** | **December 31,<br> 2020** |
| Prepaid inventory | $6546100 | $1132641 |
| Prepaid advertising | 2455527 |  |
| Other | 727155 | 898052 |
| Total prepaid expenses | $9728782 | $2030693 |

---

Prepaid expenses increased by nearly $7.7 million primarily due to a prepaid inventory purchases and additional prepaid expenses related to completed acquisitions in 2021.

**NOTE 6. PROPERTY, PLANT AND EQUIPMENT**

Property, plant and equipment consisted of the following at December 31, 2021 and 2020:

SCHEDULE OF PROPERTY, PLANT AND EQUIPMENT

---

| | | | |
|:---|:---|:---|:---|
|  | **Estimated <br> Useful Life** | **December 31,<br> 2021** | **December 31,<br> 2020** |
| Building | 30 years | $4909478 | $372441 |
| Land | Infinite | 789734 | 50000 |
| Office furniture, fixtures and equipment | 3-10 years | 493652 | 232472 |
| Warehouse and production equipment | 3-5 years | 65948 | 96415 |
| Demonstration and tradeshow equipment | 2-5 years | 82337 | 107241 |
| Building improvements | 2-15 years | 911940 | 289865 |
| Rental equipment | 1-3 years | 8584 | 71548 |
| Total cost |  | 7261673 | 1219983 |
| Less: accumulated depreciation and amortization |  | (420647) | (553183) |
| Net property, plant and equipment |  | $6841026 | $666800 |

---

Depreciation and amortization of property, plant and equipment aggregated $258,999 and $62,048 for the years ended December 31, 2021 and 2020, respectively. The cost and accumulated depreciation related to assets sold or retired are removed from the accounts and any gain or loss is credited or charged to income. The Company retired fixed assets during 2021 totaling $391,535 all of which were fully depreciated resulting in no gain or loss for the year ended December 31, 2021.

**NOTE 7. GOODWILL AND OTHER INTANGIBLE ASSETS**

Intangible assets consisted of the following at December 31, 2021 and 2020:

SCHEDULE OF INTANGIBLE ASSETS

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
|  | **December 31, 2021** | **December 31, 2021** | **December 31, 2021** | **December 31, 2020** | **December 31, 2020** | **December 31, 2020** |
|  | **Gross<br> value** | **Accumulated<br> amortization** | **Net<br> carrying<br> value** | **Gross<br> value** | **Accumulated<br> amortization** | **Net<br> carrying<br> value** |
| Amortized intangible assets: |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Licenses (video solutions segment) | $194286 | $65578 | $128708 | $104099 | $52872 | $51227 |
| &nbsp;&nbsp;&nbsp;Patents and trademarks (video solutions segment) | 493945 | 233471 | 260474 | 264490 | 135236 | 129254 |
| &nbsp;&nbsp;&nbsp;Sponsorship agreement network (ticketing segment) | 5600000 | 373333 | 5226667 |  |  |  |
| &nbsp;&nbsp;&nbsp;SEO content (ticketing segment) | 600000 | 50000 | 550000 |  |  |  |
| &nbsp;&nbsp;&nbsp;Personal seat licenses (ticketing<br> segment) | 201931 | 2244 | 199687 |  |  |  |
|  | 7090162 | 724626 | 6365536 | 368589 | 188108 | 180481 |
| Indefinite life intangible assets: |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Goodwill (ticketing and revenue cycle management segments) | 9931547 |  | 9931547 |  |  |  |
| &nbsp;&nbsp;&nbsp;Trade name (ticketing segment) | 600000 |  | 600000 |  |  |  |
| &nbsp;&nbsp;&nbsp;Patents and trademarks pending<br> (video solutions segment) | 5430 |  | 5430 | 212083 |  | 212083 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total | $17627139 | $724626 | $16902513 | $580672 | $188108 | $392564 |

---

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 expense for the years ended December 31, 2021 and 2020 was $563,490 and $188,108, 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:** | |
| 2022 | $1391398 |
| 2023 | 1329438 |
| 2024 | 1328998 |
| 2025 | 1241197 |
| 2026 and thereafter | 1074505 |
|  | $6365536 |

---

**NOTE 8. DEBT OBLIGATIONS**

Debt obligations is comprised of the following:

SUMMARY OF SECURED CONVERTIBLE DEBENTURES AND PROCEEDS INVESTMENT AGREEMENT

---

| | | |
|:---|:---|:---|
|  | **December 31, <br> 2021** | **December 31, <br> 2020** |
| Economic injury disaster loan (EIDL) | $150000 | $150000 |
| Payroll protection program loan (PPP) |  | 10000 |
| Contingent consideration promissory note – Nobility Healthcare Division Acquisition | 317212 |  |
| Contingent consideration promissory note – Nobility Healthcare Division Acquisition | 650000 |  |
| Debt obligations | 1117212 | 160000 |
| Less: current maturities of debt obligations | 389934 | 11727 |
| Debt obligations, long-term | $727278 | $148273 |

---

Debt obligations mature as follows as of December 31, 2021:

SCHEDULE OF MATURITY OF DEBT OBLIGATIONS

---

| | |
|:---|:---|
|  | **December 31, <br> 2021** |
| 2022 | $389934 |
| 2023 | 390050 |
| 2024 | 196729 |
| 2025 | 3412 |
| 2026 and thereafter | 137087 |
| Total | $1117212 |

---

***2020 Small Business Administration Notes***.

On May 4, 2020, the Company issued a promissory note in connection with the receipt of the PPP Loan of $1,417,413 under the SBA's PPP Program under the CARES Act. The PPP Loan has a two-year term and bears interest at a rate of 1.0% per annum. Monthly principal and interest payments are deferred for nine months after the date of disbursement and total $79,850.57 per month thereafter. The PPP Loan may be prepaid at any time prior to maturity with no prepayment penalties. The promissory note contains events of default and other provisions customary for a loan of this type. The PPP provides that the PPP Loan may be partially or wholly forgiven if the funds are used for certain qualifying expenses as described in the CARES Act. The Company intended to use the majority of the PPP Loan amount for qualifying expenses and to apply for forgiveness of the PPP Loan in accordance with the terms of the CARES Act. The Company applied for forgiveness of the PPP Loan and on December 10, 2020 the Company was fully forgiven of its $1,417,413 PPP Loan. Additionally, during the year ended December 31, 2021, the Company was fully forgiven of its $10,000 EIDL advance received in association with the PPP Loan. Therefore, we recorded a gain on the extinguishment of debt totaling $10,000 and $1,417,413 in our Consolidated Statements of Operations for the years ended December 31, 2021 and 2020, respectively.

On May 12, 2020, the Company received $150,000 in loan funding from the SBA under the EIDL program administered by the SBA, which program was expanded pursuant to the recently enacted CARES Act. The EIDL is evidenced by an unsecured 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 are deferred for twelve months after the date of disbursement and total $731.00 per month thereafter. Such note may be prepaid in part or in full, at any time, without penalty. The Company granted the secured party a continuing interest in and to any and all collateral, including but not limited to tangible and intangible personal property.

***2020 Secured Convertible Notes***.

On April 17, 2020, the Company entered into a securities purchase agreement with several accredited investors providing for the issuance of (i) the Company's 8% secured convertible notes due April 16, 2021 with a principal face amount of $1,666,666, which convertible notes are, subject to certain conditions, convertible into 1,650,164 shares of the Company's common stock, at a price per share of $1.01 (the "2020 Convertible Notes"), and (ii) five-year warrants to purchase an aggregate of 1,237,624 shares of Common Stock at an exercise price of $1.31, which warrants are immediately exercisable upon issuance and on a cashless basis if the Warrants have not been registered 180 days after the date of issuance. The accredited investors purchased the foregoing securities for an aggregate cash purchase price of $1,500,000.

Under the purchase agreement, the convertible notes and warrants contain provisions whereby the accredited investors are prohibited from exercising their rights to convert the notes or exercise the warrants if, as a result of such conversion or exercise, such holder, together with its affiliates, would own more than 4.99% of the total number of shares of the Company's common stock outstanding immediately after giving effect to such exercise. However, the investors may increase or decrease such percentage to any other percentage not in excess of 9.99%, provided that any increase in such percentage shall not be effective until 61 days after such notice to the Company.

The Company elected to account for the secured convertible notes on the fair value basis. Therefore, the Company determined the fair value of the secured convertible notes and the common stock purchase warrants which yielded estimated fair values of the secured convertible notes including their embedded derivatives and the detachable common stock purchase warrants. The following represents the resulting fair value as determined on April 17, 2020, the date of origination:

SCHEDULE OF FAIR VALUE OF EMBEDDED DERIVATIVES AND WARRANTS

---

| | |
|:---|:---|
| Secured convertible notes | $778859 |
| Common stock purchase warrants | 721141 |
| Gross cash proceeds | $1500000 |

---

During the year ended December 31, 2020, the holders of the 2020 Convertible Notes exercised their right to convert principal balances aggregating $1,665,666 into equity. In addition, on June 12, 2020, the Company exercised its right to prepay in cash the remaining outstanding principal balance aggregating $1,000. There remains no outstanding 2020 Convertible notes as of December 31, 2021 or 2020 as a result of these conversions and prepayments.

Under the fair value basis, the Company determines the fair value of the secured convertible notes and adjusts the carrying value of the secured convertible notes at each reporting date with the resulting charge or credit being reflected in the consolidated statement of operations. Following is an analysis of the activity in the secured convertible notes during the years ended December 31, 2021 and 2020:

SUMMARY OF FAIR VALUE AND ADJUSTED CARRYING VALUE OF SECURED CONVERTIBLE NOTES

---

| | |
|:---|:---|
|  | **Amount** |
| Balance at December 31, 2019 | $— |
| &nbsp;&nbsp;&nbsp;Issuance of 2020 convertible notes at fair value | 778859 |
| &nbsp;&nbsp;&nbsp;Principal repaid during the period by issuance of common stock | (1665666) |
| &nbsp;&nbsp;&nbsp;Principal repaid during the period by payment of cash | (1000) |
| &nbsp;&nbsp;&nbsp;Change in fair value of secured convertible note during the period | 887807 |
| Balance at December 31, 2020 | $— |
| &nbsp;&nbsp;&nbsp;Issuance of 2020 convertible notes at fair value |  |
| &nbsp;&nbsp;&nbsp;Principal repaid during the period by issuance of common stock |  |
| &nbsp;&nbsp;&nbsp;Principal repaid during the period by payment of cash |  |
| &nbsp;&nbsp;&nbsp;Change in fair value of secured convertible note during the period |  |
| Balance at December 31, 2021 | $— |

---

Following is a range of certain estimates and assumptions utilized as of the April 17, 2020 issuance date to determine the fair value of secured convertible notes:

SCHEDULE OF CERTAIN ESTIMATES AND ASSUMPTIONS OF FAIR VALUE OF SECURED CONVERTIBLE NOTES

---

| | |
|:---|:---|
|  | **April 17, <br> 2020**<br>**Assumptions** |
| Volatility – range | 90% |
| Risk-free rate | 0.36% |
| Contractual term | 1.0 years |
| Stock price | $0.92 |
| Debt yield | 132.2% |

---

Under the fair value basis, legal, accounting, and miscellaneous costs directly related to the issuance of the secured convertible notes are charged to expense as incurred. A total of $-0- and $34,906 of such issuance costs were charged to operations during the years ended December 31, 2021 and 2020, respectively.

 ****

***2019 Secured Convertible Notes***.

On August 5, 2019, the Company, entered into a securities purchase agreement with several accredited investors providing for the issuance of (i) the Company's 8% secured convertible notes due August 4, 2020 with a principal face amount of $2,777,777.78, which convertible notes are, subject to certain conditions, convertible into 1,984,126 shares of the Company's common stock, at a price per share of $1.40; (ii) five-year warrants to purchase an aggregate of 571,428 shares of Common Stock at an exercise price of $1.8125, which warrants are immediately exercisable upon issuance and on a cashless basis if the Warrants have not been registered 180 days after the date of issuance; and (iii) the issuance of shares of common stock equal to 5% of the aggregate purchase price of the convertible notes, with an aggregate value of $125,000 (the "Commitment Shares"). The accredited investors purchased the foregoing securities for an aggregate cash purchase price of $2,500,000.

Pursuant to the purchase agreement, an aggregate of $1,153,320 in principal amount of convertible notes (the "Registered Notes"), the conversion shares underlying the Registered Notes and all of the Commitment Shares were issued to the accredited investors in a registered direct offering pursuant to a prospectus supplement to the Company's currently effective shelf registration statement on Form S-3. Accordingly, $1,153,320 in original principal amount of our convertible notes were issued as Registered Notes pursuant to the shelf registration statement and therefore freely tradable.

In a related transaction and in accordance with the purchase agreement, the Company issued to the accredited investors in a concurrent private placement pursuant to an exemption from the registration requirements of the Securities Act provided in Section 4(a)(2) of the Securities Act and/or Regulation D promulgated thereunder, (1) the remaining aggregate of $1,624,457.78 in principal amount of convertible notes, (2) the shares of common stock issuable from time to time upon conversion of such convertible notes, and (3) the common shares underlying the common stock purchase warrants. On September 5, 2019, the Company filed a Registration Statement on Form S-1 covering the securities issued in the concurrent private placement including an aggregate of $1,624,457.78 in principal amount of previously non-registered convertible notes, the shares of common stock issuable from time to time upon conversion of such non-registered convertible notes and the common stock underlying the common stock purchase warrants. Such Registration Statement on Form S-1 was declared effective by the Securities and Exchange Commission on September 12, 2019.

In connection with the purchase agreement, the Company and its subsidiary entered into a security agreement, dated as of August 5, 2019, with the investors, pursuant to which the Company and its subsidiary granted a security interest in, among other items, the Company and its subsidiary's accounts, chattel paper, documents, equipment, general intangibles, instruments and inventory, and all proceeds, as set forth in the security agreement. In addition, pursuant to an intellectual property security agreement, dated as of August 5, 2019, the Company granted a continuing security interest in all of the Company's right, title and interest in, to and under certain of the Company's trademarks, copyrights and patents. In addition, the Company's subsidiary jointly and severally agreed to guarantee and act as surety for the Company's obligation to repay the convertible notes pursuant to a subsidiary guarantee.

Under the purchase agreement, the convertible notes and warrants contain provisions whereby the accredited investors are prohibited from exercising their rights to convert the notes or exercise the warrants if, as a result of such conversion or exercise, such holder, together with its affiliates, would own more than 4.99% of the total number of shares of the Company's common stock outstanding immediately after giving effect to such exercise. However, the investors may increase or decrease such percentage to any other percentage not in excess of 9.99%, provided that any increase in such percentage shall not be effective until 61 days after such notice to the Company.

The Company elected to account for the secured convertible notes on the fair value basis. Therefore, the Company determined the fair value of the (1) secured convertible notes, (2) the Commitment Shares and (3) the common stock purchase warrants which yielded estimated fair values of the secured convertible notes including their embedded derivatives, the Commitment Shares and the detachable common stock purchase warrants. The following represents the resulting fair value as determined on August 5, 2019, the date of origination:

SCHEDULE OF FAIR VALUE OF EMBEDDED DERIVATIVES AND WARRANTS

---

| | |
|:---|:---|
| Secured convertible notes | $1845512 |
| Common stock issued as Commitment Shares | 118749 |
| Common stock purchase warrants | 535739 |
| Gross cash proceeds | $2500000 |

---

Under the fair value basis, the Company determines the fair value of the secured convertible notes and adjusts the carrying value of the secured convertible notes at each reporting date with the resulting charge or credit being reflected in the consolidated statement of operations. Following is an analysis of the activity in the secured convertible notes during the years ended December 31, 2021 and 2020:

SUMMARY OF FAIR VALUE AND ADJUSTED CARRYING VALUE OF SECURED CONVERTIBLE NOTES

---

| | |
|:---|:---|
|  | **Amount** |
| Balance at December 31, 2019 | $1593809 |
| &nbsp;&nbsp;&nbsp;Principal repaid during the period by issuance of common stock | (1259074) |
| &nbsp;&nbsp;&nbsp;Principal repaid during the period by payment of cash | (747180) |
| &nbsp;&nbsp;&nbsp;Change in fair value of secured convertible note during the period | 412445 |
| Balance at December 31, 2020 | $— |
| &nbsp;&nbsp;&nbsp;Principal repaid during the period by issuance of common stock |  |
| &nbsp;&nbsp;&nbsp;Principal repaid during the period by payment of cash |  |
| &nbsp;&nbsp;&nbsp;Change in fair value of secured convertible note during the period |  |
| Balance at December 31, 2021 | $— |

---

***2018 Proceeds Investment Agreement***.

On July 31, 2018, the Company entered into a Proceeds Investment Agreement (the "PIA Agreement") with Brickell Key Investments LP ("BKI"), pursuant to which BKI funded an aggregate of $500,000 (the "First Tranche") to be used (i) to fund the Company's litigation proceedings relating to the infringement of certain patent assets listed in the PIA Agreement and (ii) to repay the Company's existing debt obligations and for certain working capital purposes set forth in the PIA Agreement. Pursuant to the PIA Agreement, BKI was granted an option to provide the Company with an additional $9.5 million, at BKI's sole discretion (the "Second Tranche"). On August 21, 2018, BKI exercised its option on the Second Tranche for $9.5 million which completed the $10 million funding.

Pursuant to the PIA Agreement and in consideration for the $10 million in funding, the Company agreed to assign to BKI (i) 100% of all gross, pre-tax monetary recoveries paid by any defendant(s) to the Company or its affiliates agreed to in a settlement or awarded in judgment in connection with the patent assets, plus any interest paid in connection therewith by such defendant(s) (the "Patent Assets Proceeds"), up to the minimum return (as defined in the Agreement) and (ii) if BKI has not received its minimum return by the earlier of a liquidity event (as defined in the Agreement) and July 31, 2020, then the Company agreed to assign to BKI 100% of the Patent Asset Proceeds until BKI has received an amount equal to the minimum return on $4.0 million.

Pursuant to the PIA Agreement, the Company granted BKI (i) a senior security interest in the Patent Assets, the claims (as defined in the Agreement) and the Patent Assets Proceeds until such time as the minimum return is paid, in which case, the security interest on the patent assets, the claims and the Patent Assets Proceeds will be released, and (ii) a senior security interest in all other assets of the Company until such time as the minimum return is paid on $4.0 million, in which case, the security interest on such other assets will be released.

The security interest is enforceable by BKI if the Company is in default under the PIA Agreement which would occur if (i) the Company fails, after five (5) days' written notice, to pay any due amount payable to BKI under the PIA Agreement, (ii) the Company fails to comply with any provision of the PIA Agreement or any other agreement or document contemplated under the PIA Agreement, (iii) the Company becomes insolvent or insolvency proceedings are commenced (and not subsequently discharged) with respect to the Company, (iv) the Company's creditors commence actions against the Company (which are not subsequently discharged) that affect material assets of the Company, (v) the Company, without BKI's consent, incurs indebtedness other than immaterial ordinary course indebtedness up to $500,000, (vi) the Company fails, within five (5) business days following the closing of the second tranche, to fully satisfy its obligations to certain holders of the Company's senior secured convertible promissory notes listed in the PIA Agreement and fails to obtain unconditional releases from such holders as to the Company's obligations to such holders and the security interests in the Company held by such holders or (vii) there is an uncured non-compliance of the Company's obligations or misrepresentations by the Company under the PIA Agreement.

Under the PIA Agreement, the Company issued BKI a warrant to purchase up to 465,712 shares of the Company's common stock, par value $0.001 per share (the "PIA Warrant"), at an exercise price of $2.60 per share provided that the holder of the PIA Warrant will be prohibited from exercising the PIA Warrant if, as a result of such exercise, such holder, together with its affiliates, would own more than 4.99% of the total number of shares of the Company's common stock outstanding immediately after giving effect to such exercise. However, such holder may increase or decrease such percentage to any other percentage not in excess of 9.99%, provided that any increase in such percentage shall not be effective until 61 days after such notice to the Company. The PIA Warrant is exercisable for five years from the date of issuance and is exercisable on a cashless exercise basis if there is no effective registration statement. No contractual registration rights were given.

The Company elected to account for the PIA on the fair value basis. Therefore, the Company determined the fair value of the PIA and PIA Warrants which yielded estimated fair values of the PIA including their embedded derivatives and the detachable PIA Warrants as follows:

SCHEDULE OF FAIR VALUE OF EMBEDDED DERIVATIVES AND WARRANTS

---

| | |
|:---|:---|
| Proceeds investment agreement | $9067513 |
| Common stock purchase warrants | 932487 |
| Gross cash proceeds | $10000000 |

---

The Company utilized a probability weighted present value of expected patent asset proceeds for the litigation involving both Axon and WatchGuard (see Note 12 – Commitments and Contingencies) which involved estimates of the amount and timing of the expected patent asset proceeds from the alleged patent infringement. The fair value of the PIA is updated for actual and estimated activity affecting the probability weighted present value of expected patent asset proceeds at each reporting date with the change charged/credited to operations. Following is a range of certain estimates and assumptions utilized as of December 31, 2019 to probability weighted present value of expected patent asset proceeds for the litigation involving both Axon and WatchGuard:

SCHEDULE OF CERTAIN ESTIMATES AND ASSUMPTIONS OF FAIR VALUE OF SECURED CONVERTIBLE NOTES

---

| | |
|:---|:---|
|  | December 31,<br> 2019 |
| Discount rate | 3.0% - 16.6 |
| Expected term to patent asset proceeds payment | 0.58 years - 4 years |
| Probability of success | 5.9% - 38.5 |
| Estimated minimum return payable to BKI | $21 million |
| Negotiation discount | 43.3% |

---

During 2019, the Company settled its patent infringement litigation with WatchGuard whereby it received a lump-sum payment of $6.0 million as further described in Note 12. In accordance with the terms of the PIA, the Company remitted the $6.0 as a principal payment toward its minimum return payment obligations under the PIA. The Company recorded the receipt of the $6,000,000 settlement as Patent litigation settlement income in the accompanying consolidated statement of operations.

On July 20, 2020, the Company and BKI executed a Termination Agreement and Mutual Release (the "Termination Agreement"). Under the terms of the Termination Agreement the parties agreed to terminate the PIA and to release each other from any further liability under the PIA obligation.

Under the terms of the Termination Agreement, upon payment of $1,250,000 by the Company to BKI both parties agreed to terminate the PIA and to release each other from any further liability thereunder. Such $1,250,000 payment was made on July 22, 2020. In addition to the $1,250,000 payment, the Company further agreed to pay BKI the following: (a) a contingent payment in the amount of $2,750,000 following the closing of an asset purchase, membership interest purchase, or similar transaction between the Company and a specified third-party (the "Purchase Transaction") and (b) any and all future proceeds received from Watchguard and its successors and assigns by the Company for WatchGuard's use of U.S. Patent Nos. 8,781,292 and 9,253,452. For clarity, the Company and BKI further agreed that the payment of the contingent payment would only be due and payable upon the closing of the specified Purchase Transaction and the relevant contingent payment portion of the Termination Agreement, and any obligations stemming therefrom, would automatically terminate if the specified Purchase Transaction is abandoned prior to its closing, including its failure to close within three years from the date of the Termination Agreement.

The parties abandoned the Purchase Transaction during the year ended December 31, 2020 and therefore, the contingent payment obligation automatically terminated as the specified Purchase Transaction was abandoned prior to its closing. Furthermore, the Company does not anticipate any future recoveries from Watchguard and its successors and assigns relative to WatchGuard's use of U.S. Patent Nos. 8,781,292 and 9,253,452. As a result, the PIA obligation was extinguished upon the payment of the $1,250,000 required under the Termination Agreement.

The following represents activity in the PIA during the years ended December 31, 2021 and 2020:

SUMMARY OF FAIR VALUE AND ADJUSTED CARRYING VALUE OF SECURED CONVERTIBLE NOTES

---

| | |
|:---|:---|
| Beginning balance as of January 1, 2020 | $6500000 |
| Repayment of obligation | (1250000) |
| Change in the fair value during the period | (5250000) |
| Ending balance as of December 31, 2020 | $- |
| Beginning Balance as of January 1, 2021 | $- |
| Repayment of obligation |  |
| Change in fair value during the period | - |
| Ending balance as of December 31, 2021 | $- |

---

 ****

***Unsecured Promissory Note Payable***.

On December 23, 2019, the Company, borrowed $300,000 under an unsecured note payable to a private, third-party lender. The promissory note bears interest at the rate of 8% per annum with principal and accrued interest payable on or before its maturity date of March 31, 2020. The Company granted the lender warrants exercisable to purchase a total of 107,000 shares of its common stock at an exercise price of $1.40 per share until December 23, 2024. When determining the fair value of these warrants, the assumptions utilized in the Black-Scholes model include the expected volatility of stock price of 86%, discount rate of 1.75%, and expected dividends of 0%. The Company allocated $71,869 of the proceeds of the promissory note to additional paid-in-capital, which represented the grant date relative fair value of the warrants issued to the lender. The discount will be amortized to interest expense ratably over the term of the promissory note which approximates the effective interest method. The amortization of discount resulted in $-0- and $66,061 of the discount amortized to interest expense during the years ended December 31, 2021 and 2020, respectively.

On January 17, 2020, the Company borrowed $100,000 under an unsecured note payable to a private, third-party lender. The promissory note bore interest at the rate of 8% per annum with principal and accrued interest payable on or before its maturity date of April 17, 2020. The Company granted the lender warrants exercisable to purchase a total of 35,750 shares of its common stock at an exercise price of $1.40 per share until January 17, 2025. When determining the fair value of these warrants, the assumptions utilized in the Black-Scholes model include the expected volatility of stock price of 86%, discount rate of 2%, and expected dividends of 0%. The Company allocated $20,806 of the proceeds of the promissory note to additional paid-in-capital, which represented the grant date relative fair value of the warrants issued to the lender. The note was repaid in full on March 12, 2020 and the discount was amortized to interest expense through the date of payment. The amortization of discount resulted in $20,806 of the discount amortized to interest expense during the year ended December 31, 2020.

 ****

***Unsecured Promissory Notes Payable – Related party***

During February and April 2020, the Company borrowed a total of $319,000 from the Company's Chairman, CEO & President under an unsecured promissory note bearing interest at 6% through its May 28, 2020 maturity date. The proceeds from the note were used for general corporate purposes. The principal balance and related accrued interest were paid in full during the year ended December 31, 2020. Total interest accrued and paid on this note was $5,236 in 2020.

***Contingent Consideration Promissory Notes***

On June 30, 2021, Nobility Healthcare, a subsidiary of the Company, issued a contingent consideration promissory note (the "June Contingent Note") in connection with a stock purchase agreement between Nobility Healthcare and a private company (the "June Seller") of $350,000. The Contingent Note has a three-year term and bears interest at a rate of 3.00% per annum. Quarterly principal and interest payments are deferred for six months and is due in equal quarterly installments on the seventh business day of each quarter. The principal amount of the June Contingent Note is subject to an earn-out adjustment, being the difference between the $975,000 (the "June Projected Revenue") and the cash basis revenue (the "June Measurement Period Revenue") collected by the June Seller in its normal course of business from the clients existing on June 30, 2021, during the period from October 1, 2021 through September 30, 2022 (the "June Measurement Period") measured on a quarterly basis and annualized as of the relevant period. If the June Measurement Period Revenue is less than the June Projected Revenue, such amount will be subtracted from the principal balance of this June Contingent Note on a dollar-for-dollar basis. If the June Measurement Period Revenue is more than the June Projected Revenue, such amount will be added to the principal balance of this June Contingent Note on a dollar-for-dollar basis. In no event will the principal balance of this June Contingent Note become a negative number. The maximum downward earn-out adjustment to the principal balance will be to zero. There are no limits to the increases to the principal balance of the June Contingent Note as a result of the earn-out adjustments.

The June Contingent Note is considered to be additional purchase price; therefore, the estimated fair value of the contingent liability is recorded as a liability at the acquisition date and the fair value is considered part of the consideration paid for the acquisition with subsequent changes in fair value recorded as a gain or loss in the Consolidated Statements of Operations. Management has recorded the contingent consideration promissory note at its estimated fair value of $350,000 at the acquisition date. Management's estimate of the fair value of this June Contingent Note at December 31, 2021 to be $317,212 representing a reduction in its estimated fair value of $32,788. The Company recorded a gain of $32,788 in the Consolidated Statements of Operations for the year ended December 31, 2021.

On August 31, 2021, Nobility Healthcare, issued another contingent consideration promissory note (the "August Contingent Payment Note") in connection with a stock purchase agreement between Nobility Healthcare and a private company (the "August Sellers") of $650,000. The August Contingent Payment Note has a three-year term and bears interest at a rate of 3.00% per annum. Quarterly principal and interest payments are deferred for six months and is due in equal quarterly installments on the seventh business day of each quarter. The principal amount of the August Contingent Payment Note is subject to an earn-out adjustment, being the difference between the $3,000,000 (the "August Projected Revenue") and the cash basis revenue (the "August Measurement Period Revenue") collected by the August Sellers in its normal course of business from the clients existing on September 1, 2021, during the period from December 1, 2021 through November 30, 2022 (the "August Measurement Period") measured on a quarterly basis and annualized as of the relevant period. If the August Measurement Period Revenue is less than the August Projected Revenue, such amount will be subtracted from the principal balance of this August Contingent Payment Note on a dollar-for-dollar basis. If the August Measurement Period Revenue is more than the August Projected Revenue, such amount will be added to the principal balance of this August Contingent Payment Note on a dollar-for-dollar basis. In no event will the principal balance of this August Contingent Payment Note become a negative number. The maximum downward earn-out adjustment to the principal balance will be to zero. There are no limits to the increases to the principal balance of the August Contingent Payment Note as a result of the earn-out adjustments.

The August Contingent Payment Note is considered to be additional purchase price, therefore the estimated fair value of the contingent liability is recorded as a liability at the acquisition date and the fair value is considered part of the consideration paid for the acquisition. Management has recorded the contingent consideration promissory note at its estimated fair value of $650,000 at the acquisition date. Management will continue to estimate the fair value of this August Contingent Payment Note at each reporting date with the change, if any recorded as a gain or loss in the statement of operations during the relevant period. Management determined that there was no change in estimated fair value relative to this contingent consideration promissory note for the year ended December 31, 2021.

***Contingent consideration earn-out Agreement – TicketSmarter Acquisition***

On September 1, 2021, TicketSmarter, Inc., a subsidiary of the Company, issued a contingent consideration earn-out agreement (the "TicketSmarter Earn-Out") in connection with the Stock Purchase Agreement between TicketSmarter, Inc., Goody Tickets, LLC and TicketSmarter, LLC ("TicketSmarter") of up to $4,244,400 with a fair value at acquisition of $3,700,000. The TicketSmarter Earn-Out shall be payable with ninety percent (90%) readily available funds and ten percent (10%) in stock consideration. The principal amount of the TicketSmarter Earn-Out is subject to an earn-out adjustment, being the difference between the $2,896,829 (the "Projected EBITDA") and the actual EBITDA (the "Measurement Period EBITDA") generated by TicketSmarter in its normal course of business, during the period from September 1, 2021 through December 31, 2021 (the "Measurement Period"). If the Measurement Period EBITDA is less than seventy percent (70%) of the Projected EBITDA, there will be zero contingent payment. If the Measurement Period EBITDA is between seventy percent (70%) and one hundred percent (100%) of the Projected EBITDA, then a fractional amount of the contingent payment will be paid out. If the Measurement Period EBITDA is more than the Projected EBITDA, the full principal balance of this TicketSmarter Earn-Out will be paid out. In no event will the principal balance of this TicketSmarter Earn-Out become a negative number. The maximum downward earn-out adjustment to the earn-out balance will be to reduce the balance to zero.

The contingent consideration earn-out is considered to be additional purchase price, therefore the estimated fair value of the contingent liability is recorded as a liability at the acquisition date and the fair value is considered part of the consideration paid for the acquisition. Management has recorded the contingent consideration earn-out at its estimated fair value of $3,700,000 at the acquisition date. Management determined that the actual Measurement Period EBITDA generated by TicketSmarter was less than 70% of the Projected EBITDA threshold. Therefore, no TicketSmarter Earn-Out payments amounts were due under the agreement. Therefore, the fair value of the contingent consideration earn-out agreement was reduced to zero, and the resulting gain of $3,700,000 was reported in our Consolidated Statements of Operations for the year ended December 31, 2021.

**NOTE 9. 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 December 31, 2021 and 2020.

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

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **December 31, 2021** | **December 31, 2021** | **December 31, 2021** | **December 31, 2021** |
|  | **Level 1** | **Level 2** | **Level 3** | **Total** |
| **Liabilities:** |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Warrant derivative liabilities | $— | $— | $14846932 | $14846932 |
| &nbsp;&nbsp;&nbsp;Contingent consideration promissory notes and contingent consideration earn-out agreement |  |  | 967212 | 967212 |
|  | $— | $— | $15814144 | $15814144 |

---

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **December 31, 2020** | **December 31, 2020** | **December 31, 2020** | **December 31, 2020** |
|  | **Level 1** | **Level 2** | **Level 3** | **Total** |
| **Liabilities:** |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Warrant derivative liabilities | $— | $— | $— | $— |
| &nbsp;&nbsp;&nbsp;Contingent consideration promissory notes and contingent consideration earn-out agreement |  |  |  |  |
|  | $— | $— | $— | $— |

---

The following table represents the change in Level 3 tier value measurements:

SCHEDULE OF FAIR VALUE MEASUREMENTS CHANGE IN LEVEL 3 INPUTS

---

| | | |
|:---|:---|:---|
|  | Contingent<br> Consideration<br> Promissory Notes and Earn-Out Agreement | Warrant Derivative<br> Liabilities |
| Balance, December 31, 2020 | $— | $— |
| Issuance of detachable warrants in the January 14, 2021 Offering |  | 21922158 |
| Issuance of detachable warrants in the February 1, 2021 Offering |  | 27476352 |
| Issuance of detachable pre-funded warrants in the January 14, 2021 Offering |  | 378615 |
| Issuance of detachable pre-funded warrants in the February 1, 2021 Offering |  | 1438934 |
| Transition of derivative warrant liability to equity on pre-funded warrants |  |  |
| Issuance of contingent consideration promissory note - Revenue Cycle Management Segment Acquisition | 350000 |  |
| Issuance of contingent consideration promissory note - Revenue Cycle Management Segment Acquisition | 650000 |  |
| Issuance of contingent consideration earn-out agreement – Ticketing Segment Acquisition | 3700000 |  |
| Change in fair value of contingent consideration promissory note - Revenue Cycle Management Acquisition | (32788) |  |
| Change in fair value of contingent consideration earn-out agreement –Ticketing Segment Acquisition | (3700000) |  |
| &nbsp;&nbsp;&nbsp;Change in fair value of warrant derivative liabilities due to modification |  | 295780 |
| Change in fair value of warrant derivative liabilities |  | (36664908) |
| Balance, December 31, 2021 | $967212 | $14846932 |

---

The following table represents the change in other Level 3 tier value measurements:

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | 2019<br>Secured<br>Convertible<br>Notes | 2020<br>Secured<br>Convertible<br>Notes |<br>Proceeds<br>Investment<br>Agreement |<br><br>Total |
| Balance, December 31, 2019 | $1593809 | $— | $6500000 | $8093809 |
| Issuance of secured convertible debt |  | 778859 |  | 778859 |
| Conversion of secured convertible debentures | (1259074) | (1665666) |  | (2924740) |
| Repayment of proceeds investment agreement |  |  | (1250000) | (1250000) |
| Repayment of secured convertible notes | (747180) | (1000) |  | (748180) |
| Change in fair value of secured convertible debentures and proceeds investment agreement | 412445 | 887807 | (5250000) | (3949748) |
| Balance, December 31, 2020 | $— | $— | $— | $— |
| Balance, December 31, 2021 | $— | $— | $— | $— |

---

**NOTE 10. ACCRUED EXPENSES**

Accrued expenses consisted of the following at December 31, 2021 and 2020:

SCHEDULE OF ACCRUED EXPENSES

---

| | | |
|:---|:---|:---|
|  | **December 31,<br> 2021** | **December 31,<br> 2020** |
| Accrued warranty expense | $13742 | $31845 |
| Accrued litigation costs | 250000 | 250000 |
| Accrued sales commissions | 30213 | 38294 |
| Accrued payroll and related fringes | 453858 | 199850 |
| Accrued sales returns and allowances | 45298 | 26069 |
| Accrued taxes | 180486 | 53627 |
| Other | 202401 | 196409 |
|  | $1175998 | $796094 |

---

Accrued warranty expense was comprised of the following for the years ended December 31, 2021 and 2020:

SCHEDULE OF ACCRUED WARRANTY EXPENSE

---

| | | |
|:---|:---|:---|
|  | **2021** | **2020** |
| Beginning balance | $31845 | $17838 |
| &nbsp;&nbsp;&nbsp;Provision for warranty expense | 92202 | 123474 |
| &nbsp;&nbsp;&nbsp;Charges applied to warranty reserve | (110305) | (109468) |
| Ending balance | $13742 | $31845 |

---

**NOTE 11. INCOME TAXES**

The components of income tax provision (benefit) for the years ended December 31, 2021, and 2020 are as follows:

---

| | | |
|:---|:---|:---|
|  | **2021** | **2020** |
| Current taxes: |  |  |
| &nbsp;&nbsp;&nbsp;Federal | $— | $— |
| &nbsp;&nbsp;&nbsp;State |  |  |
| Total current taxes |  |  |
| Deferred tax provision (benefit) |  |  |
| Income tax provision (benefit) | $— | $— |

---

A reconciliation of the income tax (provision) benefit at the statutory rate of 21% for the years ended December 31, 2021, and 2020 to the Company's effective tax rate is as follows:

SCHEDULE OF RECONCILIATION OF INCOME TAX (PROVISION) BENEFIT

---

| | | |
|:---|:---|:---|
|  | **2021** | **2020** |
| U.S. Statutory tax rate | 21.0% | 21.0% |
| State taxes, net of Federal benefit | 5.1% | 5.1% |
| Stock based compensation | (0.9)% | (1.9)% |
| Change in valuation reserve on deferred tax assets | (26.7)% | (32.6)% |
| Forgiveness of Payroll Protection Plan loan | —% | 11.3% |
| Other, net | (0.3)% | (2.9)% |
| Income tax (provision) benefit | —% | —% |

---

Significant components of the Company's deferred tax assets (liabilities) as of December 31, 2021 and 2020 are as follows:

SCHEDULE OF SIGNIFICANT COMPONENTS OF COMPANY'S DEFERRED TAX ASSETS (LIABILITIES)

---

| | | |
|:---|:---|:---|
|  | **2021** | **2020** |
| Deferred tax assets: |  |  |
| &nbsp;&nbsp;&nbsp;Stock-based compensation | $705000 | $765000 |
| &nbsp;&nbsp;&nbsp;Start-up costs | 115000 | 115000 |
| &nbsp;&nbsp;&nbsp;Inventory reserves | 875000 | 510000 |
| &nbsp;&nbsp;&nbsp;Uniform capitalization of inventory costs | 85000 | 85000 |
| &nbsp;&nbsp;&nbsp;Allowance for doubtful accounts receivable | 30000 | 35000 |
| &nbsp;&nbsp;&nbsp;Property, plant and equipment depreciation | 285000 | 255000 |
| &nbsp;&nbsp;&nbsp;Deferred revenue | 1135000 | 915000 |
| &nbsp;&nbsp;&nbsp;Accrued litigation reserve | 65000 | 65000 |
| &nbsp;&nbsp;&nbsp;Accrued expenses | 35000 | 55000 |
| &nbsp;&nbsp;&nbsp;Net operating loss carryforward | 21240000 | 19855000 |
| &nbsp;&nbsp;&nbsp;Research and development tax credit carryforward | 1795000 | 1795000 |
| &nbsp;&nbsp;&nbsp;State jobs credit carryforward | 230000 | 230000 |
| &nbsp;&nbsp;&nbsp;Charitable contributions carryforward | 100000 | 60000 |
| Total deferred tax assets | 26695000 | 24740000 |
| &nbsp;&nbsp;&nbsp;Valuation reserve | (16980000) | (24595000) |
| Total deferred tax assets | 9715000 | 145000 |
| Deferred tax liabilities: |  |  |
| &nbsp;&nbsp;&nbsp;Warrant derivative liabilities | (9495000) |  |
| &nbsp;&nbsp;&nbsp;Intangible assets | (75000) |  |
| Domestic international sales company | (145000) | (145000) |
| Total deferred tax liabilities | (9715000) | (145000) |
| Net deferred tax assets (liability) | $— | $— |

---

The valuation allowance on deferred tax assets totaled $16,980,000 and $24,595,000 as of December 31, 2021, and 2020, respectively. The Company records the benefit it will derive in future accounting periods from tax losses and credits and deductible temporary differences as "deferred tax assets." In accordance with ASC 740, "Income Taxes," the Company records a valuation allowance to reduce the carrying value of our deferred tax assets if, based on all available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

The Company generated income in 2021 but incurred operating losses 2021 and it continues to be in a three-year cumulative loss position at December 31, 2021 and 2020. 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 decrease our valuation allowance by $7,615,000 but continue to fully reserve its deferred tax assets at December 31, 2021. 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 December 31, 2021, the Company had available approximately $81,385,000 of Federal net operating loss carry-forwards available to offset future taxable income generated. Such tax net operating loss carry-forwards expire between 2026 and 2042, with $31,956,673 of the tax net operating loss carry-forwards have an indefinite life since the enactment of the Tax Cuts and Jobs Act of 2017. In addition, the Company had research and development tax credit carry-forwards totaling $1,795,000 available as of December 31, 2021, which expire between 2023 and 2038.

The Internal Revenue Code contains provisions under Section 382 which limit a company's ability to utilize net operating loss carry-forwards in the event that it has experienced a more than 50% change in ownership over a three-year period. Current estimates prepared by the Company indicate that due to ownership changes which have occurred, approximately $765,000 of its net operating loss and $175,000 of its research and development tax credit carry-forwards are currently subject to an annual limitation of approximately $1,151,000 and may be further limited by additional ownership changes which may occur in the future. As stated above, the net operating loss and research and development credit carry-forwards expire between 2023 and 2038, allowing the Company to potentially utilize all of the limited net operating loss carry-forwards during the carry-forward period.

As discussed in Note 1, "Summary of Significant Accounting Policies," tax positions are evaluated in a two-step process. The Company first determines whether it is more likely than not that a tax position will be sustained upon examination. If a tax position meets the more-likely-than-not recognition threshold, it is then measured to determine the amount of benefit to recognize in the financial statements. The tax position is measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. Management has identified no tax positions taken that would meet or exceed these thresholds and therefore there are no gross interest, penalties and unrecognized tax expense/benefits that are not expected to ultimately result in payment or receipt of cash in the consolidated financial statements.

The effective tax rate for the years ended December 31, 2021, and 2020 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 December 31, 2021, primarily because of the current year operating losses.

The Company's federal and state income tax returns are closed for examination purposes by relevant statute and by examination for 2017 and all prior tax years.

**NOTE 12. OPERATING LEASE**

On May 13, 2020, the Company entered into an operating lease for new warehouse and office space which will served as its office, assembly and warehouse location. The original lease agreement was amended on August 28, 2020 to correct the footage under lease and monthly payment amounts resulting from such correction. The lease terms, as amended include no base rent for the first nine months and monthly payments ranging from $12,398 to $14,741 thereafter, with a termination date of December 2026. The Company is responsible for property taxes, utilities, insurance and its proportionate share of common area costs related to its new location. The Company took possession of the leased facilities on June 15, 2020. The remaining lease term for the Company's office and warehouse operating lease as of December 31, 2021 was sixty months. The Company's previous office and warehouse space lease expired in April 2020 and the Company paid holdover rent for the time period until it moved to and commenced occupying the new space on June 15, 2020.

The Company entered into an operating lease with a third party in October 2019 for copiers used for office and warehouse purposes. The terms of the lease include 48 monthly payments of $1,598 with a maturity date of October 2023. The Company has the option to Purchase the equipment at maturity for its estimated fair market value at that point in time. The remaining lease term for the Company's copier operating lease as of December 31, 2021 was 22 months.

On June 30, 2021, the Company completed the acquisition of a private medical billing company, through its revenue cycle management segment. Upon completion of this acquisition, the Company became responsible for the operating lease for the Seller's office space. The lease terms include monthly payments ranging from $2,648 to $2,774 thereafter, with a termination date of July 2024. The Company is responsible for property taxes, utilities, insurance and its proportionate share of common area costs related to this location. The Company took possession of the leased facilities on June 30, 2021. The remaining lease term for the Company's office and warehouse operating lease as of December 31, 2021 was 31 months.

On August 31, 2021, the Company completed the acquisition of a private medical billing company, through its revenue cycle management segment. Upon completion of this acquisition, the Company became responsible for the operating lease for the Seller's office space. The lease terms include monthly payments ranging from $11,579 to $11,811 thereafter, with a termination date of March 2023. The Company is responsible for property taxes, utilities, insurance and its proportionate share of common area costs related to this location. The Company took possession of the leased facilities on September 1, 2021. The remaining lease term for the Company's office and warehouse operating lease as of December 31, 2021 was 15 months.

On September 1, 2021, the Company completed the acquisition of Goody Tickets, LLC and TicketSmarter, LLC ("TicketSmarter Acquisition"), through its ticketing segment. Upon completion of this acquisition, the Company became responsible for the operating lease for TicketSmarter Inc.'s office space. The lease terms include monthly payments ranging from $7,211 to $7,364 thereafter, with a termination date of December 2022. The Company is responsible for property taxes, utilities, insurance and its proportionate share of common area costs related to this location. The Company took possession of the leased facilities on September 1, 2021. The remaining lease term for the Company's office and warehouse operating lease as of December 31, 2021 was 12 months.

Lease expense related to the office space and copier operating leases were recorded on a straight-line basis over their respective lease terms. Total lease expense under the five operating leases was approximately $266,294 and $349,079, for the years ended December 31, 2021 and 2020, respectively.

The weighted-average remaining lease term related to the Company's lease liabilities as of December 31, 2021 and 2020 was 3.8 years and 5.8 years, respectively.

The discount rate implicit within the Company's operating leases was not generally determinable and therefore the Company determined the discount rate based on its incremental borrowing rate on the information available at commencement date. As of commencement date, the operating lease liabilities reflect a weighted average discount rate of 8%.

The following sets forth the operating lease right of use assets and liabilities as of December 31, 2021:

SCHEDULE OF OPERATING LEASES RIGHT OF USE ASSETS AND LIABILITIES

---

| | |
|:---|:---|
| **Assets:** |  |
| Operating lease right of use assets | $993384 |
| **Liabilities:** |  |
| Operating lease obligations-current portion | $373371 |
| Operating lease obligations-less current portion | 688207 |
| Total operating lease obligations | $1061578 |

---

The components of lease expense were as follows for the year ended December 31, 2021:

SCHEDULE OF COMPONENTS OF LEASE EXPENSES

---

| | |
|:---|:---|
| Selling, general and administrative expenses | $266294 |

---

Following are the minimum lease payments for each year and in total.

SCHEDULE OF FUTURE MINIMUM LEASE PAYMENTS

---

| | |
|:---|:---|
| **Year ending December 31:** | |
| &nbsp;&nbsp;&nbsp;2022 | $445635 |
| &nbsp;&nbsp;&nbsp;2023 | 252518 |
| &nbsp;&nbsp;&nbsp;2024 | 191059 |
| &nbsp;&nbsp;&nbsp;2025 | 173333 |
| &nbsp;&nbsp;&nbsp;Thereafter | 175113 |
| Total undiscounted minimum future lease payments | 1237658 |
| Imputed interest | (176080) |
| **Total operating lease liability** | $1061578 |

---

**NOTE 13. COMMITMENTS AND CONTINGENCIES**

***COVID-19 pandemic***

The COVID-19 pandemic represents a fluid situation that presents a wide range of potential impacts of varying durations for different global geographies, including locations where we have offices, employees, customers, vendors and other suppliers and business partners.

Like most US-based businesses, the COVID-19 pandemic and efforts to mitigate the same began to have impacts on our business in March 2020. Since that time, the COVID-19 pandemic has dramatically impacted the global health and economic environment, including millions of confirmed cases, business slowdowns or shutdowns, labor shortages, supply chain challenges, changes in government spending and requirements, regulatory challenges, inflationary pressures and market volatility.

We operate within the complex integrated global supply chain for both vendors and customers. As the COVID-19 pandemic dissipates at varying times and rates in different regions around the world, there could be a prolonged negative impact on these global supply chains. Our ability to continue operations at specific facilities will be impacted by the interdependencies of the various participants of these global supply chains, which are largely beyond our direct control. A prolonged shut down of these global supply chains could have a material adverse effect on our business, results of operations, cash flows and financial condition.

If our suppliers have increased challenges with their workforce (including as a result of illness, absenteeism, reactions to health and safety or government requirements), facility closures, timely access to necessary components, materials and other supplies at reasonable prices, access to capital, and access to fundamental support services (such as shipping and transportation), they may be unable to provide the agreed-upon goods and services in a timely, compliant and cost-effective manner. We have incurred and may in the future incur additional costs and delays in our business resulting from the COVID-19 pandemic, including as a result of higher prices, schedule delays or the need to identify and develop alternative suppliers. In some instances, we may be unable to identify and develop alternative suppliers, incurring additional liabilities under our current contracts and hampering new ones. Our customers have experienced, and may continue to experience, disruptions in their operations and supply chains as a result of the COVID-19 pandemic, which can result in delayed, reduced, or canceled orders, or collection risks, and which may adversely affect our results of operations. Similarly, current, and future restrictions or disruptions of transportation, such as reduced availability of air transport, port closures or delays, and increased border controls, delays or closures, can also impact our ability to meet demand and could materially adversely affect us.

The spread of COVID-19 caused us to modify our business practices (including employee travel, employee work locations, cancellation of physical participation in meetings, events and conferences, and social distancing measures), and we may take further actions as may be required by government authorities or that we determine are in the best interests of our employees, customers, partners, vendors, and suppliers. Although we managed to continue most of our operations, the future course of the COVID-19 pandemic is uncertain and we cannot assure that this global pandemic, including its economic impact, will not have a material adverse impact on our business, financial position, results of operations and/or cash flows.

***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.

While the ultimate resolution is unknown, based on the information currently available, we do not expect that these lawsuits will individually, or in the aggregate, have a material adverse effect to our results of 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 these matters 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.

 ****

***<u>Axon</u>***

The Company owns U.S. Patent No. 9,253,452 (the " '452 Patent' "), which generally covers the automatic activation and coordination of multiple recording devices in response to a triggering event, such as a law enforcement officer activating the light bar on the vehicle.

The Company filed suit on January 15, 2016 in the U.S. District Court for the District of Kansas (Case No: 2:16-cv-02032) against Axon, alleging willful patent infringement against Axon's body camera product line and Signal auto-activation product. The Company is seeking both monetary damages and a permanent injunction against Axon for infringement of the '452 Patent.

In December 2016 and January 2017, Axon filed two petitions for *Inter Partes* Review ("IPR") against the '452 Patent. The United States Patent and Trademark Office ("USPTO") rejected both of Axon's petitions. Axon is now statutorily precluded from filing any more IPR petitions against the '452 Patent.

The District Court litigation in Kansas was temporarily stayed following the filing of the petitions for IPR. However, on November 17, 2017, the Federal District Court of Kansas rejected Axon's request to maintain the stay. With this significant ruling, the parties will now proceed towards trial. Since litigation has resumed, the Court has issued a claim construction order (also called a *Markman* Order) where it sided with the Company on all disputes and denied Axon's attempts to limit the scope of the claims. Following the *Markman* Order, the Court set all remaining deadlines in the case. Fact discovery closed on October 8, 2018, and a Final Pretrial Conference took place on January 16, 2019. The parties filed motions for summary judgment on January 31, 2019.

On June 17, 2019, the Court granted Axon's motion for summary judgment that Axon did not infringe on the Company's patent and dismissed the case. Importantly, the Court's ruling did not find that Digital's '452 Patent was invalid. It also did not address any other issue, such as whether Digital's requested damages were appropriate, and it did not impact the Company's ability to file additional lawsuits to hold other competitors accountable for patent infringement. This ruling solely related to an interpretation of the claims as they relate to Axon and was unrelated to the supplemental briefing Digital recently filed on its damages claim and the WatchGuard settlement. Those issues are separate and the judge's ruling on summary judgment had nothing to do with Digital's damages request. The Company has filed an appeal to this ruling and has asked the appellate court to reverse this decision.

The Company filed an opening appeal brief on August 26, 2019 with the U.S. Court of Appeals for the Tenth Circuit (the "Court of Appeals"), appealing the U.S. District Court's granting of Axon's motion for summary judgment. Axon responded by filing a responsive brief on November 6, 2019 and we then filed a reply brief responding to Axon on November 27, 2019. The Court of Appeals scheduled oral arguments on our appeal of the U.S. District Court's summary judgment ruling on April 6, 2020. This appeal was intended to address the Company's position that the U.S. District Court incorrectly dismissed our claims against Axon. If the Court of Appeals overturns the ruling of the U.S. District Court, the case will be remanded to the U.S District Court before a new judge. On March 12, 2020, the panel of judges for the Court of Appeals issued an order cancelling the oral arguments previously set for April 6, 2020, having determined that the appeal will be decided solely based on the parties' briefs. On April 22, 2020, a three-judge panel of the United States Court of Appeals denied our appeal and affirmed the District Court's previous decision to grant Axon summary judgment. On May 22, 2020, we filed a petition for panel rehearing requesting that we be granted a rehearing of our appeal of the U.S. District Court's summary judgment ruling. Furthermore, we requested that we be given an opportunity to make our case through oral argument in front of the three-judge panel of the Court of Appeals, which was also denied. The Company has abandoned its right to any further appeals.

***<u>General</u>***

***401 (k) Plan.*** The Company sponsors a 401(k) retirement savings plan for the benefit of its employees. The plan, as amended, requires it to provide 100% matching contributions for employees, who elect to contribute up to 3% of their compensation to the plan and 50% matching contributions for employee's elective deferrals on the next 2% of their contributions. The Company made matching contributions totaling $127,293 and $110,491 for the years ended December 31, 2021 and 2020, respectively. Each participant is 100% vested at all times in employee and employer matching contributions.

 ****

***Consulting and Distributor Agreements.*** The Company entered into an agreement that required it to make monthly payments that will be applied to future commissions and/or consulting fees to be earned by the provider. The agreement is with a limited liability company ("LLC") that is minority owned by a relative of the Company's chief financial officer. Under the agreement, dated January 15, 2016, and as amended on February 13, 2017, the LLC provides consulting services for developing a new distribution channel outside of law enforcement for its body-worn camera and related cloud storage products to customers in the United States. The Company advanced amounts to the LLC against commissions ranging from $5,000 to $6,000 per month plus necessary and reasonable expenses for the period through June 30, 2017, which can be automatically extended based on the LLC achieving minimum sales quotas. The agreement was renewed in January 2017 for a period of three years, subject to yearly minimum sales thresholds that would allow the Company to terminate the contract if such minimums are not met. As of December 31, 2021, the Company had advanced a total of $274,731 pursuant to this agreement which has been fully reserved for a net advance of $-0-. The minimum sales threshold was not met, and the Company discontinued all advances, although the contract has not been formally terminated. However, the exclusivity provisions of the agreement have been terminated.

On June 1, 2018, the Company entered into an agreement with an individual that required it to make monthly payments that will be applied to future commissions and/or consulting fees to be earned by the provider. Under the agreement, the individual provides consulting services for developing new distribution channels both inside and outside of law enforcement for its in-car and body-worn camera systems and related cloud storage products to customers within and outside the United States. The Company was required to advance amounts to the individual as an advance against commissions of $7,000 per month plus necessary and reasonable expenses for the period through August 31, 2018, which was extended to December 31, 2018, by mutual agreement of the parties at $6,000 per month. The parties have mutually agreed to further extend the arrangement on a monthly basis at $5,000 per month. The Company had advanced a total of $53,332 pursuant to this agreement, until September 2020 when the agreement was mutually terminated, thus as of December 31, 2021, the Company had advanced $-0- pursuant to this agreement.

**NOTE 14. STOCK-BASED COMPENSATION**

The Company recorded pre-tax compensation expense related to the grant of stock options and restricted stock issued of $1,605,949 and $1,462,270 for the years ended December 31, 2021 and 2020, respectively.

As of December 31, 2021, the Company had adopted nine 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") and (ix) the 2020 Stock Option and Restricted Stock Plan (the "2020 Plan"). The 2005 Plan, 2006 Plan, 2007 Plan, 2008 Plan, 2011 Plan, 2013 Plan, 2015 Plan, 2018 Plan and 2020 Plan are referred to as the "Plans."

These Plans permit the grant of stock options or restricted stock to its employees, non-employee directors and others for up to a total of 5,675,000 shares of common stock. The 2005 Plan terminated during 2015 with 22,053 shares not awarded or underlying options, which shares are now unavailable for issuance. Stock options granted under the 2005 Plan that remain unexercised and outstanding as of December 31, 2021 total 5,689. The 2006 Plan terminated during 2016 with 39,974 shares not awarded or underlying options, which shares are now unavailable for issuance. Stock options granted under the 2006 Plan that remain unexercised and outstanding as of December 31, 2021 total 25,625. The 2007 Plan terminated during 2017 with 94,651 shares not awarded or underlying options, which shares are now unavailable for issuance. There are no stock options granted under the 2007 Plan that remain unexercised and outstanding as of December 31, 2021. The 2008 Plan terminated during 2018 with 40,499 shares not awarded or underlying options, which shares are now unavailable for issuance. There are no stock options granted under the 2008 Plan that remain unexercised and outstanding as of December 31, 2021.

Our Board of Directors adopted the 2020 Stock Option and Restricted Stock Plan (the "2020 Plan") on June 30, 2020 and the Company's stockholders approved the 2020 Plan at the Annual Meeting held on September 9, 2020. The Company's stockholders approved an amendment to the 2020 Plan at the Annual Meeting held on June 22, 2021 which increased the number of shares of Common Stock authorized and reserved for issuance under the 2020 Plan to a total of 2,500,000. A total of 1,584,155 options and restricted stock have been granted under the 2020 Plan to date. The 2020 Plan also authorizes us to grant (i) to the key employees' incentive stock options to purchase shares of Common Stock and non-qualified stock options to purchase shares of Common Stock and restricted stock awards and (ii) to non-employee directors and consultants non-qualified stock options and restricted stock.

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 915,845 shares remained available for awards under the various Plans as of December 31, 2021.

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

Activity in the various Plans during the years ended December 31, 2021 and 2020 is reflected in the following table:

SUMMARY OF STOCK OPTIONS OUTSTANDING

---

| | | |
|:---|:---|:---|
| **Options** | **Number of <br> Shares** | **Weighted<br> Average<br> Exercise Price** |
| Outstanding at January 1, 2020 | 589125 | $3.74 |
| &nbsp;&nbsp;&nbsp;Granted | 255000 | 2.09 |
| &nbsp;&nbsp;&nbsp;Exercised | (1875) | 4.16 |
| &nbsp;&nbsp;&nbsp;Forfeited | (3937) | (12.14) |
| Outstanding at December 31, 2020 | 838313 | $3.20 |
| Exercisable at December 31, 2020 | 725813 | $3.37 |

---

---

| | | |
|:---|:---|:---|
| **Options** | **Number of <br> Shares** | **Weighted<br> Average<br> Exercise Price** |
| Outstanding at January 1, 2021 | 838313 | $3.20 |
| &nbsp;&nbsp;&nbsp;Granted | 300000 | 1.67 |
| &nbsp;&nbsp;&nbsp;Exercised |  |  |
| &nbsp;&nbsp;&nbsp;Forfeited | (52250) | (11.61) |
| Outstanding at December 31, 2021 | 1086063 | $2.37 |
| Exercisable at December 31, 2021 | 936063 | $2.48 |

---

The fair value of each option award is estimated on the date of grant using a Black-Scholes option valuation model. The total estimated grant date fair value stock options issued during the year ended December 31, 2021 and 2020 was $466,831 and $415,742, respectively.

The Company has utilized the following assumptions in its Black-Scholes option valuation model to calculate the estimated grant date fair value of the options during the years ended December 31, 2021 and 2020:

SCHEDULE OF FAIR VALUE OF STOCK OPTIONS ASSUMPTION

---

| | | |
|:---|:---|:---|
|  | **2021**<br>**Assumptions** | **2020**<br>**Assumptions** |
| Volatility – range | 113% | 104% |
| Risk-free rate | 1.30% | 0.28% |
| Expected term | 10.0 years | 5.5 years |
| Exercise price | $1.67 | $2.09 |

---

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 years ended December 31, 2021 and 2020.

At December 31, 2021 and 2020, the aggregate intrinsic value of options outstanding was approximately $-0- and $86,150, respectively, and the aggregate intrinsic value of options exercisable was approximately $-0- and $58,025, respectively.

As of December 31, 2021, the unrecognized portion of stock compensation expense on all existing stock options was $233,415 and will be recognized over the next six months.

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 December 31, 2021:

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

---

| | | | | |
|:---|:---|:---|:---|:---|
| | **Outstanding options** | **Outstanding options** | **Exercisable options** | **Exercisable options** |
|<br>**Exercise price<br> range** | **Number of<br> options** | **Weighted <br> average<br> remaining<br> contractual life** | **Number of <br> options** | **Weighted average<br> remaining<br> contractual life** |
| $0.01 to $2.49 | 715000 | 8.6 years | 565000 | 8.3 years |
| $2.50 to $3.49 | 310313 | 6.3 years | 310313 | 6.3 years |
| $3.50 to $4.49 | 45750 | 3.1 years | 45750 | 3.1 years |
| $4.50 to $6.99 | 15000 | 0.1 years | 15000 | 0.1 years |
|  | 1086063 | 7.6 years | 936063 | 7.3 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.

A summary of all restricted stock activity under the equity compensation plans for the years ended December 31, 2021 and 2020 is as follows:

SUMMARY OF RESTRICTED STOCK ACTIVITY

---

| | | |
|:---|:---|:---|
|  | **Number of<br> Restricted<br> shares** | **Weighted<br> average<br> grant date<br> fair value** |
| Nonvested balance, January 1, 2020 | 514875 | $2.97 |
| &nbsp;&nbsp;&nbsp;Granted | 846591 | 1.02 |
| &nbsp;&nbsp;&nbsp;Vested | (604591) | (1.85) |
| &nbsp;&nbsp;&nbsp;Forfeited | (36750) | (1.84) |
| Nonvested balance, December 31, 2020 | 720125 | $1.69 |

---

---

| | | |
|:---|:---|:---|
|  | **Number of<br> Restricted<br> shares** | **Weighted<br> average<br> grant date<br> fair value** |
| Nonvested balance, January 1, 2021 | 720125 | $1.69 |
| &nbsp;&nbsp;&nbsp;Granted | 856000 | 2.07 |
| &nbsp;&nbsp;&nbsp;Vested | (511250) | (1.94) |
| &nbsp;&nbsp;&nbsp;Forfeited | (7500) | (1.08) |
| Nonvested balance, December 31, 2021 | 1057375 | $1.87 |

---

The Company estimated the fair market value of these restricted stock grants based on the closing market price on the date of grant. As of December 31, 2021, there were $1,013,415 of total unrecognized compensation costs related to all remaining non-vested restricted stock grants, which will be amortized over the next fifty-seven 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 <br> shares** | **Number of <br> shares** |
| 2022 |  | 585375 |
| 2023 |  | 358000 |
| 2024 |  | 54000 |
| 2025 |  | 30000 |
| 2026 |  | 30000 |

---

**NOTE 15. COMMON STOCK PURCHASE WARRANTS**

The Company has issued common stock purchase warrants in conjunction with various debt and equity issuances. The warrants are either immediately exercisable, or have a delayed initial exercise date, no more than six months from their respective issue date and allow the holders to purchase up to 26,008,598 shares of common stock at $2.60 to $3.75 per share as of December 31, 2021. The warrants expire from February 23, 2022 through September 18, 2026 and certain of the outstanding warrants allow for cashless exercise.

On January 14, 2021 and February 1, 2021, the Company issued warrants to purchase a total of 42,550,000 shares of Common Stock. The warrant terms provide for net cash settlement outside the control of the Company under certain circumstances in the event of tender offers. As such, the Company is required to treat these warrants as derivative liabilities which are valued at their estimated fair value at their issuance date and at each reporting date with any subsequent changes reported in the consolidated statements of operations as the change in fair value of warrant derivative liabilities. Furthermore, the Company re-values the fair value of warrant derivative liability as of the date the warrant is exercised with the resulting warrant derivative liability transitioned to change in fair value of warrant derivative liabilities through the consolidated statement of operations.

On August 19, 2021, the Company entered into a Warrant Exchange Agreement (the "Exchange Agreement") with the Investors cancelling February Warrants exercisable for an aggregate of 7,681,540 shares of Common Stock in consideration for its issuance of (i) new warrants (the "Exchange Warrants") to the Investors exercisable for an aggregate of up to 7,681,540 shares of Common Stock. The Company also issued warrants (the "Replacement Original Warrants") replacing the February Warrants for the remaining shares of Common Stock exercisable thereunder, representing an aggregate of 6,618,460 shares of Common Stock, and extended the expiration date of the February Warrants to September 18, 2026. The Exchange Warrants provide for an initial exercise price of $3.25 per share, subject to customary adjustments thereunder, and are immediately exercisable upon issuance for cash and on a cashless basis. On the date of the exchange, the Company calculated the fair value, using the Black-Scholes method, of the cancelled February Warrants and the newly issued Exchange Warrants, the difference in fair value measurement of the respective warrants was attributed to warrant modification expense in the consolidated statement of operations.

On the date of the exchange, the February Warrants and Exchange Warrants were valued at $11,818,644 and $12,114,424 using the original and modified expiry date of the warrants, respectively, using the Black-Scholes method. The difference of $295,780 was accordingly recorded as a warrant modification expense in the consolidated statement of operations.

---

| | | |
|:---|:---|:---|
|  | **Original terms at August 19, 2021** | **Modified terms at August 19, 2021** |
| Volatility - range | 109.3% | 104.7% |
| Risk-free rate | 0.78% | 0.78% |
| Dividend | 0% | 0% |
| Remaining contractual term | 4.5 years | 5.1 years |
| Exercise price | $3.25 | $3.25 |
| Common stock issuable under the warrants | 14300000 | 14300000 |

---

Fluctuations in the Company's stock price are a primary driver for the changes in the derivative valuations during each reporting period. As the stock price increases for each of the related derivative instruments, the value to the holder of the instrument generally increases, therefore increasing the liability on the Company's balance sheet. Additionally, stock price volatility is one of the significant unobservable inputs used in the fair value measurement of each of the Company's derivative instruments. The simulated fair value of these liabilities is sensitive to changes in the Company's expected volatility. Increases in expected volatility would generally result in higher fair value measurement. A 10% change in pricing inputs and changes in volatilities and correlation factors would not result in a material change in our Level 3 fair value.

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 their date of issuance and as of December 31, 2021:

---

| | | |
|:---|:---|:---|
|  | **Issuance date assumptions** | **December 31, 2021 assumptions** |
| Volatility - range | 106.6 – 166.6% | 104.9% |
| Risk-free rate | 0.08 - 0.49% | 1.26% |
| Dividend | 0% | 0% |
| Remaining contractual term | 0.01 - 5 years | 4.0 – 4.7 years |
| Exercise price | $2.80 - 3.25 | $3.25 |
| Common stock issuable under the warrants | 42550000 | 24300000 |

---

During the year ended December 31, 2021, holders of pre-funded warrants exercised a total of 18,250,000 warrants which were fair valued at $1,817,549 at their date of issuance and recorded as a derivative warrant liability. On the date of exercise such pre-funded warrants were fair valued at zero, which was transitioned to permanent equity during the year ended December 31, 2021. The Company reported the $1,817,549 change in fair value from their issuance date to their exercise date in the statements of operations as the change in fair value of warrant derivative liabilities.

The following table summarizes information about shares issuable under warrants outstanding during the years ended December 31, 2021 and 2020:

SUMMARY OF WARRANT ACTIVITY

---

| | | |
|:---|:---|:---|
|  | **Warrants** | **Weighted<br> average<br> exercise price** |
| Vested Balance, January 1, 2020 | 4824573 | $5.15 |
| &nbsp;&nbsp;&nbsp;Granted | 1273374 | 1.31 |
| &nbsp;&nbsp;&nbsp;Exercised | (2704583) | (1.95) |
| &nbsp;&nbsp;&nbsp;Cancelled | (5000) | (16.50) |
| Vested Balance, December 31, 2020 | 3388364 | $6.24 |

---

---

| | | |
|:---|:---|:---|
|  | **Warrants** | **Weighted<br> average<br> exercise price** |
| Vested Balance, January 1, 2021 | 3388364 | $6.24 |
| &nbsp;&nbsp;&nbsp;Granted | 42550000 | 3.11 |
| &nbsp;&nbsp;&nbsp;Exercised | (18250000) | (2.92) |
| &nbsp;&nbsp;&nbsp;Cancelled | (1679766) | (9.42) |
| Vested Balance, December 31, 2021 | 26008598 | $3.24 |

---

The total intrinsic value of all outstanding warrants aggregated $-0- as of December 31, 2021 and 2020, and the weighted average remaining term was 50.7 and 15.8 months as of December 31, 2021 and 2020, respectively.

The following table summarizes the range of exercise prices and weighted average remaining contractual life for outstanding and exercisable warrants to purchase common shares as of December 31, 2021:

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

---

| | | |
|:---|:---|:---|
| | **Outstanding and exercisable warrants** | **Outstanding and exercisable warrants** |
|<br>**Exercise<br> price** | **Number of<br> warrants** | **Weighted average<br> remaining<br> contractual life** |
| $2.60 | 465712 | 1.6 years |
| $3.00 | 316800 | 1.3 years |
| $3.25 | 24300000 | 4.4 years |
| $3.36 | 733333 | 0.9 years |
| $3.65 | 167000 | 0.5 years |
| $3.75 | 25753 | 0.6 years |
|  | 26008598 | 4.2 years |

---

**NOTE 16 - STOCKHOLDERS' EQUITY**

***Registered Direct Offerings***

On January 14, 2021, the Company consummated a registered direct offering (the "Offering") of (i) 2,800,000 shares of common stock ("Shares"), (ii) pre-funded warrants to purchase up to 7,200,000 shares of Common Stock (the "Pre-Funded Warrants"), issuable to investors whose purchase of shares of Common Stock would otherwise result in such investor, together with its affiliates and certain related parties, beneficially owning more than 4.99% (or, at the election of the holder, 9.99%) of the Company's outstanding Common Stock immediately following the consummation of the Registered Offering ("Pre-Funded Warrants"); and (iii) common stock purchase warrants ("Warrants") to purchase up to an aggregate of 10,000,000 shares of Common Stock (the "Warrant Shares"), which are exercisable for a period of five years after issuance at an initial exercise price $3.25 per share, subject to certain adjustments, as provided in the Warrants. The Offering was conducted pursuant to a placement agency agreement, dated January 12, 2021, between the Company and Kingswood Capital Markets, division of Benchmark Investments, Inc., who acted as the exclusive placement agent in connection with the Offering pursuant to a placement agency agreement. The Shares and accompanying Warrants in the Offering were sold at a combined offering price of $3.095 per Share and accompanying Warrant and the Pre-Funded Warrants and accompanying Warrants in the Offering were sold at a combined offering price of $3.085 per Pre-Funded Warrant and accompanying Warrant.

The securities in the Offering were issued pursuant to a prospectus supplement to the Company's effective shelf registration statement on Form S-3 (File No. 333-239419). The placement agency agreement contained customary representations, warranties and agreements by the Company, customary conditions to closing, indemnification obligations of the Company and the placement agent. The placement agent received discounts and commissions of six percent (6%) of the gross cash proceeds received by the Company from the sale of the securities sold in the Offering and certain expenses.

Under the placement agency agreement, the Company and its officers and directors executed lock-up agreements whereby, subject to certain expectations, (a) the Company has agreed not to engage in the following for a period of 90 days from the date of the pricing of the Offering, (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any shares of capital stock of the Company or any securities convertible into or exercisable or exchangeable for shares of capital stock of the Company; (ii) file or cause to be filed any registration statement with the SEC relating to the offering of any shares of capital stock of the Company or any securities convertible into or exercisable or exchangeable for shares of capital stock of the Company; (iii) complete any offering of debt securities of the Company, or (iv) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of capital stock of the Company.

Further, pursuant to the terms of the Securities Purchase Agreement the Company has granted to the Investors, for a period of 12 months after the closing of the Offering, the right to participate in subsequent offerings by the Company of Common Stock and Common Stock equivalents in an amount up to 50% of the amount of each such subsequent offering, on the same terms, conditions and price provided for in such subsequent offering.

The Company received approximately $28,941,000 ($29,013,000 upon full exercise of the prefunded warrants) in net proceeds from the Offering after deducting the discounts, commissions, and other estimated offering expenses payable by the Company. As of December 31, 2021, all pre-funded warrants have been fully exercised. The Company plans to use the net proceeds from the Offering for working capital, product development, order fulfilment and for general corporate purposes.

The Company received net proceeds from this offering as follows:

SCHEDULE OF NET PROCEEDS FROM OFFERING

---

| | |
|:---|:---|
| **Description** | **Amount** |
| Net proceeds received: |  |
| &nbsp;&nbsp;&nbsp;Proceeds from the sale of 2,800,000 shares of Common Stock at $3.095 per share | $8666000 |
| &nbsp;&nbsp;&nbsp;Proceeds from the sale of pre-funded warrants to purchase 7,200,000 shares of Common Stock at $3.085 per share | 22212000 |
| &nbsp;&nbsp;&nbsp;Less: Placement agent fees and other expenses of the offering | (1937000) |
| Net proceeds of the offering | $28941000 |

---

In conjunction with this Offering, the Company issued prefunded Common Stock purchase warrants to purchase up to 7,200,000 shares Common Stock at $3.095 per share ($3.085 prefunded at closing) and Common Stock purchase warrants to purchase up to 10,000,000 shares of Common Stock at $3.25 per share. The underlying warrant terms provide for net cash settlement outside the control of the Company under certain circumstances in the event of tender offers. As such, the Company is required to treat these warrants as derivative liabilities which are valued at their estimated fair value at their issuance date and at each reporting date with any subsequent changes reported in the consolidated statements of operations as the change in fair value of warrant derivative liabilities. Accordingly, the Company allocated a portion of the net proceeds of this offering to warrant derivative liabilities based on their estimated fair value as follows (See Notes 4 and 11):

SCHEDULE OF NET PROCEEDS FROM OFFERING

---

| | |
|:---|:---|
| **Description** | **Amount** |
| &nbsp;&nbsp;&nbsp;Warrant derivative liabilities | $21922158 |
| &nbsp;&nbsp;&nbsp;Pre-funded warrant derivative liabilities | 378615 |
| Total allocation of the net proceeds of the offering to warrant derivative liabilities | $22300773 |

---

***Registered Direct Offerings***

On February 1, 2021, the Company consummated an registered direct offering (the "Second Offering") of (i) 3,250,000 shares of common stock ("Shares"), (ii) pre-funded warrants to purchase up to 11,050,000 shares of Common Stock (the "Pre-Funded Warrants"), issuable to investors whose purchase of shares of Common Stock would otherwise result in such investor, together with its affiliates and certain related parties, beneficially owning more than 4.99% (or, at the election of the holder, 9.99%) of the Company's outstanding Common Stock immediately following the consummation of the Registered Offering ("Pre-Funded Warrants"); and (iii) common stock purchase warrants ("Warrants") to purchase up to an aggregate of 14,300,000 shares of Common Stock (the "Warrant Shares"), which are exercisable for a period of five years after issuance at an initial exercise price $3.25 per share, subject to certain adjustments, as provided in the Warrants. The Second Offering was conducted pursuant to a placement agency agreement, dated January 28, 2021, between the Company and Kingswood Capital Markets, division of Benchmark Investments, Inc., who acted as the exclusive placement agent in connection with the Second Offering pursuant to a placement agency agreement. The Shares and accompanying Warrants in the Second Offering were sold at a combined offering price of $2.80 per Share and accompanying Warrant and the Pre-Funded Warrants and accompanying Warrants in the Offering were sold at a combined offering price of $2.79 per Pre-Funded Warrant and accompanying Warrant.

The securities in the Second Offering were issued pursuant to a prospectus supplement to the Company's effective shelf registration statement on Form S-3 (File No. 333-239419). The placement agency agreement contained customary representations, warranties and agreements by the Company, customary conditions to closing, indemnification obligations of the Company and the placement agent. The placement agent received discounts and commissions of six percent (6%) of the gross cash proceeds received by the Company from the sale of the securities sold in the Second Offering and certain expenses.

Under the placement agency agreement, the Company and its officers and directors executed lock-up agreements whereby, subject to certain exceptions, (a) the Company has agreed not to engage in the following for a period of 90 days from the date of the pricing of the Offering, (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any shares of capital stock of the Company or any securities convertible into or exercisable or exchangeable for shares of capital stock of the Company; (ii) file or cause to be filed any registration statement with the SEC relating to the offering of any shares of capital stock of the Company or any securities convertible into or exercisable or exchangeable for shares of capital stock of the Company; (iii) complete any offering of debt securities of the Company, or (iv) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of capital stock of the Company.

Further, pursuant to the terms of the Securities Purchase Agreement the Company has granted to the Investors, for a period of 12 months after the closing of the Second Offering, the right to participate in subsequent offerings by the Company of Common Stock and Common Stock equivalents in an amount up to 50% of the amount of each such subsequent offering, on the same terms, conditions and price provided for in such subsequent offering.

The Company received approximately $37,447,100 ($37,557,600 upon full exercise of the prefunded warrants) in net proceeds from the Second Offering after deducting the discounts, commissions, and other estimated offering expenses payable by the Company. As of December 31, 2021, all pre-funded warrants have been fully exercised. The Company plans to use the net proceeds from the Second Offering for working capital, product development, order fulfilment and for general corporate purposes.

The Company received net proceeds from this offering as follows:

SCHEDULE OF NET PROCEEDS FROM OFFERING

---

| | |
|:---|:---|
| **Description** | **Amount** |
| Net proceeds received: |  |
| &nbsp;&nbsp;&nbsp;Proceeds from the sale of 3,250,000 shares of Common Stock at $2.80 per share | $9100000 |
| &nbsp;&nbsp;&nbsp;Proceeds from the sale of pre-funded warrants to purchase 11,050,000 shares of Common Stock at $2.79 per share | 30829500 |
| &nbsp;&nbsp;&nbsp;Less: Placement agent fees and other expenses of the offering | (2482400) |
| Net proceeds of the offering | $37447100 |

---

In conjunction with this Offering, the Company issued prefunded Common Stock purchase warrants to purchase up to 11,050,000 Shares Common Stock at $2.80 per share ($2.79 prefunded at closing) and Common Stock purchase warrants to purchase up to 14,300,000 shares of Common Stock at $3.25 per share. The underlying warrant terms provide for net cash settlement outside the control of the Company under certain circumstances in the event of tender offers. As such, the Company is required to treat these warrants as derivative liabilities which are valued at their estimated fair value at their issuance date and at each reporting date with any subsequent changes reported in the consolidated statements of operations as the change in fair value of warrant derivative liabilities. Accordingly, the Company allocated a portion of the net proceeds of this offering to warrant derivative liabilities based on their estimated fair value as follows (See Notes 4 and 11):

SCHEDULE OF NET PROCEEDS FROM OFFERING

---

| | |
|:---|:---|
| **Description** | **Amount** |
| &nbsp;&nbsp;&nbsp;Warrant derivative liabilities | $27476352 |
| &nbsp;&nbsp;&nbsp;Pre-funded warrant derivative liabilities | 1438934 |
| Total allocation of the net proceeds of the offering to warrant derivative liabilities | $28915286 |

---

***2021 Issuance of Restricted Common Stock.***

On January 7, 2021, the board of directors approved the grant of 450,000 shares of common stock to officers of the Company. Such shares will generally vest one-half on January 7, 2022, and one half on January 7, 2023, provided that each grantee remains an officer or employee on such dates.

On September 20, 2021, the board of directors approved the grant of 406,000 shares of common stock to employees of the Company. A total of 26,000 shares vested immediately upon grant and the remaining 380,000 shares will generally vest in varying amounts over the next 5 years, provided that each grantee remains an employee on such vesting dates.

***Cancellation of Restricted Stock***

 ****

During the year ended December 31, 2021, the Company cancelled 7,700 shares for various reasons.

***Issuance of Common Stock as Consideration for the TicketSmarter Acquisition.***

On September 2, 2021, the Company issued a total of 719,738 shares of common stock as a portion of the consideration paid for the acquisition of Goody Tickets, LLC and TicketSmarter, LLC. See full description of this acquisition in "**Note 20. TICKETSMARTER ACQUISITION**".

***Stock Repurchase Program***

 ****

On December 6, 2021, the board of directors of the Company authorized the repurchase of up to $10.0 million of the Company's outstanding common stock under the specified terms of a share repurchase program (the "Program"). During 2021, the Company repurchased 1,734,838 shares of its common stock for $1,975,079, in accordance with the Program. The Program does not obligate the Company to acquire any specific number of shares and shares may be repurchased in privately negotiated and/or open market transactions, including under plans complying with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended.

SCHEDULE OF STOCK HOLDERS EQUITY

---

| | | | | |
|:---|:---|:---|:---|:---|
| **Period** | **Total Number of<br> Shares<br> Purchased<sup>(1)</sup>** | **Average Price <br> Paid per <br> Shares<sup>(1)</sup>** | **Total Number of <br> Shares Purchased as<br> Part of Publicly<br> Announced <br> Program<sup>(1)</sup>** | **Maximum Approximate Dollar Value of<br> Shares that May Yet Be<br> Purchased Under the<br> Program<sup>(1)</sup>** |
| December 2021 | 1734838 | $1.14 | 1734838 |  |
| &nbsp;&nbsp;&nbsp;Total all plans | 1734838 | $1.14 | 1734838 | $8024921 |

---

***Cancellation of Treasury Stock***

On December 31, 2021, the Company cancelled its 63,518 shares held in treasury, in addition to the repurchased shares through the Program.

***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 statement of income (loss) as "net income (loss) attributable to noncontrolling interests of consolidated subsidiary". We reported net income (loss) attributable to noncontrolling interests of consolidated subsidiary of $56,453 and $-0- for the years ended December 31, 2021 and 2020, respectively.

**NOTE 17. RELATED PARTY TRANSACTIONS**

***American Rebel Holding, Inc. Secured Promissory Notes***

On October 1, 2020, the Company advanced $250,000 to American Rebel Holdings, Inc. (AREB) under a secured promissory note. The CEO, President and Chairman of AREB is the brother of the Company's CEO, President and Chairman. Such note bears interest at 8% and is secured by all the tangible and intangible assets of the Company that are not currently secured by other indebtedness. The Company also received warrants to purchase 1,250,000 shares of AREB common stock at an exercise price of $0.10 per share with a five-year term. This note had an original maturity date of January 2, 2021; however, additional provisions within the note provided for an extension of the maturity date for fourteen months due to AREB's failure to raise $300,000 in new debt or equity financing prior to the original maturity date. Upon this extension, the AREB was obligated to make equal monthly payments of principal and interest over the extended period of the note.

On October 21, 2020, the Company advanced $250,000 to AREB under a second secured promissory note. Such note bears interest at 8% and is secured by inventory manufactured and revenue/accounts receivable derived from a specific purchase order. The Company also received warrants to purchase 1,250,000 shares of AREB common stock at an exercise price of $0.10 per share with a five-year term. This note has a maturity date of April 21, 2021, subject to full repayment upon AREB closing on debt or equity financings of at least $600,000, and the receipt of revenue from the sale of inventory sold under the specific purchase order serving as collateral. On March 1, 2021, the Company advanced an additional $117,600 to AREB on terms similar to the previously issued notes.

On April 21, 2021, the parties agreed to the terms of a Debt Settlement Agreement and Mutual Release regarding the following: (a) the secured promissory note dated October 1, 2020; (b) the secured promissory note dated October 21, 2020; and (c) an advance made by the Company on March 1, 2021. The parties arranged for a lump sum payment aggregating $639,956 to liquidate all outstanding debt including accrued interest for the two delinquent notes and the advance which lump-sum payment was made on April 21, 2021. No gain or loss was determined on this transaction.

***Transactions with Affiliate and Member of Board of Director***

 ****

Christian J. Hoffmann, III is currently the Chief Financial Officer and General Counsel for Nobility, LLC, which is the managing member of the Company's majority owned subsidiary, Nobility Healthcare, LLC. The Company has made payments to Mr. Hoffmann and his affiliates for legal and other services rendered totaling $105,926 during the year ended December 31, 2021. Furthermore, on January 27, 2022, the Company's Board of Directors appointed Mr. Hoffmann to become a member of the Board until the next annual meeting of shareholders of the Company at which directors are being elected.

***Transactions with Managing Member of Nobility Healthcare***

 ****

Nobility, LLC, is currently the managing member of Nobility Healthcare, LLC. The Company has advanced a total of $158,384 in the form of working capital loan to Nobility, LLC in order to fund capital expenditures necessary for the initial growth of the joint venture during the year ended December 31, 2021. The outstanding balance of working capital loan was $158,384 as of December 31, 2021 and the Company anticipates full repayment of this advance during the year ended December 31, 2022.

**NOTE 18. NET INCOME (LOSS) PER SHARE**

The calculation of the weighted average number of shares outstanding and loss per share outstanding for the years ended December 31, 2021 and 2020 are as follows:

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

---

| | | |
|:---|:---|:---|
|  | **Year ended December 31,** | **Year ended December 31,** |
|  | **2021** | **2020** |
| Numerator for basic and diluted income (loss) per share – Net income (loss) | $25474508 | $(2625881) |
| Denominator for basic loss per share – weighted average shares outstanding | 50222289 | 21603635 |
| Dilutive effect of shares issuable upon conversion of convertible debt and the exercise of stock options and warrants outstanding |  |  |
| &nbsp;&nbsp;&nbsp;Denominator for diluted loss per share – adjusted weighted average shares outstanding | 50222289 | 21603635 |
| Net income (loss) per share: |  |  |
| &nbsp;&nbsp;&nbsp;Basic | $0.51 | $(0.12) |
| &nbsp;&nbsp;&nbsp;Diluted | $0.51 | $(0.12) |

---

Basic income (loss) per share is based upon the weighted average number of common shares outstanding during the period. For the years ended December 31, 2021 and 2020, all shares issuable upon conversion of convertible debt and the exercise of outstanding stock options and warrants were antidilutive, and, therefore, not included in the computation of diluted income (loss) per share.

**NOTE 19. DIGITAL ALLY HEALTHCARE VENTURE**

On June 4, 2021, Digital Ally Healthcare, a wholly-owned subsidiary of the Company, entered into a venture with Nobility LLC ("Nobility"), an eight-year old revenue cycle management ("RCM") company servicing the medical industry, to form Nobility Healthcare, LLC ("Nobility Healthcare"). Digital Ally Healthcare is capitalizing the venture with $13.5 million to support the venture's business strategy to make acquisitions of RCM companies. Digital Ally Healthcare owns 51% of the venture that entitles it to 51% of the distributable cash as defined in the venture's operating agreement plus a cumulative preferred return of 10% per annum on its invested capital. Nobility will receive a management fee and 49% of the distributable cash, subordinated to Digital Ally Healthcare's preferred return. The venture comprises the Company's revenue cycle management segment.

On June 30, 2021, the Company's revenue cycle management segment completed the acquisition of a private medical billing company (the "Healthcare Acquisition"). In accordance with the stock purchase agreement, the Company's revenue cycle management segment agreed to a non-refundable initial payment (the "Initial Payment Amount") of $850,000. In addition to the Initial Payment Amount, the Company's revenue cycle management segment agreed to issue a promissory note to the stockholders of the Healthcare Acquisition in the principal amount of $350,000 that is subject to an earn-out adjustment. Management's estimate of the fair value of this Contingent Note at December 31, 2021 is $317,212. The gain associated with the adjustment in the estimated fair value of this contingent promissory note is recorded as a gain in the Consolidated Statements of Operations for the year ended December 31, 2021. Lastly, the Company's revenue cycle management segment agreed to pay $162,552 representing the principal and accrued interest balance due under a promissory note issued to the selling shareholders prior to the acquisition closing date. The Company's revenue cycle management segment anticipates the estimated fair value of the contingent promissory note to be paid in full, therefore, the total aggregate purchase price was determined to be approximately $1,376,509. Total acquisition related costs aggregated $164,630, which was expensed as incurred. Subsequent to the acquisition date, the Company received further information regarding the purchased assets and assumed liabilities. As a result, the initial allocation of the purchase price was adjusted by increasing accounts receivable by $75,000 with a corresponding reduction of goodwill during the year ended December 31, 2021.

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 Healthcare Acquisition has been allocated to the acquired tangible and identifiable intangible assets and assumed liabilities based on their estimated fair values at the time of the Healthcare Acquisition. This allocation involves a number of assumptions, estimates, and judgments that could materially affect the timing or amounts recognized in our financial statements. Our assumptions and estimates are based upon information obtained from the management of the Company's revenue cycle management segment. The acquisition was structured as stock purchase, therefore the excess purchase price over the fair value of net tangible assets acquired was recorded as goodwill, which will not be amortized for income tax filing purposes. The results of operations of acquired businesses are included in the consolidated financial statements from the acquisition date.

The purchase price of the Healthcare Acquisition was allocated to the tangible assets, and assumed liabilities based on their preliminary estimated fair values at the time of the Healthcare Acquisition. The Company expects to retain the services of independent valuation firm to determine the fair value of these identifiable intangible assets. Once determined, the Company will reallocate the purchase price of the acquisition based on the results of the independent evaluation if they are materially different from the allocations as recorded on June 30, 2021. The preliminary estimated fair value of assets acquired and liabilities assumed in the Healthcare Acquisition were as follows:

SCHEDULE OF PRELIMINARY FAIR VALUE OF ASSETS ACQUIRED AND LIABILITIES ACQUISITION

---

| | |
|:---|:---|
| **Description** | **Amount** |
| Assets acquired: |  |
| &nbsp;&nbsp;&nbsp;Tangible assets acquired, consisting of acquired cash, accounts receivable and right of use asset | $174351 |
| &nbsp;&nbsp;&nbsp;Goodwill | 1125000 |
| &nbsp;&nbsp;&nbsp;Liabilities assumed consisting of a promissory note issued by the selling shareholders which was paid off at closing, net of lease liability assumed | 77158 |
| &nbsp;&nbsp;&nbsp;Total assets acquired and liabilities assumed | $1376509 |
| Consideration: |  |
| Cash paid at Healthcare Acquisition date | $1026509 |
| Contingent consideration | 350000 |
| Total Healthcare Acquisition purchase price | $1376509 |

---

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. The change in fair value of the contingent consideration is more fully described in Note 8, "Debt Obligations".

On August 31, 2021, the Company's revenue cycle management segment completed the acquisition of another private medical billing company (the "Medical Billing Acquisition"). In accordance with the stock purchase agreement, Nobility Healthcare agreed to a non-refundable initial payment (the "Initial Payment Amount") of $2,270,000. In addition to the Initial Payment Amount, the Company's revenue cycle management segment agreed to issue a contingent promissory note to the stockholders of the Medical Billing Acquisition in the principal amount of $650,000 that is subject to an earn-out adjustment. The Company's revenue cycle management segment anticipates the estimated fair value of the contingent promissory note to be paid in full, therefore, the total aggregate purchase price was determined to be approximately $2,920,000. Total acquisition related costs aggregated $5,602, which was expensed as incurred.

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 Medical Billing Acquisition has been allocated to the acquired tangible and identifiable intangible assets and assumed liabilities based on their estimated fair values at the time of the Medical Billing Acquisition. This allocation involves a number of assumptions, estimates, and judgments that could materially affect the timing or amounts recognized in our financial statements. The acquisition was structured as stock purchase, therefore the excess purchase price over the fair value of net tangible assets acquired was recorded as goodwill, which will not be amortized for income tax filing purposes. The results of operations of acquired businesses are included in the consolidated financial statements from the acquisition date.

The purchase price of the Medical Billing Acquisition was allocated to the tangible assets, and assumed liabilities based on their preliminary estimated fair values at the time of the Medical Billing Acquisition. The Company expects to retain the services of independent valuation firm to determine the fair value of these identifiable intangible assets. Once determined, the Company will reallocate the purchase price of the acquisition based on the results of the independent evaluation if they are materially different from the allocations as recorded on August 31, 2021. The preliminary estimated fair value of assets acquired, and liabilities assumed in the Medical Billing Acquisition were as follows:

SCHEDULE OF PRELIMINARY FAIR VALUE OF ASSETS ACQUIRED AND LIABILITIES ACQUISITION

---

| | |
|:---|:---|
| **Description** | **Amount** |
| Assets acquired: |  |
| &nbsp;&nbsp;&nbsp;Tangible assets acquired | $401547 |
| &nbsp;&nbsp;&nbsp;Goodwill | 2920000 |
| &nbsp;&nbsp;&nbsp;Liabilities assumed pursuant to stock purchase agreement | (401547) |
| &nbsp;&nbsp;&nbsp;Total assets acquired and liabilities assumed | $2920000 |
| Consideration: |  |
| Cash paid at acquisition date | $2270000 |
| Contingent consideration | 650000 |
| Total acquisition purchase price | $2920000 |

---

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. The change in fair value of the contingent consideration is more fully described in Note 8, "Debt Obligations".

**NOTE 20. TICKETSMARTER ACQUISITION**

On September 1, 2021, Digital Ally, Inc. formed TicketSmarter, Inc. ("TicketSmarter"), through which the Company completed the acquisition of Goody Tickets, LLC, a Kansas limited liability company ("Goody Tickets") and TicketSmarter, LLC, a Kansas limited liability company ("TicketSmarter LLC"), collectively the "TicketSmarter Acquisition". TicketSmarter, Inc. comprises the Company's ticketing business segment. In accordance with the stock purchase agreement, the Company agreed to an initial payment (the "Initial Payment Amount") of $9,403,600 through a combination of cash and common stock. In addition to the Initial Payment Amount, the Company agreed to issue an earn-out agreement to the stockholders of Goody Tickets and TicketSmarter LLC in the contingent amount of $4,244,400 that is subject to an earn-out adjustment based on actual EBITDA achieved in 2021, of which the Company gave a fair value of $3,700,000 on the date of acquisition. However, following the completion of 2021, it was determined that the actual EBITDA threshold for any earn-out adjustment to be paid was not met. Thus, in accordance with U.S. GAAP, the fair value of the contingent earn-out is reduced to zero, and the associated gain related to this revaluation is recorded in our Consolidated Statements of Operations for the year ended December 31, 2021. Lastly, included in the agreement, the Company agreed to place $500,000 in escrow, subject to a working capital adjustment based on actual working capital amounts on the acquisition date as defined in the agreement, this amount was subject to disbursement 45 days following the close of the acquisition. The parties completed the working capital adjustment resulting in the Company retaining $297,726 of the escrow amount with the $202,274 released to the Sellers. The total acquisition related costs aggregated $40,625, which was expensed as incurred.

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 TicketSmarter Acquisition has been allocated to Goody Tickets' and TicketSmarter LLC's acquired tangible and identifiable intangible assets and assumed liabilities based on their estimated fair values at the time of the TicketSmarter Acquisition. This allocation involves a number of assumptions, estimates, and judgments that could materially affect the timing or amounts recognized in our financial statements. The TicketSmarter Acquisition was structured as a stock purchase, however the parties agreed to coordinate the election to invoke IRS Section 338(h)(10) relative to this transaction for tax purposes. Therefore, the excess purchase price over the fair value of net tangible assets acquired was recorded as goodwill, which will be amortized over 15 years for income tax filing purposes. Likewise, the other acquired assets were stepped up to fair value and is deductible for income tax purposes. The results of operations of acquired businesses are included in the consolidated financial statements from the acquisition date.

The purchase price of the TicketSmarter Acquisition was allocated to Goody Tickets' and TicketSmarter LLC's tangible assets, goodwill, identifiable intangible assets, and assumed liabilities based on their preliminary estimated fair values at the time of the TicketSmarter Acquisition. The Company retained the services of an independent valuation firm to determine the fair value of these identifiable intangible assets. The Company will continue to evaluate the fair value of the identified intangible assets. The preliminary estimated fair value of assets acquired, and liabilities assumed in the TicketSmarter Acquisition were as follows:

SCHEDULE OF PRELIMINARY FAIR VALUE OF ASSETS ACQUIRED AND LIABILITIES ASSUMED IN THE TICKET SMARTER ACQUISITION

---

| | | |
|:---|:---|:---|
| | **Preliminary purchase price<br> allocation** | **Preliminary purchase price<br> allocation** |
| <br>**Description** | **As allocated**<br>**September 30, 2021** | **As allocated**<br>**December 31, 2021** |
| Assets acquired: |  |  |
| &nbsp;&nbsp;&nbsp;Tangible assets acquired, including $51,432 of cash acquired | $7139930 | $5748291 |
| &nbsp;&nbsp;&nbsp;Identifiable intangible assets acquired |  | 6800000 |
| &nbsp;&nbsp;&nbsp;Goodwill | 11839308 | 5886547 |
| &nbsp;&nbsp;&nbsp;Liabilities assumed | (5128964) | (5128964) |
| &nbsp;&nbsp;&nbsp;Net assets acquired and liabilities assumed | $13850274 | $13305874 |
| Consideration: |  |  |
| &nbsp;&nbsp;&nbsp;Cash paid at TicketSmarter Acquisition date | $8413240 | $8413240 |
| &nbsp;&nbsp;&nbsp;Common stock issued as consideration for TicketSmarter Acquisition at date of acquisition | 990360 | 990360 |
| &nbsp;&nbsp;&nbsp;Contingent consideration earn-out agreement | 4244400 | 3700000 |
| &nbsp;&nbsp;&nbsp;Cash paid at closing to escrow amount | 500000 | 500000 |
| &nbsp;&nbsp;&nbsp;Cash retained from escrow amount pursuant to settlement of working capital target | (297726) | (297726) |
| Total TicketSmarter Acquisition purchase price | $13850274 | $13305874 |

---

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

---

| | | | |
|:---|:---|:---|:---|
|  | **Cost** | **Amortization through December 31, 2021** | **Estimated useful life** |
| Identifiable intangible assets: |  |  |  |
| &nbsp;&nbsp;&nbsp;Trademarks | $600000 | $— | indefinite |
| &nbsp;&nbsp;&nbsp;Sponsorship agreement network | 5600000 | 373333 | 5 years |
| &nbsp;&nbsp;&nbsp;Search engine optimization/content | 600000 | 50000 | 4 years |
|  | $6800000 | $423333 |  |

---

For the period from the date of the TicketSmarter Acquisition to December 31, 2021, the Company adjusted its preliminary fair value estimates and estimated useful lives based upon information obtained through December 31, 2021, which resulted in adjustments to the preliminary allocation of the purchase price. These adjustments primarily related to estimated identifiable intangible asset fair values (primarily related to the sponsorship agreement network), the estimated fair value of the contingent earn-out agreement liability and goodwill. The primary area of the acquisition accounting that had not yet been finalized as of December 31, 2021 related to identifiable intangible assets, which could result in a change to goodwill.

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. The change in fair value of the contingent consideration is more fully described in Note 8, "Debt Obligations".

**NOTE 21 - SEGMENT DATA**

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. 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 Ticketing, each of which has specific personnel responsible for that business and reports to the CODM. Corporate expenses capture the Company's corporate administrative activities, is also to be reported in the segment information. The Company's captive insurance subsidiary provides services to the Company's other business segments and not to outside customers. Therefore, its operations are eliminated in consolidation and is not considered a separate business segment for financial reporting purposes.

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 Ticketing Segment we act 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.

Summarized financial information for the Company's reportable business segments is provided for the indicated periods and as of December 31, 2021, and December 31, 2020:

---

| | | |
|:---|:---|:---|
|  | **Years Ended December 31,** | **Years Ended December 31,** |
|  | **2021** | **2020** |
| **Net Revenues:** |  |  |
| &nbsp;&nbsp;&nbsp;Video Solutions | $9073626 | $10514868 |
| &nbsp;&nbsp;&nbsp;Revenue Cycle Management | 1630048 |  |
| &nbsp;&nbsp;&nbsp;Ticketing | 10709760 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total Net Revenues | $21413434 | $10514868 |
| **Gross Profit:** |  |  |
| &nbsp;&nbsp;&nbsp;Video Solutions | $2002345 | $4062594 |
| &nbsp;&nbsp;&nbsp;Revenue Cycle Management | 521047 |  |
| &nbsp;&nbsp;&nbsp;Ticketing | 3140383 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total Gross Profit | $5663775 | $4062594 |
| **Operating Income (loss):** |  |  |
| &nbsp;&nbsp;&nbsp;Video Solutions | $(4497196) | $(578417) |
| &nbsp;&nbsp;&nbsp;Revenue Cycle Management | 93763 |  |
| &nbsp;&nbsp;&nbsp;Ticketing | 235432 |  |
| &nbsp;&nbsp;&nbsp;Corporate | (10592909) | (7085234) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total Operating Income (Loss) | $(14760910) | $(7663651) |
| **Depreciation and Amortization:** |  |  |
| &nbsp;&nbsp;&nbsp;Video Solutions | $395361 | $250156 |
| &nbsp;&nbsp;&nbsp;Revenue Cycle Management |  |  |
| &nbsp;&nbsp;&nbsp;Ticketing | 427128 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total Depreciation and Amortization | $822489 | $250156 |
| **Assets (net of eliminations):** |  |  |
| &nbsp;&nbsp;&nbsp;Video Solutions | $25983348 | $16435769 |
| &nbsp;&nbsp;&nbsp;Revenue Cycle Management | 934095 |  |
| &nbsp;&nbsp;&nbsp;Ticketing | 12260780 |  |
| &nbsp;&nbsp;&nbsp;Corporate | 43810974 | 4361758 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total Identifiable Assets | $82989197 | $20797527 |

---

The segments recorded noncash items effecting the gross profit and operating income (loss) through the established inventory reserves based on estimates of excess and/or obsolete current and non-current inventory. The Company recorded a reserve for excess and obsolete inventory in the video solutions segment of $3,353,458 and a reserve for the ticketing segment of $561,631.

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 22. SUBSEQUENT EVENTS**

***Acquisition of Third Medical Billing Company***

On January 1, 2022, the Company's revenue cycle management segment completed the acquisition of 100% of the capital stock of a third medical billing company for a total purchase price of approximately $1.90 million. The purchase price includes approximately $1.15 million in cash at closing and a $750,000 contingent consideration promissory note bearing interest at 3% per annum subject to adjustment based on revenues achieved over an approximate 18-month period after closing, maturing in July of 2024. This closely-held company provides revenue cycle management (RCM) and other services for over 180 dental practices located throughout the United States with an annual revenue run rate of approximately $3.5 million.

 ****

***Special Meeting of Shareholders***

On January 11, 2022, the Company held a special meeting of its stockholders (the "Special Meeting"). Set forth below are the two proposals that were voted on at the Special Meeting and the results of the voting for each:

*Proposal 1 –* To approve an amendment to the Company's Articles of Incorporation, as amended, to increase the number of authorized shares of the Company's capital stock that the Company may issue from 100,000,000 shares to 300,000,000 shares, of which all 300,000,000 shares shall be classified as Common Stock ("Proposal No. 1"). The Company's stockholders did not approve Proposal No. 1.

*Proposal 2 –* To approve an adjournment of the Special Meeting, if necessary or appropriate, to solicit additional proxies ("Proposal No. 2"). The Company's stockholders did not approve Proposal No. 2.

 **

***Appointment of Christian J. Hoffmann III to Board of Directors***

 **

On January 27, 2022, the Board of Directors appointed Christian J. Hoffmann, III as a member of the Board, effective immediately, to hold office until the next meeting of shareholders of the Company at which directors are being elected or as set forth in the Company's bylaws. Mr. Hoffmann, co-founded Nobility, LLC ("Nobility"), a medical billing and revenue cycle management company, in 2014 where he has served as the Chief Financial Officer and General Counsel. On June 4, 2021, the Company and Nobility launched Nobility Healthcare, LLC, a subsidiary of the Company, to provide revenue cycle management services for the healthcare industry. During 2020 and 2021, Mr. Hoffmann also served as an outside counsel to the Board on specific matters as requested.

Expect as disclosed herein, there are no other arrangements or understandings between Mr. Hoffmann and any other persons pursuant to which he was appointed as a member of the Board. There are also no family relationships between any of the Company's directors or officers and Mr. Hoffmann. All related party transactions involving Mr. Hoffmann that are reportable under Item 404(a) of Regulation S-K are disclosed in Part III, Item 13 of this Annual Report on Form 10-K. Mr. Hoffmann will receive standard board compensation for his service as a director.

 ****

***Acquisition of Fourth Medical Billing Company***

On February 1, 2022, the Company's revenue cycle management segment completed the acquisition of 100% of the assets of a fourth medical billing company for a total purchase price of $335,000. The purchase price includes $230,000 in cash at closing and a $105,000 contingent consideration promissory note bearing interest at 3% per annum subject to adjustment based on revenues achieved over an approximate 18-month period after closing, maturing in August of 2024. The acquisition provides revenue cycle management (RCM) and other services throughout the southwestern portion of United States with an annual revenue run rate of approximately $440,000.

 ****

***Letter of Intent to Acquire Medical Billing Company***

On March 16, 2022, the Company's revenue cycle management segment entered a letter of intent to acquire 100% of the capital stock of a medical billing company located in the Southern portion of the United States for a total purchase price of $5,000,000 (the "Target"). The purchase price includes $3.25 million in cash at closing and a $1,750,000 contingent consideration promissory note bearing interest at 4% per annum subject to adjustment based on revenues achieved over an approximate 24-month period after closing. The letter of intent is subject to satisfactory completion of due diligence procedures, review of legal, financial, tax and other matters concerning the Target's business. The letter of intent is also not binding until the parties mutually agree to the terms of the underlying definitive agreements including the receipt of all approvals and consents considered necessary by both parties. The parties are currently negotiating the final definitive agreements and anticipate a closing date on or around May 31, 2022. However, there can be no assurances that the parties will complete the acquisition of the Target and on what terms will be included in the final definitive agreements.

***2022 Issuance of Restricted Common Stock***

 ****

On March 23, 2022, the board of directors approved the grant of 190,000 restricted common shares to certain new employees of the Company. A total of 5,000 shares vested immediately upon issuance and the remainder vest over a period of one to five years. Such shares will generally vest over a period of one to five years on their respective anniversary dates in January through January 2027, provided that each grantee remains an employee on such dates.

 **

***Stock Repurchase Program***

 **

On December 6, 2021, the Board of Directors of the Company authorized the repurchase of up to $10.0 million of the Company's outstanding common stock under the specified terms of a share repurchase program (the "Program"). Subsequent to December 31, 2021, the Company repurchased 2,163,341 shares of its common stock for $2,312,054, in accordance with the Program. The Program does not obligate the Company to acquire any specific number of shares and shares may be repurchased in privately negotiated and/or open market transactions, including under plans complying with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended.

**DIGITAL ALLY, INC.**

**CONDENSED CONSOLIDATED BALANCE SHEETS**

**September 30, 2022 AND DECEMBER 31, 2021**

---

| | | |
|:---|:---|:---|
|  | **September 30, 2022**<br> **(Unaudited)** | **December 31, 2021** |
| **Assets** |  |  |
| Current assets: |  |  |
| &nbsp;&nbsp;&nbsp;Cash and cash equivalents | $6295391 | $32007792 |
| &nbsp;&nbsp;&nbsp;Accounts receivable – trade, net | 2744354 | 2727052 |
| &nbsp;&nbsp;&nbsp;Other receivables (including $138,384 due from related parties – September 30, 2022 and $158,384 – December 31, 2021, refer to Note 20) | 5448545 | 2021813 |
| &nbsp;&nbsp;&nbsp;Inventories, net | 10963916 | 9659536 |
| &nbsp;&nbsp;&nbsp;Prepaid expenses | 9227985 | 9728782 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total current assets | 34680191 | 56144975 |
| Property, plant, and equipment, net | 8407139 | 6841026 |
| Goodwill and other intangible assets, net | 18230538 | 16902513 |
| Operating lease right of use assets, net | 846521 | 993384 |
| Other assets | 6233075 | 2107299 |
| &nbsp;&nbsp;&nbsp;Total assets | $68397464 | $82989197 |
| **Liabilities and Stockholders' Equity** |  |  |
| Current liabilities: |  |  |
| &nbsp;&nbsp;&nbsp;Accounts payable | $9902259 | $4569106 |
| &nbsp;&nbsp;&nbsp;Accrued expenses | 1097065 | 1175998 |
| &nbsp;&nbsp;&nbsp;Current portion of operating lease obligations | 304294 | 373371 |
| &nbsp;&nbsp;&nbsp;Contract liabilities – current portion | 2049704 | 1665519 |
| &nbsp;&nbsp;&nbsp;Debt obligations – current portion | 569934 | 389934 |
| &nbsp;&nbsp;&nbsp;Warrant derivative liabilities |  | 14846932 |
| &nbsp;&nbsp;&nbsp;Income taxes payable | 11796 | 1827 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total current liabilities | 13935052 | 23022687 |
| Long-term liabilities: |  |  |
| &nbsp;&nbsp;&nbsp;Debt obligations – long term | 671887 | 727278 |
| &nbsp;&nbsp;&nbsp;Operating lease obligation – long term | 610422 | 688207 |
| &nbsp;&nbsp;&nbsp;Contract liabilities – long term | 5134995 | 2687786 |
| Total liabilities | 20352356 | 27125958 |
| Commitments and contingencies |  |  |
| Stockholders' Equity: |  |  |
| &nbsp;&nbsp;&nbsp;Common stock, $0.001 par value per share; 100,000,000 shares authorized; shares issued: 53,903,405 shares issued and outstanding – September 30, 2022 and 50,904,391 shares issued and outstanding – December 31, 2021 | 53903 | 50904 |
| &nbsp;&nbsp;&nbsp;Additional paid in capital | 129943238 | 124426379 |
| &nbsp;&nbsp;&nbsp;Noncontrolling interest in consolidated subsidiary | 309397 | 56453 |
| &nbsp;&nbsp;&nbsp;Accumulated deficit | (82261430) | (68670497) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total stockholders' equity | 48045108 | 55863239 |
| &nbsp;&nbsp;&nbsp;Total liabilities and stockholders' equity | $68397464 | $82989197 |

---

See Notes to the Unaudited Condensed Consolidated Financial Statements.

**DIGITAL ALLY, INC.**

**CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS**

**FOR THE THREE AND NINE MONTHS ENDED**

**SEPTEMBER 30, 2022 AND 2021**

**(Unaudited)**

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **Three months ended<br> September 30,** | **Three months ended<br> September 30,** | **Nine months ended <br> September 30,** | **Nine months ended <br> September 30,** |
|  | **2022** | **2021** | **2022** | **2021** |
| Revenue: |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Product | $3062373 | $1356454 | $7682614 | $4988364 |
| &nbsp;&nbsp;&nbsp;Service and other | 5421780 | 3283368 | 20447778 | 4680959 |
| &nbsp;&nbsp;&nbsp;Total revenue | 8484153 | 4639822 | 28130392 | 9669323 |
| Cost of revenue: |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Product | 3262457 | 1197217 | 8154984 | 3776185 |
| &nbsp;&nbsp;&nbsp;Service and other | 4626196 | 2042035 | 15721210 | 2419884 |
| &nbsp;&nbsp;&nbsp;Total cost of revenue | 7888653 | 3239252 | 23876194 | 6196069 |
| &nbsp;&nbsp;&nbsp;Gross profit | 595500 | 1400570 | 4254198 | 3473254 |
| Selling, general and administrative expenses: |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Research and development expense | 616174 | 492221 | 1654395 | 1402185 |
| &nbsp;&nbsp;&nbsp;Selling, advertising and promotional expense | 1832916 | 1511682 | 7375364 | 2978620 |
| &nbsp;&nbsp;&nbsp;General and administrative expense | 4713433 | 2995640 | 15256049 | 8174002 |
| Total selling, general and administrative expenses | 7162523 | 4999543 | 24285808 | 12554807 |
| &nbsp;&nbsp;&nbsp;Operating loss | (6567023) | (3598973) | (20031610) | (9081553) |
| Other income (expense): |  |  |  |  |
| Interest income | 13333 | 90036 | 116928 | 222497 |
| Interest expense | (14255) | (5675) | (39766) | (8466) |
| Other income (loss) | (1892) |  | 41167 |  |
| Gain on extinguishment of debt |  |  |  | 10000 |
| Change in fair value of contingent consideration promissory notes | (138877) |  | 347169 |  |
| Change in fair value of short-term investments |  | (21656) | (84818) | (28210) |
| Change in fair value of warrant derivative liabilities | 1164849 | 11585204 | 6726638 | 33274039 |
| Gain on extinguishment of warrant derivative liabilities | 3624794 |  | 3624794 |  |
| Total other income | 4647952 | 11647909 | 10732112 | 33469860 |
| Income (loss) before income tax benefit | (1919071) | 8048936 | (9299498) | 24388307 |
| Income tax benefit |  |  |  |  |
| Net income (loss) | (1919071) | 8048936 | (9299498) | 24388307 |
| Net loss (income) attributable to noncontrolling interests of consolidated subsidiary | 16596 | 19863 | (268636) | 19863 |
| Net income (loss) attributable to common stockholders | $(1902475) | $8068799 | $(9568134) | $24408170 |
| Net loss per share information: |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Basic | $(0.04) | $0.16 | $(0.19) | $0.49 |
| &nbsp;&nbsp;&nbsp;Diluted | $(0.04) | $0.16 | $(0.19) | $0.49 |
| Weighted average shares outstanding: |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Basic | 50365218 | 51809435 | 49973619 | 49404794 |
| &nbsp;&nbsp;&nbsp;Diluted | 50365218 | 51809435 | 49973619 | 49404794 |

---

See Notes to the Unaudited Condensed Consolidated Financial Statements.

**DIGITAL ALLY, INC.**

**CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY**

**FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021**

**(Unaudited)**

---

| | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|
|  | **Common Stock** | **Common Stock** | | | | | |
|  | **Shares** | **Amount** | **Additional<br> Paid In**<br>**Capital** | **Treasury**<br>**stock** | **Noncontrolling<br> interest in<br> consolidated**<br>**subsidiary** | **Accumulated**<br>**deficit** |<br>**Total** |
| Balance, December 31, 2020 | 26834709 | $26835 | $106501396 | $(2157226) | $— | $(90014500) | $14356505 |
| Stock-based compensation |  |  | 326164 |  |  |  | 326164 |
| Restricted common stock grant | 450000 | 450 | (450) |  |  |  |  |
| Restricted common stock forfeitures | (7500) | (8) | 8 |  |  |  |  |
| Issuance of common stock through registered direct offering at $3.095 per share and accompanying warrants (net of offering expenses and placement agent discount) | 2800000 | 2800 | 6726200 |  |  |  | 6729000 |
| Issuance of common stock through registered direct offering at $2.80 per share and accompanying warrants (net of offering expenses and placement agent discount) | 3250000 | 3250 | 6614350 |  |  |  | 6617600 |
| Exercise of pre-funded common stock purchase warrants at $3.095 per share | 7200000 | 7200 | 22276800 |  |  |  | 22284000 |
| Exercise of pre-funded common stock purchase warrants at $2.80 per share | 11050000 | 11050 | 30928950 |  |  |  | 30940000 |
| Issuance of pre-funded common stock purchase warrants in connection with the registered direct offerings |  |  | (1817548) |  |  |  | (1817548) |
| Issuance of common stock purchase warrants at exercise price of $3.25 per share in connection with the registered direct offerings |  |  | (49398510) |  |  |  | (49398510) |
| Net income |  |  |  |  |  | 21721858 | 21721858 |
| Balance, March 31, 2021 | 51577209 | 51577 | 122157360 | (2157226) |  | (68292642) | 51759069 |
| Stock-based compensation |  |  | 330213 |  |  |  | 330213 |
| Net loss |  |  |  |  |  | (5382487) | (5382487) |
| Balance, June 30, 2021 | 51577209 | $51577 | $122487573 | $(2157226) | $— | $(73675129) | $46706795 |
| Issuance of common stock as consideration for acquisition | 719738 | 720 | 989640 |  |  |  | 990360 |
| Restricted common stock grant | 406000 | 406 | (406) |  |  |  |  |
| Stock-based compensation |  |  | 491950 |  |  |  | 491950 |
| Net income |  |  |  |  | (19863) | 8068799 | 8048936 |
| Balance, September 30, 2021 | 52702947 | $52703 | $123968757 | $(2157226) | $(19863) | $(65606330) | $56238041 |
| Balance, December 31, 2021 | 50904391 | $50904 | $124426379 | $— | $56453 | $(68670497) | $55863239 |
| Stock-based compensation |  |  | 394749 |  |  |  | 394749 |
| Restricted common stock grant | 715000 | 715 | (715) |  |  |  |  |
| Restricted common stock forfeitures | (15000) | (15) | 15 |  |  |  |  |
| Repurchase and cancellation of common stock | (1876034) | (1876) |  |  |  | (2061892) | (2063768) |
| Distribution to noncontrolling interest in consolidated subsidiary |  |  |  |  | (15692) |  | (15692) |
| Net loss |  |  |  |  | (98094) | (6600148) | (6698242) |
| Balance, March 31, 2022 | 49728357 | $49728 | $124820428 | $— | $(57333) | $(77332537) | $47480286 |
| Stock-based compensation |  |  | 381602 |  |  |  | 381602 |
| Restricted common stock forfeitures | (50000) | (50) | 50 |  |  |  |  |
| Repurchase and cancellation of common stock | (1849952) | (1850) |  |  |  | (1960905) | (1962755) |
| Net income (loss) |  |  |  |  | 383326 | (1065513) | (682187) |
| Balance, June 30, 2022 | 47828405 | $47828 | $125202080 | $— | $325993 | $(80358955) | $45216946 |
| Issuance of common stock through warrant exchange agreement | 6075000 | 6075 | 4489425 |  |  |  | 4495500 |
| Stock-based compensation |  |  | 251733 |  |  |  | 251733 |
| Net income (loss) |  |  |  |  | (16596) | (1902475) | (1919071) |
| Balance, September 30, 2022 | 53903405 | $53903 | 129943238 | $— | $309397 | $(82261430) | $48045108 |

---

See Notes to the Unaudited Condensed Consolidated Financial Statements.

**DIGITAL ALLY, INC.**

**CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**

**FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021**

**(Unaudited)**

---

| | | |
|:---|:---|:---|
|  | **Nine months ended September 30,** | **Nine months ended September 30,** |
|  | **2022** | **2021** |
| Cash Flows From Operating Activities: |  |  |
| &nbsp;&nbsp;&nbsp;Net income (loss) | $(9299498) | $24388307 |
| &nbsp;&nbsp;&nbsp;Adjustments to reconcile net income (loss) to net cash flows used in operating activities: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Depreciation and amortization | 1646207 | 239630 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Stock-based compensation | 1028084 | 1148327 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Change in fair value of warrant derivative liabilities | (6726638) | (33274039) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Gain on extinguishment of warrant derivative liabilities | (3624794) |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Provision for inventory obsolescence | 143664 | 339668 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Provision for doubtful accounts receivable | (161239) | (527) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Gain on extinguishment of debt |  | (10000) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Change in fair value of short-term investments |  | 28210 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Change in fair value of contingent consideration promissory note | (347169) |  |
| &nbsp;&nbsp;&nbsp;Change in operating assets and liabilities: |  |  |
| &nbsp;&nbsp;&nbsp;(Increase) decrease in: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts receivable – trade | 143937 | 337364 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts receivable – other | (3426732) | 111768 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Inventories | (1448044) | (1767724) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prepaid expenses | 531508 | (3445546) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Operating lease right of use assets | 306783 | (27875) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other assets | (4125776) | (752324) |
| &nbsp;&nbsp;&nbsp;Increase (decrease) in: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts payable | 5133934 | (475256) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accrued expenses | (106800) | 209833 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Income taxes payable | 9969 | (5331) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Operating lease obligations | (306782) | 14757 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Contract liabilities | 2831394 | 709977 |
| &nbsp;&nbsp;&nbsp;Net cash used in operating activities | (17797992) | (12230781) |
| Cash Flows from Investing Activities: |  |  |
| &nbsp;&nbsp;&nbsp;Purchases of property, plant and equipment | (1947127) | (5575021) |
| &nbsp;&nbsp;&nbsp;Additions to intangible assets | (158218) | (239139) |
| &nbsp;&nbsp;&nbsp;Cash paid for TicketSmarter acquisition, net of cash acquired |  | (8361808) |
| &nbsp;&nbsp;&nbsp;Restricted cash related to TicketSmarter acquisition |  | (500000) |
| &nbsp;&nbsp;&nbsp;Cash paid for acquisition of Medical Billing Company | (1153627) | (1012552) |
| &nbsp;&nbsp;&nbsp;Cash paid for asset acquisition of Medical Billing Company | (230000) | (2270000) |
| Net cash used in investing activities | (3488972) | (17958520) |
| Cash Flows from Financing Activities: |  |  |
| &nbsp;&nbsp;&nbsp;Repurchase and cancellation of common stock | (4026523) |  |
| &nbsp;&nbsp;&nbsp;Distribution to noncontrolling interest in consolidated subsidiary | (15692) |  |
| &nbsp;&nbsp;&nbsp;Net proceeds from sale of common stock in registered direct offerings |  | 13346600 |
| &nbsp;&nbsp;&nbsp;Proceeds from issuance of common stock upon exercise of pre-funded warrants |  | 53224000 |
| &nbsp;&nbsp;&nbsp;Principal payment on contingent consideration promissory notes | (383222) |  |
| &nbsp;&nbsp;&nbsp;Net cash (used in) provided by financing activities | (4425437) | 66570600 |
| Net increase (decrease) in cash and cash equivalents | (25712401) | 36381299 |
| Cash, cash equivalents, beginning of period | 32007792 | 4361758 |
| Cash, cash equivalents, end of period | $6295391 | $40743057 |
| Supplemental disclosures of cash flow information: |  |  |
| &nbsp;&nbsp;&nbsp;Cash payments for interest | $44783 | $— |
| &nbsp;&nbsp;&nbsp;Cash payments for income taxes | $9969 | $7581 |
| Supplemental disclosures of non-cash investing and financing activities: |  |  |
| &nbsp;&nbsp;&nbsp;Issuance of contingent consideration promissory note for business acquired | $855000 | $5244400 |
| &nbsp;&nbsp;&nbsp;Issuance of common stock through warrant exchange agreement | $4495500 | $— |
| &nbsp;&nbsp;&nbsp;Assets acquired in business acquisitions | $190631 | $7366399 |
| &nbsp;&nbsp;&nbsp;Liabilities assumed in the business acquisition | $387005 | $5494417 |
| &nbsp;&nbsp;&nbsp;Goodwill acquired in business acquisitions | $2100000 | $— |
| &nbsp;&nbsp;&nbsp;Common stock issued as consideration for business acquisition | $— | $990360 |
| &nbsp;&nbsp;&nbsp;Restricted common stock grant | $715 | $856 |
| &nbsp;&nbsp;&nbsp;Restricted common stock forfeitures | $65 | $8 |
| &nbsp;&nbsp;&nbsp;Amounts allocated to initial measurement of warrant derivative liabilities in connection with the warrants and pre-funded warrants | $— | $51216058 |

---

See Notes to the Unaudited Condensed Consolidated Financial Statements.

**DIGITAL ALLY, INC.**

**NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

**NOTE 1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

**Nature of Operations:**

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 "<u>Effective Time</u>"), the <u>Predecessor Registrant</u> merged with and into its wholly owned subsidiary, DGLY Subsidiary Inc., a Nevada corporation (the "<u>Registrant</u>"), pursuant to an agreement and plan of merger, dated as of August 23, 2022 (the "<u>Merger Agreement</u>"), between the Predecessor Registrant and the Registrant, with the Registrant as the surviving corporation in the merger (such transaction, the "<u>Merger</u>"). 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 "<u>Predecessor Common Stock</u>") automatically converted into one share of common stock, par value $0.001 per share, of the Registrant ("<u>Registrant Common Stock</u>"), (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, TicketSmarter, Inc., Worldwide Reinsurance, Ltd., Digital Connect, Inc., BirdVu Jets, Inc., Kustom 440, 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 19.

**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. 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 and nine month periods ended September 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.

The balance sheet at December 31, 2021 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.

**Liquidity and Going Concern**

During the second quarter of 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern. This update provided U.S. GAAP guidance on management's responsibility in evaluating whether there is substantial doubt about a company's ability to continue as a going concern and about related footnote disclosures. Under this standard, the Company is required to evaluate whether there is substantial doubt about its ability to continue as a going concern each reporting period, including interim periods. In evaluating the Company's ability to continue as a going concern, management considered the conditions and events that could raise substantial doubt about the Company's ability to continue as a going concern within 12 months after the Company's financial statements were issued (November 14, 2022). Management considered the Company's current financial condition and liquidity sources, including current funds available, forecasted future cash flows and the Company's obligations due before November 14, 2023.

The Company has experienced net losses and cash outflows from operating activities since inception. For the nine months ended September 30, 2022, the Company had a net loss attributable to common stockholders of $9,568,134, net cash used in operating activities of $17,797,992, $3,488,972 used in investing activities and $4,425,437 used in financing activities. The Company will have to restore positive operating cash flows and profitability over the next year and/or raise additional capital to fund its operational plans, meet its customary payment obligations and otherwise execute its business plan. There can be no assurance that it will be successful in restoring positive cash flows and profitability, or that it can raise additional financing when needed, and obtain it on terms acceptable or favorable to the Company.

The Company has implemented an enhanced quality control program to detect and correct product issues before they result in significant rework expenditures affecting its gross margins and has seen progress in that regard. The Company has also implemented a marketing and advertisement reduction plan for its ticketing segment, which will focus on reducing and alleviating current obligations from its media marketing agreements and place a hold on entering into any new agreements. The Company believes that its quality control, cost-cutting initiatives, and new product introduction will eventually restore positive operating cash flows and profitability, although it can offer no assurances in this regard.

Management has evaluated the significance of the conditions described above in relation to the Company's ability to meet its obligations and concluded that, without additional funding, the Company will not have sufficient funds to meet its obligations within one year from the date the condensed consolidated financial statements were issued.

**COVID-19 pandemic/Supply Chain:**

The COVID-19 pandemic continues to represent an evolving and fluid situation that presents a wide range of potential impacts of varying durations for different global geographies, including locations where the Company has offices, employees, customers, vendors and other suppliers and business partners.

Like most U.S.-based businesses, the COVID-19 pandemic and efforts to mitigate the same began to have impacts on our business in March 2020. Since that time, although the original effect of the COVID-19 pandemic has eased, we have continued to operate in an uncertain economic environment that is characterized by, business slowdowns or shutdowns, labor shortages, supply chain challenges, changes in government spending and requirements, regulatory challenges, inflationary pressures and market volatility.

We continue to experience operational challenges as a result of worldwide events including the Russia-Ukraine conflict, continued uncertainty associated with the pandemic, and volatility in global markets, which are compounded by the complex integrated global supply chain for both vendors and customers. As the COVID-19 pandemic dissipates at varying times and rates in different regions around the world, there could be a prolonged negative impact on these global supply chains. Our ability to continue operations at specific facilities will be impacted by the interdependencies of the various participants of these global supply chains, which are largely beyond our direct control. A prolonged shut down of these global supply chains could have a material adverse effect on our business, results of operations, cash flows and financial condition.

If our suppliers have increased challenges with their workforce (including as a result of illness, absenteeism, reactions to health and safety or government requirements), facility closures, timely access to necessary components, materials and other supplies at reasonable prices, access to capital, and access to fundamental support services (such as shipping and transportation), they may be unable to provide the agreed-upon goods and services in a timely, compliant and cost-effective manner. We have incurred and may in the future incur additional costs and delays in our business resulting from the COVID-19 pandemic, including as a result of higher prices, schedule delays or the need to identify and develop alternative suppliers. In some instances, we may be unable to identify and develop alternative suppliers, incurring additional liabilities under our current contracts and hampering new ones. Our customers have experienced, and may continue to experience, disruptions in their operations and supply chains as a result of the COVID-19 pandemic, which can result in delayed, reduced, or canceled orders, or collection risks, and which may adversely affect our results of operations. Similarly, current, and future restrictions or disruptions of transportation, such as reduced availability of air transport, port closures or delays, and increased border controls, delays or closures, can also impact our ability to meet demand and could materially adversely affect us.

The spread of COVID-19 caused us to modify our business practices (including employee travel, employee work locations, cancellation of physical participation in meetings, events and conferences, and social distancing measures). To date, we eased many of these modifications. However, we may, in the future, reinstitute the same or similar changes or take further actions as may be required by government authorities or that we determine are in the best interests of our employees, customers, partners, vendors, and suppliers. Although we managed to continue most of our operations, the future course of the COVID-19 pandemic is uncertain and we cannot assure that this global pandemic, including its economic impact, will not have a material adverse impact on our business, financial position, results of operations and/or cash flows.

**Basis of Consolidation:**

The accompanying financial statements include the consolidated accounts of Digital Ally, its wholly-owned subsidiaries, Digital Ally International, Inc., Shield Products, LLC, Digital Ally Healthcare, LLC, TicketSmarter, Inc., Worldwide Reinsurance, Ltd., Digital Connect, Inc., BirdVu Jets, Inc., Kustom 440, Inc., and its majority-owned subsidiary Nobility Healthcare, LLC. All intercompany balances and transactions have been eliminated during consolidation.

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 in June 2021 to facilitate the operations of its revenue cycle management solutions and back-office services for healthcare organizations. Lastly, 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 Digital Connect, Inc. and BirdVu Jets, Inc. for travel and transportation purposes in 2022. 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 ticketing 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 had concluded its contracts are with the distributor as the Company holds a contract bearing enforceable rights and obligations only with the distributor. As part of its consideration for the contract, the Company evaluates certain factors including the customers' ability to pay (or credit risk). For each contract, the Company considers the promise to transfer products, each of which is distinct, to be the identified performance obligations. In determining the transaction price, the Company evaluates whether the price is subject to refund or adjustment to determine the net consideration to which it expects to be entitled. As the Company's standard payment terms are less than one year, it has elected the practical expedient under ASC 606-10-32-18 to not assess whether a contract has a significant financing component. The Company allocates the transaction price to each distinct product based on its relative standalone selling price. The product price as specified on the purchase order is considered the standalone selling price as it is an observable input which depicts the price as if sold to a similar customer in similar circumstances. Revenue is recognized when control of the product is transferred to the customer (i.e., when the Company's performance obligations are 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 product. 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.

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 are generally determined as a percentage of the invoice amounts collected. These service fees are reported as revenue monthly upon completion of the Company's performance obligation to provide the agreed upon service.

***Ticketing***

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 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 the 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, and payment is due at the time of sale.

***Other***

Contract liabilities consist of deferred revenue and include payments received in advance of performance under the contract and are reported separately as current liabilities and non-current liabilities in the Consolidated Balance Sheets. Such amounts consist of extended warranty contracts, prepaid cloud services and prepaid installation services and are generally recognized as the respective performance obligations are satisfied. During the three months ended September 30, 2022, the Company recognized revenue of $0.7 million related to its contract liabilities. Contract liabilities consist of deferred revenue and include payments received in advance of performance under the contract and are reported separately as current liabilities and non-current liabilities in the Consolidated Balance Sheets. Such amounts consist of extended warranty contracts, prepaid cloud services and prepaid installation services and are generally recognized as the respective performance obligations are satisfied. Total contract liabilities consist of the following:

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **December 31,<br> 2021** | **Additions/Reclass** | **Recognized<br> Revenue** | **September 30,<br> 2022** |
| Contract liabilities, current | $1665519 | $1228395 | $844210 | $2049704 |
| Contract liabilities, non-current | 2687786 | 3384487 | 937278 | 5134995 |
|  | $4353305 | $4612882 | $1781488 | $7184699 |

---

Sales returns and allowances aggregated $118,029 and $45,298 for the nine months ended September 30, 2022 and year ended December 31, 2021, respectively. Obligations for estimated sales returns and allowances are recognized at the time of sales on an accrual basis. The accrual is determined based upon historical return rates adjusted for known changes in key variables affecting these return rates.

**Use of Estimates:**

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates. Management utilizes various other estimates, including but not limited to, determining the estimated lives of long-lived assets, determining the potential impairment of long-lived assets, the fair value of warrants, options, the recognition of revenue, inventory valuation reserve, fair value of assets and liabilities acquired in a business combination, incremental borrowing rate on leases, the valuation allowance for deferred tax assets and other legal claims and contingencies. The results of any changes in accounting estimates are reflected in the financial statements in the period in which the changes become evident. Estimates and assumptions are reviewed periodically, and the effects of revisions are reflected in the period that they are determined to be necessary.

**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.

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **September 30, 2022** | **September 30, 2022** | **September 30, 2022** | **September 30, 2022** |
|  | **Adjusted<br> Cost** | **Realized<br> Gains** | **Realized<br> Losses** | **Fair Value** |
| Demand deposits | $2230619 | $— | $— | $2230619 |
| Short-term investments with original maturities of 90 days or less (Level 1): |  |  |  |  |
| Money market funds | 4064772 |  |  | 4064772 |
|  | $6295391 | $— | $— | $6295391 |

---

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **December 31, 2021** | **December 31, 2021** | **December 31, 2021** | **December 31, 2021** |
|  | **Adjusted<br> Cost** | **Unrealized<br> Gains** | **Unrealized<br> Losses** | **Fair Value** |
| Demand deposits | $5031246 | $— | $— | $5031246 |
| Short-term investments with original maturities of 90 days or less (Level 1): |  |  |  |  |
| Money market funds | 14928526 |  |  | 14928526 |
| Mutual funds | 12079901 |  | (31881) | 12048020 |
|  | $32039673 | $— | $(31881) | $32007792 |

---

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 September 30, 2022 and December 31, 2021, the uninsured balance amounted to $4,459,897 and $29,836,142, respectively.

**Accounts Receivable:**

Accounts receivable are carried at original invoice amount less an estimate made for doubtful receivables based on a review of all outstanding amounts on a weekly basis. The Company determines the allowance for doubtful accounts by regularly evaluating individual customer receivables and considering a customer's financial condition, credit history, and current economic conditions.

Trade receivables are written off when deemed uncollectible. Recoveries of trade receivables previously written off are recorded when received. A trade receivable is considered to be past due if any portion of the receivable balance is outstanding for more than thirty (30) days beyond terms. No interest is charged on overdue trade receivables.

**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 31, 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 recognized 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 an income approach. Under the income approach, the Company determined fair value based on estimated discounted future cash flows of each reporting unit. Determining the fair value of a reporting unit is judgmental in nature and requires the use of significant estimates and assumptions, including revenue growth rates and EBITDA margins, discount rates and future market conditions, among others.

*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 last assessed potential impairments of its long-lived assets as of September 30, 2022 and concluded that there was no impairment.

Intangible assets include sponsorship networks, tradenames, client agreements, deferred patent costs and license agreements. Legal expenses incurred in preparation of patent application have been deferred and will be amortized over the useful life of granted patents. Costs incurred in preparation of applications that are not granted will be charged to expense at that time. The Company has entered into several sublicense agreements under which it has been assigned the exclusive rights to certain licensed materials used in its products. These sublicense agreements generally require upfront payments to obtain the exclusive rights to such material. The Company capitalizes the upfront payments as intangible assets and amortizes such costs over their estimated useful life on a straight-line method.

**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 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 Ticketing, each of which has specific personnel responsible for that business and reports to the CODM. Corporate expenses capture the Company's corporate administrative activities and are also to be reported in the segment information.

**Contingent Consideration**

In circumstances where an acquisition involves a contingent consideration arrangement that meets the definition of a liability under the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 480, Distinguishing Liabilities from Equity, the Company recognizes a liability equal to the fair value of the contingent payments the Company expects to make as of the acquisition date. The Company remeasures this liability each reporting period and records changes in the fair value through the consolidated statement of operations.

**Repurchase and Cancellation of Shares**

From time to time, the Company's Board of Directors (the "Board") may authorize share repurchases of common stock. Shares repurchased under Board authorizations are held in treasury for general corporate purposes and cancelled when it is determined appropriate by management. The Company accounts for repurchases of common stock under the cost method. Shares repurchased and cancelled during the period were recorded as a reduction to stockholders' (deficit) equity. See further discussion of the Company's share repurchase program in Note 15 –Stockholders' Equity.

**Non-Controlling Interests**

Non-controlling interests in the Company's Consolidated Financial Statements represents the interest in subsidiaries held by our venture partner. The venture partner holds a 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 or loss attributable to noncontrolling interest in the Consolidated Statements of Operations.

**New Accounting Standards**

In 2020, FASB issued ASU No. 2020-06 to simplify the accounting for convertible debt instruments as the current accounting guidance was determined to be unnecessarily complex and difficult to navigate. The ASU primarily does three things: (1) The ASU eliminates the beneficial conversion feature model and the cash conversion model. The elimination of these models will result in more convertible instruments (convertible debt instruments or convertible preferred stock instruments) being reported as a single liability instrument. The ASU also makes targeted improvements to the related disclosures, (2) The ASU eliminates certain settlement conditions that are required to qualify for derivative scope exception which will allow for less equity contracts to be accounted for as a derivative and (3) The ASU aligns the diluted EPS calculation for convertible instruments by requiring the use of the if-converted method and requiring share settlement be included in the calculation when the contract includes an option of cash or share settlement. ASU No. 2020-06 is effective for fiscal years beginning after December 15, 2021 with early adoption permitted for fiscal years beginning after December 15, 2020. The adoption of this standard did not have a significant impact on the Company's financial position and results of operations.

In 2020, FASB issued ASU No. 2020-01 which represents a consensus of the Emerging Issues Task Force and it clarifies certain items related to ASU 2016-01, Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The ASU (1) clarifies that when an entity is either applying the equity method or upon discontinuing the equity method it should consider observable price changes in orderly transactions for the identical or a similar investment with the same issuer for valuing basis of the investment and (2) clarifies that when determining the accounting for certain forward contracts and purchased options an entity should not consider, whether upon settlement or exercise, if the underlying securities would be accounted for under the equity method or fair value option. ASU No. 2020-01 is effective for fiscal years beginning after December 15, 2020 with early adoption permitted. The Company adopted this update for the quarter ended March 31, 2021. The adoption of this standard did not have a significant impact on the Company's financial position and results of operations.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes - simplifying the accounting for income taxes (Topic 740), which is meant to simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740, Income Taxes. The amendment also improves consistent application and simplifies GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The adoption of this standard did not have a significant impact on the Company's financial position and results of operations.

In June 2016, the FASB issued ASU 2016-13, "Financial Instruments – Credit Losses" to improve information on credit losses for financial assets and net investment in leases that are not accounted for at fair value through net income. ASU 2016-13 replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses. In April 2019 and May 2019, the FASB issued ASU No. 2019-04, "Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments" and ASU No. 2019-05, "Financial Instruments-Credit Losses (Topic 326): Targeted Transition Relief" which provided additional implementation guidance on the previously issued ASU. In November 2019, the FASB issued ASU 2019-10, "Financial Instruments - Credit Loss (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842)," which defers the effective date for public filers that are considered small reporting companies ("SRC") as defined by the Securities and Exchange Commission to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company will continue to evaluate the effect of adopting ASU 2016-13 will have on the Company's consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-15, *Intangible-Goodwill and Other Internal-Use Software (Subtopic 350-40)*, or ASU 2018-15. ASU 2018-15 updates guidance regarding accounting for implementation costs associated with a cloud computing arrangement that is a service contract. The amendments under ASU 2018-15 are effective for interim and annual fiscal periods beginning after December 15, 2019, with early adoption permitted. The adoption of this standard did not have a significant impact on the Company's financial position and results of operations,

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes - simplifying the accounting for income taxes (Topic 740), which is meant to simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740, Income Taxes. The amendment also improves consistent application and simplifies GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The amendments in ASU 2019-12 are effective for public business entities for fiscal years beginning after Dec. 15, 2020. The adoption of this standard did not have a significant impact on the Company's financial position and results of operations.

**NOTE 2. INVENTORIES**

Inventories consisted of the following at September 30, 2022 and December 31, 2021:

---

| | | |
|:---|:---|:---|
|  | **September 30,<br> 2022** | **December 31,<br> 2021** |
| Raw material and component parts– video solutions segment | $4960740 | $3062046 |
| Work-in-process– video solutions segment | 4649 |  |
| Finished goods – video solutions segment | 8071218 | 8410307 |
| Finished goods – ticketing segment | 1698733 | 2102272 |
| Subtotal | 14735340 | 13574625 |
| &nbsp;&nbsp;&nbsp;Reserve for excess and obsolete inventory– video solutions segment | (3227488) | (3353458) |
| &nbsp;&nbsp;&nbsp;Reserve for excess and obsolete inventory – ticketing segment | (543936) | (561631) |
| Total inventories | $10963916 | $9659536 |

---

Finished goods inventory includes units held by potential customers and sales agents for test and evaluation purposes. The cost of such units totaled $181,381 and $153,976 as of September 30, 2022 and December 31, 2021, respectively.

**NOTE 3. DEBT OBLIGATIONS**

Debt obligations is comprised of the following:

---

| | | |
|:---|:---|:---|
|  | **September 30,<br> 2022** | **December 31,<br> 2021** |
| Economic injury disaster loan (EIDL) | $150000 | $150000 |
| Contingent consideration promissory note – Nobility Healthcare Division Acquisition | 205865 | 317212 |
| Contingent consideration promissory note – Nobility Healthcare Division Acquisition | 436449 | 650000 |
| Contingent consideration promissory note – Nobility Healthcare Division Acquisition | 449507 |  |
| Contingent consideration promissory note – Nobility Healthcare Division Acquisition |  |  |
| Debt obligations | 1241821 | 1117212 |
| Less: current maturities of debt obligations | 569934 | 389934 |
| Debt obligations, long-term | $671887 | $727278 |

---

Debt obligations mature as follows as of September 30, 2022:

---

| | |
|:---|:---|
|  | **September 30,<br> 2022** |
| 2022 (October 1, 2022 to December 31, 2022) | $142477 |
| 2023 | 569983 |
| 2024 | 386585 |
| 2025 | 3412 |
| 2026 | 3542 |
| 2027 and thereafter | 135822 |
| Total | $1241821 |

---

***2020 Small Business Administration Notes***.

On May 4, 2020, the Company issued a promissory note in connection with the receipt of the Paycheck Protection Program ("PPP") Loan of $1,417,413 (the "PPP Loan") under the Small Business Administration's (the "SBA") PPP Program under the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"). The PPP Loan had a two-year term and bore interest at a rate of 1.0% per annum. Monthly principal and interest payments were deferred for nine months after the date of disbursement and total $79,851 per month thereafter. The PPP Loan could have been prepaid at any time prior to maturity with no prepayment penalties. The promissory note contained events of default and other provisions customary for a loan of this type. The PPP Loan provided that it may be partially or wholly forgiven if the funds are used for certain qualifying expenses as described in the CARES Act. The Company used the majority of the PPP Loan amount for qualifying expenses. On December 10, 2020, the Company was fully forgiven of its $1,417,413 PPP Loan. Additionally, the Company was fully forgiven, during the three months ended September 30, 2021, of its $10,000 EIDL advance received with the PPP Loan.

On May 12, 2020, the Company received $150,000 in loan funding from the SBA under the 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 are 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 secured party a continuing interest in and to any and all collateral, including but not limited to tangible and intangible personal property.

***Contingent Consideration Promissory Notes***

On June 30, 2021, Nobility Healthcare, a subsidiary of the Company, issued a contingent consideration promissory note (the "June Contingent Note") in connection with a stock purchase agreement between Nobility Healthcare and a private company (the "June Seller") of $350,000. The June Contingent Note has a three-year term and bears interest at a rate of 3.00% per annum. Quarterly principal and interest payments are deferred for six months and are due in equal quarterly installments on the seventh business day of each quarter. The principal amount of the June Contingent Note is subject to an earn-out adjustment, being the difference between $975,000 (the "June Projected Revenue") and the cash basis revenue (the "June Measurement Period Revenue") collected by the June Seller in its normal course of business from the clients existing on June 30, 2021, during the period from October 1, 2021 through September 30, 2022 (the "June Measurement Period") measured on a quarterly basis and annualized as of the relevant period. If the June Measurement Period Revenue is less than the June Projected Revenue, such amount will be subtracted from the principal balance of this June Contingent Note on a dollar-for-dollar basis. If the June Measurement Period Revenue is more than the June Projected Revenue, such amount will be added to the principal balance of this June Contingent Note on a dollar-for-dollar basis. In no event will the principal balance of this June Contingent Note become a negative number. The maximum downward earn-out adjustment to the principal balance will be a reduction to zero. There are no limits to the increases to the principal balance of the June Contingent Note as a result of the earn-out adjustments.

The June Contingent Note is considered to be additional purchase price; therefore, the estimated fair value of the contingent liability is recorded as a liability at the acquisition date and the fair value is considered part of the consideration paid for the acquisition with subsequent changes in fair value recorded as a gain or loss in the Consolidated Statements of Operations. Management recorded the contingent consideration promissory note at its estimated fair value of $350,000 at the acquisition date. Total principal payments, since its inception, on this contingent consideration promissory note totaled $84,208. The estimated fair value of the June Contingent Note at September 30, 2022 is $205,865, representing an increase in its estimated fair value of $20,481 as compared to its estimated fair value as of June 30, 2022. Therefore, the Company recorded a loss of $20,481 in the Consolidated Statements of Operations for the three months ended September 30, 2022. The Company recorded a gain of $27,139 in the Consolidated Statements of Operations for the nine months ended September 30, 2022.

On August 31, 2021, Nobility Healthcare issued another contingent consideration promissory note (the "August Contingent Payment Note") in connection with a stock purchase agreement between Nobility Healthcare and a private company (the "August Sellers") of $650,000. The August Contingent Payment Note has a three-year term and bears interest at a rate of 3.00% per annum. Quarterly principal and interest payments are deferred for six months and is due in equal quarterly installments on the seventh business day of each quarter. The principal amount of the August Contingent Payment Note is subject to an earn-out adjustment, being the difference between $3,000,000 (the "August Projected Revenue") and the cash basis revenue (the "August Measurement Period Revenue") collected by the August Sellers in its normal course of business from the clients existing on September 1, 2021, during the period from December 1, 2021 through November 30, 2022 (the "August Measurement Period") measured on a quarterly basis and annualized as of the relevant period. If the August Measurement Period Revenue is less than the August Projected Revenue, such amount will be subtracted from the principal balance of this August Contingent Payment Note on a dollar-for-dollar basis. If the August Measurement Period Revenue is more than the August Projected Revenue, such amount will be added to the principal balance of this August Contingent Payment Note on a dollar-for-dollar basis. In no event will the principal balance of this August Contingent Payment Note become a negative number. The maximum downward earn-out adjustment to the principal balance will be a reduction to zero. There are no limits to the increases to the principal balance of the August Contingent Payment Note as a result of the earn-out adjustments.

The August Contingent Payment Note is considered to be additional purchase price, therefore the estimated fair value of the contingent liability is recorded as a liability at the acquisition date and the fair value is considered part of the consideration paid for the acquisition with subsequent changes in fair value recorded as a gain or loss in the Consolidated Statements of Operations. Management recorded the contingent consideration promissory note at its estimated fair value of $650,000 at the acquisition date. Principal payments, since its inception, on this contingent consideration promissory note totaled $228,127. The estimated fair value of the August Contingent Note at September 30, 2022 is $436,449, representing an increase in its estimated fair value of $79,153 as compared to is estimated fair value as of June 30, 2022. Therefore, the Company recorded a loss of $79,153 in the Consolidated Statements of Operations for the three months ended September 30, 2022. The Company recorded a loss of $14,576 in the Consolidated Statements of Operations for the nine months ended September 30, 2022.

On January 1, 2022, Nobility Healthcare issued another contingent consideration promissory note (the "January Contingent Payment Note") in connection with a stock purchase agreement between Nobility Healthcare and a private company (the "January Sellers") of $750,000. The January Contingent Payment Note has a two and a half year term and bears interest at a rate of 3.00% per annum. Quarterly principal and interest payments are deferred for seven months and is due in equal quarterly installments on the tenth business day of each quarter. The principal amount of the January Contingent Payment Note is subject to an earn-out adjustment, being the difference between $3,500,000 (the "January Projected Revenue") and the cash basis revenue (the "January Measurement Period Revenue") collected by the January Sellers in its normal course of business from the clients existing on January 1, 2022, during the period from April 1, 2022 through March 31, 2023 (the "January Measurement Period") measured on a quarterly basis and annualized as of the relevant period. If the January Measurement Period Revenue is less than the January Projected Revenue, such amount will be subtracted from the principal balance of this January Contingent Payment Note on a dollar-for-dollar basis. If the January Measurement Period Revenue is more than the January Projected Revenue, such amount will be added to the principal balance of this January Contingent Payment Note on a dollar-for-dollar basis. In no event will the principal balance of this January Contingent Payment Note become a negative number. The maximum downward earn-out adjustment to the principal balance will be a reduction to zero. There are no limits to the increases to the principal balance of the January Contingent Payment Note as a result of the earn-out adjustments.

The January Contingent Payment Note is considered to be additional purchase price, therefore the estimated fair value of the contingent liability is recorded as a liability at the acquisition date and the fair value is considered part of the consideration paid for the acquisition. Management has recorded the contingent consideration promissory note at its estimated fair value of $750,000 at the acquisition date. Principal payments, since its inception, on this contingent consideration promissory note totaled $70,888. The estimated fair value of the January Contingent Note at September 30, 2022 is $449,507, representing an increase in its estimated fair value of $39,244 as compared to is estimated fair value as of June 30, 2022. Therefore, the Company recorded a loss of $39,244 in the Consolidated Statements of Operations for the three months ended September 30, 2022. The Company recorded a gain of $229,605 in the Consolidated Statements of Operations for the nine months ended September 30, 2022.

On February 1, 2022, Nobility Healthcare issued another contingent consideration promissory note (the "February Contingent Payment Note") in connection with an asset purchase agreement between Nobility Healthcare and a private company (the "February Sellers") of $105,000. The February Contingent Payment Note has a three-year term and bears interest at a rate of 3.00% per annum. Quarterly principal and interest payments are deferred for seven months and are due in equal quarterly installments on the tenth business day of each quarter. The principal amount of the February Contingent Payment Note is subject to an earn-out adjustment, being the difference between $440,000 (the "February Projected Revenue") and the cash basis revenue (the "February Measurement Period Revenue") collected by the February Sellers in its normal course of business from the clients existing on February 1, 2022, during the period from May 1, 2022 through April 30, 2023 (the "February Measurement Period") measured on a quarterly basis and annualized as of the relevant period. If the February Measurement Period Revenue is less than the February Projected Revenue, such amount will be subtracted from the principal balance of this February Contingent Payment Note on a dollar-for-dollar basis. If the February Measurement Period Revenue is more than the February Projected Revenue, such amount will be added to the principal balance of this February Contingent Payment Note on a dollar-for-dollar basis. In no event will the principal balance of this February Contingent Payment Note become a negative number. The maximum downward earn-out adjustment to the principal balance will be a reduction to zero. There are no limits to the increases to the principal balance of the February Contingent Payment Note as a result of the earn-out adjustments.

The February Contingent Payment Note is considered to be additional purchase price, therefore the estimated fair value of the contingent liability is recorded as a liability at the acquisition date and the fair value is considered part of the consideration paid for the acquisition. Management has recorded the contingent consideration promissory note at its estimated fair value of $105,000 at the acquisition date. The estimated fair value of the February Contingent Note at September 30, 2022 is $0, representing no change in its estimated fair value as compared to is estimated fair value as of June 30, 2022. Therefore, the Company recorded a no change and a gain of $105,000 in the Consolidated Statements of Operations for the three and nine months ended September 30, 2022, respectively. There were no principal payments on this contingent consideration promissory note during the three months ended September 30, 2022.

**NOTE 4. 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 September 30, 2022 and December 31, 2021:

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **September 30, 2022** | **September 30, 2022** | **September 30, 2022** | **September 30, 2022** |
|  | **Level 1** | **Level 2** | **Level 3** | **Total** |
| **Liabilities:** | | | | |
| &nbsp;&nbsp;&nbsp;Warrant derivative liabilities | $— | $— | $— | $— |
| &nbsp;&nbsp;&nbsp;Contingent consideration promissory notes and contingent consideration earn-out agreement |  |  | 1091821 | 1091821 |
|  | $— | $— | $1091821 | $1091821 |

---

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **December 31, 2021** | **December 31, 2021** | **December 31, 2021** | **December 31, 2021** |
|  | **Level 1** | **Level 2** | **Level 3** | **Total** |
| **Liabilities:** | | | | |
| &nbsp;&nbsp;&nbsp;Warrant derivative liabilities | $— | $— | $14846932 | $14846932 |
| &nbsp;&nbsp;&nbsp;Contingent consideration promissory notes and contingent consideration earn-out agreement |  |  | 967212 | 967212 |
|  | $— | $— | $15814144 | $15814144 |

---

The following table represents the change in Level 3 tier value measurements for the periods ended September 30, 2022:

---

| | | |
|:---|:---|:---|
|  | Contingent<br> Consideration<br> Promissory Notes | Warrant Derivative<br> Liabilities |
| Balance, December 31, 2021 | $967212 | $14846932 |
| Issuance of contingent consideration promissory note - Revenue Cycle Management Segment Acquisition | 750000 |  |
| Issuance of contingent consideration promissory note - Revenue Cycle Management Segment Acquisition | 105000 |  |
| Principal payments on contingent consideration promissory notes – Revenue Cycle Management Acquisitions | (116198) |  |
| Change in fair value of contingent consideration promissory notes - Revenue Cycle Management Acquisitions | 56050 |  |
| Change in fair value of warrant derivative liabilities |  | (148171) |
| Balance, March 31, 2022 | $1762064 | $14698761 |
| Principal payments on contingent consideration promissory notes – Revenue Cycle Management Acquisitions | (100624) |  |
| Change in fair value of contingent consideration promissory notes - Revenue Cycle Management Acquisitions | (542096) |  |
| Change in fair value of warrant derivative liabilities |  | (5413618) |
| Balance, June 30, 2022 | $1119344 | $9285143 |
| Principal payments on contingent consideration promissory notes – Revenue Cycle Management Acquisitions | (166400) |  |
| Change in fair value of contingent consideration promissory notes - Revenue Cycle Management Acquisitions | 138877 |  |
| Change in fair value of warrant derivative liabilities |  | (1164849) |
| Gain on extinguishment of warrant derivative liabilities |  | (3624794) |
| Issuance of common stock through warrant exchange agreement |  | (4495500) |
| Balance, September 30, 2022 | $1091821 | $— |

---

**NOTE 5. ACCRUED EXPENSES**

Accrued expenses consisted of the following at September 30, 2022 and December 31, 2021:

---

| | | |
|:---|:---|:---|
|  | **September 30,<br> 2022** | **December 31,<br> 2021** |
| Accrued warranty expense | $10040 | $13742 |
| Accrued litigation costs | 247984 | 250000 |
| Accrued sales commissions | 54791 | 30213 |
| Accrued payroll and related fringes | 423725 | 453858 |
| Accrued sales returns and allowances | 118029 | 45298 |
| Accrued taxes | 147159 | 180486 |
| Other | 95337 | 202401 |
|  | $1097065 | $1175998 |

---

Accrued warranty expense was comprised of the following for the nine months ended September 30, 2022:

---

| | |
|:---|:---|
| Beginning balance | $13742 |
| Provision for warranty expense | 56860 |
| Charges applied to warranty reserve | (60562) |
| Ending balance | $10040 |

---

**NOTE 6. INCOME TAXES**

The effective tax rate for the three months ended September 30, 2022 and 2021 varied from the expected statutory rate due to the Company continuing to provide a 100% valuation allowance on net deferred tax assets. The Company determined that it was appropriate to continue the full valuation allowance on net deferred tax assets as of September 30, 2022, primarily because of the Company's history of operating losses.

The Company has incurred operating losses in recent years, and it continues to be in a three-year cumulative loss position at September 30, 2022. 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 continue to provide a 100% valuation allowance on its net deferred tax assets. The Company expects to continue to maintain a full valuation allowance until it determines that it can sustain a level of profitability that demonstrates its ability to realize these assets. To the extent the Company determines that the realization of some or all of these benefits is more likely than not based upon expected future taxable income, a portion or all of the valuation allowance will be reversed. The Company has available to it approximately $81.4 million (based on its December 31, 2021 tax return) in net operating loss carryforwards to offset future taxable income as of September 30, 2022.

**NOTE 7. PREPAID EXPENSES**

Prepaid expenses were the following at September 30, 2022 and December 31, 2021:

---

| | | |
|:---|:---|:---|
|  | **September 30,<br> 2022** | **December 31,<br> 2021** |
| Prepaid inventory | $6318369 | $6546100 |
| Prepaid advertising | 2391925 | 2455527 |
| Other | 517691 | 727155 |
| Total prepaid expenses | $9227985 | $9728782 |

---

**NOTE 8. PROPERTY, PLANT AND EQUIPMENT**

Property, plant and equipment consisted of the following at September 30, 2022 and December 31, 2021:

---

| | | | |
|:---|:---|:---|:---|
|  | **Estimated <br> Useful Life** | **September 30,<br> 2022** | **December 31,<br> 2021** |
| Building | 30 years | $4909478 | $4909478 |
| Land |  | 789734 | 789734 |
| Office furniture, fixtures and equipment | 3-20 years | 2059525 | 493652 |
| Warehouse and production equipment | 3-5 years | 46261 | 65948 |
| Demonstration and tradeshow equipment | 2-5 years | 72340 | 82337 |
| Building improvements | 2-15 years | 1331462 | 911940 |
| Rental equipment | 1-3 years |  | 8584 |
| Total cost |  | 9208800 | 7261673 |
| Less: accumulated depreciation and amortization |  | (801661) | (420647) |
| Net property, plant and equipment |  | $8407139 | $6841026 |

---

Depreciation expense for the nine months ended September 30, 2022 and September 30, 2021 was $381,014 and $177,959, respectively, and is included in general and administrative expenses.

**NOTE 9. OPERATING LEASE**

On May 13, 2020, the Company entered into an operating lease for new warehouse and office space, which the Company currently utilizes as one of its office, assembly and warehouse locations. The original lease agreement was amended on August 28, 2020 to correct the footage under lease and monthly payment amounts resulting from such correction. The lease terms, as amended, include no base rent for the first nine months and monthly payments ranging from $12,398 to $14,741 thereafter, with a termination date of December 2026. The Company is responsible for property taxes, utilities, insurance and its proportionate share of common area costs related to this location. The Company took possession of the leased facilities on June 15, 2020. The remaining lease term for the Company's office and warehouse operating lease as of September 30, 2022, was fifty-one months. The Company's previous office and warehouse space lease expired in April 2020 and the Company paid holdover rent for the time period until it moved to and commenced occupying the new space on June 15, 2020.

The Company entered into an operating lease with a third party in October 2019 for copiers used for office and warehouse purposes. The terms of the lease include 48 monthly payments of $1,598 with a maturity date of October 2023. The Company has the option to purchase the equipment at maturity for its estimated fair market value at that point in time. The remaining lease term for the Company's copier operating lease as of September 30, 2022, was thirteen months.

On June 30, 2021, the Company completed the acquisition of a private medical billing company, through its revenue cycle management segment. Upon completion of this acquisition, the Company became responsible for the operating lease for the seller's office space. The lease terms include monthly payments ranging from $2,648 to $2,774, with a termination date of July 2024. The Company is responsible for property taxes, utilities, insurance and its proportionate share of common area costs related to this location. The Company took possession of the leased facilities on September 30, 2021. The remaining lease term for the Company's office and warehouse operating lease as of September 30, 2022, was twenty-two months.

On August 31, 2021, the Company completed the acquisition of a private medical billing company, through its revenue cycle management segment. Upon completion of this acquisition, the Company became responsible for the operating lease for the seller's office space. The lease terms include monthly payments ranging from $11,579 to $11,811, with a termination date of March 2023. The Company is responsible for property taxes, utilities, insurance and its proportionate share of common area costs related to this location. The Company took possession of the leased facilities on September 1, 2021. The remaining lease term for the Company's office and warehouse operating lease as of September 30, 2022, was six months.

On September 1, 2021, the Company completed the TicketSmarter Acquisition, in its ticketing segment. Upon completion of this acquisition, the Company became responsible for the operating lease for TicketSmarter Inc.'s office space. The lease terms include monthly payments ranging from $7,211 to $7,364, with a termination date of December 2022. The Company is responsible for property taxes, utilities, insurance and its proportionate share of common area costs related to this location. The Company took possession of the leased facilities on September 1, 2021. The remaining lease term for the Company's office and warehouse operating lease as of September 30, 2022 was three months.

On January 1, 2022, the Company completed the acquisition of a private medical billing company, through its revenue cycle management segment. Upon completion of this acquisition, the Company became responsible for the operating lease for the seller's office space. The lease terms include monthly payments ranging from $4,233 to $4,626, with a termination date of June 2025. The Company is responsible for property taxes, utilities, insurance and its proportionate share of common area costs related to this location. The Company took possession of the leased facilities on January 1, 2022. The remaining lease term for the Company's office and warehouse operating lease as of September 30, 2022, was thirty-three months.

Lease expense related to the office space and copier operating leases were recorded on a straight-line basis over their respective lease terms. Total lease expense under the six operating leases was approximately $140,967 and $415,269, during the three and nine months ended September 30, 2022, respectively.

The weighted-average remaining lease term related to the Company's lease liabilities as of September 30, 2022 was 3.5 years.

The discount rate implicit within the Company's operating leases was not generally determinable and therefore the Company determined the discount rate based on its incremental borrowing rate on the information available at commencement date. As of commencement date, the operating lease liabilities reflect a weighted average discount rate of 8%.

The following sets forth the operating lease right of use assets and liabilities as of September 30, 2022:

---

| | |
|:---|:---|
| **Assets:** | |
| Operating lease right of use assets | $846521 |
| **Liabilities:** |  |
| Operating lease obligations-current portion | $304294 |
| Operating lease obligations-less current portion | 610422 |
| Total operating lease obligations | $914716 |

---

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

---

| | |
|:---|:---|
| **Year ending December 31:** | |
| &nbsp;&nbsp;&nbsp;2022 (October 1, to December 31, 2022) | $125174 |
| &nbsp;&nbsp;&nbsp;2023 | 305627 |
| &nbsp;&nbsp;&nbsp;2024 | 245761 |
| &nbsp;&nbsp;&nbsp;2025 | 196462 |
| Thereafter | 175113 |
| Total undiscounted minimum future lease payments | 1048137 |
| Imputed interest | (133421) |
| Total operating lease liability | $914716 |

---

**NOTE 10. GOODWILL AND OTHER INTANGIBLE ASSETS**

Intangible assets consisted of the following at September 30, 2022 and December 31, 2021:

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
|  | **September 30, 2022** | **September 30, 2022** | **September 30, 2022** | **December 31, 2021** | **December 31, 2021** | **December 31, 2021** |
|  | **Gross<br> value** | **Accumulated<br> amortization** | **Net<br> carrying<br> value** | **Gross<br> value** | **Accumulated<br> amortization** | **Net<br> carrying<br> value** |
| Amortized intangible assets: |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Licenses (video solutions segment) | $198651 | $76570 | $122081 | $194286 | $65578 | $128708 |
| &nbsp;&nbsp;&nbsp;Patents and trademarks (video solutions segment) | 472078 | 268008 | 204070 | 493945 | 233471 | 260474 |
| &nbsp;&nbsp;&nbsp;Sponsorship agreement network (ticketing segment) | 5600000 | 1213333 | 4386667 | 5600000 | 373333 | 5226667 |
| &nbsp;&nbsp;&nbsp;SEO content (ticketing segment) | 600000 | 162500 | 437500 | 600000 | 50000 | 550000 |
| &nbsp;&nbsp;&nbsp;Personal seat licenses (ticketing <br> segment) | 180081 | 6501 | 173580 | 201931 | 2244 | 199687 |
| &nbsp;&nbsp;&nbsp;Client agreements (revenue cycle management segments) | 999034 | 101888 | 897146 |  |  |  |
|  | 8049844 | 1828800 | 6221044 | 7090162 | 724626 | 6365536 |
| Indefinite life intangible assets: |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Goodwill (ticketing and revenue cycle management segments) | 11367514 |  | 11367514 | 9931547 |  | 9931547 |
| &nbsp;&nbsp;&nbsp;Trade name (ticketing segment) | 600000 |  | 600000 | 600000 |  | 600000 |
| &nbsp;&nbsp;&nbsp;Patents and trademarks pending <br> (video solutions segment) | 41980 |  | 41980 | 5430 |  | 5430 |
| &nbsp;&nbsp;&nbsp;Total | $20059338 | $1828870 | $18230538 | $17627139 | $724626 | $16902513 |

---

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 expense for the three months ended September 30, 2022 and 2021 was $460,489 and $40,211, respectively, and $1,177,759 and $100,069, for the nine months ended September 30, 2022 and 2021, respectively. Estimated amortization for intangible assets with definite lives for the next five years ending December 31 and thereafter is as follows:

---

| | |
|:---|:---|
| **Year ending December 31:** | |
| 2022 (October 1, to December 31, 2022) | $385204 |
| 2023 | 1485846 |
| 2024 | 1435289 |
| 2025 | 1342778 |
| 2026 and thereafter | 1571927 |
|  | $6221044 |

---

**NOTE 11. OTHER ASSETS**

Other assets were the following at September 30, 2022 and December 31, 2021:

SCHEDULE OF OTHER ASSETS

---

| | | |
|:---|:---|:---|
|  | **September 30,<br> 2022** | **December 31,<br> 2021** |
| Lease receivable | $4188227 | $1921021 |
| Sponsorship network | 1733264 | 30752 |
| Other | 311584 | 155526 |
| Total other assets | $6233075 | $2107299 |

---

**NOTE 12. COMMITMENTS AND CONTINGENCIES**

***COVID-19 pandemic***

The COVID-19 pandemic represents a fluid situation that presents a wide range of potential impacts of varying durations for different global geographies, including locations where we have offices, employees, customers, vendors and other suppliers and business partners.

Like most US-based businesses, the COVID-19 pandemic and efforts to mitigate the same began to have impacts on our business in March 2020. Since that time, the COVID-19 pandemic has dramatically impacted the global health and economic environment, including millions of confirmed cases, business slowdowns or shutdowns, labor shortages, supply chain challenges, changes in government spending and requirements, regulatory challenges, inflationary pressures and market volatility.

We operate within the complex integrated global supply chain for both vendors and customers. As the COVID-19 pandemic dissipates at varying times and rates in different regions around the world, there could be a prolonged negative impact on these global supply chains. Our ability to continue operations at specific facilities will be impacted by the interdependencies of the various participants of these global supply chains, which are largely beyond our direct control. A prolonged shut down of these global supply chains could have a material adverse effect on our business, results of operations, cash flows and financial condition.

If our suppliers have increased challenges with their workforce (including as a result of illness, absenteeism, reactions to health and safety or government requirements), facility closures, timely access to necessary components, materials and other supplies at reasonable prices, access to capital, and access to fundamental support services (such as shipping and transportation), they may be unable to provide the agreed-upon goods and services in a timely, compliant and cost-effective manner. We have incurred and may in the future incur additional costs and delays in our business resulting from the COVID-19 pandemic, including as a result of higher prices, schedule delays or the need to identify and develop alternative suppliers. In some instances, we may be unable to identify and develop alternative suppliers, incurring additional liabilities under our current contracts and hampering new ones. Our customers have experienced, and may continue to experience, disruptions in their operations and supply chains as a result of the COVID-19 pandemic, which can result in delayed, reduced, or canceled orders, or collection risks, and which may adversely affect our results of operations. Similarly, current, and future restrictions or disruptions of transportation, such as reduced availability of air transport, port closures or delays, and increased border controls, delays or closures, can also impact our ability to meet demand and could materially adversely affect us.

The spread of COVID-19 caused us to modify our business practices (including employee travel, employee work locations, cancellation of physical participation in meetings, events and conferences, and social distancing measures). To date, we have eased many of these modifications. However, we may in the future reinstitute the same or similar changes or take further actions as may be required by government authorities or that we determine are in the best interests of our employees, customers, partners, vendors, and suppliers. Although we managed to continue most of our operations, the future course of the COVID-19 pandemic is uncertain and we cannot assure that this global pandemic, including its economic impact, will not have a material adverse impact on our business, financial position, results of operations and/or cash flows.

***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 re-evaluate and update accruals as matters progress over time.

On May 31, 2022, the Company filed a lawsuit against Culp McAuley, Inc. ("defendant") in the United States District Court for the District of Kansas. The lawsuit arises from the defendant's multiple breaches of its obligations to the Company. The Company seeks monetary damages and injunctive relief based on certain conduct by the defendant. On July 18, 2022, the defendant 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. We have not concluded that a material loss related to the allegations is probable, nor have we accrued a liability related to these claims. Although we believe a loss could be reasonably possible (as defined in ASC 450), we do not have sufficient information to determine the amount or range of reasonably possible loss with respect to the potential damages given that the dispute is yet to enter the discovery process. We will continue to vigorously pursue these claims, and we continue to believe that we have valid grounds for recovery of the disputed deliverables. However, there can be no assurances as to the outcome of the dispute.

While the ultimate resolutions are unknown, based on the information currently available, we do not expect that this lawsuit will individually, or in the aggregate, have a material adverse effect to our results of operations, financial condition and 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 these matters 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.

***Notice of Delisting***

On July 7, 2022, the Company, received a written notification (the "Notice") from the Listing Qualifications Department of The Nasdaq Stock Market LLC ("Nasdaq") notifying the Company that it was not in compliance with the minimum bid price requirement for continued listing on the Nasdaq Capital Market, as set forth under Nasdaq Listing Rule 5550(a)(2) (the "Minimum Bid Price Requirement"), because the closing bid price of the Company's common stock was below $1.00 per share for the previous thirty (30) consecutive business days. The Notice has no immediate effect on the listing of the Common Stock, which will continue to trade uninterrupted on the Nasdaq Capital Market under the ticker "DGLY."

Pursuant to Nasdaq Listing Rule 5810(c)(3)(A), the Company has been granted 180 calendar days from the date of the Notice, or until January 3, 2023 (the "Compliance Period"), to regain compliance with the Minimum Bid Price Requirement. If at any time during the Compliance Period, the bid price of the Common Stock closes at or above $1.00 per share for a minimum of ten (10) consecutive business days, Nasdaq will provide the Company with written confirmation of compliance with the Minimum Bid Price Requirement and the matter will be closed.

In the event the Company does not regain compliance with the Minimum Bid Price Requirement by January 3, 2023, the Company may be eligible for an additional 180-calendar day grace period. To qualify, the Company will be required to meet the continued listing requirement for market value of publicly held shares and all other initial listing standards for the Nasdaq Capital Market, with the exception of the Minimum Bid Price Requirement, and will need to provide written notice to Nasdaq of its intent to regain compliance with such requirement during such second compliance period.

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.

**NOTE 13. STOCK-BASED COMPENSATION**

The Company recorded pre-tax compensation expense related to the grant of stock options and restricted stock issued of $251,733 and $491,950 for the three months ended September 30, 2022 and 2021, and $1,028,084 and $1,186,771 for the nine months ended September 30, 2022 and 2021, respectively.

As of September 30, 2022, the Company had adopted nine 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") and (ix) the 2020 Stock Option and Restricted Stock Plan (the "2020 Plan"). The 2005 Plan, 2006 Plan, 2007 Plan, 2008 Plan, 2011 Plan, 2013 Plan, 2015 Plan, 2018 Plan and 2020 Plan are referred to as the "Plans."

These Plans permit the grant of stock options or restricted stock to the Company's employees, non-employee directors and others for up to a total of 6,675,000 shares of common stock. The 2005 Plan terminated during 2015 with 21,553 shares not awarded or underlying options, which shares are now unavailable for issuance. Stock options granted under the 2005 Plan that remain unexercised and outstanding as of September 30, 2022 total 5,689. The 2006 Plan terminated during 2016 with 54,787 shares not awarded or underlying options, which shares are now unavailable for issuance. Stock options granted under the 2006 Plan that remain unexercised and outstanding as of September 30, 2022 total 10,625. The 2007 Plan terminated during 2017 with 94,651 shares not awarded or underlying options, which shares are now unavailable for issuance. There are no stock options granted under the 2007 Plan that remain unexercised and outstanding as of September 30, 2022. The 2008 Plan terminated during 2018 with 40,499 shares not awarded or underlying options, which shares are now unavailable for issuance. There were no stock options granted under the 2008 Plan that remain unexercised and outstanding as of September 30, 2022.

The Company believes that such awards better align the interests of our employees with those of its stockholders.

***Stock option grants.*** The Board of Directors has granted stock options under the Plans. These option awards have been granted with an exercise price equal to the market price of the Company's 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 190,845 shares remained available for awards under the various Plans as of September 30, 2022.

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

A summary of all stock option activity under the Plans for the nine months ended September 30, 2022 is as follows:

---

| | | |
|:---|:---|:---|
| **Options** | **Number of**<br> **Shares** | **Weighted**<br> **Average<br> Exercise Price** |
| Outstanding at December 31, 2021 | 1086063 | $2.37 |
| &nbsp;&nbsp;&nbsp;Granted | 25000 | 0.98 |
| &nbsp;&nbsp;&nbsp;Exercised |  |  |
| &nbsp;&nbsp;&nbsp;Forfeited | (32063) | (4.04) |
| Outstanding at September 30, 2022 | 1079000 | $2.29 |
| Exercisable at September 30, 2022 | 1079000 | $2.29 |

---

The fair value of each option award is estimated on the date of grant using a Black-Scholes option valuation model. The total estimated grant date fair value stock options issued during the nine months ended September 30, 2022 was $22,768. Following are certain estimates and assumptions utilized as of the issuance date to determine the grant-date fair value of the stock options issued during 2022:

---

| | |
|:---|:---|
| Volatility – range | 111.67% |
| Risk-free rate | 1.8% |
| Contractual term | 10.0 years |
| Exercise price | $0.98 |

---

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 nine months ended September 30, 2022 and 2021.

The aggregate intrinsic value of options outstanding was $-0- and $-0-, at September 30, 2022 and December 31, 2021, respectively. The aggregate intrinsic value of options exercisable was $-0- and $-0-, at September 30, 2022 and December 31, 2021, respectively.

As of September 30, 2022, the unrecognized portion of stock compensation expense on all existing stock options was $-0-.

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 September 30, 2022:

---

| | | | | |
|:---|:---|:---|:---|:---|
| | **Outstanding options** | **Outstanding options** | **Exercisable options** | **Exercisable options** |
|<br>**Exercise price**<br> **range** | **Number of**<br> **options** | **Weighted average<br> remaining**<br> **contractual life** | **Number of**<br> **options** | **Weighted average<br> remaining**<br> **contractual life** |
| $0.01 to $2.49 | 740000 | 7.9 years | 740000 | 7.9 years |
| $2.50 to $3.49 | 302000 | 5.7 years | 302000 | 5.7 years |
| $3.50 to $4.49 | 37000 | 3.0 years | 37000 | 3.0 years |
|  | 1079000 | 7.1 years | 1079000 | 7.1 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 five years corresponding to anniversaries of the grant date. Under the Plans, unvested shares of restricted stock awards may be forfeited upon the termination of service to or employment with the Company, depending upon the circumstances of termination. Except for restrictions placed on the transferability of restricted stock, holders of unvested restricted stock have full stockholder's rights, including voting rights and the right to receive cash dividends.

A summary of all restricted stock activity under the Plans for the nine months ended September 30, 2022 is as follows:

---

| | | |
|:---|:---|:---|
|  | **Number of<br> Restricted**<br> **shares** | **Weighted**<br> **average<br> grant date fair**<br> **value** |
| Nonvested balance, December 31, 2021 | 1057375 | $1.87 |
| &nbsp;&nbsp;&nbsp;Granted | 715000 | 1.07 |
| &nbsp;&nbsp;&nbsp;Vested | (570875) | (1.77) |
| &nbsp;&nbsp;&nbsp;Forfeited | (65000) | (1.06) |
| Nonvested balance, September 30, 2022 | 1136500 | $1.46 |

---

The Company estimated the fair market value of these restricted stock grants based on the closing market price on the date of grant. As of September 30, 2022, there were $627,217 of total unrecognized compensation costs related to all remaining non-vested restricted stock grants, which will be amortized over the next fifty-two months in accordance with their respective vesting scale.

The nonvested balance of restricted stock vests as follows:

---

| | | |
|:---|:---|:---|
| **Years ended** | **Number of**<br> **shares** | **Number of**<br> **shares** |
| 2022 (October 1, 2022 through December 31, 2022) |  | 12000 |
| 2023 |  | 663000 |
| 2024 |  | 279000 |
| 2025 |  | 80000 |
| 2026 |  | 72500 |
| 2027 |  | 30000 |

---

**NOTE 14. COMMON STOCK PURCHASE WARRANTS**

The Company has issued common stock purchase warrants in conjunction with various debt and equity issuances. The warrants are either immediately exercisable or have a delayed initial exercise date, no more than six months from their respective issue date and allow the holders to purchase up to 1,349,178 shares of common stock at $2.60 to $3.36 per share as of September 30, 2022. The warrants expire from February 23, 2023 through July 31, 2023 and under certain circumstances allow for cashless exercise.

On January 14, 2021 and February 1, 2021, the Company issued warrants to purchase a total of 42,550,000 shares of common stock. The warrants issued on January 14, 2021 consist of (i) pre-funded warrants to purchase up to 7,200,000 shares of common stock and (ii) common stock purchase warrants ("January Warrants") to purchase up to an aggregate of 10,000,000 shares of common stock. The warrants issued on February 1, 2021 consist of (i) pre-funded warrants to purchase up to 11,050,000 shares of common stock and (ii) common stock purchase warrants ("February Warrants") to purchase up to an aggregate of 14,300,000 shares of common stock. The warrant terms provide for net cash settlement outside the control of the Company under certain circumstances in the event of tender offers. As such, the Company is required to treat these warrants as derivative liabilities which are valued at their estimated fair value at their issuance date and at each reporting date with any subsequent changes reported in the consolidated statements of operations as the change in fair value of warrant derivative liabilities. Furthermore, the Company re-values the fair value of warrant derivative liability as of the date the warrant is exercised with the resulting warrant derivative liability transitioned to change in fair value of warrant derivative liabilities through the consolidated statement of operations.

On August 19, 2021, the Company entered into a Warrant Exchange Agreement (the "Exchange Agreement") with certain investors cancelling February Warrants exercisable for an aggregate of 7,681,540 shares of common stock in consideration for its issuance of new warrants (the "Exchange Warrants") to such investors, exercisable for an aggregate of up to 7,681,540 shares of common stock. The Company also issued warrants (the "Replacement Original Warrants") replacing the February Warrants for the remaining shares of common stock exercisable thereunder, representing an aggregate of 6,618,460 shares of common stock, and extended the expiration date of the February Warrants to September 18, 2026. The Exchange Warrants provide for an initial exercise price of $3.25 per share, subject to customary adjustments thereunder, and are immediately exercisable upon issuance for cash and on a cashless basis. On the date of the exchange, the Company calculated the fair value, using the Black-Scholes method, of the cancelled February Warrants and the newly issued Exchange Warrants, the difference in fair value measurement of the respective warrants was attributed to warrant modification expense in the consolidated statement of operations.

On the date of the exchange, the cancelled February Warrants and Exchange Warrants were valued at $11,818,644 and $12,114,424 using the original and modified expiry date of the warrants, respectively, using the Black-Scholes method. The difference of $295,780 was accordingly recorded as a warrant modification expense in the consolidated statement of operations during 2021.

SCHEDULE OF WARRANT MODIFICATION

---

| | | |
|:---|:---|:---|
|  | **Original <br> terms at <br> August 19,<br> 2021** | **Modified<br> terms at <br> August 19, <br> 2021** |
| Volatility - range | 109.3% | 104.7% |
| Risk-free rate | 0.78% | 0.78% |
| Dividend | 0% | 0% |
| Remaining contractual term | 4.5 years | 5.1 years |
| Exercise price | $3.25 | $3.25 |
| Common stock issuable under the warrants | 14300000 | 14300000 |

---

On August 23, 2022, the Company entered into a Warrant Exchange Agreement (the "Warrant Exchange Agreements") with certain investors (the "Investors"), pursuant to which the Company agreed to issue to the Investors an aggregate of 6,075,000 shares of Common Stock in exchange for the cancellation by the Investors of the January Warrants, the Exchange Warrants and the Replacement Originals Warrants. On the date of the exchange, the Company calculated the fair value of the issuance of common shares pursuant to the Warrant Exchange Agreements, attributing that value to common stock and additional paid in capital. The remaining value of the warrant derivative liability was attributed to an income from change in fair market value of warrant derivative liabilities and gain on extinguishment of warrant derivative liabilities in the consolidated statement of operations. On the date of the Warrant Exchange Agreement, using the Black-Scholes method, the fair value of the warrant derivative liability was $8.1 million, compared to $9.3 million at June 30, 2022, resulting in income from change in fair market value of warrant derivative liabilities of $1.2 million during the three months ended September 30, 2022. Further, the value of the issued shares of Common Stock was $4.5 million, applied to additional paid in capital, resulting in a gain on the extinguishment of warrant derivative liabilities of $3.6 million during the three months ended September 30, 2022.

---

| | |
|:---|:---|
|  | **Terms at <br> August 23,<br> 2022** |
| Volatility - range | 103.7% |
| Risk-free rate | 3.17 - 3.36% |
| Dividend | 0% |
| Remaining contractual term | 3.4 - 4.1 years |
| Exercise price | $3.25 |
| Common stock issuable under the warrants | 24300000 |

---

Fluctuations in the Company's stock price is a primary driver for the changes in the derivative valuations during each reporting period. As the stock price increases for each of the related derivative instruments, the value to the holder of the instrument generally increases, therefore increasing the liability on the Company's balance sheet. Additionally, stock price volatility is one of the significant unobservable inputs used in the fair value measurement of each of the Company's derivative instruments. The simulated fair value of these liabilities is sensitive to changes in the Company's expected volatility. Increases in expected volatility would generally result in higher fair value measurement. A 10% change in pricing inputs and changes in volatilities and correlation factors would not result in a material change in our Level 3 fair value.

The following table summarizes information about shares issuable under warrants outstanding during the nine months ended September 30, 2022:

---

| | | |
|:---|:---|:---|
|  | **Warrants** | **Weighted<br> average**<br> **exercise price** |
| Vested Balance, January 1, 2022 | 26008598 | $3.24 |
| &nbsp;&nbsp;&nbsp;Granted |  |  |
| &nbsp;&nbsp;&nbsp;Exercised |  |  |
| &nbsp;&nbsp;&nbsp;Forfeited/cancelled | (24659420) | 3.25 |
| Vested Balance, September 30, 2022 | 1349178 | $3.01 |

---

The total intrinsic value of all outstanding warrants aggregated $-0- as of September 30, 2022, and the weighted average remaining term is 7 months.

The following table summarizes the range of exercise prices and weighted average remaining contractual life for outstanding and exercisable warrants to purchase shares of common stock as of September 30, 2022:

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

---

| | | |
|:---|:---|:---|
| | **Outstanding and exercisable warrants** | **Outstanding and exercisable warrants** |
| <br>**Exercise price** | **Number of warrants** | **Weighted average**<br> **remaining**<br> **contractual life** |
| $2.60 | 465712 | 0.8 years |
| $3.00 | 316800 | 0.5 years |
| $3.36 | 566666 | 0.4 years |
|  | 1349178 | 0.6 years |

---

**NOTE 15. STOCKHOLDERS' EQUITY**

***Cancellation of Restricted Stock***

During the nine months ended September 30, 2022, the Company cancelled 65,000 restricted shares of common stock due to forfeiture reasons.

***Stock Repurchase Program***

On December 6, 2021, the board of directors of the Company authorized the repurchase of up to $10.0 million of the Company's outstanding common stock under the specified terms of a share repurchase program (the "Program"). During the nine months ended September 30, 2022, the Company repurchased 3,725,986 shares of its common stock for $4,026,523, in accordance with the Program.

SCHEDULE OF STOCK REPURCHASE

---

| | | | | |
|:---|:---|:---|:---|:---|
| **Period** | **Total<br> Number of<br> Shares<br> Purchased** | **Average<br> Price <br> Paid per <br> Shares** | **Total<br> Number of <br> Shares<br> Purchased as<br> Part of<br> Publicly<br> Announced<br> Program** | **Maximum<br> Approximate<br> Dollar Value<br> of<br> Shares that<br> May Yet Be<br> Purchased<br> Under the<br> Program** |
| December 2021 | 1734838 | $1.14 | 1734838 |  |
| January 2022 | 697093 | 1.11 | 697093 |  |
| February 2022 | 692984 | 1.12 | 692984 |  |
| March 2022 | 485957 | 1.06 | 485957 |  |
| April 2022 | 595476 | 1.14 | 595476 |  |
| May 2022 | 716911 | 1.08 | 716911 |  |
| June 2022 | 537565 | 0.96 | 537565 |  |
| &nbsp;&nbsp;&nbsp;Total all plans | 5460824 | $1.10 | 5460824 | $3998398 |

---

On June 30, 2022, the board of directors of the Company elected to terminate the Program, effective immediately. The Program began in December 2021, with the Company purchasing a total of 5,460,824 shares at a cost of $6,001,602 through June 30, 2022.

***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 statement of (income) loss as "net (income) loss attributable to noncontrolling interests of consolidated subsidiary". We reported net loss attributable to noncontrolling interests of consolidated subsidiary of $16,596 and a net loss of $19,863 for the three months ended September 30, 2022 and 2021, and a net income of $268,636 and a net loss of $19,863 for the nine months ended September 30, 2022 and 2021, respectively.

**NOTE 16. NET EARNINGS (LOSS) PER SHARE**

The calculation of the weighted average number of shares outstanding and loss per share outstanding for the three and nine months ended September 30, 2022 and 2021 are as follows:

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

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **Three Months Ended**<br> **September 30,** | **Three Months Ended**<br> **September 30,** | **Nine months Ended<br> September 30,** | **Nine months Ended<br> September 30,** |
|  | **2022** | **2021** | **2022** | **2021** |
| Numerator for basic and diluted income per share – Net income (loss) attributable to common stockholders | $(1902475) | $8068799 | $(9568134) | $24408170 |
| Denominator for basic loss per share – weighted average shares outstanding | 50365218 | 51809435 | 49973619 | 49404794 |
| Dilutive effect of shares issuable under stock options and warrants outstanding |  |  |  |  |
| Denominator for diluted loss per share – adjusted weighted average shares outstanding | 50365218 | 51809435 | 49973619 | 49404794 |
| Net loss per share: |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Basic | $(0.04) | $0.16 | $(0.19) | $0.49 |
| &nbsp;&nbsp;&nbsp;Diluted | $(0.04) | $0.16 | $(0.19) | $0.49 |

---

Basic income (loss) per share is based upon the weighted average number of common shares outstanding during the period. For the three and nine months ended September 30, 2022 and 2021, all shares issuable upon the exercise of outstanding stock options and warrants were antidilutive, and, therefore, not included in the computation of diluted income (loss) per share.

**NOTE 17. DIGITAL ALLY HEALTHCARE VENTURE**

On June 4, 2021, Digital Ally Healthcare, a wholly-owned subsidiary of the Company, entered into a venture with Nobility LLC ("Nobility"), an eight-year-old revenue cycle management ("RCM") company servicing the medical industry, to form Nobility Healthcare, LLC ("Nobility Healthcare"). Digital Ally Healthcare is capitalizing the venture with $13.5 million to support the venture's business strategy to make acquisitions of RCM companies. Digital Ally Healthcare owns 51% of the venture that entitles it to 51% of the distributable cash as defined in the venture's operating agreement plus a cumulative preferred return of 10% per annum on its invested capital. Nobility will receive a management fee and 49% of the distributable cash, subordinated to Digital Ally Healthcare's preferred return. The venture comprises the Company's revenue cycle management segment.

On June 30, 2021, the Company's revenue cycle management segment completed the acquisition of a private medical billing company (the "Healthcare Acquisition"). In accordance with the stock purchase agreement, the Company's revenue cycle management segment agreed to a non-refundable initial payment (the "Initial Payment Amount") of $850,000. In addition to the Initial Payment Amount, the Company's revenue cycle management segment agreed to issue a promissory note to the stockholders of the Healthcare Acquisition in the principal amount of $350,000 that is subject to an earn-out adjustment. Management's estimate of the fair value of this contingent promissory note at December 31, 2021 is $317,212. The gain associated with the adjustment in the estimated fair value of this contingent promissory note is recorded as a gain in the Consolidated Statements of Operations for the year ended December 31, 2021. Lastly, the Company's revenue cycle management segment agreed to pay $162,552 representing the principal and accrued interest balance due under a promissory note issued to the selling shareholders prior to the acquisition closing date. The Company's revenue cycle management segment anticipates the estimated fair value of the contingent promissory note to be paid in full and, therefore, the total aggregate purchase price was determined to be approximately $1,376,509. Total acquisition related costs aggregated $164,630, which was expensed as incurred. Subsequent to the acquisition date, the Company received further information regarding the purchased assets and assumed liabilities. As a result, the initial allocation of the purchase price was adjusted by increasing accounts receivable by $75,000 with a corresponding reduction of goodwill during the year ended December 31, 2021.

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 8 of Regulation S-X, respectively, are not required to be presented. Under the acquisition method, the purchase price of the Healthcare Acquisition has been allocated to the acquired tangible and identifiable intangible assets and assumed liabilities based on their estimated fair values at the time of the Healthcare Acquisition. This allocation involves a number of assumptions, estimates, and judgments that could materially affect the timing or amounts recognized in our financial statements. Our assumptions and estimates are based upon information obtained from the management of the Company's revenue cycle management segment. The acquisition was structured as stock purchase, therefore the excess purchase price over the fair value of net tangible assets acquired was recorded as goodwill, which will not be amortized for income tax filing purposes. The results of operations of acquired businesses are included in the consolidated financial statements from the acquisition date.

The purchase price of the Healthcare Acquisition was allocated to the tangible assets, and assumed liabilities based on their preliminary estimated fair values at the time of the Healthcare Acquisition. The Company retained the services of an independent valuation firm to determine the fair value of these identifiable intangible assets. The Company will continue to evaluate the fair value of the identified intangible assets. The preliminary and final estimated fair value of assets acquired, and liabilities assumed in the Healthcare Acquisition were as follows:

SCHEDULE OF PRELIMINARY AND FINAL ESTIMATED FAIR VALUE OF ASSETS ACQUIRED AND LIABILITIES ACQUISITION

---

| | | |
|:---|:---|:---|
| | **Purchase price allocation** | **Purchase price allocation** |
| <br>**Description** | **Preliminary**<br> **as allocated**<br> **June 30, 2021** | <br>**Final**<br> **as allocated<br> June 30, 2022** |
| Assets acquired: |  |  |
| &nbsp;&nbsp;&nbsp;Tangible assets acquired, consisting of acquired cash, accounts receivable and right of use asset | $174351 | $174351 |
| &nbsp;&nbsp;&nbsp;Intangible assets acquired – client agreements |  | 457079 |
| &nbsp;&nbsp;&nbsp;Goodwill | 1125000 | 667921 |
| &nbsp;&nbsp;&nbsp;Liabilities assumed consisting of a promissory note issued by the selling shareholders which was paid off at closing, net of lease liability assumed | 77158 | 77158 |
| &nbsp;&nbsp;&nbsp;Net assets acquired and liabilities assumed | $1376509 | $1376509 |
| Consideration: |  |  |
| &nbsp;&nbsp;&nbsp;Cash paid at Healthcare Acquisition date | $1026509 | $1026509 |
| &nbsp;&nbsp;&nbsp;Contingent consideration earn-out agreement | 350000 | 350000 |
| Total Healthcare Acquisition purchase price | $1376509 | $1376509 |

---

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

---

| | | | |
|:---|:---|:---|:---|
|  | **Cost** | **Amortization through <br> September 30,<br> 2022** | **Estimated**<br> **useful life** |
| Identifiable intangible assets: |  |  |  |
| &nbsp;&nbsp;&nbsp;Client agreements | $457079 | $57135 | 10 years |

---

For the period from the date of the Healthcare Acquisition to June 30, 2022, the Company adjusted its preliminary fair value estimates and estimated useful lives based upon information obtained through June 30, 2022, which resulted in adjustments to the preliminary allocation of the purchase price. These adjustments primarily related to estimated identifiable intangible asset fair values of client agreements and goodwill.

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

On August 31, 2021, the Company's revenue cycle management segment completed the acquisition of another private medical billing company (the "Medical Billing Acquisition"). In accordance with the stock purchase agreement, Nobility Healthcare agreed to a non-refundable initial payment (the "Initial Payment Amount") of $2,270,000. In addition to the Initial Payment Amount, the Company's revenue cycle management segment agreed to issue a contingent promissory note to the stockholders of the Medical Billing Acquisition in the principal amount of $650,000 that is subject to an earn-out adjustment. The Company's revenue cycle management segment anticipates the estimated fair value of the contingent promissory note to be paid in full, therefore, the total aggregate purchase price was determined to be approximately $2,920,000. Total acquisition related costs aggregated $5,602, which was expensed as incurred.

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 Medical Billing Acquisition has been allocated to the acquired tangible and identifiable intangible assets and assumed liabilities based on their estimated fair values at the time of the Medical Billing Acquisition. This allocation involves a number of assumptions, estimates, and judgments that could materially affect the timing or amounts recognized in our financial statements. The acquisition was structured as stock purchase, therefore the excess purchase price over the fair value of net tangible assets acquired was recorded as goodwill, which will not be amortized for income tax filing purposes. The results of operations of acquired businesses are included in the consolidated financial statements from the acquisition date.

The purchase price of the Medical Billing Acquisition was allocated to the tangible assets, and assumed liabilities based on their preliminary estimated fair values at the time of the Medical Billing Acquisition. The Company retained the services of an independent valuation firm to determine the fair value of these identifiable intangible assets. The Company will continue to evaluate the fair value of the identified intangible assets. The preliminary and final estimated fair value of assets acquired, and liabilities assumed in the Healthcare Acquisition were as follows:

SCHEDULE OF PRELIMINARY FAIR VALUE OF ASSETS ACQUIRED AND LIABILITIES ACQUISITION

---

| | | |
|:---|:---|:---|
| | **Purchase price**<br> **allocation** | **Purchase price**<br> **allocation** |
| <br>**Description** | **Preliminary As<br> allocated**<br>**September 30,<br> 2021** | **Final As <br> allocated**<br>**September 30,**<br> **2022** |
| Assets acquired: |  |  |
| &nbsp;&nbsp;&nbsp;Tangible assets acquired | $401547 | $401547 |
| &nbsp;&nbsp;&nbsp;Identifiable intangible assets acquired – client agreements |  | 206955 |
| &nbsp;&nbsp;&nbsp;Goodwill | 2920000 | 2713045 |
| &nbsp;&nbsp;&nbsp;Liabilities assumed pursuant to stock purchase agreement | (401547) | (401547) |
| &nbsp;&nbsp;&nbsp;Net assets acquired and liabilities assumed | $2920000 | $2920000 |
| Consideration: |  |  |
| &nbsp;&nbsp;&nbsp;Cash paid at Healthcare Acquisition date | $2270000 | $2270000 |
| &nbsp;&nbsp;&nbsp;Contingent consideration earn-out agreement | 650000 | 650000 |
| Total Healthcare Acquisition purchase price | $2920000 | $2920000 |

---

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

---

| | | | |
|:---|:---|:---|:---|
|  | **Cost** | **Amortization through <br> September 30,<br> 2022** | **Estimated**<br> **useful life** |
| Identifiable intangible assets: |  |  |  |
| &nbsp;&nbsp;&nbsp;Client agreements | $206955 | $22420 | 10 years |

---

For the period from the date of the Healthcare Acquisition to August 31, 2022, the Company adjusted its preliminary fair value estimates and estimated useful lives based upon information obtained through August 31, 2022, which resulted in adjustments to the preliminary allocation of the purchase price. These adjustments primarily related to estimated identifiable intangible asset fair values of client agreements and goodwill.

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

On January 1, 2022, the Company's revenue cycle management segment completed the acquisition of another private medical billing company (the "Medical Billing Acquisition"). In accordance with the stock purchase agreement, Nobility Healthcare agreed to a non-refundable initial payment (the "Initial Payment Amount") of $1,153,626. In addition to the Initial Payment Amount, the Company's revenue cycle management segment agreed to issue a contingent promissory note to the stockholders of the Medical Billing Acquisition in the principal amount of $750,000 that is subject to an earn-out adjustment. The Company's revenue cycle management segment anticipates the estimated fair value of the contingent promissory note to be paid in full, therefore, the total aggregate purchase price was determined to be approximately $1,903,626. Total acquisition related costs aggregated $7,996, which was expensed as incurred.

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 Medical Billing Acquisition has been allocated to the acquired tangible and identifiable intangible assets and assumed liabilities based on their estimated fair values at the time of the Medical Billing Acquisition. This allocation involves a number of assumptions, estimates, and judgments that could materially affect the timing or amounts recognized in our financial statements. The acquisition was structured as stock purchase, therefore the excess purchase price over the fair value of net tangible assets acquired was recorded as goodwill, which will not be amortized for income tax filing purposes. The results of operations of acquired businesses are included in the consolidated financial statements from the acquisition date.

The purchase price of the Medical Billing Acquisition was allocated to the tangible assets, and assumed liabilities based on their preliminary estimated fair values at the time of the Medical Billing Acquisition. The Company retained the services of an independent valuation firm to determine the fair value of these identifiable intangible assets. The Company will continue to evaluate the fair value of the identified intangible assets. There was no change from the preliminary estimated fair value to the final estimated fair value of assets acquired, and liabilities assumed in the Healthcare Acquisition, those value were as follows:

SCHEDULE OF PRELIMINARY FAIR VALUE OF ASSETS ACQUIRED AND LIABILITIES ACQUISITION

---

| | |
|:---|:---|
| **Description** | **Amount** |
| Assets acquired: |  |
| &nbsp;&nbsp;&nbsp;Tangible assets acquired | $190631 |
| &nbsp;&nbsp;&nbsp;Goodwill | 2100000 |
| &nbsp;&nbsp;&nbsp;Liabilities assumed pursuant to stock purchase agreement | (387005) |
| &nbsp;&nbsp;&nbsp;Total assets acquired and liabilities assumed | $1903626 |
| Consideration: |  |
| &nbsp;&nbsp;&nbsp;Cash paid at acquisition date | $1153626 |
| &nbsp;&nbsp;&nbsp;Contingent consideration promissory note | 750000 |
| Total acquisition purchase price | $1903626 |

---

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

On February 1, 2022, the Company's revenue cycle management segment completed an asset acquisition from another private medical billing company (the "Medical Billing Asset Acquisition"). In accordance with the asset purchase agreement, Nobility Healthcare agreed to a non-refundable initial payment (the "Initial Payment Amount") of $230,000. In addition to the Initial Payment Amount, the Company's revenue cycle management segment agreed to issue a contingent promissory note to the stockholders of the Medical Billing Asset Acquisition in the principal amount of $105,000 that is subject to an earn-out adjustment. The Company's revenue cycle management segment anticipates the estimated fair value of the contingent promissory note to be paid in full, therefore, the total aggregate purchase price was determined to be approximately $335,000. Total acquisition related costs aggregated $10,322, which was expensed as incurred.

In accordance with ASC 805, "Business Combinations", the acquisition method of accounting is used, and recognition of the assets acquired is at fair value as of the acquisition dates. All acquisition costs were expensed as incurred. The consideration paid has been allocated to the assets acquired based on their estimated fair values at the acquisition date. The estimate of fair values for the intangible assets acquired were agreed to by both buyer and seller. The estimated fair value of intangible assets acquired in the Medical Billing Asset Acquisition were as follows:

SCHEDULE OF PRELIMINARY FAIR VALUE OF ASSETS ACQUIRED AND LIABILITIES ACQUISITION

---

| | |
|:---|:---|
| **Description** | **Amount** |
| Assets acquired: |  |
| &nbsp;&nbsp;&nbsp;Intangible assets acquired – client agreements | $335000 |
| &nbsp;&nbsp;&nbsp;Total assets acquired and liabilities assumed | $335000 |
| Consideration: |  |
| &nbsp;&nbsp;&nbsp;Cash paid at acquisition date | $230000 |
| &nbsp;&nbsp;&nbsp;Contingent consideration promissory note | 105000 |
| Total acquisition purchase price | $335000 |

---

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

---

| | | | |
|:---|:---|:---|:---|
|  | **Cost** | **Amortization through <br> September 30,<br> 2022** | **Estimated**<br> **useful life** |
| Identifiable intangible assets: |  |  |  |
| &nbsp;&nbsp;&nbsp;Client agreements | $335000 | $22333 | 10 years |

---

The change in fair value of the contingent consideration is more fully described in Note 3, "Debt Obligations" and will be estimated on a quarterly basis.

**NOTE 18. TICKETSMARTER ACQUISITION**

On September 1, 2021, Digital Ally, Inc. formed TicketSmarter, Inc. ("TicketSmarter"), through which the Company completed the acquisition of Goody Tickets, LLC, a Kansas limited liability company ("Goody Tickets") and TicketSmarter, LLC, a Kansas limited liability company ("TicketSmarter LLC") (such acquisitions, collectively, the "TicketSmarter Acquisition"). TicketSmarter, Inc. comprises the Company's ticketing business segment. In accordance with the stock purchase agreement, the Company agreed to an initial payment (the "Initial Payment Amount") of $9,403,600 through a combination of cash and common stock. In addition to the Initial Payment Amount, the Company agreed to issue an earn-out agreement to the stockholders of Goody Tickets and TicketSmarter LLC in the contingent amount of $4,244,400 that is subject to an earn-out adjustment based on actual EBITDA achieved in 2021, of which the Company gave a fair value of $3,700,000 on the date of acquisition. However, following the completion of 2021, it was determined that the actual EBITDA threshold for any earn-out adjustment to be paid was not met. Thus, in accordance with U.S. GAAP, the fair value of the contingent earn-out is reduced to zero, and the associated gain related to this revaluation is recorded in our Consolidated Statements of Operations for the year ended December 31, 2021. Lastly, included in the agreement, the Company agreed to place $500,000 in escrow, subject to a working capital adjustment based on actual working capital amounts on the acquisition date as defined in the agreement. This amount was subject to disbursement 45 days following the close of the acquisition. The parties completed the working capital adjustment resulting in the Company retaining $297,726 of the escrow amount with the $202,274 released to the sellers. The total acquisition related costs aggregated $40,625, which was expensed as incurred.

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 TicketSmarter Acquisition has been allocated to Goody Tickets' and TicketSmarter LLC's acquired tangible and identifiable intangible assets and assumed liabilities based on their estimated fair values at the time of the TicketSmarter Acquisition. This allocation involves a number of assumptions, estimates, and judgments that could materially affect the timing or amounts recognized in our financial statements. The TicketSmarter Acquisition was structured as a stock purchase; however the parties agreed to coordinate the election to invoke IRS Section 338(h)(10) relative to this transaction for tax purposes. Therefore, the excess purchase price over the fair value of net tangible assets acquired was recorded as goodwill, which will be amortized over 15 years for income tax filing purposes. Likewise, the other acquired assets were stepped up to fair value and is deductible for income tax purposes. The results of operations of acquired businesses are included in the consolidated financial statements from the acquisition date.

The purchase price of the TicketSmarter Acquisition was allocated to Goody Tickets' and TicketSmarter LLC's tangible assets, goodwill, identifiable intangible assets, and assumed liabilities based on their preliminary estimated fair values at the time of the TicketSmarter Acquisition. The Company retained the services of an independent valuation firm to determine the fair value of these identifiable intangible assets. The Company will continue to evaluate the fair value of the identified intangible assets. The preliminary and final estimated fair value of assets acquired, and liabilities assumed in the TicketSmarter Acquisition were as follows:

SCHEDULE OF PRELIMINARY AND FINAL ESTIMATED FAIR VALUE OF ASSETS ACQUIRED AND LIABILITIES ASSUMED ACQUISITION

---

| | | |
|:---|:---|:---|
| | **Purchase price**<br> **allocation** | **Purchase price**<br> **allocation** |
| <br>**Description** | **As allocated**<br>**September 30,<br> 2021** | **Final as allocated**<br>**December 31,**<br> **2021** |
| Assets acquired: |  |  |
| &nbsp;&nbsp;&nbsp;Tangible assets acquired, including $51,432 of cash acquired | $7139930 | $5748291 |
| &nbsp;&nbsp;&nbsp;Identifiable intangible assets acquired |  | 6800000 |
| &nbsp;&nbsp;&nbsp;Goodwill | 11839308 | 5886547 |
| &nbsp;&nbsp;&nbsp;Liabilities assumed | (5128964) | (5128964) |
| &nbsp;&nbsp;&nbsp;Net assets acquired and liabilities assumed | $13850274 | $13305874 |
| Consideration: |  |  |
| &nbsp;&nbsp;&nbsp;Cash paid at TicketSmarter Acquisition date | $8413240 | $8413240 |
| &nbsp;&nbsp;&nbsp;Common stock issued as consideration for TicketSmarter Acquisition at date of acquisition | 990360 | 990360 |
| &nbsp;&nbsp;&nbsp;Contingent consideration earn-out agreement | 4244400 | 3700000 |
| &nbsp;&nbsp;&nbsp;Cash paid at closing to escrow amount | 500000 | 500000 |
| &nbsp;&nbsp;&nbsp;Cash retained from escrow amount pursuant to settlement of working capital target | (297726) | (297726) |
| Total TicketSmarter Acquisition purchase price | $13850274 | $13305874 |

---

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

SCHEDULE OF COMPONENTS OF IDENTIFIABLE INTANGIBLE ASSETS ACQUIRED AND ESTIMATED USEFUL LIVES

---

| | | | |
|:---|:---|:---|:---|
|  | **Cost** | **Amortization through <br> September 30,<br> 2022** | **Estimated**<br> **useful life** |
| Identifiable intangible assets: |  |  |  |
| Trademarks | $600000 | $— | indefinite |
| Sponsorship agreement network | 5600000 | 1213333 | 5 years |
| Search engine optimization/content | 600000 | 162500 | 4 years |
|  | $6800000 | $1375833 |  |

---

For the period from the date of the TicketSmarter Acquisition to December 31, 2021, the Company adjusted its preliminary fair value estimates and estimated useful lives based upon information obtained through December 31, 2021, which resulted in adjustments to the preliminary allocation of the purchase price. These adjustments primarily related to estimated identifiable intangible asset fair values (primarily related to the sponsorship agreement network), the estimated fair value of the contingent earn-out agreement liability and goodwill. There were no adjustments to the allocation of the purchase price during the three and nine months ended September 30, 2022.

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

**NOTE 19. SEGMENT DATA**

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. 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 Ticketing, each of which has specific personnel responsible for that business and reports to the CODM. Corporate expenses capture the Company's corporate administrative activities, and are also to be reported in the segment information. The Company's captive insurance subsidiary provides services to the Company's other business segments and not to outside customers. Therefore, its operations are eliminated in consolidation and it is not considered a separate business segment for financial reporting purposes.

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 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 Company's corporate administration activities are reported in the corporate line item. These activities primarily include expense related to certain corporate officers and support staff, certain accounting staff, expense related to the Company's Board of Directors, stock option expense for options granted to corporate administration employees, certain consulting expenses, investor relations activities, and a portion of the Company's legal, auditing and professional fee expenses. Corporate identifiable assets primarily consist of cash, invested cash (if any), refundable income taxes (if any), and deferred income taxes.

Summarized financial information for the Company's reportable business segments is provided for the indicated periods and as of September 30, 2022, and September 30, 2021:

SCHEDULE OF SEGMENT REPORTING

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **Three months ended<br> September 30,** | **Three months ended<br> September 30,** | **Nine months ended <br> September 30,** | **Nine months ended <br> September 30,** |
|  | **2022** | **2021 (as amended)** | **2022** | **2021 (as amended)** |
| **Net Revenues:** |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Video Solutions | $2092927 | $2028660 | $6152733 | $7058161 |
| &nbsp;&nbsp;&nbsp;Revenue Cycle Management | 2015112 | 560483 | 6039807 | 560483 |
| &nbsp;&nbsp;&nbsp;Ticketing | 4376114 | 2050679 | 15937852 | 2050679 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total Net Revenues | $8484153 | $4639822 | $28130392 | $9669323 |
| **Gross Profit (Loss):** |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Video Solutions | $515615 | $590447 | $1543057 | $2663131 |
| &nbsp;&nbsp;&nbsp;Revenue Cycle Management | 866277 | 197682 | 2520709 | 197682 |
| &nbsp;&nbsp;&nbsp;Ticketing | (786392) | 612441 | 190432 | 612441 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total Gross Profit | $595500 | $1400570 | $4254198 | $3473254 |
| **Operating Income (loss):** |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Video Solutions | $(1481048) | $(940039) | $(4327049) | $(1919559) |
| &nbsp;&nbsp;&nbsp;Revenue Cycle Management | 117844 | (40537) | 236628 | (40537) |
| &nbsp;&nbsp;&nbsp;Ticketing | (2149412) | 44026 | (5915953) | 44026 |
| &nbsp;&nbsp;&nbsp;Corporate | (3054407) | (2662423) | (10025236) | (7165483) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total Operating Income (Loss) | $(6567023) | $(3598973) | $(20031610) | $(9081553) |
| **Depreciation and Amortization:** |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Video Solutions | $213446 | $119560 | $584266 | $236131 |
| &nbsp;&nbsp;&nbsp;Revenue Cycle Management | 320004 | 2890 | 959366 | 2890 |
| &nbsp;&nbsp;&nbsp;Ticketing | 102211 | 609 | 102575 | 609 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total Depreciation and Amortization | $635661 | $123059 | $1646207 | $239630 |

---

---

| | | |
|:---|:---|:---|
|  | **September 30,**<br> **2022** | **December 31,<br> 2021** |
| **Assets (net of eliminations):** |  |  |
| &nbsp;&nbsp;&nbsp;Video Solutions | $33656285 | $25983348 |
| &nbsp;&nbsp;&nbsp;Revenue Cycle Management | 2446740 | 934095 |
| &nbsp;&nbsp;&nbsp;Ticketing | 15072548 | 12260780 |
| &nbsp;&nbsp;&nbsp;Corporate | 17221891 | 43810974 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total Identifiable Assets | $68397464 | $82989197 |

---

The segments recorded noncash items affecting the gross profit and operating income (loss) through the established inventory reserves based on estimates of excess and/or obsolete current and non-current inventory. The Company recorded a reserve for excess and obsolete inventory in the video solutions segment of $3,227,488 and a reserve for the ticketing segment of $543,936.

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 20. RELATED PARTY TRANSACTIONS**

***Transactions with Managing Member of Nobility Healthcare***

On January 27, 2022, the Board of Directors appointed Christian J. Hoffmann, III as a member of the Board, effective immediately. Mr. Hoffmann is a principal owner and manager of Nobility, LLC which is currently the managing member of our consolidated subsidiary Nobility Healthcare, LLC.

Nobility, LLC is currently the managing member of Nobility Healthcare, LLC. The Company has advanced a total of $158,384 in the form of a working capital loan to Nobility, LLC in order to fund capital expenditures necessary for the initial growth of the joint venture during 2021. The outstanding balance of the working capital loan was $138,384 as of September 30, 2022 and the Company anticipates full repayment of this advance during the year ended December 31, 2022. During the nine months ended September 30, 2022, the Company paid distributions to the noncontrolling in consolidated subsidiary totaling $15,692.

On August 1, 2022, Mr. Hoffmann resigned as a member of the Board, effective immediately. He remains as a principal owner and manager of Nobility, LLC which is currently the managing member of our consolidated subsidiary Nobility Healthcare, LLC.

**NOTE 21. SUBSEQUENT EVENTS**

***Preferred Stock Transaction***

On October 13, 2022, the Company, entered into a Securities Purchase Agreement (the "Purchase Agreement") with certain institutional investors (the "Preferred Stock Investors"), pursuant to which the Company agreed to issue and sell, in a private placement (the "Offering"), 1,400,000 shares of the Company's Series A Convertible Redeemable Preferred Stock, par value $0.001 per share (the "Series A Preferred Stock"), and 100,000 shares of the Company's Series B Convertible Redeemable Preferred Stock, par value $0.001 per share (the "Series B Preferred Stock", and together with the Series A Preferred Stock, the "Preferred Stock"), at an offering price of $9.50 per share, representing a 5% original issue discount to the stated value of $10.00 per share, for gross aggregate proceeds of $15 million in the Offering, before the deduction of discounts, fees and offering expenses. The shares of Preferred Stock will, under certain circumstances, be convertible into shares of the Company's common stock, at the option of the holders of the Preferred Stock and, in certain circumstances, by the Company. In connection with the Offering, the Company agreed to pay A.G.P./Alliance Global Partners (the "Financial Advisor") an aggregate cash fee equal to $750,000 and to reimburse the Financial Advisor for certain of its expenses in an amount not to exceed $135,000.

The Company has called an annual meeting of stockholders to consider amendments (the "Amendments") to the Company's Articles of Incorporation (the "Charter"), (i) to authorize an increase in the number of shares of Common Stock that the Company is authorized to issue under the Charter (the "Authorized Share Increase Amendment") and (ii) to authorize the Company, in the sole and absolute discretion of the Board of Directors, to effect a reverse stock split of the outstanding shares of Common Stock by a ratio to be determined by the Board of Directors (the "Reverse Stock Split Amendment" and, together with the Authorized Share Increase Amendment, the "Amendments").

The holders of the Series A Preferred Stock and Series B Preferred Stock have the right to require the Company to redeem their shares of the relevant series at a price per share equal to 105% of the stated value of such shares commencing (i) after the earlier of (1) the receipt of stockholder approval of the Amendments and (2) sixty (60) days after the closing of the Offering and (ii) before the date that is ninety (90) days after such closing. The Company has the option to redeem the Series A Preferred Stock and Series B Preferred Stock at a price per share equal to 105% of the stated value of such shares commencing after the 90th day following the closing of the Offering, subject to the holders' rights to convert the shares prior to such redemption.

The proceeds of the Offering are being held in an escrow account, along with the additional amount that would be necessary to fund the 105% redemption price until the expiration of the redemption period for the Preferred Stock, as applicable, subject to the earlier payment to redeeming holders. Upon expiration of the redemption period, any proceeds remaining in the escrow account will be disbursed to the Company.

The Offering closed on October 19, 2022.

**\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\***

**DIGITAL ALLY, INC.**

**Up to 1,342,281 Units** 

 **(Each Unit Consisting of One Share of Common Stock**

 **and a Warrant to**

 **Purchase One Share of Common Stock)**

 **Up to 1,342,281 Pre-Funded Units** 

 **(Each Pre-Funded Unit Consisting of a Pre-Funded Warrant to Purchase One Share of Common Stock and a Warrant to Purchase One Share of Common Stock)**

**Shares of Common Stock Underlying the Pre-Funded Warrants and Common Warrants**

**Prospectus**

**Sole Placement Agent**

****<br> **A.G.P.**

**, 2023**

**PART II**

**INFORMATION NOT REQUIRED IN PROSPECTUS**

**Item 13. Other Expenses of Issuance and Distribution.**

The following table sets forth the costs and expenses, other than the placement agent fees and expenses, payable by the registrant in connection with the sale of common stock being registered. All amounts are estimates except for the SEC registration fee and the Financial Industry Regulatory Authority, or FINRA, filing fee.

---

| | |
|:---|:---|
|  | **Amount to**<br> **be paid** |
| SEC registration fee | $882 |
| FINRA filing fee | 1700 |
| Legal fees and expenses | 150000 |
| Accounting fees and expenses | 95000 |
| Printing and engraving expenses | 5000 |
| Transfer agent and registrar fees | 2500 |
| Miscellaneous fees and expenses | 127418 |
| Total | $382500 |

---

**Item 14. Indemnification of Directors and Officers.**

Under Nevada law, a corporation may include in its articles of incorporation a provision that eliminates or limits the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duties as a director, but no such provision may eliminate or limit the liability of a director (a) for any breach of his or her fiduciary duty as a director, (b) for acts or omissions not in good faith or that involve intentional misconduct, fraud or a knowing violation of law, (c) for conduct violating the NRS, or (d) for any transaction from which the director will personally receive a benefit in money, property or services to which the director is not legally entitled.

Section 78.7502 of the NRS provides, in general, that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, except an action by or in the right of the corporation, by reason of the fact that the person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses, including attorneys' fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by the person in connection with the action, suit or proceeding if the person acted in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe the conduct was unlawful.

NRS Section 78.4502 also provides, in general, that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that the person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses, including amounts paid in settlement and attorneys' fees actually and reasonably incurred by the person in connection with the defense or settlement of the action or suit if the person acted in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the corporation; provided, however, that indemnification may not be made for any claim, issue or matter as to which such a person has been adjudged by a court of competent jurisdiction, after exhaustion of all appeals therefrom, to be liable to the corporation or for amounts paid in settlement to the corporation, unless and only to the extent that the court in which the action or suit was brought or other court of competent jurisdiction determines upon application that in view of all the circumstances of the case, the person is fairly and reasonably entitled to indemnity for such expenses as the court deems proper.

Any indemnification pursuant to the above provisions may be made by the corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances. The determination must be made: (a) by the stockholders; (b) by the Board of Directors by majority vote of a quorum consisting of directors who were not parties to the action, suit or proceeding; (c) if a majority vote of a quorum consisting of directors who were not parties to the action, suit or proceeding so orders, by independent legal counsel in a written opinion; or (d) if a quorum consisting of directors who were not parties to the action, suit or proceeding cannot be obtained, by independent legal counsel in a written opinion.

Our articles of incorporation, as amended, and bylaws provide, among other things, that a director or officer of the corporation may be indemnified against expenses, liability, and loss (including attorneys' fees inclusive of any appeal), judgments, fines and amounts paid in settlement reasonably incurred by such person in connection with any claim, action, suit or proceeding, whether civil, criminal, or investigative, to the fullest extent permitted under the NGCL, unless it is ultimately determined by a court of competent jurisdiction that he is not entitled to be indemnified by the corporation. Directors and officers of the corporation cannot be personally liable for damages for breach of fiduciary duty, except (a) for acts of omissions involving intentional misconduct, fraud, or knowing violation of law, or (b) the payment of dividends in violation of Section 78.300 of the NRS.

Insofar as indemnification for liabilities arising under the Securities Act may be provided for directors, officers, employees, agents or persons controlling an issuer pursuant to the foregoing provisions, the opinion of the Securities and Exchange Commission (the "SEC") is that such indemnification is against public policy as expressed in the Securities Act, and is therefore unenforceable. In the event that a claim for indemnification by such director, officer or controlling person of us in the successful defense of any action, suit or proceeding is asserted by such director, officer or controlling person in connection with the securities being offered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by us is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

At the present time, there is no pending litigation or proceeding involving a director, officer, employee or other agent of ours in which indemnification would be required or permitted. We are not aware of any threatened litigation or proceeding, which may result in a claim for such indemnification.

The Placement Agent Agreement filed as Exhibit 1.1 to this registration statement provides for indemnification of us and our directors and officers by the Placement Agent against certain liabilities under the Securities Act of 1934 and the Exchange Act of 1934.

**Item 15. Recent Sales of Unregistered Securities.**

During the last three completed fiscal years and to date in the current fiscal year, we sold the following unregistered securities:

On April 17, 2020, the Company entered into a securities purchase agreement (the "April 2020 Purchase Agreement") with two accredited investors (the "April 2020 Investors") providing for the issuance of (i) the Company's 8% Senior Secured Convertible Promissory Notes due April 16, 2021 (the "April 2020 Notes") with an aggregate principal face amount of $1,666,666, which Notes are, subject to certain conditions, convertible into shares of common stock, par value $0.001 per share ("Common Stock"), at a price per share of $20.20 and (ii) five-year warrants (the "April 2020 Warrants") to purchase an aggregate of up to 61,881 shares of Common Stock (the "April 2020 Warrant Shares") at an exercise price of $26.20 per share, subject to customary adjustments, which April 2020 Warrants are immediately exercisable upon issuance and on a cashless basis if the April 2020 Warrant Shares have not been registered 180 days after the date of issuance. Pursuant to the April 2020 Purchase Agreement, an aggregate of $500,000 of principal amount of the April 2020 Notes and the underlying shares of Common Stock issuable upon conversion of such April 2020 Notes were registered in a registered direct offering. April 2020 Notes in an additional aggregate principal amount of $1,166,666 and the April 2020 Warrants were issued to the April 2020 Investors in a concurrent private placement.

On July 1, 2020, the Company entered into a commission agreement with an individual who provides services for our Shield and ThermoVU product lines. Pursuant to such agreement, we issued a total of 500 shares of Common Stock valued at $30,700 based on the closing market price. The issuance was made pursuant to an exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended, including pursuant to Rule 506 thereunder. The individual is an "accredited investor" under Rule 506 and was made without any form of general solicitation and with full access to any information requested by the individual regarding the Company or the securities issued to such individual.

On September 9, 2020, the Company's board of directors approved the grant of options to purchase 12,750 shares of Common Stock at an exercise price of $41.80 per of which (i) options to purchase 1,500 shares of Common Stock were fully vested at the time of grant and (ii) options to purchase 11,250 shares of Common Stock are subject to vesting ratably on a quarterly basis through May 1, 2021. In addition, on September 9, 2020, the Company's board of directors approved the grant of 9,167 restricted shares of Common Stock, which were fully vested at the time of grant. These grants were made to members of the Company's board of directors and employees pursuant to the Digital Ally, Inc. 2020 Stock Option and Restricted Stock Plan and were made pursuant to an exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended, including pursuant to Rule 506 thereunder. Such grant recipients were "accredited investors" under Rule 506 of the Securities Act and such grants were made without any form of general solicitation and with full access to any information requested by each recipient regarding the Company or such securities issued.

On January 14, 2021, the Company issued to two accredited investors (the "January 2021 Investors") Common Stock purchase warrants (collectively, the "January 2021 Warrants") to purchase up to an aggregate of 500,000 shares of Common Stock of the Company, par value $0.001 per share (the "Common Stock"), exercisable for at an initial exercise price of $65.00 per share, subject to certain adjustments as provided in the January 2021 Warrants (the "January 2021 Issuance").

In addition, on January 27, 2021, the Company issued to the January 2021 Investors Common Stock purchase warrants dated February 1, 2021 (collectively, the "February 2021 Warrants") to purchase up to an aggregate of 715,000 shares of Common Stock. Thereafter, and also as previously disclosed, on August 19, 2021, the Company entered into a Warrant Exchange Agreement with the January 2021 Investors cancelling February 2021 Warrants exercisable for an aggregate of 384,077 shares of Common Stock in consideration for the issuance by the Company to the January 2021 Investors of new Common Stock purchase warrants (collectively, the "August 2021 Exchange Warrants") exercisable for an aggregate of up to 384,077 shares of Common Stock, an initial exercise price of $65.00 per share, subject to certain adjustments as provided in the August 2021 Exchange Warrants. The Company also issued to the January 2021 Investors Common Stock purchase warrants (collectively, the "August 2021 Replacement Warrants") replacing the February 2021 Warrants for the remaining shares of Common Stock exercisable thereunder, representing an aggregate of 330,923 shares of Common Stock, exercisable for at an initial exercise price of $65.00 per share, subject to certain adjustments as provided in the August 2021 Replacement Warrants (the issuance of the August 2021 Exchange Warrants and the August 2021 Replacement Warrants, collectively, the "August 2021 Issuance").

On September 2, 2021, the Company, and TicketSmarter, LLC ("TicketSmarter") on behalf of itself and its wholly owned subsidiary Goody Tickets, LLC, and members of TicketSmarter ("Sellers"), entered into a Unit Purchase Agreement (the "UPA"), pursuant to which, the Company purchased all of the issued and outstanding membership interests of TicketSmarter, for aggregate consideration of approximately $14.1 million,(subject to adjustment) including cash of approximately $8.9 million and 35,987 shares of Company Common Stock with a value of approximately $990,360, which consideration was paid at closing. Such consideration includes up to approximately $4.2 million structured as contingent payment (the "Contingent Payment") in additional cash and shares of Common Stock if TicketSmarter achieves certain EBITDA milestones prior to March 31, 2022, as set forth in the UPA.

The UPA contains customary representations and warranties and covenants. The closing of the UPA and the acquisition also occurred on September 2, 2021. Mr. Jeffrey Goodman and Mr. Michael Goodman, will be employed by Digital TicketSmarter as Chief Executive Officer and Chief Operations Officer, respectively, and they each executed certain restricted stock grant agreements with the Company (collectively, the "Restricted Stock Grant Agreements"), whereby the Company issued 5,000 restricted shares of Common Stock and 2,500 shares of Common Stock to Mr. Jeffrey Goodman and Mr. Michael Goodman, respectively, subject to the terms and provisions of the Company's 2020 Stock Option and Restricted Stock Plan. The restricted shares of Common Stock were valued based on the closing price of the Common Stock on the Nasdaq Stock Market on the day of grant. The restricted shares of Common Stock will vest in equal installments over a five-year period beginning on the first anniversary date each recipient began employment.

The issuance of the 35,987 restricted common shares and the total issuance of the 7,500 shares of restricted common stock to Jefferey Goodman and Michael Goodman were issued pursuant to an exemption from registration under Section 4(a)(2) of the Securities Act of 1933, as amended (the "Securities Act") because Jefferey Goodman and Michael Goodman had a pre-existing relationship with the Company, there was no general solicitation made, and the investors represented their sophistication. Furthermore, the creditor made representations that the securities issued to extinguish the obligations were taken for investment purposes and not with a view to resale.

On August 23, 2022, the Company entered into an Exchange Agreement (collectively, the "New Warrant Exchange Agreements") with each of the January 2021 Investors, pursuant to which the Company agreed to issue to the Investors an aggregate of 303,750 shares of Common Stock in exchange for the cancellation by the January 2021 Investors of the January 2021 Warrants, the August 2021 Exchange Warrants and the August 2021 Replacement Warrants. Each of the New Warrant Exchange Agreements provides that, for a period of 60 days, the Company will not issue shares of Common Stock or securities convertible into shares of Common Stock, or otherwise file any registration statement with respect to the issuance of such securities, subject in each case to certain exceptions described more fully in the New Warrant Exchange Agreements.

On October 13, 2022 the Company, entered into a Securities Purchase Agreement (the "October 2022 Purchase Agreement") with certain institutional investors (the "October 2022 Investors"), pursuant to which the Company agreed to issue and sell, in a private placement (the "October 2022 Offering"), 70,000 shares of the Company's Series A Convertible Redeemable Preferred Stock, par value $0.001 per share (the "Series A Preferred Stock"), and 5,000 shares of the Company's Series B Convertible Redeemable Preferred Stock, par value $0.001 per share (the "Series B Preferred Stock", and together with the Series A Preferred Stock, the "Preferred Stock"), at an offering price of $190.00 per share, representing a 5% original issue discount to the stated value of $200.00 per share, for gross aggregate proceeds of $15 million in the October 2022 Offering, before the deduction of discounts, fees and offering expenses. The shares of Preferred Stock will, under certain circumstances, be convertible into shares of Common Stock, at the option of the holders of the Preferred Stock and, in certain circumstances, by the Company. The Purchase Agreement contains customary representations, warranties and agreements by the Company and the October 2022 Investors, and customary conditions to closing. The October 2022 Offering closed on October 19, 2022.

In connection with the October 2022 Offering, the Company agreed to pay A.G.P./Alliance Global Partners (the "Financial Advisor") an aggregate cash fee equal to $750,000 and to reimburse the Financial Advisor for certain of its expenses in an amount not to exceed $135,000.

On January 10, 2023, the Company awarded an aggregate of 35,000 shares of restricted common stock to its employees which will vest pursuant to their respective vesting schedules provided that they remain employees on each such date.

Except as stated above, no underwriters were involved in the foregoing sales of securities. The issuances of the securities described above were deemed to be exempt from registration under the Securities Act in reliance on Section 4(a)(2) of the Securities Act or Regulation D promulgated under the Securities Act. The recipients of securities in such transactions represented their intention to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the stock certificates and option agreements issued in such transactions. All recipients had adequate access, through their relationships with us, to information about us.

**Item 16. Exhibits and Financial Statement Schedules.**

The following documents are filed as exhibits to this registration statement.

---

| | |
|:---|:---|
| **Exhibit No.** | **Description** |
| 1.1\* | [From of Placement Agent Agreement.](ex1-1.htm) |
| 2.1 | [Agreement and Plan of Merger (13).](https://www.sec.gov/Archives/edgar/data/1342958/000149315222023866/ex2-1.htm) |
| 3.1(i) | [Articles of Incorporation (13).](https://www.sec.gov/Archives/edgar/data/1342958/000149315222023866/ex3-1.htm) |
| 3.1(ii) | [Articles of Merger (13).](https://www.sec.gov/Archives/edgar/data/1342958/000149315222023866/ex3-2.htm) |
| 3.1(iii) | [Certificate of Amendment to Digital Ally, Inc.'s Articles of Incorporation (16).](https://www.sec.gov/Archives/edgar/data/1342958/000149315222034911/ex3-1.htm) |
| 3.1(iv) | [Form of Certificate of Designation of Series A Convertible Redeemable Preferred Stock (14).](https://www.sec.gov/Archives/edgar/data/1342958/000149315222028895/ex3-1.htm) |
| 3.1(v) | [Form of Certificate of Designation of Series B Convertible Redeemable Preferred Stock (14).](https://www.sec.gov/Archives/edgar/data/1342958/000149315222028895/ex3-2.htm) |
| 3.1 (vi) | [Certificate of Amendment to Articles of Incorporation of Digital Ally, Inc. (17).](https://www.sec.gov/Archives/edgar/data/1342958/000149315223003871/ex3-1.htm) |
| 3.2(i) | [Bylaws (13).](https://www.sec.gov/Archives/edgar/data/1342958/000149315222023866/ex3-3.htm) |
| 4.1\* | [Form of Warrant.](ex4-1.htm) |
| 4.2\* | [Form of Pre-Funded Warrant.](ex4-2.htm) |
| 5.1\* | [Opinion of Sullivan & Worcester LLP.](ex5-1.htm) |
| 10.1 | [Amended and Restated 2015 Stock Option and Restricted Stock Plan (1).](https://www.sec.gov/Archives/edgar/data/1342958/000149315216010188/ex10-1.htm) |
| 10.2 | [Form of Series A-1 Warrant (2).](https://www.sec.gov/Archives/edgar/data/1342958/000149315217009846/ex4-1.htm) |
| 10.3 | [Form of Common Stock Purchase Warrant (3).](https://www.sec.gov/Archives/edgar/data/1342958/000149315218004743/ex10-3.htm) |
| 10.4 | [Common Stock Purchase Warrant of Digital Ally, Inc (4).](https://www.sec.gov/Archives/edgar/data/1342958/000149315218010864/ex4-1.htm) |
| 10.5 | [Proceeds Investment Agreement, dated as July 31, 2018, by and between Digital Ally, Inc. and Brickell Key Investments LP (4).](https://www.sec.gov/Archives/edgar/data/1342958/000149315218010864/ex10-1.htm) |
| 10.6 | [Letter Agreement, dated as July 31, 2018, by and between Digital Ally, Inc. and Brickell Key Investments LP (4).](https://www.sec.gov/Archives/edgar/data/1342958/000149315218010864/ex10-2.htm) |
| 10.7 | [Digital Ally, Inc. 2018 Stock Option and Restricted Stock Plan (5).](https://www.sec.gov/Archives/edgar/data/1342958/000149315218012317/ex10-1.htm) |
| 10.8 | [Form of Common Stock Purchase Warrant (6).](https://www.sec.gov/Archives/edgar/data/1342958/000149315219011582/ex4-2.htm) |
| 10.9 | [Form of Securities Purchase Agreement, dated as of January 11, 2021, by and between the Company and the Investors (7).](https://www.sec.gov/Archives/edgar/data/1342958/000149315221000866/ex10-2.htm) |
| 10.10 | [Form of Placement Agency Agreement, dated January 27, 2021, by and between the Company and Kingswood Capital Markets, division of Benchmark Investments, Inc (8).](https://www.sec.gov/Archives/edgar/data/1342958/000149315221001999/ex10-1.htm) |
| 10.11 | [Form of Securities Purchase Agreement, dated as of January 27, 2021, by and between the Company and the Investors (8).](https://www.sec.gov/Archives/edgar/data/1342958/000149315221001999/ex10-2.htm) |
| 10.12 | [Commercial Real Estate Sales Contract, dated February 24, 2021, between the Company and DDG Holding, LLC (9).](https://www.sec.gov/Archives/edgar/data/1342958/000149315221010345/ex10-1.htm) |
| 10.13 | [Form of Operating Agreement of Nobility Healthcare, LLC, dated June 1, 2021 (10).](https://www.sec.gov/Archives/edgar/data/1342958/000149315221013840/ex10-1.htm) |
| 10.14 | [Warrant Exchange Agreement, dated August 19, 2021, by and among the Company and the warrant holders who are signatories thereto (11).](https://www.sec.gov/Archives/edgar/data/1342958/000149315221020728/ex10-1.htm) |
| 10.15 | [Unit Purchase Agreement, dated September 2, 2021 (12).](https://www.sec.gov/Archives/edgar/data/1342958/000149315221022253/ex10-1.htm) |
| 10.16 | [Form of Exchange Agreement (13).](https://www.sec.gov/Archives/edgar/data/1342958/000149315222023852/ex10-1.htm) |
| 10.17 | [Form of Securities Purchase Agreement between Digital Ally, Inc. and the investors thereto (14).](https://www.sec.gov/Archives/edgar/data/1342958/000149315222028895/ex10-1.htm) |
| 10.18 | [Form of Registration Rights Agreement by and among Digital Ally, Inc. and the investors named therein (14).](https://www.sec.gov/Archives/edgar/data/1342958/000149315222028895/ex10-2.htm) |
| 10.19 | [2022 Digital Ally, Inc. Stock Option and Restricted Stock Plan (15).](https://www.sec.gov/Archives/edgar/data/1342958/000149315222029767/formdef14a.htm#ka_010) |
| 10.20\* | [Form of Securities Purchase Agreement](ex10-20.htm) |
| 23.1\* | [Consent of RBSM LLP.](ex23-1.htm) |
| 23.2\* | [Consent of Sullivan & Worcester LLP (included in Exhibit 5.1).](ex5-1.htm) |
| 24.1\*\* | [Power of Attorney (included on signature page to previously filed registration statement).](https://www.sec.gov/Archives/edgar/data/1342958/000149315223002356/forms-1.htm#SU_001) |
| 107\* | [Filing fee table](ex107.htm) |

---

\* Filed herewith. <br> \*\* Previously filed.

&nbsp;&nbsp;&nbsp;&nbsp;(1) Filed
 as an exhibit to the Company's Form S-8 filed May 23, 2016.

(2) Filed
 as an exhibit to the Company's Form 8-K filed August 25, 2017.

(3) Filed
 as an exhibit to the Company's Form 8-K filed April 4, 2018.

(4) Filed
 as an exhibit to the Company's Form 8-K filed August 2, 2018.

(5) Filed
 as an exhibit to the Company's Registration Statement on Form S-8 filed August 20, 2018.

(6) Filed
 as an exhibit to the Company's Form 8-K filed August 5, 2019.

(7) Filed
 as an exhibit to the Company's Form 8-K filed January 12, 2021.

(8) Filed
 as an exhibit to the Company's Form 8-K filed January 28, 2021.

(9) Filed
 as an exhibit to the Company's Form 8-K filed May 3, 2021.

(10) Filed
 as an exhibit to the Company's Form 8-K filed June 9, 2021.

(11) Filed
 as an exhibit to the Company's Form 8-K filed August 19, 2021.

(12) Filed
 as an exhibit to the Company's Form 8-K filed September 9, 2021.

(13) Filed
 as an exhibit to the Company's Form 8-K filed August 23, 2022.

(14) Filed
 as an exhibit to the Company's Form 8-K filed October 19, 2022.

(15) Filed as Appendix A to the Company's Definitive
 Proxy Statement on Schedule 14A filed October 28, 2022.

(16) Filed
 as an exhibit to the Company's Form 8-K filed 8-K filed December 8, 2022.

(17) Filed as an exhibit to the Company's Form 8-K
 filed 8-K filed February 7, 2023.

**Item 17. Undertakings.**

(a) The
 undersigned registrant hereby undertakes:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1) To
 file, during any period in which offers or sales are being made, a post-effective amendment
 to this registration statement:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) To
 include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) To
 reflect in the prospectus any facts or events arising after the effective date of the registration
 statement (or the most recent post-effective amendment thereof) which, individually or in
 the aggregate, represent a fundamental change in the information set forth in the registration
 statement. Notwithstanding the foregoing, any increase or decrease in volume of securities
 offered (if the total dollar value of securities offered would not exceed that which was
 registered) and any deviation from the low or high end of the estimated maximum offering
 range may be reflected in the form of prospectus filed with the Commission pursuant to Rule
 424(b) if, in the aggregate, the changes in volume and price represent no more than 20 percent
 change in the maximum aggregate offering price set forth in the "Calculation of Registration
 Fee" table in the effective registration statement; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii) To
 include any material information with respect to the plan of distribution not previously
 disclosed in the registration statement or any material change to such information in the
 registration statement;

Provided, however, that paragraphs (a)(1)(i), (a)(1)(ii) and (a)(1)(iii) of this section do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in reports filed with or furnished to the Commission by the registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that is contained in a form of prospectus filed pursuant to Rule 424(b) that is part of the registration statement.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(2) That,
 for the purpose of determining any liability under the Securities Act of 1933, each such
 post-effective amendment shall be deemed to be a new registration statement relating to the
 securities offered therein, and the offering of such securities at that time shall be deemed
 to be the initial bona fide offering thereof.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(3) To
 remove from registration by means of a post-effective amendment any of the securities being
 registered which remain unsold at the termination of the offering.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(4) That,
 for the purpose of determining liability under the Securities Act of 1933 to any purchaser
 each prospectus filed pursuant to Rule 424(b) as part of a registration statement registration
 statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A
 (§230.430A of this chapter), shall be deemed to be part of and included in the registration
 statement as of the date it is first used after effectiveness. Provided, however, that no
 statement made in a registration statement or prospectus that is part of the registration
 statement will, as
 to a purchaser with a time of contract of sale prior to such first use, supersede or modify
 any statement that was made in the registration statement or prospectus that was part of
 the registration statement or made in any such document immediately prior to such date of
 first use.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(5) That,
 for the purpose of determining liability of the registrant under the Securities Act of 1933
 to any purchaser in the initial distribution of the securities: the undersigned registrant
 undertakes that in a primary offering of securities of the undersigned registrant pursuant
 to this registration statement, regardless of the underwriting method used to sell the securities
 to the purchaser, if the securities are offered or sold to such purchaser by means of any
 of the following communications, the undersigned registrant will be a seller to the purchaser
 and will be considered to offer or sell such securities to such purchaser:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) Any
 preliminary prospectus or prospectus of the undersigned registrant relating to the offering
 required to be filed pursuant to Rule 424;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) Any
 free writing prospectus relating to the offering prepared by or on behalf of the undersigned
 registrant or used or referred to by the undersigned registrant;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii) The
 portion of any other free writing prospectus relating to the offering containing material
 information about the undersigned registrant or its securities provided by or on behalf of
 the undersigned registrant; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv) Any
 other communication that is an offer in the offering made by the undersigned registrant to
 the purchaser.

(b) The
 undersigned registrant hereby undertakes that, for purposes of determining any liability
 under the Securities Act of 1933, each filing of the registrant's annual report pursuant
 to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where applicable,
 each filing of an employee benefit plan's annual report pursuant to section 15(d) of
 the Securities Exchange Act of 1934) shall be deemed to be a new registration statement relating to the securities offered
 therein, and the offering of such securities at that time shall be deemed to be the initial
 bona fide offering thereof.

(c) Insofar
 as indemnification for liabilities arising under the Securities Act of 1933 may be permitted
 to directors, officers and controlling persons of the registrant pursuant to the foregoing
 provisions, or otherwise, the registrant has been advised that in the opinion of the Securities
 and Exchange Commission such indemnification is against public policy as expressed in the
 Act and is, therefore, unenforceable. In the event that a claim for indemnification against
 such liabilities (other than the payment by the registrant of expenses incurred or paid by
 a director, officer or controlling person of the registrant in the successful defense of
 any action, suit or proceeding) is asserted by such director, officer or controlling person
 in connection with the securities being registered, the registrant will, unless in the opinion
 of its counsel the matter has been settled by controlling precedent, submit to a court of
 appropriate jurisdiction the question whether such indemnification by it is against public
 policy as expressed in the Act and will be governed by the final adjudication of such issue.

(d) The
 undersigned registrant hereby undertakes that:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1) For
 purposes of determining any liability under the Securities Act of 1933, the information omitted
 from the form of prospectus filed as part of this registration statement in reliance upon
 Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule
 424(b) (1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration
 statement as of the time it was declared effective.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(2) For
 the purpose of determining any liability under the Securities Act of 1933, each post-effective
 amendment that contains a form of prospectus shall be deemed to be a new registration statement
 relating to the securities offered therein, and the offering of such securities at that time
 shall be deemed to be the initial bona fide offering thereof.

**SIGNATURES**

Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Lenexa, State of Kansas, on February 9, 2023.

---

| | |
|:---|:---|
| **DIGITAL ALLY, INC.** | **DIGITAL ALLY, INC.** |
| By: | */s/ Stanton E. Ross* |
|  | Stanton E. Ross |
|  | Chief Executive Officer |

---

Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.

---

| | | |
|:---|:---|:---|
| **Signature** | **Title** | **Date** |
| */s/ Stanton E. Ross* | Director and Chief | February 9, 2023 |
| **Stanton E. Ross** | Executive Officer (principal<br> executive officer) |  |
| *\** | Chief Financial Officer, Secretary | February 9, 2023 |
| **Thomas J. Heckman** | and Treasurer (principal financial <br> officer) |  |
| *\** | Director | February 9, 2023 |
| **Leroy C. Richie** |  |  |
| *\** | Director | February 9, 2023 |
| **Daniel F. Hutchins** |  |  |
| *\** | Director | February 9, 2023 |
| **Michael J. Caulfield**<br>|  |  |

---

---

| | |
|:---|:---|
| \* By: | */s/ Stanton E. Ross* |
| Name: | Stanton E. Ross |
|  | Attorney-in-fact |

---

## Exhibit 1.1

**Exhibit 1.1**

February ___, 2023

Digital Ally, Inc.

14001 Marshall Drive

Lenexa, Kansas 66215

Attn: Stanton E. Ross <br> Chairman and Chief Executive Officer

Re: <u>Placement Agency Agreement</u>

Dear Mr. Ross:

This placement agency agreement (this "**Agreement**") constitutes the agreement between A.G.P./Alliance Global Partners, as placement agent (the "**Placement Agent**"), and Digital Ally, Inc., a company incorporated under the laws of the State of Nevada (the "**Company**"), that the Placement Agent shall serve as the placement agent for the Company, on a "reasonable best efforts" basis, in connection with the proposed placement (the "**Placement**") of (a) [●] units (the "**Units**"), each Unit consisting of (i) one share (each, a "**Share**" and, collectively, the "**Shares**") of the Company's common stock, par value $0.001 per share (the "**Common Stock**") and (ii) one warrant (each, a "**Warrant**" and, collectively, the "**Warrants**") to purchase a share of Common Stock of the Company (each. a "**Warrant Share**" and. collectively, the "**Warrant Shares**") and (b) [●] pre-funded units (the "**Pre-Funded Units**"), each Pre-Funded Unit consisting of (i) one pre-funded warrant (each, a "**Pre-Funded Warrant**" and, collectively, the "**Pre-Funded Warrants**") to purchase one share of Common Stock (each, a "**Pre-Funded Warrant Share**" and, collectively, the "**Pre-Funded Warrant Shares**") and (ii) one Warrant. The Units, the Pre-Funded Units, the Shares, the Pre-Funded Warrants, the Pre-Funded Warrant Shares, the Warrants and the Warrant Shares are collectively referred to herein as the "**Securities**." The Securities shall be offered and sold under the Company's registration statement on Form S-1 (File No. 333-269392) (the "**Registration Statement**"). The Securities actually placed by the Placement Agent are referred to herein as the "**Placement Agent Securities**." The terms of the Placement shall be mutually agreed upon by the Company and the purchasers (each, a "**Purchaser**" and collectively, the "**Purchasers**"); *provided, however*, that nothing herein shall obligate the Company to issue any Securities or complete the Placement. The Company expressly acknowledges and agrees that the Placement Agent's obligations hereunder are on a reasonable best efforts basis only and that the execution of this Agreement does not constitute a commitment by the Placement Agent to purchase the Securities and does not ensure the successful placement of the Securities or any portion thereof or the success of the Placement Agent with respect to securing any other financing on behalf of the Company. The Placement Agent may retain other brokers or dealers to act as sub-agents or selected-dealers on its behalf in connection with the Placement. Certain affiliates of the Placement Agent may participate in the Placement by purchasing some of the Placement Agent Securities. The sale of Placement Agent Securities to any Purchaser will be evidenced by a securities purchase agreement (the "**Purchase Agreement**") between the Company and such Purchaser, in a form reasonably acceptable to the Company and the Purchaser. Capitalized terms that are not otherwise defined herein have the meanings given to such terms in the Purchase Agreement. Prior to the signing of any Purchase Agreement, officers of the Company will be available to answer inquiries from prospective Purchasers.

<u>SECTION 1</u>. <u>REPRESENTATIONS AND WARRANTIES OF THE COMPANY; COVENANTS OF THE COMPANY</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A. <u>Representations of the Company</u>. With respect to the Placement Agent Securities, each of the representations and warranties (together with any related disclosure schedules thereto) and covenants made by the Company to the Purchasers in the Purchase Agreement in connection with the Placement, is hereby incorporated herein by reference into this Agreement (as though fully restated herein) and is, as of the date of this Agreement and as of the Closing Date, hereby made to, and in favor of, the Placement Agent. In addition to the foregoing, the Company represents and warrants that there are no affiliations with any FINRA member firm among the Company's officers, directors or, to the knowledge of the Company, any five percent (5.0%) or greater stockholder of the Company, except as set forth in the Purchase Agreement and the SEC Reports.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;B. <u>Covenants of the Company</u>. The Company covenants and agrees to continue to retain (i) a firm of independent PCAOB registered public accountants for a period of at least three (3) years after the Closing Date and (ii) a competent transfer agent with respect to the Placement Agent Securities for a period of three (3) years after the Closing Date. Furthermore, the Company covenants and agrees that for ninety (90) days after the Closing Date of the Placement, the Company shall be restricted from issuing certain securities pursuant to the terms of Section 4.10 of the Purchase Agreement.

<u>SECTION 2</u>. <u>REPRESENTATIONS OF THE PLACEMENT AGENT</u>. The Placement Agent represents and warrants that it (i) is a member in good standing of FINRA, (ii) is registered as a broker/dealer under the Exchange Act, (iii) is licensed as a broker/dealer under the laws of the United States of America, applicable to the offers and sales of the Placement Agent Securities by the Placement Agent, (iv) is and will be a corporate body validly existing under the laws of its place of incorporation, (v) has full power and authority to enter into and perform its obligations under this Agreement. The Placement Agent will immediately notify the Company in writing of any change in its status with respect to subsections (i) through (v) above. The Placement Agent covenants that it will use its reasonable best efforts to conduct the Placement hereunder in compliance with the provisions of this Agreement and the requirements of applicable law.

<u>SECTION 3</u>. <u>COMPENSATION</u>. In consideration of the services to be provided for hereunder, the Company shall pay to the Placement Agent or its respective designees a total cash fee equal to seven percent (7.0%) of the gross proceeds from the total amount of Placement Agent Securities sold in the Placement (the "**Cash Fee**"). The Cash Fee shall be paid on the Closing Date. The Company shall not be required to pay the Placement Agent any fees or expenses except for the Cash Fee and the reimbursement of (i)accountable legal fees and other reasonable and documented out-of-pocket expenses incurred by the Placement Agent in connection with the transaction in the amount of up to $85,000 and (ii) non-accountable expenses equal to $10,000. The Placement Agent reserves the right to reduce any item of compensation or adjust the terms thereof as specified herein in the event that a determination shall be made by FINRA to the effect that the Placement Agent's aggregate compensation is in excess of FINRA Rules or that the terms thereof require adjustment. In the event this Agreement shall terminate prior to the consummation of the Placement, the Placement Agent shall be entitled to reimbursement for actual out-of-pocket expenses upon providing reasonable documentation relating to the incurrence of such expenses; provided, however, such expenses shall not exceed the aggregate amount of $50,000, taken together and not individually.

<u>SECTION 4</u>. <u>INDEMNIFICATION</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A. To the extent permitted by law, with respect to the Placement Agent Securities, the Company will indemnify the Placement Agent and its affiliates, stockholders, directors, officers, employees, members and controlling persons (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) (each such person or entity, an "**Indemnified Person**") against all losses, claims, damages, expenses and liabilities, as the same are incurred (including the reasonable fees and expenses of counsel), relating to or arising out of (i) any untrue statement or alleged untrue statement contained in the Registration Statement, any Transaction Document, or any Prospectus or by any omission or alleged omission to state therein a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading or (ii) any other actions taken or omitted to be taken by the Company or any Indemnified Person in connection with this Agreement, except to the extent that any losses, claims, damages, expenses or liabilities (or actions in respect thereof) are found in a final judgment (not subject to appeal) by a court of law to have resulted from a Placement Agent's fraud, willful misconduct or gross negligence in executing this Agreement or performing the services described herein or use of any offering materials or information concerning the Company in connection with the offer or sale of the Placement Agent Securities in the Placement which were not authorized for such use by the Company and which use constitutes gross negligence or willful misconduct. For the avoidance of doubt, this Section 4 is not intended to govern claims between the parties hereto.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;B. Promptly after receipt by the Placement Agent of notice of any claim or the commencement of any action or proceeding with respect to which the Placement Agent is entitled to indemnity hereunder, the Placement Agent will notify the Company in writing of such claim or of the commencement of such action or proceeding, but failure to so notify the Company shall not relieve the Company from any obligation it may have hereunder, except and only to the extent such failure results in the forfeiture by the Company of substantial rights or defenses or prejudice to the Company's substantial rights or defenses . If the Company so elects or is requested by the Placement Agent, the Company will assume the defense of such action or proceeding and will employ counsel reasonably satisfactory to the Placement Agent and will pay the fees and expenses of such counsel. Notwithstanding the preceding sentence, the Placement Agent will be entitled to employ its own counsel separate from counsel for the Company and from any other party in such action if counsel for the Placement Agent reasonably determines that it would be inappropriate under the applicable rules of professional responsibility for the same counsel to represent both the Company and the Placement Agent. In such event, the reasonable fees and disbursements of no more than one such separate counsel will be paid by the Company, in addition to fees of local counsel. The Company will have the right to settle the claim or proceeding, provided that the Company will not settle any such claim, action or proceeding without the prior written consent of the Placement Agent, which will not be unreasonably withheld or delayed, unless such settlement, compromise or consent includes an unconditional and irrevocable release of each Indemnified Person from all liabilities arising out of such action for which indemnification or contribution may be sought hereunder..

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;C. The Company agrees to notify the Placement Agent promptly of the assertion against it or any other person of any claim or the commencement of any action or proceeding relating to a transaction contemplated by this Agreement.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;D. If for any reason the foregoing indemnity is unavailable to the Placement Agent or insufficient to hold the Placement Agent harmless, then the Company shall contribute to the amount paid or payable by the Placement Agent as a result of such losses, claims, damages or liabilities in such proportion as is appropriate to reflect not only the relative benefits received by the Company on the one hand and the Placement Agent on the other, but also the relative fault of the Company on the one hand and the Placement Agent on the other that resulted in such losses, claims, damages or liabilities, as well as any relevant equitable considerations. The amounts paid or payable by a party in respect of losses, claims, damages and liabilities referred to above shall be deemed to include any legal or other fees and expenses incurred in defending any litigation, proceeding or other action or claim. Notwithstanding the provisions hereof, the liable Placement Agent's share of the liability hereunder shall not be in excess of the amount of fees actually received, or to be received, by the Placement Agent under this Agreement (excluding any amounts received as reimbursement of expenses incurred by the Placement Agent).

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;E. These indemnification provisions shall remain in full force and effect whether or not the transaction contemplated by this Agreement is completed and shall survive the termination of this Agreement, and shall be in addition to any liability that the Company might otherwise have to any indemnified party under this Agreement or otherwise.

<u>SECTION 5</u>. <u>ENGAGEMENT TERM</u>. The Placement Agent's engagement hereunder will be until the earlier of (i) __________, 2023 and (ii) the Closing Date. The date of termination of this Agreement is referred to herein as the "**Termination Date**." In the event, however, in the course of the Placement Agent's performance of due diligence it deems, it necessary to terminate the engagement, the Placement Agent may do so prior to the Termination Date. The Company may elect to terminate the engagement hereunder for any reason prior to the Termination Date but will remain responsible for fees pursuant to Section 3 hereof with respect to the Placement Agent Securities if sold in the Placement. Notwithstanding anything to the contrary contained herein, the provisions concerning the Company's obligation to pay any fees actually earned pursuant to Section 3 hereof and the provisions concerning confidentiality, indemnification and contribution contained herein will survive any expiration or termination of this Agreement. If this Agreement is terminated prior to the completion of the Placement, all fees due to the Placement Agent shall be paid by the Company to the Placement Agent on or before the Termination Date (in the event such fees are earned or owed as of the Termination Date). The Placement Agent agrees not to use any confidential information concerning the Company provided to the Placement Agent by the Company for any purposes other than those contemplated under this Agreement.

<u>SECTION 6</u>. <u>PLACEMENT AGENT INFORMATION</u>. The Company agrees that any information or advice rendered by the Placement Agent in connection with this engagement is for the confidential use of the Company only in its evaluation of the Placement and, except as otherwise required by law, the Company will not disclose or otherwise refer to the advice or information in any manner without the Placement Agent's prior written consent.

<u>SECTION 7</u>. <u>NO FIDUCIARY RELATIONSHIP</u>. This Agreement does not create, and shall not be construed as creating rights enforceable by any person or entity not a party hereto, except those entitled hereto by virtue of the indemnification provisions hereof. The Company acknowledges and agrees that the Placement Agent are not and shall not be construed as a fiduciary of the Company and shall have no duties or liabilities to the equity holders or the creditors of the Company or any other person by virtue of this Agreement or the retention of the Placement Agent hereunder, all of which are hereby expressly waived.

<u>SECTION 8</u>. <u>CLOSING</u>. The obligations of the Placement Agent, and the closing of the sale of the Placement Agent Securities hereunder are subject to the accuracy, when made and on the Closing Date, of the representations and warranties on the part of the Company contained herein and in the Purchase Agreement, to the performance by the Company of its obligations hereunder, and to each of the following additional terms and conditions, except as otherwise disclosed to and acknowledged and waived by the Placement Agent:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A. All corporate proceedings and other legal matters incident to the authorization, form, execution, delivery and validity of each of this Agreement, the Placement Agent Securities, and all other legal matters relating to this Agreement and the transactions contemplated hereby with respect to the Placement Agent Securities shall be reasonably satisfactory in all material respects to the Placement Agent.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;B. The Placement Agent shall have received from outside counsel to the Company such counsel's written opinion with respect to the Placement Agent Securities, addressed to the Placement Agent and the Purchasers and dated as of the Closing Date, in form and substance reasonably satisfactory to the Placement Agent.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;C. The Common Stock shall be registered under the Exchange Act and, as of the Closing Date, the Common Stock shall be listed and admitted and authorized for trading on the Trading Market or other applicable U.S. national exchange and satisfactory evidence of such action shall have been provided to the Placement Agent. The Company shall have taken no action designed to, or likely to have the effect of terminating the registration of the Common Stock under the Exchange Act or removing or suspending from trading the Common Stock from the Trading Market or other applicable U.S. national exchange, nor has the Company received any information suggesting that the Commission or the Trading Market or other U.S. applicable national exchange is contemplating terminating such registration or listing.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;D. No action shall have been taken and no statute, rule, regulation or order shall have been enacted, adopted or issued by any governmental agency or body which would, as of the Closing Date, prevent the issuance or sale of the Placement Agent Securities or which would, or would reasonably be expected to, materially and adversely affect the business or operations of the Company; and no injunction, restraining order or order of any other nature by any federal or state court of competent jurisdiction shall have been issued as of the Closing Date which would prevent the issuance or sale of the Placement Agent Securities or which would, or would reasonably be expected to, materially and adversely affect the business or operations of the Company.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;E. The Company shall have entered into a Purchase Agreement with each of the Purchasers of the Placement Agent Securities and such agreements shall be in full force and effect and shall contain representations, warranties and covenants of the Company as agreed upon between the Company and the Purchasers.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;F. FINRA shall have raised no objection to the fairness and reasonableness of the terms and arrangements of this Agreement. In addition, the Company shall, if requested by the Placement Agent, make or authorize Placement Agent's counsel to make on the Company's behalf, any filing with the FINRA Corporate Financing Department pursuant to FINRA Rule 5110, if applicable, with respect to the Placement and pay all filing fees required in connection therewith.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;G. The Placement Agent shall have received from the Company's independent registered public accounting firm, a "comfort letter", addressed to the Placement Agent and the Purchasers and dated as of the Closing Date, in form and substance reasonably satisfactory to the Placement Agent.

If any of the conditions specified in this Section 8 shall not have been fulfilled when and as required by this Agreement, all obligations of the Placement Agent hereunder may be cancelled by the Placement Agent at, or at any time prior to, the Closing Date. Notice of such cancellation shall be given to the Company in writing or orally. Any such oral notice shall be confirmed promptly thereafter in writing.

<u>SECTION 9</u>. <u>GOVERNING LAW</u>. This Agreement will be governed by, and construed in accordance with, the laws of the State of New York applicable to agreements made and to be performed entirely in such State. This Agreement may not be assigned by either party without the prior written consent of the other party. This Agreement shall be binding upon and inure to the benefit of the parties hereto, and their respective successors and permitted assigns. Any right to trial by jury with respect to any dispute arising under this Agreement or any transaction or conduct in connection herewith is waived. Any dispute arising under this Agreement may be brought into the courts of the State of New York or into the Federal Court located in New York, New York and, by execution and delivery of this Agreement, the Company hereby accepts for itself and in respect of its property, generally and unconditionally, the jurisdiction of aforesaid courts. Each party hereto hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by delivering a copy thereof via overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. If either party shall commence an action or proceeding to enforce any provisions of this Agreement, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its attorney's fees and other costs and expenses incurred with the investigation, preparation and prosecution of such action or proceeding.

<u>SECTION 10</u>. <u>ENTIRE AGREEMENT/MISCELLANEOUS</u>. This Agreement embodies the entire agreement and understanding between the parties hereto, and supersedes all prior agreements and understandings, relating to the subject matter hereof. If any provision of this Agreement is determined to be invalid or unenforceable in any respect, such determination will not affect such provision in any other respect or any other provision of this Agreement, which will remain in full force and effect. This Agreement may not be amended or otherwise modified or waived except by an instrument in writing signed by the Placement Agent and the Company. The representations, warranties, agreements and covenants contained herein shall survive the Closing Date of the Placement and delivery of the Placement Agent Securities. This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it being understood that both parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission or a .pdf format file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or .pdf signature page were an original thereof.

<u>SECTION 11</u>. <u>NOTICES</u>. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of (a) the date of transmission, if such notice or communication is sent to the email address specified on the signature pages attached hereto prior to 6:30 p.m. (New York City time) on a business day, (b) the next business day after the date of transmission, if such notice or communication is sent to the email address on the signature pages attached hereto on a day that is not a business day or later than 6:30 p.m. (New York City time) on any business day, (c) the third business day following the date of mailing, if sent by U.S. internationally recognized air courier service, or (d) upon actual receipt by the party to whom such notice is required to be given. The address for such notices and communications shall be as set forth on the signature pages hereto.

<u>SECTION 12</u>. <u>PRESS ANNOUNCEMENTS</u>. The Company agrees that the Placement Agent shall, on and after the Closing Date, have the right to reference the Placement and the Placement Agent's role in connection therewith in the Placement Agent's marketing materials and on its website and to place advertisements in financial and other newspapers and journals, in each case at its own expense.

[*The remainder of this page has been intentionally left blank.*]

Please confirm that the foregoing correctly sets forth our agreement by signing and returning to the Placement Agent the enclosed copy of this Agreement.

---

| | |
|:---|:---|
| Very truly yours, | Very truly yours, |
| **A.G.P./ALLIANCE GLOBAL PARTNERS** | **A.G.P./ALLIANCE GLOBAL PARTNERS** |
| By: |  |
| Name: | Thomas Higgins |
| Title: | Managing Director |
| <u>Address for notice:</u> | <u>Address for notice:</u> |
| 590 Madison Avenue 28th Floor<br> New York, New York 10022<br> Attn: Thomas Higgins<br> Email: <u>thiggins@allianceg.com</u> | 590 Madison Avenue 28th Floor<br> New York, New York 10022<br> Attn: Thomas Higgins<br> Email: <u>thiggins@allianceg.com</u> |

---

[*Signature Page to Placement Agency Agreement.*]

Accepted and Agreed to as of

the date first written above:

---

| | |
|:---|:---|
| **DIGITAL ALLY, INC.** | **DIGITAL ALLY, INC.** |
| By: |  |
| Name: | Stanton E. Ross |
| Title: | Chairman and Chief Executive Officer |

---

<u>Address for notice</u>:

14001 Marshall Drive

Lenexa, Kansas 66215

Attention: Stanton E. Ross

Email: <u>stan.ross@digitalally.com</u>

[*Signature Page to Placement Agency Agreement.*]

## Exhibit 4.1

**Exhibit 4.1**

**COMMON STOCK PURCHASE WARRANT**

**DIGITAL ALLY, INC.**

Warrant Shares: _______ Issue Date: February __, 2023

THIS COMMON STOCK PURCHASE WARRANT (the "<u>Warrant</u>") certifies that, for value received, _____________ or its assigns (the "<u>Holder</u>") is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time or times on or after February __, 2023 (the "<u>Initial Exercise Date</u>") and on or prior to 5:00 p.m. (New York City time) on the five-year anniversary of the Initial Exercise Date (the "<u>Termination Date</u>") but not thereafter, to subscribe for and purchase from **DIGITAL ALLY, INC.**, a Nevada corporation (the "<u>Company</u>"), up to ______ shares of common stock, par value $0.001 per share (the "<u>Common Stock")</u> (as subject to adjustment hereunder, the "<u>Warrant Shares</u>"). The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price, as defined in Section 2(b).

<u>Section 1</u>. <u>Definitions</u>. Capitalized terms used and not otherwise defined herein shall have the meanings set forth in that certain Securities Purchase Agreement (the "<u>Purchase Agreement</u>"), dated February __, 2023, among the Company and the purchasers signatory thereto.

<u>Section 2</u>. <u>Exercise</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) <u>Exercise of Warrant</u>. Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time or times on or after the Initial Exercise Date and on or before the Termination Date by delivery to the Company of a duly executed facsimile copy or PDF copy submitted by e-mail (or e-mail attachment) of the Notice of Exercise in the form annexed hereto as **Exhibit A** (the "<u>Notice of Exercise</u>"). Within the earlier of (i) two (2) Trading Days and (ii) the number of Trading Days comprising the Standard Settlement Period (as defined in Section 2(d)(i) herein) following the date of exercise as aforesaid, the Holder shall deliver the aggregate Exercise Price for the number of Warrant Shares specified in the applicable Notice of Exercise by wire transfer or cashier's check drawn on a United States bank unless the cashless exercise procedure specified in Section 2(c) below is specified in the applicable Notice of Exercise. No ink-original Notice of Exercise shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Exercise be required. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company until the Holder has purchased all of the Warrant Shares available hereunder and the Warrant has been exercised in full, at which time, the Holder shall surrender this Warrant to the Company for cancellation within three (3) Trading Days of the date on which the final Notice of Exercise is delivered to the Company. Partial exercises of this Warrant resulting in purchases of a portion of the total number of Warrant Shares purchasable hereunder shall have the effect of lowering the outstanding number of Warrant Shares purchasable hereunder by the number of Warrant Shares equal to the applicable number of Warrant Shares purchased in connection with such partial exercise. **The Holder and the Company shall maintain records showing the number of Warrant Shares purchased and the date of such purchases. The Company shall deliver any objection to any Notice of Exercise within one (1) Trading Day of receipt of such notice. The Holder and any assignee, by acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following the purchase of a portion of the Warrant Shares hereunder, the number of Warrant Shares available for purchase hereunder at any given time may be less than the amount stated on the face hereof.**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) <u>Exercise Price</u>. The exercise price per share of Common Stock under this Warrant shall be $____, subject to adjustment hereunder (the "<u>Exercise Price</u>").

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) <u>Cashless Exercise</u>. Notwithstanding anything to the contrary set forth herein, if at the time of exercise hereof there is no effective registration statement registering, or the prospectus contained therein is not available for the issuance of, the Warrant Shares to the Holder, then this Warrant may only be exercised, in whole or in part, at such time by means of a "cashless exercise" in which the Holder shall be entitled to receive a number of Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(A) = as applicable: (i) the VWAP on the Trading Day immediately preceding the date of the applicable Notice of Exercise if such Notice of Exercise is (1) both executed and delivered pursuant to Section 2(a) hereof on a day that is not a Trading Day or (2) both executed and delivered pursuant to Section 2(a) hereof on a Trading Day prior to the opening of "regular trading hours" (as defined in Rule 600(b) of Regulation NMS promulgated under the federal securities laws) on such Trading Day, (ii) at the option of the Holder, either (y) the VWAP on the Trading Day immediately preceding the date of the applicable Notice of Exercise or (z) the Bid Price of the Common Stock on the principal Trading Market as reported by Bloomberg L.P. ("<u>Bloomberg</u>") as of the time of the Holder's execution of the applicable Notice of Exercise if such Notice of Exercise is executed during "regular trading hours" on a Trading Day and is delivered within two (2) hours thereafter (including until two (2) hours after the close of "regular trading hours" on a Trading Day) pursuant to Section 2(a) hereof or (iii) the VWAP on the date of the applicable Notice of Exercise if the date of such Notice of Exercise is a Trading Day and such Notice of Exercise is both executed and delivered pursuant to Section 2(a) hereof after the close of "regular trading hours" on such Trading Day;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(B) = the Exercise Price of this Warrant, as adjusted hereunder; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(X) = the number of Warrant Shares that would be issuable upon exercise of this Warrant in accordance with the terms of this Warrant if such exercise were by means of a cash exercise rather than a cashless exercise.

If Warrant Shares are issued in such a cashless exercise, the parties acknowledge and agree that in accordance with Section 3(a)(9) of the Securities Act, the Warrant Shares shall take on the registered characteristics of the Warrants being exercised. The Company agrees not to take any position contrary to this Section 2(c).

"<u>Bid Price</u>" means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the bid price of the Common Stock for the time in question (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if OTCQB or OTCQX is not a Trading Market, the VWAP of the Common Stock for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, (c) if the Common Stock is not then listed or quoted for trading on OTCQB or OTCQX and if prices for the Common Stock are then reported on The Pink Open Market (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of Common Stock so reported, or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Purchasers of a majority in interest of the Securities then outstanding and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.

"<u>Trading Day</u>" means any day on which the Trading Market is open for trading, including any day on which the Trading Market is open for trading for a period of time less than the customary time.

"<u>VWAP</u>" means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if OTCQB or OTCQX is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, (c) if the Common Stock is not then listed or quoted for trading on OTCQB or OTCQX and if prices for the Common Stock are then reported on The Pink Open Market (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of Common Stock so reported, or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Purchasers of a majority in interest of the Securities then outstanding and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) <u>Mechanics of Exercise</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;i. <u>Delivery of Warrant Shares Upon Exercise</u>. The Company shall cause the Warrant Shares purchased hereunder to be transmitted to the Holder by crediting the account of the Holder's or its designee's balance account with The Depository Trust Company (the "<u>DTC</u>") through its Deposit or Withdrawal at Custodian system ("<u>DWAC</u>") if the Company is then a participant in such system and either (A) there is an effective registration statement permitting the issuance of the Warrant Shares to or resale of the Warrant Shares by Holder or (B) this Warrant is being exercised via cashless exercise, and otherwise by physical delivery of a certificate representing the Warrant Shares, registered in the Company's share register in the name of the Holder or its designee, for the number of Warrant Shares to which the Holder is entitled pursuant to such exercise to the address specified by the Holder in such Notice of Exercise by the date that is the earliest of (i) two (2) Trading Days after the delivery to the Company of the Notice of Exercise, provided that payment of the aggregate Exercise Price (other than in the instance of a cashless exercise) is received by the Company one (1) Trading Day prior to such second Trading Day after the delivery of the Notice of Exercise, (ii) one (1) Trading Day after delivery of the aggregate Exercise Price to the Company, and (iii) the number of Trading Days comprising the Standard Settlement Period after the delivery to the Company of the Notice of Exercise, provided that payment of the aggregate Exercise Price (other than in the instance of a cashless exercise) is received by the Company one (1) Trading Day prior to such second Trading Day after the delivery of the Notice of Exercise (such date, the "<u>Warrant Share Delivery Date</u>"). Upon delivery of the Notice of Exercise, the Holder shall be deemed for all corporate purposes to have become the holder of record of the Warrant Shares with respect to which this Warrant has been exercised, irrespective of the date of delivery of the Warrant Shares, provided that payment of the aggregate Exercise Price (other than in the case of a cashless exercise) is received within the earlier of (i) two (2) Trading Days and (ii) the number of Trading Days comprising the Standard Settlement Period following delivery of the Notice of Exercise. If the Company fails for any reason to deliver or cause to deliver to the Holder the Warrant Shares subject to a Notice of Exercise by the Warrant Share Delivery Date, the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of Warrant Shares subject to such exercise (based on the VWAP of the Common Stock on the date of the applicable Notice of Exercise), $10 per Trading Day (increasing to $20 per Trading Day on the third Trading Day after the Warrant Share Delivery Date) for each Trading Day after such Warrant Share Delivery Date until such Warrant Shares are delivered or Holder rescinds such exercise. The Company agrees to maintain a transfer agent (the "<u>Transfer Agent</u>") that is a participant in the FAST program so long as this Warrant remains outstanding and exercisable. As used herein, "<u>Standard Settlement Period</u>" means the standard settlement period, expressed in a number of Trading Days, on the Company's primary Trading Market with respect to the Common Stock as in effect on the date of delivery of the Notice of Exercise. Notwithstanding the foregoing, with respect to any Notice(s) of Exercise delivered on or prior to 9:00 a.m. (New York City time) on the Initial Exercise Date, which may be delivered at any time after the time of execution of the Purchase Agreement, the Company agrees to deliver, or cause to be delivered, the Warrant Shares subject to such notice(s) by 4:00 p.m. (New York City time) on the Initial Exercise Date, and the Initial Exercise Date shall be the Warrant Share Delivery Date for purposes hereunder, provided that payment of the aggregate Exercise Price (other than in the case of a cashless exercise) is received by such Warrant Share Delivery Date. **The Holder and any assignee, by acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following the purchase of a portion of the Warrant Shares hereunder, the number of Warrant Shares available for purchase hereunder at any given time will be less than the amount stated on the face hereof.**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;ii. <u>Delivery of New Warrants Upon Exercise</u>. If this Warrant shall have been exercised in part, the Company shall, at the request of a Holder and upon surrender of this Warrant certificate, at the time of delivery of the Warrant Shares, deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;iii. <u>Rescission Rights</u>. If the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares pursuant to Section 2(d)(i) by the Warrant Share Delivery Date, then the Holder will have the right to rescind such exercise.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;iv. <u>Compensation for Buy-In on Failure to Timely Deliver Warrant Shares Upon Exercise</u>. In addition to any other rights available to the Holder, if the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares in accordance with the provisions of Section 2(d)(i) above pursuant to an exercise on or before the Warrant Share Delivery Date (other than as a result of failure of the Holder to timely deliver the aggregate Exercise Price, unless the Warrant is validly exercised by means of a cashless exercise), and if after such date the Holder is required by its broker to purchase (in an open market transaction or otherwise) or the Holder's brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant Shares which the Holder anticipated receiving upon such exercise (a "<u>Buy-In</u>"), then the Company shall (A) pay in cash to the Holder the amount, if any, by which (x) the Holder's total purchase price (including brokerage commissions, if any) for the Warrant Shares so purchased exceeds (y) the amount obtained by multiplying (1) the number of Warrant Shares that the Company was required to deliver to the Holder in connection with the exercise at issue times (2) the price at which the sell order giving rise to such purchase obligation was executed, and (B) at the option of the Holder, either reinstate the portion of the Warrant and equivalent number of Warrant Shares for which such exercise was not honored (in which case such exercise shall be deemed rescinded) or deliver to the Holder the number of shares of Common Stock that would have been issued had the Company timely complied with its exercise and delivery obligations hereunder. For example, if the Holder purchases shares of Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted exercise of this Warrant with an aggregate sale price giving rise to such purchase obligation of $10,000, under clause (A) of the immediately preceding sentence the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence satisfactory to the Company with respect to the amount of such loss. Nothing herein shall limit a Holder's right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company's failure to timely deliver Warrant Shares upon exercise of the Warrant as required pursuant to the terms hereof.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;v. <u>No Fractional Shares or Scrip</u>. No fractional Warrant Shares or scrip representing fractional Warrant Shares shall be issued upon the exercise of this Warrant. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such exercise, the Company shall, at its election and in lieu of the issuance of such fractional Warrant Share, either (i) pay cash in an amount equal to such fraction multiplied by the Exercise Price or (ii) round up to the next whole Warrant Share.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;vi. <u>Charges, Taxes and Expenses</u>. The issuance and delivery of Warrant Shares shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such Warrant Shares, all of which taxes and expenses shall be paid by the Company, and such Warrant Shares shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; <u>provided</u>, <u>however</u>, that, in the event that Warrant Shares are to be issued in a name other than the name of the Holder, the Notice of Exercise shall be accompanied by the Assignment Form, attached hereto as **Exhibit B**, duly executed by the Holder and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto and this Warrant shall be surrendered to the Company and, if any portion of this Warrant remains unexercised, a new Warrant in the form hereof shall be delivered to the assignee. The Company shall pay all Transfer Agent fees required for same day processing of any Notice of Exercise and all fees to the DTC (or another established clearing corporation performing similar functions) required for same dayelectronic delivery of the Warrant Shares.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;vii. <u>Closing of Books</u>. The Company will not close its stockholder books or records in any manner which prevents the timely exercise of this Warrant, pursuant to the terms hereof.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) <u>Holder's Exercise Limitations</u>. The Company shall not effect any exercise of this Warrant, and a Holder shall not have the right to exercise all or any portion of this Warrant, pursuant to Section 2 or otherwise, to the extent that after giving effect to such issuance upon exercise as set forth on the applicable Notice of Exercise, the Holder (together with (i) the Holder's Affiliates, (ii) any other Persons acting as a group together with the Holder or any of the Holder's Affiliates, and (iii) any other Persons whose beneficial ownership of the shares of Common Stock would or could be aggregated with the Holder's for the purposes of Section 13(d) (such Persons, "<u>Attribution Parties</u>")), would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates and Attribution Parties shall include the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which such determination is being made, but shall exclude the number of the Warrant Shares which would be issuable upon (i) exercise of the remaining, nonexercised portion of this Warrant beneficially owned by the Holder or any of its Affiliates or Attribution Parties and (ii) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any other Common Stock Equivalents) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its Affiliates or Attribution Parties. Except as set forth in the preceding sentence, for purposes of this Section 2(e), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it being acknowledged by the Holder that the Company is not representing to the Holder that such calculation is in compliance with Section 13(d) of the Exchange Act and the Holder is solely responsible for any schedules required to be filed in accordance therewith. To the extent that the limitation contained in this Section 2(e) applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates and Attribution Parties) and of which portion of this Warrant is exercisable shall be in the sole discretion of the Holder, and the submission of a Notice of Exercise shall be deemed to be the Holder's determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates and Attribution Parties) and of which portion of this Warrant is exercisable, in each case subject to the Beneficial Ownership Limitation, and the Company shall have no obligation to verify or confirm the accuracy of such determination, and a submission of a Notice of Exercise shall be deemed a representation and warranty by the Holder of the foregoing determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 2(e), in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as reflected in (A) the Company's most recent periodic or annual report filed with the Commission, as the case may be, (B) a more recent public announcement by the Company or (C) a more recent written notice by the Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request of a Holder, the Company shall within one Trading Day confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Warrant, by the Holder or its Affiliates or Attribution Parties since the date as of which such number of outstanding shares of Common Stock was reported. The "<u>Beneficial Ownership Limitation</u>" shall be [4.99%/9.99%] of the number of shares of Common Stock outstanding immediately after giving effect to the issuance of Warrant Shares issuable upon exercise of this Warrant. The Holder, upon notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 2(e), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of Common Stock outstanding immediately after giving effect to the issuance of Warrant Shares upon exercise of this Warrant held by the Holder and the provisions of this Section 2(e) shall continue to apply. Any increase in the Beneficial Ownership Limitation will not be effective until the 61st day after such notice is delivered to the Company. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 2(e) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of this Warrant.

<u>Section 3</u>. <u>Certain Adjustments</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) <u>Stock Dividends and Splits</u>. If the Company, at any time while this Warrant is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions on shares of Common Stock or any other equity or equity equivalent securities payable in shares of Common Stock (which, for avoidance of doubt, shall not include any Warrant Shares issued by the Company upon exercise of this Warrant), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (iv) issues by reclassification of shares of Common Stock any shares of capital stock of the Company, then in each case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event, and the number of shares issuable upon exercise of this Warrant shall be proportionately adjusted such that the aggregate Exercise Price of this Warrant remains unchanged. Any adjustment made pursuant to this Section 3(a) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or reclassification.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) [RESERVED]

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) <u>Subsequent Rights Offerings</u>. In addition to any adjustments pursuant to Section 3(a) above, if at any time the Company grants, issues or sells any Common Stock Equivalents or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of Common Stock (the "<u>Purchase Rights</u>"), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights (<u>provided</u>, <u>however</u>, that, to the extent that the Holder's right to participate in any such Purchase Right would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Purchase Right to such extent (or beneficial ownership of such shares of Common Stock as a result of such Purchase Right to such extent) and such Purchase Right to such extent shall be held in abeyance for the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) <u>Pro Rata Distributions</u>. During such time as this Warrant is outstanding, if the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to holders of shares of Common Stock, by way of return of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (except to the extent an adjustment was already made pursuant to Section 3(a)) (a "<u>Distribution</u>"), at any time after the issuance of this Warrant, then, in each such case, the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date of which a record is taken for such Distribution, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the participation in such Distribution (<u>provided</u>, <u>however</u>, that, to the extent that the Holder's right to participate in any such Distribution would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Distribution to such extent (or in the beneficial ownership of any shares of Common Stock as a result of such Distribution to such extent) and the portion of such Distribution shall be held in abeyance for the benefit of the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) <u>Fundamental Transaction</u>. If, at any time while this Warrant is outstanding, (i) the Company, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company (or any Subsidiary), directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of the Company's assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of shares of Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding shares of Common Stock or more than 50% of the voting power of the voting securities of the Company, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of shares of Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property, or (v) the Company, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off, merger or scheme of arrangement) with another Person or group of Persons whereby such other Person or group acquires more than 50% of the outstanding shares of Common Stock or more than 50% of the voting power of the voting securities of the Company (not including any shares of Common Stock held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination) (each a "<u>Fundamental Transaction</u>"), then, upon any subsequent exercise of this Warrant, the Holder shall have the right to receive, for each Warrant Share that would have been issuable upon such exercise immediately prior to the occurrence of such Fundamental Transaction, at the option of the Holder (without regard to any limitation in Section 2(e) on the exercise of this Warrant), the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the "<u>Alternate Consideration</u>") receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such Fundamental Transaction (without regard to any limitation in Section 2(e) on the exercise of this Warrant). For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction. The Company shall cause any successor entity in a Fundamental Transaction in which the Company is not the survivor (the "<u>Successor Entity</u>") to assume in writing all of the obligations of the Company under this Warrant and the other Transaction Documents in accordance with the provisions of this Section 3(e) pursuant to written agreements in form and substance reasonably satisfactory to the Holder prior to such Fundamental Transaction and shall, at the option of the Holder, deliver to the Holder in exchange for this Warrant a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Warrant which is exercisable for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) equivalent to the shares of Common Stock acquirable and receivable upon exercise of this Warrant (without regard to any limitations on the exercise of this Warrant) prior to such Fundamental Transaction, and with an exercise price which applies the exercise price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such exercise price being for the purpose of protecting the economic value of this Warrant immediately prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance to the Holder. Upon the occurrence of any such Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Warrant and the other Transaction Documents referring to the "Company" shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Warrant and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Company herein.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f) <u>Calculations</u>. All calculations under this Section 3 shall be made to the nearest cent or the nearest 1/100th of a share of Common Stock, as the case may be. For purposes of this Section 3, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding treasury shares, if any) issued and outstanding.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g) <u>Notice to Holder</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;i. <u>Adjustment to Exercise Price</u>. Whenever the Exercise Price is adjusted pursuant to any provision of this Section 3, the Company shall promptly deliver to the Holder by facsimile or email a notice setting forth the Exercise Price after such adjustment and any resulting adjustment to the number of Warrant Shares and setting forth a brief statement of the facts requiring such adjustment.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;ii. <u>Notice to Allow Exercise by Holder</u>. If (A) the Company declares a dividend (or any other distribution in whatever form) on the shares of Common Stock, (B) the Company declares a special nonrecurring cash dividend on or a redemption of the shares of Common Stock, (C) the Company authorizes the granting to all holders of the shares of Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any shareholders of the Company is required in connection with a Fundamental Transaction, or (E) the Company authorizes the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be delivered by facsimile or email to the Holder at its last facsimile number or email address as it shall appear upon the Warrant Register of the Company, at least 20 calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange; provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice. To the extent that any notice provided in this Warrant constitutes, or contains, material, non-public information regarding the Company or any of the Subsidiaries, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K. The Holder shall remain entitled to exercise this Warrant during the period commencing on the date of such notice to the effective date of the event triggering such notice except as may otherwise be expressly set forth herein.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (h) <u>Voluntary Adjustment By Company</u>. Subject to the rules and regulations of the Trading Market, the Company may at any time while this Warrant is outstanding, reduce the then-current Exercise Price to any amount and for any period of time deemed appropriate by the board of directors of the Company in its sole discretion.

<u> </u>

<u>Section 4</u>. <u>Transfer of Warrant</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) <u>Transferability</u>. This Warrant and all rights hereunder (including, without limitation, any registration rights) are transferable, in whole or in part, upon surrender of this Warrant at the principal office of the Company or its designated agent, together with a written assignment of this Warrant substantially in the form attached hereto as **Exhibit B** duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees, as applicable, and in the denomination or denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company unless the Holder has assigned this Warrant in full, in which case, the Holder shall surrender this Warrant to the Company within three (3) Trading Days of the date on which the Holder delivers an assignment form to the Company assigning this Warrant in full. The Warrant, if properly assigned in accordance herewith, may be exercised by a new holder for the purchase of Warrant Shares without having a new Warrant issued.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) <u>New Warrants</u>. This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney. Subject to compliance with Section 4(a), as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. All Warrants issued on transfers or exchanges shall be dated the initial issuance date of this Warrant and shall be identical with this Warrant except as to the number of Warrant Shares issuable pursuant thereto.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) <u>Warrant Register</u>. The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the "<u>Warrant Register</u>"), in the name of the record Holder hereof from time to time. The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary.

<u>Section 5</u>. <u>Miscellaneous</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) <u>No Rights as Stockholder Until Exercise; No Settlement in Cash</u>. This Warrant does not entitle the Holder to any voting rights, dividends or other rights as a stockholder of the Company prior to the exercise hereof as set forth in Section 2(d)(i), except as expressly set forth in Section 3. Without limiting any rights of a Holder to receive Warrant Shares on a "cashless exercise" pursuant to Section 2(c) or to receive cash payments pursuant to Section 2(d)(i) and Section 2(d)(iv) herein, in no event shall the Company be required to net cash settle an exercise of this Warrant.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) <u>Loss, Theft, Destruction or Mutilation of Warrant</u>. The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which, in the case of the Warrant, shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) <u>Saturdays, Sundays, Holidays, etc</u>. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Trading Day, then such action may be taken or such right may be exercised on the next succeeding Trading Day.

Except and to the extent as waived or consented to by the Holder, the Company shall not by any action, including, without limitation, amending its articles of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of Holder as set forth in this Warrant against impairment. Without limiting the generality of the foregoing, the Company will (i) not increase the par value of any shares of Common Stock above the amount payable therefor upon such exercise immediately prior to such increase in par value, (ii) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon the exercise of this Warrant and (iii) use commercially reasonable efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof, as may be, necessary to enable the Company to perform its obligations under this Warrant.

Before taking any action which would result in an adjustment in the number of Warrant Shares for which this Warrant is exercisable or in the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) <u>Jurisdiction</u>. All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be determined in accordance with the provisions of the Purchase Agreement.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f) <u>Restrictions</u>. The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered, and if the Holder does not utilize cashless exercise, will have restrictions upon resale imposed by state and federal securities laws.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g) <u>Nonwaiver and Expenses</u>. No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate as a waiver of such right or otherwise prejudice the Holder's rights, powers or remedies. Without limiting any other provision of this Warrant or the Purchase Agreement, if the Company willfully and knowingly fails to comply with any provision of this Warrant, which results in any material damages to the Holder, the Company shall pay to the Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys' fees, including those of appellate proceedings, incurred by the Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(h) <u>Notices</u>. Any notice, request or other document required or permitted to be given or delivered to the Holder by the Company shall be delivered in accordance with the notice provisions of the Purchase Agreement.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) <u>Limitation of Liability</u>. No provision hereof, in the absence of any affirmative action by the Holder to exercise this Warrant to purchase Warrant Shares, and no enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of the Holder for the purchase price of any share of Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(j) <u>Remedies</u>. The Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Warrant. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive and not to assert the defense in any action for specific performance that a remedy at law would be adequate.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(k) <u>Successors and Assigns</u>. Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors and permitted assigns of the Company and the successors and permitted assigns of Holder. The provisions of this Warrant are intended to be for the benefit of any Holder from time to time of this Warrant and shall be enforceable by the Holder or holder of Warrant Shares.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(l) <u>Amendment</u>. This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and the Holder.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(m) <u>Severability</u>. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(n) <u>Headings</u>. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant.

\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*

*(Signature Page Follows)*

 

IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized as of the date first above indicated.

---

| | |
|:---|:---|
| **DIGITAL ALLY, INC.** | **DIGITAL ALLY, INC.** |
| By: |  |
| Name: | Stanton E. Ross |
| Title: | Chairman and Chief Executive Officer |

---

**EXHIBIT A**

**NOTICE OF EXERCISE**

TO: DIGITAL ALLY, INC.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1) The undersigned hereby elects to purchase ________ Warrant Shares of the Company pursuant to the terms of the attached Warrant (only if exercised in full), and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(2) Payment shall take the form of (check applicable box):

[ ] in lawful money of the United States; or

[ ] if permitted the cancellation of such number of Warrant Shares as is necessary, in accordance with the formula set forth in subsection 2(c), to exercise this Warrant with respect to the maximum number of Warrant Shares purchasable pursuant to the cashless exercise procedure set forth in subsection 2(c).

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(3) Please issue said Warrant Shares in the name of the undersigned or in such other name as is specified below:

---

| |
|:---|
| The Warrant Shares shall be delivered to the following DWAC Account Number: |
| [SIGNATURE OF HOLDER] |
| Name of Investing Entity: |
| *Signature of Authorized Signatory of Investing Entity:* |
| Name of Authorized Signatory |
| Title of Authorized Signature: |
| Date |

---

**EXHIBIT B**

ASSIGNMENT FORM

*(To assign the foregoing Warrant, execute this form and supply required information. Do not use this form to purchase shares.)*

 

FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to

---

| | |
|:---|:---|
| Name: | |
|  | (Please Print) |
| Address: | |
|  | (Please Print) |
| Phone Number | |
| Email Address: | |
| Dated: _______________ ____, _______ |  |
| Holder's Signature _________ |  |
| Holder's Address _____________ |  |

---

## Exhibit 4.2

**Exhibit 4.2**

**Pre-Funded WARRANT**

**To purchase Shares of Common Stock**

**DIGITAL ALLY, INC.**

Warrant Shares: _______ Initial Exercise Date: February __, 2023

THIS Pre-Funded WARRANT to Purchase Shares of Common Stock (the "<u>Warrant</u>") certifies that, for value received, _____________ or its assigns (the "<u>Holder</u>") is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after the date hereof (the "<u>Initial Exercise Date</u>") until this Warrant is exercised in full (the "<u>Termination Date</u>"), but not thereafter, to subscribe for and purchase from **DIGITAL ALLY, INC.**, a Nevada corporation (the "<u>Company</u>"), up to ______ shares of common stock, par value $0.001 per share (the "<u>Common Stock")</u> (as subject to adjustment hereunder, the "<u>Warrant Shares</u>"). The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price, as defined in Section 2(b).

<u>Section 1</u>. <u>Definitions</u>. Capitalized terms used and not otherwise defined herein shall have the meanings set forth in that certain Securities Purchase Agreement (the "<u>Purchase Agreement</u>"), dated February __, 2023, among the Company and the purchasers signatory thereto.

<u>Section 2</u>. <u>Exercise</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) <u>Exercise of Warrant</u>. Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time or times on or after the Initial Exercise Date and on or before the Termination Date by delivery to the Company of a duly executed facsimile copy or PDF copy submitted by e-mail (or e-mail attachment) of the Notice of Exercise in the form annexed hereto as **Exhibit A** (the "<u>Notice of Exercise</u>"). Within the earlier of (i) two (2) Trading Days and (ii) the number of Trading Days comprising the Standard Settlement Period (as defined in Section 2(d)(i) herein) following the date of exercise as aforesaid, the Holder shall deliver the aggregate Exercise Price for the number of Warrant Shares specified in the applicable Notice of Exercise by wire transfer or cashier's check drawn on a United States bank unless the cashless exercise procedure specified in Section 2(c) below is specified in the applicable Notice of Exercise. No ink-original Notice of Exercise shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Exercise be required. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company until the Holder has purchased all of the Warrant Shares purchasable hereunder and the Warrant has been exercised in full, at which time the Holder shall surrender this Warrant to the Company for cancellation within three (3) Trading Days of the date on which the final Notice of Exercise is delivered to the Company. Partial exercises of this Warrant resulting in purchases of a portion of the total number of Warrant Shares purchasable hereunder shall have the effect of lowering the outstanding number of Warrant Shares purchasable hereunder by the number of Warrant Shares equal to the applicable number of Warrant Shares purchased in connection with such partial exercise. The Holder and the Company shall maintain records showing the number of Warrant Shares purchased and the date of such purchases. The Company shall deliver any objection to any Notice of Exercise within one (1) Trading Day of receipt of such notice. Notwithstanding the foregoing, with respect to any Notice(s) of Exercise delivered on or prior to 9:00 a.m. (New York City time) on the Initial Exercise Date, which may be delivered at any time after the time of execution of the Purchase Agreement, the Company agrees to deliver, or cause to be delivered, the Warrant Shares subject to such notice(s) by 4:00 p.m. (New York City time) on the Initial Exercise Date, and the Initial Exercise Date shall be the Warrant Share Delivery Date for purposes hereunder, provided that payment of the aggregate Exercise Price (other than in the case of a cashless exercise) is received by such Warrant Share Delivery Date. **The Holder and any assignee, by acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following the purchase of a portion of the Warrant Shares hereunder, the number of Warrant Shares available for purchase hereunder at any given time will be less than the amount stated on the face hereof.**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) <u>Exercise Price</u>. The aggregate exercise price of this Warrant, except for a nominal exercise price of $0.001 per Warrant Share, was pre-funded to the Company on or prior to the Initial Exercise Date and, consequently, no additional consideration (other than the nominal exercise price of $0.001 per Warrant Share) shall be required to be paid by the Holder to any Person to effect any exercise of this Warrant. The Holder shall not be entitled to the return or refund of all, or any portion, of such pre-paid aggregate exercise price under any circumstance or for any reason whatsoever, including in the event this Warrant shall not have been exercised prior to the Termination Date. The remaining unpaid exercise price per Warrant Share under this Warrant shall be $0.001, subject to adjustment hereunder (the "<u>Exercise Price</u>").

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) <u>Cashless Exercise</u>. Notwithstanding anything to the contrary set forth herein, if at the time of exercise hereof there is no effective registration statement registering, or the prospectus contained therein is not available for the issuance of, the Warrant Shares to the Holder, then this Warrant may only be exercised, in whole or in part, at such time by means of a "cashless exercise" in which the Holder shall be entitled to receive a number of Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(A) = as applicable: (i) the VWAP on the Trading Day immediately preceding the date of the applicable Notice of Exercise if such Notice of Exercise is (1) both executed and delivered pursuant to Section 2(a) hereof on a day that is not a Trading Day or (2) both executed and delivered pursuant to Section 2(a) hereof on a Trading Day prior to the opening of "regular trading hours" (as defined in Rule 600(b) of Regulation NMS promulgated under the federal securities laws) on such Trading Day, (ii) at the option of the Holder, either (y) the VWAP on the Trading Day immediately preceding the date of the applicable Notice of Exercise or (z) the Bid Price of the Common Stock on the principal Trading Market as reported by Bloomberg L.P. ("<u>Bloomberg</u>") as of the time of the Holder's execution of the applicable Notice of Exercise if such Notice of Exercise is executed during "regular trading hours" on a Trading Day and is delivered within two (2) hours thereafter (including until two (2) hours after the close of "regular trading hours" on a Trading Day) pursuant to Section 2(a) hereof or (iii) the VWAP on the date of the applicable Notice of Exercise if the date of such Notice of Exercise is a Trading Day and such Notice of Exercise is both executed and delivered pursuant to Section 2(a) hereof after the close of "regular trading hours" on such Trading Day;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(B) = the Exercise Price, as adjusted hereunder; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(X) = the number of Warrant Shares that would be issuable upon exercise of this Warrant in accordance with the terms of this Warrant if such exercise were by means of a cash exercise rather than a cashless exercise.

If Warrant Shares are issued in such a cashless exercise, the parties acknowledge and agree that in accordance with Section 3(a)(9) of the Securities Act, the Warrant Shares shall take on the registered characteristics of the Warrants being exercised. The Company agrees not to take any position contrary to this Section 2(c).

"<u>Bid Price</u>" means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the bid price of the Common Stock for the time in question (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if OTCQB or OTCQX is not a Trading Market, the VWAP of the Common Stock for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, (c) if the Common Stock is not then listed or quoted for trading on OTCQB or OTCQX and if prices for the Common Stock are then reported on The Pink Open Market (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of Common Stock so reported, or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Purchasers of a majority in interest of the Securities then outstanding and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.

"<u>Trading Day</u>" means any day on which the Trading Market is open for trading, including any day on which the Trading Market is open for trading for a period of time less than the customary time.

"<u>VWAP</u>" means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if OTCQB or OTCQX is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, (c) if the Common Stock is not then listed or quoted for trading on OTCQB or OTCQX and if prices for the Common Stock are then reported on The Pink Open Market (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of Common Stock so reported, or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Purchasers of a majority in interest of the Securities then outstanding and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.

Notwithstanding anything herein to the contrary, on the Termination Date, this Warrant shall be automatically exercised via cashless exercise pursuant to this Section 2(c).

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) <u>Mechanics of Exercise</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;i. <u>Delivery of Warrant Shares Upon Exercise</u>. The Company shall cause the Warrant Shares purchased hereunder to be transmitted by The Depository Trust Company (the "<u>DTC</u>") through its Deposit or Withdrawal at Custodian system ("<u>DWAC</u>") if the Company is then a participant in such system and either (A) there is an effective registration statement permitting the issuance of the Warrant Shares to, or resale of, the Warrant Shares by Holder or (B) this Warrant is being exercised via cashless exercise, and otherwise by physical delivery of a certificate representing the Warrant Shares, registered in the Company's share register in the name of the Holder or its designee, for the number of Warrant Shares to which the Holder is entitled pursuant to such exercise to the address specified by the Holder in such Notice of Exercise by the date that is the earliest of (i) two (2) Trading Days after the delivery to the Company of the Notice of Exercise, provided that payment of the aggregate Exercise Price (other than in the instance of a cashless exercise) is received by the Company one (1) Trading Day prior to such second Trading Day after the delivery of the Notice of Exercise, (ii) one (1) Trading Day after delivery of the aggregate Exercise Price to the Company, and (iii) the number of Trading Days comprising the Standard Settlement Period after the delivery to the Company of the Notice of Exercise, provided that payment of the aggregate Exercise Price (other than in the instance of a cashless exercise) is received by the Company one (1) Trading Day prior to such second Trading Day after the delivery of the Notice of Exercise (such date, the "<u>Warrant Share Delivery Date</u>"). Upon delivery of the Notice of Exercise, the Holder shall be deemed for all corporate purposes to have become the holder of record of the Warrant Shares with respect to which this Warrant has been exercised, irrespective of the date of delivery of the Warrant Shares, provided that payment of the aggregate Exercise Price (other than in the case of a cashless exercise) is received within the earlier of (i) two (2) Trading Days and (ii) the number of Trading Days comprising the Standard Settlement Period following delivery of the Notice of Exercise. If the Company fails for any reason to deliver or cause to deliver to the Holder the Warrant Shares subject to a Notice of Exercise by the Warrant Share Delivery Date, the Company shall pay to the Holder in cash, as liquidated damages and not as a penalty, for each $1,000 of Warrant Shares subject to such exercise (based on the VWAP of the Common Stock on the date of the applicable Notice of Exercise), $10 per Trading Day (increasing to $20 per Trading Day on the third Trading Day after the Warrant Share Delivery Date) for each Trading Day after such Warrant Share Delivery Date until such Warrant Shares are delivered or Holder rescinds such exercise. The Company agrees to maintain a transfer agent (the "<u>Transfer Agent</u>") that is a participant in the FAST program so long as this Warrant remains outstanding and exercisable. As used herein, "<u>Standard Settlement Period</u>" means the standard settlement period, expressed in a number of Trading Days, on the Company's primary Trading Market with respect to the Common Stock as in effect on the date of delivery of the Notice of Exercise.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;ii. <u>Delivery of New Warrants Upon Exercise</u>. If this Warrant shall have been exercised in part, the Company shall, at the request of a Holder and upon surrender of this Warrant certificate, at the time of delivery of the Warrant Shares, deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;iii. <u>Rescission Rights</u>. Except in connection with an exercise on the Initial Exercise Date, if the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares pursuant to Section 2(d)(i) by the Warrant Share Delivery Date, then the Holder will have the right to rescind such exercise.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;iv. <u>Compensation for Buy-In on Failure to Timely Deliver Warrant Shares Upon Exercise</u>. In addition to any other rights available to the Holder, if the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares in accordance with the provisions of Section 2(d)(i) above pursuant to an exercise on or before the Warrant Share Delivery Date (other than as a result of failure of the Holder to timely deliver the aggregate Exercise Price, unless the Warrant is validly exercised by means of a cashless exercise), and if after such date the Holder is required by its broker to purchase (in an open market transaction or otherwise) or the Holder's brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant Shares which the Holder anticipated receiving upon such exercise (a "<u>Buy-In</u>"), then the Company shall (A) pay in cash to the Holder the amount, if any, by which (x) the Holder's total purchase price (including brokerage commissions, if any) for the Warrant Shares so purchased exceeds (y) the amount obtained by multiplying (1) the number of Warrant Shares that the Company was required to deliver to the Holder in connection with the exercise at issue times (2) the price at which the sell order giving rise to such purchase obligation was executed, and (B) at the option of the Holder, either reinstate the portion of the Warrant and equivalent number of Warrant Shares for which such exercise was not honored (in which case such exercise shall be deemed rescinded) or deliver to the Holder the number of shares of Common Stock that would have been issued had the Company timely complied with its exercise and delivery obligations hereunder. For example, if the Holder purchases shares of Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted exercise of Warrants with an aggregate sale price giving rise to such purchase obligation of $10,000, under clause (A) of the immediately preceding sentence the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence satisfactory to the Company with respect to the amount of such loss. Nothing herein shall limit a Holder's right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company's failure to timely deliver Warrant Shares upon exercise of the Warrant as required pursuant to the terms hereof.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;v. <u>No Fractional Shares or Scrip</u>. No fractional Warrant Shares or scrip representing fractional Warrant Shares shall be issued upon the exercise of this Warrant. As to any fraction of a Warrant Share which the Holder would otherwise be entitled to purchase upon such exercise, the Company shall, at its election and in lieu of the issuance of such fractional Warrant Share, either (i) pay cash in an amount equal to such fraction multiplied by the Exercise Price or (ii) round up to the next whole Warrant Share.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;vi. <u>Charges, Taxes and Expenses</u>. The issuance and delivery of Warrant Shares shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such Warrant Shares, all of which taxes and expenses shall be paid by the Company, and such Warrant Shares shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; <u>provided</u>, <u>however</u>, that, in the event that Warrant Shares are to be issued in a name other than the name of the Holder, the Notice of Exercise shall be accompanied by the Assignment Form, attached hereto as **Exhibit B**, duly executed by the Holder and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto and this Warrant shall be surrender to the Company and, if any portion of this Warrant remains unexercised, a new Warrant in the form hereof shall be delivered to the assignee. The Company shall pay all Transfer Agent fees required for same dayprocessing of any Notice of Exercise and all fees to the DTC (or another established clearing corporation performing similar functions) required for same dayelectronic delivery of the Warrant Shares.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;vii. <u>Closing of Books</u>. The Company will not close its stockholder books or records in any manner which prevents the timely exercise of this Warrant, pursuant to the terms hereof.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) <u>Holder's Exercise Limitations</u>. The Company shall not effect any exercise of this Warrant, and a Holder shall not have the right to exercise all or any portion of this Warrant, pursuant to Section 2 or otherwise, to the extent that after giving effect to such issuance upon exercise as set forth on the applicable Notice of Exercise, the Holder (together with (i) the Holder's Affiliates, (ii) any other Persons acting as a group together with the Holder or any of the Holder's Affiliates, and (iii) any other Persons whose beneficial ownership of the shares of Common Stock would or could be aggregated with the Holder's for the purposes of Section 13(d) (such Persons, "<u>Attribution Parties</u>")), would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates and Attribution Parties shall include the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which such determination is being made, but shall exclude the number of the Warrant Shares which would be issuable upon (i) exercise of the remaining, nonexercised portion of this Warrant beneficially owned by the Holder or any of its Affiliates or Attribution Parties and (ii) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any other Common Stock Equivalents) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its Affiliates or Attribution Parties. Except as set forth in the preceding sentence, for purposes of this Section 2(e), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it being acknowledged by the Holder that the Company is not representing to the Holder that such calculation is in compliance with Section 13(d) of the Exchange Act and the Holder is solely responsible for any schedules required to be filed in accordance therewith. To the extent that the limitation contained in this Section 2(e) applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates and Attribution Parties) and of which portion of this Warrant is exercisable shall be in the sole discretion of the Holder, and the submission of a Notice of Exercise shall be deemed to be the Holder's determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates and Attribution Parties) and of which portion of this Warrant is exercisable, in each case subject to the Beneficial Ownership Limitation, and the Company shall have no obligation to verify or confirm the accuracy of such determination, and a submission of a Notice of Exercise shall be deemed a representation and warranty by the Holder of the foregoing determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 2(e), in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as reflected in (A) the Company's most recent periodic or annual report filed with the Commission, as the case may be, (B) a more recent public announcement by the Company or (C) a more recent written notice by the Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request of a Holder, the Company shall within one Trading Day confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Warrant, by the Holder or its Affiliates or Attribution Parties since the date as of which such number of outstanding shares of Common Stock was reported. The "<u>Beneficial Ownership Limitation</u>" shall be [4.99%/9.99%] of the number of shares of Common Stock outstanding immediately after giving effect to the issuance of Warrant Shares issuable upon exercise of this Warrant. The Holder, upon notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 2(e), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of Common Stock outstanding immediately after giving effect to the issuance of Warrant Shares upon exercise of this Warrant held by the Holder and the provisions of this Section 2(e) shall continue to apply. Any increase in the Beneficial Ownership Limitation will not be effective until the 61st day after such notice is delivered to the Company. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 2(e) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of this Warrant.

<u>Section 3</u>. <u>Certain Adjustments</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) <u>Stock Dividends and Splits</u>. If the Company, at any time while this Warrant is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions on shares of Common Stock or any other equity or equity equivalent securities payable in shares of Common Stock (which, for avoidance of doubt, shall not include any Warrant Shares issued by the Company upon exercise of this Warrant), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (iv) issues by reclassification of shares of Common Stock any shares of capital stock of the Company, then in each case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event, and the number of shares issuable upon exercise of this Warrant shall be proportionately adjusted such that the aggregate Exercise Price of this Warrant remains unchanged. Any adjustment made pursuant to this Section 3(a) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or reclassification.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) [RESERVED]

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) <u>Subsequent Rights Offerings</u>. In addition to any adjustments pursuant to Section 3(a) above, if at any time the Company grants, issues or sells any Common Stock Equivalents or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of Common Stock (the "<u>Purchase Rights</u>"), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights (<u>provided</u>, <u>however</u>, that, to the extent that the Holder's right to participate in any such Purchase Right would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Purchase Right to such extent (or beneficial ownership of such shares of Common Stock as a result of such Purchase Right to such extent) and such Purchase Right to such extent shall be held in abeyance for the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) <u>Pro Rata Distributions</u>. During such time as this Warrant is outstanding, if the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to holders of shares of Common Stock, by way of return of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (except to the extent an adjustment was already made pursuant to Section 3(a)) (a "<u>Distribution</u>"), at any time after the issuance of this Warrant, then, in each such case, the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date of which a record is taken for such Distribution, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the participation in such Distribution (<u>provided</u>, <u>however</u>, that, to the extent that the Holder's right to participate in any such Distribution would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Distribution to such extent (or in the beneficial ownership of any shares of Common Stock as a result of such Distribution to such extent) and the portion of such Distribution shall be held in abeyance for the benefit of the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) <u>Fundamental Transaction</u>. If, at any time while this Warrant is outstanding, (i) the Company, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company (or any Subsidiary), directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of the Company's assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of shares of Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding shares of Common Stock or more than 50% of the voting power of the voting securities of the Company, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property, or (v) the Company, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off, merger or scheme of arrangement) with another Person or group of Persons whereby such other Person or group acquires more than 50% of the outstanding shares of Common Stock or more than 50% of the voting power of the voting securities of the Company (not including any shares of Common Stock held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination) (each, a "<u>Fundamental Transaction</u>"), then, upon any subsequent exercise of this Warrant, the Holder shall have the right to receive, for each Warrant Share that would have been issuable upon such exercise immediately prior to the occurrence of such Fundamental Transaction, at the option of the Holder (without regard to any limitation in Section 2(e) on the exercise of this Warrant), the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the "<u>Alternate Consideration</u>") receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such Fundamental Transaction (without regard to any limitation in Section 2(e) on the exercise of this Warrant). For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction. The Company shall cause any successor entity in a Fundamental Transaction in which the Company is not the survivor (the "<u>Successor Entity</u>") to assume in writing all of the obligations of the Company under this Warrant and the other Transaction Documents in accordance with the provisions of this Section 3(e) pursuant to written agreements in form and substance reasonably satisfactory to the Holder and approved by the Holder (without unreasonable delay) prior to such Fundamental Transaction and shall, at the option of the Holder, deliver to the Holder in exchange for this Warrant a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Warrant which is exercisable for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) equivalent to the shares of Common Stock acquirable and receivable upon exercise of this Warrant (without regard to any limitations on the exercise of this Warrant) prior to such Fundamental Transaction, and with an exercise price which applies the exercise price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such exercise price being for the purpose of protecting the economic value of this Warrant immediately prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance to the Holder. Upon the occurrence of any such Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Warrant and the other Transaction Documents referring to the "Company" shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Warrant and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Company herein.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f) <u>Calculations</u>. All calculations under this Section 3 shall be made to the nearest cent or the nearest 1/100th of a share of Common Stock, as the case may be. For purposes of this Section 3, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding treasury shares, if any) issued and outstanding.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g) <u>Notice to Holder</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;i. <u>Adjustment to Exercise Price</u>. Whenever the Exercise Price is adjusted pursuant to any provision of this Section 3, the Company shall promptly deliver to the Holder by facsimile or email a notice setting forth the Exercise Price after such adjustment and any resulting adjustment to the number of Warrant Shares and setting forth a brief statement of the facts requiring such adjustment.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;ii. <u>Notice to Allow Exercise by Holder</u>. If (A) the Company declares a dividend (or any other distribution in whatever form) on the shares of Common Stock, (B) the Company declares a special nonrecurring cash dividend on or a redemption of the shares of Common Stock, (C) the Company authorizes the granting to all holders of the shares of Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any shareholders of the Company is required in connection with a Fundamental Transaction, or (E) the Company authorizes the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be delivered by facsimile or email to the Holder at its last facsimile number or email address as it shall appear upon the Warrant Register of the Company, at least 20 calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange; provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice. To the extent that any notice provided in this Warrant constitutes, or contains, material, non-public information regarding the Company or any of the Subsidiaries, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K. The Holder shall remain entitled to exercise this Warrant during the period commencing on the date of such notice to the effective date of the event triggering such notice except as may otherwise be expressly set forth herein.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (h) <u>Voluntary Adjustment By Company</u>. Subject to the rules and regulations of the Trading Market, the Company may at any time while this Warrant is outstanding, reduce the then-current Exercise Price to any amount and for any period of time deemed appropriate by the board of directors of the Company in its sole discretion.

<u>Section 4</u>. <u>Transfer of Warrant</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) <u>Transferability</u>. This Warrant and all rights hereunder (including, without limitation, any registration rights) are transferable, in whole or in part, upon surrender of this Warrant at the principal office of the Company or its designated agent, together with a written assignment of this Warrant substantially in the form attached hereto as Exhibit B duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees, as applicable, and in the denomination or denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company unless the Holder has assigned this Warrant in full, in which case, the Holder shall surrender this Warrant to the Company within three (3) Trading Days of the date on which the Holder delivers an assignment form to the Company assigning this Warrant in full. The Warrant, if properly assigned in accordance herewith, may be exercised by a new holder for the purchase of Warrant Shares without having a new Warrant issued.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) <u>New Warrants</u>. This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney. Subject to compliance with Section 4(a), as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. All Warrants issued on transfers or exchanges shall be dated the initial issuance date of this Warrant and shall be identical with this Warrant except as to the number of Warrant Shares issuable pursuant thereto.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) <u>Warrant Register</u>. The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the "<u>Warrant Register</u>"), in the name of the record Holder hereof from time to time. The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary.

<u>Section 5</u>. <u>Miscellaneous</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) <u>No Rights as Stockholder Until Exercise; No Settlement in Cash</u>. This Warrant does not entitle the Holder to any voting rights, dividends or other rights as a stockholder of the Company prior to the exercise hereof as set forth in Section 2(d)(i), except as expressly set forth in Section 3. Without limiting any rights of a Holder to receive Warrant Shares on a "cashless exercise" pursuant to Section 2(c) or to receive cash payments pursuant to Section 2(d)(i) and Section 2(d)(iv) herein, in no event shall the Company be required to net cash settle an exercise of this Warrant.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) <u>Loss, Theft, Destruction or Mutilation of Warrant</u>. The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which, in the case of the Warrant, shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) <u>Saturdays, Sundays, Holidays, etc</u>. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Trading Day, then such action may be taken or such right may be exercised on the next succeeding Trading Day.

Except and to the extent as waived or consented to by the Holder, the Company shall not by any action, including, without limitation, amending its articles of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of Holder as set forth in this Warrant against impairment. Without limiting the generality of the foregoing, the Company will (i) not increase the par value of any shares of Common Stock above the amount payable therefor upon such exercise immediately prior to such increase in par value, (ii) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon the exercise of this Warrant and (iii) use commercially reasonable efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof, as may be, necessary to enable the Company to perform its obligations under this Warrant.

Before taking any action which would result in an adjustment in the number of Warrant Shares for which this Warrant is exercisable or in the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) <u>Jurisdiction</u>. All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be determined in accordance with the provisions of the Purchase Agreement.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f) <u>Restrictions</u>. The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered, and if the Holder does not utilize cashless exercise, will have restrictions upon resale imposed by state and federal securities laws.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g) <u>Nonwaiver and Expenses</u>. No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate as a waiver of such right or otherwise prejudice the Holder's rights, powers or remedies. Without limiting any other provision of this Warrant or the Purchase Agreement, if the Company willfully and knowingly fails to comply with any provision of this Warrant, which results in any material damages to the Holder, the Company shall pay to the Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys' fees, including those of appellate proceedings, incurred by the Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(h) <u>Notices</u>. Any notice, request or other document required or permitted to be given or delivered to the Holder by the Company shall be delivered in accordance with the notice provisions of the Purchase Agreement.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) <u>Limitation of Liability</u>. No provision hereof, in the absence of any affirmative action by the Holder to exercise this Warrant to purchase Warrant Shares, and no enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of the Holder for the purchase price of any share of Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(j) <u>Remedies</u>. The Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Warrant. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive and not to assert the defense in any action for specific performance that a remedy at law would be adequate.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(k) <u>Successors and Assigns</u>. Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors and permitted assigns of the Company and the successors and permitted assigns of Holder. The provisions of this Warrant are intended to be for the benefit of any Holder from time to time of this Warrant and shall be enforceable by the Holder or holder of Warrant Shares.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(l) <u>Amendment</u>. This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and the Holder.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(m) <u>Severability</u>. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(n) <u>Headings</u>. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant.

\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*

*(Signature Page Follows)*

 

IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized as of the date first above indicated.

---

| | |
|:---|:---|
| **DIGITAL ALLY, INC.** | **DIGITAL ALLY, INC.** |
| By: |  |
| Name: | Stanton E. Ross |
| Title: | Chairman and Chief Executive Officer |

---

**EXHIBIT A**

**NOTICE OF EXERCISE**

TO: **DIGITAL ALLY, INC.** 

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1) The undersigned hereby elects to purchase ________ Warrant Shares of the Company pursuant to the terms of the attached Warrant (only if exercised in full), and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(2) Payment shall take the form of (check applicable box):

[ ] in lawful money of the United States; or

[ ] if permitted the cancellation of such number of Warrant Shares as is necessary, in accordance with the formula set forth in subsection 2(c), to exercise this Warrant with respect to the maximum number of Warrant Shares purchasable pursuant to the cashless exercise procedure set forth in subsection 2(c).

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(3) Please issue said Warrant Shares in the name of the undersigned or in such other name as is specified below:

---

| |
|:---|
| The Warrant Shares shall be delivered to the following DWAC Account Number: |
| [SIGNATURE OF HOLDER] |
| Name of Investing Entity: |
| *Signature of Authorized Signatory of Investing Entity:* |
| Name of Authorized Signatory |
| Title of Authorized Signature: |
| Date |

---

**EXHIBIT B**

ASSIGNMENT FORM

*(To assign the foregoing Warrant, execute this form and supply required information. Do not use this form to purchase shares.)*

 

FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to

---

| | |
|:---|:---|
| Name: | |
|  | (Please Print) |
| Address: | |
|  | (Please Print) |
| Phone Number | |
| Email Address: | |
| Dated: _______________ ____, _______ |  |
| Holder's Signature ________ |  |
| Holder's Address ___________ |  |

---

## Exhibit 5.1

**Exhibit 5.1**

![](ex5-1_001.jpg)

February 9, 2023

Digital Ally, Inc.

14001 Marshall Drive

Lenexa, KS 66215`

Ladies and Gentlemen:

We have acted as securities counsel for Digital Ally, Inc., a Nevada corporation (the "<u>Company</u>"), in connection with the preparation of a Registration Statement on Form S-1 (Registration No. 333-269392) (the "<u>Registration Statement</u>") originally filed by the Company with the U.S. Securities and Exchange Commission (the "<u>Commission</u>") under the Securities Act of 1933, as amended (the "<u>Securities Act</u>"), on January 24, 2023 and amended on the date hereof, relating to the proposed public offering of: (A) 1,342,281 units (the "<u>Units</u>"), each Unit consisting of (i) one share of common stock of the Company, par value $0.001 per share (the "<u>Shares</u>") and (ii) one common stock purchase warrant (the "<u>Warrants</u>"), each such Warrant being exercisable from time to time for one Share (the "<u>Warrant Shares</u>"); and (B) 1,342,281 pre-funded units (the "<u>Pre-Funded Units</u>"), each Pre-Funded Unit consisting of (i) one pre-funded warrant (the "<u>Pre-Funded Warrants</u>"), each such Pre-Funded Warrant being exercisable from time to time for one Share (the "<u>Pre-Funded Warrant Shares</u>") and (ii) one Warrant. The Units, Shares, Warrants, Warrant Shares, Pre-Funded Units, Pre-Funded Warrants and Pre-Funded Warrant Shares are collectively referred to herein as the "<u>Securities</u>". The Securities will be sold pursuant to a Securities Purchase Agreement (the "<u>Agreement</u>") between the Company and certain accredited investors or qualified institutional buyers identified on the signature pages thereto (collectively, the "<u>Investors</u>"). As noted in the Registration Statement, for each Pre-Funded Unit sold, the number of Units sold will be decreased on a one-for-one basis. This opinion letter is furnished to you at your request to enable you to fulfill the requirements of Item 601(b)(5) of Regulation S-K, 17 C.F.R. § 229.601(b)(5), in connection with the Registration Statement.

As counsel to the Company in connection with the proposed potential issuance and sale of the Securities, we have examined: (i) the Company's articles of incorporation and bylaws, both as currently in effect; (ii) certain resolutions of the Board of Directors relating to the sale of the Securities (the "<u>Resolutions</u>"); (iii) the form of Agreement; (iv) the Registration Statement; and (v) such other proceedings, documents, and records as we have deemed necessary to enable us to render this opinion. In all such examinations, we have assumed the genuineness of all signatures, the authenticity of all documents, certificates, and instruments submitted to us as originals, and the conformity with the originals of all documents, certificates, and instruments submitted to us as copies. We have also assumed the due execution and delivery of all documents where due execution and delivery are prerequisite to the effectiveness thereof.

Our opinions expressed herein are subject to the following qualifications and exceptions: (i) the effect of bankruptcy, insolvency, reorganization, arrangement, moratorium, or other similar laws relating to or affecting the rights of creditors generally, including, without limitation, laws relating to fraudulent transfers or conveyances, preferences, and equitable subordination; and (ii) the effect of general principles of equity, including, without limitation, concepts of materiality, reasonableness, good faith and fair dealing (regardless of whether considered in a proceeding in equity or at law).

We are members of the Bar of the State of New York. We do not hold ourselves out as being conversant with, or expressing any opinion with respect to, the laws of any jurisdiction other than the laws of the State of New York and Chapter 78 of the Nevada Revised Statutes (the "***NRS***"). Accordingly, the opinions expressed herein are expressly limited to the laws of the State of New York and Chapter 78 of the NRS. Our opinion is based on these laws as in effect on the date hereof. We express no opinion as to whether the laws of any other jurisdiction are applicable to the subject matter hereof. We are not rendering any opinion as to compliance with any federal or state law, rule or regulation relating to securities, or to the sale or issuance thereof.

![](ex5-1_002.jpg)

Based upon, subject to and limited by the foregoing, we are of the opinion that following (i) execution and delivery by the Company and each of the Investors of the Agreement, (ii) effectiveness of the Registration Statement, (iii) issuance of the Securities pursuant to the terms of the Resolutions and the Agreement, the Warrant and the Pre-Funded Warrant, as applicable, and (iv) receipt by the Company of the consideration for the Securities:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) the Shares will be duly authorized for issuance and, when issued, delivered and paid for in accordance with the terms of the Agreement and in accordance with and in the manner described in the Registration Statement, will be validly issued, fully paid and nonassessable;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) The Units, Pre-Funded Units, Warrants and Pre-Funded Warrants will be duly authorized for issuance and, when issued and sold in accordance with the terms of the Agreement and in accordance with and in the manner described in the Registration Statement, will constitute valid and legally binding obligations of the Company enforceable against the Company in accordance with their terms; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) The Warrant Shares and Pre-Funded Warrant Shares will be duly authorized and, when issued and paid for in accordance with the provisions of the Warrants and Pre-Funded Warrants, as applicable, and in accordance with and in the manner described in the Registration Statement, will be validly issued, fully paid and nonassessable.

It is understood that this opinion is to be used only in connection with the offer, sale, and issuance of the Securities while the Registration Statement is in effect.

We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the use of our name under the caption "Legal Matters" in the Registration Statement. In giving this consent, we do not admit that we are "experts" within the meaning of Section 11 of the Securities Act or within the category of persons whose consent is required by Section 7 of the Securities Act.

---

| |
|:---|
| Very truly yours, |
| */s/ Sullivan & Worcester LLP* |
| Sullivan & Worcester LLP |

---

## Exhibit 10.20

**Exhibit 10.20** 

**SECURITIES PURCHASE AGREEMENT**

This SECURITIES PURCHASE AGREEMENT (this "<u>Agreement</u>") is dated as of February __, 2023, between Digital Ally, Inc., a Nevada corporation (the "<u>Company</u>"), and each purchaser identified on the signature pages hereto (each, including its successors and assigns, a "<u>Purchaser</u>" and collectively the "<u>Purchasers</u>").

WHEREAS, subject to the terms and conditions set forth in this Agreement and pursuant to an effective registration statement under the Securities Act (as defined below), the Company desires to issue and sell to each Purchaser, and each Purchaser, severally and not jointly, desires to purchase from the Company, securities of the Company as more fully described in this Agreement.

NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, and for other good and valuable consideration the receipt and adequacy of which are hereby acknowledged, the Company and each Purchaser agree as follows:

**Section 1.<br> DEFINITIONS**

**1.1** <u>Definitions</u>. In addition to the terms defined elsewhere in this Agreement, for all purposes of this Agreement, the following terms have the meanings set forth in this Section 1.1:

"<u>Acquiring Person</u>" shall have the meaning ascribed to such term in Section 4.5.

"<u>Action</u>" shall have the meaning ascribed to such term in Section 3.1(j).

"<u>Affiliate</u>" means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person as such terms are used in and construed under Rule 405 under the Securities Act.

"<u>Board of Directors</u>" means the board of directors of the Company.

"<u>Business Day</u>" means any day other than Saturday, Sunday, or other day on which banking institutions in the State of New York are authorized or required by law to remain closed.

"<u>Closing</u>" means the closing of the purchase and sale of the Securities pursuant to Section 2.1.

"<u>Closing Date</u>" means the Trading Day on which all of the Transaction Documents have been executed and delivered by the applicable parties thereto, and all conditions precedent to (i) the Purchasers' obligations to pay the Subscription Amount at the Closing and (ii) the Company's obligations to deliver the Securities, in each case, at the Closing have been satisfied or waived, but in no event later than the second (2nd) Trading Day following the date hereof.

"<u>Commission</u>" means the United States Securities and Exchange Commission.

"<u>Common Stock</u>" means the common stock of the Company, par value $0.001 per share.

"<u>Common Stock Equivalents</u>" means any securities of the Company or the Subsidiaries which would entitle the holder thereof to acquire at any time Common Stock, including, without limitation, any debt, preferred stock, right, option, warrant or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock.

"<u>Common Units</u>" means a common unit consisting of (a) one Share and (b) a Common Warrant to purchase one Warrant Share.

"<u>Common Unit Subscription Amount</u>" means, as to each Purchaser, the aggregate amount to be paid for the Common Units purchased hereunder as specified below such Purchaser's name on the signature page of this Agreement and next to the heading "Common Unit Subscription Amount," in United States dollars and in immediately available funds.

"<u>Common Warrants</u>" means the common warrants delivered to the Purchasers at Closing in accordance with Section 2.2(a) hereof, which common warrants shall be exercisable immediately upon issuance and may be exercised during a period of five years commencing from their issuance, in the form of <u>Exhibit A</u> attached hereto.

"<u>Company Counsel</u>" means Sullivan & Worcester LLP, with offices located at 1633 Broadway, New York, NY 10019.

"<u>Disclosure Schedules</u>" means the Disclosure Schedules of the Company delivered concurrently herewith.

"<u>Disclosure Time</u>" means, (i) if this Agreement is signed on a day that is not a Trading Day or after 9:00 a.m. (New York City time) and before midnight (New York City time) on any Trading Day, 9:01 a.m. (New York City time) on the Trading Day immediately following the date hereof, unless otherwise instructed as to an earlier time by the Placement Agent, and (ii) if this Agreement is signed between midnight (New York City time) and 9:00 a.m. (New York City time) on any Trading Day, no later than 9:01 a.m. (New York City time) on the date hereof, unless otherwise instructed as to an earlier time by the Placement Agent.

"<u>DVP</u>" shall have the meaning ascribed to such term in Section 2.1(v).

"<u>Evaluation Date</u>" shall have the meaning ascribed to such term in Section 3.1(r).

"<u>Exchange Act</u>" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

"<u>Exempt Issuance</u>" means the issuance of (a) shares of Common Stock, restricted stock awards, restricted stock units, options or other equity-based awards to employees, consultants, officers, or directors of the Company pursuant to any equity incentive plan in existence as of the date hereof, provided that such issuances to consultants are issued as "restricted securities" (as defined in Rule 144) and carry no registration rights; (b) shares of Common Stock upon the exercise or exchange of or conversion of securities exercisable or exchangeable for or convertible into shares of Common Stock issued and outstanding on the date of this Agreement, provided that such securities have not been amended since the date of this Agreement to increase the number of such securities or to decrease the exercise price, exchange price or conversion price of such securities (other than in connection with stock splits or combinations) or to extend the term of such securities; (c) securities issued pursuant to acquisitions or strategic transactions approved by a majority of the disinterested directors of the Company, provided that such securities are issued as "restricted securities" (as defined in Rule 144) and carry no registration rights that require or permit the filing of any registration statement in connection therewith during the prohibition period in Section 4.10(a) herein, and provided that any such issuance shall only be to a Person (or to the equityholders of a Person) which is, itself or through its subsidiaries, an operating company or an owner of an asset in a business synergistic with the business of the Company and shall provide to the Company additional benefits in addition to the investment of funds, but shall not include a transaction in which the Company is issuing securities primarily for the purpose of raising capital or to an entity whose primary business is investing in securities (for avoidance of doubt, securities issued to a venture arm of a strategic investor shall be deemed an "Exempt Issuance"); (d) issuances of shares of Common Stock to consultants or vendors of the Company, provided that such securities are issued as "restricted securities" (as defined in Rule 144) and carry no registration rights that require or permit the filing of any registration statement in connection therewith during the prohibition period in Section 4.10(a) herein; (e) issuances of shares of Common Stock to existing holders of the Company's securities in compliance with the terms of agreements entered into with, or instruments issued to, such holders, provided that such securities are issued as "restricted securities" (as defined in Rule 144) and carry no registration rights that require or permit the filing of any registration statement in connection therewith during the prohibition period in Section 4.10(a) herein (other than shares of Common Stock issuable to holders of the Company's outstanding warrants upon the exercise of such warrants, as registered under the Registration Statement on Form S-1 (File No. 333-269392)), provided that such securities have not been amended since the date of this Agreement to increase the number of such securities or to decrease the exercise price, exchange price or conversion price of such securities (other than in connection with stock splits or combinations) or to extend the term of such securities; (f) the Securities issued hereunder and (g) securities issued in connection with the spin-off transaction described in the Registration Statement and Prospectus.

"<u>FCPA</u>" means the Foreign Corrupt Practices Act of 1977, as amended.

"<u>GAAP</u>" means generally accepted accounting principles in the United States.

"<u>General Disclosure Package</u>" means the Preliminary Prospectus.

"<u>Indebtedness</u>" shall have the meaning ascribed to such term in Section 3.1(z).

"<u>Intellectual Property Rights</u>" shall have the meaning ascribed to such term in Section 3.1(p).

"<u>Liens</u>" means a lien, charge, pledge, security interest, encumbrance, right of first refusal, preemptive right or other restriction.

"<u>Lock-Up Agreement</u>" means the Lock-Up Agreement, dated as of the date hereof, by and among the Company and the directors and officers of the Company, in the form of <u>Exhibit C</u> attached hereto.

"<u>Material Adverse Effect</u>" shall have the meaning assigned to such term in Section 3.1(b).

"<u>Material Permits</u>" shall have the meaning ascribed to such term in Section 3.1(m).

"<u>Per Common Unit Purchase Price</u>" equals $____ per Common Unit, subject to adjustment for reverse and forward share splits, share dividends, share combinations and other similar transactions of shares of Common Stock that occur between the date hereof and the Closing Date.

"<u>Per Pre-Funded Unit Purchase Price</u>" equals $______ per each Pre-Funded Unit, subject to adjustment for reverse and forward share splits, share dividends, share combinations and other similar transactions relating to shares of Common Stock that occur after the date of this Agreement.

"<u>Prefunded Warrant Exercise Price</u>" equals $0.0011 per Pre-Pre-Funded Warrant.

"<u>Person</u>" means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.

"<u>Placement Agent</u>" means A.G.P./Alliance Global Partners.

"<u>Placement Agent Counsel</u>" means Ballard Spahr LLP with offices located at 1735 Market Street, 51<sup>st</sup> Floor, Philadelphia, PA 19103.

"<u>Pre-Funded Units</u>" means each pre-funded unit consisting of (a) one Pre-Funded Warrant to purchase one Warrant Share and (b) a Common Warrant to purchase one Warrant Share.

"<u>Pre-Funded Unit Subscription Amount</u>" means, as to each Purchaser, the aggregate amount to be paid for the Pre-Funded Units purchased hereunder as specified below such Purchaser's name on the signature page of this Agreement and next to the heading "Pre-Funded Unit Subscription Amount," in United States dollars and in immediately available funds.

"<u>Pre-Funded Warrants</u>" means, collectively, the warrants delivered to the Purchasers at Closing in accordance with Section 2.2(a) hereof, which Pre-Funded Warrants shall be exercisable immediately upon issuance and shall expire when exercised in full, in the form of <u>Exhibit B</u> attached hereto.

"<u>Preliminary Prospectus</u>" means the preliminary prospectus included in the Registration Statement at the time the Registration Statement is declared effective.

"<u>Proceeding</u>" means an action, claim, suit, investigation or proceeding (including, without limitation, an informal investigation or partial proceeding, such as a deposition), whether commenced or threatened.

"<u>Prospectus</u>" means the final prospectus filed pursuant to the Registration Statement.

"<u>Purchaser Party</u>" shall have the meaning ascribed to such term in Section 4.8.

"<u>Registration Statement</u>" means the effective registration statement with the Commission on Form S-1 (File No. 333-269392), as amended, which registers the sale of the Securities and includes any Rule 462(b) Registration Statement.

"<u>Required Approvals</u>" shall have the meaning ascribed to such term in Section 3.1(e).

"<u>Rule 144</u>" means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended or interpreted from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such Rule.

"<u>Rule 424</u>" means Rule 424 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended or interpreted from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such Rule.

"<u>Rule 462(b) Registration Statement</u>" means any registration statement prepared by the Company registering additional Securities, which was filed with the Commission on or prior to the date hereof and became automatically effective pursuant to Rule 462(b) promulgated by the Commission pursuant to the Securities Act.

"<u>SEC Reports</u>" shall have the meaning ascribed to such term in Section 3.1(h).

"<u>Securities</u>" means the Units, the Shares, the Warrants, and the Warrant Shares.

"<u>Securities Act</u>" means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

"<u>Shares</u>" means the shares of Common Stock issued and issuable to each Purchaser pursuant to this Agreement.

"<u>Short Sales</u>" means all "short sales" as defined in Rule 200 of Regulation SHO under the Exchange Act (but shall not be deemed to include locating and/or borrowing shares of Common Stock).

"<u>Subscription Amount</u>" means, as to each Purchaser, the Common Unit Subscription Amount and the Pre-Funded Unit Subscription Amount, as applicable, in accordance with Section 2.1 hereof.

"<u>Subsidiary</u>" means any subsidiary of the Company as set forth in the Exhibit 21.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 2021 and shall, where applicable, also include any direct or indirect subsidiary of the Company formed or acquired after the date hereof.

"<u>Trading Day</u>" means a day on which the principal Trading Market is open for trading.

"<u>Trading Market</u>" means any of the following markets or exchanges on which the shares of Common Stock are listed or quoted for trading on the date in question: the NYSE American, The Nasdaq Capital Market, The Nasdaq Global Market, The Nasdaq Global Select Market, or the New York Stock Exchange (or any successors to any of the foregoing).

"<u>Transaction Documents</u>" means this Agreement, the Warrants, the Lock-Up Agreements and all exhibits and schedules thereto and hereto and any other documents or agreements executed in connection with the transactions contemplated hereunder.

"<u>Units</u>" means, collectively, the Common Units and the Pre-Funded Units.

"<u>Variable Rate Transaction</u>" shall have the meaning ascribed to such term in Section 4.10(b).

"<u>Warrants</u>" means, collectively, the Common Warrants and the Pre-Funded Warrants.

"<u>Warrant Shares</u>" means, collectively, the shares of Common Stock issuable upon exercise of the Warrants.

**Section 2.<br> PURCHASE AND SALE**

**2.1** <u>Closing</u>. On the Closing Date, upon the terms and subject to the conditions set forth herein, the Company agrees to sell, and the Purchasers, severally and not jointly, agree to purchase, the number of Common Units set forth under the heading "Common Unit Subscription Amount" on the Purchaser's signature page hereto, at the Per Common Unit Purchase Price; *provided, however*, that, to the extent that a Purchaser determines, in its sole discretion, that such Purchaser (together with such Purchaser's Affiliates, and any Person acting as a group together with such Purchaser or any of such Purchaser's Affiliates) would beneficially own in excess of the Beneficial Ownership Limitation, or as such Purchaser may otherwise choose, in lieu of purchasing Common Units, such Purchaser may elect to purchase Pre-Funded Units at the Per Pre-Funded Unit Purchase Price in such manner to result in the full Subscription Amount being paid by such Purchaser to the Company. The "<u>Beneficial Ownership Limitation</u>" shall be 4.99% (or, at the election of the Purchaser, 9.99%) of the number of shares of Common Stock, in each case, outstanding immediately after giving effect to the issuance of the Securities on the Closing Date.

Each Purchaser's Subscription Amount as set forth on the signature page hereto executed by such Purchaser shall be made available for Delivery Versus Payment ("<u>DVP</u>") settlement with the Company or its designees. The Company shall deliver to each Purchaser its respective Shares and Warrants as determined pursuant to Section 2.2(a), and the Company and each Purchaser shall deliver the other items set forth in Section 2.2 at the Closing. Upon satisfaction of the covenants and conditions set forth in Sections 2.2 and 2.3, the Closing shall occur remotely via the exchange of documents and signatures or such other location as the parties shall mutually agree. Unless otherwise directed by the Placement Agent, settlement of the Shares shall occur via DVP (i.e., on the Closing Date, the Company shall issue the Shares registered in the Purchasers' names and addresses and released by the Depositary directly to the account(s) at the Placement Agent identified by each Purchaser; upon receipt of such Shares, the Placement Agent shall promptly electronically deliver such Shares to the applicable Purchaser, and payment therefor shall be made by the Placement Agent (or its clearing firm) by wire transfer to the Company). Notwithstanding anything herein to the contrary, if at any time on or after the time of execution of this Agreement by the Company and an applicable Purchaser through, and including the time immediately prior to the Closing (the "<u>Pre-Settlement Period</u>"), such Purchaser sells to any Person all, or any portion, of any Securities to be issued hereunder to such Purchaser at the Closing (collectively, the "<u>Pre-Settlement Units</u>"), such Person shall, automatically hereunder (without any additional required actions by such Purchaser or the Company), be deemed to be a Purchaser under this Agreement unconditionally bound to purchase, and the Company shall be deemed unconditionally bound to sell, such Pre-Settlement Units to such Person at the Closing; provided, that the Company shall not be required to deliver any Pre-Settlement Units to such Purchaser prior to the Company's receipt of the Subscription Amount for such Pre-Settlement Units hereunder; and provided, further, that the Company hereby acknowledges and agrees that the forgoing shall not constitute a representation or covenant by such Purchaser as to whether or not such Purchaser will elect to sell any Pre-Settlement Shares during the Pre-Settlement Period. The decision to sell any shares of Common Stock by such Purchaser shall solely be made at the time such Purchaser elects to effect any such sale, if any. Notwithstanding the foregoing, with respect to any Notice(s) of Exercise (as defined in the Pre-Funded Warrants) delivered on or prior to 9:00 a.m. (New York City time) on the Closing Date, which may be delivered at any time after the time of execution of the this Agreement, the Company agrees to deliver the Warrant Shares subject to such notice(s) by 4:00 p.m. (New York City time) on the Closing Date and the Closing Date shall be the Warrant Share Delivery Date (as defined in the Pre-Funded Warrants) for purposes hereunder.

**2.2** <u>Deliveries</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) On or prior to the Closing Date, the Company shall deliver or cause to be delivered to each Purchaser the following:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) this Agreement duly executed by the Company;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) the Company's wire instructions, on Company letterhead and executed by the Company's Chief Executive Officer or Chief Financial Officer;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii) subject to the provision of Section 2.1 that settlement of the Shares shall occur via DVP, a copy of the irrevocable instructions to the Transfer Agent instructing the Transfer Agent to deliver on an expedited basis via The Depository Trust Company Deposit or Withdrawal at Custodian system shares of Common Stock equal to the portion of such Purchaser's Common Unit Subscription Amount divided by the Per Common Unit Purchase Price, registered in the name of such Purchaser;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv) for each Purchaser of Pre-Funded Warrants pursuant to Section 2.1, a Pre-Funded Warrant registered in the name of such Purchaser to purchase up to a number of shares of Common Stock equal to the Purchaser's Pre-Funded Unit Subscription Amount divided by the sum of the Per Pre-Funded Unit Purchase Price plus the Pre-Funded Warrant Exercise Price;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(v) the Preliminary Prospectus and the Prospectus (which may be delivered in accordance with Rule 172 under the Securities Act);

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vi) a Common Warrant registered in the name of such Purchaser to purchase up to a number of shares of Common Stock equal to 100% of such Purchaser's Shares of Common Stock and Warrant Shares underlying such Purchaser's Pre-Funded Warrants, as applicable, with an exercise price equal to $[___] per share, subject to adjustment therein;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vii) the duly executed Lock-Up Agreements; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(viii) a legal opinion of Company Counsel, in form reasonably acceptable to the Placement Agent and the Purchasers.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) On or prior to the Closing Date, each Purchaser shall deliver or cause to be delivered to the Company, the following:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) this Agreement duly executed by such Purchaser; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) such Purchaser's Subscription Amount with respect to the Securities purchased by such Purchaser, which shall be made available for DVP settlement with the Company or its designees.

**2.3** <u>Closing Conditions</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) The obligations of the Company hereunder in connection with the Closing are subject to the following conditions being met:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) the accuracy in all material respects (or, to the extent representations or warranties are qualified by materiality or Material Adverse Effect, in all respects) when made and on the Closing Date of the representations and warranties of the Purchasers contained herein (unless as of a specific date therein in which case they shall be accurate as of such date);

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) all obligations, covenants and agreements of each Purchaser required to be performed at or prior to the Closing Date shall have been performed; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii) the delivery by each Purchaser of the items set forth in Section 2.2(b) of this Agreement.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) The respective obligations of the Purchasers hereunder in connection with the Closing are subject to the following conditions being met:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) the accuracy in all material respects (or, to the extent representations or warranties are qualified by materiality or Material Adverse Effect, in all respects) when made and on the Closing Date of the representations and warranties of the Company contained herein (unless as of a specific date therein in which case they shall be accurate as of such date);

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) all obligations, covenants and agreements of the Company required to be performed at or prior to the Closing Date shall have been performed;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii) the delivery by the Company of the items set forth in Section 2.2(a) of this Agreement;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv) there shall have been no Material Adverse Effect with respect to the Company since the date hereof; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(v) from the date hereof to the Closing Date, trading in the Common Stock shall not have been suspended by the Commission or any Trading Market, and, at any time prior to the Closing Date, trading in securities generally as reported by Bloomberg L.P. shall not have been suspended or limited, nor shall a banking moratorium have been declared either by the United States or New York State authorities nor shall there have occurred after the date of this Agreement any material outbreak or escalation of hostilities or other national or international calamity of such magnitude in its effect on, or any material adverse change in, any financial market which, in each case, in the reasonable judgment of such Purchaser, makes it impracticable or inadvisable to purchase the Securities at the Closing.

**Section 3.<br> REPRESENTATIONS AND WARRANTIES**

**3.1** <u>Representations and Warranties of the Company</u>. Except as set forth in the Disclosure Schedules, which Disclosure Schedules shall be deemed a part hereof and shall qualify any representation or otherwise made herein to the extent of the disclosure contained in the corresponding section of the Disclosure Schedules, the Company hereby makes the following representations and warranties to each Purchaser:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) <u>Subsidiaries</u>. The Company owns, directly or indirectly, all of the capital shares or other equity interests of each Subsidiary, free and clear of any Liens, except as set forth in the Registration Statement, the General Disclosure Package and the Prospectus, and all of the issued and outstanding shares of capital stock of each Subsidiary are validly issued and are fully paid, non-assessable and free of preemptive and similar rights to subscribe for or purchase securities.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) <u>Organization and Qualification</u>. The Company and each of the Subsidiaries is an entity duly incorporated or otherwise formed, validly existing, and, if applicable under the laws of the jurisdiction in which they are formed, in good standing under the laws of the jurisdiction of its incorporation or formation, with the requisite power and authority to own and use its properties and assets and to carry on its business as currently conducted. Neither the Company nor any Subsidiary is in violation nor default of any of the provisions of its respective memorandum of association, articles of association, certificate or articles of incorporation, bylaws, operating agreement, or other organizational or charter documents. Each of the Company and the Subsidiaries is duly qualified to conduct business and is in good standing as a foreign corporation or other entity in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, could not have or reasonably be expected to result in: (i) a material adverse effect on the legality, validity or enforceability of any Transaction Document, (ii) material adverse effect on the results of operations, assets, business, prospects or condition (financial or otherwise) of the Company and the Subsidiaries, taken as a whole, or (iii) a material adverse effect on the Company's ability to perform in any material respect on a timely basis its obligations under any Transaction Document (any of (i), (ii) or (iii), a "<u>Material Adverse Effect</u>"); provided that a change in the market price or trading volume of the Common Stock alone shall not be deemed, in and of itself, to constitute a Material Adverse Effect. No Proceeding has been instituted in any such jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or curtail such power and authority or qualification.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) <u>Authorization; Enforcement</u>. The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by this Agreement and each of the other Transaction Documents and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of this Agreement and each of the other Transaction Documents by the Company and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary action on the part of the Company and no further action is required by the Company, the Board of Directors, a committee of the Board of Directors or the Company's stockholders in connection herewith or therewith other than in connection with the Required Approvals. This Agreement and each other Transaction Document to which the Company is a party has been (or upon delivery will have been) duly executed by the Company and, when delivered in accordance with the terms hereof and thereof, will constitute the valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors' rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) <u>No Conflicts</u>. The execution, delivery and performance by the Company of this Agreement and the other Transaction Documents to which it is a party, the issuance and sale of the Securities and the consummation by it of the transactions contemplated hereby and thereby do not and will not (i) conflict with or violate any provision of the Company's or any Subsidiary's memorandum of association, articles of association, certificate or articles of incorporation, bylaws, operating agreement, or other organizational or charter documents, or (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, result in the creation of any Lien upon any of the properties or assets of the Company or any Subsidiary, or give to others any rights of termination, amendment, anti-dilution or similar adjustments, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing a Company or Subsidiary debt or otherwise) or other understanding to which the Company or any Subsidiary is a party or by which any property or asset of the Company or any Subsidiary is bound or affected, or (iii) subject to the Required Approvals, conflict with or result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Company or a Subsidiary is subject (including federal and state securities laws and regulations), or by which any property or asset of the Company or a Subsidiary is bound or affected; except in the case of each of clauses (ii) and (iii), such as could not have or reasonably be expected to result in a Material Adverse Effect.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) <u>Filings, Consents and Approvals</u>. The Company is not required to obtain any consent, waiver, authorization or order of, give any notice to, or make any filing or registration with, any court or other federal, state, local or other governmental authority or other Person in connection with the execution, delivery and performance by the Company of the Transaction Documents, other than: (i) the filings required pursuant to Section 4.4 of this Agreement, (ii) the filing with the Commission of the Prospectus, (iii) notices and/or application(s) to and approvals by each applicable Trading Market for the listing of the applicable Securities for trading thereon in the time and manner required thereby, and (iv) filings required by the Financial Industry Regulatory Authority ("<u>FINRA</u>") (collectively, the "<u>Required Approvals</u>").

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f) <u>Issuance of the Securities; Registration</u>. The Shares and Warrant Shares are duly authorized and, when issued and paid for in accordance with the applicable Transaction Documents, will be duly and validly issued, fully paid and non-assessable, free and clear of all Liens imposed by the Company, except for restrictions set forth in the Transaction Documents or imposed by applicable securities laws. The Warrants are duly authorized and, when executed and delivered by the Company against payment therefor pursuant to this Agreement, will be binding obligations of the Company under the law of the jurisdiction governing the Warrants, free and clear of all Liens imposed by the Company, except as the enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting the rights and remedies of creditors or by general equitable principles.. The Company has reserved from its duly authorized share capital the maximum number of shares of Common Stock issuable pursuant to this Agreement and the Warrants. The Company has prepared and filed the Registration Statement in conformity with the requirements of the Securities Act, which became effective on [●], 2023, including the Prospectus, and such amendments and supplements thereto as may have been required to the date of this Agreement. The Registration Statement is effective under the Securities Act and no stop order preventing or suspending the effectiveness of the Registration Statement or suspending or preventing the use of the Preliminary Prospectus or the Prospectus has been issued by the Commission and no proceedings for that purpose have been instituted or, to the knowledge of the Company, are threatened by the Commission. The Company, if required by the rules and regulations of the Commission, shall file the Preliminary Prospectus or the Prospectus with the Commission pursuant to Rule 424(b). At the time the Registration Statement and any amendments thereto became effective as determined under the Securities Act, at the date of this Agreement and at the Closing Date, the Registration Statement and any amendments thereto conformed and will conform in all material respects to the requirements of the Securities Act and did not and will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading; and the Prospectus and any amendments or supplements thereto, at the time the Preliminary Prospectus, the Prospectus or any amendment or supplement thereto was issued and at the Closing Date, conformed and will conform in all material respects to the requirements of the Securities Act and did not and will not contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g) <u>Capitalization</u>. The capitalization of the Company as of the date hereof is as set forth on <u>Schedule 3.1(g)</u>, which <u>Schedule 3.1(g)</u> shall also include the number of shares of Common Stock owned beneficially, and of record, by Affiliates of the Company as of the date hereof. Except as set forth on Schedule 3.1(g), the Company has not issued any capital stock since its most recently filed periodic report under the Exchange Act, other than pursuant to equity incentive plans of the Company and pursuant to the conversion and/or exercise of Common Stock Equivalents outstanding as of the date of the most recently filed periodic report under the Exchange Act. Except as set forth on <u>Schedule 3.1(g)</u>, no Person has any right of first refusal, preemptive right, right of participation, or any similar right to participate in the transactions contemplated by the Transaction Documents. Except as set forth on <u>Schedule 3.1(g)</u>, and as a result of the purchase and sale of the Securities, there are no outstanding options, warrants, scrip rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exercisable or exchangeable for, or giving any Person any right to subscribe for or acquire, any shares of Common Stock, or contracts, commitments, understandings or arrangements by which the Company or any Subsidiary is or may become bound to issue additional shares of Common Stock or Common Stock Equivalents. The issuance and sale of the Securities will not result in a right of any holder of Company securities to adjust the exercise, conversion, exchange or reset price under any of such securities. Except as set forth on Schedule 3.1(g), there are no outstanding securities or instruments of the Company or any Subsidiary with any provision that adjusts the exercise, conversion, exchange or reset price of such security or instrument upon an issuance of securities by the Company or any Subsidiary. Except as set forth on <u>Schedule 3.1(g)</u>, there are no outstanding securities or instruments of the Company or any Subsidiary that contain any redemption or similar provisions, and there are no contracts, commitments, understandings or arrangements by which the Company or any Subsidiary is or may become bound to redeem a security of the Company or such Subsidiary. Except as set forth on Schedule 3.1(g), the Company does not have any share appreciation rights or "phantom share" plans or agreements or any similar plan or agreement. All of the outstanding shares of the Company are duly authorized, validly issued, fully paid and non-assessable, have been issued in compliance with all federal and state securities laws where applicable, and none of such outstanding shares was issued in violation of any preemptive rights or similar rights to subscribe for or purchase securities. Except for the Required Approvals, no further approval or authorization of any stockholder, the Board of Directors or others is required for the issuance and sale of the Securities. There are no stockholders agreements, voting agreements or other similar agreements with respect to the Company's share capital to which the Company is a party or, to the knowledge of the Company, between or among any of the Company's stockholders.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(h) <u>SEC Reports; Financial Statements</u>. The Company has filed all reports, schedules, forms, statements and other documents required to be filed by the Company under the Securities Act and the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for the one year preceding the date hereof (or such shorter period as the Company was required by law or regulation to file such materials) (the foregoing materials, including the exhibits thereto and documents incorporated by reference therein, together with the Preliminary Prospectus and the Prospectus, being collectively referred to herein as the "<u>SEC Reports</u>") on a timely basis or has received a valid extension of such time of filing and has filed any such SEC Reports prior to the expiration of any such extension. As of their respective dates, the SEC Reports complied in all material respects with the requirements of the Securities Act and the Exchange Act, as applicable, and none of the SEC Reports, when filed, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The Company has never been an issuer subject to Rule 144(i) under the Securities Act. The financial statements of the Company included in the SEC Reports comply in all material respects with applicable accounting requirements and the rules and regulations of the Commission with respect thereto as in effect at the time of filing. Such financial statements have been prepared in accordance with GAAP, except as may be otherwise specified in such financial statements or the notes thereto and except that unaudited financial statements may not contain all footnotes required by GAAP, and fairly present in all material respects the financial position of the Company and its consolidated Subsidiaries as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal, immaterial, year-end audit adjustments.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) <u>Material Changes; Undisclosed Events, Liabilities or Developments</u>. Except as set forth on <u>Schedule 3.1(i)</u>, since the date of the latest financial statements filed by the Company with the SEC, (i) there has been no event, occurrence or development that has had or that could reasonably be expected to result in a Material Adverse Effect, (ii) the Company has not incurred any liabilities (contingent or otherwise) other than (A) trade payables and accrued expenses incurred in the ordinary course of business consistent with past practice and strategic acquisitions and (B) liabilities not required to be reflected in the Company's financial statements pursuant to GAAP or disclosed in filings made with the Commission, (iii) the Company has not altered its method of accounting, (iv) the Company has not declared or made any dividend or distribution of cash or other property to its stockholders or purchased, redeemed or made any agreements to purchase or redeem any of its shares and (v) the Company has not issued any equity securities to any officer, director or Affiliate, except pursuant to existing Company equity incentive plans. The Company does not have pending before the Commission any request for confidential treatment of information. Except for the issuance of the Securities contemplated by this Agreement, no event, liability, fact, circumstance, occurrence or development has occurred or exists or is reasonably expected to occur or exist with respect to the Company or its Subsidiaries or their respective businesses, prospects, properties, operations, assets or financial condition that would be required to be disclosed by the Company under applicable securities laws at the time this representation is made or deemed made that has not been publicly disclosed at least one (1) Trading Day prior to the date that this representation is made.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(j) <u>Litigation</u>. Except as set forth on Schedule 3.1(j), there is no action, suit, inquiry, notice of violation, proceeding or investigation pending or, to the knowledge of the Company, threatened against or affecting the Company, any Subsidiary or any of their respective properties before or by any court, arbitrator, governmental or administrative agency or regulatory authority (federal, state, county, local or foreign) (collectively, an "<u>Action</u>"). None of the Actions set forth on Schedule 3.1(j), adversely affects or challenges the legality, validity or enforceability of any of the Transaction Documents, the Shares or the Warrant Shares, or (ii) could, if there were an unfavorable decision, have or reasonably be excepted to result in a Material Adverse Effect. Neither the Company nor any Subsidiary, nor any director or officer thereof, is or has been the subject of any Action involving a claim of violation of or liability under federal or state securities laws or a claim of breach of fiduciary duty, which could reasonably be expected to result in a Material Adverse Effect. There has not been, and to the knowledge of the Company, there is not pending or contemplated, any investigation by the Commission involving the Company or any current or former director or officer of the Company. The Commission has not issued any stop order or other order suspending the effectiveness of any registration statement filed by the Company or any Subsidiary under the Exchange Act or the Securities Act.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(k) <u>Labor Relations</u>. No labor dispute exists or, to the knowledge of the Company, is imminent with respect to any of the employees of the Company, which could reasonably be expected to result in a Material Adverse Effect. None of the Company's or its Subsidiaries' employees is a member of a union that relates to such employee's relationship with the Company or such Subsidiary, and neither the Company nor any of its Subsidiaries is a party to a collective bargaining agreement, and the Company and its Subsidiaries believe that their relationships with their employees are good. To the knowledge of the Company, no executive officer of the Company or any Subsidiary, is, or is now expected to be, in violation of any material term of any employment contract, confidentiality, disclosure or proprietary information agreement or non-competition agreement, or any other contract or agreement or any restrictive covenant in favor of any third party, and the continued employment of each such executive officer does not subject the Company or any of its Subsidiaries to any liability with respect to any of the foregoing matters. The Company and its Subsidiaries are in compliance with all applicable U.S. federal, state, local and foreign laws and regulations relating to employment and employment practices, terms and conditions of employment and wages and hours, except where the failure to be in compliance could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(l) <u>Compliance</u>. Neither the Company nor any Subsidiary: (i) is in default under or in violation of (and no event has occurred that has not been waived that, with notice or lapse of time or both, would result in a default by the Company or any Subsidiary under), nor has the Company or any Subsidiary received notice of a claim that it is in default under or that it is in violation of, any indenture, loan or credit agreement or any other agreement or instrument to which it is a party or by which it or any of its properties is bound (whether or not such default or violation has been waived), (ii) is in violation of any applicable judgment, decree or order of any court, arbitrator or other governmental authority or (iii) is or has been in violation of any applicable statute, rule, ordinance or regulation of any governmental authority, including without limitation all foreign, federal, state and local laws relating to taxes, environmental protection, occupational health and safety, product quality and safety and employment and labor matters, except in each case of (i), (ii) and (iii) as could not have or reasonably be expected to result in a Material Adverse Effect.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(m) <u>Environmental Laws</u>. The Company and its Subsidiaries (i) are in compliance with all applicable federal, state, local and foreign laws relating to pollution or protection of human health or the environment (including ambient air, surface water, groundwater, land surface or subsurface strata), including laws relating to emissions, discharges, releases or threatened releases of chemicals, pollutants, contaminants, or toxic or hazardous substances or wastes (collectively, "<u>Hazardous Materials</u>") into the environment, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials, as well as all authorizations, codes, decrees, demands, or demand letters, injunctions, judgments, licenses, notices or notice letters, orders, permits, plans or regulations, issued, entered, promulgated or approved thereunder ("<u>Environmental Laws</u>"); (ii) have received all permits licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses; and (iii) are in compliance with all terms and conditions of any such permit, license or approval where in each of clause (i), (ii) and (iii), the failure to so comply or to have received could not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(n) <u>Regulatory Permits</u>. The Company and the Subsidiaries possess all certificates, authorizations and permits issued by the appropriate federal, state, local or foreign regulatory authorities necessary to conduct their respective businesses as described in the Registration Statement, the General Disclosure Package and the Prospectus, except where the failure to possess such certificates, authorizations or permits could not reasonably be expected to result in a Material Adverse Effect ("<u>Material Permits</u>"), and neither the Company nor any Subsidiary has received any notice of proceedings relating to the revocation or modification of any Material Permit.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(o) <u>Title to Assets</u>. The Company and the Subsidiaries have good and marketable title in fee simple to all real property owned by them and good and marketable title in all personal property owned by them that is material to the business of the Company and the Subsidiaries, in each case free and clear of all Liens, except for (i) Liens as do not materially affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by the Company and the Subsidiaries and (ii) Liens for the payment of federal, state or other taxes, for which appropriate reserves have been made therefor in accordance with GAAP and, the payment of which is neither delinquent nor subject to penalties. Any real property and facilities held under lease by the Company and the Subsidiaries are held by them under valid, subsisting and enforceable leases with which the Company and the Subsidiaries are in compliance in all material respects.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(p) <u>Intellectual Property</u>. The Company and the Subsidiaries have, or have rights to use, all patents, patent applications, trademarks, trademark applications, service marks, trade names, trade secrets, inventions, copyrights, licenses and other intellectual property rights and similar rights necessary or required for use in connection with their respective businesses as described in the Registration Statement, the General Disclosure Package and the Prospectus and which the failure to so have could not have or reasonably be expected to result in a Material Adverse Effect (collectively, the "<u>Intellectual Property Rights</u>"). None of, and neither the Company nor any Subsidiary has received a notice (written or otherwise) that any of, the Intellectual Property Rights has expired, terminated or been abandoned, or is expected to expire or terminate or be abandoned, within two (2) years from the date of this Agreement except as would not reasonably be expected to have a Material Adverse Effect. Neither the Company nor any Subsidiary has received, since the date of the latest audited financial statements included within the Registration Statement, the General Disclosure Package or the Prospectus, a written notice of a claim or otherwise has any knowledge that the Intellectual Property Rights violate or infringe upon the rights of any Person, except as could not have or reasonably be expected to result in a Material Adverse Effect. To the actual knowledge of the Company, all such Intellectual Property Rights are enforceable and there is no existing infringement by another Person of any of the Intellectual Property Rights. The Company and its Subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality and value of all of their intellectual properties, except where failure to do so could not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(q) <u>Insurance</u>. The Company and the Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are prudent and customary in the businesses in which the Company and the Subsidiaries are engaged, including, but not limited to, directors and officers insurance coverage in an amount deemed commercially reasonable. Neither the Company nor any Subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business without a significant increase in cost.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(r) <u>Transactions with Affiliates and Employees</u>. None of the officers or directors of the Company or any Subsidiary and, to the knowledge of the Company, none of the employees of the Company or any Subsidiary is presently a party to any transaction with the Company or any Subsidiary (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, providing for the borrowing of money from or lending of money to or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee, shareholder, member or partner, in each case in excess of $120,000 other than for (i) payment of salary or consulting fees for services rendered, (ii) reimbursement for expenses incurred on behalf of the Company or a Subsidiary and (iii) other employee benefits, including share option agreements under any share option plan of the Company.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(s) <u>Sarbanes-Oxley; Internal Accounting Controls</u>. The Company and the Subsidiaries are in material compliance with any and all applicable requirements of the Sarbanes-Oxley Act of 2002 that are effective as of the date hereof, and any and all applicable rules and regulations promulgated by the Commission thereunder that are effective as of the date hereof and as of the Closing Date. The Company and the Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that: (i) transactions are executed in accordance with management's general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management's general or specific authorization, and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. The Company and the Subsidiaries have established disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and the Subsidiaries and designed such disclosure controls and procedures to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission's rules and forms. The Company's certifying officers have evaluated the effectiveness of the disclosure controls and procedures of the Company and the Subsidiaries as of the end of the period covered by the most recently filed Form 10-Q under the Exchange Act (such date, the "<u>Evaluation Date</u>"). The Company presented in its most recently filed Form 10-Q under the Exchange Act the conclusions of the certifying officers about the effectiveness of the disclosure controls and procedures based on their evaluations as of the Evaluation Date. Except as set forth in the Registration Statement, the General Disclosure Package and the Prospectus, since the Evaluation Date, there have been no changes in the internal control over financial reporting (as such term is defined in the Exchange Act) that have materially affected, or is reasonably likely to materially affect, the internal control over financial reporting of the Company and its Subsidiaries.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(t) <u>Certain Fees</u>. Except for fees payable to the Placement Agent, no brokerage or finder's fees or commissions are or will be payable by the Company or any Subsidiary to any broker, financial advisor or consultant, finder, placement agent, investment banker, bank or other Person with respect to the transactions contemplated by the Transaction Documents (for the avoidance of doubt, the foregoing shall not include any fees and/or commissions owed to the Depositary). Other than for Persons engaged by any Purchaser, if any, the Purchasers shall have no obligation with respect to any fees or with respect to any claims made by or on behalf of other Persons for fees of a type contemplated in this Section that may be due in connection with the transactions contemplated by the Transaction Documents.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(u) <u>Investment Company</u>. The Company is not and immediately after receipt of payment for the Units, will not be, an "investment company" within the meaning of the Investment Company Act of 1940, as amended. The Company shall conduct its business in a manner so that it will not become an "investment company" subject to registration under the Investment Company Act of 1940, as amended.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(v) <u>Registration Rights</u>. Except as set forth on <u>Schedule 3.1(v)</u>, no Person has any right to cause the Company to effect the registration under the Securities Act of any securities of the Company or any Subsidiary.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(w) <u>Listing and Maintenance Requirements</u>. The shares of Common Stock are registered pursuant to Section 12(b) or 12(g) of the Exchange Act, and the Company has taken no action designed to, or which to its knowledge is likely to have the effect of, terminating the registration of the Common Stock under the Exchange Act nor has the Company received any notification that the Commission is contemplating terminating such registration. Except as set forth in the Registration Statement, the General Disclosure Package and the Prospectus, the Company has not, in the 12 months preceding the date hereof, received notice from any Trading Market on which the Common Stock are or have been listed or quoted to the effect that the Company is not in compliance with the listing or maintenance requirements of such Trading Market. The shares of Common Stock are currently eligible for electronic transfer through The Depository Trust Company or another established clearing corporation and the Company is current in payment of the fees to The Depository Trust Company (or such other established clearing corporation) in connection with such electronic transfer.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(x) <u>Application of Takeover Protections</u>. The Company and the Board of Directors have taken all necessary action, if any, in order to render inapplicable any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or other similar anti-takeover provision under the Company's articles of incorporation or the laws of its state of incorporation that is or could become applicable to the Purchasers as a result of the Purchasers and the Company fulfilling their obligations or exercising their rights under the Transaction Documents, including without limitation as a result of the Company's issuance of the Securities and the Purchasers' ownership of the Securities.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(y) <u>Disclosure</u>. Except with respect to the material terms and conditions of the transactions contemplated by the Transaction Documents, the Company confirms that it has not provided any of the Purchasers or their agents or counsel with any information that it believes constitutes or might constitute material, non-public information which is not otherwise disclosed in the Prospectus. The Company understands and confirms that the Purchasers will rely on the foregoing representation in effecting transactions in securities of the Company. All of the disclosure furnished by or on behalf of the Company to the Purchasers regarding the Company and its Subsidiaries, their respective businesses and the transactions contemplated hereby, including the Disclosure Schedules to this Agreement, is true and correct in all material respects and does not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading. The press releases disseminated by the Company during the twelve months preceding the date of this Agreement taken as a whole do not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made and when made, not misleading. The Company acknowledges and believes, to its best knowledge, that no Purchaser makes or has made any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in Section 3.2 hereof.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(z) <u>No Integrated Offering</u>. Assuming the accuracy of the Purchasers' representations and warranties set forth in Section 3.2, neither the Company, nor any of its controlled Affiliates, nor any Person acting on its or their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would cause this offering of the Securities to be integrated with prior offerings by the Company for purposes of any applicable stockholder approval provisions of any Trading Market on which any of the securities of the Company are listed or designated.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(aa) <u>Solvency</u>. Based on the consolidated financial condition of the Company as of the Closing Date, after giving effect to the receipt by the Company of the proceeds from the sale of the Securities hereunder, (i) the fair saleable value of the Company's assets exceeds the amount that will be required to be paid on or in respect of the Company's existing debts and other liabilities (including known contingent liabilities) as they mature, (ii) the Company's assets do not constitute unreasonably small capital to carry on its business as now conducted and as proposed to be conducted including its capital needs taking into account the particular capital requirements of the business conducted by the Company, consolidated and projected capital requirements and capital availability thereof, and (iii) the current cash flow of the Company, together with the proceeds the Company would receive, were it to liquidate all of its assets, after taking into account all anticipated uses of the cash, would be sufficient to pay all amounts on or in respect of its liabilities when such amounts are required to be paid. The Company does not intend to incur debts beyond its ability to pay such debts as they mature (taking into account the timing and amounts of cash to be payable on or in respect of its debt). The Company has no knowledge of any facts or circumstances which lead it to believe that it will file for reorganization or liquidation under the bankruptcy or reorganization laws of any jurisdiction within one year from the Closing Date. <u>Schedule 3.1(aa)</u> sets forth as of the date hereof all outstanding secured and unsecured Indebtedness of the Company or any Subsidiary, or for which the Company or any Subsidiary has commitments. For the purposes of this Agreement, "<u>Indebtedness</u>" means (x) any liabilities for borrowed money or amounts owed in excess of $50,000 (other than trade accounts payable incurred in the ordinary course of business), (y) all guaranties, endorsements and other contingent obligations in respect of indebtedness of others, whether or not the same are or should be reflected in the Company's consolidated balance sheet (or the notes thereto), except guaranties by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; and (z) the present value of any lease payments in excess of $50,000 due under leases required to be capitalized in accordance with GAAP. Neither the Company nor any Subsidiary is in default with respect to any Indebtedness.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(bb) <u>Tax Compliance</u>. Except for matters that would not, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect, the Company and its Subsidiaries each (i) has made or filed all United States federal, state and local income and all foreign tax returns, reports and declarations required by any jurisdiction to which it is subject, (ii) has paid all taxes and other governmental assessments and charges, fines or penalties that are material in amount, shown or determined to be due on such returns, reports and declarations and (iii) has set aside on its financial statements provision reasonably adequate for the payment of all material tax liability of which has not been finally determined and all material taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company or of any Subsidiary know of no basis for any such claim.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(cc) <u>Foreign Corrupt Practices</u>. Neither the Company nor any Subsidiary, nor to the knowledge of the Company or any Subsidiary, any agent or other person acting on behalf of the Company or any Subsidiary, has (i) directly or indirectly, used any funds for unlawful contributions, gifts, entertainment or other unlawful expenses related to foreign or domestic political activity, (ii) made any unlawful payment to foreign or domestic government officials or employees or to any foreign or domestic political parties or campaigns from corporate funds, (iii) failed to disclose fully any contribution made by the Company or any Subsidiary (or made by any person acting on its behalf of which the Company is aware) which is in violation of law, or (iv) violated in any material respect any provision of FCPA.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(dd) <u>Accountants</u>. The Company's independent registered public accounting firm is as set forth in the Prospectus. To the knowledge and belief of the Company, such accounting firm (i) is a registered public accounting firm as required by the Exchange Act and (ii) shall express its opinion with respect to the financial statements to be included in the Company's Annual Report for the fiscal year ending December 31, 2022.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ee) <u>Acknowledgment Regarding Purchasers' Purchase of Securities</u>. The Company acknowledges and agrees that each of the Purchasers is acting solely in the capacity of an arm's length purchaser with respect to the Transaction Documents and the transactions contemplated thereby. The Company further acknowledges that no Purchaser is acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to the Transaction Documents and the transactions contemplated thereby and any advice given by any Purchaser or any of their respective representatives or agents in connection with the Transaction Documents and the transactions contemplated thereby is merely incidental to the Purchasers' purchase of the Securities. The Company further represents to each Purchaser that the Company's decision to enter into this Agreement and the other Transaction Documents has been based solely on the independent evaluation of the transactions contemplated hereby by the Company and its representatives.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ff) <u>Acknowledgment Regarding Purchaser's Trading Activity</u>. Anything in this Agreement or elsewhere herein to the contrary notwithstanding (except for Sections 3.2(f) and 4.12 hereof), it is understood and acknowledged by the Company that: (i) none of the Purchasers has been asked by the Company to agree, nor has any Purchaser agreed, to desist from purchasing or selling, long and/or short, securities of the Company, or "derivative" securities based on securities issued by the Company or to hold the Securities for any specified term; (ii) past or future open market or other transactions by any Purchaser, specifically including, without limitation, Short Sales or "derivative" transactions, before or after the closing of this or future private placement transactions, may negatively impact the market price of the Company's publicly-traded securities; (iii) any Purchaser, and counter-parties in "derivative" transactions to which any such Purchaser is a party, directly or indirectly, presently may have a "short" position in the shares of Common Stock, and (iv) each Purchaser shall not be deemed to have any affiliation with or control over any arm's length counter-party in any "derivative" transaction. The Company further understands and acknowledges that (y) one or more Purchasers may engage in hedging activities at various times during the period that the Securities are outstanding, and (z) such hedging activities (if any) could reduce the value of the existing stockholders' equity interests in the Company at and after the time that the hedging activities are being conducted. The Company acknowledges that such aforementioned hedging activities do not constitute a breach of any of the Transaction Documents.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(gg) <u>Regulation M Compliance</u>. The Company has not, and to its knowledge no one acting on its behalf has, (i) taken, directly or indirectly, any action designed to cause or to result in the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of any of the shares of Common Stock, (ii) sold, bid for, purchased, or, paid any compensation for soliciting purchases of, any of the shares of Common Stock, or (iii) paid or agreed to pay to any Person any compensation for soliciting another to purchase any other securities of the Company, other than, in the case of clauses (ii) and (iii), compensation paid to the Placement Agent in connection with the placement of the shares of Common Stock.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(hh) <u>Stock Option Plans</u>. Each stock option granted by the Company under the Company's stock incentive plans was granted (i) in accordance with the terms of such plan and (ii) with an exercise price at least equal to the fair market value of the Common Stock on the date such stock option would be considered granted under GAAP and applicable law. No stock option granted under the Company's stock option plan has been backdated.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) <u>Cybersecurity</u>. Except as would not, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect, (i) the Company and the Subsidiaries are presently in compliance with all applicable laws or statutes and all judgments, orders, rules and regulations of any court or arbitrator or governmental or regulatory authority, internal policies and contractual obligations relating to the privacy and security of the Company's or any Subsidiary's information technology and computer systems, networks, hardware, software, data (including the data of its respective customers, employees, suppliers, vendors and any third party data maintained by or on behalf of it), equipment or technology (collectively, "<u>IT Systems and Data</u>") and to the protection of such IT Systems and Data from unauthorized use, access, misappropriation or modification; (ii) the Company and the Subsidiaries have implemented and maintained commercially reasonable safeguards to maintain and protect its material confidential information and the integrity, continuous operation, redundancy and security of all IT Systems and Data; and (iii) the Company and the Subsidiaries have implemented backup and disaster recovery technology consistent with commercially reasonable industry standards and practices.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(jj) <u>Office of Foreign Assets Control</u>. Neither the Company nor any Subsidiary nor, to the Company's knowledge, any director, officer, agent, employee or affiliate of the Company or any Subsidiary is currently subject to any U.S. sanctions administered by the Office of Foreign Assets Control of the U.S. Treasury Department ("<u>OFAC</u>").

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(kk) <u>Money Laundering</u>. The operations of the Company and its Subsidiaries are and have been conducted at all times in compliance with applicable financial record-keeping and reporting requirements of the Currency and Foreign Transactions Reporting Act of 1970, as amended, applicable money laundering statutes and applicable rules and regulations thereunder (collectively, the "<u>Money Laundering Laws</u>"), and no action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Company or any Subsidiary with respect to the Money Laundering Laws is pending or, to the knowledge of the Company or any Subsidiary, threatened.

**3.2** <u>Representations and Warranties of the Purchasers</u>. Each Purchaser, for itself and for no other Purchaser, hereby represents and warrants as of the date hereof and as of the Closing Date to the Company as follows (unless as of a specific date therein, in which case they shall be accurate as of such date):

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) <u>Organization; Authority</u>. Such Purchaser is either an individual or an entity duly incorporated or formed, validly existing and in good standing under the laws of the jurisdiction of its incorporation or formation with full right, corporate, partnership limited liability company or similar power and authority to enter into and to consummate the transactions contemplated by the Transaction Documents and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of the Transaction Documents and performance by such Purchaser of the transactions contemplated by the Transaction Documents have been duly authorized by all necessary corporate, partnership, limited liability company or similar action, as applicable, on the part of such Purchaser. Each Transaction Document to which it is a party has been duly executed by such Purchaser, and when delivered by such Purchaser in accordance with the terms hereof, will constitute the valid and legally binding obligation of such Purchaser, enforceable against it in accordance with its terms, except: (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors' rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) <u>Understandings or Arrangements</u>. Such Purchaser is acquiring the Securities as principal for its own account and has no direct or indirect arrangement or understandings with any other persons to distribute or regarding the distribution of such Securities (this representation and warranty not limiting such Purchaser's right to sell the Securities in compliance with applicable federal and state securities laws).

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) <u>Experience of Such Purchaser</u>. Such Purchaser, either alone or together with its representatives, has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment in the Securities, and has so evaluated the merits and risks of such investment. Such Purchaser is able to bear the economic risk of an investment in the Securities and, at the present time, is able to afford a complete loss of such investment.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) <u>Certain Transactions and Confidentiality</u>. Other than consummating the transactions contemplated hereunder, such Purchaser has not, nor has any Person acting on behalf of or pursuant to any understanding with such Purchaser, directly or indirectly executed any purchases or sales, including Short Sales, of the securities of the Company during the period commencing as of the time that such Purchaser first received a term sheet (written or oral) from the Company or any other Person representing the Company setting forth the material terms, which terms include definitive pricing terms, of the transactions contemplated hereunder and ending immediately prior to the execution hereof. Notwithstanding the foregoing, in the case of a Purchaser that is a multi-managed investment vehicle whereby separate portfolio managers manage separate portions of such Purchaser's assets and the portfolio managers have no direct knowledge of the investment decisions made by the portfolio managers managing other portions of such Purchaser's assets, the representation set forth above shall only apply with respect to the portion of assets managed by the portfolio manager that made the investment decision to purchase the Securities covered by this Agreement. Other than to other Persons party to this Agreement or to such Purchaser's representatives, including, without limitation, its officers, directors, partners, legal and other advisors, employees, agents and Affiliates, such Purchaser has maintained the confidentiality of all disclosures made to it in connection with this transaction (including the existence and terms of this transaction). Notwithstanding the foregoing, for the avoidance of doubt, nothing contained herein shall constitute a representation or warranty, or preclude any actions, with respect to locating or borrowing shares order to effect Short Sales or similar transactions in the future.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) <u>Independent Advice</u>. Each Purchaser understands that nothing in this Agreement or any other materials presented by or on behalf of the Company to the Purchaser in connection with the purchase of the Securities constitutes legal, tax or investment advice.

The Company acknowledges and agrees that the representations contained in this Section 3.2 shall not modify, amend or affect such Purchaser's right to rely on the Company's representations and warranties contained in this Agreement or any representations and warranties contained in any other Transaction Document or any other document or instrument executed and/or delivered in connection with this Agreement or the consummation of the transactions contemplated hereby. Notwithstanding the foregoing, for the avoidance of doubt, nothing contained herein shall constitute a representation or warranty, or preclude any actions, except as set forth in this Agreement, with respect to locating or borrowing shares in order to effect Short Sales or similar transactions in the future.

**Section 4.<br> OTHER AGREEMENTS OF THE PARTIES**

**4.1** <u>Legends</u>. The shares of Common Stock and the Warrant Shares shall be issued free of legends. If at any time following the date hereof the Registration Statement is not effective or is not otherwise available for the sale of the Warrant Shares to the Purchasers, the Company shall immediately notify the holders of the Warrants in writing that such registration statement is not then effective and thereafter shall promptly notify such holders when the registration statement is effective again and available for the sale of the Warrant Shares to the Purchasers (it being understood and agreed that the foregoing shall not limit the ability of the Company to issue, or any Purchaser to sell, any of the Warrant Shares in compliance with applicable federal and state securities laws). The Company shall use commercially reasonable best efforts to keep a registration statement (including the Registration Statement) registering the issuance of the Warrant Shares effective during the term of the Warrants.

**4.2** <u>Furnishing of Information; Public Information</u>. Until the earliest of the time that (i) no Purchaser owns Securities, or (ii) the Common Warrants have expired, the Company covenants to maintain the registration of the Common Stock under Section 12(b) or 12(g) of the Exchange Act and to timely file (or obtain extensions in respect thereof and file within the applicable grace period) all reports required to be filed by the Company after the date hereof pursuant to the Exchange Act, even if the Company is not then subject to the reporting requirements of the Exchange Act, except in the event that the Company consummates (in each case on or after the date as of which the Purchasers may sell all of their Securities without restriction or limitation pursuant to Rule 144): (a) any transaction or series of related transactions as a result of which any Person (together with its Affiliates) acquires then outstanding securities of the Company representing more than fifty percent (50%) of the voting control of the Company; (b) a merger or reorganization of the Company with one or more other entities in which the Company is not the surviving entity; or (c) a sale of all or substantially all of the assets of the Company, where the consummation of such transaction results in the Company no longer being subject to the reporting requirements of the Exchange Act.

**4.3** <u>Integration</u>. The Company shall not sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in Section 2 of the Securities Act) that would be integrated with the offer or sale of the Securities for purposes of the rules and regulations of any Trading Market such that it would require shareholder approval prior to the closing of such other transaction unless shareholder approval is obtained before the closing of such subsequent transaction.

**4.4** <u>Securities Laws Disclosure; Publicity</u>. The Company shall (a) by the Disclosure Time, issue a press release disclosing the material terms of the transactions contemplated hereby, and (b) file a Current Report on Form 8-K, including the Transaction Documents as exhibits thereto, with the Commission within the time required by the Exchange Act. From and after the issuance of such press release, the Company represents to the Purchasers that it shall have publicly disclosed all material, non-public information delivered to any of the Purchasers by the Company or any of its Subsidiaries, or any of their respective officers, directors, employees or agents in connection with the transactions contemplated by the Transaction Documents. In addition, effective upon the issuance of such press release, the Company acknowledges and agrees that any and all confidentiality or similar obligations under any agreement, whether written or oral, between the Company, any of its Subsidiaries or any of their respective officers, directors, agents, employees or Affiliates on the one hand, and any of the Purchasers or any of their Affiliates on the other hand, shall terminate. The Company and each Purchaser shall consult with each other in issuing any other press releases with respect to the transactions contemplated hereby, and neither the Company nor any Purchaser shall issue any such press release nor otherwise make any such public statement without the prior consent of the Company, with respect to any press release of any Purchaser, or without the prior consent of each Purchaser, with respect to any press release of the Company, which consent shall not unreasonably be withheld or delayed, except if such disclosure is required by law, in which case the disclosing party shall promptly provide the other party with prior notice of such public statement or communication. Notwithstanding the foregoing, the Company shall not publicly disclose the name of any Purchaser, or include the name of any Purchaser in any filing with the Commission or any regulatory agency or Trading Market, without the prior written consent of such Purchaser, except (a) as required by federal securities law in connection with the filing of final Transaction Documents with the Commission, and (b) to the extent such disclosure is required by law or Trading Market regulations, in which case the Company shall provide the Purchasers with prior notice of such disclosure permitted under this clause (b).

**4.5** <u>Stockholder Rights Plan</u>. No claim will be made or enforced by the Company or, with the consent of the Company, any other Person, that any Purchaser is an "Acquiring Person" under any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or similar anti-takeover plan or arrangement in effect or hereafter adopted by the Company, or that any Purchaser could be deemed to trigger the provisions of any such plan or arrangement, by virtue of receiving Securities under the Transaction Documents or under any other agreement between the Company and the Purchasers.

**4.6** <u>Non-Public Information</u>. Except with respect to the material terms and conditions of the transactions contemplated by the Transaction Documents, which shall be disclosed pursuant to Section 4.4, the Company covenants and agrees that neither it, nor any other Person acting on its behalf will provide any Purchaser or its agents or counsel with any information that the Company reasonably believes constitutes material non-public information, unless prior thereto such Purchaser shall have entered into a written agreement with the Company regarding the confidentiality and use of such information. The Company understands and confirms that each Purchaser shall be relying on the foregoing covenant in effecting transactions in securities of the Company. To the extent that the Company delivers any material, non-public information to a Purchaser without such Purchaser's consent, the Company hereby covenants and agrees that such Purchaser shall not have any duty of confidentiality to the Company, any of its Subsidiaries, or any of their respective officers, directors, agents, employees or Affiliates, or a duty to the Company, and of its Subsidiaries or any of their respective officers, directors, agents, employees or Affiliates not to trade on the basis of, such material, non-public information, provided that the Purchaser shall remain subject to applicable law. To the extent that any notice provided pursuant to any Transaction Document constitutes, or contains, material, non-public information regarding the Company or any Subsidiaries, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K. The Company understands and confirms that each Purchaser shall be relying on the foregoing covenant in effecting transactions in securities of the Company.

**4.7** <u>Use of Proceeds</u>. The Company shall use the net proceeds from the sale of the Securities hereunder for working capital purposes and general corporate procedures, including the purchase of any pending or future acquisitions, and shall not use such proceeds: (a) for the satisfaction of any portion of the Company's debt (other than payment of trade payables in the ordinary course of the Company's business or repayment of obligations outstanding as of the date of this Agreement consistent with prior practices), (b) for the redemption of any shares of Common Stock or Common Stock Equivalents, (c) for the settlement of any outstanding litigation or (d) in violation of FCPA or OFAC regulations or similar applicable regulations.

**4.8** <u>Indemnification of Purchasers</u>. Subject to the provisions of this Section 4.8, the Company will indemnify and hold each Purchaser and its directors, officers, shareholders, members, partners, employees and agents (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title), each Person who controls such Purchaser (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, shareholders, agents, members, partners or employees (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title) of such controlling persons (each, a "Purchaser Party") harmless from any and all losses, liabilities, obligations, claims, contingencies, damages, costs and expenses, including all judgments, amounts paid in settlements, court costs and reasonable attorneys' fees and costs of investigation that any such Purchaser Party may suffer or incur as a result of or relating to (a) any breach of any of the representations, warranties, covenants or agreements made by the Company in this Agreement or in the other Transaction Documents or (b) any action instituted against the Purchaser Parties in any capacity (including a Purchaser Party's status as an investor), or any of them or their respective Affiliates, any stockholder of the Company who is not an Affiliate of such Purchaser Party, arising out of or relating to any of the transactions contemplated by the Transaction Documents (unless such action is based upon a material breach of such Purchaser Party's representations, warranties, covenants or agreements made by such Purchaser Party in any Transaction Document or any conduct by a Purchaser Party which is finally judicially determined to constitute fraud, gross negligence or willful misconduct). If any action shall be brought against any Purchaser Party in respect of which indemnity may be sought pursuant to this Agreement, such Purchaser Party shall promptly notify the Company in writing, and the Company shall have the right to assume the defense thereof with counsel of its own choosing reasonably acceptable to the Purchaser Party. Any Purchaser Party shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Purchaser Party except to the extent that (i) the employment thereof has been specifically authorized by the Company in writing, (ii) the Company has failed after a reasonable period of time to assume such defense and to employ counsel or (iii) in such action there is, in the reasonable opinion of counsel to the applicable Purchaser Party (which may be internal counsel), a material conflict on any material issue between the position of the Company and the position of such Purchaser Party, in which case the Company shall be responsible for the reasonable fees and expenses of no more than one such separate counsel. The Company will not be liable to any Purchaser Party under this Agreement for any settlement by a Purchaser Party effected without the Company's prior written consent, which shall not be unreasonably withheld or delayed, or the extent that a loss, claim, damage, or liability is attributable to any Purchaser Party's breach of any of the representations, warranties, covenants or agreements made by such Purchaser Party in this Agreement or in the other Transaction Documents. The indemnification and other payment obligations required by this Section 4.8 shall be made by periodic payments of the amount thereof during the course of the investigation, defense, collection, enforcement or action, as and when bills are received or are incurred; provided, that if any Purchaser Party is finally judicially determined not to be entitled to indemnification or payment under this Section 4.8, such Purchaser Party shall promptly reimburse the Company for any payments that are advanced under this sentence. The indemnity agreements contained herein shall be in addition to any cause of action or similar right of any Purchaser Party against the Company or others and any liabilities the Company may be subject to pursuant to law.

**4.9** <u>Listing of Shares</u>. The Company hereby agrees to use commercially reasonable best efforts to maintain the listing or quotation of the shares of Common Stock on each Trading Market on which each is currently listed, and concurrently with the Closing, the Company shall apply to list or quote all of the Shares and Warrant Shares on such Trading Markets and promptly secure the listing of all of the Shares and Warrant Shares on such Trading Markets. The Company further agrees, if the Company applies to have the Common Stock traded on any other Trading Market, it will then include in such application all of the shares of Common Stock and Warrant Shares, and will take such other action as is necessary to cause all of the shares of Common Stock and Warrant Shares to be listed or quoted on such other Trading Market as promptly as possible. The Company will then take all action reasonably necessary to continue the listing and trading of the Common Stock on a Trading Market and will comply in all material respects with the Company's reporting, filing and other obligations under the bylaws or rules of the Trading Market. The Company agrees to use commercially reasonable efforts to maintain the eligibility of the for electronic transfer through the Depository Trust Company or another established clearing corporation, including, without limitation, by timely payment of fees to the Depository Trust Company or such other established clearing corporation in connection with such electronic transfer.

**4.10** <u>Subsequent Equity Sales</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) From the date hereof until ninety (90) days after the Closing Date, neither the Company nor any Subsidiary shall (i) issue, enter into any agreement to issue or announce the issuance or proposed issuance of any shares of Common Stock or Common Stock Equivalents or (ii) file any registration statement or amendment or supplement thereto, other than the Prospectus, filing of a registration statement on Form S-8 in connection with any equity incentive plan, or filing of a post-effective amendment to adopt the registration statements of Digital Ally, Inc., as predecessor of the Company, in connection with the short-form merger consummated by the Company on August 23, 2022.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) From the date hereof until the six-month anniversary of the Closing Date, the Company shall be prohibited from effecting or entering into an agreement to effect any issuance by the Company or any of its Subsidiaries of shares of Common Stock or Common Stock Equivalents (or a combination of units thereof) involving a Variable Rate Transaction. "<u>Variable Rate Transaction</u>" means a transaction in which the Company (i) issues or sells any debt or equity securities that are convertible into, exchangeable or exercisable for, or include the right to receive additional shares of Common Stock either (A) at a conversion price, exercise price or exchange rate or other price that is based upon and/or varies with the trading prices of or quotations for the Common Stock at any time after the initial issuance of such debt or equity securities, or (B) with a conversion, exercise or exchange price that is subject to being reset at some future date after the initial issuance of such debt or equity security or upon the occurrence of specified or contingent events directly or indirectly related to the business of the Company or the market for shares of Common Stock or (ii) enters into, or effects a transaction under, any agreement, including, but not limited to, an equity line of credit or an "at-the-market offering", whereby the Company may issue securities at a future determined price regardless of whether shares pursuant to such agreement have actually been issued and regardless of whether such agreement is subsequently canceled. Any Purchaser shall be entitled to obtain injunctive relief against the Company to preclude any such issuance, which remedy shall be in addition to any right to collect damages.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) Notwithstanding the foregoing, this Section 4.10 shall not apply in respect of an Exempt Issuance, except that no Variable Rate Transaction shall be an Exempt Issuance.

**4.11** <u>Equal Treatment of Purchasers</u>. No consideration shall be offered or paid to any Person to amend or consent to a waiver or modification of any provision of the Transaction Documents unless the same consideration is also offered to all of the parties to the Transaction Documents. For clarification purposes, this provision constitutes a separate right granted to each Purchaser by the Company and negotiated separately by each Purchaser, and is intended for the Company to treat the Purchasers as a class and shall not in any way be construed as the Purchasers acting in concert or as a group with respect to the purchase, disposition or voting of the shares of Common Stock or otherwise.

**4.12** <u>Certain Transactions and Confidentiality</u>. Each Purchaser, severally and not jointly with the other Purchasers, covenants that neither it nor any Affiliate acting on its behalf or pursuant to any understanding with it will execute any purchases or sales, including Short Sales of any of the Company's securities during the period commencing with the execution of this Agreement and ending at such time that the transactions contemplated by this Agreement are first publicly announced pursuant to the initial press release as described in Section 4.4. Each Purchaser, severally and not jointly with the other Purchasers, covenants that until such time as the transactions contemplated by this Agreement are publicly disclosed by the Company pursuant to the initial press release as described in Section 4.4, such Purchaser will maintain the confidentiality of the existence and terms of this transaction. Notwithstanding the foregoing, and notwithstanding anything contained in this Agreement to the contrary, the Company expressly acknowledges and agrees that (i) no Purchaser makes any representation, warranty or covenant hereby that it will not engage in effecting transactions in any securities of the Company after the time that the transactions contemplated by this Agreement are first publicly announced pursuant to the initial press release as described in Section 4.4, (ii) no Purchaser shall be restricted or prohibited from effecting any transactions in any securities of the Company in accordance with applicable securities laws from and after the time that the transactions contemplated by this Agreement are first publicly announced pursuant to the initial press release as described in Section 4.4 and (iii) no Purchaser shall have any duty of confidentiality or duty not to trade in the securities of the Company to the Company or its Subsidiaries after the issuance of the initial press release as described in Section 4.4. Notwithstanding the foregoing, in the case of a Purchaser that is a multi-managed investment vehicle whereby separate portfolio managers manage separate portions of such Purchaser's assets and the portfolio managers have no direct knowledge of the investment decisions made by the portfolio managers managing other portions of such Purchaser's assets, the covenant set forth above shall only apply with respect to the portion of assets managed by the portfolio manager that made the investment decision to purchase the Securities covered by this Agreement.

**4.13** <u>Exercise Procedures</u>. The form of Notice of Exercise included in the Warrants set forth the totality of the procedures required of the Purchasers in order to exercise the Warrants. No additional legal opinion, other information or instructions shall be required of the Purchasers to exercise their Warrants. Without limiting the preceding sentences, no ink-original Notice of Exercise shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Exercise form be required in order to exercise the Warrants. The Company shall honor exercises of the Warrants and shall deliver shares of Common Stock and/or Warrant Shares in accordance with the terms, conditions and time periods set forth in the Transaction Documents.

**4.14** <u>Reservations of Shares</u>. As of the date hereof, the Company has reserved and the Company shall continue to reserve and keep available at all times, free of preemptive rights, a sufficient number of shares of Common Stock for the purpose of enabling the Company to issue shares of Common Stock pursuant to this Agreement and Warrant Shares pursuant to any exercise of the Warrants.

**4.15** <u>Lock-Up Agreements</u>. The Company shall not amend, modify, waive or terminate any provision of any of the Lock-Up Agreements without the prior written consent of the Placement Agent, except to extend the term of the lock-up period, and shall enforce the provisions of each Lock-Up Agreement in accordance with its terms. If any party to a Lock-Up Agreement breaches any provision of a Lock-Up Agreement, the Company shall promptly use its best efforts to seek specific performance of the terms of such Lock-Up Agreement.

**Section 5.<br> MISCELLANEOUS**

**5.1** <u>Termination</u>. This Agreement may be terminated by any Purchaser, as to such Purchaser's obligations hereunder only and without any effect whatsoever on the obligations between the Company and the other Purchasers, by written notice to the other parties, if the Closing has not been consummated on or before the fifth (5th) Trading Day following the date hereof; provided, however, that no such termination will affect the right of any party to sue for any breach by any other party (or parties).

**5.2** <u>Fees and Expenses</u>. Except as expressly set forth in the Transaction Documents to the contrary, each party shall pay the fees and expenses of its advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation, execution, delivery and performance of this Agreement. The Company shall pay all Depositary Fees (including, without limitation, any fees required for same-day processing of any instruction letter delivered by the Company and any exercise notice delivered by a Purchaser), stamp taxes and other taxes and duties levied in connection with the delivery of any Securities to the Purchasers.

**5.3** <u>Entire Agreement</u>. The Transaction Documents, together with the exhibits and schedules thereto, the Preliminary Prospectus and the Prospectus, contain the entire understanding of the parties with respect to the subject matter hereof and thereof and supersede all prior agreements and understandings, oral or written, with respect to such matters, which the parties acknowledge have been merged into such documents, exhibits and schedules.

**5.4** <u>Notices</u>. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of: (a) the time of transmission, if such notice or communication is delivered via facsimile at the facsimile number or email attachment at the email address as set forth on the signature pages attached hereto at or prior to 5:30 p.m. (New York City time) on a Trading Day, (b) the next Trading Day after the time of transmission, if such notice or communication is delivered via facsimile at the facsimile number or email attachment at the email address as set forth on the signature pages attached hereto on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (c) the second (2nd) Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service or (d) upon actual receipt by the party to whom such notice is required to be given. The address for such notices and communications shall be as set forth on the signature pages attached hereto. To the extent that any notice provided pursuant to any Transaction Document constitutes, or contains, material, non-public information regarding the Company or any Subsidiaries, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K.

**5.5** <u>Amendments; Waivers</u>. No provision of this Agreement may be waived, modified, supplemented or amended except in a written instrument signed, in the case of an amendment, by the Company and the Purchasers who purchased at least 50.1% in interest of the sum of (i) the Shares and (ii) the Pre-Funded Warrant Shares initially issuable upon exercise of the Pre-Funded Warrants based on the initial Subscription Amounts hereunder, or, in the case of a waiver, by the party against whom enforcement of any such waived provision is sought; provided, that if any amendment, modification or waiver disproportionately and adversely impacts a Purchaser (or group of Purchasers), the consent of at least 50.1% in interest of such disproportionately impacted Purchaser (or group of Purchasers) shall also be required. No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of any party to exercise any right hereunder in any manner impair the exercise of any such right. Any proposed amendment or waiver that disproportionately, materially and adversely affects the rights and obligations of any Purchaser relative to the comparable rights and obligations of the other Purchasers shall require the prior written consent of such adversely affected Purchaser. Any amendment effected in accordance with this Section 5.5 shall be binding upon each Purchaser and holder of Securities and the Company.

**5.6** <u>Headings</u>. The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof.

**5.7** <u>Successors and Assigns</u>. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns. The Company may not assign this Agreement or any rights or obligations hereunder without the prior written consent of each Purchaser (other than by merger). Any Purchaser may assign any or all of its rights under this Agreement to any Person to whom such Purchaser assigns or transfers any Securities, provided that such transferee agrees in writing to be bound, with respect to the transferred Securities, by the provisions of the Transaction Documents that apply to the "Purchasers."

**5.8** <u>No Third-Party Beneficiaries</u>. The Placement Agent shall be the third-party beneficiary of the representations and warranties of the Company in Section 3.1 and the representations and warranties of the Purchasers in Section 3.2. This Agreement is intended for the benefit of the parties hereto and their respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other Person, except as otherwise set forth in Section 4.8 and this Section 5.8.

**5.9** <u>Governing Law</u>. All questions concerning the construction, validity, enforcement and interpretation of the Transaction Documents shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Each party agrees that all legal proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement and any other Transaction Documents (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, partners, members, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the City of New York. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, Borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is improper or is an inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law. If either party shall commence an action, suit or proceeding to enforce any provisions of the Transaction Documents, then, in addition to the obligations of the Company under Section 4.8, the prevailing party in such action, suit or proceeding shall be reimbursed by the other party for its reasonable attorneys' fees and other costs and expenses incurred with the investigation, preparation and prosecution of such action or proceeding.

**5.10** <u>Survival</u>. The representations and warranties contained herein shall survive the Closing and the delivery of the Securities for the applicable statute of limitations.

**5.11** <u>Execution</u>. This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to each other party, it being understood that the parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission or by e-mail delivery of a ".pdf" format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or ".pdf" signature page was an original thereof.

**5.12** <u>Severability</u>. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.

**5.13** <u>Rescission and Withdrawal Right</u>. Notwithstanding anything to the contrary contained in (and without limiting any similar provisions of) any of the other Transaction Documents, whenever any Purchaser exercises a right, election, demand or option under a Transaction Document and the Company does not timely perform its related obligations within the periods therein provided, then such Purchaser may rescind or withdraw, in its sole discretion from time to time upon written notice to the Company, any relevant notice, demand or election in whole or in part without prejudice to its future actions and rights; provided, however, that, in the case of a rescission of an exercise of a Warrant, the applicable Purchaser shall be required to return any shares of Common Stock subject to any such rescinded exercise notice concurrently with the return to such Purchaser of the aggregate exercise price paid to the Company for such shares and the restoration of such Purchaser's right to acquire such shares pursuant to such Purchaser's Warrant (including, issuance of a replacement warrant certificate evidencing such restored right).

**5.14** <u>Replacement of Securities</u>

. If any certificate or instrument evidencing any Securities is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation thereof (in the case of mutilation), or in lieu of and substitution therefor, a new certificate or instrument, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction. The applicant for a new certificate or instrument under such circumstances shall also pay any reasonable third-party costs (including customary indemnity) associated with the issuance of such replacement Securities.

**5.15** <u>Remedies</u>. In addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, each of the Purchasers and the Company will be entitled to specific performance under the Transaction Documents. The parties agree that monetary damages may not be adequate compensation for any loss incurred by reason of any breach of obligations contained in the Transaction Documents and hereby agree to waive and not to assert in any action for specific performance of any such obligation the defense that a remedy at law would be adequate.

**5.16** <u>Payment Set Aside</u>. To the extent that the Company makes a payment or payments to any Purchaser pursuant to any Transaction Document or a Purchaser enforces or exercises its rights thereunder, and such payment or payments or the proceeds of such enforcement or exercise or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to the Company, a trustee, receiver or any other Person under any law (including, without limitation, any bankruptcy law, state or federal law, common law or equitable cause of action), then to the extent of any such restoration the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred.

**5.17** <u>Independent Nature of Purchasers' Obligations and Rights</u>. The obligations of each Purchaser under any Transaction Document are several and not joint with the obligations of any other Purchaser, and no Purchaser shall be responsible in any way for the performance or non-performance of the obligations of any other Purchaser under any Transaction Document. Nothing contained herein or in any other Transaction Document, and no action taken by any Purchaser pursuant hereto or thereto, shall be deemed to constitute the Purchasers as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Purchasers are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by the Transaction Documents. Each Purchaser shall be entitled to independently protect and enforce its rights including, without limitation, the rights arising out of this Agreement or out of the other Transaction Documents, and it shall not be necessary for any other Purchaser to be joined as an additional party in any proceeding for such purpose. Each Purchaser has been represented by its own separate legal counsel in its review and negotiation of the Transaction Documents. For reasons of administrative convenience only, each Purchaser and its respective counsel have chosen to communicate with the Company through the Placement Agent Counsel, the legal counsel of the Placement Agent. Placement Agent Counsel does not represent any of the Purchasers and only represents the Placement Agent. The Company has elected to provide all Purchasers with the same terms and Transaction Documents for the convenience of the Company and not because it was required or requested to do so by any of the Purchasers. It is expressly understood and agreed that each provision contained in this Agreement and in each other Transaction Document is between the Company and a Purchaser, solely, and not between the Company and the Purchasers collectively and not between and among the Purchasers.

**5.18** <u>Saturdays, Sundays, Holidays, etc</u>. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day, then such action may be taken or such right may be exercised on the next succeeding Business Day.

**5.19** <u>Liquidated Damages</u>. The Company's obligations to pay any partial liquidated damages or other amounts owing under the Transaction Documents is a continuing obligation of the Company and shall not terminate until all unpaid partial liquidated damages and other amounts have been paid notwithstanding the fact that the instrument or security pursuant to which such partial liquidated damages or other amounts are due and payable shall have been canceled.

**5.20** <u>Construction</u>. The parties agree that each of them and/or their respective counsel have reviewed and had an opportunity to revise the Transaction Documents and, therefore, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of the Transaction Documents or any amendments thereto. In addition, each and every reference to share prices and shares of Common Stock in any Transaction Document shall be subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations and other similar transactions relating to shares of Common Stock that occur after the date of this Agreement.

**5.21 WAIVER OF JURY TRIAL. IN ANY ACTION, SUIT, OR PROCEEDING IN ANY JURISDICTION BROUGHT BY ANY PARTY AGAINST ANY OTHER PARTY, THE PARTIES EACH KNOWINGLY AND INTENTIONALLY, TO THE GREATEST EXTENT PERMITTED BY APPLICABLE LAW, HEREBY ABSOLUTELY, UNCONDITIONALLY, IRREVOCABLY AND EXPRESSLY WAIVES FOREVER TRIAL BY JURY.**

[*Signature Pages Follow*]

IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

---

| | | |
|:---|:---|:---|
| DIGITAL ALLY, INC. | DIGITAL ALLY, INC. | <u>Address for Notice:</u> |
|  |  | 14001 Marshall Drive |
|  |  | Lenexa, KS 66215 |
| By: |  |  |
| Name: | Stanton E. Ross | Email: |
| Title: | Chairman and Chief Executive Officer | Fax: |
| With a copy to (which shall not constitute notice): | With a copy to (which shall not constitute notice): |  |
| Sullivan & Worcester LLP | Sullivan & Worcester LLP |  |
| 1633 Broadway | 1633 Broadway |  |
| New York, NY 10019 | New York, NY 10019 |  |
| Attn: David E. Danovitch and Aaron Schleicher | Attn: David E. Danovitch and Aaron Schleicher |  |
| Email: <u>ddanovitch@sullivanlaw.com;</u> | Email: <u>ddanovitch@sullivanlaw.com;</u> |  |
| aschleicher@sullivanlaw.com | aschleicher@sullivanlaw.com |  |

---

[*REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.*

 

*SIGNATURE PAGES FOR PURCHASERS FOLLOW.*]

[*PURCHASER SIGNATURE PAGES TO SECURITIES PURCHASE AGREEMENT*]

IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

Name of Purchaser:

*Signature of Authorized Signatory of Purchaser*:

Name of Authorized Signatory:

Title of Authorized Signatory:

Email Address of Authorized Signatory:

Facsimile Number of Authorized Signatory:

Address for Notice to Purchaser:

Address for Delivery of Warrant Shares to the Purchaser (if not same address for notice):

DWAC for Common Stock:

Common Unit Subscription Amount: $___________________

Shares of Common Stock: ___________________

Warrant Shares underlying the Common Warrants: ________

Beneficial Ownership Blocker: ____ 4.99% _____ 9.99%

Pre-Funded Unit Subscription Amount: $___________________

Pre-Funded Units: _______________

Shares of Common Stock underlying the Pre-Funded Warrants: ________

Beneficial Ownership Blocker: ____ 4.99% _____ 9.99%

EIN Number: ___________________

☐ Notwithstanding anything contained in this Agreement to the contrary, by checking this box (i) the obligations of the above-signed to purchase the securities set forth in this Agreement to be purchased from the Company by the above-signed, and the obligations of the Company to sell such securities to the above-signed, shall be unconditional and all conditions to Closing shall be disregarded, (ii) the Closing shall occur on the second (2nd) Trading Day following the date of this Agreement and (iii) any condition to Closing contemplated by this Agreement (but prior to being disregarded by clause (i) above) that required delivery by the Company or the above-signed of any agreement, instrument, certificate or the like or purchase price (as applicable) shall no longer be a condition and shall instead be an unconditional obligation of the Company or the above-signed (as applicable) to deliver such agreement, instrument, certificate or the like or purchase price (as applicable) to such other party on the Closing Date.

[*SIGNATURE PAGES CONTINUE*]

**Exhibit A**

**Form of Common Warrant**

(See Attached)

**Exhibit B**

**Form of Pre-Funded Warrant**

(See Attached)

**Exhibit C**

**Form of Lock-Up Agreement**

(See Attached)

## Exhibit 23.1

**Exhibit 23.1**

**CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

We consent to the use of our report in this Registration Statement on Form S-1 Amendment No.1 of our report dated April 15, 2022, relating to the consolidated financial statements of Digital Ally, Inc., as of December 31, 2021 and 2020 and for each of the two years in the period ended December 31, 2021 appearing in this Registration Statement.

We also consent to the reference to our firm under the heading of "experts" in such Prospectus.

/s/ RBSM LLP

New York, NY

February 9, 2023

## Ex-Filing

**Exhibit 107**

**Calculation of Filing Fee Tables**

**Form S-1**

(Form Type)

**Digital Ally, Inc.**

(Exact Name of Registrant as Specified in its Charter)

**Table 1: Newly Registered and Carry Forward Securities**

---

| | | | | | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|
|  | **Security Type** | **Security Class Title (1)** | **Fee Calculation or Carry Forward Rule** | **Amount Registered** | **Proposed Maximum Offering Price Per Unit** | **Maximum Aggregate Offering Price(1)(2)** | **Fee Rate** | **Amount of Registration Fee** | **Carry Forward Form Type** | **Carry Forward File Number** | **Carry Forward Initial Effective Date** | **Filing Fee Previously Paid in Connection with Unsold Securities to be Carried Forward** |
| **Newly Registered Securities** | **Newly Registered Securities** | **Newly Registered Securities** | **Newly Registered Securities** | **Newly Registered Securities** | **Newly Registered Securities** | **Newly Registered Securities** | **Newly Registered Securities** | **Newly Registered Securities** | **Newly Registered Securities** | **Newly Registered Securities** | **Newly Registered Securities** | **Newly Registered Securities** |
| Fees to be paid | Equity | Units consisting of: (3) | Rule 457(o) |  |  | $8000000 | 0.00011020 | $881.60 |  |  |  |  |
| Fees to be paid | Equity | (i) Common Stock, $0.001 par value per share (4) |  |  |  |  |  |  |  |  |  |  |
| Fees to be paid | Equity | (ii) Warrants to purchase shares of Common Stock (4) |  |  |  |  |  |  |  |  |  |  |
| Fees to be paid | Equity | Pre-Funded Units consisting of: (3) | Rule 457(o) |  |  |  |  |  |  |  |  |  |
| Fees to be paid | Equity | (i) Pre-Funded Warrants to purchase shares of Common Stock (4) |  |  |  |  |  |  |  |  |  |  |
| Fees to be paid | Equity | (ii) Warrants to purchase shares of Common Stock (4) |  |  |  |  |  |  |  |  |  |  |
| Fees to be paid | Equity | Common Stock, $0.001 par value per share, issuable upon exercise of the Warrants | Rule 457(o) |  |  | $8000000 | 0.00011020 | $881.60 |  |  |  |  |
| Fees to be paid | Equity | Common Stock, $0.001 par value per share, issuable upon exercise of the Pre-Funded Warrants |  |  |  |  |  |  |  |  |  |  |
| Fees Previously Paid |  |  |  |  |  | $2000000 | 0.00011020 | $220.40 |  |  |  |  |
| **Carry Forward Securities** | **Carry Forward Securities** | **Carry Forward Securities** | **Carry Forward Securities** | **Carry Forward Securities** | **Carry Forward Securities** | **Carry Forward Securities** | **Carry Forward Securities** | **Carry Forward Securities** | **Carry Forward Securities** | **Carry Forward Securities** | **Carry Forward Securities** | **Carry Forward Securities** |
| Carry Forward Securities |  |  |  |  |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;**Total Offering Amounts** | &nbsp;&nbsp;&nbsp;&nbsp;**Total Offering Amounts** | &nbsp;&nbsp;&nbsp;&nbsp;**Total Offering Amounts** | &nbsp;&nbsp;&nbsp;&nbsp;**Total Offering Amounts** | &nbsp;&nbsp;&nbsp;&nbsp;**Total Offering Amounts** | &nbsp;&nbsp;&nbsp;&nbsp;**Total Offering Amounts** | $8000000 | 0.00011020 | $881.60 |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;**Total Fees Previously Paid** | &nbsp;&nbsp;&nbsp;&nbsp;**Total Fees Previously Paid** | &nbsp;&nbsp;&nbsp;&nbsp;**Total Fees Previously Paid** | &nbsp;&nbsp;&nbsp;&nbsp;**Total Fees Previously Paid** | &nbsp;&nbsp;&nbsp;&nbsp;**Total Fees Previously Paid** | &nbsp;&nbsp;&nbsp;&nbsp;**Total Fees Previously Paid** |  |  | $220.40 |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;**Total Fee Offset** | &nbsp;&nbsp;&nbsp;&nbsp;**Total Fee Offset** | &nbsp;&nbsp;&nbsp;&nbsp;**Total Fee Offset** | &nbsp;&nbsp;&nbsp;&nbsp;**Total Fee Offset** | &nbsp;&nbsp;&nbsp;&nbsp;**Total Fee Offset** | &nbsp;&nbsp;&nbsp;&nbsp;**Total Fee Offset** |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;**Net Fee Due** | &nbsp;&nbsp;&nbsp;&nbsp;**Net Fee Due** | &nbsp;&nbsp;&nbsp;&nbsp;**Net Fee Due** | &nbsp;&nbsp;&nbsp;&nbsp;**Net Fee Due** | &nbsp;&nbsp;&nbsp;&nbsp;**Net Fee Due** | &nbsp;&nbsp;&nbsp;&nbsp;**Net Fee Due** |  |  | $661.20 |  |  |  |  |

---

&nbsp;&nbsp;&nbsp;&nbsp;(1) Estimated
 solely for the purpose of calculating the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933,
 as amended (the "Securities Act").

(2) Pursuant
 to Rule 416(a) under the Securities Act of 1933, this registration statement shall also cover an indeterminate number of shares that
 may be issued and resold resulting from stock splits, stock dividends or similar transactions.

(3) The
 proposed maximum offering price of the units proposed to be sold in the offering will be reduced on a dollar-for-dollar basis based
 on the offering price of any pre-funded units offered and sold in the offering, and as such the proposed aggregate maximum offering
 price of the units together with the pre-funded units, if any, is $8,000,000.

(4) No
 separate fee is required pursuant to Rule 457(g) under the Securities Act.