☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ~~[X]~~ ☒ No ~~[ ]~~☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files).

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

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 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

Digital Ally, Inc. (the “Company”) is filing this Quarterly Report on Form 10-Q/A, Amendment No. 1 (this “Amendment”), to amend its Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2022, filed with the Securities and Exchange Commission (the “SEC”) on November 14, 2022 (the “Original Report”). The purpose of this Amendment is to correct typographical errors related to segment net revenues, and is therefore limited in scope to make the following changes to the Original Report:

This Amendment has not been updated to give effect to any subsequent events beyond those that existed as of the original filing date of the Original Report and thus should be read in conjunction with the Original Report, as well as the Company’s other filings with the SEC. Other than the filing of the information identified above, this Amendment does not modify or update the disclosure in the Original Report in any way.

	September 30, 2017			December 31, 2016			September 30, 2022 (Unaudited)			December 31, 2021
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	316,174		$	3,883,124		$	6,295,391		$	32,007,792
Accounts receivable-trade, less allowance for doubtful accounts of $70,000 – 2017 and 2016		1,861,009			2,519,184
Accounts receivable-other		434,891			341,326
Accounts receivable – trade, net								2,744,354			2,727,052
Other receivables (including $138,384 due from related parties – September 30, 2022 and $158,384 – December 31, 2021, refer to Note 20)								5,448,545			2,021,813
Inventories, net		10,061,991			9,586,311			10,963,916			9,659,536
Restricted cash		500,000			—
Prepaid expenses		451,787			402,158			9,227,985			9,728,782

Total current assets		13,625,852			16,732,103			34,680,191			56,144,975

Furniture, fixtures and equipment, net		778,095			873,902
Restricted cash		—			500,000
Intangible assets, net		511,141			467,176
Property, plant, and equipment, net								8,407,139			6,841,026
Goodwill and other intangible assets, net								18,230,538			16,902,513
Operating lease right of use assets, net								846,521			993,384
Other assets		141,853			261,915			6,233,075			2,107,299

Total assets	$	15,056,941		$	18,835,096		$	68,397,464		$	82,989,197

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	2,732,336		$	2,455,579		$	9,902,259		$	4,569,106
Accrued expenses		1,161,985			1,542,729			1,097,065			1,175,998
Derivative liabilities		15,729			33,076
Capital lease obligation-current		16,866			32,792
Deferred revenue-current		1,258,226			925,932
Subordinated notes payable, net of discount of $117,000-2017 and $0-2016		533,000			—
Secured convertible debentures, at fair value		3,183,210			—
Current portion of operating lease obligations								304,294			373,371
Contract liabilities – current portion								2,049,704			1,665,519
Debt obligations – current portion								569,934			389,934
Warrant derivative liabilities								—			14,846,932
Income taxes payable		10,143			7,048			11,796			1,827

Total current liabilities		8,911,495			4,997,156			13,935,052			23,022,687

Long-term liabilities:
Secured convertible debentures, at fair value		—			4,000,000
Capital lease obligation-less current portion		—			8,492
Deferred revenue-long term		2,077,479			2,073,176
Debt obligations – long term								671,887			727,278
Operating lease obligation – long term								610,422			688,207
Contract liabilities – long term								5,134,995			2,687,786

Total liabilities		10,988,974			11,078,824			20,352,356			27,125,958

Commitments and contingencies

Stockholders’ Equity:
Common stock, $0.001 par value; 25,000,000 shares authorized; shares issued: 7,065,249– 2017 and 5,552,449 – 2016		7,065			5,552
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								53,903			50,904
Additional paid in capital		63,728,254			59,565,288			129,943,238			124,426,379
Treasury stock, at cost (63,518 shares)		(2,157,226	)		(2,157,226	)
Noncontrolling interest in consolidated subsidiary								309,397			56,453
Accumulated deficit		(57,510,126	)		(49,657,342	)		(82,261,430	)		(68,670,497	)

Total stockholders’ equity		4,067,967			7,756,272			48,045,108			55,863,239

Total liabilities and stockholders’ equity	$	15,056,941		$	18,835,096		$	68,397,464		$	82,989,197

	Three months ended September 30,						Nine months ended September 30,						2022			2021			2022			2021
	2017			2016			2017			2016			Three months ended September 30,						Nine months ended September 30,
													2022			2021			2022			2021
Revenue:
Product	$	2,521,663		$	3,836,691		$	10,263,833		$	11,946,100		$	3,062,373		$	1,356,454		$	7,682,614		$	4,988,364
Service and other		461,914			502,836			1,436,106			1,182,781			5,421,780			3,283,368			20,447,778			4,680,959

Total revenue		2,983,577			4,339,527			11,699,939			13,128,881			8,484,153			4,639,822			28,130,392			9,669,323

Cost of revenue:
Product		1,709,046			2,235,489			6,450,570			7,487,747			3,262,457			1,197,217			8,154,984			3,776,185
Service and other		265,918			70,467			790,691			488,708			4,626,196			2,042,035			15,721,210			2,419,884

Total cost of revenue		1,974,964			2,305,956			7,241,261			7,976,455			7,888,653			3,239,252			23,876,194			6,196,069

Gross profit		1,008,613			2,033,571			4,458,678			5,152,426			595,500			1,400,570			4,254,198			3,473,254

Selling, general and administrative expenses:
Research and development expense		831,573			731,077			2,495,924			2,353,081			616,174			492,221			1,654,395			1,402,185
Selling, advertising and promotional expense		1,048,334			1,369,244			3,036,168			3,295,743			1,832,916			1,511,682			7,375,364			2,978,620
Stock-based compensation expense		478,863			422,246			981,652			1,203,312
General and administrative expense		1,766,538			2,752,645			5,356,439			6,772,483			4,713,433			2,995,640			15,256,049			8,174,002

Total selling, general and administrative expenses		4,125,308			5,275,212			11,870,183			13,624,619			7,162,523			4,999,543			24,285,808			12,554,807

Operating loss		(3,116,695	)		(3,241,641	)		(7,411,505	)		(8,472,193	)		(6,567,023	)		(3,598,973	)		(20,031,610	)		(9,081,553	)

Other income (expense):
Interest income		1,761			5,913			10,619			22,103			13,333			90,036			116,928			222,497
Interest expense		(375,048	)		(776	)		(536,035	)		(2,438	)		(14,255	)		(5,675	)		(39,766	)		(8,466	)
Change in warrant derivative liabilities		3,628			(19,075	)		17,347			18,740
Change in fair value of secured convertible notes payable		(6,952	)		—			66,790			—
Loss before income tax expense		(3,493,306	)		(3,255,579	)		(7,852,784	)		(8,433,788	)
Income tax (expense) benefit		—			—			—			—
Net loss	$	(3,493,306	)	$	(3,255,579	)	$	(7,852,784	)	$	(8,433,788	)
Other income (loss)														(1,892	)		—			41,167			—
Gain on extinguishment of debt														—			—			—			10,000
Change in fair value of contingent consideration promissory notes														(138,877	)		—			347,169			—
Change in fair value of short-term investments														—			(21,656	)		(84,818	)		(28,210	)
Change in fair value of warrant derivative liabilities														1,164,849			11,585,204			6,726,638			33,274,039
Gain on extinguishment of warrant derivative liabilities														3,624,794			—			3,624,794			—

Total other income														4,647,952			11,647,909			10,732,112			33,469,860

Income (loss) before income tax benefit														(1,919,071	)		8,048,936			(9,299,498	)		24,388,307
Income tax benefit														—			—			—			—

Net income (loss)														(1,919,071	)		8,048,936			(9,299,498	)		24,388,307

Net loss (income) attributable to noncontrolling interests of consolidated subsidiary														16,596			19,863			(268,636	)		19,863

Net income (loss) attributable to common stockholders													$	(1,902,475	)	$	8,068,799		$	(9,568,134	)	$	24,408,170

Net loss per share information:
Basic	$	(0.56	)	$	(0.61	)	$	(1.34	)	$	(1.59	)	$	(0.04	)	$	0.16		$	(0.19	)	$	0.49
Diluted	$	(0.56	)	$	(0.61	)	$	(1.34	)	$	(1.59	)	$	(0.04	)	$	0.16		$	(0.19	)	$	0.49

Weighted average shares outstanding:
Basic		6,249,116			5,380,855			5,851,428			5,315,646			50,365,218			51,809,435			49,973,619			49,404,794
Diluted		6,249,116			5,380,855			5,851,428			5,315,646			50,365,218			51,809,435			49,973,619			49,404,794

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, ~~2017~~
~~(Unaudited)~~2022 AND 2021

FOR THE NINE MONTHS ENDED SEPTEMBER 30, ~~2017~~2022 AND ~~2016~~
~~(Unaudited)~~2021

Digital Ally, Inc. and subsidiaries (collectively, “Digital Ally,” “Digital,” the “Company,” “we,” “ours” and “us”) produces digital video imaging and storage products for use in law enforcement, security and commercial applications. Its products are an in-car digital video/audio recorder contained in a rear-view mirror for use in law enforcement and commercial fleets; a system that provides its law enforcement customers with audio/video surveillance from multiple vantage points and hands-free automatic activation of body-worn cameras and in-car video systems; a miniature digital video system designed to be worn on an individual’s body; a weather-resistant mobile digital video recording system for use on motorcycles, ATV’s and boats; a hand-held laser speed detection device that it is offering primarily to law enforcement agencies; and cloud storage solutions. The Company has active research and development programs to adapt its technologies to other applications. It can integrate electronic, radio, computer, mechanical, and multi-media technologies to create unique solutions to address needs in a variety of other industries and markets, including mass transit, school bus, taxi cab and the military. The Company sells its products to law enforcement agencies and other security organizations and consumer and commercial fleet operators through direct sales domestically and third-party distributors internationally.

~~The Company~~ 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”).

~~Management’s Liquidity Plan~~On August 23, 2022 (the “Effective Time”), the Predecessor Registrant merged with and into its wholly owned subsidiary, DGLY Subsidiary Inc., a Nevada corporation (the “Registrant”), pursuant to an agreement and plan of merger, dated as of August 23, 2022 (the “Merger Agreement”), between the Predecessor Registrant and the Registrant, with the Registrant as the surviving corporation in the merger (such transaction, the “Merger”). At the Effective Time, Articles of Merger were filed with the Secretary of State of the State of Nevada, pursuant to which the Registrant was renamed “Digital Ally, Inc.” and, by operation of law, succeeded to the assets, continued the business and assumed the rights and obligations of the Predecessor Registrant immediately prior to the Merger. Under the Nevada Revised Statutes, shareholder approval was not required in connection with the Merger Agreement or the transactions contemplated thereby.

~~The Company incurred substantial operating losses~~At the Effective Time, pursuant to the Merger Agreement, (i) each outstanding share of Predecessor Registrant’s common stock, par value $0.001 per share (the “Predecessor Common Stock”) automatically converted into one share of common stock, par value $0.001 per share, of the Registrant (“Registrant Common Stock”), (ii) each outstanding option, right or warrant to acquire shares of Predecessor Common Stock converted into an option, right or warrant, as applicable, to acquire an equal number of shares of Registrant Common Stock under the same terms and conditions as the original options, rights or warrants, and (iii) the directors and executive officers of the Predecessor Registrant were appointed as directors and executive officers, as applicable, of the Registrant, each to serve in the same capacity and for the same term as such person served with the Predecessor Registrant immediately before the Merger.

The business of the Registrant, Digital Ally, Inc. (with its wholly-owned subsidiaries, Digital Ally International, Inc., Shield Products, LLC, Digital Ally Healthcare, LLC, 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.

The unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine ~~months~~month periods ended September 30, ~~2017~~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 ~~recent years primarily due to reduced revenues and gross margins caused~~footnotes required by ~~specific product quality issues resulting~~generally accepted accounting principles in the ~~significant delays~~United States for complete financial statements.

For further information, refer to the audited financial statements and footnotes included in ~~customer orders and product rework expenditures. In addition,~~ the ~~Company accessed~~Company’s annual report on Form 10-K for the public and private capital markets to raise debt and equity of approximately $300,000 on September 29, 2017, $3.0 million on August 23, 2017, $700,000 on June 30, 2017, $4.0 million in December 2016 and $11.0 million in 2015 to fund its operations until it achieves positive cash flows from operations. As of September 30, 2017, the Company had an accumulated deficit of $57.5 million and has financed its recent operations primarily through debt and equity financings. During the nine months ended September 30, 2017 and year ended December 31, ~~2016,~~2021.

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 ~~incurred net losses of approximately $7.85~~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 $12.7 million, respectively, and used cash in operating activities of $5.8 million and $5.9 million, respectively. The $300,000 principal amount of subordinated notes payable (the “Notes”) matures on November 30, 2017 and the remaining $350,000 principal amount matures on December 31, 2017. Additionally, the $4.0 million principal amount of 8% Secured Convertible Debentures (the “Debentures”) matures in March 2018 unless the Debentures are converted by their holders ($5.00 per share conversion rate) before maturity. The Notes and Debentures represent current liabilities as of September 30, 2017 and will require the Company toevents that could raise ~~substantial funds to liquidate if operating results do not improve before the maturity dates of such Notes and Debentures. These conditions indicate that there is~~ substantial doubt about the Company’s ability to continue as a going concern within ~~one year~~12 months after the ~~date that the~~Company’s financial statements ~~are issued.~~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 ~~need~~have to restore positive operating cash flows and profitability over the next ~~twelve months~~year and/or raise additional capital to fund ~~operations, accommodate the potential liquidity needs to retire the Debentures at their maturity,~~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 ~~if and~~ when needed, and obtain it on terms acceptable or favorable to the Company.

~~Management~~The Company has implemented aan enhanced quality control ~~function that is tasked with the detection~~program to detect and ~~correction of~~correct product issues before they result in significant rework expenditures affecting ~~the Company’s~~its gross ~~margins. In addition, the Company~~margins and has ~~undertaken cost reduction initiatives, including restructuring its direct sales force and reducing other selling, general and administrative costs.~~seen progress in that regard. The Company has ~~introduced~~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 ~~full high definition in-car video system (DVM-800 HD), which is intended to help it regain market share and improve revenues in its law enforcement division.~~agreements. The Company has increased its addressable market to non-law enforcement customers and obtained significant new non-law enforcement contracts in 2017, which contracts include recurring revenue over the 2017 to 2019 period. Management believes that its quality control, cost-cutting initiatives, and ~~cost cutting initiatives,~~new product introduction ~~of the DVM-800 HD for law enforcement and expansion to non-law enforcement sales channels~~ will eventually restore positive operating cash flows and profitability, ~~during the next year,~~ although it can offer no assurances in this regard. ~~The~~

Management has evaluated the significance of the conditions described above in relation to the Company’s ~~plan also includes raising additional capital if required. The Company has demonstrated its~~ ability to ~~raise new debt or equity capital in recent years~~meet its obligations and ~~believes~~concluded that, ~~it could raise~~without additional ~~capital during the next 12 months if required, but again can offer no assurances in this regard. Based on the uncertainties described above,~~funding, the Company ~~believes~~will not have sufficient funds to meet its ~~business plan does not alleviate the existence of substantial doubt about its ability to continue as a going concern~~obligations within one year ~~after~~from the date ~~that~~ the condensed consolidated financial statements ~~in this Report.~~were issued.

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 ~~Company’s Significant Accounting Policies:~~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.

The accompanying financial statements include the consolidated accounts of Digital Ally, ~~and~~ its wholly-owned subsidiaries, Digital Ally International, Inc., MPShield Products, LLC, Digital Ally Healthcare, LLC, ~~Medical Devices Ally, LLC~~TicketSmarter, Inc., Worldwide Reinsurance, Ltd., Digital Connect, Inc., BirdVu Jets, Inc., Kustom 440, Inc., and ~~Digitaldeck,~~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. ~~In addition, Medical Devices Ally,~~The Company formed Shield Products, LLC ~~was~~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 ~~in July 2014, MP Ally,~~Nobility Healthcare, LLC ~~was formed in July 2015, and Digitaldeck, LLC was formed~~ in June ~~2017, all~~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 ~~have been inactive since formation.~~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.

The carrying amounts of financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and ~~accounts~~subordinated notes payable approximate fair value because of the short-term nature of these items.

The Company ~~accounts for~~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 ~~derivative liabilities~~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 ~~secured convertible debentures~~three segments. The Company reports all revenues on a ~~fair value basis.~~

~~Revenues~~gross basis, other than service revenues from the ~~sale~~Company’s ticketing and revenue cycle management segments. Revenues generated by all segments are reported net of sales taxes.

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 ~~recorded~~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 ~~shipped, title and risk of loss has~~ transferred to the ~~purchaser,~~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 ~~terms are fixed or determinable~~ and ~~payment is reasonably assured.~~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 ~~sells its products and services~~has also elected the practical expedient under ASC 340-40-25-4 to ~~law enforcement and commercial customers in~~expense commissions for product sales when incurred as the ~~following manner:~~amortization period of the commission asset the Company would have otherwise recognized is less than one year.

~~Sales taxes collected on products sold are excluded from revenues and are reported as an accrued expense in the accompanying balance sheets until payments are remitted.~~

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 ~~are treated as deferred revenue and recognized~~products is over the term of the ~~contracted~~contract warranty or service ~~period~~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 ~~method.~~

~~Extended warranties are offered on selected products and when a customer purchases an extended warranty the associated proceeds are treated as deferred revenue and recognized~~basis over the contract term, ofas long as the ~~extended warranty on a straight-line method.~~other revenue recognition criteria have been met.

Multiple element arrangements consisting of product, software, cloud and extended warranties are offered to our customers. Revenue arrangements with multiple deliverables are divided into separate units and revenue is allocated using the relative selling price method based upon vendor-specific objective evidence of selling price or third-party evidence of the selling prices if vendor-specific objective evidence of selling prices does not exist. If neither vendor-specific objective evidence nor third-party evidence exists, management uses its best estimate of selling price. The majority of the Company’s allocations of arrangement consideration under multiple element arrangements are performed using vendor-specific objective evidence by utilizing prices charged to customers for deliverables when sold separately. The Company’s multiple ~~element arrangements~~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.

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.

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 ~~utilized third-party evidence~~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 ~~selling price.~~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.

Contract liabilities consist of deferred revenue and ~~allowances aggregated $12,390~~include payments received in advance of performance under the contract and ~~$61,673 for~~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, ~~2017~~2022, the Company recognized revenue of $0.7 million related to its contract liabilities. Contract liabilities consist of deferred revenue and ~~2016, respectively,~~include payments received in advance of performance under the contract and ~~$(15,195)~~are reported separately as current liabilities and ~~$263,663~~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:

Sales returns and allowances aggregated $118,029 and $45,298 for the nine months ended September 30, ~~2017~~2022 and ~~2016,~~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. A customer paid under a sales transaction in March 2017 that had been accrued to be returned at December 31, 2016, which the caused the negative sales returns for the nine months ended September 30, 2017.

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

~~Cash and cash equivalents that are restricted as to withdrawal or use under the terms of the secured convertible debentures are presented as restricted cash separate from~~The Company maintains its cash and cash equivalents onin banks insured by the ~~accompanying~~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 ~~sheet.~~amounted to $4,459,897 and $29,836,142, respectively.

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.

~~Inventories consist~~Goodwill - In connection with acquisitions, the Company applies the provisions of ~~electronic parts, circuitry boards, camera parts~~ASC 805, Business Combinations, using the acquisition method of accounting. The excess purchase price over the fair value of net tangible assets and ~~ancillary parts (collectively, “components”)~~identifiable intangible assets acquired is recorded as goodwill. In accordance with ASC 350, Intangibles - Goodwill and Other, ~~work-in-process~~the Company assesses goodwill for impairment annually as of December 31, and ~~finished goods,~~more frequently if events and ~~are carried~~circumstances indicate that goodwill might be impaired.

Goodwill impairment testing is performed at the ~~lower~~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 ~~cost (First-in, First-out Method)~~the activities within a reporting unit, whether acquired or ~~market value.~~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 ~~determines~~has adopted ASU 2017-04 which simplifies subsequent goodwill measurement by eliminating step two from the ~~estimate~~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 ~~reserve for slow moving or obsolete inventories~~amount by ~~regularly evaluating individual inventory levels, projected sales and current economic conditions.~~which the carrying amount exceeded the reporting unit’s fair value.

~~Furniture, fixtures~~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 ~~equipment:~~requires the use of significant estimates and assumptions, including revenue growth rates and EBITDA margins, discount rates and future market conditions, among others.

~~Furniture, fixtures~~Long-lived and ~~equipment~~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 ~~stated~~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 ~~cost net~~the lowest level for which identifiable cash flows are largely independent of ~~accumulated depreciation. Additions~~the cash flows of the other assets and ~~improvements~~liabilities. The Company has determined that the lowest level for which identifiable cash flows are ~~capitalized while ordinary maintenance and repair expenditures are charged to expense as incurred. Depreciation~~available is ~~recorded~~the operating segment level.

Factors considered by the ~~straight-line method over~~Company include, but are not limited to, significant underperformance relative to historical or projected operating results; significant changes in the ~~estimated useful life~~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 ~~ranges from two to ten years. Amortization expense~~the carrying amount of the asset exceeds the fair value of the asset, based on ~~capitalized leases~~the fair value if available, or discounted cash flows, if fair value is ~~included with depreciation expense.~~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.

The ~~Company~~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 ~~elected~~specific personnel responsible for that business and reports to ~~record its Debentures at fair value. Accordingly,~~ the ~~Debentures will~~CODM. Corporate expenses capture the Company’s corporate administrative activities and are also to be ~~marked-to-market at each reporting date with the change in fair value~~ reported ~~as a gain (loss)~~ in the ~~statement~~segment information.

In circumstances where an acquisition involves a contingent consideration arrangement that meets the definition of ~~operations. All issuance costs related to the Debentures were expensed as incurred in the statement of operations.~~

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.

The Company’s 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 deferred revenue and recognized over the term of the extended warranty.

Shipping and handling costs for outbound sales orders totaled $11,858 and $26,077 for the three months ended September 30, 2017 and 2016, respectively, and $51,949 and $72,296 for the nine months ended September 30, 2017 and 2016, respectively. Such costs are included in selling, general and administrative expenses in the Condensed Consolidated Statements of Operations.

Advertising expense 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 $346,935 and $615,586 for the three months ended September 30, 2017 and 2016, respectively, and $617,264 and $936,998 for the nine months ended September 30, 2017 and 2016, respectively. Such costs are included in selling, general and administrative expenses in the Condensed Consolidated Statements of Operations.

~~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~~under the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) ~~No. 740 - Income Taxes that provides~~480, Distinguishing Liabilities from Equity, the Company recognizes a ~~framework for accounting for uncertainty in income taxes~~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 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 positionsrecords changes 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 nine months ended September 30, 2017 and 2016. There have been no penalties in the nine months ended September 30, 2017 and 2016.

The Company is subject to taxation in the United States and various states. As of September 30, 2017, the Company’s tax returns filed for 2013, 2014, and 2015 and to be filed for 2016 are subject to examination by the relevant taxing authorities. With few exceptions, as of September 30, 2017, the Company is no longer subject to Federal, state, or local examinations by tax authorities for years before 2013.

The Company expenses all research and development costs as incurred. 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 the nine months ended September 30, 2017 and 2016.

~~The Company has common stock purchase warrants that are accounted for as liabilities under the caption of derivative liabilities on the consolidated balance sheet and recorded at~~ fair value ~~due to the warrant agreements containing anti-dilution provisions. The change in fair value being recorded in~~through the consolidated statement of operations.

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 ~~has~~accounts for repurchases of common stock ~~common stock purchase warrants that are accounted for~~under the cost method. Shares repurchased and cancelled during the period were recorded as ~~equity based on their relative fair value and are not subject~~a reduction to ~~re-measurement.~~

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 periodstockholders’ (deficit) equity. See further discussion of the ~~award.~~Company’s share repurchase program in Note 15 –Stockholders’ Equity.

~~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:~~

Management has determined that its operations are comprised of one reportable segment: the sale of digital audio and video recording and speed detection devices. For the three and nine months ended September 30, 2017 and 2016, sales by geographic area were as follows:

~~Sales to customers outside of the United States are denominated in U.S. dollars. All Company assets are physically located within the United States.~~

~~Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations.~~

~~In May 2014, the FASB issued Accounting Standard Update (“ASU”) No. 2014-09,~~~~“Revenue from Contracts with Customers”~~(“ASU 2014-09”), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU 2014-09 will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The standard is effective for interim and annual periods beginning after December 15, 2017 and permits the use of either the retrospective or cumulative effect transition method. The Company has selected the cumulative effect transition method and is currently evaluating the guidance to determine the impact on retained earnings but it does not expect the adoption to have a material impact on the Company’s consolidated financial statements and footnote disclosures.

~~In July 2015, the FASB issued ASU 2015-11, Inventory (Topic 330):~~~~Simplifying the Measurement of Inventory~~. The amendments in the ASU require entities that measure inventory using the first-in, first-out or average cost methods to measure inventory at the lower of cost and net realizable value. Net realizable value is defined as estimated selling price in the ordinary course of business less reasonably predictable costs of completion, disposal and transportation. The Company adopted this new standard on January 1, 2017 and such adoption did not have any impact on its consolidated financial statements.

~~In November 2015, the FASB issued ASU 2015-17,~~~~Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes~~. This ASU simplifies the presentation of deferred income taxes by eliminating the requirement for entities to separate deferred tax liabilities and assets into current and noncurrent amounts in classified balance sheets. Instead, it requires deferred tax assets and liabilities be classified as noncurrentNon-Controlling Interests

Non-controlling interests in the ~~balance sheet.~~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 ~~adopted this new standard on January 1, 2017~~consolidates the financial statements of all wholly-owned and ~~such adoption did not have any impact on its consolidated financial statements.~~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.

In ~~February 2016, the~~2020, FASB issued ASU No. ~~2016-02,~~~~Leases~~ ~~(Topic 842).~~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 ~~objective~~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 ~~2016-02 is~~also makes targeted improvements to ~~recognize lease assets~~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 ~~lease liabilities~~(3) The ASU aligns the diluted EPS calculation for convertible instruments by ~~lessees for those leases classified as operating leases under previous U.S. GAAP.~~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 ~~2016-02~~No. 2020-06 is effective for fiscal years beginning after December 15, ~~2018,~~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. ~~Early adoption of ASU 2016-02 is permitted.~~ The Company ~~is evaluating~~will continue to evaluate the ~~effects adoption~~effect of ~~this guidance~~adopting ASU 2016-13 will have on ~~its~~the Company’s consolidated financial statements.

~~In March 2016, the FASB issued ASU No. 2016-09,~~~~Compensation-Stock Compensation (Topic 718)~~. The objective of ASU 2016-09 is to reduce the complexity of certain aspects of the accounting for employee share-based payment transactions. As a result of this ASU, there are changes to minimum statutory withholding requirements, accounting for forfeitures, and accounting for income taxes. The Company adopted this new standard on January 1, 2017 and elected to account for forfeitures as they occur and has resulted in a credit to stock-based compensation of $256,167 relative to forfeitures during the nine months ended September 30, 2017.

~~In August 2016, the FASB issued ASU 2016-15,~~~~Clarification on Classification of Certain Cash Receipts and Cash Payments on the Statement of Cash Flows~~, to create consistency in the classification of eight specific cash flow items. This standard is effective for calendar-year SEC registrants beginning in 2018. The Company is evaluating the effects adoption of this guidance will have on its consolidated financial statements.

~~In November 2016, the FASB issued ASU 2016-18,~~~~Statement of Cash Flows - Restricted Cash (Topic 230),~~ which amends the existing guidance relating to the disclosure of restricted cash and restricted cash equivalents on the statement of cash flows. ASU 2016-18 is effective for the fiscal year beginning after December 15, 2017, and interim periods within that fiscal year, and early adoption is permitted. The Company is evaluating the impact of adoption of ASU 2016-18 on its Consolidated Statements of Cash Flows.

~~In May 2017, the FASB issued ASU 2017-09,~~~~Stock Compensation (Topic 718)-Scope of Modification Accounting~~, to provide guidance on determining which changes to terms and conditions of share-based payment awards require an entity to apply modification accounting under Topic 718. The ASU is effective for annual periods beginning after December 15, 2017, and interim periods within those annual periods. The Company is evaluating the effects adoption of this guidance will have on its consolidated financial statements.

The condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine-month period ended September 30, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017.

The balance sheet at December 31, 2016 has been derived from the audited financial statements at that date, but does not include all the information and footnotes required by generally accepted accounting principles in the United States for complete financial statements.

~~For further information, refer to the financial statements and footnotes included in the Company’s annual report on Form 10-K for the year ended December 31, 2016.~~

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 $70,000 as of September 30, 2017 and December 31, 2016.

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 ~~Company uses primarily a network~~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 unaffiliated distributors for international sales and employee-based direct sales force for domestic sales. No distributor individually exceeded 10% of total revenues for the nine months ended September 30, 2017 or September 30, 2016. No individual customer receivable balance exceeded 10% of total accounts receivable as of September 30, 2017 or September 30, 2016.

The Company 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 doesthis standard did not have ~~long-term contracts with its suppliers.~~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.

Inventories consisted of the following at September 30, ~~2017~~2022 and December 31, ~~2016:~~2021:

Finished goods inventory includes units held by potential customers and sales agents for test and evaluation purposes. The cost of such units totaled ~~$711,024~~$181,381 and ~~$634,059~~$153,976 as of September 30, ~~2017~~2022 and December 31, ~~2016,~~2021, respectively.

~~Furniture, fixtures and equipment consisted~~Debt obligations is comprised of the ~~following at September 30, 2017 and December 31, 2016:~~following:

~~Depreciation and amortization of furniture, fixtures and equipment aggregated $412,558 and $399,950 for the nine months ended September 30, 2017 and 2016, respectively.~~

~~NOTE 6. SECURED CONVERTIBLE DEBENTURES, SUBORDINATED NOTES PAYABLE, AND CAPITAL LEASE~~Debt obligations mature as follows as of September 30, 2022:

~~2016 Secured Convertible Debentures~~2020 Small Business Administration Notes. ~~Secured Convertible Debentures is comprised~~

On May 4, 2020, the Company issued a promissory note in connection with the receipt of the ~~following:~~

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 ~~30, 2016,~~10, 2020, the Company ~~completed~~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.

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 ~~placement~~company (the ~~“Private Placement”~~“June Seller”) of ~~$4.0 million~~$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 ~~Debentures and common stock warrants~~June Contingent Note is subject to an earn-out adjustment, being the difference between $975,000 (the ~~“Warrants”~~“June Projected Revenue”) ~~to two institutional investors. The Debentures and Warrants were issued pursuant to a Securities Purchase Agreement (the “Purchase Agreement”) between the Company~~ and the ~~purchasers’ signatory thereto~~cash basis revenue (the ~~“Holders”~~“June Measurement Period Revenue”)~~. The Private Placement resulted~~ collected by the June Seller in ~~gross proceeds~~its normal course of ~~$4.0 million before placement agent fees~~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 ~~other expenses associated with the transaction totaling $281,570, which was expensed as incurred.~~

The Company elected to account for the Debentures on the fair value basis. Therefore, the Company determined the fair value of the Debentures utilizing Monte Carlo simulation models which yielded an estimated fair value of $4.0 million for the Debentures including their embedded derivativesannualized as of the ~~origination date. No value was allocated~~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 ~~detachable Warrants as~~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 ~~origination date because~~June Contingent Note as a result of the relative fair value of the convertible note including its embedded derivative features approximated the gross proceeds of the financing transaction. The Company made principal payments of $750,000 on August 24, 2017 against the Debentures. The change in the fair value of the Debentures between December 31, 2016 and September 30, 2017 was $(66,790) and was reflected as income in the Condensed Statement of Operations.earn-out adjustments.

Prior to the maturity date, the Debentures bear interest at 8% per annum with interest payable in cash quarterly in arrears on the first business day of each calendar quarter following the issuance date. The Debentures rank senior to the Company’s existing and future indebtedness and are secured by substantially all tangible and certain intangible assets of the Company.

The Debentures are convertible at any time six months after their date of issue at the option of the holders into shares of the Company’s common stock at $5.00 per share (the “Conversion Price”). The Debentures mature on March 30, 2018. The Warrants are exercisable to purchase up to an aggregate of 800,000 shares of the Company’s common stock commencing on the date of issuance at an exercise price of $5.00 per share (the “Exercise Price”). The Warrants will expire on the fifth anniversary of their date of issuance. The Conversion Price and Exercise Price are subject to adjustment upon stock splits, reverse stock splits, and similar capital changes.

The Company has the right, subject to certain limitations, to redeem the Debenture with 30 days advance notice with the redemption amount determined as the sum of (a) 112% of the then outstanding principal amount of the Debenture, (b) accrued but unpaid interest and (c) all liquidated damages and other amounts due in respect of the Debenture, if any.

Additionally, if following the six-month anniversary of the Original Issue Date, the VWAP (volume weighted average price), for each of any ten (10) consecutive trading days exceeds $7.50 per share, the Company has the right, subject to certain limitations, to provide written notice to the Holders to cause them to convert all or part of the then outstanding principal amount of the Debenture plus accrued but unpaid interest.

Upon the occurrence of an event of default, the Debentures bear interest at 18% per annum and a Holder may require the Company to redeem all or a portion of its Debenture. The Company has agreed to maintain a cash balance of $500,000 while the Debentures are outstanding, which is reflected as restricted cash in the accompanying balance sheet. The Holders have agreed to beneficial conversion limitation that effectively blocks either Holder from converting the Debenture or exercising the Warrant to the extent that such conversion or exercise would result in the Holder being the beneficial owner in excess of 4.99% (or, upon election of purchaser, 9.99%), which beneficial ownership limitation may be increased or decreased up to 9.99% upon notice to the Company, provided that any increase in such limitation will not be effective until 61 days following notice to the Company.

~~During~~The June Contingent Note is considered to be additional purchase price; therefore, the nine months ended September 30, 2017, the Company was required to make payments totaling $750,000 to the holders of the Debentures resulting from the repayment provisions of the Debentures relative to additional capital raises.

~~Subordinated Notes Payable~~~~. Subordinated notes payable is comprised of the following:~~

On June 30, 2017, the Company, in two separate transactions, borrowed an aggregate of $700,000 under two unsecured notes payable to private, third-party lenders. The loans were funded on June 30, 2017 and both were represented by promissory notes (the “Notes”) that bore interest at the rate of 8% per annum with principal and accrued interest payable on or before their maturity date of September 30, 2017. The Notes were unsecured and subordinated to all existing and future senior indebtedness, as such term is defined in the Notes. The Company granted the lenders warrants (the “Warrants”) exercisable to purchase a total of 200,000 shares of its common stock at an exercise price of $3.65 per share until June 29, 2022. The Company allocated $288,895 of the proceeds of the Notes to additional paid-in-capital, which represented the grant date relativeestimated fair value of the ~~Warrants for 200,000 common shares issued to~~contingent liability is recorded as a liability at the ~~lenders. The discount was amortized to interest expense ratably over~~acquisition date and the ~~terms~~fair value is considered part of the ~~Note. On~~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, ~~2017,~~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 ~~obtained an extension~~recorded a loss of ~~the maturity date of one of the Notes to December 31, 2017. The Company paid the second Note in full in August 2017.~~

On September 29, 2017, the Company borrowed $300,000 under an unsecured note payable with a private, third party lender (also referred to as the “Note”). The loan is represented by a promissory note that bears interest at 8% per annum and is payable in cash on or before the maturity date. The Note is due and payable in full on November 30, 2017 and may be prepaid without penalty at any time. The Note is unsecured and subordinated to all existing and future senior indebtedness, as such term is defined$20,481 in the ~~Note. The Company issued warrants to~~Consolidated Statements of Operations for the ~~lender exercisable to purchase 100,000 shares of common stock for $2.75 per share until~~three months ended September 30, 2022. The Company ~~allocated $117,000~~recorded a gain of $27,139 in the ~~proceeds~~Consolidated Statements of the 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 terms of the note.

~~The discount amortized to interest expense totaled $288,895 and $-0-~~Operations for the nine months ended September 30, ~~2017,~~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 ~~2016, respectively.~~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.

~~Capital Leases~~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. ~~Future minimum lease~~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 atwo and a half year term and bears interest at a rate of 3.00% per annum. Quarterly principal and interest payments ~~under non-cancelable capital leases having terms~~are deferred for seven months and is due in ~~excess~~equal quarterly installments on the tenth business day of ~~one year~~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 ~~follows:~~a result of the earn-out adjustments.

~~Assets under capital leases~~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 ~~included~~deferred for seven months and are due in ~~furniture, fixtures~~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 ~~equipment~~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 ~~follows:~~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.

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:

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, ~~2017~~2022 and December 31, ~~2016.~~2021:

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

The following table represents the change in ~~level~~Level 3 tier value ~~measurements:~~measurements for the periods ended September 30, 2022:

Accrued expenses consisted of the following at September 30, ~~2017~~2022 and December 31, ~~2016:~~2021:

	September 30, 2017		December 31, 2016		September 30, 2022		December 31, 2021
Accrued warranty expense	$	140,596	$	374,597	$	10,040	$	13,742
Accrued senior convertible note issuance costs		—		204,000
Accrued litigation costs						247,984		250,000
Accrued sales commissions		20,629		36,389		54,791		30,213
Accrued payroll and related fringes		464,134		270,781		423,725		453,858
Accrued insurance		103,480		81,610
Accrued rent		147,333		182,409
Accrued sales returns and allowances		51,316		215,802		118,029		45,298
Accrued taxes						147,159		180,486
Other		234,497		177,141		95,337		202,401
	$	1,161,985	$	1,542,729
Total accrued expenses					$	1,097,065	$	1,175,998

Accrued warranty expense was comprised of the following for the ~~six~~nine months ended September 30, ~~2017:~~2022:

	2017
Beginning balance	$	374,597		$	13,742
Provision for warranty expense		103,206			56,860
Charges applied to warranty reserve		(337,207	)		(60,562	)

Ending balance	$	140,596		$	10,040

The effective tax rate for the three ~~and nine~~ months ended September 30, ~~2017~~2022 and ~~2016~~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, ~~2017~~2022, primarily because of the ~~current year~~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 totaled $25,535,000 and $22,455,000 as of September 30, 2017 and December 31, 2016, respectively.~~

assets. The Company ~~records~~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 benefit it will derive in future accounting periods from tax losses and credits and deductible temporary differences as “deferred tax assets.” In accordance with Accounting Standards Codification (ASC) 740, “Income Taxes,”extent the Company ~~records a valuation allowance to reduce~~determines that the ~~carrying value~~realization of ~~its deferred tax assets if, based on~~some or all ~~available evidence, it~~of these benefits is more likely than not ~~that some~~based upon expected future taxable income, a portion or all of the ~~deferred~~valuation allowance will be reversed. The Company has available to it approximately $81.4 million (based on its December 31, 2021 tax ~~assets will not be realized.~~

~~At September 30, 2017, the Company had available approximately $46,750,000 of~~return) in net operating loss carryforwards ~~available~~ to offset future taxable income ~~generated. Such tax net operating loss carryforwards expire between 2023 and 2037. In addition, the Company had research and development tax credit carryforwards approximating $2,110,000 available~~ as of September 30, ~~2017, which expire between 2023 and 2037.~~2022.

Prepaid expenses were the following at September 30, 2022 and December 31, 2021:

Property, plant and equipment consisted of the following at September 30, 2022 and December 31, 2021:

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.

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 ~~Internal Revenue Code contains provisions~~original lease agreement was amended on August 28, 2020 to correct the footage under ~~Section 382 which limit~~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 ~~company’s ability~~termination date of December 2026. The Company is responsible for property taxes, utilities, insurance and its proportionate share of common area costs related to ~~utilize net~~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 ~~loss carry-forwards~~lease as of September 30, 2022, wasfifty-one months. The Company’s previous office and warehouse space lease expired in April 2020 and the ~~event~~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 ~~it has experienced~~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 ~~more than 50% change~~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, wastwenty-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 ~~ownership~~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 wasthree 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 ~~three-year period. Current estimates prepared~~weighted average discount rate of 8%.

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

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

Patents and trademarks pending will be amortized beginning at the time they are issued 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 carryforwards are currently subject to an annual limitation of approximately $1,151,000, but 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 carryforwards expire between 2023 and 2037, allowing the Company to potentially utilize allappropriate authorities. If issuance of the ~~limited net operating loss carry-forwards during~~final patent or trademark is denied, then the ~~carryforward 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 positionamount deferred will be ~~sustained upon examination. If a tax position meets~~immediately charged to expense.

Amortization expense for the ~~more-likely-than-not recognition threshold, it~~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 ~~then measured to determine~~as follows:

Other assets were 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 thresholdsfollowing at September 30, 2022 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.December 31, 2021:

~~The Company’s federal and state income tax returns are closed for examination purposes by relevant statute and by examination for 2012 and all prior tax years.~~SCHEDULE OF OTHER ASSETS

The ~~Company~~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 ~~several non-cancelable operating lease agreements~~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 ~~office space~~both vendors and ~~warehouse space that expire~~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 dates through April 2020. The Company has also entered into month-to-month leases for equipment. Rent expense was $99,431 and $99,431 for the three months ended September 30, 2017 and 2016, respectively, and $298,293 and $298,293, for the nine months ended September 30, 2017 and 2016, respectively. Following are the minimum lease payments for each year and in total.

~~License agreements.~~~~The Company has several license agreements whereby it has been assigned the rights to certain licensed materials used in its products. Certain~~participants of these ~~agreements require the Company to pay ongoing royalties based on the number~~global supply chains, which are largely beyond our direct control. A prolonged shut down of ~~products shipped containing the licensed material on a quarterly basis. Royalty expense related to~~ these agreements aggregated $6,250 and $6,250 for the three months ended September 30, 2017 and 2016, respectively, and $14,938 and $18,911 for the nine months ended September 30, 2017 and 2016, respectively.

The Company is subject to various legal proceedings arising from normal business operations. Although there can be no assurances, based on the information currently available, management believes that it is probable that the ultimate outcome of each of the actions will not have a material adverse effect on the consolidated financial statement of the Company. However, an adverse outcome in certain of the actionsglobal supply chains could have a material adverse effect on ~~the financial~~our business, results of ~~the Company in the period in which it is recorded.~~operations, cash flows and financial condition.

The Company owns U.S. Patent No. 8,781,292 (the “ ‘292 Patent”), which is directed to a system that determines when a recording device, such as a law enforcement officer’s body camera or in-car video recorder, begins recording and automatically instructs other recording devices to begin recording. The technology described in the ‘292 Patent is incorporated in the Company’s VuLink product.

~~The Company received notice~~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 ~~April 2015 that Taser International, Inc., now known as Axon Enterprises, Inc. (“Axon”), had commenced an action~~a timely, compliant and cost-effective manner. We have incurred and may in the ~~U.S. Patent~~future incur additional costs and ~~Trademark Office (the “USPTO”) for~~delays in our business resulting from the COVID-19 pandemic, including as a ~~re-examination~~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 ~~‘292 patent. A re-examination is essentially a request~~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 ~~USPTO review whether~~best interests of our employees, customers, partners, vendors, and suppliers. Although we managed to continue most of our operations, the ~~patent should have issued in its present form in view~~future course of the ~~“prior art,” e.g., other patents in~~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.

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 ~~same technology field. The prior art used by Axon was from an unrelated third party and was not the result~~specifics of any ~~of Axon’s own research~~claim or threatened lawsuit until the summons and ~~development efforts.~~

~~On January 14, 2016~~complaint are actually served on us. After carefully assessing the ~~USPTO ultimately rejected Axon’s efforts~~claim, and ~~confirmed~~assuming we determine that we are not at fault or we disagree with the ~~validity~~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 ~~‘292 Patent with 59 claims covering various aspects~~amount of the ~~Company’s auto-activation technology. On February 2, 2016~~loss or range of possible losses for the ~~USPTO issued another patent relating to the Company’s auto-activation technology~~claim, if material for ~~law enforcement cameras. U.S. Patent No. 9,253,452 (the “ ‘452 Patent”) generally covers the automatic activation~~disclosure. In evaluating matters for accrual and ~~coordination of multiple recording devices in response to a triggering event,~~disclosure purposes, we take into consideration factors such as our historical experience with matters of a ~~law enforcement officer activating~~similar nature, the ~~light bar on~~specific facts and circumstances asserted, the ~~vehicle.~~

~~The Company filed suit on January 15, 2016 in~~likelihood of our prevailing, the ~~U.S. District Court for the District~~availability of Kansas (Case No: 2:16-cv-02032) against Axon, alleging willful patent infringement against Axon’s body camera product line. The Company later added the ‘452 patent to the suit and is seeking both monetary damages and a permanent injunction against Axon for infringement of both the ‘452 and ‘292 Patents.

In addition to the infringement claims, the Company added a new set of claims to the lawsuit alleging that Axon conspired to keep the Company out of the marketplace by engaging in improper, unethical, and unfair competition. The amended lawsuit alleges Axon bribed officials and otherwise conspired to secure no-bid contracts for its products in violation of both state law and federal antitrust law. The Company’s lawsuit also seeks monetary and injunctive relief, including treble damages, for these alleged violations.

Axon filed an answer which denied the patent infringement allegations on April 1, 2016. In addition, Axon filed a motion to dismiss all allegations in the complaint on March 4, 2016 for which the Company filed an amended complaint on March 18, 2016 to address certain technical deficiencies in the pleadings. Axon amended and renewed its motion to seek dismissal of the allegations that it had bribed officials and otherwise conspired to secure no-bid contracts for its products in violation of both state law and federal antitrust law on April 1, 2016. Formal discovery commenced on April 12, 2016 with respect to the patent related claims. In January 2017, the Court granted Axon’s motion to dismiss the portion of the lawsuit regarding claims that it had bribed officials and otherwise conspired to secure no-bid contracts for its products in violation of both state law and federal antitrust law. The Company has appealed this decision to the United States Court of Appeals for the Federal Circuit. The Company has filed its timely, opening brief; Axon has sought but not yet recieved an extension of time in which to file its own responding brief, and accordingly, the matter has not yet been fully briefed or scheduled for argument.

~~In December 2016, Axon announced that it had commenced an action in the USPTO for~~~~inter partes review~~ (“IPR”) of the Company’s ‘292 Patent. Previously Axon had attempted to invalidate the ‘292 Patent through a re-examination procedure at the USPTO. Axon is again attempting through its recently filed petition to convince the USPTO that Digital Ally’s patents lack patentability. Axon subsequently filed another action for an IPR against the ‘292 Patent and two more petitions against the ‘452 Patent. The USPTO rejected one of Axon’s requests on the ‘292 Patent and instituted an investigation of the other petition. As for the ‘452 Patent, the court rejected both of Axon’s requests on the petition challenging the claims at issue in the lawsuit. Axon is now statutorily precluded from filing any more IPR petitions against either the ‘292 or ‘452 Patents.

~~The District Court litigation in Kansas has been stayed since the filing of the petitions for IPR, The Court, however, requested an update on the status of the petitions~~insurance, and the ~~Company has provided such an~~severity of any potential loss. We re-evaluate and update after the decision was rendered which denied the final ‘452 Patent petition. Because both of Axon’s petitions for an IPR on the ‘452 Patent that related to the claims in the lawsuit were denied, the Company is seeking to lift the stay and proceed with the lawsuit to a trial where the question of infringement and damages can be addressed.accruals as matters progress over time.

On May 27, 2016 the Company filed suit against Enforcement Video, LLC d/b/a WatchGuard Video (“WatchGuard”), (Case No. 2:16-cv-02349-JTM-JPO) alleging patent infringement based on WatchGuard’s VISTA Wifi and 4RE In-Car product lines.

The USPTO has granted multiple patents to the Company with claims covering numerous features, such as automatically activating all deployed cameras in response to the activation of just one camera. Additionally, Digital Ally’s patent claims cover automatic coordination as well as digital synchronization between multiple recording devices. Digital Ally also has patent coverage directed to the coordination between a multi-camera system and an officer’s smartphone, which allows an officer to more readily assess an event on the scene while an event is taking place or immediately after it has occurred.

The Company’s lawsuit alleges that WatchGuard incorporated this patented technology into its VISTA Wifi and 4RE In-Car product lines without its permission. Specifically, Digital Ally is accusing WatchGuard of infringing three patents: the ‘292 and ‘452 Patents and U.S. Patent No. 9,325,950 the (“ ‘950 Patent”). The Company is aggressively challenging WatchGuard’s infringing conduct, seeking both monetary damages, as well as seeking a permanent injunction preventing WatchGuard from continuing to sell its VISTA Wifi and 4RE In-Car product lines using Digital Ally’s own technology to compete against it. On May 8, 2017, Watchguard filed a petition seeking IPR of the ‘950 Patent. The Company will vigorously oppose that petition. The Patent Trial and Appeal Board (“PTAB”) will not issue a decision on whether to institute that petition until approximately November 2017. The lawsuit has been stayed pending a decision from the USPTO on whether to institute that petition.

~~On October 25, 2013,~~31, 2022, the Company filed a ~~complaint in the United States District Court for the District of Kansas (2:13-cv-02550-SAC) to eliminate threats by a competitor, Utility Associates,~~lawsuit against Culp McAuley, Inc. (“~~Utility”~~defendant”), of alleged patent infringement regarding U.S. Patent No. 6,831,556 (the “ ‘556 Patent”). Specifically, the lawsuit seeks a declaration that the Company’s mobile video surveillance systems do not infringe any claim of the ‘556 Patent. The Company became aware that Utility had mailed letters to current and prospective purchasers of its mobile video surveillance systems threatening that the use of such systems purchased from third parties not licensed to the ‘556 Patent would create liability for them for patent infringement. The Company rejected Utility’s assertion and is vigorously defending the right of end-users to purchase such systems from providers other than Utility. The United States District Court for the District of Kansas dismissed the lawsuit because it decided that Kansas was not the proper jurisdictional forum for the dispute. The District Court’s decision was not a ruling on the merits of the case. The Company appealed the decision and the Federal Circuit affirmed the District Court’s previous decision.

In addition, the Company began proceedings to invalidate the ‘556 Patent through a request for IPR of the ‘556 patent at the USPTO. On July 27, 2015, the USPTO invalidated key claims in Utility’s ‘556 Patent. The Final Decision from the USPTO significantly curtails Utility’s ability to threaten law enforcement agencies, municipalities, and others with infringement of the ‘556 Patent. Utility appealed this decision to the United States Court of Appeals for the Federal Circuit. The United States Court of Appeals for the Federal Circuit denied Utility’s appeal and therefore confirmed the ruling of the USPTO. This denial of Utility’s appeal finalized the USPTO’s ruling in the Company’s favor and the matter is now concluded.

~~On June 6, 2014 the Company filed an Unfair Competition lawsuit against Utility~~ in the United States District Court for the District of Kansas. InThe lawsuit arises from the ~~lawsuit it contends that Utility has defamed~~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 ~~illegally interfered~~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 ~~its contracts, customer relationships~~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 ~~business expectancies~~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 ~~falsely asserting to its customers~~our insurance or will not be in excess of amounts recognized or provided by insurance coverage and ~~others that its products violate the ‘556 Patent,~~will not have a material adverse effect on our operating results, financial condition or cash flows.

On July 7, 2022, the Company, received a written notification (the “Notice”) from the Listing Qualifications Department of The ~~suit also includes claims against Utility~~Nasdaq Stock Market LLC (“Nasdaq”) notifying the Company that it was not in compliance with the minimum bid price requirement for ~~tortious interference with contracts and violation of~~continued listing on the ~~Kansas Uniform Trade Secrets Act (KUSTA)~~Nasdaq Capital Market, as set forth under Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Price Requirement”), ~~arising out of Utility’s employment~~because the closing bid price of the Company’s ~~employees, in violation~~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 ~~that employee’s Non-Competition and Confidentiality agreements~~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 ~~Company. In addition to damages,~~Minimum Bid Price Requirement. If at any time during the ~~Company seeks temporary, preliminary, and permanent injunctive relief, prohibiting Utility from, among other things, continuing to threaten or otherwise interfere with~~Compliance Period, the ~~Company’s customers. On March 4, 2015, an initial hearing was held upon the Company’s request for injunctive relief.~~

In the event the Company ~~leave~~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 ~~amend its complaint, but denied its preliminary injunction. The discovery stage~~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 ~~lawsuit expired in May 2016. Utility filed a Motion for Summary Judgment~~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 ~~filed a Motion for Partial Summary Judgment. On March 30, 2017,~~does not regain compliance within the ~~Court entered its order granting Utility’s motion and denying~~allotted compliance period(s), including any extensions that may be granted by Nasdaq, Nasdaq will provide notice that the ~~Company’s motion for summary judgment in their entireties. The Company believes~~Common Stock will be subject to delisting from the District Court made several errors when ruling on the motions for summary judgment in light of the USPTO’s final decision issued on July 27, 2015 and the various facts and admissions already presented to such Court and has filed an appeal to the United States Court of Appeals for the Tenth Circuit. Oral arguments are set to occur on January 17, 2018.Nasdaq Capital Market.

On September 13, 2014, Utility filed suit in the United States District Court for the Northern District of Georgia against the Company alleging infringement of the ‘556 Patent. The suit was served on the Company on September 20, 2014. As alleged in the Company’s first filed lawsuit described above, the Company believes that the ‘556 Patent is both invalid and not infringed. Further, the USPTO has issued its final decision invalidating 23 of the 25 claims asserted in the ‘556 Patent, as noted above. The Company believes that the suit filed by Utility is without merit and is vigorously defending the claims asserted against the Company. An adverse resolution of the foregoing litigation or patent proceedings could have a material adverse effect on the Company’s business, prospects, results of operations, financial condition, and liquidity. The Court stayed all proceedings with respect to this lawsuit pending the outcome of the patent review performed by the USPTO and the appellate court. Based on the USPTO’s final decision to invalidate substantially all claims contained in the ‘556 Patent and the United States Court of Appeals for the Federal Circuit full denial of Utility’s appeal, the Company intends to file for summary judgment in its favor if Utility does not request outright dismissal.

The Company is also involved as a plaintiff and defendant in ordinary, routine litigation and administrative proceedings incidental to its business from time to time, including customer collections, vendor and employment-related matters. The Company believes the likely outcome of any other pending cases and proceedings will not be material to its business or its financial condition.

~~Sponsorship.~~On April 16, 2015 the Company entered into a Title Sponsorship Agreement (the “Agreement”) under which it became the title sponsor for a Web.com Tour golf tournament (the “Tournament”) held annually in the Kansas City Metropolitan area. The Agreement provides the Company with naming rights and other benefits for the 2015 through 2019 annual Tournament in exchange for the following sponsorship fee:

The Company has the right to sell and retain the proceeds from the sale of additional sponsorships, including but not limited to a presenting sponsorship, a concert sponsorship and founding partnerships for the Tournament. The Company recorded a net sponsorship expense of $256,452 and $497,235 for the three months ended September 30, 2017, and 2016, respectively, and $263,047 and $499,271, respectively, for the nine months ended September 30, 2017 and 2016.

~~401 (k) Plan.~~In July 2008, the Company amended and restated its 401(k) retirement savings plan. The amended plan requires the Company 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 has made matching contributions totaling $43,455 and $46,346 for the three months ended September 30, 2017 and 2016, respectively, and $137,781 and $135,058 for the nine months ended September 30, 2017 and 2016, 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 requires it to make monthly payments which 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, 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 paid the LLC and advance against commissions ranging from $5,000 to $6,000 per month plus necessary and reasonable expenses for a period of one year beginning January 2016, 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 September 30, 2017, the Company had advanced a total of $301,115 pursuant to this agreement.

The Company recorded ~~pretax~~pre-tax compensation expense related to the grant of stock options and restricted stock issued of ~~$478,863~~$251,733 and ~~$422,246,~~ $491,950 for the three months ended September 30, ~~2017~~2022 and ~~2016,~~2021, and ~~$981,652~~$1,028,084 and ~~$1,203,312~~$1,186,771 for the nine months ended September 30, ~~2017~~2022 and ~~2016,~~2021, respectively.

As of September 30, ~~2017,~~2022, the Company had adopted ~~seven~~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”) ~~and~~, (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 ~~2015~~2020 Plan are referred to as the “Plans.”

These Plans permit the grant of stock options or restricted stock to ~~its~~the Company’s employees, non-employee directors and others for up to a total of ~~2,425,000~~ 6,675,000 shares of common stock. The 2005 Plan terminated during 2015 with 2821,553 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, ~~2017~~2022 total ~~18,563.~~5,689. The 2006 Plan terminated during 2016 with ~~4,505~~ 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, ~~2017~~2022 total ~~62,080.~~10,625. The 2007 Plan terminated during 2017 with ~~48,500~~ 94,651 shares not awarded or underlying options, which shares are now unavailable for issuance. ~~Stock~~There are no stock options granted under the 2007 Plan that remain unexercised and outstanding as of September 30, ~~2017 total 41,875.~~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. ~~Option~~

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 ~~its~~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 ~~86,363~~190,845 shares remained available for awards under the various Plans as of September 30, ~~2017.~~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:

The fair value of each option award is estimated on the date of grant using a Black-Scholes option valuation model. ~~There were 100,000~~The total estimated grant date fair value stock options issued during the nine months ended September 30, ~~2017.~~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:

~~Activity in the various Plans during the nine months ended September 30, 2017 is reflected in the following table:~~

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, ~~2017.~~2022 and 2021.

~~At September 30, 2017, the~~The aggregate intrinsic value of options outstanding was ~~approximately $-0-~~$-0- and $-0-, at September 30, 2022 and ~~the~~December 31, 2021, respectively. The aggregate intrinsic value of options exercisable was ~~approximately $-0-. No options were exercised in the nine months ended~~$-0- and $-0-, at September 30, ~~2017.~~2022 and December 31, 2021, respectively.

As of September 30, ~~2017,~~2022, the unrecognized portion of stock compensation expense on all existing stock options was ~~$218,034, which will be recognized over the next ten months.~~$-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, ~~2017:~~2022:

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 ~~nine months~~one to ~~four~~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 ~~equity compensation plans~~Plans for the nine months ended September 30, ~~2017~~2022 is as follows:

	Number of Restricted shares			Weighted average grant date fair value			Number of Restricted shares			Weighted average grant date fair value
Nonvested balance, January 1, 2017		495,300		$	5.75
Nonvested balance, December 31, 2021								1,057,375		$	1.87
Granted		522,000			3.80			715,000			1.07
Vested		(136,750	)		(6.47	)		(570,875	)		(1.77	)
Forfeited		(9,200	)		(6.47	)		(65,000	)		(1.06	)
Nonvested balance, September 30, 2017		871,350		$	5.78
Nonvested balance, September 30, 2022								1,136,500		$	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, ~~2017,~~2022, there were ~~$2,193,353~~$627,217 of total unrecognized compensation costs related to all remaining non-vested restricted stock grants, which will be amortized over the next 39fifty-two months in accordance with ~~the~~their respective vesting scale.

The Company has issued common stock purchase warrants ~~(the “Warrants”)~~ in conjunction with various debt and equity issuances. The ~~Warrants~~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 ~~3,013,466~~1,349,178 shares of common stock at ~~$2.75~~$2.60 to ~~$16.50~~$3.36 per share as of September 30, ~~2017.~~ 2022. The ~~Warrants~~warrants expire from February 23, 2023 through July ~~22, 2017 through September 30, 2022~~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.

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 August 23, 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		24,300,000

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:

The total intrinsic value of all outstanding ~~Warrants~~warrants aggregated ~~$-0-~~$-0- as of September 30, ~~2017~~2022, and the weighted average remaining term is 467 months.

The following table summarizes the range of exercise prices and weighted average remaining contractual life for outstanding and exercisable ~~Warrants~~warrants to purchase shares of common ~~shares~~stock as of September 30, ~~2017:~~2022:

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

		Outstanding and exercisable warrants			Outstanding and exercisable warrants
Exercise price		Number of options	Weighted average remaining contractual life
$	2.75	100,000	5.0 years
$	2.75	12,200	1.9 years
$	3.36	680,000	5.4 years
$	3.36	200,000	4.4 years
$	3.65	200,000	4.7 years
$	3.75	94,000	4.9 years
$	5.00	800,000	4.2 years
$	8.50	42,500	1.1 years
				Exercise price	Number of warrants	Weighted average remaining contractual life
$	13.43	879,766	3.3 years	2.60	465,712	0.8 years
$	16.50	5,000	2.8 years	3.00	316,800	0.5 years
$	16.50			3.36	566,666	0.4 years
		3,013,466	3.8 years
					1,349,178	0.6 years

During the nine months ended September 30, 2022, the Company cancelled 65,000 restricted shares of common stock due to forfeiture reasons.

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.

The ~~calculations~~calculation of the weighted average number of shares outstanding and loss per share outstanding for the three and nine months ended September 30, ~~2017~~2022 and ~~2016~~2021 are as follows:

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

Basic ~~loss~~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, ~~2017~~2022 and ~~2016,~~2021, all shares issuable upon the exercise of outstanding stock options ~~to purchase common stock~~and warrants were antidilutive, and, therefore, not included in the computation of diluted ~~net loss~~income (loss) per share.

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

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 IDENTIFIABLE INTANGIBLE ASSETS ACQUIRED AND THEIR ESTIMATED USEFUL LIVES

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

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 IDENTIFIABLE INTANGIBLE ASSETS ACQUIRED AND THEIR ESTIMATED USEFUL LIVES

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.

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

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

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 IDENTIFIABLE INTANGIBLE ASSETS ACQUIRED AND THEIR ESTIMATED USEFUL LIVES

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.

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

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

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.

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:

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.

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.

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.

Item ~~2.Management’s~~2. Management’s Discussion and Analysis of Financial Condition and Results of Operation.

This ~~Report~~quarterly report on Form 10-Q (the “Report”) of Digital Ally, Inc. (the “Company”, “we”, “us”, or “our”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of ~~1934.~~1934, as amended (the “Exchange Act”). The words “aim,” “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” ~~“anticipate,~~“feel,” “forecast,” “intend,” ~~“estimate,~~“may,” ~~“may,~~“outlook,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” ~~“could,”~~ “will,” ~~“plan,” “future,” “continue,~~“would,” and ~~other~~similar expressions ~~that are predictions of or indicate future events and trends and that do not relate~~intended to ~~historical matters~~ identify forward-looking ~~statements.~~statements, although not all forward-looking statements contain these identifying words. These forward-looking statements are based largely on our expectations or forecasts of future events, can be affected by inaccurate assumptions, and are subject to various business risks and known and unknown uncertainties, a number of which are beyond our control. Therefore, actual results could differ materially from the forward-looking statements contained in this document, and readers are cautioned not to place undue reliance on such forward-looking statements.

We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. A ~~wide~~ variety of factors could cause or contribute to such differences and could adversely impact revenues, profitability, cash flows and capital needs. There can be no assurance that the forward-looking statements contained in this document will, in fact, transpire or prove to be accurate.

Factors that could cause or contribute to our actual results differing materially from those discussed herein or for our stock price to be adversely affected include, but are not limited to: (1) our losses in recent years, ~~including fiscal 2017~~ and ~~2016, and~~the substantial doubt about our ability to ~~pay the Debentures~~continue as a going concern; (2) economic and ~~Notes when due; (2) macro-economic~~other risks for our business from the effects of the ~~decrease in budgets for~~COVID-19 pandemic, including the impacts on our law-enforcement ~~community;~~and commercial customers, suppliers and employees and on our ability to raise capital as required; (3) our ability to increase revenues, increase our margins and return to consistent profitability in the current economic and competitive ~~environment, including whether deliveries will resume under the AMR contract;~~environment; (4) our operation in developing markets and uncertainty as to market acceptance of our technology and new products; (5) the availability of funding from federal, state and local governments to facilitate the budgets of law enforcement agencies, including the timing, amount and restrictions on such funding; (6) our ability to deliver our new product offerings as scheduled and have such new products perform as planned or advertised; (7) whether there will be commercial markets, domestically and internationally, for one or more of our newer products, and the degree to which the interest shown in our products, including the DVM-800 HD, FirstVU HD, VuLink, VuVault.net, FleetVU and MicroVU HD, will translate into sales during 2017; (8) our ability to maintain or expand our share of the market for our products in the domestic and international markets in which we compete, including increasing our international ~~revenues to their historical levels; (9)~~revenues; (7) our ability to produce our products in a cost-effective manner; ~~(10)~~(8) competition from larger, more established companies with far greater economic and human resources; ~~(11)~~(9) our ability to attract and retain quality employees; ~~(12)~~(10) risks related to dealing with governmental entities as customers; ~~(13)~~(11) our expenditure of significant resources in anticipation of sales due to our lengthy sales cycle and the potential to receive no revenue in return; ~~(14)~~(12) characterization of our market by new products and rapid technological change; ~~(15)~~(13) our dependence on sales of our EVO-HD, DVM-800, ~~DVM-800 HD,~~DVM-250 and FirstVU ~~First VU HD and DVM-250~~ products; ~~(16) potential~~(14) that stockholders may lose all or part of their investment if we are unable to compete in our markets and return to profitability; ~~(17)~~(15) defects in our products that could impair our ability to sell our products or could result in litigation and other significant costs; ~~(18) our dependence on key personnel; (19) our reliance on third-party distributors and sales representatives for part of our marketing capability; (20)~~(16) our dependence on a few manufacturers and suppliers for components of our products and our dependence on domestic and foreign manufacturers for certain of our products; ~~(21)~~(17) our ability to protect technology through patents and to protect our proprietary technology and information, such as trade secrets, ~~and~~ through other similar means; ~~(22)~~(18) our ability to generate more recurring cloud and service revenues; ~~(23)~~(19) risks related to our license arrangements; ~~(24)~~(20) the fluctuation of our ~~revenues and operating~~operation results ~~may fluctuate unexpectedly~~ from quarter to quarter; ~~(25)~~(21) sufficient voting power by coalitions of a few of our larger stockholders, including directors and officers, to make corporate governance decisions that could have a significant effect on us and the other stockholders; ~~(26)~~(22) the issuance or sale of substantial amounts of our common stock, or the perception that such sales may occur in the future, which may have a depressive effect on the market price of ~~the outstanding shares of~~ our ~~common stock; (27) possible~~securities; (23) potential dilution from the issuance of common stock ~~subject to~~underlying outstanding options and warrants that may dilute the interest of stockholders; (28) our ability to comply with Sarbanes-Oxley Act of 2002 Section 404 as it may be required; (29) our nonpayment of dividends and lack of plans to pay dividends in the future; (30) future sale of a substantial number of shares of our common stock that could depress the trading price of our common stock, lower our value and make it more difficult for us to raise capital; (31)warrants; (24) our additional securities available for issuance, which, if issued, could adversely affect the rights of the holders of our common stock; ~~(32)~~(25) the volatility of our stock price ~~is likely to be highly volatile~~ due to a number of factors, including, but not limited to, a relatively limited public float; ~~(33) whether~~(26) our ability to integrate and realize the ~~legal actions that~~anticipated benefits from acquisitions; (27) our ability to maintain the Company is taking or has taken against Utility Associates, Axon and WatchGuard will achieve their intended objectives; (34) whether the USPTO rulings will curtail, eliminate or otherwise have an effectlisting of our common stock on the actions of Axon, WatchGuard and Utility Associates respecting us, our products and customers; (35) whether the remaining two claims under the ‘556 Patent have applicability to us or our products; and (36) whether our patented VuLink technology is becoming the~~de-facto~~ “standard” for agencies engaged in deploying state-of-the-art body-worn and in-car camera systems; (37) the USPTO’s decision on Watchguard’s petition seeking IPR of the ‘950 Patent; (38) whether such technology will have a significant impact on our revenues in the long-term; and (39) indemnification of our officers and directors.Nasdaq Capital Market.

WeVideo Solutions Operating Segment – Within our video solutions 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 ~~unique~~positive solutions to our customers’ requests. ~~We began shipping our flagship digital video mirror product in March 2006. We have developed additional~~Our products ~~to complement our original~~include: the EVO-HD, DVM-800 and DVM-800 Lite, which are in-car digital video ~~products, including an array of in-car digital video mirrors (the DVM-100, DVM-400, DVM-800, DVM-800 HD and MicroVU HD), and body worn camera (FirstVU HD) products designed~~systems for law enforcement ~~usage. In recent years we have launched~~and commercial markets; the ~~following products:~~FirstVu body-worn camera line, consisting of the ~~FirstVU~~FirstVu Pro, FirstVu II, and the FirstVu HD; ~~DVM-800; the DVM-800 HD; the MicroVU HD; the~~our patented and revolutionary VuLink product which integrates our body-worn cameras with our in-car systems by providing hands-free automatic ~~activation;~~activation for both law enforcement and acommercial markets; the FLT-250, DVM-250, and DVM-250 Plus, which are our commercial line of digital video mirrors ~~(the DVM-250 and DVM-250 Plus)~~ that serve as “event recorders” for the commercial fleet and mass transit ~~markets~~markets; and FleetVu and VuLink, which are our cloud-based evidence management systems. We further diversified and broadened our product offerings in ~~order to expand~~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 ~~customer base beyond the traditional~~Shield™ disinfectants and cleansers which are for use against viruses and bacteria.

Our video solutions segment revenue encompasses video recording products and services for our law enforcement ~~agencies.~~and commercial customers and the sale of Shield disinfectant and personal protective products. This segment generates revenues through our subscription models offering cloud and warranty solutions, and hardware sales for video and personal protective safety products and solutions. Revenues for product sales are recognized upon delivery of the product, and revenues from our cloud and warranty subscription plans are deferred over the term of the subscription, typically 3 or 5 years.

Revenue Cycle Management Operating Segment - We have ~~additional research~~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 ~~development projects that~~its majority-owned subsidiary Nobility Healthcare. Nobility Healthcare completed its first acquisition on June 30, 2021, when it acquired a private medical billing company, and a second acquisition on August 31, 2021 upon the completion of its acquisition of another private medical billing company, along with two more acquisitions completed during the three months ended March 31, 2022, in which we ~~anticipate will result~~assist in ~~several new product launches~~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 ~~2017~~this field, we aim to maximize our customers’ service revenues collected, leading to substantial improvements in their operating margins and ~~beyond.~~cash flows.

Our revenue cycle management segment consists of our medical billing subsidiaries. Revenues of this segment are recognized after we perform the obligations of our revenue cycle management services. Our revenue cycle management services are services, performed and charged monthly, generally based on a contractual percentage of total customer collections, for which we recognize our net service fees.

Ticketing Operating Segment - We ~~believe that~~have also recently entered into live entertainment and events ticketing services through the ~~launch~~formation of ~~these new products will help to diversify~~our wholly owned subsidiary, TicketSmarter and ~~broaden~~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 ~~market for our product offerings.~~country.

~~We experienced~~Our ticketing operating ~~losses for all~~segment consists of ticketing services provided through TicketSmarter and its online platform, TicketSmarter.com. Revenues of this segment include ticketing service charges generally determined as a percentage of the ~~quarters during 2017~~face value of the underlying ticket and ~~2016.~~ ticket sales from our ticket inventory which are recognized when the underlying tickets are sold. Ticketing direct expenses include the cost of tickets purchased for resale by the Company and held as inventory, credit card fees, ticketing platform expenses, website maintenance fees, along with other administrative costs.

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:

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.

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

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)(1) the timing of large individual orders; 2)(2) the traction gained by ~~our newer~~ products, such as the ~~DVM-800 HD, FirstVU HD~~recently released FirstVu Pro, FirstVu II, FLT-250, and ~~FleetVU; 3)~~EVO HD; (3) production, quality and other supply chain issues affecting our cost of goods sold; 4)(4) unusual increases in operating expenses, such as ~~our sponsorship of the Digital Ally Open golf tournament,~~ the timing of trade shows and stock-based and bonus compensation; (5) the timing of patent infringement litigation settlements (6) ongoing patent and 5)other litigation and related expenses respecting outstanding ~~lawsuits.~~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 ~~an operating~~a net loss of ~~$3,116,695~~$1,902,475 on revenues of ~~$2,983,577~~$8,484,153 for the third quarter 2017, which continued a series of quarterly losses resulting from competitive pressures, product quality control issues and product warranty issues, and infringement of our patents by direct competitors such as Axon and Watchguard that reduced our revenues and that hurt our gross margins.2022.

~~There have been a number of factors and trends affecting our recent performance, which include:~~

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.~~expenses other than the following:

We are a party to operating leases ~~title sponsorship,~~ and license agreements that represent commitments for future payments (described in Note 109, “Operating Leases,” to our condensed consolidated financial statements) 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 subsections is an analysis of our operating results for the three months ended September 30, ~~2017~~2022 and ~~2016,~~2021, represented as a percentage of total revenues for each ~~respective year:~~such quarter:

	Three Months Ended September 30,						Three Months Ended September 30,
	2017			2016			2022			2021
Revenue		100	%		100	%		100	%		100	%
Cost of revenue		66	%		53	%		93	%		70	%

Gross profit		34	%		47	%		7	%		30	%
Selling, general and administrative expenses:
Research and development expense		28	%		17	%		7	%		11	%
Selling, advertising and promotional expense		35	%		32	%		22	%		33	%
Stock-based compensation expense		16	%		10	%
General and administrative expense		59	%		63	%		56	%		65	%

Total selling, general and administrative expenses		138	%		122	%		84	%		108	%

Operating loss		(104	%)		(75	%)		(77	)%		(78	)%
Change in fair value of secured notes payable		(1	%)		—%
Other income and interest expense, net		(12	%)		—%
Loss before income tax benefit		(117	%)		(75	%)

Change in fair value of short-term investments								—	%		—	%
Change in fair value of contingent consideration promissory notes								(2	)%		—	%
Change in fair value of derivative liabilities								56	%		250	%
Other income and interest income (expense), net								—	%		2	%

Income (loss) before income tax benefit								(23	)%		173	%
Income tax (provision)		—%			—%			—	%		—	%
Net loss		(117	%)		(75	%)

Net loss per share information:
Net income/(loss)								(23	)%		173	%

Net loss attributable to noncontrolling interests of consolidated subsidiary								—	%		1	%

Net income (loss) attributable to common stockholders								(23	)%		174	%

Net income/(loss) per share information:
Basic	$	(0.56	)	$	(0.61	)	$	(0.04	)	$	0.16
Diluted	$	(0.56	)	$	(0.61	)	$	(0.04	)	$	0.16

Product revenues primarily include video operating segment hardware sales of in-car and body-worn cameras, along with sales of our ThermoVu^TMunits, 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.

~~We sell~~video operating segment sells our products and services to ~~law enforcement and commercial~~ customers in the following manner:

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

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

We may discount our prices on specific orders based upon the size of the order, the specific customer and the competitive landscape. ~~We believe that our systems are at least comparable to those~~

The Omicron variant of COVID-19 and nationwide inflationary concerns had an impact on all of our ~~principal competitors and are generally lower priced when considering comparable features and capabilities.~~

~~Revenues~~operating segment revenue streams for the ~~third quarters~~three months ended September 30, 2022. 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 quarter. Ticketing operating segment revenues also continue to be negatively impacted due to the continued public caution surrounding the COVID-19 pandemic and the impacts of ~~2017 and 2016 were derived from the following sources:~~inflation on consumer’s discretionary spending.

Product revenues for the three months ended September 30, ~~2017~~2022 and ~~2016~~2021 were ~~$2,521,663~~$3,062,373 and ~~$3,836,691,~~$1,356,454 respectively, ~~a decrease~~an increase of ~~$1,315,028 (34%~~$1,705,919 (126%), due to the following factors:

Service and other revenues for the three months ended September 30, ~~2017~~2022 and ~~2016~~2021 were ~~$461,914~~$5,421,780 and ~~$502,836,~~$3,283,368, respectively, ~~a decrease~~an increase of ~~$40,922 (8%~~$2,138,412 (65%), due to the following factors:

Total revenues for the three months ended September 30, ~~2017~~2022 and ~~2016~~2021 were ~~$2,983,577~~$8,484,153 and ~~$4,339,527,~~$4,639,822, respectively, ~~a decrease~~an increase of ~~$1,355,950 (31%~~$3,844,331 (83%), due to the reasons noted above.

~~Cost~~Overall cost of product revenue ~~on units~~ sold for the three months ended September 30, ~~2017~~2022, and ~~2016~~2021 was ~~$1,709,046~~$3,262,457 and ~~$2,235,489,~~$1,197,217, respectively, ~~a decrease~~an increase of ~~$526,443 (24%~~$2,065,240 (173%). ~~The decrease in~~Overall cost of goods sold ~~is commensurate with the 34% decrease in product revenues offset with product cost of sales~~for products as a percentage of revenues increasing to 68% during the three months ended September 30, 2017 from 58% for the three months ended September 30, 2016. We increased the reserve for obsolete and excess inventories by approximately $103,000 during the three months ended September 30, 2017 due to increased levels of excess component parts of older versions of PCB boards, used trade-in inventory requiring refurbishment, and legacy products. Additionally, our production department spent time reworking returned product ~~and were not able to be as efficient manufacturing new products.~~

~~Cost of service and other~~ revenues for the three months ended September 30, ~~2017~~2022, and ~~2016 was $265,918~~2021 were 93% and ~~$70,467, respectively, an~~70%, respectively. Cost of products sold by operating segment is as follows:

The increase in cost of ~~$195,451 (277%). The primary reason~~goods sold for our video solutions segment products is directly correlated with the increase ~~is the reclassification of certain technical support personnel to generate direct installation and other service revenues~~ in the three months ended September 30, 2017 compared to September 30, 2016. In recent quarters, certain members of our technical support staff have been reclassified and their respective payroll expenses are now being charged to service cost of sales for product ~~installation instead of executive, sales and administrative payroll as they were in 2016. The payroll reclassification for three months ended September 30, 2017 was approximately $103,000.~~

~~Total cost of sales as a percentage of revenues increased to 66% during the three months ended September 30, 2017 compared to 53%~~costs for the three months ended September 30, ~~2016.~~ 2022 compared to the three 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 third quarter 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 107% for the three months ended September 30, 2022 as compared to 88% for the three 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 $2,001,162 for the three months ended September 30, 2022, compared to $-0- for the three months ended September 30, 2021. Cost of product sold as a percentage of product revenues for the ticketing solutions was 117% for the three months ended September 30, 2022. The Ticketing Segment recorded an allowance for unsold and under-market tickets during the first quarter of 2022 due to event cancellations and restrictions imposed on the size and type of gatherings related to the Omicron variant.

We ~~believe our gross margins will return to more normal levels in future quarters if we improve revenue levels~~recorded $3,771,424 and ~~reduce product warranty issues.~~

~~We had $2,417,653 and $1,999,920~~$3,915,089 in reserves for obsolete and excess inventories at September 30, ~~2017~~2022 and December 31, ~~2016,~~2021, respectively. Total raw materials and component parts were ~~$4,828,517~~$4,960,740 and ~~$4,015,170~~$3,062,046 at September 30, ~~2017~~2022 and December 31, ~~2016,~~2021, respectively, an increase of ~~$813,347 (20%~~$1,898,694 (62%). ~~The increase in raw materials was mostly in refurbished parts for FirstVU HD products.~~ Finished goods balances were ~~$7,509,227~~$9,769,951 and ~~$7,215,346~~$10,512,577 at September 30, ~~2017~~2022 and December 31, ~~2016,~~2021, respectively, ~~an increase~~a decrease of ~~$293,881 (4%~~$742,626 (7%)~~. The increase~~ which was attributable to a decrease in finished goods ~~was primarily in the FirstVU HD and DVM-250 products.~~from our newly acquired ticketing segment. The ~~increase in in DVM-250 product levels is primarily attributable to the halt of deliveries under the AMR contract in 2017. The increase~~small decrease in the inventory reserve is primarily due to the ~~change~~reduction in ~~sales mix of our products, which has resulted in a higher level~~finished goods and movement of excess component parts of the older versions of our PCB boards and legacy products. Additionally, we increased our reserves on selected refurbished and items requiring repair during the nine months ended September 30, 2017.inventory. We believe the reserves are appropriate given our inventory levels atas of September 30, ~~2017.~~2022.

Overall cost of service revenue sold for the three months ended September 30, 2022, and 2021 was $4,626,196 and $2,042,035, respectively, an increase of $2,584,160 (126.5%). Overall cost of goods sold for services as a percentage of service revenues for the three months ended September 30, 2022, and 2021 were 85% and 62%, respectively. Cost of service revenues by operating segment is as follows:

~~Gross~~Overall gross profit for the three months ended September 30, ~~2017~~2022 and ~~2016~~2021 was ~~$1,008,613~~$595,500 and ~~$2,033,571,~~$1,400,570, respectively, a decrease of ~~$1,024,958 (50%~~$805,070 (57.5%). Gross profit by operating segment was as follows:

The overall decrease is ~~commensurate with~~attributable to the ~~31% decrease~~large overall increase in revenues for the three months ended September 30, ~~2017 combined with~~2022, offset by an increase in the overall cost of sales as a percentage of overall revenues ~~increasing~~ to ~~66% during~~93% for the three months ended September 30, ~~2017~~2022 from ~~53%~~70% for the ~~six~~three months ended September 30, ~~2016. We believe that gross margins will improve during the remainder of 2017 and beyond if we improve revenue levels and continue to reduce product warranty issues.~~2021. Our goal is to improve our margins ~~to 60%~~ over the longer term based on the expected margins ofgenerated by our ~~newer products, in particular the~~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, ~~DVM-800~~VuLink, FirstVu Pro, FirstVu II, FirstVu HD, ThermoVu^TM, Shield^TM disinfectants and ~~FirstVU HD, if~~our cloud evidence storage and management offering, provided that they ~~continue to~~ gain traction in the marketplace and ~~we are able~~subject to ~~increase our commercial market penetration for~~a normalizing economy in the ~~balance~~wake of ~~2017~~the COVID-19 pandemic and ~~in 2018.~~current inflationary concerns. In addition, if revenues from ~~these products~~the video solutions segment increase, we will seek to further improve our margins from ~~them~~this segment through ~~economies of scale~~expansion and ~~more efficiently~~increased efficiency utilizing fixed manufacturing overhead components. We plan to continue our initiative onto more efficient management of our supply chain through outsourcing production, quantity purchases and more effective purchasing practices.

Selling, general and administrative expenses were ~~$4,125,308~~$7,162,523 and ~~$5,275,212~~$4,999,543 for the three months ended September 30, ~~2017~~2022 and ~~2016,~~2021, respectively, ~~a decrease~~an increase of ~~$1,149,904 (22%~~$2,162,980 (43.3%). ~~Overall~~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 ~~increased~~decreased to ~~138% in 2017~~84% for the three months ended September 30, 2022 compared to ~~122%~~108% in the same period in ~~2016.~~2021. The significant components of selling, general and administrative expenses are as follows:

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 ~~$831,573~~$616,174 and ~~$731,077~~$492,221 for the three months ended September 30, ~~2017~~2022 and ~~2016,~~2021, respectively, an increase of ~~$100,496 (14%~~$123,953 (25.2%). ~~We employed a total~~Most of 32our engineers ~~at September 30, 2017 compared to 29 engineers at September 30, 2016, most of whom~~ are dedicated to research and development activities for new ~~products.~~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 ~~increased~~expect our engineering staff of web-based developers as we expanded our offerings to include, among other items, cloud-based evidence storage and management for our law enforcement customers (VuVault.net) and our web-based commercial fleet driver monitoring and management tool (FleetVU Manager). Research and development expenses as a percentage of total revenues were 28% for the three months ended September 30, 2017 compared to 17% for the three months ended September 30, 2016. We have active research and development ~~projects~~activities will continue to trend higher in future quarters as we continue to expand our product offerings based on ~~several~~our new ~~products,~~body-worn camera and EVO-HD product platform and as ~~well as upgrades to our existing product lines.~~we outsource more development projects. We consider our research and development capabilities and new product focus to be a competitive advantage and ~~will~~intend to continue to invest in this area on a prudent ~~basis.~~basis and consistent with our financial resources.

Selling, advertising and promotional expenses.Selling, advertising and promotional expense totaled ~~$1,048,334~~$1,832,916 and ~~$1,369,244~~$1,511,682 for the three months ended September 30, ~~2017~~2022 and ~~2016,~~2021, respectively, ~~a decrease~~an increase of ~~$320,910 (23%~~$321,234 (21.3%). ~~Salesman salaries~~Promotional and ~~commissions represents~~advertising expenses represent the primary ~~components~~component of these costs and ~~were $701,399~~totaled $1,368,996 during the three months ended September 30, 2022, compared to $1,106,284 during the three months ended September 30, 2021, an increase of $262,712 (23.7%). The increase is primarily attributable to the 2022 sponsorship of NASCAR and ~~$753,658~~IndyCar. Additionally, TicketSmarter remains active in sponsorship and advertising.

General and administrative expense. General and administrative expenses totaled $4,713,433 and $2,995,640 for the three months ended September 30, ~~2017~~2022 and ~~2016,~~2021, respectively, ~~a decrease~~an increase of ~~$52,259 (7%). The effective commission rate was 23.5% and 17.4% for the three months ended September 30, 2017 and 2016, respectively.~~

Promotional and advertising expenses totaled $346,935 during the three months ended September 30, 2017 compared to $615,586 during the three months ended September 30, 2016, a decrease of $268,651 (44%). The decrease is primarily attributable net promotional expenses associated with being the title sponsor of the Web.com Tour golf tournament held annually in the Kansas City Metropolitan area being less in 2017 compared to 2016. We incurred net promotional expenses of $263,047 in the third quarter 2017 relative to this sponsorship compared to $497,235 for the third quarter of 2016. The Company is also decreasing the number of trade shows attended during 2017 because it has lost some of its confidence in the efficiency and effectiveness of many of the lesser attended trade shows

~~Stock-based compensation expense.~~~~Stock based compensation expense totaled $478,863 and $422,246 for the three months ended September 30, 2017 and 2016, respectively, a decrease of $56,617 (13%~~$1,717,793 (57.3%). The increase ~~is primarily due to the amortization of the restricted stock granted~~ in ~~August 2017 to the Company’s officers~~general and ~~other employees that had the effect of increasing the stock compensation expense for the three months ended September 30, 2017 compared to 2016.~~

~~Professional fees and expense~~~~. Professional fees and expenses totaled $411,945 and $432,325 for the three months ended September 30, 2017 and 2016, respectively, a decrease of $20,380 (5%). The decrease in professional fees and~~administrative expenses in the three months ended September 30, ~~2017~~2022 compared to ~~2016~~the same period in 2021 is primarily attributable to ~~lower litigation expenses related~~an increase in administrative salaries, as payroll continues to increase with the ~~Utility, Axon~~new acquisition completed by the Company’s healthcare venture during the first half of 2022. General and ~~WatchGuard lawsuits. These matters continue and the reduced litigation charges are generally~~administrative expense also increased due to ~~timing issues~~a substantial increase in ~~the litigation. The Axon~~depreciation and Watchguard lawsuits were both under a stay order pending final USPTO rulings on the various IPR requests, which have largely been ruled in our favor. We intend to pursue recovery from Utility, Axon, WatchGuard, their insurersamortization, rent expenses, and ~~other responsible parties as appropriate.~~

~~Executive, sales~~legal and ~~administrative staff payroll.~~~~Executive, sales and administrative staff payroll~~professional expenses ~~totaled $694,475 and $1,641,014~~ for the three months ended September 30, 2017 and 2016, respectively, a decrease of $946,539 (58%). The primary reason for the decrease in executive, sales and administrative staff payroll was a reduction of $730,000 in executive bonuses and the reclassification of certain technical support personnel to generate direct installation and other service revenues in the three months ended September 30, 20172022 compared to ~~September 30, 2016. We have increased~~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.

For the reasons stated above, our ~~technical support staff in recent quarters to handle field inquiries~~operating loss was $6,567,023 and requests for product installation services because our installed customer base has expanded and additional technical support and marketing was required for our new products, such as the DVM-800 and FirstVU HD. In recent quarters, certain members of our technical support staff have been reclassified to direct services for product installation and other services for our customers and their respective payroll related expenses are now being charged to service cost of sales in 2017 compared to 2016. During the quarter ended September 30, 2016 a special bonus of $630,000 was awarded to our CEO, which did not occur in 2017.

~~Other~~~~. Other selling, general and administrative expenses totaled $660,118 and $679,306~~$3,598,973 for the three months ended September 30, ~~2017~~2022 and ~~2016, respectively, a decrease of $19,188 (3%).~~

~~For the reasons previously stated, our operating loss was $3,116,695 and $3,241,641 for the three months ended September 30, 2017 and 2016,~~2021, respectively, an ~~improvement~~increase of ~~$124,946 (4%~~$2,968,050 (82.5%). Operating loss as a percentage of revenues improved to 77% in the three months ended September 30, 2022 from 78% in the same period in 2021.

Interest income increased to ~~104%~~$13,333 for the three months ended September 30, 2022, from $90,036 in ~~2017 from 75%~~the same period of 2021, which reflects our change cash and cash equivalent levels in ~~2016.~~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 three 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.

We incurred interest expense of $14,255 and $5,675 during the three 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.

We recognized a loss on change in fair value of short-term investments totaling $-0- and $21,656 during the three 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.

The Company recognized a loss on the change in fair value of contingent consideration promissory notes of $138,877 and $-0- during the three months ended September 30, 2022 and 2021, respectively. This is in connection with the four acquisitions made by our revenue cycle management segment.

~~Interest income decreased to $1,761 for the three months ended September 30, 2017 from $5,913 in 2016.~~

We incurred interest expense of $375,048 and $776 during the three months ended September 30, 2017 and 2016. We issued an aggregate of $4.0 million principal amount of Debentures on December 30, 2016 which bore interest at the rate of 8% per annum that remained outstanding at September 30, 2017. In addition, we issued Notes with a principal balance of $700,000 in June 2017. One of these Notes and a new Note had an outstanding principal balance of $650,000 at September 30, 2017. No similar interest-bearing debt was outstanding during the 2016 period.

We amortized the interest expense of $288,895 and $-0-, representing the discount associated with the $700,000 Notes during the three months ended September 30, 2017 and 2016, respectively. The discount resulted from the issuance of detachable common stock purchase warrants together with the $700,000 principal amount of the Notes, which is recorded as a discount and amortized to interest expense over the term of the Notes. The total remaining unamortized discount was $117,000 and $-0- at September 30, 2017 and 2016, respectively.

~~Detachable~~During the first quarter of 2021, the Company issued detachable warrants ~~exercisable~~ to purchase a total of ~~398,916 common~~42,500,000 shares ~~as adjusted, were issued~~of Common Stock in ~~conjunction~~association with ~~$2.0 million and $4.0 million Secured Convertible Notes during March and August 2014.~~the two registered direct offerings previously described. The ~~warrants were~~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 ~~be treated~~treat these warrants as derivative liabilities ~~because~~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 ~~their anti-dilution and down-round provisions. Accordingly, we estimated~~operations as the change in fair value of warrant derivative liabilities. The change in fair value of the warrant derivative liabilities from June 30, 2022, to September 30, 2022, totaled $1,164,849 which was recognized as a gain in the third quarter of 2022. The Company determined the fair value of such warrants as of ~~their respective date~~June 30, 2022, and as of ~~issuance~~August 23, 2022, to be $9,285,143 and ~~recorded a corresponding derivative liability in the balance sheet. Upon exercise~~$0, respectively.

The Company recognized a ~~gain/loss based~~gain on the ~~closing market price of the underlying common stock on the date of exercise. In addition, the warrant derivative liability is adjusted to the estimated~~change in fair value of ~~any unexercised warrants as~~contingent consideration promissory notes of ~~December 31, 2016~~$3,624,794 and September 30, 2017. There remained warrants outstanding exercisable to purchase 12,200 shares of common stock at December 31, 2016 and September 30, 2017 and the warrant derivative liability balance was $33,076 at December 31, 2016 and $15,729 at September 30, 2017.

~~The changes in the fair value of the warrant derivatives related to unexercised warrants resulted in a gain of $3,628 for~~$-0- during the three months ended September 30, ~~2017 compared to a loss of $19,075 for~~2022 and 2021, respectively. This is in connection with the ~~three months ended September 30, 2016.~~

~~We elected to account for~~Warrant Exchange Agreement executed by the $4.0 million principal amount of Debentures outstanding at September 30, 2017 and December 31, 2016 on their fair value basis. Therefore, we determined the fair value of the Debentures utilizing Monte Carlo simulation models which yielded an estimated fair value of $3,183,210 and $4,000,000 for the Debentures including their embedded derivatives as of September 30, 2017 and December 31, 2016, respectively. No value was allocated to the detachable Warrants as of the origination date because of the relative fair value of the Debentures including its embedded derivative features approximated the gross proceeds of the financing transaction. We made payments of $750,000 against the DebenturesCompany on August 24, 2017. The fair value of the Debentures was $3,183,210 at September 30, 2017 representing a fair value change of $6,952 from June 30, 2017, which was recognized as a charge in the Condensed Consolidated Statement of Operations for the three months ended September 30, 2017.23, 2022.

As a result of the above results of operations, we reported a loss before income tax benefit of ~~$3,493,306~~$1,919,071 and ~~$3,255,579~~income of $8,048,936 for the three months ended September 30, ~~2017~~2022 and ~~2016,~~2021, respectively, ~~a deterioration~~an increase of ~~$237,727 (7%~~$9,968,007 (123.8%).

We did not record an income tax ~~benefit~~expense related to our ~~losses~~income for the three months ended September 30, ~~2017~~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, ~~2017. During 2017, we increased our valuation reserve on deferred tax assets by $3,080,000 whereby our deferred tax assets continue to be fully reserved due to our recent operating losses.~~

2022. We had approximately ~~$46,745,000~~$81.4 million of net operating loss carryforwards and ~~$2,110,000~~$1.8 million of research and development tax credit carryforwards as of September 30, ~~2017~~2022 available to offset future net taxable income.

As a result of the above results of operations, we reported a net loss of $1,919,071 and net income of $8,048,936 for the three months ended September 30, 2022 and 2021, respectively, an increase of $9,968,007 (123.8%).

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 loss attributable to noncontrolling interests of consolidated subsidiary of $16,596 and $19,863 for the three months ended September 30, 2022 and 2021, respectively.

As a result of the above, we reported a net ~~losses~~loss attributable to common stockholders of ~~$3,493,306~~$1,902,475 and ~~$3,255,579~~net income of $8,068,799 for the three months ~~ended~~ September 30, ~~2017~~2022 and ~~2016,~~2021, respectively, ~~improvement~~an increase of ~~$237,727 (7%~~$9,971,275 (123.6%).

The basic and diluted loss per share was ~~$0.56~~$0.04 and ~~$0.61~~income per share was $0.16 for the three months ended September 30, ~~2017~~2022 and ~~2016, respectively, for the reasons previously noted. All outstanding stock options were considered antidilutive and therefore excluded from the calculation of diluted~~2021, respectively. Basic loss per share ~~for~~is based upon the weighted average number of common shares outstanding during the period. For the three months ended September 30, ~~2017~~2022 and ~~2016 because~~2021, all shares issuable upon conversion of convertible debt and the ~~net~~exercise of outstanding stock options and warrants were antidilutive, and, therefore, not included in the computation of diluted loss ~~reported for each period.~~per share.

For the Nine ~~Months~~months Ended September 30, ~~2017~~2022 and ~~2016~~2021

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, ~~2017~~2022 and ~~2016,~~2021, represented as a percentage of total revenues for each ~~respective year:~~such quarter:

~~Revenues for the nine months ended 2017 and 2016, respectively, were derived from the following sources:~~

Our commercial event recorders (DVM-250 Plus) increased from 7% to 10% of total revenues, which trend is expected to continue because of the appeal of our FleetVU driver management and monitoring tool.

Product revenues for the nine months ended September 30, ~~2017~~2022 and ~~2016~~2021 were ~~$10,263,833~~$7,682,614 and ~~$11,946,100,~~$4,988,364 respectively, ~~a decrease~~an increase of ~~$1,682,267 (14%~~$2,694,250 (54%), due to the following factors:

Service and other revenues for the nine months ended September 30, ~~2017~~2022 and ~~2016~~2021 were ~~$1,436,106~~$20,447,778 and ~~$1,182,781,~~$4,680,959, respectively, an increase of ~~$253,325 (21%~~$15,766,819 (337%), due to the following factors:

Total revenues for the nine months ended September 30, ~~2017~~2022 and ~~2016~~2021 were ~~$11,699,939~~$28,130,392 and ~~$13,128,881,~~$9,669,323, respectively, ~~a decrease~~an increase of ~~$1,428,942 (11%~~$18,461,069 (191%), due to the reasons noted above.

~~Cost~~Overall cost of product revenue ~~on units~~ sold for the nine months ended September 30, ~~2017~~2022, and ~~2016~~2021 was ~~$6,450,570~~$8,154,984 and ~~$7,487,747,~~$3,776,185, respectively, ~~a decrease~~an increase of ~~$1,037,177 (14%~~$4,378,799 (116%). ~~The decrease in~~Overall cost of goods sold ~~is commensurate with the 14% decrease in product revenues coupled with product cost of sales~~for products as a percentage of revenues decreasing to 62% in 2017 from 63% in 2016. We increased the reserve for obsolete and excess inventories by approximately $418,000 during the nine months ended September 30, 2017 due to increased levels of excess component parts of older versions of PCB boards, used trade-in inventory requiring refurbishment and legacy products.

~~Cost of service and other~~product revenues for the nine months ended September 30, ~~2017~~2022, and ~~2016 was $790,691~~2021 were 106% and ~~$488,708, respectively, an increase~~76%, respectively. Cost of ~~$301,983 (62%).~~ products sold by operating segment is as follows:

The ~~increase~~decrease in ~~service and other~~ cost of goods sold for our video solutions segment products is ~~commensurate~~directly correlated with the ~~21% increase~~decrease in ~~service and other revenues coupled with service cost of~~product sales ~~increasing to 55% from 41%~~ for the nine months ended September 30, ~~2017~~2022 compared to the nine months ended September 30, ~~2016. The primary reason~~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 ~~reclassification~~acquisition of ~~certain technical support personnel~~TicketSmarter in the third quarter of 2021, resulting in an increase to ~~generate direct installation~~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 ~~other~~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.

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:

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, ~~2017~~2022 compared to September 30, 2016. In recent quarters, certain members of our technical support staff have been reclassified and their respective payroll expenses are now being charged to service cost of sales for product installation instead of executive, sales and administrative payroll as they were in 2016. The payroll reclassification for nine months ended September 30, 2017 was approximately $309,000.

~~Total cost of sales as a percentage of revenues increased to 62% during~~ the nine months ended September 30, ~~2017 compared~~2021. Cost of service revenues as a percentage of service revenues for the video solutions segment increased to ~~61%~~41% for the nine months ended September 30, ~~2016. We believe our gross margins will~~2022 as compared to 30% for the nine months ended September 30, 2021.

The increase ~~if we improve~~in revenue ~~levels and continue~~cycle management operating segment cost of service revenue is due to ~~reduce product warranty issues.~~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~~Overall gross profit for the nine months ended September 30, ~~2017~~2022 and ~~2016~~2021 was ~~$4,458,678~~$4,254,198 and ~~$5,152,426,~~$3,473,254, respectively, ~~a decrease~~an increase of ~~$693,748 (13%~~$780,944 (22%). Gross profit by operating segment was as follows:

The ~~decrease~~overall increase is ~~primarily~~ attributable to the ~~11% decrease~~large overall increase in revenues for the nine months ended September 30, ~~2017~~2022 and an increase in the overall cost of sales as a percentage of overall revenues ~~increasing~~ to ~~62% during the nine months ended September 30, 2017 from 61%~~85% for the nine months ended September 30, ~~2016. We believe that gross margins will improve in 2017 and beyond if we improve revenue levels and reduce product warranty issues.~~2022 from 64% for the nine months ended September 30, 2021. Our goal is to improve our margins ~~to 60%~~ over the longer term based on the expected margins ofgenerated by our ~~newer products, in particular the~~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, ~~DVM-800~~VuLink, FirstVu Pro, FirstVu II, FirstVu HD, ThermoVu^TM, Shield^TM disinfectants and ~~FirstVU HD, if~~our cloud evidence storage and management offering, provided that they ~~continue to~~ gain traction in the marketplace and ~~we are able~~subject to ~~increase our commercial market penetration~~a normalizing economy in ~~2017~~the wake of the COVID-19 pandemic and ~~2018.~~current inflationary concerns. In addition, asif revenues from ~~these products~~the video solutions segment increase, we will seek to further improve our margins from ~~them~~this segment through ~~economies of scale~~expansion and ~~more efficiently~~increased efficiency utilizing fixed manufacturing overhead components. We plan to continue our initiative onto more efficient management of our supply chain through outsourcing production, quantity purchases and more effective purchasing practices.

Selling, general and administrative expenses were ~~$11,870,183~~$24,285,808 and ~~$13,624,619~~$12,554,807 for the nine months ended September 30, ~~2017~~2022 and ~~2016,~~2021, respectively, ~~a decrease~~an increase of ~~$1,754,436 (13%~~$11,731,001 (93%). ~~Selling,~~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 ~~101% in 2017~~86% for the nine months ended September 30, 2022 compared to ~~104%~~130% in ~~2016.~~the same period in 2021. The significant components of selling, general and administrative expenses are as follows:

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 ~~$2,495,924~~$1,654,395 and ~~$2,353,081~~$1,402,185 for the nine months ended September 30, ~~2017~~2022 and ~~2016,~~2021, respectively, an increase of ~~$142,843 (6%~~$252,210 (18%). ~~We employed a total~~Most of 32our engineers ~~at September 30, 2017 compared to 29 engineers at September 30, 2016, most of whom~~ are dedicated to research and development activities for new ~~products.~~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 ~~have increased~~expect our ~~engineering staff of web-based developers~~research and development activities will continue to trend higher in future quarters as we ~~expanded~~continue to expand our product offerings ~~to include, among other items, cloud-based evidence storage~~based on our new body-worn camera and ~~management for our law enforcement customers (VuVault.net)~~EVO-HD product platform and ~~our web-based commercial fleet driver monitoring and management tool (FleetVU Manager). Research and~~as we outsource more development ~~expenses as a percentage of total revenues were 21% for the nine months ended September 30, 2017 compared to 18% for the nine months ended September 30, 2016.~~projects. We consider our research and development capabilities and new product focus to be a competitive advantage and ~~will~~intend to continue to invest in this area on a prudent ~~basis.~~basis and consistent with our financial resources.

Selling, advertising and promotional expenses.Selling, advertising and promotional expense totaled ~~$3,036,168~~$7,375,364 and ~~$3,295,743~~$2,978,620 for the nine months ended September 30, ~~2017~~2022 and ~~2016,~~2021, respectively, ~~a decrease~~an increase of ~~$259,575 (8%~~$4,396,744 (148%). ~~Salesman salaries~~Promotional and ~~commissions~~advertising expenses represent the primary ~~components~~component of these costs and were $2,418,904 for the nine months ended September 30, 2017 compared to $2,358,745 for the nine months ended September 30, 2016, an increase of $60,159 (3%). We have increased the number of salesman in 2017 compared to 2016, in particular in our commercial sales channel. The overall effective commission rate was 20.7% and 18.0% for the nine months ended September 30, 2017 and September 30, 2016, respectively.

~~Promotional and advertising expenses~~ totaled ~~$617,264~~$6,119,294 during the nine months ended September 30, ~~2017~~2022, compared to ~~$936,998~~$1,677,455 during the nine months ended September 30, ~~2016, a decrease~~2021, an increase of ~~$319,734 (34%~~$4,441,839 (265%). The ~~decrease~~increase is primarily attributable ~~net promotional expenses associated with being~~to the ~~title sponsor~~2022 sponsorship of NASCAR and IndyCar. Additionally, TicketSmarter remains in sponsorship and advertising. TicketSmarter accounted for $3,335,723 of the ~~Web.com Tour golf tournament held annually in the Kansas City Metropolitan area being less in 2017 compared to 2016. We incurred net~~total promotional expenses of $263,047 in the nine months ended September 30, 2017 relative to this sponsorship compared to $499,271 for nine months ended September 30, 2016. The Company is also decreasing the number of trade shows attended during 2017 because it has lost some of its confidence in the efficiency and ~~effectiveness of many of the lesser attended trade shows.~~

~~Stock-based compensation expense.~~Stock based compensation expense totaled $981,652 and $1,203,312 for the nine months ended September 30, 2017 and 2016, respectively, a decrease of $221,660 (18%). In 2017, the Company adopted the new accounting standard issued by the FASB to reduce the complexity of accounting for stock compensation and elected to account for stock option forfeitures as they occur. For the nine months ended September 30, 2017 there were 52,609 stock options that expired and were forfeited, which decreased stock compensationadvertising expense for the nine months ended September 30, ~~2017 compared to 2016. Additionally, the amortization of the restricted stock granted during 2017~~2022.

General and ~~2016 to our officers, directors,~~administrative expense. General and ~~other employees when the general market price of our common stock was lower also had the effect of decreasing the stock compensation expense~~administrative expenses totaled $15,256,049 and $8,174,002 for the nine months ended September 30, ~~2017~~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 ~~2016.~~

~~Professional fees~~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~~. Professional fees~~ also increased due to a substantial increase in depreciation and amortization, rent expenses, ~~totaled $1,187,435~~ and ~~$1,487,657~~legal and professional expenses for the nine months ended September 30, ~~2017 and 2016, respectively, a decrease of $300,322 (20%). The decrease in professional fees and expenses in 2017~~2022 compared to ~~2016 is primarily attributable to lower litigation expenses related~~the same period in 2021, as a result of the numerous acquisitions completed by the Company that were not relevant to the ~~Utility, Axon~~same period in 2021.

For the reasons stated above, our operating loss was $20,031,610 and WatchGuard lawsuits. These matters continue and the reduced litigation charges are generally due to timing issues in the litigation, although the Axon and Watchguard lawsuits were both under a stay order pending final USPTO rulings on the various IPR requests which have largely now been ruled in our favor. We intend to pursue recovery from Utility, Axon, WatchGuard, their insurers and other responsible parties as appropriate.

~~Executive, sales and administrative staff payroll.~~~~Executive, sales and administrative staff payroll expenses totaled $2,065,327 and $3,259,773~~$9,081,553 for the nine months ended September 30, ~~2017~~2022 and ~~2016,~~2021, respectively, a decrease of $1,194,446 (37%). The primary reason for the decrease in executive, sales and administrative staff payroll was a reduction of $855,000 in executive bonuses and the reclassification of certain technical support personnel to generate direct installation and other service revenues in the nine months ended September 30, 2017 compared to September 30, 2016. We have increased our technical support staff in recent quarters to handle field inquiries and requests for product installation services because our installed customer base has expanded and additional technical support and marketing was required for our new products, such as the DVM-800 and FirstVU HD. In recent quarters, we have reclassified certain members of our technical support staff to direct services for product installation and other services for our customers and their respective payroll related expenses are now being charged to service cost of sales in 2017 compared to 2016. During the nine months ended September 30, 2016 a special bonus of $630,000 was awarded to our CEO, which did not occur in 2017.

~~Other~~. Other selling, general and administrative expenses totaled $2,103,677 and $2,025,053 for the nine months ended September 30, 2017 and 2016, respectively, an increase of $78,624 (4%). The increase in other expenses in 2017 compared to 2016 is primarily attributable to increased health insurance premiums for our associates.

~~For the reasons previously stated, our operating loss was $(7,411,505) and $(8,472,193) for the nine months ended September 30, 2017 and 2016, respectively, an improvement of $1,060,688 (13%~~$10,950,057 (121%). Operating loss as a percentage of revenues ~~decreased~~improved to ~~63% for~~71% in the ~~first~~ nine months ~~of 2017~~ended September 30, 2022 from ~~65% for~~94% in the same period in ~~2016.~~2021.

Interest income decreased to ~~$10,619~~$116,928 for the nine months ended September 30, ~~2017~~2022, from ~~$22,103~~$222,497 in ~~2016.~~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.

We incurred interest expense of ~~$536,035~~$39,766 and ~~$2,438~~$8,466 during the nine months ended September 30, ~~2017~~2022 and ~~2016. We issued an aggregate of $4.0 million principal amount of Debentures on December 30, 2016, which bore interest at~~2021, respectively. The increase is attributable to the rate of 8% per annum on the unpaid balance outstanding at September 30, 2017. In addition, we issued two Notes with a principal balance of $700,000 in June 2017. One of these Notes and a new Note had an outstanding principal balance of $650,000 at September 30, 2017. No similar interest-bearing debt was outstanding during the 2016 period.

~~We amortized to interest expense $288,895 and $-0-, representing the discount~~contingent earn-out notes associated with the ~~$1,000,000 subordinated~~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.

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, ~~2017,~~2022 and ~~2016~~2021, respectively. ~~The discount resulted from the issuance~~Such short-term investments are included in cash and cash equivalents as they contain original maturities of detachable common stock purchase warrants together with the $700,000 principal amount of Notes, which is recorded as a discount and amortized to interest expense over the term of the underlying Notes. The total remaining unamortized discount was $117,000 and $-0- at September 30, 2017, and 2016 respectively.ninety (90) days or less.

Change in ~~Warrant~~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.

~~Detachable~~During the first quarter of 2021, the Company issued detachable warrants ~~exercisable~~ to purchase a total of ~~398,916 common~~42,500,000 shares ~~as adjusted, were issued~~of Common Stock in ~~conjunction~~association with ~~$2.0 million and $4.0 million Secured Convertible Notes during March and August 2014.~~the two registered direct offerings previously described. The ~~warrants were~~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 ~~be treated~~treat these warrants as derivative liabilities ~~because~~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 ~~their anti-dilution and down-round provisions. Accordingly, we estimated~~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 ~~their respective date~~December 31, 2021, and as of ~~issuance~~August 23, 2022, to be $14,846,932 and ~~recorded a corresponding derivative liability in the balance sheet. Upon exercise~~$0, respectively.

The Company recognized a ~~gain/loss based~~gain on the ~~closing market price of the underlying common stock on the date of exercise. In addition, the warrant derivative liability is adjusted to the estimated~~change in fair value of ~~any unexercised warrants as~~contingent consideration promissory notes of ~~December 31, 2016~~$3,624,794 and $-0- during the nine months ended September 30, ~~2017. There remained warrants outstanding exercisable to purchase 12,200 shares of common stock at December 31, 2016~~2022 and ~~September 30, 2017 and~~2021, respectively. This is in connection with the ~~warrant derivative liability balance was $33,076 at December 31, 2016 and $15,729 at September 30, 2017.~~Warrant Exchange Agreement executed by the Company on August 23, 2022.

As a result of the ~~warrant derivatives related to unexercised warrants resulted in a gain~~above results of ~~$17,347~~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, ~~2017 compared~~2022 and 2021, respectively, a decrease of $33,687,805 (138.1%).

We did not record an income tax expense related to ~~a gain of $18,740~~our income for the nine months ended September 30, ~~2016.~~

We elected to account for the $4.0 million principal amount of Debentures outstanding at September 30, 2017 and December 31, 2016 on their fair value basis. Therefore, we determined the fair value of the Debentures utilizing Monte Carlo simulation models which yielded an estimated fair value of $3,183,210 and $4,000,000 for the Debentures including their embedded derivatives as of September 30, 2017 and December 31, 2016, respectively. No value was allocated to the detachable Warrants as of the origination date because of the relative fair value of the Debentures including its embedded derivative features approximated the gross proceeds of the financing transaction. We made payments totaling $750,000 against the Debentures on August 24, 1997. The fair value of the Debentures was $3,183,210 at September 30, 2017 representing a fair value change of $66,790 from December 31, 2016, which was recognized as income in the Condensed Consolidated Statement of Operations.

As a result of the above, we reported a loss before income tax benefit of $7,852,784 and $8,433,788 for the nine months ended September 30, 2017 and 2016, respectively, an improvement of $581,004 (7%).

~~We did not record an income tax benefit related to our losses for the nine months ended September 30, 2017~~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, ~~2017. During 2017, we increased our valuation reserve on deferred tax assets by $3,080,000 whereby our deferred tax assets continue to be fully reserved due to our recent operating losses.~~

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.

As a result of the above, we reported a net ~~losses~~income/(loss) attributable to common stockholders of ~~$7,852,784~~($9,568,134) and ~~$8,433,788~~$24,408,170 for the years nine months ~~ended~~ September 30, ~~2017~~2022 and ~~2016,~~2021, respectively, ~~an improvement~~a decrease of ~~$581,004 (7%~~$33,976,304 (139.2%).

The basic and diluted loss per share was ~~$1.34~~($0.19) and ~~$1.59~~$0.49 for the nine months ended September 30, ~~2017~~2022 and ~~2016, respectively, for the reasons previously noted. All outstanding stock options were considered antidilutive and therefore excluded from the calculation of diluted~~2021, respectively. Basic loss per share ~~for~~is based upon the weighted average number of common shares outstanding during the period. For the nine months ended September 30, ~~2017~~2022 and ~~2016 because~~2021, all shares issuable upon conversion of convertible debt and the ~~net~~exercise of outstanding stock options and warrants were antidilutive, and, therefore, not included in the computation of diluted loss ~~reported for each period.~~per share.

Management’s Liquidity Plan. We have experienced net losses and cash outflows from operating activities since inception. Based upon our current operating forecast, we ~~borrowed $700,000 under unsecured notes payable with two private, third party lenders. The loans were represented by two promissory notes (the “Notes”)~~anticipate that ~~bore interest at 8% per annum and were payable in~~we will need to restore positive operating cash on flows and/or ~~before the maturity date of September 30, 2017. The Notes were unsecured and subordinated to all existing and future senior indebtedness, as such term is defined~~raise additional capital in the ~~Notes.~~short-term to fund operations, meet our customary payment obligations and otherwise execute our business plan over the next 12 months. We ~~issued warrants~~are continuously in discussions to ~~purchase 200,000 shares~~raise additional capital, which may include a variety of ~~common stock for $3.65 per share in connection with the Notes. Such warrants are exercisable immediately~~equity and ~~expire on June 29, 2022. We used the proceeds of this private placement for general working~~debt instruments; however, there can be no assurance that our capital ~~purposes. We paid one of the Notes in the principal amount of $350,000 on September 1, 2017~~raising initiatives will be successful. Our recurring losses and ~~extended the maturity date of the other Note to December 31, 2017.~~

On September 29, 2017, we borrowed $300,000 under an unsecured note payable with a private, third party lender. The loan is represented by a promissory note (also referred to as the “Note”) that bears interest at 8% per annum and is payable in cash on or before the maturity date. The Note is due and payable in full on November 30, 2017 and may be prepaid without penalty at any time. The Note is unsecured and subordinated to all existing and future senior indebtedness, as such term is defined in the Note. We issued warrants to purchase 100,000 shares of common stock for $2.75 per share in connection with the Note. Such warrants are exercisable immediately and expire on September 30, 2022. We used the proceeds of this private placement for general working capital purposes.

On August 23, 2017, we closed a $3.0 million offering of our common stock and common stock purchase warrants in a registered direct offering. At the closing, we sold to institutional investors in a registered direct offering an aggregate of 940,000 shares of our common stock at a price of $3.00 per share and Series B Warrants, for gross offering proceeds of $3.0 million. For each share of common stock purchased, investors received two registered warrants, each with an exercise price of $3.36 per share (the “Series A-1 Warrant” and the “Series A-2 Warrant”). The Series A-1 Warrants are exercisable to purchase up to 680,000 shares of common stock and have a term of five years commencing six months following the closing date. The Series A-2 warrants are immediately exercisable to purchase a 200,000 shares of common stock and have a term of five years commencing on the closing date. Additionally, the Company issued to certain of the investors, in lieu of shares of common stock at closing, Series B Warrants that are immediately exercisable (the “Series B Warrant”) to purchase 60,000 shares of common stock for which the investors paid $2.99 per share at the closing and will pay $0.01 per share upon exercise of the Series B Warrant so that such investors’ beneficial ownership interest would not exceed 9.9% of the issued and outstanding shares of common stock. The Series B Warrant terminates upon exercise in full. After placement agent fees and other estimated offering expenses, the net offering proceeds to us totaled approximately $2.8 million. The foregoing warrants issued in this transaction did not contain terms that would require us to record derivative warrant liabilities that could affect our financial statements. Proceeds of the offering were used to pay a portion of the outstanding principal balance of the Debentures, retire one of the Notes and for other working capital purposes.

On December 30, 2016, we completed a private placement of $4.0 million principal amount of Debentures with two institutional investors. Such Debentures bear interest at 8% per annum payable in cash on a quarterly basis and are secured by substantially all of our tangible and certain intangible assets. In addition, we issued the investors warrants to acquire 800,000 shares of common stock at $5.00 per share. We made payments of $750,000 against the Debentures on August 24, 2017. The Debentures mature on March 30, 2018 and are convertible at any time six months after their date of issue at the option of the holders into shares of common stock at $5.00 per share. In addition, we can elect to redeem the Debentures at 112% of their outstanding principal balance and could force conversion by the holders if the market price exceeds $7.50 per share for ten consecutive trading days. We used the proceeds of this private placement for general working capital purposes.

~~We may find it necessary to retire the Debentures by the payment~~level of cash ~~at maturity, which would be a significant requirement. We plan to obtain such funding from~~used in operations, or a capital raise or a combination of the two. We believe that we have the capability to retire the Debentures by a cash payment when they become due, although we can offer no assurances in this regard.

If we had to supplement our liquidity to support our operations in 2017, given our recent history of net operating losses and negative cash flows, we do not believe that traditional banking indebtedness would be available to us given our recent operating history. Our 2017/2018 operating plan could include raising additional capital through a public offering or private placement of debt or equity. We have demonstratedalong with uncertainties concerning our ability to raise ~~new debt or equity capital in recent years and, if necessary, we believe that we could raise~~ additional capital, ~~during the next 12 months if required, but again can offer no assurances in this regard.~~

Further, we had warrants outstanding exercisable to purchase 3,013,466 shares of common stock at a weighted average exercise price $6.84 per share outstanding as of September 30, 2017. In addition, there are common stock purchase options outstanding exercisable to purchase 301,031 shares at an average price of $19.84 per share and the recently issued 800,000 warrants at an exercise price of $5.00 per share, 200,000 warrants at an exercise price of $3.65 per share and 100,000 warrants at an exercise price of $2.75 per share. We could potentially use such warrants to provide near-term liquidity and could induce their holders to exercise their warrants by adjusting/lowering the exercise price on a temporary or permanent basis if the exercise price was below the then market price of our common stock, although we can offer no assurances in this regard. Ultimately, we must restore profitable operations and positive cash flows to provide liquidity to support our operations and, if necessary, to raise ~~capital on commercially reasonable terms in 2017 and 2018.~~

~~Based on the uncertainties described above, the Company believes its business plan does not alleviate the existence of~~ substantial doubt about ~~its~~our ability to continue as a going ~~concern within one year after the date that the financial statements in this Report.~~concern.

We had $816,174 of available cash and equivalents (including $500,000 of restricted cash) and net working capital of approximately $4.7 million as of September 30, 2017. Net working capital as of September 30, 2017 includes approximately $1.9 million of accounts receivable and $10.1 million of inventory.

Cash, ~~and~~ cash ~~equivalents balances:~~equivalents: As of September 30, ~~2017,~~2022, we had cash and cash equivalents with an aggregate balance of ~~$316,174,~~$6,295,391, a decrease from a balance of ~~$3,883,124~~$32,007,792 at December 31, ~~2016.~~2021. Summarized immediately below and discussed in more detail in the subsequent subsections are the main elements of the ~~$3,566,950~~$25,712,401 net decrease in cash during the nine months ended September 30, ~~2017:~~2022:

~~The net result of these activities was a decrease in cash of $3,566,950 to $316,174 for the nine months ended September 30, 2017.~~Commitments:

We had ~~$316,174~~$6,295,391 of cash and cash ~~equivalent balances~~equivalents and net positive working capital ~~approximating $4.7 million~~$20,745,139 as of September 30, ~~2017.~~2022. Accounts receivable and other receivables balances represented ~~$1,861,009~~$8,192,899 of our net working capital at September 30, ~~2017.~~2022. We ~~intend~~believe we will be able to collect our outstanding receivables on a timely basis and reduce the overall level during the balance of ~~2017,~~2022, which ~~would help to~~could provide positive cash flow to support our operations during ~~such period.~~2022. Inventory ~~represented $10,061,991~~represents $10,963,916 of our net working capital at September 30, ~~2017~~2022, and finished goods represented ~~$7,509,227~~$9,769,951 of total ~~inventory.~~inventory at September 30, 2022. We are actively managing the ~~overall~~ level of inventory and our goal is to reduce such ~~levels~~level during the balance of ~~2017~~2022 by our sales activities, the increase of which should provide additional cash flow to help support our operations during ~~2017.~~2022.

We had nothe following material commitments for capital expenditures at September 30, ~~2017.~~2022:

~~Lease Commitments-Operating Leases.~~~~We have~~- 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 ~~non-cancelable long-term operating lease agreement for office and warehouse space that expires during April 2020. We have also entered into month-to-month leases for equipment. Rent expense for~~share repurchase program (the “Program”). During the nine months ended September 30, ~~2017~~2022, the Company repurchased 3,725,986 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 5,460,824 shares at a cost of $6,001,602 through June 30, 2022.

Lease commitments. Total lease expense under the six operating leases was approximately $140,967 and ~~2016 was $298,293~~$415,269, during the three and ~~$298,293, respectively, related to these leases.~~nine months ended September 30, 2022, respectively. 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:

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

~~License agreements.~~We have several license agreements under which we have been assigned the rights to certain materials used in its products. Certain of these agreements require us to pay ongoing royalties based on the number of products shipped containing the licensed material on a quarterly basis. Royalty expense related to these agreements aggregated $14,938 and $18,911 for the nine months ended September 30, 2016 and 2015, respectively.

The Company is subject to various legal proceedings arising from normal business operations. Although there can be no assurances, based on the information currently available, management believes that it is probable that the ultimate outcome of each of the actions will not have a material adverse effect on the consolidated financial statement of the Company. However, an adverse outcome in certain of the actions could have a material adverse effect on the financial results of the Company in the period in which it is recorded.

~~The Company received notice in April 2015 that Taser International, Inc., now known~~Debt obligations – Outstanding debt obligations comprises the following:

Debt obligations mature as Axon Enterprises, Inc. (“Axon”), had commenced an action in the USPTO for a re-examination of the ‘292 Patent. A re-examination is essentially a request that the USPTO review whether the patent should have issued in its present form in view of the “prior art,” e.g., other patents in the same technology field. The prior art used by Axon was from an unrelated third party and was not the result of any of Axon’s own research and development efforts.

On January 14, 2016 the USPTO ultimately rejected Axon’s efforts and confirmed the validity of the ‘292 Patent with 59 claims covering various aspects of the Company’s auto-activation technology. On February 2, 2016 the USPTO issued another patent relating to the Company’s auto-activation technology for law enforcement cameras. U.S. Patent No. 9,253,452 (the “ ‘452 Patent”) generally covers the automatic activation and coordination of multiple recording devices in response to a triggering event, suchfollows 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. The Company later added the ‘452 patent to the suit and is seeking both monetary damages and a permanent injunction against Axon for infringement of both the ‘452 and ‘292 Patents.

The District Court litigation in Kansas has been stayed since the filing of the petitions for IPR, The Court, however, requested an update on the status of the petitions and the Company has provided such an update after the decision was rendered which denied the final ‘452 Patent petition. Because both of Axon’s petitions for an IPR on the ‘452 Patent that related to the claims in the lawsuit were denied, the Company is seeking to lift the stay and proceed with the lawsuit to a trial where the question of infringement and damages can be addressed.

The Company’s lawsuit alleges that WatchGuard incorporated this patented technology into its VISTA Wifi and 4RE In-Car product lines without its permission. Specifically, Digital Ally is accusing WatchGuard of infringing three patents: the ‘292 and ‘452 Patents and U.S. Patent No. 9,325,950 (the “ ‘950 Patent”). The Company is aggressively challenging WatchGuard’s infringing conduct, seeking both monetary damages, as well as seeking a permanent injunction preventing WatchGuard from continuing to sell its VISTA Wifi and 4RE In-Car product lines using Digital Ally’s own technology to compete against it. On May 8, 2017, Watchguard filed a petition seeking IPR of the ‘950 Patent. The Company will vigorously oppose that petition. The PTAB will not issue a decision on whether to institute that petition until approximately November 2017. The lawsuit has been stayed pending a decision from the USPTO on whether to institute that petition.

~~On October 25, 2013, the Company filed a complaint in the United States District Court for the District of Kansas (2:13-cv-02550-SAC)~~to eliminate threats by a competitor, Utility Associates, Inc. (“Utility”), of alleged patent infringement regarding U.S. Patent No. 6,831,556 (the “ ‘556 Patent”). Specifically, the lawsuit seeks a declaration that the Company’s mobile video surveillance systems do not infringe any claim of the ‘556 Patent. The Company became aware that Utility had mailed letters to current and prospective purchasers of its mobile video surveillance systems threatening that the use of such systems purchased from third parties not licensed to the ‘556 Patent would create liability for them for patent infringement. The Company rejected Utility’s assertion and is vigorously defending the right of end-users to purchase such systems from providers other than Utility. The United States District Court for the District of Kansas dismissed the lawsuit because it decided that Kansas was not the proper jurisdictional forum for the dispute. The District Court’s decision was not a ruling on the merits of the case. The Company appealed the decision and the Federal Circuit affirmed the District Court’s previous decision.

On June 6, 2014, the Company filed an Unfair Competition lawsuit against Utility in the United States District Court for the District of Kansas. In the lawsuit, it contends that Utility has defamed the Company and illegally interfered with its contracts, customer relationships and business expectancies by falsely asserting to its customers and others that its products violate the ‘556 Patent, of which Utility claims to be the holder.

The suit also includes claims against Utility for tortious interference with contract and violation of the Kansas Uniform Trade Secrets Act (KUSTA), arising out of Utility’s employment of the Company’s employees, in violation of that employee’s Non-Competition and Confidentiality agreements with the Company. In addition to damages, the Company seeks temporary, preliminary, and permanent injunctive relief, prohibiting Utility from, among other things, continuing to threaten or otherwise interfere with the Company’s customers. On March 4, 2015, an initial hearing was held upon the Company’s request for injunctive relief.

Based upon facts revealed at the March 4, 2015 hearing, on March 16, 2015, the Company sought leave to amend its Complaint in the Kansas suit to assert additional claims against Utility. Those new claims include claims of actual or attempted monopolization, in violation of § 2 of the Sherman Act, claims arising under a new Georgia statute that prohibits threats of patent infringement in “bad faith,” and additional claims of unfair competition/false advertising in violation of § 63(a) of the Lanham Act. As these statutes expressly provide, the Company will seek treble damages, punitive damages and attorneys’ fees as well as injunctive relief. The Court concluded its hearing on April 22, 2015, and allowed the Company leave to amend its complaint, but denied its preliminary injunction. The discovery stage of the lawsuit expired in May 2016. Utility filed a Motion for Summary Judgment and the Company filed a Motion for Partial Summary Judgment. On March 30, 2017, the Court entered its order granting Utility’s motion and denying the Company’s motion for summary judgment in their entireties. The Company believes the District Court made several errors when ruling on the motions for summary judgment in light of the USPTO’s final decision issued on July 27, 2015 and the various facts and admissions already presented to such Court and is filing an appeal to the United States Court of Appeals for the Tenth Circuit. Oral arguments are set to occur on January 17, 2018.

The Company has the right to sell and retain the proceeds from the sale of additional sponsorships, including but not limited to a presenting sponsorship, a concert sponsorship and founding partnerships for the Tournament. The Company recorded a net sponsorship expense of $263,047 and $499,271, respectively, for the nine months ended September 30, 2017 and 2016.

~~401 (k) Plan.~~We sponsor a 401(k) retirement savings plan for the benefit of our employees. The plan, as amended, requires us 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. We made matching contributions totaling $137,781 and $135,058 for the nine months ended September 30, 2017 and 2016, 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 requires it to make monthly payments which 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, 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 paid the LLC and advance against commissions ranging from $5,000 to $6,000 per month plus necessary and reasonable expenses for a period of one year beginning January 2016, 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 September 30, ~~2017, the Company had advanced a total of $301,115 pursuant to this agreement.~~2022:

Our significant accounting policies are summarized in ~~note~~Note 1, “Nature of Business and Summary of Significant Accounting Policies,” to our consolidated financial ~~statements included in Item 1, “Financial Statements,” of this report.~~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 / Allowances for Doubtful Accounts. Revenue is recognized for the shipment of products or delivery of service when all ~~four~~five of the following conditions are met:

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.

	~~(i)~~	~~Persuasive evidence of an arrangement exists;~~

	~~(ii)~~	~~Delivery has occurred;~~

	~~(iii)~~	~~The price is fixed or determinable; and~~

	~~(iv)~~	~~Collectability is reasonably assured.~~

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 ~~deferred revenue~~contract liability and recognized over the term of the extended warranty.

~~Our~~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 do 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 ~~$198,000~~$258,000 charged off as uncollectible on cumulative revenues of ~~$214.1~~$256.5 million since we commenced deliveries during 2006. As

For our ticketing segment, our customers are mainly online visitors that pay at the time of ~~September 30, 2017~~the transaction, and ~~December 31, 2016,~~ we ~~had provided a reserve~~collect the service fees charged with the transaction, thus leading to minimal risk for ~~doubtful~~uncollectible accounts, ~~of $70,000.~~

~~We periodically perform~~to which we then consider a specific ~~review of significant individual receivables outstanding for risk of loss due to uncollectibility. Based on such review, we consider our~~ reserve ~~for doubtful accounts to be adequate as of September 30, 2017. However, should the balance due from any significant customer ultimately become uncollectible then our allowance~~ for bad debts ~~will not be sufficient~~based on their individual circumstances. As we continue to ~~cover~~learn more about the ~~charge-off and~~collectability related to this recent acquisition, we will ~~be required~~track historical bad debts and continue to ~~record additional~~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 ~~debt expense in our statement of operations.~~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.

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, ~~2017~~2022 and December 31, ~~2016:~~2021:

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 ~~19.0%~~25.6% of the gross inventory balance at September 30, ~~2017,~~2022, compared to ~~17.3%~~28.8% of the gross inventory balance at December 31, ~~2016.~~2021. We had ~~$2,417,653~~$3,771,424 and ~~$1,999,920~~$3,915,089 in reserves for obsolete and excess inventories at September 30, ~~2017~~2022 and December 31, ~~2016,~~2021, respectively. Total raw materials and component parts were ~~$4,828,517~~$4,960,740 and ~~$4,015,170~~$3,062,046 at September 30, ~~2017~~2022 and December 31, ~~2016,~~2021, respectively, an increase of ~~$813,347 (20%~~$1,898,694 (62.0%). ~~The increase in raw materials and component parts was mostly in refurbished parts for FirstVU HD products.~~ Finished goods balances were ~~$7,509,227~~$9,769,951 and ~~$7,215,346~~$10,512,579 at September 30, ~~2017~~2022 and December 31, ~~2016,~~2021, respectively, ~~an increase~~a decrease of ~~$293,881 (4%~~$742,628 (7.1%). The ~~increase~~decrease in finished goods was primarily attributable to a reduction in ticketing inventory of $403,539 at September 30, ~~2017 was primarily in FirstVU HD and DVM 250 products.~~2022 compared to December 31, 2021. The ~~increase~~slight decrease in the inventory reserve is primarily due to the ~~change~~reduction in ~~sales mix of our products, which has resulted in~~finished goods that had a ~~higher~~reserve placed on them prior to sale. The remaining reserve for inventory obsolescence is generally provided for the level of ~~excess~~ 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, ~~we increased our reserves on selected refurbished~~the Company determined a reasonable reserve for inventory ~~and~~held at the ticket operating segment, in which some inventory items ~~requiring repair during~~sell below cost or go unsold, thus having to be fully written-off following the ~~nine months ended September 30, 2017.~~event date. We believe the reserves are appropriate given our inventory levels at September 30, ~~2017.~~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.

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 ~~$140,596~~$10,040 as of September 30, ~~2017~~2022 compared to ~~$374,597~~$13,742 as of December 31, ~~2016 primarily for expected replacements associated with select FirstVU HD customers. We have limited experience with~~2021 as we began to slow our warranty exposures through the ~~FirstVU HD~~roll-off of DVM-750 and DVM-800 units from warranty coverage. Standard warranty exposure on the DVM-800 and ~~will monitor~~DVM-250plus are the responsibility of the contract manufacturers which reduced our ~~reserve for all~~overall warranty ~~claims related to~~exposure as these ~~two newer products.~~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 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 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 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, 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:

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 ~~which~~that are obtained from public data sources and there were ~~100,000~~25,000 stock options granted during the nine months ended September 30, ~~2017.~~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 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 ~~or all~~ of the deferred tax asset will not be realized. As of ~~December 31, 2016, cumulative valuation allowances in the amount~~September 30, 2022, we have fully reserved all of ~~$22,340,000 were recorded in connection with the net~~our deferred ~~income~~ tax assets. Based on a review of our deferred tax assets and recent operating performance, we determined that our valuation allowance should be ~~increased~~decreased by $7,615,000 to ~~$25,535,000~~a balance of $16,980,000 to fully reserve our deferred tax assets at ~~September 30, 2017.~~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, ~~2017~~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 ~~June~~September 30, ~~2017~~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.

~~Determination of Fair Value for Financial Instruments~~Inflation and ~~Derivatives.~~Seasonality

~~During 2016 we issued $4.0 million of Debentures with detachable warrants to purchase common stock~~As inflation in the United States and ~~in 2014 in two separate transactions we issued a total of $6.0 million of Secured Convertible Notes with detachable warrants to purchase common stock. We elected to record the 2016 Debentures~~abroad has increased and 2014 Secured Convertible Notes on their fair value basis. In addition, the warrants to purchase common stock issued in conjunction with the 2014 Secured Convertible Notes contained anti-dilution provisions that required them to be accounted for as derivative liabilities. We were required to determine the fair value of these financial instruments outstanding as of September 30, 2017 and 2016 for financial reporting purposes. The entire principal balancebecome more prominent, inflationary pressures adversely affected all of the Secured Convertible Notes issued in 2014 has been converted to equity and all warrants have been exercised, except for warrants exercisable to purchase 12,200 common shares at $5.00 per share, as of September 30, 2017. The 2016 Debentures remained outstanding as of September 30, 2017.

~~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.

~~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, 2017.~~

In accordance with ASU 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, we are required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date that our financials are issued. When management identifies conditions or events that raise substantial doubt about their ability to continue as a going concern they should consider whether their plans to mitigate those relevant conditions or events will alleviate the substantial doubt. If conditions or events raise substantial doubt about an entity’s ability to continue as a going concern, but the substantial doubt is alleviated as a result of management’s plans, the entity should disclose information that enables user of financial statements to understand the principal events that raised the substantial doubt, management’s evaluation of the significance of those conditions or events, and management’s plans that alleviated substantial doubt about the entity’s ability to continue as a going concern.

We performed the analysis and our overall assessment was there were conditions or events, considered in the aggregate as of September 30, 2017, which raised substantial doubt about our ability to continue as a going concern within the next twelve months but such doubt was not adequately mitigated by our plans to address the substantial doubt as disclosed in Note 1: Management’s Liquidity Plan.

~~Inflation has not materially affected us~~reporting segments’ gross margins during the ~~past~~first nine months of fiscal ~~year.~~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, ~~we generally~~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.

The Company maintains disclosure controls and procedures, as such terms are defined in Rules 13a-15(e) or 15d-15(e) under the ~~Securities~~ Exchange ~~Act of 1934 (the “Exchange Act”).~~Act. The Company, under the supervision and with the participation of its management, including its Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of such disclosure controls and procedures for this ~~report.~~Report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of September 30, ~~2017~~2022 to provide reasonable assurance that material information required to be disclosed by the Company in this ~~report~~Report was recorded, processed, summarized and communicated to the Company’s management as appropriate and within the time periods specified in SEC rules and forms.

There have not been any changes in the Company’s internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during ~~its~~the Company’s last fiscal quarter that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.

The ~~Company~~information regarding certain legal proceedings in which we are involved as set forth in Note 11 – Commitments and Contingencies of the Notes to the Condensed Consolidated Financial Statements (Part I, Item 1 of this Quarterly Report on Form 10-Q) is ~~subject~~incorporated by reference into this Item 1.

In addition to such legal proceedings, we are faced with or involved in various other claims and legal proceedings arising ~~from~~in the normal ~~business operations. Although there can~~course of our businesses. At this time, we do not believe any material losses under such other claims and proceedings to be ~~no assurances, based on the information currently available, management believes that it is probable that~~probable. While the ultimate outcome of ~~each~~such claims or legal proceedings cannot be predicted with certainty, it is in the opinion of management, after consultation with legal counsel, that the ~~actions will~~final outcome in such proceedings, in the aggregate, would not have a material adverse effect on ~~the~~our consolidated financial ~~statement of the Company. However, an adverse outcome in certain of the actions could have a material adverse effect on the financial results of the Company in the period in which it is recorded.~~

The Company received notice in April 2015 that Taser International, Inc., now known as Axon Enterprises, Inc. (“Axon”), had commenced an action in the USPTO for a re-examination of the ‘292 Patent. A re-examination is essentially a request that the USPTO review whether the patent should have issued in its present form in view of the “prior art,” e.g., other patents in the same technology field. The prior art used by Axon was from an unrelated third party and was not the result of any of Axon’s own research and development efforts.

On January 14, 2016 the USPTO ultimately rejected Axon’s efforts and confirmed the validity of the ‘292 Patent with 59 claims covering various aspects of the Company’s auto-activation technology. On February 2, 2016 the USPTO issued another patent relating to the Company’s auto-activation technology for law enforcement cameras. U.S. Patent No. 9,253,452 (the “ ‘452 Patent”) 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. The Company later added the ‘452 Patent to the suit and is seeking both monetary damages and a permanent injunction against Axon for infringement of both the ‘452 and ‘292 Patents.

In December 2016, Axon announced that it had commenced an action in the USPTO for IPR of the Company’s ‘292 Patent. Previously Axon had attempted to invalidate the ‘292 Patent through a re-examination procedure at the USPTO. Axon is again attempting through its recently filed petition to convince the USPTO that Digital Ally’s patents lack patentability. Axon subsequently filed another IPR against the ‘292 Patent and two more petitions against the ‘452 Patent. The USPTO rejected one of Axon’s requests on the ‘292 Patent and instituted an investigation of the other petition. As for the ‘452 Patent, the court rejected Axon’s request on the petition challenging the claims at issue in the lawsuit while the other petition is still under consideration. A decision on this final petition will issue in August 2017. Axon is precluded from filing any more IPR petitions against either the ‘292 or ‘452 Patents.

Since the filing of the petitions the District Court litigation in Kansas has been stayed. The Court, however, requested an update on the status of the petitions and The Company will be providing such an update after the decision on the final ‘452 Patent petition. Because Axon’s petition on the ‘452 Patent that related to the claims in the lawsuit was denied, the Company will be seeking to lift the stay and proceed with the lawsuit to a trial where the question of infringement and damages can be addressed.

The Company’s lawsuit alleges that WatchGuard incorporated this patented technology into its VISTA Wifi and 4RE In-Car product lines without its permission. Specifically, Digital Ally is accusing WatchGuard of infringing three patents: the ‘292 and ‘452 Patents and U.S. Patent No. 9,325,950 (the ‘950 Patent”). The Company is aggressively challenging WatchGuard’s infringing conduct, seeking both monetary damages, as well as seeking a permanent injunction preventing WatchGuard from continuing to sell its VISTA Wifi and 4RE In-Car product lines using Digital Ally’s own technology to compete against it. On May 8, 2017, Watchguard filed a petition seeking IPR of the ‘950 Patent. The Company will vigorously oppose that petition. The PTAB will not issue a decision on whether to institute that petition until approximately November 2017. The lawsuit has been stayed pending a decision from the USPTO on whether to institute that petition.

In addition, the Company began proceedings to invalidate the ‘556 Patent through a request for IPR of the ‘556 Patent at the United States Patent and Trademark Office (“USPTO”). On July 27, 2015, the USPTO invalidated key claims in Utility’s ‘556 Patent. The Final Decision from the USPTO significantly curtails Utility’s ability to threaten law enforcement agencies, municipalities, and others with infringement of the ‘556 Patent. Utility appealed this decision to the United States Court of Appeals for the Federal Circuit. The United States Court of Appeals for the Federal Circuit denied Utility’s appeal and therefore confirmed the ruling of the USPTO. This denial of Utility’s appeal finalized the USPTO’s ruling in Digital’s favor and the matter is now concluded.

On June 6, 2014 the Company filed an Unfair Competition lawsuit against Utility in the United States District Court for the District of Kansas. In the lawsuit, it contends that Utility has defamed the Company and illegally interfered with its contracts, customer relationships and business expectancies by falsely asserting to its customers and others that its products violate the ‘556 Patent, of which Utility claims to be the holder.

On September 13, 2014, Utility filed suit in the United States District Court for the Northern District of Georgia against the Company alleging infringement of the ‘556 Patent. The suit was served on the Company on September 20, 2014. As alleged in the Company’s first filed lawsuit described above, the Company believes that the ‘556 Patent is both invalid and not infringed. Further, the USPTO has issued its final decision invalidating 23 of the 25 claims asserted in the ‘556 Patent, as noted above. The Company believes that the suit filed by Utility is without merit and is vigorously defending the claims asserted against the Company. An adverse resolution of the foregoing litigation or patent proceedings could have a material adverse effect on the Company’s business, prospects,condition, results of operations ~~financial condition, and liquidity. The Court stayed all proceedings with respect~~or cash flows.

As a smaller reporting company, we are not required to provide the information required by this lawsuit pending the outcome of the patent review performed by the USPTO and the appellate court. Based on the USPTO’s final decision to invalidate substantially all claims contained in the ‘556 Patent and the United States Court of Appeals for the Federal Circuit full denial of Utility’s appeal, the Company intends to file for summary judgment in its favor if Utility does not request outright dismissal.Item.

~~On June 30, 2017,~~There were no unregistered sales of equity securities during the third quarter of 2022 that were not disclosed by the Company ~~borrowed an aggregate of $700,000 under the Notes with two private, third-party lenders. The unsecured Notes bear interest of 8% per annum with all principal and accrued interest due~~ on ~~or before their September 30, 2017 maturity date. In connection with the issuance of the Notes the Company issued the lenders warrants to purchase~~ a total of 200,000 shares common stock at an exercise of $3.65 per share and an expiration date of June 29, 2022. On September 30, 2017 the Company negotiated an extension of the maturity date of one of the Notes to December 31, 2017. The Company retired the second Note which had a principal balance of $350,000.Current Report on Form 8-K.

On September 29, 2017, the Company borrowed $300,000 under the Note with a private, third-party lender. The unsecured Note bears interest of 8% per annum with all principal and accrued interest due on or before its November 30, 2017 maturity date. In connection with the Note the Company issued the lender warrants to purchase a total of 100,000 shares common stock at an exercise of $2.75 per share and an expiration date of September 30, 2022.

The Company relied on the exemption from registration set forth in Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”) for issuance of the foregoing warrants exercisable to purchase 300,000 shares of common stock. The Company did not pay any compensation or fees to any party in connection with the issuance of the Notes or the warrants.

In accordance with SEC Release 33-8238, Exhibits 32.1 and 32.2 are being furnished and not filed.

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Title of each class		Trading Symbol(s)		Name of exchange on which registered
Common stock, $0.001 par value per share		DGLY		The Nasdaq Capital Market LLC

Large accelerated filer ~~[ ]~~☐		Accelerated filer ~~[ ]~~☐
Non-accelerated filer ~~[ ]~~ ☒	~~(Do not check if a smaller reporting company)~~	Smaller reporting company ~~[X]~~☒
		Emerging growth company ~~[ ]~~☐

Class		Outstanding at November ~~1, 2017~~	14, 2022
Common Stock, $0.001 par value per share			~~6,979,731~~	53,903,405

~~TABLE OF CONTENTS~~●		~~Page(s)~~To amend “Part I – Item 1. Financial Statements” to correct Note 19. Segment Data, which inadvertently reflected (i) revenue cycle management segment reported net revenues of $2,050,679 for the three and nine months ended September 30, 2021 (whereas the accurate amount was $560,486 for such periods), and (ii) ticketing segment reported net revenues of $560,486 for the three and nine months ended September 30, 2021 (whereas the accurate amount was $2,050,679 for such periods).

~~PART~~	●	To amend “Part I – ~~FINANCIAL INFORMATION~~	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” to correct the summarized financial information for the Company’s reportable business segments, which inadvertently reflected the same typographical inaccuracies.

	●	To amend “Part II - Item 6. Exhibits” to include currently dated certifications from the Company’s Principal Executive Officer and Principal Financial Officer as required by Sections 302 and 906 of the Sarbanes Oxley Act of 2002, which certifications are filed herewith as Exhibits 31.1, 31.2, 32.1 and 32.2.

TABLE OF CONTENTS		Page(s)
PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

Condensed Consolidated Balance Sheets – September 30, ~~2017~~2022 (Unaudited) and December 31, ~~2016~~2021		3

Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, ~~2017~~2022 and ~~2016~~2021 (Unaudited)		4

Condensed Consolidated ~~Statement~~Statements of Stockholders’ Equity for the Three and Nine Months Ended September 30, ~~2017~~2022 and 2021 (Unaudited)		5

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, ~~2017~~2022 and ~~2016~~2021 (Unaudited)		6

Notes to the Condensed Consolidated Financial Statements (Unaudited)		~~7-26~~7-37

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.		~~27-52~~38-64

Item 3. Quantitative and Qualitative Disclosures About Market Risk.		5364

Item 4. Controls and Procedures.		5364

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.		~~53-55~~66

Item 1A. Risk Factors.		66

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.		5666

Item 3. Defaults Upon Senior ~~Securities.~~Securities		5666

Item 4. Mine Safety ~~Disclosures.~~Disclosures		5666

Item 5. Other Information.		5666

Item 6. Exhibits.		5667

SIGNATURES		57

~~EXHIBITS~~

~~CERTIFICATIONS~~		68

	Common Stock						Additional Paid In			Treasury			Accumulated
	Shares			Amount			Capital			stock			deficit			Total
Balance, December 31, 2016		5,552,449		$	5,552		$	59,565,288		$	(2,157,226	)	$	(49,657,342	)	$	7,756,272

Stock-based compensation		—			—			981,652			—			—			981,652
Restricted common stock grant		522,000			522			(522	)		—			—			—
Restricted common stock forfeitures		(9,200	)		(9	)		9			—			—			—
Issuance of common stock purchase warrants related to issuance of subordinated notes payable		—			—			405,895			—			—			405,895
Issuance of common stock and warrants, net of issuance costs of $223,068		940,000			940			2,775,392			—			—			2,776,332
Issuance of common stock upon exercise of common stock purchase warrants		60,000			60			540			—			—			600

Net loss		—			—			—			—			(7,852,784	)		(7,852,784	)
Balance, September 30, 2017		7,065,249		$	7,065		$	63,728,254		$	(2,157,226	)	$	(57,510,126	)	$	4,067,967

	2017			2016

Cash Flows From Operating Activities:
Net loss	$	(7,852,784	)	$	(8,433,788	)
Adjustments to reconcile net loss to net cash flows used in operating activities:
Depreciation and amortization		507,358			430,537
Stock-based compensation		981,652			1,203,312
Change in derivative liabilities		(17,347	)		(18,740	)
Change in fair value of secured convertible debentures		(66,790	)		—
Provision for inventory obsolescence		417,732			253,048
Amortization of discount on subordinated note payable		288,895			—
Provision for doubtful accounts receivable		—			(4,997	)
Change in assets and liabilities:
(Increase) decrease in:
Accounts receivable - trade		658,175			856,388
Accounts receivable - other		(93,565	)		(147,047	)
Inventories		(893,412	)		(3,558	)
Prepaid expenses		(49,629	)		(47,746	)
Other assets		120,062			24,527
Increase (decrease) in:
Accounts payable		276,757			403,607
Accrued expenses		(380,744	)		311,666
Income taxes payable		3,095			(3,091	)
Deferred revenue		336,597			449,271

Net cash used in operating activities		(5,763,948	)		(4,726,611	)

Cash Flows from Investing Activities:
Purchases of furniture, fixtures and equipment		(316,751	)		(284,644	)
Additions to intangible assets		(138,765	)		(89,263	)
Net cash used in investing activities		(455,516	)		(373,907	)

Cash Flows from Financing Activities:
Proceeds from issuance of subordinated notes payable		1,000,000			—
Proceeds from issuance of common stock and warrants, net of issuance costs		2,776,332			—
Principal payment on secured convertible debentures		(750,000	)		—
Principal payment on subordinated notes payable		(350,000	)		—
Proceeds from exercise of stock options and warrants		600			19,055
Principal payments on capital lease obligation		(24,418	)		(26,917	)
Net cash provided by (used in) financing activities		2,652,514			(7,862	)

Net decrease in cash and cash equivalents		(3,566,950	)		(5,108,380	)
Cash and cash equivalents, beginning of period		3,883,124			6,924,079
Cash and cash equivalents, end of period	$	316,174		$	1,815,699

Supplemental disclosures of cash flow information:
Cash payments for interest	$	166,138		$	2,425
Cash payments for income taxes	$	6,906		$	10,591

Supplemental disclosures of non-cash investing and financing activities:
Restricted common stock grant	$	522		$	200
Restricted common stock forfeitures	$	9		$	—

	2022			2021
	Nine months ended September 30,
	2022			2021
Cash Flows From Operating Activities:
Net income (loss)	$	(9,299,498	)	$	24,388,307
Adjustments to reconcile net income (loss) to net cash flows used in operating activities:
Depreciation and amortization		1,646,207			239,630
Stock-based compensation		1,028,084			1,148,327
Change in fair value of warrant derivative liabilities		(6,726,638	)		(33,274,039	)
Gain on extinguishment of warrant derivative liabilities		(3,624,794	)		—
Provision for inventory obsolescence		143,664			339,668
Provision for doubtful accounts receivable		(161,239	)		(527	)
Gain on extinguishment of debt		—			(10,000	)
Change in fair value of short-term investments		—			28,210
Change in fair value of contingent consideration promissory note		(347,169	)		—

Change in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable – trade		143,937			337,364
Accounts receivable – other		(3,426,732	)		111,768
Inventories		(1,448,044	)		(1,767,724	)
Prepaid expenses		531,508			(3,445,546	)
Operating lease right of use assets		306,783			(27,875	)
Other assets		(4,125,776	)		(752,324	)
Increase (decrease) in:
Accounts payable		5,133,934			(475,256	)
Accrued expenses		(106,800	)		209,833
Income taxes payable		9,969			(5,331	)
Operating lease obligations		(306,782	)		14,757
Contract liabilities		2,831,394			709,977

Net cash used in operating activities		(17,797,992	)		(12,230,781	)

Cash Flows from Investing Activities:
Purchases of property, plant and equipment		(1,947,127	)		(5,575,021	)
Additions to intangible assets		(158,218	)		(239,139	)
Cash paid for TicketSmarter acquisition, net of cash acquired		—			(8,361,808	)
Restricted cash related to TicketSmarter acquisition					(500,000	)
Cash paid for acquisition of Medical Billing Company		(1,153,627	)		(1,012,552	)
Cash paid for asset acquisition of Medical Billing Company		(230,000	)		(2,270,000	)

Net cash used in investing activities		(3,488,972	)		(17,958,520	)

Cash Flows from Financing Activities:
Repurchase and cancellation of common stock		(4,026,523	)		—
Distribution to noncontrolling interest in consolidated subsidiary		(15,692	)		—
Net proceeds from sale of common stock in registered direct offerings		—			13,346,600
Proceeds from issuance of common stock upon exercise of pre-funded warrants		—			53,224,000
Principal payment on contingent consideration promissory notes		(383,222	)		—

Net cash (used in) provided by financing activities		(4,425,437	)		66,570,600

Net increase (decrease) in cash and cash equivalents		(25,712,401	)		36,381,299
Cash, cash equivalents, beginning of period		32,007,792			4,361,758

Cash, cash equivalents, end of period	$	6,295,391		$	40,743,057

Supplemental disclosures of cash flow information:
Cash payments for interest	$	44,783		$	—

Cash payments for income taxes	$	9,969		$	7,581

Supplemental disclosures of non-cash investing and financing activities:
Issuance of contingent consideration promissory note for business acquired	$	855,000		$	5,244,400

Issuance of common stock through warrant exchange agreement	$	4,495,500		$	—

Assets acquired in business acquisitions	$	190,631		$	7,366,399

Liabilities assumed in the business acquisition	$	387,005		$	5,494,417

Goodwill acquired in business acquisitions	$	2,100,000		$	—

Common stock issued as consideration for business acquisition	$	—		$	990,360

Restricted common stock grant	$	715		$	856

Restricted common stock forfeitures	$	65		$	8

Amounts allocated to initial measurement of warrant derivative liabilities in connection with the warrants and pre-funded warrants	$	—		$	51,216,058

	●	Sales to domestic customers are made direct to the end customer (typically a law enforcement agency or a commercial customer) through its sales force, which is composed of its 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 the Company 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 its inside customer service employees. Revenue is recognized upon shipment of the repair parts and acceptance of the service or materials by the end customer.

	December 31, 2021		Additions/Reclass		Recognized Revenue		September 30, 2022
Contract liabilities, current	$	1,665,519	$	1,228,395	$	844,210	$	2,049,704
Contract liabilities, non-current		2,687,786		3,384,487		937,278		5,134,995

	$	4,353,305	$	4,612,882	$	1,781,488	$	7,184,699

	September 30, 2022
	Adjusted Cost		Realized Gains		Realized Losses		Fair Value
Demand deposits	$	2,230,619	$	—	$	—	$	2,230,619
Short-term investments with original maturities of 90 days or less (Level 1):
Money market funds		4,064,772		—		—		4,064,772

	$	6,295,391	$	—	$	—	$	6,295,391

	December 31, 2021
	Adjusted Cost		Unrealized Gains		Unrealized Losses			Fair Value
Demand deposits	$	5,031,246	$	—	$	—		$	5,031,246
Short-term investments with original maturities of 90 days or less (Level 1):
Money market funds		14,928,526		—		—			14,928,526
Mutual funds		12,079,901		—		(31,881	)		12,048,020

	$	32,039,673	$	—	$	(31,881	)	$	32,007,792

	●	~~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.~~

	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
Sales by geographic area:
United States of America	$	2,747,053		3,512,075	$	11,373,569	$	11,974,469
Foreign		236,524		827,452		326,370		1,154,412
	$	2,983,577	$	4,339,527	$	11,699,939	$	13,128,881

	September 30, 2017			December 31, 2016
Raw material and component parts	$	4,828,517		$	4,015,170
Work-in-process		141,900			355,715
Finished goods		7,509,227			7,215,346
Subtotal		12,479,644			11,586,231
Reserve for excess and obsolete inventory		(2,417,653	)		(1,999,920	)
Total	$	10,061,991		$	9,586,311

	September 30, 2022			December 31, 2021
Raw material and component parts– video solutions segment	$	4,960,740		$	3,062,046
Work-in-process– video solutions segment		4,649			—
Finished goods – video solutions segment		8,071,218			8,410,307
Finished goods – ticketing segment		1,698,733			2,102,272
Subtotal		14,735,340			13,574,625
Reserve for excess and obsolete inventory– video solutions segment		(3,227,488	)		(3,353,458	)
Reserve for excess and obsolete inventory – ticketing segment		(543,936	)		(561,631	)
Total inventories	$	10,963,916		$	9,659,536

	Estimated Useful Life	September 30, 2017			December 31, 2016
Office furniture, fixtures and equipment	3-10 years	$	881,874		$	1,074,533
Warehouse and production equipment	3-5 years		509,292			643,250
Demonstration and tradeshow equipment	2-5 years		426,582			451,750
Leasehold improvements	2-5 years		160,198			153,828
Rental equipment	1-3 years		93,137			60,354
Total cost			2,071,083			2,383,715
Less: accumulated depreciation and amortization			(1,292,988	)		(1,509,813	)
Net furniture, fixtures and equipment		$	778,095		$	873,902

	September 30, 2022		December 31, 2021
Economic injury disaster loan (EIDL)	$	150,000	$	150,000
Contingent consideration promissory note – Nobility Healthcare Division Acquisition		205,865		317,212
Contingent consideration promissory note – Nobility Healthcare Division Acquisition		436,449		650,000
Contingent consideration promissory note – Nobility Healthcare Division Acquisition		449,507		—
Contingent consideration promissory note – Nobility Healthcare Division Acquisition		—		—
Debt obligations		1,241,821		1,117,212
Less: current maturities of debt obligations		569,934		389,934
Debt obligations, long-term	$	671,887	$	727,278

	September 30, 2022
2022 (October 1, 2022 to December 31, 2022)	$	142,477
2023		569,983
2024		386,585
2025		3,412
2026		3,542
2027 and thereafter		135,822

Total	$	1,241,821

	September 30, 2017			December 31, 2016
Subordinated notes payable, at par	$	650,000		$	—
Unamortized discount		(117,000	)		—

Total subordinated notes payable	$	533,000		$	—

Year ending December 31:

2017 (period from October 1, 2017 to December 31, 2017)	$	8,575
2018		8,574
Total future minimum lease payments		17,149
Less amount representing interest		283
Present value of minimum lease payments		16,866
Less current portion		16,866
Capital lease obligations, less current portion	$	—

●	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)

	September 30, 2017
	Level 1		Level 2		Level 3		Total
Liabilities:
Secured convertible debentures	$	—	$	—	$	3,183,210	$	3,183,210
Warrant derivative liability	$	—	$	—	$	15,729	$	15,729
	$	—	$	—	$	3,198,939	$	3,198,939

		December 31, 2016
		Level 1		Level 2		Level 3		Total
Liabilities:
Secured convertible debentures	$	—	$	—	$	4,000,000	$	4,000,000
Warrant derivative liability	$	—	$	—	$	33,076	$	33,076
	$	—	$	—	$	4,033,076	$	4,033,076

	Contingent Consideration Promissory Notes			Warrant Derivative Liabilities

Balance, December 31, 2021	$	967,212		$	14,846,932

Issuance of contingent consideration promissory note - Revenue Cycle Management Segment Acquisition		750,000			—

Issuance of contingent consideration promissory note - Revenue Cycle Management Segment Acquisition		105,000			—

Principal payments on contingent consideration promissory notes – Revenue Cycle Management Acquisitions		(116,198	)		—

Change in fair value of contingent consideration promissory notes - Revenue Cycle Management Acquisitions		56,050			—

Change in fair value of warrant derivative liabilities		—			(148,171	)

Balance, March 31, 2022	$	1,762,064		$	14,698,761

Principal payments on contingent consideration promissory notes – Revenue Cycle Management Acquisitions		(100,624	)		—

Change in fair value of contingent consideration promissory notes - Revenue Cycle Management Acquisitions		(542,096	)		—

Change in fair value of warrant derivative liabilities		—			(5,413,618	)

Balance, June 30, 2022	$	1,119,344		$	9,285,143

Principal payments on contingent consideration promissory notes – Revenue Cycle Management Acquisitions		(166,400	)		—

Change in fair value of contingent consideration promissory notes - Revenue Cycle Management Acquisitions		138,877			—

Change in fair value of warrant derivative liabilities		—			(1,164,849	)

Gain on extinguishment of warrant derivative liabilities		—			(3,624,794	)

Issuance of common stock through warrant exchange agreement		—			(4,495,500	)

Balance, September 30, 2022	$	1,091,821		$	—

	September 30, 2022		December 31, 2021
Prepaid inventory	$	6,318,369	$	6,546,100
Prepaid advertising		2,391,925		2,455,527
Other		517,691		727,155
Total prepaid expenses	$	9,227,985	$	9,728,782

Assets:
Operating lease right of use assets	$	846,521

Liabilities:
Operating lease obligations-current portion	$	304,294
Operating lease obligations-less current portion		610,422
Total operating lease obligations	$	914,716

Year ending December 31:
2022 (October 1, to December 31, 2022)	$	125,174
2023		305,627
2024		245,761
2025		196,462
Thereafter		175,113
Total undiscounted minimum future lease payments		1,048,137
Imputed interest		(133,421	)
Total operating lease liability	$	914,716

	September 30, 2022						December 31, 2021
	Gross value		Accumulated amortization		Net carrying value		Gross value		Accumulated amortization		Net carrying value
Amortized intangible assets:
Licenses (video solutions segment)	$	198,651	$	76,570	$	122,081	$	194,286	$	65,578	$	128,708
Patents and trademarks (video solutions segment)		472,078		268,008		204,070		493,945		233,471		260,474
Sponsorship agreement network (ticketing segment)		5,600,000		1,213,333		4,386,667		5,600,000		373,333		5,226,667
SEO content (ticketing segment)		600,000		162,500		437,500		600,000		50,000		550,000
Personal seat licenses (ticketing segment)		180,081		6,501		173,580		201,931		2,244		199,687
Client agreements (revenue cycle management segments)		999,034		101,888		897,146		—		—		—

		8,049,844		1,828,800		6,221,044		7,090,162		724,626		6,365,536

Indefinite life intangible assets:
Goodwill (ticketing and revenue cycle management segments)		11,367,514		—		11,367,514		9,931,547		—		9,931,547
Trade name (ticketing segment)		600,000		—		600,000		600,000		—		600,000
Patents and trademarks pending (video solutions segment)		41,980		—		41,980		5,430		—		5,430

Total	$	20,059,338	$	1,828,870	$	18,230,538	$	17,627,139	$	724,626	$	16,902,513

Year ending December 31:
2022 (October 1, to December 31, 2022)	$	385,204
2023		1,485,846
2024		1,435,289
2025		1,342,778
2026 and thereafter		1,571,927
Total	$	6,221,044

	September 30, 2022		December 31, 2021
Lease receivable	$	4,188,227	$	1,921,021
Sponsorship network		1,733,264		30,752
Other		311,584		155,526
Total other assets	$	6,233,075	$	2,107,299

Year ending December 31:
2017 (period from October 1, 2017 to December 31, 2017)	$	112,080
2018		451,248
2019		457,327
2020		154,131
	$	1,174,786

Year	Sponsorship fee
2015	$	375,000
2016	$	475,000
2017	$	475,000
2018	$	500,000
2019	$	500,000

Options	Number of Shares			Weighted Average Exercise Price
Outstanding at December 31, 2021		1,086,063		$	2.37
Granted		25,000			0.98
Exercised		—			—
Forfeited		(32,063	)		(4.04	)
Outstanding at September 30, 2022		1,079,000		$	2.29
Exercisable at September 30, 2022		1,079,000		$	2.29

Volatility – range		111.67	%
Risk-free rate		1.8	%
Contractual term		10.0 years
Exercise price	$	0.98

Options	Number of Shares			Weighted Average Exercise Price
Outstanding at January 1, 2017		362,440		$	18.46
Granted		100,000			3.00
Exercised		—			—
Forfeited		(52,609	)		(12.02	)
Outstanding at September 30, 2017		409,831		$	14.65
Exercisable at September 30, 2017		301,031		$	19.84
Weighted-average fair value for options granted during the period at fair value		100,000		$	2.49