UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

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

For the quarterly period ended ~~September 30,~~March 31, ~~2021~~2022.

☐	~~TRANSITION 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

For the transition period from ___________ to __________.

Commission File Number: 001-33899

Digital Ally, Inc.

(Exact name of registrant as specified in its charter)

Nevada

20-0064269

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

14001 Marshall Drive, Lenexa, KS66215~~66219~~

(Address of principal executive offices) (Zip Code)

(913)814-7774

(Registrant’s telephone number, including area code)

~~(Former name, former address and former fiscal year, if changed since last report)~~

Securities registered pursuant to Section 12(b) of the Act:

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

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☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).

Yes☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer” “accelerated filer,” “smaller reporting ~~company”~~company,” and “emerging growth company” in ~~Rule12b-2~~Rule 12b-2 of Exchange Act.

Large accelerated filer ☐		Accelerated filer ☐
Non-accelerated filer ☒		Smaller reporting company ☒
Emerging growth company ☐

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

Yes ☐ No☒

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

Class		Outstanding at ~~November 19, 2021~~May 20, 2022
Common Stock, $0.001 par value per share		~~52,702,947~~48,447,970

FORM 10-Q

DIGITAL ALLY, INC.

~~SEPTEMBER 30, 2021~~MARCH 31, 2022

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

Item 1. Financial Statements.		3

Condensed Consolidated Balance Sheets – ~~September 30, 2021~~March 31, 2022 (Unaudited) and December 31, ~~2020~~2021		3

Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2022 and ~~Nine months ended September 30,~~ 2021 ~~and 2020~~ (Unaudited)		4

Condensed Consolidated Statements of Stockholders’ Equity ~~(Deficit)~~ for the Three Months Ended March 31, 2022 and ~~Nine months ended September 30,~~ 2021 ~~and 2020~~ (Unaudited)		5

Condensed Consolidated Statements of Cash Flows for the ~~Nine months ended September 30,~~Three Months Ended March 31, 2022 and 2021 ~~and 2020~~ (Unaudited)		6

Notes to the Condensed Consolidated Financial Statements (Unaudited)		~~7-31~~7-37

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.		3238-57

Item 3. Quantitative and Qualitative Disclosures About Market Risk.		58

Item 4. Controls and Procedures.		58

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.		5958

Item 1A. Risk ~~Factors~~Factors.		5958

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.		5958

Item 3. Defaults Upon Senior Securities		59

Item 4. Mine Safety Disclosures		59

Item 5. Other Information.		59

Item 6. Exhibits.		59

SIGNATURES		60

PART I – FINANCIAL INFORMATION

Item 1 – Financial Statements.

DIGITAL ALLY, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

~~SEPTEMBER 30, 2021~~MARCH 31, 2022 AND DECEMBER 31, ~~2020~~2021

	September 30, 2021			December 31, 2020				March 31, 2022 (Unaudited)			December 31, 2021
	(Unaudited)						March 31, 2022 (Unaudited)			December 31, 2021
Assets
Current assets:
Cash and cash equivalents	$	40,743,057		$	4,361,758		$	20,561,116		$	32,007,792
Restricted cash		500,000			—
Accounts receivable-trade, less allowance for doubtful accounts of $123,751 and $123,224 – September 30, 2021 and December 31, 2020, respectively		2,356,411			1,705,461
Other receivables		1,621,053			1,529,920
Accounts receivable – trade, net								3,622,209			2,727,052
Other receivables (including $158,384 due from related parties – March 31, 2022 and $158,384 – December 31, 2021, refer to Note 19)								1,979,885			2,021,813
Inventories, net		11,611,249			8,202,274			9,405,920			9,659,536
Prepaid expenses and other current assets		9,306,660			2,030,693
Prepaid expenses								10,272,310			9,728,782

Total current assets		66,138,430			17,830,106			45,841,440			56,144,975

Property, plant and equipment, net		6,068,255			666,800
Property, plant, and equipment, net								8,480,180			6,841,026
Goodwill and other intangible assets, net		16,454,946			392,564			19,016,683			16,902,513
Operating lease right of use assets, net		1,109,463			753,175			1,051,139			993,384
Other assets		2,121,158			1,154,882			4,636,576			2,107,299

Total assets	$	91,892,252		$	20,797,527		$	79,026,018		$	82,989,197

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	5,710,765		$	1,144,676		$	7,726,667		$	4,569,106
Accrued expenses		1,218,958			796,094			1,061,821			1,175,998
Current portion of operating lease obligations		384,222			113,484			402,313			373,371
Contract liabilities – current		1,630,529			1,647,469
Debt obligations – current		4,547,421			11,727
Contract liabilities – current portion								1,788,721			1,665,519
Debt obligations – current portion								662,717			389,934
Warrant derivative liabilities		17,942,020			—			14,698,761			14,846,932
Income taxes payable		1,827			7,158			16,827			1,827

Total current liabilities		31,435,742			3,720,608			26,357,827			23,022,687

Long-term liabilities:
Debt obligations – long term		846,979			148,273			1,249,347			727,278
Operating lease obligation, long term		795,704			723,272
Contract liabilities-long term		2,575,786			1,848,869
Operating lease obligation – long term								717,021			688,207
Contract liabilities – long term								3,221,537			2,687,786

Total liabilities		35,654,211			6,441,022			31,545,732			27,125,958

Commitments and contingencies								-			-

Stockholders’ Equity:
Common stock, $0.001 par value per share; 100,000,000 shares authorized; shares issued: 52,702,947 – September 30, 2021 and 26,834,709 – December 31, 2020		52,703			26,835
Common stock, $0.001 par value per share; 100,000,000 shares authorized; shares issued: 49,728,357 shares issued – March 31, 2022 and 50,904,391 shares issued – December 31, 2021								49,728			50,904
Additional paid in capital		123,968,757			106,501,396			124,820,428			124,426,379
Treasury stock, at cost (63,518 shares)		(2,157,226	)		(2,157,226	)
Noncontrolling interest in consolidated subsidiary		(19,863	)		—			(57,333	)		56,453
Accumulated deficit		(65,606,330	)		(90,014,500	)		(77,332,537	)		(68,670,497	)

Total stockholders’ equity		56,238,041			14,356,505			47,480,286			55,863,239

Total liabilities and stockholders’ equity	$	91,892,252		$	20,797,527		$	79,026,018		$	82,989,197

See Notes to the Unaudited Condensed Consolidated Financial Statements.

DIGITAL ALLY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE ~~AND NINE~~ MONTHS ENDED

~~SEPTEMBER 30,~~MARCH 31, 2022 AND 2021 ~~AND 2020~~

(Unaudited)


	Three months ended September 30,						Nine months ended September 30,
	2021			2020			2021			2020
Product													$	2,410,060		$	1,912,577
													Three months ended March 31, 2022			Three months ended March 31, 2021
Revenue:
Product	$	1,356,454		$	2,958,579		$	4,988,364		$	5,778,695		$	2,410,060		$	1,912,577
Service and other		3,283,368			630,061			4,680,959			1,967,881			7,884,721			623,252

Total revenue		4,639,822			3,588,640			9,669,323			7,746,576			10,294,781			2,535,829

Cost of revenue:
Product		1,197,217			2,177,676			3,776,185			4,332,450			2,822,051			1,561,310
Service and other		2,042,035			188,316			2,419,884			533,690			5,533,111			162,637

Total cost of revenue		3,239,252			2,365,992			6,196,069			4,866,140			8,355,162			1,723,947

Gross profit		1,400,570			1,222,648			3,473,254			2,880,436			1,939,619			811,882

Selling, general and administrative expenses:
Research and development expense		492,221			405,083			1,402,185			1,250,528			498,000			448,965
Selling, advertising and promotional expense		1,511,682			789,854			2,978,620			1,958,884			2,779,404			596,755
General and administrative expense		2,995,640			1,871,668			8,174,002			5,585,500			5,465,553			2,631,855

Total selling, general and administrative expenses		4,999,543			3,066,605			12,554,807			8,794,912			8,742,957			3,677,575

Operating loss		(3,598,973	)		(1,843,957	)		(9,081,553	)		(5,914,476	)		(6,803,338	)		(2,865,693	)

Other income (expense):
Interest income		90,036			11,339			222,497			33,208			71,362			41,686
Interest expense		(5,675	)		(4,940	)		(8,466	)		(338,136	)		(17,009	)		(1,428	)
Secured convertible notes issuance expense		—			—			—			(34,906	)
Change in fair value of proceeds investment agreement		—			2,365,000			—			5,250,000
Change in fair value of secured convertible notes		—			—			—			(1,300,252	)
Other income														43,440			—
Change in fair value of contingent consideration promissory notes														(56,050	)		—
Change in fair value of short-term investments		(21,656	)		—			(28,210	)		—			(84,818	)		(4,964	)
Change in fair value of warrant derivative liabilities		11,585,204			—			33,274,039			—			148,171			24,552,257
Gain on extinguishment of debt		—			—			10,000			—

Total other income		11,647,909			2,371,399			33,469,860			3,609,914			105,096			24,587,551

Income (loss) before income tax benefit		8,048,936			527,442			24,388,307			(2,304,562	)		(6,698,242	)		21,721,858
Income tax benefit (expense)		—			—			—			—
Income tax benefit														—			—

Net income (loss)		8,048,936			527,442			24,388,307			(2,304,562	)		(6,698,242	)		21,721,858

Net loss attributable to noncontrolling interests of consolidated subsidiary		19,863			—			19,863			—			98,094			0

Net income (loss) attributable to common stockholders	$	8,068,799		$	527,442		$	24,408,170		$	(2,304,562	)	$	(6,600,148	)	$	21,721,858

Net income (loss) per share attributable to common stockholders’ information:
Net income (loss) per share information:
Basic	$	0.16		$	0.02		$	0.49		$	(0.12	)	$	(0.13	)	$	0.49
Diluted	$	0.16		$	0.02		$	0.49		$	(0.12	)	$	(0.13	)	$	0.49

Weighted average shares outstanding:
Basic		51,809,435			26,613,109			49,404,794			19,861,694			50,931,047			44,766,135
Diluted		51,809,435			26,627,941			49,404,794			19,861,694			50,931,047			44,766,135

See Notes to the Unaudited Condensed Consolidated Financial Statements.

DIGITAL ALLY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY ~~(DEFICIT)~~

FOR THE THREE ~~AND NINE~~ MONTHS ENDED ~~SEPTEMBER 30,~~MARCH 31, 2022 AND 2021 ~~AND 2020~~

(Unaudited)

Common Stock Additional
Paid In Treasury
Noncontrolling
interest in consolidated
   Accumulated Total
Stockholders’
Equity
Shares Amount Capital stock subsidiary deficit (Deficit)
Balance, December 31, 2019 12,079,095 $ 12,079 $ 83,216,387 $ (2,157,226 ) $       — $ (87,388,619 ) $ (6,317,379 )
Stock-based compensation — — 311,677 — — — 311,677
Restricted common stock grant 530,050 530 (530 ) — — — —
Issuance of common stock for services rendered
Issuance of common stock for services rendered, shares
Restricted common stock forfeitures (22,500 ) (23 ) 23 — — — —
Issuance of common stock through registered direct offering at $3.095 per share and accompanying warrants (net of offering expenses and placement agent discount)
Issuance of common stock through registered direct offering at $3.095 per share and accompanying warrants (net of offering expenses and placement agent discount) , shares
Issuance of common stock through registered direct offering at $2.80 per share and accompanying warrants (net of offering expenses and placement agent discount)
Issuance of common stock through registered direct offering at $2.80 per share and accompanying warrants (net of offering expenses and placement agent discount) , shares
Exercise of pre-funded common stock purchase warrants at $3.095 per share
Exercise of pre-funded common stock purchase warrants at $3.095 per share , shares
Exercise of pre-funded common stock purchase warrants at $2.80 per share
Exercise of pre-funded common stock purchase warrants at $2.80 per share , shares
Issuance of pre-funded common stock purchase warrants in connection with the registered direct offerings
Issuance of common stock purchase warrants at exercise price of $3.25 per share in connection with the registered direct offerings
Issuance of common stock upon conversion of secured convertible notes and interest 959,543 960 1,342,400 — — — 1,343,360
Issuance of common stock through underwritten public offering at $2.15 per share (net of offering expenses and underwriters’ discount)
Issuance of common stock through underwritten public offering at $2.15 per share (net of offering expenses and underwriters’ discount) , shares
Issuance of common stock upon exercise of common stock purchase warrants
Issuance of common stock upon exercise of common stock purchase warrants, shares
Issuance of common stock upon exercise of stock options
Issuance of common stock upon exercise of stock options, shares
Issuance of common stock purchase warrants in connection with issuance of secured convertible notes
Issuance of common stock as compensation for acquisition
Issuance of common stock as compensation for acquisition, shares
Issuance of common stock through underwritten public offering at $1.15 per share (net of offering expenses and underwriters’ discount) 2,521,740 2,522 2,499,614 — — — 2,502,136
Issuance of common stock purchase warrants in connection with issuance of unsecured promissory note payable — — 20,806 — — — 20,806
Net loss — — — — — (2,334,110 ) (2,334,110 )

Balance, March 31, 2020 16,067,928 16,068 87,390,377 (2,157,226 ) — (89,722,729 ) (4,473,510 )

Stock-based compensation — — 376,738 — — — 376,738
Restricted common stock grant 135,450 135 (135 ) — — — —
Restricted common stock forfeitures (12,750 ) (13 ) 13 — — — —
Issuance of common stock upon conversion of secured convertible notes and interest 1,664,669 1,665 1,679,660 — — — 1,681,325
Issuance of common stock through underwritten public offering at $1.65 per share (net of offering expenses and underwriters’ discount) 3,554,545 3,554 5,346,859 — — — 5,350,413
Issuance of common stock through underwritten public offering (net of offering expenses and underwriters’ discount) 3,554,545 3,554 5,346,859 — — 5,350,413
Issuance of common stock through underwritten public offering at $2.15 per share (net of offering expenses and underwriters’ discount) 2,539,534 2,540 4,974,152 — — — 4,976,692
Issuance of common stock through underwritten public offering (net of offering expenses and underwriters’ discount) 2,539,534 2,540 4,974,152 — — 4,976,692
Issuance of common stock upon exercise of common stock purchase warrants 2,693,867 2,694 5,200,428 — — — 5,203,122
Issuance of common stock upon exercise of stock options 1,875 2 7,798 7,800
Issuance of common stock purchase warrants in connection with issuance of secured convertible notes — — 721,141 — — — 721,141

Net loss — — — — — (497,894 ) (497,894 )

Balance, June 30, 2020 26,645,118 26,645 105,697,031 (2,157,226 ) — (90,220,623 ) 13,345,827

Stock-based compensation — — 498,356 — — — 498,356
Restricted common stock grant 181,091 181 (181 ) — — — —
Issuance of common stock for services rendered 10,000 10 30,690 — — — 30,700
Net income — — — — — 527,442 527,442

Balance, September 30, 2020 26,836,209 $ 26,836 $ 106,225,896 $ (2,157,226 ) $ — $ (89,693,181 ) $ 14,402,325

Balance, December 31, 2020 26,834,709 $ 26,835 $ 106,501,396 $ (2,157,226 ) $ — $ (90,014,500 ) $ 14,356,505
Stock-based compensation — — 326,164 — — — 326,164
Restricted common stock grant 450,000 450 (450 ) — — — —
Restricted common stock forfeitures (7,500 ) (8 ) 8 — — — —
Issuance of common stock through registered direct offering at $3.095 per share and accompanying warrants (net of offering expenses and placement agent discount) 2,800,000 2,800 6,726,200 — — — 6,729,000
Issuance of common stock through registered direct offering at $2.80 per share and accompanying warrants (net of offering expenses and placement agent discount) 3,250,000 3,250 6,614,350 — — — 6,617,600
Exercise of pre-funded common stock purchase warrants at $3.095 per share 7,200,000 7,200 22,276,800 — — — 22,284,000
Exercise of pre-funded common stock purchase warrants 7,200,000 7,200 22,276,800 — — 22,284,000
Exercise of pre-funded common stock purchase warrants at $2.80 per share 11,050,000 11,050 30,928,950 — — — 30,940,000
Exercise of pre-funded common stock purchase warrants 11,050,000 11,050 30,928,950 — — 30,940,000
Issuance of pre-funded common stock purchase warrants in connection with the registered direct offerings — — (1,817,548 ) — — — (1,817,548 )
Issuance of common stock purchase warrants at exercise price of $3.25 per share in connection with the registered direct offerings — — (49,398,510 ) — — — (49,398,510 )
Issuance of common stock purchase warrants at exercise price in connection with the registered direct offerings — — (49,398,510 ) — — (49,398,510 )
Net income — — — — — 21,721,858 21,721,858

Balance, March 31, 2021 51,577,209 51,577 122,157,360 (2,157,226 ) — (68,292,642 ) 51,759,069

Stock-based compensation — — 330,213 — — — 330,213
Net loss — — — — — (5,382,487 ) (5,382,487 )

Balance, June 30, 2021 51,577,209 51,577 122,487,573 (2,157,226 ) — (73,675,129 ) 46,706,795

Issuance of common stock through registered direct offering and accompanying warrants (net of offering expenses and placement agent discount) - - - — — -
Issuance of common stock through registered direct offering accompanying warrants (net of offering expenses and placement agent discount)
- - - — — -
Stock-based compensation — — 491,950 — — — 491,950
Issuance of common stock as consideration for acquisition
719,738
720 989,640 — 990,360
Restricted common stock grant 406,000 406 (406 ) —
Net income — — — —           (19,863 ) 8,068,799 8,048,936
Net income — — — —           (19,863 ) 8,068,799 8,048,936

Balance, September 30, 2021 52,702,947 $ 52,703 $   123,968,757 $   (2,157,226 ) $ (19,863 ) $ (65,606,330 ) $ 56,238,041

	Shares			Amount			Capital			stock			subsidiary			deficit			Total
	Common Stock						Additional Paid In			Treasury			Noncontrolling interest in consolidated			Accumulated
	Shares			Amount			Capital			stock			subsidiary			deficit			Total
Balance, December 31, 2020		26,834,709		$	26,835		$	106,501,396		$	(2,157,226	)		—		$	(90,014,500	)	$	14,356,505
Stock-based compensation		—			—			326,164			—			—			—			326,164
Restricted common stock grant		450,000			450			(450	)		—			—			—			—
Restricted common stock forfeitures		(7,500	)		(8	)		8			—			—			—			—
Issuance of common stock through registered direct offering at $3.095 per share and accompanying warrants (net of offering expenses and placement agent discount)		2,800,000			2,800			6,726,200			—			—			—			6,729,000
Issuance of common stock through registered direct offering at $2.80 per share and accompanying warrants (net of offering expenses and placement agent discount)		3,250,000			3,250			6,614,350			—			—			—			6,617,600
Exercise of pre-funded common stock purchase warrants at $3.095 per share		7,200,000			7,200			22,276,800			—			—			—			22,284,000
Exercise of pre-funded common stock purchase warrants at $2.80 per share		11,050,000			11,050			30,928,950			—			—			—			30,940,000
Issuance of pre-funded common stock purchase warrants in connection with the registered direct offerings		—			—			(1,817,548	)		—			—			—			(1,817,548	)
Issuance of common stock purchase warrants at exercise price of $3.25 per share in connection with the registered direct offerings		—			—			(49,398,510	)		—			—			—			(49,398,510	)
Net income		—			—			—			—			—			21,721,858			21,721,858

Balance, March 31, 2021		51,577,209		$	51,577		$	122,157,360		$	(2,157,226	)	$	—		$	(68,292,642	)	$	51,759,069

Balance, December 31, 2021		50,904,391		$	50,904		$	124,426,379		$	—			56,453		$	(68,670,497	)	$	55,863,239
Stock-based compensation		—			—			394,749			—			—			—			394,749
Restricted common stock grant		715,000			715			(715	)		—			—			—			—
Restricted common stock forfeitures		(15,000	)		(15	)		15			—			—			—			—
Repurchase and cancellation of common stock		(1,876,034	)		(1,876	)		—			—			—			(2,061,892	)		(2,063,768	)
Distribution to noncontrolling interest in consolidated subsidiary		—			—			—			—			(15,692	)		—			(15,692	)
Net loss		—			—			—			—			(98,094	)		(6,600,148	)		(6,698,242	)

Balance, March 31, 2022		49,728,357		$	49,728		$	124,820,428		$	—		$	(57,333	)	$	(77,332,537	)	$	47,480,286

See Notes to the Unaudited Condensed Consolidated Financial Statements.

DIGITAL ALLY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

~~FOR THE NINE~~THREE MONTHS ENDED ~~SEPTEMBER 30,~~MARCH 31, 2022 AND 2021 ~~AND 2020~~

(Unaudited)

2021 2020
Cash Flows from Operating Activities:
Net income (loss) $ 24,388,307 $ (2,304,562 )
Adjustments to reconcile net income (loss) to net cash flows used in by operating activities:
Depreciation and amortization 239,630 189,390
Gain on extinguishment of debt (10,000 ) —
Stock based compensation 1,148,327 1,186,771
Change in fair value of warrant derivative liabilities (33,274,039 ) —
Provision for inventory obsolescence 339,668 254,109
Amortization of discount on unsecured promissory notes — 86,867
Change in fair value of short-term investments 28,210 —
Change in fair value of secured convertible notes — 1,300,252
Change in fair value of proceeds investment agreement — (5,250,000 )
Provision for doubtful accounts receivable (527 ) —
Issuance of common stock for services rendered — 30,700
Debt issuance costs — 34,906

Change in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable – trade 337,364 (728,917 )
Accounts receivable – other 111,768 (370,123 )
Inventories (1,767,724 ) (967,324 )
Income tax refund receivable — 44,650
Prepaid expenses (3,445,546 ) (1,914,855 )
Operating lease right of use assets (27,875 ) (669,662 )
Other assets (752,324 ) (110,679 )

Increase (decrease) in:
Accounts payable
(475,256
) (1,281,246 )
Accrued expenses 209,833 (129,593 )
Income taxes payable (5,331 ) (4,776 )
Operating lease obligations 14,757 633,505 )
Contract liabilities 709,977 (145,018 )

Net cash used in operating activities (12,230,781 ) (10,115,605 )

Cash Flows from Investing Activities:
Purchases of property, building and equipment (5,575,021 ) (599,449 )
Additions to other intangible assets (239,139 ) (40,277 )
Additions to investments — (250,000 )
Cash paid for Nobility Healthcare Division acquisition, net of cash acquired (1,012,552 ) —
Cash paid for Nobility Healthcare Division acquisition, net of cash acquired (2,270,000 ) —
Cash paid for TicketSmarter acquisition, net of cash acquired (8,361,808 ) —
Restricted cash related to TicketSmarter acquisition (500,000 ) —

Net cash used in investing activities (17,958,520 ) (889,726 )

Cash Flows from Financing Activities:
Proceeds from issuance of common stock upon exercise of pre-funded warrants 53,224,000 —
Net proceeds from sale of common stock in registered direct offerings
13,346,600

—

Proceeds from unsecured promissory note payable, related party
—

319,000

Proceeds from unsecured promissory note payable — 100,000
Proceeds from promissory notes payable — 1,568,900
Proceeds from issuance of common stock upon exercise of warrants — 5,203,122
Proceeds from issuance of secured convertible notes payable — 1,500,000
Proceeds from sale of common stock in underwritten public offering — 12,829,241
Proceeds from exercise of stock options — 7,800
Principal payment on subordinated notes payable — (400,000 )
Principal payment on secured convertible notes — (748,180 )
Principal payments on unsecured promissory note payable, related party — (319,000 )
Debt issuance costs — (34,906 )
Principal payment on proceeds investment agreement — (1,250,000 )

Net cash provided by financing activities 66,570,600 18,775,977

Net increase in cash and cash equivalents 36,381,299 7,770,646
Cash and cash equivalents, beginning of period 4,361,758 359,685

Cash and cash equivalents, end of period $ 40,743,057 $ 8,130,331

Supplemental disclosures of cash flow information:
Cash payments for interest $ — $ 128,911

Cash payments for income taxes $ 7,581 $ 4,776

Supplemental disclosures of non-cash investing and financing activities:
Issuance of contingent consideration earn-out agreement for business acquisition $ 4,244,400 $ —

Issuance of contingent consideration promissory note for business acquisitions $ 1,000,000 $ —

Assets assumed in business acquisitions $
7,366,399
$ —

Liabilities assumed in business acquisitions $ 5,494,417 $ —

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

Restricted common stock grant $ 856 $ 845

Restricted common stock forfeitures $ 8 $ 36

Cashless exercise of common stock purchase warrants $ 0 $ 7

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

Issuance of common stock upon conversion of secured convertible notes $ — $ 3,024,685

Amounts allocated to common stock purchase warrants in connection with issuance of unsecured promissory note payable $ — $ 741,947

	Three months ended March 31, 2022			Three months ended March 31, 2021
Cash Flows from Operating Activities:
Net income (loss)	$	(6,698,242	)	$	21,721,858
Adjustments to reconcile net income (loss) to net cash flows used in operating activities:
Depreciation and amortization		493,395			55,422
Stock-based compensation		394,749			326,164
Change in fair value of warrant derivative liabilities		(148,171	)		(24,552,257	)
Provision for inventory obsolescence		18,629			427,907
Provision for doubtful accounts receivable		(150,636	)		—
Change in fair value of contingent consideration promissory note		56,050			—

Change in operating assets and liabilities (net of assets and liabilities acquired):
(Increase) decrease in:
Accounts receivable – trade		(744,521	)		574,072
Accounts receivable – other		41,928			(379,472	)
Inventories		234,987			(1,115,549	)
Prepaid expenses		(512,817	)		200,027
Operating lease right of use assets		102,165			4,434
Other assets		(2,529,277	)		(187,291	)
Increase (decrease) in:
Accounts payable		2,958,343			(478,608	)
Accrued expenses		(142,043	)		69,630
Operating lease obligations		(102,164	)		(15,451	)
Income taxes payable		15,000			—
Contract liabilities		656,953			142,270

Net cash used in operating activities		(6,055,672	)		(3,206,844	)

Cash Flows from Investing Activities:
Purchases of furniture, fixtures and equipment		(1,774,592	)		(77,011	)
Additions to intangible assets		(37,127	)		(22,263	)
Cash paid for acquisition of Medical Billing Company		(1,153,627	)		—
Cash paid for asset acquisition from Medical Billing Company		(230,000	)		—

Net cash used in investing activities		(3,195,346	)		(99,274	)

Cash Flows from Financing Activities:
Repurchase and cancellation of common stock		(2,063,768	)		—
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		(116,198	)		—

Net cash provided by (used in) financing activities		(2,195,658	)		66,570,600

Net increase/(decrease) in cash and cash equivalents		(11,446,676	)		63,264,482
Cash, cash equivalents, beginning of period		32,007,792			4,361,758

Cash, cash equivalents, end of period	$	20,561,116		$	67,626,240

Supplemental disclosures of cash flow information:
Cash payments for interest	$	18,847		$	—

Cash payments for income taxes	$	9,969		$	—

Supplemental disclosures of non-cash investing and financing activities:
Restricted common stock grant	$	715		$	450

Restricted common stock forfeitures	$	15		$	8

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

Issuance of contingent consideration promissory note for business and asset acquisitions	$	855,000		$	—

Assets acquired in business acquisitions	$	190,631		$	—

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

Liabilities assumed in business acquisitions	$	387,005		$	—

See Notes to the Unaudited Condensed Consolidated Financial Statements.

DIGITAL ALLY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations::

Digital Ally, Inc. (with its wholly-owned subsidiaries, Digital Ally International, Inc., Shield Products, LLC, Digital Ally Healthcare, LLC, TicketSmarter, Inc., and its majority-owned subsidiary Nobility Healthcare, LLC, collectively, “Digital Ally,” “Digital,” and the “Company”) produces digital video imaging, storage products, disinfectant and related safety products for use in law enforcement, security and commercial applications; also offering revenue cycle management solutions, ticket resale marketplace, and ticketing services. The Company’s products include, among others; in-car digital video/audio recorders 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; and cloud storage solutions. The Company added two new lines of branded products: (1) the ThermoVu^® line, 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) the Shield™ disinfectant and cleanser line, which is for use against viruses and bacteria and which we began offering to the Company’s law enforcement and commercial customers beginning late in the second quarter of 2020. Both product lines are manufactured by third parties. In addition, 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, taxicab and the military. The Company sells its products to law enforcement agencies, private security customers and organizations, and consumer and commercial fleet operators through direct sales domestically and third-party distributors internationally. Additionally, through our Digital Ally Healthcare, LLC subsidiary, the Company has expanded into the revenue cycle management solutions field, helping provide working capital and back-office services to healthcare organizations throughout the country. Lastly, through the Company’s recently formed TicketSmarter, Inc. subsidiary, it has entered the online ticketing platform through TicketSmarter.com, as a unique marketplace for buyers and sellers of tickets for live events throughout the country.

~~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.

The business of Digital Ally, Inc. (with its wholly-owned subsidiaries, Digital Ally International, Inc., Shield Products, LLC, Digital Ally Healthcare, LLC, TicketSmarter, Inc., Worldwide Reinsurance, Ltd., Digital Connect, 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 18.

Basis of Presentation::

The unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the ~~three and nine month periods~~three-month period ended ~~September 30, 2021~~March 31, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2021.~~2022.

The balance sheet at December 31, ~~2020~~2021 has been derived from the audited financial statements at that date, but does not include all the information and footnotes required by generally accepted accounting principles in the United States for complete financial statements.

For further information, refer to the audited financial statements and footnotes included in the Company’s annual report on Form 10-K for the year ended December 31, ~~2020, and the unaudited financial statements and footnotes included in the Company’s quarterly report on Form 10-Q for the quarter ended September 30,~~ 2021.

COVID-19 pandemic::

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

Like most US-based businesses, the COVID-19 pandemic and efforts to mitigate the same began to have impacts on our business in March 2020. BySince that time, ~~much~~the COVID-19 pandemic has dramatically impacted the global health and economic environment, including millions of ~~our first fiscal quarter was completed. During the remainder of 2020~~confirmed cases, business slowdowns or shutdowns, labor shortages, supply chain challenges, changes in government spending and ~~the first quarter of 2021, the Company observed decreases in demand from certain customers, including primarily law-enforcement~~requirements, regulatory challenges, inflationary pressures and ~~commercial customers. However, the Company is beginning to experience an increase in demand for the three months ended September 30, 2021, compared to the same period in 2020.~~market volatility.

~~Given~~We operate within the ~~fact that the Company’s products are sold through a variety of distribution channels, the Company expects its sales will experience more volatility as a result of the changing~~complex integrated global supply chain for both vendors and less predictable operational needs of many customers as a result of the COVID-19 pandemic. The Company is aware that many companies, including many of its suppliers and customers, are reporting or predicting negative impacts from COVID-19 on future operating results. Although the Company observed significant declines in demand for its products from certain customers during 2020 and the first quarter of 2021, the Company believes that the impact of the COVID-19 remains too fluid and unknown, hindering the Company from determining the long-term demand for current products. The Company also cannot be certain how demand may shift over time as the impacts ofcustomers. As the COVID-19 pandemic ~~may go through several phases of~~dissipates at varying ~~severity~~times and ~~duration.~~

~~In light of broader macro-economic risks and already known impacts~~rates in different regions around the world, there could be a prolonged negative impact on certain industries that use the Company’s products and services, the Company has taken, and continue to take targeted steps to lower its operating expenses because of the COVID-19 pandemic. The Company continues to monitor the impacts of COVID-19 on its operations closely and this situation could change based on a significant number of factors that are not entirely within its control and are discussed in this and other sections of this quarterly report on Form 10-Q. The Company does not expect there to be material changes to its assets on its balance sheet or its ability to timely account for those assets. Further, in connection with the preparation of this quarterly report on Form 10-Q, the Company reviewed the potential impacts of the COVID-19 pandemic on goodwill and intangible assets and have determined there to be no material impact at this time. The Company has also reviewed the potential impacts on future risks to the business as it relates to collections, returns and other business-related items.

To date, travel restrictions and border closures have not materially impacted its ability to obtain inventory or manufacture or deliver products or services to customers. However, if such restrictions become more severe, they could negatively impact those activities in a way that would harm the business over the long term. Travel restrictions impacting people can restrain our ability to assist its customers and distributors as well as impact its ability to develop new distribution channels, but at present the Company does not expect these restrictions on personal travel to be material to our business operations or financial results. The Company has taken steps to restrain and monitor its operating expenses and therefore it does not expect any such impacts to materially change the relationship between costs and revenues.

Like most companies, the Company has taken a range of actions with respect to how it operates to assure it complies with government restrictions and guidelines as well as best practices to protect the health and well-being of its employees and itsglobal supply chains. Our ability to continue ~~operating its~~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, ~~effectively. To date, the Company has been able to operate its business effectively using these measures~~results of operations, cash flows and to maintain internal controls as documented and posted. The Company also has not experienced challenges in maintaining business continuity and does not expect to incur material expenditures to do so. However, the impacts of COVID-19 and efforts to mitigate the same have remained unpredictable and it remains possible that challenges may arise in the future.financial condition.

~~The actions the Company has taken so far during the COVID-19 pandemic include, but are not limited to:~~

	●	~~requiring all employees who can work from home~~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 ~~work from home;~~

	●	~~increasing its IT networking capability to best assure employees can work effectively outside the office; and~~

	●	~~for employees who must perform essential functions in one of its offices:~~

	●	~~having employees maintain a distance of at least six feet from other employees whenever possible;~~

	●	~~having employees work in dedicated shifts to lower the risk all employees who perform similar tasks might become infected by COVID-19;~~

	●	~~having employees stay segregated from other employees in the office with whom they require no interaction; and~~

	●	~~requiring unvaccinated employees to wear masks while they are in the office whenever possible.~~

The Company currently believes revenue for the year ending December 31, 2021 will still be impacted due to the conditions noted. In April 2020, the Company implemented a COVID-19 mitigation plan designed to further reduce its operating expenses during the pandemic. Actions taken to date include work hour and salary reductions for senior management. These cost reductions are in addition to the significant restructuring actions which the Company continues to implement and develop throughout 2021. Based on the Company’s current cash position, its projected cash flow from operations and its cost reduction and cost containment efforts to date, the Company believes that it will have sufficient capital, and ~~or have~~ access to ~~sufficient capital through public~~fundamental support services (such as shipping and ~~private equity~~transportation), they may be unable to provide the agreed-upon goods and ~~debt offerings to sustain operations for~~services in a ~~period of one year following~~timely, compliant and cost-effective manner. We have incurred and may in the ~~date of this filing. If~~future incur additional costs and delays in our business ~~interruptions~~ resulting from the COVID-19 pandemic, ~~were~~including as a result of higher prices, schedule delays or the need to identify and develop alternative suppliers. In some instances, we may be ~~prolonged~~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 ~~expanded~~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 ~~scope,~~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 ~~condition,~~position, results of operations ~~and~~and/or cash ~~flows would be negatively impacted. The Company will continue to actively monitor this situation and will implement actions necessary to maintain business continuity.~~flows.

Basis of Consolidation::

The accompanying financial statements include the consolidated accounts of Digital Ally, its wholly-owned subsidiaries, Digital Ally International, Inc., Shield Products, LLC, Digital Ally Healthcare, LLC, TicketSmarter, ~~Inc,~~Inc., Worldwide Reinsurance, Ltd., Digital Connect, Inc., and its majority-owned subsidiary Nobility Healthcare, LLC. All intercompany balances and transactions have been eliminated during consolidation.

The Company formed Digital Ally International, Inc. during August 2009 to facilitate the export sales of its products. The Company formed Shield Products, LLC in May 2020 to facilitate the sales of its Shield™ line of disinfectant/cleanser products and ~~ThermoVu~~^®ThermoVu® line of temperature monitoring equipment. The Company formed Nobility Healthcare, LLC in June 2021 to facilitate the operations of its revenue cycle management solutions and back-office services for healthcare organizations. Lastly, the Company formed TicketSmarter, Inc. upon its acquisition of Goody Tickets, LLC and TicketSmarter, LLC, to facilitate ~~the~~its global ticketing operations. The Company formed Worldwide Reinsurance Ltd., which is a captive insurance company domiciled in Bermuda. It will provide primarily liability insurance coverage to the Company for which insurance may not be currently available or economically feasible in today’s insurance marketplace. The Company formed Digital Connect, Inc. for travel and transportation purposes in 2022.

Fair Value of Financial Instruments:

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

Revenue Recognition::

The Company applies the provisions of Accounting Standards Codification (ASC) 606-10, Revenue from Contracts with Customers, and all related appropriate guidance. The Company recognizes revenue under the core principle to depict the transfer of control to its customers in an amount reflecting the consideration to which it expects to be entitled. In order to achieve that core principle, the Company applies the following five-step approach: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when a performance obligation is satisfied.

The Company has two different revenue streams, product and service, represented through its three segments. The Company reports all revenues on a gross basis, other than service revenues from the Company’s ticketing and revenue cycle management segments. Revenues generated by all segments are reported net of sales taxes.

Video Solutions

The Company considers customer purchase orders, which in some cases are governed by master sales agreements, to be the contracts with the customer. In ~~situations~~situation where sales are to a distributor, the Company had concluded its contracts are with the distributor as the Company holds a contract bearing enforceable rights and obligations only with the distributor. As part of part of its consideration for the contract, the Company evaluates certain factors including the customers’ ability to pay (or credit risk). For each contract, the Company considers the promise to transfer products, each of which is distinct, to be the identified performance obligations. In determining the transaction price, the Company evaluates whether the price is subject to refund or adjustment to determine the net consideration to which it expects to be entitled. As the Company’s standard payment terms are less than one year, it has elected the practical expedient under ASC 606-10-32-18 to not assess whether a contract has a significant financing component. The Company allocates the transaction price to each distinct product based on its relative standalone selling price. The product price as specified on the purchase order is considered the standalone selling price as it is an observable input which depicts the price as if sold to a similar customer in similar circumstances. Revenue is recognized when control of the product is transferred to the customer (~~i.e.~~,(i.e. when the Company’s performance obligations is satisfied), which typically occurs at shipment. Further in determining whether control has been transferred, the Company considers if there is a present right to payment and legal title, along with risks and rewards of ownership having transferred to the customer. Customers do not have a right to return the product other than for warranty reasons for which they would only receive repair services or replacement product. The Company has also elected the practical expedient under ASC 340-40-25-4 to expense commissions for product sales when incurred as the amortization period of the commission asset the Company would have otherwise recognized is less than one year.

~~The Company sells its products and services to customers in the following manner:~~

	●	Product 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.

	●	Product 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. Accordingly, upon application of steps one through five above, 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.

	●	Service sales through the Company’s Nobility Healthcare subsidiary are driven through relationships with medium to large healthcare organizations, in which revenue is recognized upon execution of services. Through the Company’s TicketSmarter subsidiary, service sales are driven largely in part to the usage of the TicketSmarter.com marketplace by buyers and sellers, in which the Company collects service fees for each transaction.

~~Sales taxes collected on products sold are excluded from revenues and are reported as accrued expenses 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 cycle management services, and ticket marketplace services.~~revenue. Revenue is recognized upon shipment of the product and acceptance of the service or materials by the end customer for repair services. Revenue for extended warranty, cloud service or other software-based products is over the term of the contract warranty or service period. A time-elapsed method is used to measure progress because the Company transfers control evenly over the contractual period. Accordingly, the fixed consideration related to these revenues is generally recognized on a straight-line basis over the contract term, as long as the other revenue recognition criteria have been met.

Contracts with some of the Company’s customers contain multiple performance obligations that are distinct and accounted for separately. The transaction price is allocated to the separate performance obligations on a relative standalone selling price (“SSP”). The Company determined SSP for all the performance obligations using observable inputs, such as standalone sales and historical pricing. SSP is consistent with the Company’s overall pricing objectives, taking into consideration the type of service being provided. SSP also reflects the amount the Company would charge for the performance obligation if it were sold separately in a standalone sale. Multiple performance obligations consist of product, software, cloud subscriptions and extended warranties.

The Company’s multiple performance obligations may include future in-car or body-worn camera devices to be delivered at defined points within a multi-year contract, and in those arrangements, the Company allocates total arrangement consideration over the life of the multi-year contract to future deliverables using management’s best estimate of selling price.

Revenue Cycle Management

The Company reports revenue cycle management revenues on a net basis, as its primary source of revenue is its end-to end service fees which is generally determined as a percentage of the invoice amounts collected. These service fees are reported as revenue monthly upon completion of the Company’s performance obligation to provide the agreed upon service.

Ticketing

The Company reports ticketing revenue on a gross or net basis based on management’s assessment of whether the Company is acting as a principal or agent in the transaction. The determination is based upon the evaluation of control over the event ticket, including the right to sell the ticket, prior to its transfer to the ticket buyer.

The Company sells tickets held in inventory, which consists of one performance obligation, being to transfer control of an event ticket to the buyer upon confirmation of the order. The Company acts as the principal in these transactions as the ticket is owned by the Company at the time of sale, therefore controlling the ticket prior to transferring to the customer. In these transactions, revenue is recorded on a gross basis based on the value of the ticket and is recognized when an order is confirmed. Payment is typically due upon delivery of the ticket.

The Company also acts as an intermediary between buyers and sellers through the online secondary marketplace. Revenues derived from this marketplace primarily consist of service fees from ticketing operations, and consists of one primary performance obligation, which is facilitating the transaction between the buyer and seller, being satisfied at the time the order has been confirmed. As the Company does not control the ticket prior to the transfer, the Company acts as an agent in these transactions. Revenue is recognized on a net basis, net of the amount due to the seller when an order is confirmed. The seller is then obligated to deliver the tickets to the buyer per the seller’s listing, and payment is due at the time of sale.

Other

Contract liabilities consist of deferred revenue and include payments received in advance of performance under the contract and are reported separately as current liabilities and non-current liabilities in the ~~condensed consolidated balance sheets.~~Consolidated Balance Sheets. Such amounts consist of extended warranty contracts, prepaid cloud services and prepaid installation services and are generally recognized as the respective performance obligations are satisfied. During the three months ended March 31, 2022, the Company recognized revenue of $0.5 million related to its contract liabilities. Contract liabilities consist of deferred revenue and include payments received in advance of performance under the contract and are reported separately as current liabilities and non-current liabilities in the Consolidated Balance Sheets. Such amounts consist of extended warranty contracts, prepaid cloud services and prepaid installation services and are generally recognized as the respective performance obligations are satisfied. Total contract liabilities consist of the following:

SCHEDULE OF CONTRACT LIABILITIES

	March 31, 2022
	December 31, 2021		Additions/Reclass		Recognized Revenue		March 31, 2022
Contract liabilities, current	$	1,665,519	$	280,375	$	157,173	$	1,788,721
Contract liabilities, non-current		2,687,786		897,438		363,687		3,221,537

	$	4,353,305	$	1,177,813	$	520,860	$	5,010,258

Sales returns and allowances aggregated $117,376 and $45,298 for the years ended March 31, 2022 and December 31, 2021, respectively. Obligations for estimated sales returns and allowances are recognized at the time of sales on an accrual basis. The accrual is determined based upon historical return rates adjusted for known changes in key variables affecting these return rates.

Use of Estimates::

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates. Management utilizes various other estimates, including but not limited to determining the estimated lives of long-lived assets, determining the potential impairment of long-lived assets, the fair value of warrants, options, ~~proceeds investment agreement and convertible debt,~~ the recognition of revenue, inventory valuation reserve, fair value of assets and liabilities acquired in a business combination, incremental borrowing rate on leases, the valuation allowance for deferred tax assets and other legal claims and contingencies. The results of any changes in accounting estimates are reflected in the financial statements in the period in which the changes become evident. Estimates and assumptions are reviewed periodically, and the effects of revisions are reflected in the period that they are determined to be necessary.

Cash and cash equivalents::

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

SCHEDULE OF SHORT TERM INVESTMENTS

	March 31, 2022
	Adjusted Cost		Realized Gains		Realized Losses			Fair Value
Demand deposits	$	6,951,901	$	—	$	—		$	6,951,901
Short-term investments with original maturities of 90 days or less (Level 1)⁽¹⁾:
Money market funds		13,609,215		—		—			13,609,215
Mutual funds		84,818		—		(84,818	)		—

	$	20,645,934	$	—	$	(84,818	)	$	20,561,116

	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)⁽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

The Company maintains its cash and cash equivalents in banks insured by the Federal Deposit Insurance Corporation (FDIC) in accounts that at times may be in excess of the federally insured limit of $250,000 per bank. The Company minimizes this risk by placing its cash deposits with ~~numerous~~ major financial institutions. At ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, the uninsured balance amounted to $~~38,152,409~~18,438,051 and $~~3,653,192~~29,836,142,, respectively.

Accounts ~~Receivable:~~Receivable:

Accounts receivable are carried at original invoice amount less an estimate made for doubtful receivables based on a review of all outstanding amounts on a weekly basis. The Company determines the allowance for doubtful accounts by regularly evaluating individual customer receivables and considering a customer’s financial condition, credit history, and current economic conditions. ~~One individual customer receivable balances exceeded~~ 10~~% of total accounts receivable as of September 30, 2021 and December 31, 2020, which totaled $558,729~~ or 24% ~~and $319,000~~ or 19~~% of total accounts receivable, respectively.~~

Trade receivables are written off when deemed uncollectible. Recoveries of trade receivables previously written off are recorded when received. A trade receivable is considered to be past due if any portion of the receivable balance is outstanding for more than thirty (30) days beyond terms. No interest is charged on overdue trade receivables.

Goodwill and Other Intangibles:

Goodwill - In connection with acquisitions, the Company applies the provisions of ASC 805, Business Combinations, using the acquisition method of accounting. The excess purchase price over the fair value of net tangible assets and identifiable intangible assets acquired is recorded as goodwill. In accordance with ASC 350, Intangibles - Goodwill and Other, the Company assesses goodwill for impairment annually as of December 31, and more frequently if events and circumstances indicate that goodwill might be impaired. ~~The Company has just recently completed several acquisitions that generated goodwill that will be subject to impairment testing for the first time on December 31, 2021.~~

Goodwill impairment testing is performed at the reporting unit level. Goodwill is assigned to reporting units at the date the goodwill is initially recorded. Once goodwill has been assigned to reporting units, it no longer retains its association with a particular acquisition, and all of the activities within a reporting unit, whether acquired or internally generated, are available to support the value of the goodwill.

Traditionally, goodwill impairment testing is a two-step process. Step one involves comparing the fair value of the reporting units to its carrying amount. If the carrying amount of a reporting unit is greater than zero and its fair value is greater than its carrying amount, there is no impairment. If the reporting unit’s carrying amount is greater than the fair value, the second step must be completed to measure the amount of impairment, if any. Step two involves calculating an implied fair value of goodwill. The Company has adopted ASU 2017-04 which simplifies subsequent goodwill measurement by eliminating step two from the goodwill impairment test. As a result, the Company compares the fair value of a reporting unit with its respective carrying value and recognized an impairment charge for the amount by which the carrying amount exceeded the reporting unit’s fair value.

The Company determines the fair value of its reporting units using an income approach. Under the income approach, the Company determined fair value based on estimated discounted future cash flows of each reporting unit. Determining the fair value of a reporting unit is judgmental in nature and requires the use of significant estimates and assumptions, including revenue growth rates and EBITDA margins, discount rates and future market conditions, among others.

Long-lived and Other Intangible Assets - The Company periodically assesses potential impairments of its long-lived assets in accordance with the provisions of ASC 360, Accounting for the Impairment or Disposal of Long-lived Assets. An impairment review is performed whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. The Company groups its assets at the lowest level for which identifiable cash flows are largely independent of the cash flows of the other assets and liabilities. The Company has determined that the lowest level for which identifiable cash flows are available is the operating segment level.

Factors considered by the Company include, but are not limited to, significant underperformance relative to historical or projected operating results; significant changes in the manner of use of the acquired assets or the strategy for the overall business; and significant negative industry or economic trends. When the carrying value of a long-lived asset may not be recoverable based upon the existence of one or more of the above indicators of impairment, the Company estimates the future undiscounted cash flows expected to result from the use of the asset and its eventual disposition. If the sum of the expected future undiscounted cash flows and eventual disposition is less than the carrying amount of the asset, the Company recognizes an impairment loss. An impairment loss is reflected as the amount by which the carrying amount of the asset exceeds the fair value of the asset, based on the fair value if available, or discounted cash flows, if fair value is not available. The Company last assessed potential impairments of its long-lived assets as of ~~December~~March 31, ~~2020~~2022 and concluded that there was no impairment.

~~Other intangible assets that have finite lives are amortized over their useful lives.~~

~~Segments of Business~~:

Management has determined that, due to recent business acquisitions, its operations are comprised of three reportable segments: Digital Ally, TicketSmarter, and Nobility Healthcare. For the three and nine months ended September 30, 2021 and 2020, sales by segment were as follows:

~~SUMMARY OF SALES BY GEOGRAPHIC AREA~~

2021 2020 2021 2020

Three Months Ended
September 30,

Nine months ended
September 30,

2021 2020 2021 2020
Sales by segment:
Digital Ally
Product $ 1,356,454 $ 2,958,579 $ 4,988,364 $ 5,779,387
Service and other 672,206 630,061 2,069,797 1,967,881
Total Digital Ally 2,028,660 3,588,640 7,058,161 7,747,268

TicketSmarter
Service and other 2,050,679 — 2,050,679 —
Total TicketSmarter 2,050,679 — 2,050,679 —

Nobility Healthcare
Service and other 560,483 — 560,483 —
Total Nobility Healthcare 560,483 — 560,483 —

Total $ 4,639,822 $ 3,588,640 $ 9,669,323 $ 7,746,576

~~Sales~~Intangible assets include deferred patent costs and license agreements. Legal expenses incurred in preparation of patent application have been deferred and will be amortized over the useful life of granted patents. Costs incurred in preparation of applications that are not granted will be charged to ~~customers outside of~~expense at that time. The Company has entered into several sublicense agreements under which it has been assigned the ~~United States are denominated~~exclusive rights to certain licensed materials used in ~~U.S. dollars. All~~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 ~~are physically located within the United States.~~and amortizes such costs over their estimated useful life on a straight-line method.

~~Recent Accounting Pronouncements~~Segment Reporting:

The accounting guidance on Segment Reporting establishes standards for reporting information regarding operating segments in annual financial statements and requires selected information of those segments to be presented in financial statements. Operating segments are identified as components of an enterprise for which separate discrete financial information is available for evaluation by the chief operating decision maker (the Company’s Chief Executive Officer or “CODM”) in making decisions on how to allocate resources and assess performance. The Company’s 3operating 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 is also to be reported in the segment information. The Company’s captive insurance subsidiary provides services to the Company’s other business segments and not to outside customers; however, that subsidiary had no activity in the three months ended March 31, 2022 and 2021. Therefore, its operations will be eliminated in consolidation and it is not considered a separate business segment for financial reporting purposes.

Contingent Consideration

In ~~June 2016,~~circumstances where an acquisition involves a contingent consideration arrangement that meets the definition of a liability under the Financial Accounting Standards Board (“FASB”) ~~issued~~ Accounting Standards ~~Update~~Codification (“~~ASU”~~ASC”) ~~2016-13, “Financial Instruments – Credit Losses”~~480, Distinguishing Liabilities from Equity, the Company recognizes a liability equal to ~~improve information on credit losses for financial assets~~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 ~~net investment~~records changes in ~~leases that are not accounted for at~~the fair value through ~~net income. ASU 2016-13 replaces~~ the ~~current incurred loss impairment methodology with~~consolidated statement of operations.

Repurchase and Cancellation of Shares

From time to time, the Company’s Board of Directors (the “Board”) may authorize share repurchases of common stock. Shares repurchased under Board authorizations are held in treasury for general corporate purposes and cancelled when it is determined appropriate by management. The Company accounts for repurchases of common stock under the cost method. Shares repurchased and cancelled during the period were recorded as a ~~methodology that reflects expected credit losses. In April 2019 and May 2019,~~reduction to stockholders’ (deficit) equity. See further discussion of the ~~FASB issued ASU No. 2019-04, “Codification Improvements to Topic 326,~~Company’s share repurchase program in Note 14 –Stockholders’ Equity.

Non-Controlling Interests

Non-controlling interests in the Company’s Consolidated 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 onStatements represents the ~~previously issued ASU. In November 2019,~~interest in subsidiaries held by our venture partner. The venture partner holds a noncontrolling interests in 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 (the “SEC”) to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.Company’s consolidated subsidiary Nobility Healthcare, LLC. Since the Company ~~is an SRC, implementation will not be required until January 1, 2023. The Company will continue~~consolidates the financial statements of all wholly-owned and majority owned subsidiaries, the noncontrolling owners’ share of each subsidiary’s results of operations are deducted and reported as net income or loss attributable to ~~evaluate~~noncontrolling interest in the ~~effect that adopting ASU 2016-13 will have on the Company’s consolidated financial statements.~~Consolidated Statements of Operations.

New Accounting Standards

In 2020, FASB issued ASU No. 2020-06 to simplify the accounting for convertible debt instruments as the current accounting guidance was determined to be unnecessarily complex and difficult to navigate. The ASU primarily does three things: (1) The ASU eliminates the beneficial conversion feature model and the cash conversion model. The elimination of these models will result in more convertible instruments (convertible debt instruments or convertible preferred stock instruments) being reported as a single liability instrument. The ASU also makes targeted improvements to the related disclosures, (2) The ASU eliminates certain settlement conditions that are required to qualify for derivative scope exception which will allow for less equity contracts to be accounted for as a derivative and (3) The ASU aligns the diluted EPS calculation for convertible instruments by requiring the use of the if-converted method and requiring share settlement be included in the calculation when the contract includes an option of cash or share settlement. ASU No. 2020-06 is effective for fiscal years beginning after December 15, 2021 with early adoption permitted for fiscal years beginning after December 15, 2020. ~~Management has~~The adoption of this standard did not ~~early-adopted this new standard~~have a significant impact on the Company’s financial position and ~~continues to evaluate the impact~~results of ~~adopting ASU 2020-06 will have on its consolidated financial statements.~~operations.

In 2020, FASB issued ASU No. 2020-01 which represents a consensus of the Emerging Issues Task Force and it clarifies certain items related to ASU 2016-01, Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The ASU (1) clarifies that when an entity is either applying the equity method or upon discontinuing the equity method it should consider observable price changes in orderly transactions for the identical or a similar investment with the same issuer for valuing basis of the investment and (2) clarifies that when determining the accounting for certain forward contracts and purchased options an entity should not consider, whether upon settlement or exercise, if the underlying securities would be accounted for under the equity method or fair value option. ASU No. 2020-01 is effective for fiscal years beginning after December 15, 2020 with early adoption permitted. The Company adopted this update for the quarter ended March 31, ~~2021, with no material effect~~2021. The adoption of this standard did not have a significant impact on the ~~financials.~~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.

~~Warrant Derivative Liabilities~~In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses” to improve information on credit losses for financial assets and net investment in leases that are not accounted for at fair value through net income. ASU 2016-13 replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses. In April 2019 and May 2019, the FASB issued ASU No. 2019-04, “Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments” and ASU No. 2019-05, “Financial Instruments-Credit Losses (Topic 326): Targeted Transition Relief” which provided additional implementation guidance on the previously issued ASU. In November 2019, the FASB issued ASU 2019-10, “Financial Instruments - Credit Loss (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842),” which defers the effective date for public filers that are considered small reporting companies (“SRC”) as defined by the Securities and Exchange Commission to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company will continue to evaluate the effect of adopting ASU 2016-13 will have on the Company’s consolidated financial statements.

In ~~accordance~~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 FASB ASC 815-40, Derivatives and Hedging: Contracts in an Entities Own Equity, entities must consider whether to classify contracts that may be settled in its own stock, such as warrants to purchase shares of Common Stock, as equity of the entity or as an asset or liability. If an eventa cloud computing arrangement that is a service contract. The amendments under ASU 2018-15 are effective for interim and annual fiscal periods beginning after December 15, 2019, with early adoption permitted. The adoption of this standard did not ~~within~~have a significant impact on the ~~entity’s control could require net cash settlement, then~~Company’s financial position and results of operations,

In December 2019, the ~~contract should be classified as an asset or~~FASB issued ASU No. 2019-12, Income Taxes - simplifying the accounting for income taxes (Topic 740), which is meant to simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740, Income Taxes. The amendment also improves consistent application and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. 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 ~~liability rather than as equity. We have determined because~~significant impact on the ~~terms of the warrants issued during the first quarter of 2021,~~Company’s financial position and remain outstanding, include a provision that entitles all the warrant holders to receive cash for their warrants in the event of a qualifying cash tender offer, while only certain of the holders of the underlying shares of common stock would be entitled to cash, our warrants should be classified as liability measured at fair value, with changes in fair value each period reported in earnings. Volatility in the price of our common stock may result in significant changes in the value of the derivatives and resulting gains and losses on our statementresults of operations.

NOTE 2. INVENTORIES

Inventories consisted of the following at ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020:~~2021:

SCHEDULE OF INVENTORIES

September 30, 2021 December 31, 2020
Raw material and component parts $ 3,068,418 $ 3,186,426
Work-in-process 15,506 1,908
Finished goods 10,827,344 6,974,291

Subtotal 13,911,268 10,162,625
Reserve for excess and obsolete inventory (2,300,019 ) (1,960,351 )

Total $ 11,611,249 $ 8,202,274

	March 31, 2022			December 31, 2021
Raw material and component parts– video solutions segment	$	3,839,796		$	3,062,046
Work-in-process– video solutions segment		56			—
Finished goods – video solutions segment		7,990,526			8,410,307
Finished goods – ticketing segment		1,472,002			2,102,272
Subtotal		13,302,380			13,574,625
Reserve for excess and obsolete inventory– video solutions segment		(3,334,829	)		(3,353,458	)
Reserve for excess and obsolete inventory – ticketing segment		(561,631	)		(561,631	)
Total inventories	$	9,405,920		$	9,659,536

Finished goods inventory includes units held by potential customers and sales agents for test and evaluation purposes. The cost of such units totaled $~~156,261~~179,273 and $~~138,263~~153,976 as of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively.

NOTE 3. DEBT OBLIGATIONS

Debt obligations is comprised of the following:

SUMMARY OF ~~SECURED CONVERTIBLE DEBENTURES AND PROCEEDS INVESTMENT AGREEMENT~~DEBT OBLIGATIONS

	September 30, 2021		December 31, 2020		March 31, 2022		December 31, 2021
Economic injury disaster loan (EIDL)	$	150,000	$	150,000	$	150,000	$	150,000
Payroll protection program loan (PPP)		—		10,000
Contingent consideration promissory note - Nobility Healthcare Division Acquisition		350,000		—
Contingent consideration promissory note – Nobility Healthcare Division Acquisition		650,000		—		234,027		317,212
Contingent consideration earn-out Agreement – TicketSmarter Acquisitions		4,244,400		—

Contingent consideration promissory note – Nobility Healthcare Division Acquisition						673,037		650,000
Contingent consideration promissory note – Nobility Healthcare Division Acquisition						750,000		—
Contingent consideration promissory note – Nobility Healthcare Division Acquisition						105,000		—
Debt obligations		5,394,400		160,000		1,912,064		1,117,212
Less: current maturities of debt obligations		4,547,421		11,727		662,717		389,934
Debt obligations, long-term	$	846,979	$	148,273	$	1,249,347	$	727,278

Debt obligations mature as follows as of ~~September 30, 2021:~~March 31, 2022:

SCHEDULE OF MATURITY OF DEBT OBLIGATIONS

	September 30, 2021		March 31, 2022
2021 (October 1, 2021 to December 31, 2021)	$	4,245,882
2022		403,049
2022 (April 1, 2022 to December 31, 2022)			$	475,652
2023		403,166		748,305
2024		203,286		546,856
2025		3,412		3,412
2026 and thereafter		135,605
2026				3,542
2027 and thereafter				134,297

Total	$	5,394,400	$	1,912,064

2020 Small Business Administration Notes.

On May 4, 2020, the Company issued a promissory note in connection with the receipt of the Paycheck Protection Program (“PPP”) Loan of $1,418,900 (the “PPP Loan”) under the Small Business Administration’s (the “SBA”) PPP Program under the Coronavirus Aid, Relief, and Economic Security Act ~~( the~~(the “CARES Act”). The PPP Loan has a ~~two-year~~two-year term and bears 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 provides that ~~the PPP Loan~~it may be partially or wholly forgiven if the funds are used for certain qualifying expenses as described in the CARES Act. The Company ~~intends to use the majority of the PPP Loan amount for qualifying expenses and to apply for forgiveness of the PPP Loan in accordance with the terms of the CARES Act. The Company~~ used the majority of the PPP Loan amount for qualifying ~~expenses and to apply for forgiveness of the PPP Loan in accordance with the terms of the CARES Act. The Company applied for forgiveness of the PPP Loan and~~expenses. On December 10, 2020, the Company was fully forgiven of its $1,418,900 PPP Loan. Additionally, the Company was fully forgiven, during the three months ended June 30, 2021, of its $10,000 EIDL advance received with the PPP Loan.

On May 12, 2020, the Company received $150,000in 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 $150,000with the SBA, the lender.

Under the terms of the note issued under the EIDL program, interest accrues on the outstanding principal at the rate of 3.75% per annum. The term of such note is thirty years, though it may be payable sooner upon an event of default under such note. Monthly principal and interest payments are deferred for ~~twelve~~twenty-four months after the date of disbursement and total $731 per month thereafter. Such note may be prepaid in part or in full, at any time, without penalty. The Company granted the secured party a continuing interest in and to any and all collateral, including but not limited to tangible and intangible personal property.

Contingent Consideration Promissory Notes

On June 30, 2021, Nobility Healthcare, ~~LLC,~~ a subsidiary of the Company, issued a contingent consideration promissory note (the ~~“Contingent~~“June Contingent Note”) in connection with ~~the Stock Purchase Agreement~~a stock purchase agreement between Nobility Healthcare and a private ~~Company~~company (the ~~“Seller”~~“June Seller”) of $350,000. The June Contingent Note has a ~~three-year~~three-year term and bears interest at a rate of 3.00% per annum. Quarterly principal and interest payments are deferred for six months and is due in equal quarterly installments on the seventh business day of each quarter. The principal amount of the June Contingent Note is subject to an earn-out adjustment, being the difference between ~~the~~ $975,000 (the ~~“Projected~~“June Projected Revenue”) and the cash basis revenue (the ~~“Measurement~~“June Measurement Period Revenue”) collected by the June Seller in its normal course of business from the clients existing on June 30, 2021, during the period from October 1, 2021 through September 30, 2022 (the ~~“Measurement~~“June Measurement Period”) measured on a quarterly basis and annualized as of the relevant period. If the June Measurement Period Revenue is less than the June Projected Revenue, such amount will be subtracted from the principal balance of this June Contingent Note on a dollar-for-dollar basis. If the June Measurement Period Revenue is more than the June Projected Revenue, such amount will be added to the principal balance of this June Contingent Note on a dollar-for-dollar basis. In no event will the principal balance of this June Contingent Note become a negative number. The maximum downward earn-out adjustment to the principal balance will be a reduction to zero. There are no limits to the increases to the principal balance of the June Contingent Note as a result of the earn-out adjustments.

The ~~contingent consideration promissory note~~June Contingent Note is considered to be additional purchase price; therefore, the estimated fair value of the contingent liability is recorded as a liability at the acquisition date and the fair value is considered part of the consideration paid for the ~~acquisition.~~acquisition with subsequent changes in fair value recorded as a gain or loss in the Consolidated Statements of Operations. Management ~~has~~ recorded the contingent consideration promissory note at its estimated fair value of $350,000 at the acquisition date. ~~Management will continue to estimate~~Total principal payments on this contingent consideration promissory note totaled $31,721 during the three months ended March 31, 2022. The estimated fair value of ~~this~~the June Contingent Note at ~~each reporting date with~~March 31, 2022 is $234,027, representing a reduction in its estimated fair value of $51,464 as compared to its estimated fair value as of December 31, 2021. Therefore, the ~~change, if any~~Company recorded as a gain ~~or loss~~ of $51,464 in the ~~statement~~Consolidated Statements of ~~operations during~~Operations for the ~~relevant period.~~three months ended March 31, 2022.

On August 31, 2021, Nobility Healthcare ~~LLC, a subsidiary of the Company,~~ issued aanother contingent consideration promissory note (the ~~“Contingent~~“August Contingent Payment Note”) in connection with ~~the Stock Purchase Agreement~~a stock purchase agreement between Nobility Healthcare and a private ~~Company~~company (the ~~“Sellers”~~“August Sellers”) of $650,000. The August Contingent Payment Note has a three-year term and bears interest at a rate of 3.00% per annum. Quarterly principal and interest payments are deferred for six months and is due in equal quarterly installments on the seventh business day of each quarter. The principal amount of the August Contingent Payment Note is subject to an earn-out adjustment, being the difference between ~~the~~ $3,000,000 (the ~~“Projected~~“August Projected Revenue”) and the cash basis revenue (the ~~“Measurement~~“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 ~~“Measurement~~“August Measurement Period”) measured on a quarterly basis and annualized as of the relevant period. If the August Measurement Period Revenue is less than the August Projected Revenue, such amount will be subtracted from the principal balance of this August Contingent Payment Note on a dollar-for-dollar basis. If the August Measurement Period Revenue is more than the August Projected Revenue, such amount will be added to the principal balance of this August Contingent Payment Note on a dollar-for-dollar basis. In no event will the principal balance of this August Contingent Payment Note become a negative number. The maximum downward earn-out adjustment to the principal balance will be a reduction to zero. There are no limits to the increases to the principal balance of the August Contingent Payment Note as a result of the earn-out adjustments.

The August Contingent Payment Note is considered to be additional purchase price, therefore the estimated fair value of the contingent liability is recorded as a liability at the acquisition date and the fair value is considered part of the consideration paid for the acquisition with subsequent changes in fair value recorded as a gain or loss in the Consolidated Statements of Operations. Management recorded the contingent consideration promissory note at its estimated fair value of $650,000 at the acquisition date. Principal payments on this contingent consideration promissory note totaled $84,477 during the three months ended March 31, 2022. The estimated fair value of the August Contingent Note at March 31, 2022 is $673,037, representing an increase in its estimated fair value of $107,514 as compared to is estimated fair value as of December 31, 2021. Therefore, the Company recorded a loss of $107,514 in the Consolidated Statements of Operations for the three months ended March 31, 2022.

On January 1, 2022, Nobility Healthcare issued another contingent consideration promissory note (the “January Contingent Payment Note”) in connection with a stock purchase agreement between Nobility Healthcare and a private company (the “January Sellers”) of $750,000. The January Contingent Payment Note has a two and a halfyear term and bears interest at a rate of 3.00% per annum. Quarterly principal and interest payments are deferred for seven months and is due in equal quarterly installments on the tenth business day of each quarter. The principal amount of the January Contingent Payment Note is subject to an earn-out adjustment, being the difference between $3,500,000 (the “January Projected Revenue”) and the cash basis revenue (the “January Measurement Period Revenue”) collected by the January Sellers in its normal course of business from the clients existing on January 1, 2022, during the period from April 1, 2022 through March 31, 2023 (the “January Measurement Period”) measured on a quarterly basis and annualized as of the relevant period. If the January Measurement Period Revenue is less than the January Projected Revenue, such amount will be subtracted from the principal balance of this January Contingent Payment Note on a dollar-for-dollar basis. If the January Measurement Period Revenue is more than the January Projected Revenue, such amount will be added to the principal balance of this January Contingent Payment Note on a dollar-for-dollar basis. In no event will the principal balance of this January Contingent Payment Note become a negative number. The maximum downward earn-out adjustment to the principal balance will be a reduction to zero. There are no limits to the increases to the principal balance of the January Contingent Payment Note as a result of the earn-out adjustments.

The ~~contingent consideration promissory note~~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 $~~650,000~~750,000 at the acquisition date. Management will continue to estimate the fair value of this January Contingent Payment Note at each reporting date with the change, if any, recorded as a gain or loss in the statement of operations during the relevant period.

~~Contingent~~ Management determined that there was no change in estimated fair value relative to this contingent consideration ~~earn-out Agreement – TicketSmarter Acquisition~~promissory note for the three months ended March 31, 2022. There were no principal payments on this contingent consideration promissory note during the three months ended March 31, 2022.

On ~~September~~February 1, ~~2021, TicketSmarter, Inc., a subsidiary of the Company,~~2022, Nobility Healthcare issued aanother contingent consideration ~~earn-out agreement~~promissory note (the ~~“TicketSmarter Earn-Out”~~“February Contingent Payment Note”) in connection with ~~the Stock Purchase Agreement~~an asset purchase agreement between ~~TicketSmarter, Inc., Goody Tickets, LLC~~Nobility Healthcare and ~~TicketSmarter, LLC (“TicketSmarter”~~a private company (the “February Sellers”) of $~~4,244,400~~105,000. The February Contingent Payment Note has a three~~The TicketSmarter Earn-Out shall be payable with ninety percent (90%) readily available funds~~-year term and ~~ten percent (10%)~~bears interest at a rate of 3.00% per annum. Quarterly principal and interest payments are deferred for seven months and is due in ~~stock consideration.~~equal quarterly installments on the tenth business day of each quarter. The principal amount of the ~~TicketSmarter Earn-Out~~February Contingent Payment Note is subject to an earn-out adjustment, being the difference between ~~the~~ $440,000 ~~2,896,829~~ (the ~~“Projected EBITDA”~~“February Projected Revenue”) and the ~~actual EBITA~~cash basis revenue (the ~~“Measurement~~“February Measurement Period ~~EBITDA”~~Revenue”) ~~generated~~collected by ~~TicketSmarter~~the February Sellers in its normal course of business from the clients existing on February 1, 2022, during the period from ~~September~~May 1, ~~2021~~2022 through ~~December 31, 2021~~April 30, 2023 (the ~~“Measurement~~“February Measurement Period”). measured on a quarterly basis and annualized as of the relevant period. If the February Measurement Period ~~EBITDA~~Revenue is less than ~~seventy percent (70%) of~~ the February Projected ~~EBITDA, there~~Revenue, such amount will be ~~zero contingent payment.~~subtracted from the principal balance of this February Contingent Payment Note on a dollar-for-dollar basis. If the February Measurement Period ~~EBITDA is between seventy percent (70%) and one hundred percent (100%) of the Projected EBITDA, then a fractional amount of the contingent payment will be paid out. If the Measurement Period EBITDA~~Revenue is more than the February Projected ~~EBITDA,~~Revenue, such amount will be added to the ~~full~~ principal balance of this ~~TicketSmarter Earn-Out will be paid out.~~February Contingent Payment Note on a dollar-for-dollar basis. In no event will the principal balance of this ~~TicketSmarter Earn-Out~~February Contingent Payment Note become a negative number. The maximum downward earn-out adjustment to the ~~earn-out~~principal balance will be ~~to reduce the balance~~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 ~~contingent consideration earn-out~~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 ~~earn-out~~promissory note at its estimated fair value of $~~4,244,400~~105,000 at the acquisition date. Management will continue to estimate the fair value of this ~~TicketSmarter~~February Contingent Payment Note at each reporting date with the change, if any, recorded as a gain or loss in the statement of operations during the relevant period. Management determined that there was no change in estimated fair value relative to this contingent consideration promissory note for the three months ended March 31, 2022. There were no principal payments on this contingent consideration promissory note during the three months ended March 31, 2022.

NOTE 4. FAIR VALUE MEASUREMENT

In accordance with ASC Topic 820 — Fair Value Measurements and Disclosures (“ASC 820”), the Company utilizes the market approach to measure fair value for its financial assets and liabilities. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets, liabilities or a group of assets or liabilities, such as a business.

ASC 820 utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:

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

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

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

The following table represents the Company’s hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020:~~2021:

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

									Level 1		Level 2		Level 3		Total
	September 30, 2021								March 31, 2022
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Liabilities:
Warrant derivative liabilities	$	—	$	—	$	17,942,020	$	17,942,020	$	—	$	—	$	14,698,761	$	14,698,761
Contingent consideration promissory notes and earn-out agreement		—		—		5,244,400		5,244,400
Contingent consideration promissory notes										—		—		1,762,064		1,762,064
	$	—	$	—	$	23,186,420	$	23,186,420	$	—	$	—	$	16,460,825	$	16,460,825

	Level 1		Level 2		Level 3		Total
	December 31, 2021
	Level 1		Level 2		Level 3		Total
Liabilities:
Warrant derivative liabilities	$	—	$	—	$	14,846,932	$	14,846,932
Contingent consideration promissory notes and contingent consideration earn-out agreement		—		—		967,212		967,212
Liabilities, fair value	$	—	$	—	$	15,814,144	$	15,814,144

	~~December 31, 2020~~
	~~Level 1~~		~~Level 2~~		~~Level 3~~		~~Total~~
~~Liabilities:~~
~~Warrant derivative liabilities~~	$	—	$	—	$	—	$	—
~~Contingent consideration promissory note~~		—		—		—		—
	$	—	$	—	$	—	$	—	18

The following table represents the change in Level 3 tier value measurements for the ~~nine~~three months ended ~~September 30, 2021:~~March 31, 2022:

SCHEDULE OF FAIR VALUE MEASUREMENTS CHANGE IN LEVEL 3 INPUTS

Contingent Consideration Promissory Note Warrant Derivative Liabilities

Balance, December 31, 2020 $ — $ —

Issuance of detachable warrants in the January 14, 2021 Offering — 21,922,158

Issuance of detachable warrants in the February 1, 2021 Offering — 27,476,352

Issuance of detachable pre-funded warrants in the January 14, 2021 Offering — 378,615

Issuance of detachable pre-funded warrants in the February 1, 2021 Offering — 1,438,934

Transition of derivative warrant liability to equity on pre-funded warrants — —

Change in fair value of warrant derivative liabilities — (24,552,257 )

Balance, March 31, 2021 — 26,663,802

Issuance of contingent consideration promissory note - Nobility Healthcare Division Acquisition 350,000 —

Change in fair value of financial instruments — 2,863,422

Balance, June 30, 2021 $ 350,000 $ 29,527,224

Issuance of contingent consideration promissory note - Nobility Healthcare Division Acquisition 650,000 —

Issuance of contingent consideration earn-out agreement - TicketSmarter Acquisition 4,244,400 —

Change in fair value of financial instruments (11,585,204 )

Balance, September 30, 2021 $ 5,244,400 $ 17,942,020

	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

NOTE 5. ACCRUED EXPENSES

Accrued expenses ~~comprised~~consisted of the following at ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020:~~2021:

SCHEDULE OF ACCRUED EXPENSES

	September 30, 2021		December 31, 2020		March 31, 2022		December 31, 2021
Accrued warranty expense	$	14,278	$	31,845	$	10,582	$	13,742
Accrued litigation costs		250,000		250,000		250,000		250,000
Accrued sales commissions		40,328		38,294		45,000		30,213
Accrued payroll and related fringes		599,030		199,850		370,849		453,858
Accrued sales returns and allowances		47,272		26,069		117,377		45,298
Accrued sales taxes		46,002		53,627
Accrued taxes						69,079		180,486
Other		222,048		196,409		198,934		202,401

Total accrued expenses	$	1,218,958	$	796,094	$	1,061,821	$	1,175,998

Accrued warranty expense was comprised of the following for the ~~nine~~three months ended ~~September 30, 2021:~~March 31, 2022:

SCHEDULE OF ACCRUED WARRANTY EXPENSE


Beginning balance	$	31,845		$	13,742
Provision for warranty expense		41,040			21,513
Charges applied to warranty reserve		(58,607	)		(24,673	)

Ending balance	$	14,278		$	10,582

NOTE 6. INCOME TAXES

The effective tax rate for the three months ended ~~September 30,~~March 31, 2022 and 2021 ~~and 2020~~ varied from the expected statutory rate due to the Company continuing to provide a 100% valuation allowance on net deferred tax assets. The Company determined that it was appropriate to continue the full valuation allowance on net deferred tax assets as of ~~September 30, 2021~~March 31, 2022, primarily because of the Company’s history of operating losses.

The Company has incurred operating losses in recent years, and it continues to be in a three-year cumulative loss position at ~~September 30, 2021.~~March 31, 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%~~100% valuation allowance on its net deferred tax assets. The Company expects to continue to maintain a full valuation allowance until it determines that it can sustain a level of profitability that demonstrates its ability to realize these assets. To the extent the Company determines that the realization of some or all of these benefits is more likely than not based upon expected future taxable income, a portion or all of the valuation allowance will be reversed. The Company has available to it approximately $7681.4 million (based on its December 31, 2021 tax return) in net operating loss carryforwards to offset future taxable income as of ~~September 30, 2021.~~March 31, 2022.

NOTE 7. PREPAID EXPENSES

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

SCHEDULE OF PREPAID EXPENSE

	March 31, 2022		December 31, 2021
Prepaid inventory	$	6,088,591	$	6,546,100
Prepaid advertising		3,429,022		2,455,527
Other		754,697		727,155
Total prepaid expenses	$	10,272,310	$	9,728,782

NOTE 7.8. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment ~~net consists~~consisted of the ~~following:~~following at March 31, 2022 and December 31, 2021:

SCHEDULE OF PROPERTY, PLANT AND EQUIPMENT ~~NET~~

September 30, 2021

December 31, 2020

Land $ 789,734 $ 59,226
Buildings 4,909,478 363,215
Equipment 552,135 507,676
Leasehold improvements 143,327 289,865
6,394,674 1,219,982
Less: accumulated depreciation (326,419 ) (553,182 )

Total property, plant and equipment, net $ 6,068,255 $ 666,800

	Estimated Useful Life	March 31, 2022			December 31, 2021
Building	30 years	$	4,909,478		$	4,909,478
Land	—		789,734			789,734
Office furniture, fixtures and equipment	3-20 years		1,929,539			493,652
Warehouse and production equipment	3-5 years		78,321			65,948
Demonstration and tradeshow equipment	2-5 years		131,838			82,337
Building improvements	2-15 years		1,188,771			911,940
Rental equipment	1-3 years		8,584			8,584
Total cost			9,036,265			7,261,673
Less: accumulated depreciation and amortization			(556,085	)		(420,647	)

Net property, plant and equipment		$	8,480,180		$	6,841,026

On April 30, 2021 the Company closed on the purchase and sale agreement to acquire a 71,361 square feet commercial office building located in Lenexa, Kansas which is intended to serve as the Company’s future office and warehouse needs. The building contains approximately 30,000 square feet of office space and the remainder warehouse space~~. The total purchase price was approximately $5.3~~ ~~million, the Company funded the purchase price with cash on hand, without the addition of external debt or other financing.~~

~~Depreciation expense for the nine months ended September 30, 2021 and September 30, 2020 was $177,959~~ ~~and $115,196, respectively, and is included in general and administrative expenses.~~

NOTE 8.9. OPERATING ~~LEASES~~LEASE

On May 13, 2020, the Company entered into an operating lease for new warehouse and office space, which ~~will serve~~the Company currently utilizes as one of its ~~new principal executive~~ office, assembly and ~~primary business location.~~warehouse locations. The original lease agreement was amended on August 28, 2020 to correct the footage under lease and monthly payment amounts resulting from such correction. The lease terms, as amended, include no base rent for the first nine months and monthly payments ranging from $12,398 to $14,741 thereafter, with a termination date of December 2026. The Company is responsible for property taxes, utilities, insurance and its proportionate share of common area costs related to ~~its new~~this location. The Company took possession of the leased facilities on June 15, 2020. The remaining lease term for the Company’s office and warehouse operating lease as of ~~September 30, 2021~~March 31, 2022, was ~~sixty-three~~ fifty-seven months~~months.~~. The Company’s previous office and warehouse space lease expired in April 2020 and the Company paid holdover rent for the time period until it moved to and commenced occupying the new space on June 15, 2020.

The Company entered into an operating lease with a third party in October 2019 for copiers used for office and warehouse purposes. The terms of the lease include 48 monthly payments of $1,598 with a maturity date of October 2023. The Company has the option to purchase the equipment at maturity for its estimated fair market value at that point in time. The remaining lease term for the Company’s copier operating lease as of ~~September 30, 2021~~March 31, 2022, was 25 nineteen months~~months.~~.

On June 30, 2021, the Company completed the acquisition of a private medical billing company, through its ~~majority owned subsidiary, Nobility Healthcare, LLC.~~revenue cycle management segment. Upon completion of this acquisition, the Company became responsible for the operating lease for the ~~Seller’s~~seller’s office space. The lease terms include monthly payments ranging from $2,648 to $2,774~~thereafter,~~, with a termination date of July ~~2024.~~2024. The Company is responsible for property taxes, utilities, insurance and its proportionate share of common area costs related to this location. The Company took possession of the leased facilities on June 30, 2021. The remaining lease term for the Company’s office and warehouse operating lease as of ~~September 30, 2021~~March 31, 2022, was ~~thirty-four months.~~twenty-eight months.

On August 31, 2021, the Company completed the acquisition of a private medical billing company, through its ~~majority owned subsidiary, Nobility Healthcare, LLC.~~revenue cycle management segment. Upon completion of this acquisition, the Company became responsible for the operating lease for the ~~Seller’s~~seller’s office space. The lease terms include monthly payments ranging from $11,579 to $11,811~~thereafter,~~, with a termination date of March ~~2023.~~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, 2021~~March 31, 2022, was ~~eighteen~~twelve months.

On September 1, 2021, the Company completed the ~~acquisition of Goody Tickets, LLC and~~ TicketSmarter ~~LLC (“TicketSmarter Acquisition”), through~~Acquisition, in its ~~wholly owned subsidiary, TicketSmarter, Inc.~~ticketing segment. Upon completion of this acquisition, the Company became responsible for the operating lease for TicketSmarter Inc.’s office space. The lease terms include monthly payments ranging from $7,211 to $7,364~~thereafter,~~, with a termination date of December ~~2022.~~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, 2021~~March 31, 2022 was nine months~~fifteen~~.

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 March 31, 2022, was thirty-nine months.

Lease expense related to the office ~~spaces~~space and copier operating leases were recorded on a straight-line basis over their respective lease terms. Total lease expense under the ~~five~~six operating leases was approximately $~~$144,443~~155,072 during ~~for~~ the ~~nine~~three months ended ~~September 30, 2021.~~March 31, 2022.

The weighted-average remaining lease term related to the Company’s lease liabilities as of March 31, 2022 was 3.7 years.

The discount rate implicit within the Company’s operating leases was not generally determinable and therefore the Company determined the discount rate based on its incremental borrowing rate on the information available at commencement date. As of commencement date, the operating lease liabilities reflect a weighted average discount rate of 8%.

The following sets forth the operating lease right of use assets and liabilities as of ~~September 30, 2021:~~March 31, 2022:

SCHEDULE OF OPERATING LEASES RIGHT OF USE ASSETS AND LIABILITIES


Assets:
Operating lease right of use assets	$	1,109,463	$	1,051,139

Liabilities:
Operating lease obligations-Long-term portion	$	795,704
Operating lease obligations-Current portion		384,222
Operating lease obligations-current portion			$	402,313
Operating lease obligations-less current portion				717,021
Total operating lease obligations	$	1,179,926	$	1,119,334

The components of lease expense were as follows for the ~~nine~~three months ended ~~September 30, 2021:~~March 31, 2022:

SCHEDULE OF COMPONENTS OF LEASE EXPENSES

Selling, general and administrative expenses

~~144,443~~155,072

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

SCHEDULE OF FUTURE MINIMUM LEASE PAYMENTS

Year ending December 31:
2021 (October 1, to December 31, 2021)	$	109,948
2022		445,635
2022 (April 1, to December 31, 2022)				$	374,088
2023		264,329			305,627
2024		191,059			245,761
2025		173,333			196,462
Thereafter		175,113			175,113
Total undiscounted minimum future lease payments		1,359,417			1,297,051
Imputed interest		(179,491	)		(177,717	)
Total operating lease liability	$	1,179,926		$	1,119,334

NOTE 9.10. GOODWILL AND OTHER INTANGIBLE ASSETS

~~Goodwill and other intangible~~Intangible assets ~~net as~~consisted of ~~September 30, 2021~~the following at March 31, 2022 and December 31, ~~2020 are as follows:~~2021:

SCHEDULE OF ~~GOODWILL AND OTHER~~ INTANGIBLE ASSETS

September 30, 2021 December 31, 2020
Gross value Accumulated amortization Net carrying value Gross value Accumulated amortization Net carrying value
Amortized intangible assets:
Licenses $ 331,252 $ 61,668 $ 278,324 $ 104,099 $ 52,872 $ 51,227
Patents and Trademarks 444,636 188,111 247,785 264,490 135,236 129,254

775,888 249,779 526,109 368,589 188,108 180,481

Unamortized intangible assets:
Goodwill 15,884,308 — 15,884,308 — — —
Patents and trademarks pending 44,529 — 44,529 212,083 — 212,083

Total $ 16,704,725 $ 249,779 $ 16,454,946 $ 580,672 $ 188,108 $ 392,564

	March 31, 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)	$	194,286	$	69,722	$	124,564	$	194,286	$	65,578	$	128,708
Patents and trademarks (video solutions segment)		493,945		268,101		225,844		493,945		233,471		260,474
Sponsorship agreement network (ticketing segment)		5,600,000		653,333		4,946,667		5,600,000		373,333		5,226,667
SEO content (ticketing segment)		600,000		87,500		512,500		600,000		50,000		550,000
Personal seat licenses (ticketing segment)		201,931		3,926		198,005		201,931		2,244		199,687
Client agreement (revenue cycle management segments)		335,000		—		335,000		—		—		—

		7,425,162		1,082,582		6,342,580		7,090,162		724,626		6,365,536

Indefinite life intangible assets:
Goodwill (ticketing and revenue cycle management segments)		12,031,547		—		12,031,547		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)		42,556		—		42,556		5,430		—		5,430

Total	$	20,099,265	$	1,082,582	$	19,016,683	$	17,627,139	$	724,626	$	16,902,513

Patents and trademarks pending will be amortized beginning at the time they are issued by the appropriate authorities. If issuance of the final patent or trademark is denied, then the amount deferred will be immediately charged to expense.

Amortization expense for the three months ended March 31, 2022 and 2021 was $357,966 and $22,631, respectively. Estimated amortization for intangible assets with definite lives for the next five years ending December 31 and thereafter is as follows:

SCHEDULE OF ESTIMATED AMORTIZATION FOR INTANGIBLE ASSETS

Year ending December 31:
2022 (April 1, to December 31, 2022)	$	1,136,309
2023		1,435,974
2024		1,385,857
2025		1,299,751
2026 and thereafter		1,084,689
Total	$	6,342,580

NOTE ~~10.~~11. COMMITMENTS AND CONTINGENCIES

COVID-19 pandemic

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

Like most US-based businesses, the COVID-19 pandemic and efforts to mitigate the same began to ~~impact~~have impacts on our business in March 2020. BySince that time, ~~much~~the COVID-19 pandemic has dramatically impacted the global health and economic environment, including millions of ~~the Company’s first fiscal quarter was completed. During the balance of 2020~~confirmed cases, business slowdowns or shutdowns, labor shortages, supply chain challenges, changes in government spending and ~~the first quarter of 2021, the Company observed recent decreases in demand from certain customers, including primarily law-enforcement~~requirements, regulatory challenges, inflationary pressures and ~~commercial customers. However, we are beginning to experience an increase in demand during the quarters ended June 30, 2021 and September 30, 2021, compared to the same periods in 2020.~~

market volatility.

~~Given~~We operate within the ~~fact that~~complex integrated global supply chain for both vendors and customers. As the ~~Company’s products~~COVID-19 pandemic dissipates at varying times and ~~services~~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 ~~sold through~~largely beyond our direct control. A prolonged shut down of these global supply chains could have a ~~variety~~material adverse effect on our business, results of ~~distribution channels, the Company expects sales will experience more volatility~~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 ~~changing~~agreed-upon goods and ~~less predictable operational needs~~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 ~~many~~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. The Company is aware that many companies, including many current suppliers and customers, are reporting~~pandemic, which can result in delayed, reduced, or predicting negative impacts from COVID-19 on future operating results. Although the Company observed a slight increase in demand for products from certain customers during the quarter ended September 30, 2021, the Company believes that the impact of the COVID-19 remains too fluid and unknown, hindering the Company from determining the long-term demand for current products. The Company also cannot be certain how demand may shift over time as the impacts of the COVID-19 pandemic may go through several phases of varying severity and duration.

~~In light of broader macro-economic~~canceled orders, or collection risks, and ~~already known impacts on certain industries that use the Company’s products~~which may adversely affect our results of operations. Similarly, current, and ~~services, the Company has taken,~~future restrictions or disruptions of transportation, such as reduced availability of air transport, port closures or delays, and continues to take targeted steps to lower its operating expenses because of the COVID-19 pandemic. The Company continues to monitor the impacts of COVID-19 on its operations closely and this situation could change based on a significant number of factors that are not entirely within its control and are discussed in this and other sections of this quarterly report on Form 10-Q. The Company does not expect there to be material changes to its assets onincreased border controls, delays or closures, can also impact our ~~balance sheet or its~~ ability to ~~timely account for those assets. Further, in connection with the preparation of this quarterly report on Form 10-Q~~meet demand and the financial statements contained herein, the Company reviewed the potential impacts of the COVID-19 pandemic on goodwill and intangible assets and have determined there to be no material impact at this time. The Company has also reviewed the potential impacts on future risks to the business as it relates to collections, returns and other business-related items.

~~To date, travel restrictions and border closures have not~~could materially impacted its ability to obtain inventory or manufacture or deliver products or services to customers. However, if such restrictions become more severe, they could negatively impact those activities in a way that would harm the business over the long term. Travel restrictions impacting people can restrain its ability to assist its customers and distributors as well as impact its ability to develop new distribution channels, but at present the Company does not expect these restrictions on personal travel to be material to our business operations or financial results. The Company has taken steps to restrain and monitor its operating expenses and therefore it does not expect any such impacts to materially change the relationship between costs and revenues.

Like most companies, the Company has taken a range of actions with respect to how it operates to assure it comply with government restrictions and guidelines as well as best practices to protect the health and well-being of its employees and its ability to continue operating its business effectively. To date, the Company has been able to operate its business effectively using these measures and to maintain all internal controls as documented and posted. The Company also has not experienced challenges in maintaining business continuity and does not expect to incur material expenditures to do so. However, the impacts of COVID-19 and efforts to mitigate the same have remained unpredictable and it remains possible that challenges may arise in the future.adversely affect us.

The ~~actions~~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 ~~taken so far during~~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 ~~include, but are~~is uncertain and we cannot assure that this global pandemic, including its economic impact, will not ~~limited to:~~

	●	~~Requiring all employees who can work from home to work from home;~~

	●	~~Increasing its IT networking capability to best assure employees can work effectively outside the office; and~~

	●	~~For employees who must perform essential functions in one of its offices:~~

	●	~~Having employees maintain a distance of at least six feet from other employees whenever possible;~~

	●	~~Having employees work in dedicated shifts to lower the risk all employees who perform similar tasks might become infected by COVID-19;~~

	●	~~Having employees stay segregated from other employees in the office with whom they require no interaction; and~~

	●	~~Requiring unvaccinated employees to wear masks while they are in the office whenever possible.~~

~~The Company currently believes revenue for the year ending December 31, 2021 will still be impacted due to the conditions noted. In April 2020, the Company implemented~~have a COVID-19 mitigation plan designed to further reduce its operating expenses during the pandemic. Actions taken to date include work hour and salary reductions for senior management. These cost reductions are in addition to the significant restructuring actions which the Company continues to implement and develop throughout. Basedmaterial adverse impact on the Company’s current cash position, its projected cash flow from operations and its cost reduction and cost containment efforts to date, the Company believes that it will have sufficient capital and or have access to sufficient capital through public and private equity and debt offerings to sustain operations for a period of one year following the date of this filing. If business interruptions resulting from the COVID-19 pandemic were to be prolonged or expanded in scope, theour business, financial ~~condition,~~position, results of operations ~~and~~and/or cash ~~flows would be negatively impacted. The Company will continue to actively monitor this situation and will implement actions necessary to maintain business continuity.~~flows.

~~Litigation.~~Litigation

From time to time, we are notified that we may be a party to a lawsuit or that a claim is being made against us. It is our policy to not disclose the specifics of any claim or threatened lawsuit until the summons and complaint are actually served on us. After carefully assessing the claim, and assuming we determine that we are not at fault or we disagree with the damages or relief demanded, we vigorously defend any lawsuit filed against us. We record a liability when losses are deemed probable and reasonably estimable. When losses are deemed reasonably possible but not probable, we determine whether it is possible to provide an estimate of the amount of the loss or range of possible losses for the claim, if material for disclosure. In evaluating matters for accrual and disclosure purposes, we take into consideration factors such as our historical experience with matters of a similar nature, the specific facts and circumstances asserted, the likelihood of our prevailing, the availability of insurance, and the severity of any potential loss. We ~~reevaluate~~re-evaluate and update accruals as matters progress over time.

While the ultimate ~~resolution is~~resolutions are unknown, based on the information currently available, we do not expect that these lawsuits will individually, or in the aggregate, have a material adverse effect to our results of operations, financial condition and cash flows. However, the outcome of any litigation is inherently uncertain and there can be no assurance that any expense, liability or damages that may ultimately result from the resolution of these matters will be covered by our insurance or will not be in excess of amounts recognized or provided by insurance coverage and will not have a material adverse effect on our operating results, financial condition or cash flows.

NOTE ~~11.~~12. STOCK-BASED COMPENSATION

The Company recorded ~~pretax~~pre-tax compensation expense related to the grant of stock options and restricted stock issued of $~~491,950~~394,749 and $~~498,356~~326,164 for the three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020 and $1,148,327~~ ~~and $1,186,771~~ ~~for the nine months ended September 30, 2021 and 2020,~~ respectively.

As of ~~September 30, 2021,~~March 31, 2022, the Company had adopted nine separate stock option and restricted stock plans: (i) the 2005 Stock Option and Restricted Stock Plan (the “2005 Plan”), (ii) the 2006 Stock Option and Restricted Stock Plan (the “2006 Plan”), (iii) the 2007 Stock Option and Restricted Stock Plan (the “2007 Plan”), (iv) the 2008 Stock Option and Restricted Stock Plan (the “2008 Plan”), (v) the 2011 Stock Option and Restricted Stock Plan (the “2011 Plan”), (vi) the 2013 Stock Option and Restricted Stock Plan (the “2013 Plan”), (vii) the 2015 Stock Option and Restricted Stock Plan (the “2015 Plan”), (viii) the 2018 Stock Option and Restricted Stock Plan (the “2018 Plan”) and (ix) the 2020 Stock Option and Restricted Stock Plan (the “2020 Plan”)... The 2005 Plan, 2006 Plan, 2007 Plan, 2008 Plan, 2011 Plan, 2013 Plan, 2015 Plan, 2018 Plan and 2020 Plan are referred to as the “Plans.”

These Plans permit the grant of stock options or restricted stock to ~~its~~the Company’s employees, non-employee directors and others for up to a total of ~~5,675,000~~6,675,000 shares of common stock. The 2005 Plan terminated during 2015 with ~~20,178~~21,553 shares not awarded or underlying options, which shares are now unavailable for issuance. Stock options granted under the 2005 Plan that remain unexercised and outstanding as of ~~September 30, 2021~~March 31, 2022 total ~~7,064~~5,689. The 2006 Plan terminated during 2016 with ~~35,474~~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, 2021~~March 31, 2022 total ~~30,125~~10,625. The 2007 Plan terminated during 2017 with 94,651 shares not awarded or underlying options, which shares are now unavailable for issuance. There are no stock options granted under the 2007 Plan that remain unexercised and outstanding as of March 31, 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, 2021.~~March 31, 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 ~~1,091,438~~190,845 shares remained available for awards under the various Plans as of ~~September 30, 2021.~~

~~On July 8, 2020, the Company’s board of directors approved the grant of options to purchase~~ ~~300,000~~ ~~shares of Common Stock at an exercise price of $1.67~~ ~~per of which (i) options to purchase~~ ~~75,000~~ ~~shares of Common Stock were fully vested at the time of grant and (ii) options to purchase~~ ~~225,000~~ ~~shares of Common Stock are subject to vesting ratably on a quarterly basis through May~~March 31, 2022.

The fair value of each option award is estimated on the date of grant using a Black-Scholes option valuation model.

~~Activity in~~A summary of all stock option activity under the ~~various~~ Plans ~~during~~for the ~~nine~~three months ended ~~September 30, 2021:~~March 31, 2022 is as follows:

SUMMARY OF STOCK OPTIONS OUTSTANDING

Options	Number of Shares			Weighted Average Exercise Price			Number of Shares			Weighted Average Exercise Price
Outstanding at December 31, 2020		838,313		$	3.20
Outstanding at December 31, 2021								1,086,063		$	2.37
Granted		300,000			1.67			25,000			0.98
Exercised		—			—			—			—
Forfeited		(46,875	)		(12.13	)		(15,000	)		(4.80	)
Outstanding at September 30, 2021		1,091,438		$	2.39
Exercisable at September 30, 2021		866,438		$	2.58
Outstanding at March 31, 2022								1,096,063		$	2.31
Exercisable at March 31, 2022								1,008,563		$	2.37

The fair value of each option award is estimated on the date of grant using a Black-Scholes option valuation model. The total estimated grant date fair value stock options issued during the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 was $~~466,831~~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 ~~2021:~~2022:

SCHEDULE OF ~~STOCK OPTION PLANS BY~~ FAIR VALUE OF STOCK OPTIONS ASSUMPTION

Volatility – range		113.47	%		111.67	%
Risk-free rate		1.3	%		1.8	%
Contractual term		10.0 years			10.0 years
Exercise price	$	1.67		$	0.98

The Plans allow for the cashless exercise of stock options. This provision allows the option holder to surrender/cancel options with an intrinsic value equivalent to the purchase/exercise price of other options exercised. There were no shares surrendered pursuant to cashless exercises during the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 and ~~2020.~~2021.

The aggregate intrinsic value of options outstanding was $2,750 and $-0-, at March 31, 2022 and ~~the~~December 31, 2021, respectively. The aggregate intrinsic value of options exercisable was $1,375 and $-0-, at ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020.~~2021, respectively.

As of ~~September 30, 2021,~~March 31, 2022, the unrecognized portion of stock compensation expense on all existing stock options was $~~350,123~~127,814 and will be recognized over the next 3. months.

The following table summarizes the range of exercise prices and weighted average remaining contractual life for outstanding and exercisable options under the Company’s option plans as of ~~September 30, 2021:~~March 31, 2022:

SCHEDULE OF SHARES AUTHORIZED UNDER STOCK OPTION PLANS BY EXERCISE PRICE RANGE

Outstanding options Exercisable options
Exercise price range Number of options Weighted average remaining contractual life Number of options Weighted average remaining contractual life

$ 0.01 to $2.49 715,000 8.8 years 490,000 8.4 years
$ 2.50 to $3.49 310,313 6.6 years 310,313 6.6 years
$ 3.50 to $4.49 45,750 3.4 years 45,750 3.4 years
$ 4.50 to $6.99 15,000 0.3 years 15,000 0.3 years
$ 7.00 to $9.52 5,375 0.1 years 5,375 0.1 years

1,091,438 7.8 years 866,438 7.3 years

Outstanding options

Exercisable options

Exercise price

range

Number of

options

Weighted average
remaining

contractual life

Number of

options

Weighted average

remaining

contractual life

0.01 to $2.49

740,000

8.4 years

652,500

8.2 years

2.50 to $3.49

310,314

6.1 years

310,314

6.1 years

3.50 to $4.49

45,750

2.9 years

45,750

2.9 years

1,096,064

7.5 years

1,008,564

7.3 years

Restricted stock grants. The Board of Directors has granted restricted stock awards under the Plans. Restricted stock awards are valued on the date of grant and have no purchase price for the recipient. Restricted stock awards typically vest over one to ~~four~~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~~three months ended ~~September 30, 2021~~March 31, 2022 is as follows:

SUMMARY OF RESTRICTED STOCK ACTIVITY

	Number of Restricted shares			Weighted average grant date fair value			Number of Restricted shares			Weighted average grant date fair value
Nonvested balance, December 31, 2020		720,125		$	1.69
Nonvested balance, December 31, 2021								1,057,375		$	1.87
Granted		856,000			2.07			715,000			1.07
Vested		(505,250	)		(1.95	)		(463,375	)		(1.89	)
Forfeited		(7,500	)		(1.08	)		(15,000	)		(1.26	)
Nonvested balance, September 30, 2021		1,063,375		$	1.87
Nonvested balance, March 31, 2022								1,294,000		$	1.43

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, 2021,~~March 31, 2022, there were $~~1,354,329~~1,180,036 of total unrecognized compensation costs related to all remaining non-vested restricted stock grants, which will be amortized over the next 60 fifty-eight monthsin accordance with their respective vesting scale.

The nonvested balance of restricted stock vests as follows:

SCHEDULE OF ~~NON- VESTED~~NON-VESTED BALANCE OF RESTRICTED STOCK

Years ended	Number of shares		Number of shares

2021 (October 1, 2021 through December 31, 2021)		6,000
2022		585,375
2022 (April 1, 2022 through December 31, 2022)				119,500
2023		358,000		668,000
2024		54,000		294,000
2025		30,000		90,000
2026		30,000		82,500
2027				40,000

NOTE ~~12.~~13. COMMON STOCK PURCHASE WARRANTS

The Company has issued common stock purchase warrants in conjunction with various debt and equity issuances. The warrants are either immediately exercisable or have a delayed initial exercise date, no more than six months from their respective issue date and allow the holders to purchase up to ~~26,808,598~~ 25,841,931shares of common stock at $2.60to $~~5.00~~ 3.75per share as of ~~September 30, 2021.~~March 31, 2022. The warrants expire from ~~December~~June 30, ~~2021~~2022 through September 18, 2026and under certain circumstances allow for cashless exercise.

On January 14, 2021 and February 1, 2021, the Company issued warrants to purchase a total of 42,550,000shares of ~~Common Stock.~~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 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 ~~revalues~~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 ~~equity.~~change in fair value of warrant derivative liabilities through the consolidated statement of operations.

On August 19, 2021, the Company entered into a Warrant Exchange Agreement (the “Exchange Agreement”) with ~~the Investors~~certain investors cancelling February Warrants exercisable for an aggregate of 7,681,540shares of ~~Common Stock~~common stock in consideration for its issuance of ~~(i)~~ new warrants (the “Exchange Warrants”) to ~~the Investors~~such investors, exercisable for an aggregate of up to 7,681,540shares of ~~Common Stock.~~common stock. The Company also issued warrants (the “Replacement Original Warrants”) replacing the February Warrants for the remaining shares of ~~Common Stock~~common stock exercisable thereunder, representing an aggregate of 6,618,460shares of ~~Common Stock,~~common stock, and extended the expiration date of the February Warrants to September 18, ~~2026.~~2026. The Exchange Warrants provide for an initial exercise price of $3.25per share, subject to customary adjustments thereunder, and are immediately exercisable upon issuance for cash and on a cashless basis. On the date of the exchange, the Company calculated the fair value, using the Black-Scholes method, of the cancelled February Warrants and the newly issued Exchange Warrants, the difference in fair value measurement of the respective warrants was attributed to warrant modification expense in the consolidated statement of operations.

On the date of the exchange, the cancelled February Warrants and Exchange Warrants were valued at $11,818,644 and $12,114,424 using the original and modified expiry date of the warrants, respectively, using the Black-Scholes method. The difference of $295,780 was accordingly recorded as a warrant modification expense in the consolidated statement of operations during 2021.

SCHEDULE OF WARRANT MODIFICATION

	Original terms at August 19, 2021			Modified terms at August 19, 2021
Volatility - range		109.3	%		104.7	%
Risk-free rate		0.78	%		0.78	%
Dividend		0	%		0	%
Remaining contractual term		4.5 years			5.1 years
Exercise price	$	3.25		$	3.25
Common stock issuable under the warrants		14,300,000			14,300,000

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 Company has utilized the following assumptions in its Black-Scholes option valuation model to calculate the estimated fair value of the warrant derivative liabilities as of their date of issuance and as of ~~September 30, 2021:~~March 31, 2022:

SCHEDULE OF FAIR VALUE OF THE WARRANT DERIVATIVE LIABILITIES

Issuance date assumptions September 30, 2021 assumptions
Volatility - range 106.6 – 166.6 % 105.2 %
Risk-free rate 0.08 - 0.49 % 0.98 %
Dividend 0 % 0 %
Remaining contractual term 0.01 - 5 years 4.3 - 5 years
Exercise price $ 2.80 - 3.25 $ 3.25
Common stock issuable under the warrants 42,550,000 24,300,000

~~During the nine months ended September 30, 2021, holders of pre-funded warrants exercised a total of~~ ~~18,250,000~~ ~~warrants which were fair valued at $1,817,549~~ at their date of issuance and recorded as a derivative warrant liability. On the date of exercise such pre-funded warrants were fair valued at zero, which was transitioned to permanent equity during the nine months ended September 30, 2021. The Company reported the $~~1,817,549~~ ~~change in fair value from their issuance date to their exercise date in the condensed statements of operations as the change in fair value of warrant derivative liabilities.~~

	Issuance date assumptions			March 31, 2022 assumptions
Volatility - range		106.6 – 166.6	%		104.1	%
Risk-free rate		0.08 - 0.49	%		2.42	%
Dividend		0	%		0	%
Remaining contractual term		0.01 - 5 years			3.8 – 4.5 years
Exercise price	$	2.80 - 3.25		$	3.25
Common stock issuable under the warrants		42,550,000			24,300,000

The following table summarizes information about shares issuable under warrants outstanding during the ~~nine~~three months ended ~~September 30, 2021:~~March 31, 2022:

SUMMARY OF WARRANT ACTIVITY

Warrants
Weighted
average
exercise
price

Vested Balance, January 1, 2021 3,388,364 $ 6.24
Granted 42,550,000 3.11
Exercised (18,250,000 ) 2.92
Cancelled (879,766 ) 13.43
Vested Balance, September 30, 2021 26,808,598 $ 3.29

	Warrants			Weighted average exercise price
Vested Balance, January 1, 2022		26,008,598		$	3.24
Granted		—			—
Exercised		—			—
Forfeited/cancelled		(166,667	)		3.36
Vested Balance, March 31, 2022		25,841,931		$	3.24

The total intrinsic value of all outstanding warrants aggregated $-0- as of ~~September 30, 2021~~March 31, 2022, and the weighted average remaining term is ~~52.2~~ 48months.

The following table summarizes the range of exercise prices and weighted average remaining contractual life for outstanding and exercisable warrants to purchase shares of common ~~shares~~stock as of ~~September 30, 2021:~~March 31, 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	Exercise price	Number of warrants		Weighted average remaining contractual life		Exercise price	Number of warrants		Weighted average remaining contractual life
$	2.60		465,712		1.8 years	2.60		465,712	1.3 years
$	3.00		316,800		1.5 years	3.00		316,800	1.0 years
$	3.25		24,300,000		4.7 years	3.25		24,300,000	4.2 years
$	3.36		733,333		1.2 years	3.36		566,666	0.9 years
$	3.65		167,000		0.7 years	3.65		167,000	0.3 years
$	3.75		25,753		0.9 years	3.75		25,753	0.4 years
$	5.00		800,000		0.2 years

			26,808,598		4.4 years			25,841,931	4.0 years

NOTE ~~13.~~14. STOCKHOLDERS’ EQUITY

~~Registered Direct Offerings~~

~~On January 14, 2021, the Company consummated a registered direct offering (the “Offering”) of (i)~~ ~~2,800,000~~ ~~shares of common stock (“Shares”), (ii) pre-funded warrants to purchase up to~~ ~~7,200,000~~ shares of Common Stock (the “Pre-Funded Warrants”), issuable to investors whose purchase of shares of Common Stock would otherwise result in such investor, together with its affiliates and certain related parties, beneficially owning more than 4.99% (or, at the election of the holder, 9.99%) of the Company’s outstanding Common Stock~~immediately following the consummation of the Registered Offering (“Pre-Funded Warrants”); and (iii) common stock purchase warrants (“Warrants”) to purchase up to an aggregate of~~ ~~10,000,000~~ ~~shares of Common Stock (the “Warrant Shares”), which are exercisable for a period of~~ ~~five~~ ~~years after issuance at an initial exercise price $3.25~~ per share, subject to certain adjustments, as provided in the Warrants. The Offering was conducted pursuant to a placement agency agreement, dated January 12, 2021, between the Company and Kingswood Capital Markets, division of Benchmark Investments, Inc., who acted as the exclusive placement agent in connection with the Offering pursuant to a placement agency agreement. The Shares and accompanying Warrants in the Offering were sold at a combined offering price of $~~3.095~~ ~~per Share and accompanying Warrant and the Pre-Funded Warrants and accompanying Warrants in the Offering were sold at a combined offering price of $3.085~~ ~~per Pre-Funded Warrant and accompanying Warrant.~~

The securities in the Offering were issued pursuant to a prospectus supplement to the Company’s effective shelf registration statement on Form S-3 (File No. 333-239419). The placement agency agreement contained customary representations, warranties and agreements by the Company, customary conditions to closing, indemnification obligations of the Company and the placement agent. The placement agent received discounts and commissions of six percent (6~~%) of the gross cash proceeds received by the Company from the sale of the securities sold in the Offering and certain expenses.~~

Under the placement agency agreement, the Company and its officers and directors executed lock-up agreements whereby, subject to certain expectations, (a) the Company has agreed not to engage in the following for a period of 90 days from the date of the pricing of the Offering, (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any shares of capital stock of the Company or any securities convertible into or exercisable or exchangeable for shares of capital stock of the Company; (ii) file or cause to be filed any registration statement with the SEC relating to the offering of any shares of capital stock of the Company or any securities convertible into or exercisable or exchangeable for shares of capital stock of the Company; (iii) complete any offering of debt securities of the Company, or (iv) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of capital stock of the Company.

Further, pursuant to the terms of the Securities Purchase Agreement the Company has granted to the Investors, for a period of 12 months after the closing of the Offering, the right to participate in subsequent offerings by the Company of Common Stock and Common Stock equivalents in an amount up to 50~~% of the amount of each such subsequent offering, on the same terms, conditions and price provided for in such subsequent offering.~~

~~The Company received approximately $28,941,000~~ ($~~29,013,000~~ upon full exercise of the prefunded warrants) in net proceeds from the Offering after deducting the discounts, commissions, and other estimated offering expenses payable by the Company. As of September 30, 2021, all pre-funded warrants have been fully exercised. The Company plans to use the net proceeds from the Offering for working capital, product development, order fulfillment and for general corporate purposes.

~~The Company received net proceeds from this offering as follows:~~

~~SCHEDULE OF NET PROCEEDS FROM OFFERING~~

~~Description~~	~~Amount~~
~~Net proceeds received:~~
~~Proceeds from the sale of~~ ~~2,800,000~~ ~~shares of Common Stock at $3.095~~ ~~per share~~	$	~~8,666,000~~
~~Proceeds from the sale of pre-funded warrants to purchase~~ ~~7,200,000~~ ~~shares of Common Stock at $3.085~~ ~~per share~~		~~22,212,000~~
~~Less: Placement agent fees and other expenses of the offering~~		~~(1,937,000~~	)

~~Net proceeds of the offering~~	$	~~28,941,000~~

~~In conjunction with this Offering, the Company issued prefunded Common Stock purchase warrants to purchase up to~~ ~~7,200,000~~ ~~shares Common Stock at $3.095~~ ~~per share ($3.085~~ ~~prefunded at closing) and Common Stock purchase warrants to purchase up to~~ ~~10,000,000~~ ~~shares of Common Stock at $3.25~~ per share. The underlying warrant terms provide for net cash settlement outside the control of the Company under certain circumstances in the event of tender offers. As such, the Company is required to treat these warrants as derivative liabilities which are valued at their estimated fair value at their issuance date and at each reporting date with any subsequent changes reported in the consolidated statements of operations as the change in fair value of warrant derivative liabilities. Accordingly, the Company allocated a portion of the net proceeds of this offering to warrant derivative liabilities based on their estimated fair value as follows (See Notes 4 and 11):

~~SCHEDULE OF NET PROCEEDS FROM OFFERING~~

Description Amount

Warrant derivative liabilities $ 21,922,158
Pre-funded warrant derivative liabilities 378,615
Total allocation of the net proceeds of the offering to warrant derivative liabilities $ 22,300,773

~~Registered Direct Offering~~

~~On February 1, 2021,~~ ~~the Company consummated an registered direct offering (the “Second Offering”) of (i)~~ ~~3,250,000~~ ~~shares of common stock (“Shares”), (ii) pre-funded warrants to purchase up to~~ ~~11,050,000~~ shares of Common Stock (the “Pre-Funded Warrants”), issuable to investors whose purchase of shares of Common Stock would otherwise result in such investor, together with its affiliates and certain related parties, beneficially owning more than 4.99% (or, at the election of the holder, 9.99%) of the Company’s outstanding Common Stock~~immediately following the consummation of the Registered Offering (“Pre-Funded Warrants”); and (iii) common stock purchase warrants (“Warrants”) to purchase up to an aggregate of~~ ~~14,300,000~~ ~~shares of Common Stock (the “Warrant Shares”), which are exercisable for a period of~~ ~~five~~ ~~years after issuance at an initial exercise price $3.25~~ per share, subject to certain adjustments, as provided in the Warrants. The Second Offering was conducted pursuant to a placement agency agreement, dated January 28, 2021, between the Company and Kingswood Capital Markets, division of Benchmark Investments, Inc., who acted as the exclusive placement agent in connection with the Second Offering pursuant to a placement agency agreement. The Shares and accompanying Warrants in the Second Offering were sold at a combined offering price of $~~2.80~~ ~~per Share and accompanying Warrant and the Pre-Funded Warrants and accompanying Warrants in the Offering were sold at a combined offering price of $2.79~~ ~~per Pre-Funded Warrant and accompanying Warrant.~~

The securities in the Second Offering were issued pursuant to a prospectus supplement to the Company’s effective shelf registration statement on Form S-3 (File No. 333-239419). The placement agency agreement contained customary representations, warranties and agreements by the Company, customary conditions to closing, indemnification obligations of the Company and the placement agent. The placement agent received discounts and commissions of six percent (6~~%) of the gross cash proceeds received by the Company from the sale of the securities sold in the Second Offering and certain expenses.~~

Under the placement agency agreement, the Company and its officers and directors executed lock-up agreements whereby, subject to certain exceptions, (a) the Company has agreed not to engage in the following for a period of 90 days from the date of the pricing of the Offering, (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any shares of capital stock of the Company or any securities convertible into or exercisable or exchangeable for shares of capital stock of the Company; (ii) file or cause to be filed any registration statement with the SEC relating to the offering of any shares of capital stock of the Company or any securities convertible into or exercisable or exchangeable for shares of capital stock of the Company; (iii) complete any offering of debt securities of the Company, or (iv) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of capital stock of the Company.

Further, pursuant to the terms of the Securities Purchase Agreement the Company has granted to the Investors, for a period of 12 months after the closing of the Second Offering, the right to participate in subsequent offerings by the Company of Common Stock and Common Stock equivalents in an amount up to 50~~% of the amount of each such subsequent offering, on the same terms, conditions and price provided for in such subsequent offering.~~

~~The Company received approximately $37,447,100~~ ($~~37,557,600~~ upon full exercise of the prefunded warrants) in net proceeds from the Second Offering after deducting the discounts, commissions, and other estimated offering expenses payable by the Company. As of September 30, 2021, all pre-funded warrants have been fully exercised. The Company plans to use the net proceeds from the Second Offering for working capital, product development, order fulfillment and for general corporate purposes.

~~The Company received net proceeds from this offering as follows:~~

~~SCHEDULE OF NET PROCEEDS FROM OFFERING~~

Description Amount
Net proceeds received:
Proceeds from the sale of 3,250,000 shares of Common Stock at $2.80 per share $ 9,100,000
Proceeds from the sale of pre-funded warrants to purchase 11,050,000 shares of
Common Stock at $2.79 per share 30,829,500
Less: Placement agent fees and other expenses of the offering (2,482,400 )

Net proceeds of the offering $ 37,447,100

~~In conjunction with this Offering, the Company issued prefunded Common Stock purchase warrants to purchase up to~~ ~~11,050,000~~ ~~Shares Common Stock at $2.80 per share ($2.79~~ ~~prefunded at closing) and Common Stock purchase warrants to purchase up to~~ ~~14,300,000~~ ~~shares of Common Stock at $3.25~~ per share. The underlying warrant terms provide for net cash settlement outside the control of the Company under certain circumstances in the event of tender offers. As such, the Company is required to treat these warrants as derivative liabilities which are valued at their estimated fair value at their issuance date and at each reporting date with any subsequent changes reported in the consolidated statements of operations as the change in fair value of warrant derivative liabilities. Accordingly, the Company allocated a portion of the net proceeds of this offering to warrant derivative liabilities based on their estimated fair value as follows (See Notes 4 and 11):

~~SCHEDULE OF NET PROCEEDS FROM OFFERING~~

Description Amount

Warrant derivative liabilities $ 27,476,352
Pre-funded warrant derivative liabilities 1,438,934
Total allocation of the net proceeds of the offering to warrant derivative liabilities $ 28,915,286

~~2021~~2022 Issuance of Restricted Common ~~Stock.~~Stock

On January 7, ~~2021,~~2022, the board of directors approved the grant of ~~450,000~~ 525,000shares of common stock to officers of the Company. Such shares will generally vest ~~one-half~~over a period of one to five years on their respective anniversary dates in January ~~7, 2022 and one half on~~through January ~~7, 2023,~~2027, provided that each grantee remains an officer or employee on such dates.

On ~~September 20, 2021,~~March 23, 2022, the board of directors approved the grant of ~~406,000~~ 190,000 restricted common shares ~~of common stock~~ to certain new employees of the Company. A total of ~~26,000~~5,000 shares vested immediately upon ~~grant~~issuance and the ~~remaining~~remainder vest over a period of ~~380,000~~one to five years. Such shares will generally vest over a period of one to five years on their respective anniversary dates in ~~varying amounts over the next~~ 5 ~~years,~~January through January 2027, provided that each grantee remains an employee on such ~~vesting dates.~~dates.

~~Issuance~~Cancellation of ~~Common~~Restricted Stock ~~as Consideration for~~

During the ~~TicketSmarter Acquisition.~~quarter ended March 31, 2022, the Company cancelled 15,000 restricted shares of common stock due to forfeiture reasons.

Stock Repurchase Program

On ~~September 2,~~December 6, 2021, the board of directors of the Company ~~issued~~authorized the repurchase of up to $10.0 million of the Company’s outstanding common stock under the specified terms of a ~~total of~~share repurchase program (the “Program”). During the three months ended March 31, 2022, the Company repurchased ~~719,738~~1,876,034 shares of its common stock for $2,063,768, in accordance with the Program. The Program does not obligate the Company to acquire any specific number of shares and shares may be repurchased in privately negotiated and/or open market transactions, including under plans complying with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

SCHEDULE OF STOCK REPURCHASE

Period	Total Number of Shares Purchased		Average Price Paid per Shares		Total Number of Shares Purchased as Part of Publicly Announced Program		Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program
December 2021		1,734,838	$	1.14		1,734,838		—
January 2022		697,093		1.11		697,093		—
February 2022		692,984		1.12		692,984		—
March 2022		485,957		1.06		485,957		—
Total all plans		3,610,872	$	1.12		3,610,872	$	5,961,153

Noncontrolling Interests

The Company owns a ~~portion~~51% equity interest in its consolidated subsidiary, Nobility Healthcare. As a result, the noncontrolling shareholders or minority interest is allocated 49% of the ~~consideration paid~~income/loss of Nobility Healthcare which is reflected in the statement of (income) loss as “net (income) loss attributable to noncontrolling interests of consolidated subsidiary”. We reported net loss attributable to noncontrolling interests of consolidated subsidiary of $98,094 and $-0- for the ~~acquisition of Goody Tickets, LLC~~three months ended March 31, 2022 and ~~TicketSmarter, LLC. See Note 16.~~2021, respectively.

NOTE ~~14.~~15. NET ~~INCOME~~EARNINGS (LOSS) PER SHARE

The calculation of the weighted average number of shares outstanding and ~~income (loss)~~loss per share outstanding for the three ~~and nine~~ months ended ~~September 30, 2020~~March 31, 2022 and ~~2019~~2021 are as follows:

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

2021 2020 2021 2020

Three Months Ended
September 30,

Nine months ended
September 30,

2021 2020 2021 2020
Numerator for basic and diluted income per share – Net income (loss) attributable to common stockholders $ 8,068,799 $ 527,442 $ 24,408,170 $ (2,304,562 )

Denominator for basic loss per share – weighted average shares outstanding 51,809,435 26,613,109 49,404,794 19,861,694

Dilutive effect of shares issuable under stock options outstanding — 14,832 — —

Dilutive effect of shares issuable under common stock purchase warrants and convertible debt outstanding — — — —

Denominator for diluted income (loss) per share – adjusted weighted average shares outstanding 51,809,435 26,627,941 49,404,794 19,861,694

Net income (loss) per share attributable to common stockholders:
Basic $ 0.16 $ 0.02 $ 0.49 $ (0.12 )
Diluted $ 0.16 $ 0.02 $ 0.49 $ (0.12 )


	Three months ended March 31,
	2022			2021
Numerator for basic and diluted income (loss) per share – Net income (loss)	$	(6,600,148	)	$	21,721,858

Denominator for basic income (loss) per share – weighted average shares outstanding		50,931,047			44,766,135
Dilutive effect of shares issuable upon conversion of convertible debt and the exercise of stock options and warrants outstanding		—			—

Denominator for diluted income (loss) per share – adjusted weighted average shares outstanding		50,931,047			44,766,135

Net income (loss) per share:
Basic	$	(0.13	)	$	0.49
Diluted	$	(0.13	)	$	0.49

Basic income (loss) per share is based upon the weighted average number of common shares outstanding during the period. For the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ all shares issuable upon conversion of convertible debt and the exercise of outstanding stock options and warrants were antidilutive and, therefore, not included in the computation of diluted income (loss) per share.

NOTE ~~15.~~16. DIGITAL ALLY HEALTHCARE VENTURE

On June 4, 2021, Digital Ally Healthcare, a wholly-owned subsidiary of the Company, entered into a venture with Nobility LLC (“Nobility”), an ~~eight-year old~~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, ~~Nobility Healthcare~~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, ~~Nobility Healthcare~~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, ~~Nobility Healthcare~~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. ~~Lastly, included~~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 ~~agreement, Nobility Healthcare~~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 ~~in full~~$162,552 representing the principal and accrued interest balance due under a promissory note issued byto the selling shareholders prior to ~~this agreement, including~~ the ~~principal and accrued interest, totaling $162,552~~ ~~at the~~acquisition closing date. The ~~Company~~Company’s revenue cycle management segment anticipates the ~~earn-out~~estimated fair value of the contingent promissory note to be paid in full and, therefore, the total aggregate purchase price ~~of Elite~~ was determined to be approximately $1,376,509. ~~The total~~Total acquisition related costs ~~of the Healthcare Acquisition~~ aggregated $164,630, which was expensed as incurred. Subsequent to the acquisition date, the Company received further information regarding the ~~pursed~~purchased assets and assumed liabilities. As a result, the initial allocation of the purchase price was adjusted by increasing accounts receivable by $75,000with a corresponding reduction of goodwill during the ~~three months~~year ended ~~September 30,~~December 31, 2021.

The Company accounts for business combinations using the acquisition ~~method.~~method and that the Company has early adopted the amendments of Regulation S-X dated May 21, 2020 and has concluded that this acquisition was not significant. Accordingly, the presentation of the assets acquired, historical financial statements under Rule 3-05 and related pro forma information under Article 11 of Regulation S-X, respectively, are not required to be presented. Under the acquisition method, the purchase price of the Healthcare Acquisition has been allocated to the acquired tangible and identifiable intangible assets and assumed liabilities based on their estimated fair values at the time of the Healthcare Acquisition. This allocation involves a number of assumptions, estimates, and judgments that could materially affect the timing or amounts recognized in our financial statements. Our assumptions and estimates are based upon information obtained from the management of the Company’s revenue cycle management segment. The acquisition was structured as stock purchase, therefore the excess purchase price over the fair value of net tangible assets acquired was recorded as goodwill, which will not be amortized for income tax filing purposes. The results of operations of acquired businesses are included in the consolidated financial statements from the acquisition date.

The purchase price of the Healthcare Acquisition was allocated to the tangible assets, ~~identifiable intangible assets,~~ and assumed liabilities based on their preliminary estimated fair values at the time of the Healthcare Acquisition. The Company expects to retain the services of independent valuation firm to determine the fair value of these identifiable intangible assets. Once determined, the Company will reallocate the purchase price of the acquisition based on the results of the independent evaluation if they are materially different from the allocations as recorded on June 30, 2021. The preliminary estimated fair value of assets acquired, and liabilities assumed in the Healthcare Acquisition were as follows:

SCHEDULE OF PRELIMINARY FAIR VALUE OF ASSETS ADACQUIRED AND LIABILITIES ~~ASSUMED~~ACQUISITION

Description Amount
Assets acquired:
Tangible assets acquired, including $13,957 of acquired cash $ 88,957
Goodwill
1,125,000

Liabilities assumed consisting of a promissory note issued by the Selling shareholders
which was paid off at closing 162,552
Total assets acquired and liabilities assumed $ 1,376,509
Consideration:
Cash paid at Healthcare Acquisition date $ 1,026,509
Contingent consideration 350,000

Total Healthcare Acquisition purchase price $ 1,376,509

Description	Amount
Assets acquired:
Tangible assets acquired, consisting of acquired cash, accounts receivable and right of use asset	$	174,351
Goodwill		1,125,000
Liabilities assumed consisting of a promissory note issued by the selling shareholders which was paid off at closing, net of lease liability assumed		77,158
Liabilities assumed pursuant to stock purchase agreement
Total assets acquired and liabilities assumed	$	1,376,509
Consideration:
Cash paid at Healthcare Acquisition date	$	1,026,509
Contingent consideration promissory note		350,000

Total Healthcare Acquisition purchase price	$	1,376,509

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, ~~Nobility Healthcare~~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, ~~Nobility Healthcare~~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 $650,000that is subject to an earn-out adjustment. The ~~Company~~Company’s revenue cycle management segment anticipates the ~~earn-out~~estimated fair value of the contingent promissory note to be paid in full, therefore, the total aggregate purchase price ~~of the Medical Billing Acquisition~~ was determined to be approximately $2,920,000. ~~The total~~Total acquisition related costs ~~of the Medical Billing Acquisition~~ aggregated $5,602, which was expensed as incurred.

The Company accounts for business combinations using the acquisition ~~method.~~method and that the Company has early adopted the amendments of Regulation S-X dated May 21, 2020 and has concluded that this acquisition was not significant. Accordingly, the presentation of the assets acquired, historical financial statements under Rule 3-05 and related pro forma information under Article 11 of Regulation S-X, respectively, are not required to be presented. Under the acquisition method, the purchase price of the Medical Billing Acquisition has been allocated to the acquired tangible and identifiable intangible assets and assumed liabilities based on their estimated fair values at the time of the Medical Billing Acquisition. This allocation involves a number of assumptions, estimates, and judgments that could materially affect the timing or amounts recognized in our financial statements. The acquisition was structured as stock purchase, therefore the excess purchase price over the fair value of net tangible assets acquired was recorded as goodwill, which will not be amortized for income tax filing purposes. The results of operations of acquired businesses are included in the consolidated financial statements from the acquisition date.

The purchase price of the Medical Billing Acquisition was allocated to the tangible assets, and assumed liabilities based on their preliminary estimated fair values at the time of the Medical Billing Acquisition. The Company expects to retain the services of independent valuation firm to determine the fair value of these identifiable intangible assets. Once determined, the Company will reallocate the purchase price of the acquisition based on the results of the independent evaluation if they are materially different from the allocations as recorded on August 31, 2021. The preliminary estimated fair value of assets acquired, and liabilities assumed in the Medical Billing Acquisition were as follows:

SCHEDULE OF PRELIMINARY FAIR VALUE OF ASSETS ACQUIRED AND LIABILITIES ACQUISITION

Description	Amount
Assets acquired:
Tangible assets acquired	$	401,547
Goodwill		2,920,000
Liabilities assumed pursuant to stock purchase agreement		(401,547	)
Total assets acquired and liabilities assumed	$	2,920,000
Consideration:
Cash paid at acquisition date	$	2,270,000
Contingent consideration promissory note		650,000

Total acquisition purchase price	$	2,920,000

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 expects to retain the services of independent valuation firm to determine the fair value of these identifiable intangible assets. Once determined, the Company will reallocate the purchase price of the acquisition based on the results of the independent evaluation if they are materially different from the allocations as recorded on January 1, 2022. The preliminary estimated fair value of assets acquired, and liabilities assumed in the Medical Billing Acquisition were as follows:

SCHEDULE OF PRELIMINARY FAIR VALUE OF ASSETS ACQUIRED AND LIABILITIES ACQUISITION

Description	Amount			Amount
Assets acquired:
Tangible assets acquired	$	202,901		$	190,631
Goodwill		2,920,000			2,100,000
Liabilities assumed pursuant to stock purchase agreement		(202,901	)		(387,005	)
Total assets acquired and liabilities assumed	$	2,920,000		$	1,903,626
Consideration:
Cash paid at acquisition date	$	2,270,000		$	1,153,626
Contingent consideration		650,000
Contingent consideration promissory note					750,000

Total acquisition purchase price	$	2,920,000		$	1,903,626

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 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 acquisition was structured as asset purchase and are included in the consolidated financial statements from the acquisition date. The preliminary estimated fair value of intangible assets acquired in the Medical Billing Asset Acquisition were as follows:

SCHEDULE OF PRELIMINARY FAIR VALUE OF ASSETS ACQUIRED AND LIABILITIES ACQUISITION

Description	Amount
Assets acquired:
Intangible assets acquired – Client Agreements	$	335,000
Total assets acquired and liabilities assumed	$	335,000
Consideration:
Cash paid at acquisition date	$	230,000
Contingent consideration promissory note		105,000

Total acquisition purchase price	$	335,000

The change in fair value of the contingent consideration is more fully described in Note 3, “Debt Obligations” and will be estimated on a quarterly basis.

NOTE ~~16.~~17. TICKETSMARTER ~~ACQUISTION~~ACQUISITION

On September 1, 2021, Digital Ally, Inc. formed TicketSmarter, Inc. (“TicketSmarter”), through which the Company completed the acquisition of Goody Tickets, LLC, a Kansas limited liability company (“Goody Tickets”) and TicketSmarter, LLC, a Kansas limited liability company (“TicketSmarter LLC”), (such acquisitions, collectively, the “TicketSmarter Acquisition”). TicketSmarter, Inc. comprises the Company’s ticketing business segment. In accordance with the stock purchase agreement, the Company agreed to an initial payment (the “Initial Payment Amount”) of $9,403,600 through a combination of cash and common stock. In addition to the Initial Payment Amount, the Company agreed to issue an earn-out agreement to the stockholders of Goody Tickets and TicketSmarter LLC in the contingent amount of $4,244,400 that is subject to an earn-out adjustment based on actual EBITDA achieved in 2021, of which the Company gave a fair value of $3,700,000 on the date of acquisition. However, following the completion of 2021, it was determined that the actual EBITDA threshold for any earn-out adjustment to be paid was not met. Thus, in accordance with U.S. GAAP, the fair value of the contingent earn-out is reduced to zero, and the associated gain related to this revaluation is recorded in our Consolidated Statements of Operations for the year ended December 31, 2021. Lastly, included in the agreement, the Company agreed to place $500,000 in escrow, subject to a working capital adjustment based on actual working capital amounts on the acquisition date as defined in the ~~agreement, this~~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 $297,726of the escrow amount with the $202,274released to the ~~Sellers. The Company anticipates the earn-out amount to be paid in full, therefore, the total aggregate purchase price of the TicketSmarter Acquisition was determined to be approximately $13,850,274~~. sellers. The total acquisition related costs ~~of the TicketSmarter Acquisition~~ aggregated $40,625, which was expensed as incurred.

The Company accounts for business combinations using the acquisition ~~method.~~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,~~purchase; however the parties agreed to coordinate the election to invoke IRS Section 338(h)(10) relative to this transaction for tax purposes. Therefore, the excess purchase price over the fair value of net tangible assets acquired was recorded as goodwill, which will be amortized over 15 years for income tax filing purposes. Likewise, the other acquired assets were stepped up to fair value and is deductible for income tax purposes. The results of operations of acquired businesses are included in the consolidated financial statements from the acquisition date.

The purchase price of the TicketSmarter Acquisition was allocated to Goody Tickets’ and TicketSmarter LLC’s tangible assets, goodwill, identifiable intangible assets, and assumed liabilities based on their preliminary estimated fair values at the time of the TicketSmarter Acquisition. The Company retained the services of an independent valuation firm to determine the fair value of these identifiable intangible assets. The Company will continue to evaluate the fair value of the identified intangible assets. The preliminary estimated fair value of assets acquired, and liabilities assumed in the TicketSmarter Acquisition were as follows:

SCHEDULE OF PRELIMINARY FAIR VALUE OF ASSETS ACQUIRED AND LIABILITIES ASSUMED ~~IN THE TICKET SMARTER~~ ACQUISITION


	Preliminary purchase price allocation
	As allocated			As allocated
Description	September 30, 2021			December 31, 2021
Assets acquired:
Tangible assets acquired, including $51,432 of cash acquired	$	7,139,930		$	5,748,291
Identifiable intangible assets acquired		—			6,800,000
Goodwill		11,839,308			5,886,547
Liabilities assumed		(5,128,964	)		(5,128,964	)
Net assets acquired and liabilities assumed	$	13,850,274		$	13,305,874
Consideration:
Cash paid at TicketSmarter Acquisition date	$	8,413,240		$	8,413,240
Common stock issued as consideration for TicketSmarter Acquisition at date of acquisition		990,360			990,360
Contingent consideration earn-out agreement		4,244,400			3,700,000
Cash paid at closing to escrow amount		500,000			500,000
Cash retained from escrow amount pursuant to settlement of working capital target		(297,726	)		(297,726	)

Total TicketSmarter Acquisition purchase price	$	13,850,274		$	13,305,874

Description Amount
Assets acquired:
Tangible assets acquired, including $51,432 of cash acquired $ 7,139,930
Goodwill 11,839,308
Liabilities assumed (5,128,964 )
Net assets acquired and liabilities assumed $ 13,850,274
Consideration:
Cash paid at TicketSmarter Acquisition date $ 8,413,240
Common stock issued as consideration for TicketSmarter Acquisition at date of acquisition 990,360
Contingent consideration earn-out agreement 4,244,400
Cash paid at closing to escrow amount 500,000
Cash retained from escrow amount pursuant to settlement of working capital target (297,726 )

Total TicketSmarter Acquisition purchase price $ 13,850,274

The following table sets forth the components of identifiable intangible assets acquired and their estimated useful lives in years as of the date of acquisition:

SCHEDULE OF COMPONENTS OF IDENTIFIABLE INTANGIBLE ASSETS ACQUIRED AND ESTIMATED USEFUL LIVES

	Cost		Amortization through March 31, 2022		Estimated useful life
Identifiable intangible assets:
Trademarks	$	600,000	$	—	indefinite
Sponsorship agreement network		5,600,000		653,333	5 years
Search engine optimization/content		600,000		87,500	4 years

	$	6,800,000	$	740,833

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 months ended March 31, 2022.

NOTE 18. SEGMENT DATA

The accounting guidance on Segment Reporting establishes standards for reporting information regarding operating segments in annual financial statements and requires selected information of those segments to be presented in financial statements. Operating segments are identified as components of an enterprise for which separate discrete financial information is available for evaluation by the chief operating decision maker (the Company’s Chief Executive Officer or “CODM”) in making decisions on how to allocate resources and assess performance. The Company’s three operating segments are Video Solutions, Revenue Cycle Management, and Ticketing, each of which has specific personnel responsible for that business and reports to the CODM. Corporate expenses capture the Company’s corporate administrative activities, and is also to be reported in the segment information. The Company’s captive insurance subsidiary provides services to the Company’s other business segments and not to outside customers. Therefore, its operations are eliminated in consolidation and 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 March 31, 2022, and March 31, 2021:

SCHEDULE OF SEGMENT REPORTING

		2022			2021
	Three Months Ended March 31,
	2022			2021
Net Revenues:
Video Solutions	$	2,010,049		$	2,535,829
Revenue Cycle Management		1,903,957			—
Ticketing		6,380,775			—
Total Net Revenues	$	10,294,781		$	2,535,829

Gross Profit:
Video Solutions	$	268,431		$	811,882
Revenue Cycle Management		697,169			—
Ticketing		974,019			—
Total Gross Profit	$	1,939,619		$	811,882

Operating Income (loss):
Video Solutions	$	(1,658,144	)	$	(682,920	)
Revenue Cycle Management		(128,518	)		—
Ticketing		(1,445,847	)		—
Corporate		(3,570,829	)		(2,182,773	)
Total Operating Income (Loss)	$	(6,803,338	)	$	(2,865,693	)

Depreciation and Amortization:
Video Solutions	$	174,066		$	55,422
Revenue Cycle Management		146			—
Ticketing		319,183			—
Total Depreciation and Amortization	$	493,395		$	55,422

		March 31, 2022		December 31, 2021
Assets (net of eliminations):
Video Solutions	$	32,196,051	$	25,983,348
Revenue Cycle Management		1,357,829		934,095
Ticketing		5,894,339		12,260,780
Corporate		39,577,799		43,810,974
Total Identifiable Assets	$	79,026,018	$	82,989,197

The segments recorded noncash items effecting the gross profit and operating income (loss) through the established inventory reserves based on estimates of excess and/or obsolete current and non-current inventory. The Company recorded a reserve for excess and obsolete inventory in the video solutions segment of $3,334,829 and a reserve for the ticketing segment of $561,631.

The segment net revenues reported above represent sales to external customers. Segment gross profit represents net revenues less cost of revenues. Segment operating income, which is used in management’s evaluation of segment performance, represents net revenues, less cost of revenues, less all operating expenses. Identifiable assets are those assets used by each segment in its operations. Corporate assets primarily consist of cash, property, plant and equipment, accounts receivable, inventories, and other assets.

NOTE ~~17.~~19. RELATED PARTY TRANSACTIONS

Transactions with Managing Member of Nobility Healthcare

Nobility, LLC is currently the managing member of Nobility Healthcare, LLC. The Company has advanced a total of $158,384 in the form of 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 $158,384 as of March 31, 2022 and the Company anticipates full repayment of this advance during the year ended December 31, 2022. During the three months ended March 31, 2022, the Company paid distributions to the noncontrolling in consolidated subsidiary totaling $15,692.

NOTE 20. SUBSEQUENT EVENTS

~~American Rebel Holding, Inc. Secured Promissory Notes~~Stock Repurchase Program

On ~~October 1, 2020,~~December 6, 2021, the Board of Directors of the Company ~~advanced~~authorized the repurchase of up to $~~250,000~~10.0 ~~to American Rebel Holdings, Inc. (AREB) under a secured promissory note. The CEO, President and Chairman of AREB is the brother~~million of the Company’s ~~CEO, President and Chairman. Such note bears interest at~~ 8~~% and is secured by all~~outstanding common stock under the ~~tangible and intangible assets~~specified terms of a share repurchase program (the “Program”). Subsequent to March 31, 2022, the Company ~~that are not currently secured by other indebtedness. The Company also received warrants to purchase~~repurchased ~~1,250,000~~1,280,387 shares of ~~AREB~~its common stock ~~at an exercise price~~for $1,415,382, in accordance with the Program. The Program does not obligate the Company to acquire any specific number of $~~0.10~~ ~~per share~~shares and shares may be repurchased in privately negotiated and/or open market transactions, including under plans complying with a ~~five-year~~ ~~term~~. ~~This note had an original maturity date of~~ ~~January 2, 2021; however, additional provisions within~~Rule 10b5-1 under the note provided for an extension of the maturity date for fourteen months due to AREB’s failure to raise $300,000 in new debt or equity financing prior to the original maturity date. Upon this extension, the AREB was obligated to make equal monthly payments of principal and interest over the extended period of the note.Exchange Act.

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

On April 21, 2021, the parties agreed to the terms of a Debt Settlement Agreement and Mutual Release regarding the following: (a) the secured promissory note dated October 1, 2020; (b) the secured promissory note dated October 21, 2020; and (c) an advance made by the Company on March 1, 2021. The parties arranged for a lump sum payment aggregating $~~639,956~~ ~~to liquidate all outstanding debt including accrued interest for the two delinquent notes and the advance which lump-sum payment was made on April 21, 2021.~~

*************************************

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

This 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, ~~(the “Securities Act”),~~ and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The words “believe,” “expect,” “anticipate,” “intend,” “estimate,” “may,” “should,” “could,” “will,” “plan,” “future,” “continue,” and other expressions that are predictions of or indicate future events and trends and that do not relate to historical matters identify forward-looking statements. 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 during fiscal 2020 and 2019; (2) economic and other risks for our business from the effects of the COVID-19 pandemic, including the impacts on our law-enforcement and commercial customers, suppliers and employees and on our ability to raise capital as required; (3) our ability to increase revenues, increase our margins and return to consistent profitability in the current economic and competitive environment; (4) our operation in developing markets and uncertainty as to market acceptance of our technology and new products; (5) the availability of funding from federal, state and local governments to facilitate the budgets of law enforcement agencies, including the timing, amount and restrictions on such funding; (6) our ability to deliver our new product offerings, ~~as scheduled in 2020,~~ such as the Shield™ disinfectant/sanitizers products and ~~ThermoVU~~^®ThermoVU™ temperature screening systems, whether such new products perform as planned or advertised and whether they will help increase our ~~revenues;~~revenues, particularly as the COVID-19 pandemic begins to subside; (7) whether we will be able to increase the sales, domestically and internationally, for our products in the future; (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; (9) our ability to produce our products in a cost-effective manner; (10) competition from larger, more established companies with far greater economic and human resources; (11) our ability to attract and retain quality employees; (12) risks related to dealing with governmental entities as customers; (13) 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) characterization of our market by new products and rapid technological change; (15) our dependence on sales of our EVO-HD, DVM-800, ~~FirstVU HD~~DVM-250 and ~~DVM-250~~FirstVU products; (16) that stockholders may lose all or part of their investment if we are unable to compete in our markets and return to profitability; (17) 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) 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) our ability to protect technology through patents and to protect our proprietary technology and information, such as trade secrets, through other similar means; (22) our ability to generate more recurring cloud and service revenues; (23) risks related to our license arrangements; (24) the fluctuation of our ~~revenues and operating~~operation results ~~may fluctuate unexpectedly~~ from quarter to quarter; (25) 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) the issuance or sale of substantial amounts of our common stock, ~~par value $0.001 per share (the “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;~~securities; (27) potential dilution from the ~~possible~~ issuance of ~~Common Stock subject to~~common stock underlying outstanding options and ~~warrants that may dilute the interest of stockholders;~~warrants; (28) our nonpayment of dividends and lack of plans to pay dividends in the future; (29) 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; (30) our additional securities available for issuance, which, if issued, could adversely affect the rights of the holders of our ~~Common Stock; (31)~~common stock; (29) the ~~likely high~~ volatility of our stock price due to a number of factors, including, but not limited to, a relatively limited public float; ~~(32) whether such technology will have a significant impact on~~and (30) our ~~revenues in~~ability to integrate and realize the ~~long-term; and (33) indemnification of our officers and directors.~~anticipated benefits from acquisitions.

Current Trends and Recent Developments for the Company

Segment Overview

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 positive solutions to our customers’ requests. Our products include: the EVO-HD, DVM-800 and DVM-800 Lite, which are in-car digital video ~~mirror~~ systems for law ~~enforcement;~~enforcement and commercial markets; the ~~FirstVU~~FirstVu body-worn camera line, consisting of the FirstVu Pro, FirstVu II, and the ~~FirstVU HD, which are body-worn cameras;~~FirstVu HD; our patented and revolutionary VuLink product which integrates our body-worn cameras with our in-car systems by providing hands-free automatic activation for both law enforcement and commercial markets; the FLT-250, DVM-250, and DVM-250 Plus, which are our commercial line of digital video mirrors that serve as “event recorders” for the commercial fleet and mass transit markets; and ~~FleetVU~~FleetVu and VuLink, which are our cloud-based evidence management systems. We ~~introduced the EVO-HD product in the second quarter of 2019~~further diversified and began full-scale deliveries in the third quarter 2019, which continued through 2020 and into 2021. The EVO-HD is designed and built on a new and highly advanced technology platform that will become the platform for a new family of in-car video solution products for the law enforcement and commercial markets. We believe that the launch of these new products will help to reinvigorate our in-car and body-worn systems revenues while diversifying and broadening the market forbroadened our product ~~offerings. Additionally, we introduced~~offerings in 2020, by introducing two new lines of branded products: (1) the ~~ThermoVu~~^®ThermoVu® which is a line of self-contained temperature monitoring stations that provides alerts and controls facility access when an individual’s temperature exceeds a pre-set threshold and (2) our Shield™ disinfectants and cleansers which are for use against viruses and bacteria. We began offering our Shield™ disinfectants and cleansers to our law enforcement and commercial customers late in the second quarter of 2020.

Our video solutions segment revenue encompasses video recording products and services for our law enforcement 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.

To judge the health of our video solutions segment, we review the current active subscriptions and deferred service revenues, along with the quantity and gross margins generated by our video solutions hardware sales.

Revenue Cycle Management Operating Segment - We have recently entered the revenue cycle management ~~(“RCM”)~~ business late in the second quarter of 2021 with the formation of our wholly owned subsidiary, Digital Ally Healthcare, Inc. and its majority-owned subsidiary Nobility ~~Healthcare, LLC (“Nobility Healthcare”).~~Healthcare. Nobility Healthcare ~~LLC~~ 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 ~~will~~ assist in providing working capital and back-office services to healthcare organizations throughout the country. ~~Additionally,~~Our assistance consists of insurance and benefit verification, medical treatment documentation and coding, and collections. Through our expertise and experience in this field, we maximize our customers’ service revenues collected, leafing to substantial improvements in their operating margins and 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.

To judge the health of our revenue cycle management segment, we review the collection success rate and collection timing. In addition, we review the associated costs incurred to assist our customers, and any changes in operating margins and cash flows.

Ticketing Operating Segment - We have also recently entered into live entertainment and events ticketing services through the formation of our wholly owned subsidiary, TicketSmarter ~~Inc. (“TicketSmarter”)~~ and its completed acquisitions of Goody Tickets, LLC and TicketSmarter, LLC, on September 1, ~~2021, we have entered into the~~2021. TicketSmarter provides ticket sales, partnerships, and mainly, ticket resale services through its online ticketing marketplace for live events, TicketSmarter.com. TicketSmarter offers tickets for over 125,000 live events through its platform, for a wide range of events, including concerts, sporting events, theatres, and performing arts, throughout the country.

Our ticketing operating 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 face value of the underlying ticket and 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.

To judge the health of our ticketing operating segment, we review the gross transaction value, which represents the total value related to a ticket sale and includes the face value of the ticket as well as the service charge. In addition, we review the number of visits to our websites, cost of customer acquisition, the purchase conversion rate, the overall number of customers in our database, and the number and percentage of tickets sold via the website and mobile app.

Results of Operations

Summarized financial information for the Company’s reportable business segments is provided for the three months ended March 31, 2022, and 2021:

	Three Months Ended March 31,
	2022			2021
Net Revenues:
Video Solutions	$	2,010,049		$	2,535,829
Revenue Cycle Management		1,903,957			—
Ticketing		6,380,775			—
Total Net Revenues	$	10,294,781		$	2,535,829

Gross Profit:
Video Solutions	$	268,431		$	811,882
Revenue Cycle Management		697,169			—
Ticketing		974,019			—
Total Gross Profit	$	1,939,619		$	811,882

Operating Income (loss):
Video Solutions	$	(1,658,144	)	$	(682,920	)
Revenue Cycle Management		(128,518	)		—
Ticketing		(1,445,847	)		—
Corporate		(3,570,829	)		(2,182,773	)
Total Operating Income (Loss)	$	(6,803,338	)	$	(2,865,693	)

Depreciation and Amortization:
Video Solutions	$	174,066		$	55,422
Revenue Cycle Management		146			—
Ticketing		319,183			—
Total Depreciation and Amortization	$	493,395		$	55,422

	March 31, 2022		December 31, 2021
Assets (net of eliminations):
Video Solutions	$	32,196,051	$	25,983,348
Revenue Cycle Management		1,357,829		934,095
Ticketing		5,894,339		12,260,780
Corporate		39,577,799		43,810,974
Total Identifiable Assets	$	79,026,018	$	82,989,197

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.

Consolidated Results of Operations

We experienced operating losses for the first ~~second, and third quarters~~quarter of ~~2021~~2022 and all quarters during ~~2020.~~2021. The following is a summary of our recent operating results on a quarterly basis:

September 30,
2021

June 30,
2021

March 31,
2021

December 31,
2020

September 30,
2020

Total revenue $ 4,639,822 $ 2,493,671 $ 2,535,829 $ 2,798,291 $ 3,558,640
Gross profit (loss) 1,400,570 1,260,800 811,882 1,182,160 1,222,648
Gross profit margin % 30.2 % 50.6 % 32.0 % 43.0 % 34.1 %
Total selling, general and administrative expenses 4,999,543 3,877,684 3,677,575 2,931,334 3,066,606
Operating loss (3,598,973 ) (2,616,884 ) (2,865,693 ) (1,749,174 ) (1,843,958 )
Operating loss % (77.6 )% (105.0 )% (113.0 )% (63.2 )% (51.4 )%
Net income (loss) attributable to common stockholders $ 8,068,799 $ (5,382,487 ) $ 21,721,858 $ (321,318 ) $ 527,442

	For the Three Months Ended:
	March 31, 2022			December 31, 2021			September 30, 2021			June 30, 2021			March 31, 2021
Total revenue	$	10,294,781		$	11,744,112		$	4,639,822		$	2,493,671		$	2,535,829
Gross profit		1,939,619			2,190,523			1,400,570			1,260,800			811,882
Gross profit margin %		18.8	%		18.7	%		30.2	%		50.6	%		32.0	%
Total selling, general and administrative expenses		8,742,957			7,869,883			4,999,543			3,877,684			3,677,575
Operating income (loss)		(6,803,338	)		(5,679,360	)		(3,598,973	)		(2,616,884	)		(2,865,693	)
Operating income (loss) %		(66.1	)%		(48.4	)%		(77.6	)%		(104.9	)%		(113.0	)%
Net income (loss)	$	(6,698,242	)	$	1,122,791		$	8,068,799		$	(5,382,487	)	$	21,721,858

Our business is subject to substantial fluctuations on a quarterly basis as reflected in the significant variations in revenues and operating results in the above table. These variations result from various factors, including but not limited to: (1) the timing of large individual orders; (2) the traction gained by products, such as the recently released FirstVu Pro, FirstVu II, FLT-250, EVO HD, the ~~ThermoVU~~^®ThermoVu™ and the Shield™ ~~line;~~lines; (3) production, quality and other supply chain issues affecting our cost of goods sold; (4) unusual increases in operating expenses, such as the timing of trade shows and stock-based and bonus compensation; (5) the timing of patent infringement litigation ~~settlements; (5)~~settlements (6) ongoing patent and other litigation and related expenses respecting outstanding lawsuits; ~~and (6) most recently,~~(7) the impact of COVID-19 on the economy and our ~~business.~~businesses; and (8) the completion of corporate acquisitions. We reported a net ~~income~~loss of ~~$8,068,799~~$6,698,242 on revenues of ~~$4,639,822~~$10,294,781 for ~~the third quarter of 2021. The income recognized in the third quarter 2021,~~ first quarter 2021, and in the third quarter 2020 ended a series of quarterly losses resulting from competitive pressures, supply chain problems, increases in inventory reserves as our current product suite ages, product quality control issues, product warranty issues, and litigation expenses relating to patent infringement claims.2022.

Off-Balance Sheet Arrangements

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

We are a party to operating leases and license agreements that represent commitments for future payments (described in Note 8,9, “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.

For the Three Months Ended ~~September 30,~~March 31, 2022 and 2021 ~~and 2020~~

Results of Operations

Summarized immediately below and discussed in more detail in the subsequent ~~sub-sections~~subsections is an analysis of our operating results for the three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ represented as a percentage of total revenues for each ~~respective year:~~such quarter:

	Three months ended September 30,						Three Months Ended March 31,
	2021			2020			2022			2021
Revenue		100	%		100	%		100	%		100	%
Cost of revenue		70	%		66	%		81	%		68	%

Gross profit		30	%		34	%		19	%		32	%
Selling, general and administrative expenses:
Research and development expense		11	%		11	%		5	%		18	%
Selling, advertising and promotional expense		33	%		22	%		27	%		24	%
General and administrative expense		65	%		52	%		53	%		104	%

Total selling, general and administrative expenses		108	%		85	%		85	%		145	%

Operating loss		(78	)%		(51	)%		(66	)%		(113	)%

Change in fair value of proceeds investment agreement		—	%		66	%
Change in fair value of short-term investments								(1	)%		—	%
Change in fair value of contingent consideration promissory notes								(1	)%		—	%
Change in fair value of derivative liabilities		250	%		—	%		1	%		968	%
Other income and interest expense, net		2	%		—	%
Other income and interest income (expense), net								1	%		2	%

Income before income tax benefit		173	%		15	%
Income (loss) before income tax benefit								(65	)%		857	%
Income tax (provision)		—	%		—	%		—	%		—	%

Net income		173	%		15	%
Net income/(loss)								(65	)%		857	%

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

Net income (loss) attributable to common stockholders		174	%		15	%		(64	)%		857	%

Net income (loss) per share attributable to common stockholders information:
Net income/(loss) per share information:
Basic	$	0.16		$	0.02		$	(0.13	)	$	0.49
Diluted	$	0.16		$	0.02		$	(0.13	)	$	0.49

Revenues

~~We sell~~Revenues by Type and by Operating Segment

Our operating segments generate two types of revenues:

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

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

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

	●	~~Product sales~~Sales to international customers are made through independent distributors who purchase products from ~~the Company~~us at a wholesale price and sell to the end user (typically law enforcement agencies or a commercial customer) at a retail price. The distributor retains the margin as its compensation for its role in the transaction. The distributor generally maintains product inventory, customer receivables and all related risks and rewards of ownership. ~~Accordingly, upon application of steps one through five above, revenue~~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~~our inside customer service employees. Revenue is recognized upon shipment of the repair parts and acceptance of the service or materials by the end customer.

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

●

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

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

●

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

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

Nobility Healthcare offers leading-edge revenue cycle management solutions to medium and large healthcare organizations throughout the country. Nobility Healthcare’s customers are spread across a wide rangeThe Omicron Variant of ~~practices and specialties, including radiology, oncology, orthopedics, pediatrics, internal medicine, and cardiology.~~

TicketSmarter is a ticket resale marketplace with seats offered at over 125,000 live events, with over 48 million tickets for sale through its TicketSmarter.com platform. TicketSmarter is committed to developing meaningful relationships with conferences, teams, and charities across the country.

~~The~~ COVID-19 ~~pandemic~~ had an impact on all of our operating segment revenue streams infor the ~~third quarter 2021 and we expect~~three months ended March 31, 2022. In particular, it ~~to adversely affect our revenues during the remainder of 2021. The COVID-19 pandemic~~ had a negative impact generally on our video solutions operating segment legacy products and, ~~in particular~~specifically, our commercial event recorder hardware (DVM-250 Plus) and in-car hardware for law enforcement (DVM-800) during the quarter. ~~The~~Ticketing operating segment revenues also continues to be negatively impacted due to the cancellation of live events and public caution surrounding the COVID-19 pandemic. Our revenue cycle management operating segment was also affected due to the higher level of healthcare service utilization due to the Omicron Variant while certain elective and routine healthcare services were reduced due to COVID-19 pandemic ~~had a positive impact generally on our new Shield~~^TM ~~disinfectant/sanitizer and ThermoVU~~^® ~~product lines.~~

restrictions.

~~Revenues for each of the third quarters of 2021 and 2020 were derived from the following sources:~~

Three months ended September 30,
2021 2020
DVM-800 11 % 21 %
ThermoVU/Shield 1 % 31 %
FirstVu HD 5 % 11 %
Cloud service revenue 6 % 6 %
Extended warranty revenue 6 % — %
EVO-HD 4 % 6 %
Repair and service 1 % 10 %
TicketSmarter sales 12 % — %
TicketSmarter TNP sales 33 % — %
Nobility Healthcare RCM 10 % — %
Nobility Healthcare credentialing and services 2 % — %
Accessories and other revenues 9 % 15 %

100 % 100 %

Product revenues for the three months ended ~~September 30,~~March 31, 2022 and 2021 were $2,410,060 and ~~2020 were $1,356,454 and $2,958,579~~$1,912,577 respectively, ~~a decrease~~an increase of ~~$1,602,125 (54%~~$497,483 (26%), due to the following factors:

●

Revenues generated by the new ticketing operating segment began with the Company’s September 2021 acquisition of TicketSmarter. The ~~Company~~new ticketing operating segment generated $1,073,830 in product revenues for the three months ended March 31, 2022, compared to $-0- for the three months ended March 31, 2021. This product revenue relates to the resale of tickets purchased for live events, including sporting events, concerts, and theatre, then sold through various platforms to customers.

●

The Company’s video segment operating segment generated revenues totaling ~~over $39,075~~$1,336,230 during the three months ended ~~September 30, 2021~~March 31, 2022 compared to ~~$1,128,849~~$1,912,577 for the ~~same period in 2020 from its new~~three months ended March 31, 2021 due to slowing sales of our ThermoVu^TM product ~~lines. Late in the second quarter of 2020, the~~lines related to our COVID-19 response. The Company launched two product lines in direct response to the increased safety precautions that organizations and individuals are taking due to the COVID-19 pandemic. ~~ThermoVu~~^®ThermoVu™ was launched as a non-contact temperature-screening instrument that measures temperature through the wrist and controls entry to facilities when temperature measurements exceed pre-determined parameters. ~~ThermoVu~~^®ThermoVu™ has optional features such as facial recognition to improve facility security by restricting access based on temperature and/or facial recognition reasons. ~~ThermoVu~~^®ThermoVu™ provides an instant pass/fail audible tone with its temperature display and controls access to facilities based on such results. ~~We believe that it can be widely~~ThermoVu^TM has been applied in schools, dental office, hospitals, office buildings, ~~subway stations, airports~~ and other public venues. The Company also launched its Shield™ disinfectant/sanitizer product lines to fulfill demand by current customers and others for a disinfectant and sanitizer that is less harsh than many of the traditional products now widely distributed. The Shield™ Cleanser product line contains a cleanser with no harsh chemicals or fumes.

		The Company began offering the Shield™ line of disinfecting products to its first responder customers including police, fire and paramedics late in the second quarter of 2020. Commercial customers such as cruise lines, taxi-cab and para transit may also be good candidates for the products. The Company is ~~considering enhancing the line of disinfectant products for additional related products including hardware~~beginning to ~~efficiently and effectively dispense the disinfectants. The Company is hopeful that its law enforcement and commercial customers will adopt this new~~experience pressure on these product ~~offering to combat the spread of~~lines as the COVID-19 ~~virus as well as other bacteria and viruses.~~pandemic begins to subside.

	●	In general, ~~we have~~our video solutions operating segment has experienced pressure on ~~our~~its product revenues as our in-car and body-worn systems are facing increased competition because our competitors have released new products with advanced features. Additionally, our law enforcement revenues declined ~~during~~over the ~~three months ended September 30, 2021 compared to the same~~prior period ~~in 2020,~~due to price-cutting and competitive actions by our competitors, adverse marketplace effects related to our patent litigation proceedings and our recent financial condition. We introduced our ~~EVO-HD late~~new body-worn cameras, the FirstVu Pro and FirstVu II, in the ~~second~~fourth quarter of ~~2019 with the goal of enhancing our product line features to meet these competitive challenges and~~2021, as we ~~started~~have begun to see increased traction with these products in ~~late 2019 but sales in 2020 were hampered due~~the first quarter of 2022. The Company hopes the interest throughout the marketplace continues to grow for these new products as the ~~COVID-19 pandemic. We expect customers and potential customers~~market is able to review and test ~~the EVO-HD prior to committing to this~~these new product platform, all of which has been delayed due to the COVID-19 pandemic. We experienced continued interest in our EVO-HD, which resulted in increased revenues during the third quarter of 2021 and believe that customers are recognizing and are attracted to its advanced features.products.

	●	The COVID-19 pandemic has continued to delay the shipment of certain law enforcement orders since the first quarter of 2020 as police forces and governments deal with its impact. In addition, our salesmen were generally unable to meet with and demonstrate our products to our law enforcement customers because of travel and other restrictions imposed by cities and states due to the COVID-19 pandemic. In person demonstration of our products to potential customers is generally important in order to obtain new customers or upgrade existing customers. Our product sales to law enforcement decreased in the third quarter of 2021 compared to the same period in 2020, as the impact of the COVID-19 pandemic continues to impact our business. The COVID-19 pandemic impact remains relevant, as the shipment of commercial orders in the third quarter of 2021 remain slow, as cruise lines, taxi cabs, paratransit and other commercial customers continue to deal with its impact. In addition, our salesmen were generally unable to meet with and demonstrate our products to our commercial customers because of travel and other restrictions imposed by cities and states due to the COVID-19 pandemic. In person demonstration of our products to potential customers is generally required in order to obtain new customers or upgrade existing customers. Our product sales to commercial customers decreased in the third quarter of 2021 compared to the same period in 2020 due to the impact of the COVID-19 pandemic.

	●	~~Management~~Our video solutions operating segment management has been focusing on migrating customers, and in particular commercial customers, from a ~~“hardware sale”~~hardware sale to a service fee model. Therefore, we expect a reduction in commercial hardware sales (principally DVM-250’s, FLT-250’s, and our body-worn camera line) as we convert these customers to a service model under which we provide the hardware as part of a recurring monthly ~~service.~~service fee. In that respect, we introduced ~~in the second quarter of 2020~~ a monthly subscription agreement plan for our body worn cameras and related equipment during the second quarter of 2020 that allowed law enforcement agencies to pay a monthly service fee to obtain body worn cameras without incurring a significant upfront capital outlay. ~~We have noticed significant interest~~This program has continued to gain traction, resulting in decreased product revenues and ~~success with this program, as we experienced a vast increase in~~increasing our ~~subscription contracts during the third quarter of 2021 compared to the same period in 2020.~~service revenues. We expect this program to continue to hold traction, resulting in recurring revenues over a span of three to five years.

Service and other revenues for the three months ended ~~September 30,~~March 31, 2022 and 2021 were $7,884,721 and ~~2020 were $3,283,368 and $630,061,~~$623,252, respectively, ~~which is~~ an increase of ~~$2,653,307 (421%~~$7,261,469 (1,165%), due to the following factors:

	●	Cloud revenues generated by the video solutions operating segment were ~~$264,594~~$270,925 and ~~$217,535~~$241,653 for the three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ respectively, an increase of ~~$47,059 (22%~~$29,272 (12%). We have experienced increased interest in our cloud solutions for law enforcement primarily due to the deployment of our ~~new~~ cloud-based EVO-HD in-car ~~system. However,~~system and our next generation body-worn camera products, which contributed to our increased cloud revenues in the ~~fallout~~three months ended March 31, 2022. We expect this trend to continue throughout 2022 as the migration from ~~the COVID-19 pandemic and related business shut-downs adversely affected~~local storage to cloud storage continues in our ~~commercial customers usage of cloud services and offset increases in cloud revenues.~~customer base.

	●	~~Revenues~~Video solutions operating segment revenues from extended warranty services were ~~$298,840~~$199,491 and ~~$322,887~~$254,692 for the three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ respectively, ~~which is~~ a decrease of ~~$24,047 (7%~~$55,201 (22%). We have many customers that have purchased extended warranty packages, primarily in our DVM-800 premium service program. However, the ~~effects~~continued affects from the COVID-19 pandemic ~~and related restrictions on travel~~has adversely affected our sales of DVM-800 hardware systems resulting in a decrease in their sales ~~over~~in the three months ended ~~September 30, 2021~~March 31, 2022 compared to the same period in ~~2020.~~

	●	Installation service revenues were $22,087 and $51,423 for the three months ended September 30, 2021 and 2020, respectively, which is a decrease of $29,336 (57%). Installation revenues tend to vary more than other service revenue types and are dependent on larger customer implementations. The decrease in installation revenues in the three months ended September 30, 2021 compared to the same period 2020 was attributable to the continued effects related to the COVID-19 pandemic. Additionally, our newer products require less installation services, as the products are further along in the set-up process prior to leaving the warehouse.

	●	Revenues from building rental income were $143,827 and $-0- for the three months ended September 30, 2021 and 2020, respectively, an increase of $143,827 (100%). The Company completed the purchase of an office/warehouse building in May 2021, in which current tenants were under a lease agreement. The agreement closed August 30, 2021.

	●	~~Revenues from TicketSmarter services were $2,050,679~~Our new ticketing operating segment generated service revenues totaling $5,306,945 and $-0- for the three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ respectively, an increase of ~~$2,050,679~~$5,306,945 (100%). The Company completed the acquisitions of Goody Tickets, LLC and TicketSmarter, LLC on September 1, 2021, thus resulting in the new revenue stream for the Company. TicketSmarter collects fees on transactions administered through the TicketSmarter.com platform for the buying and selling of tickets for live events throughout the country. ~~This increase reflects just one month of revenues within the new wholly-owned subsidiary, presenting~~We expect our ticketing operating segment to continue to present a strong revenue outlook moving forward.

	●	~~Revenues from Nobility Healthcare services were $560,484~~Our new revenue cycle management operating segment generated service revenues totaling $1,903,957 and $-0- for the three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ respectively, an increase of ~~$560,484~~$1,903,957 (100%). ~~The Company~~Our revenue cycle management operating segment has completed ~~the~~four acquisitions ~~of a private medical billing company on~~since formation in June ~~30, 2021 and another private medical billing company on August 31,~~of 2021, thus resulting in the new service revenue stream ~~for~~added in the ~~third quarter of 2021 for the Company. Nobility Healthcare provided~~three months ended March 31, 2022. Our revenue cycle management operating segment provides revenue cycle management solutions and back-office services to healthcare organizations throughout the country. This increase reflects three months of the first acquired medical billing company revenues and just one month of the second acquired medical billing company revenues within the new wholly-owned subsidiary, presentingWe expect our revenue cycle management segment to continue to present a strong revenue outlook moving forward.

Total revenues for the three months ended ~~September 30,~~March 31, 2022 and 2021 were $10,294,781 and ~~2020 were $4,639,822 and $3,588,640~~$2,535,829, respectively, an increase of ~~$1,051,182 (29%~~$7,758,952 (306%), due to the reasons noted above.

Cost of Product Revenue

~~Cost~~Overall cost of product revenue ~~on units~~ sold for the three months ended ~~September 30,~~March 31, 2022, and 2021 was $2,822,051 and ~~2020 was $1,197,217 and $2,177,676,~~$1,561,310, respectively, ~~a decrease~~an increase of ~~$980,459 (45%~~$1,260,741 (81%). Overall cost of goods sold for products as a percentage of product revenues for the three months ended March 31, 2022, and 2021 were 117.1% and 81.6%, respectively. Cost of products sold by operating segment is as follows:

	Three Months Ended March 31,
	2022		2021
Cost of Product Revenues:
Video Solutions	$	1,477,715	$	1,561,310
Revenue Cycle Management		—		—
Ticketing		1,344,336		—
Total Cost of Product Revenues	$	2,822,051	$	1,561,310

The decrease in cost of goods sold for our video solutions segment products is due to numerous factors in the period during 2020 that were not relevant to the same period in 2021. In the 2020 period, the Company experienced a move to its new warehouse facility, and a significant manufacturing slow down caused by the COVID-19 pandemic causing unfavorable overhead and labor variances for production in the second quarter of 2020, which management had decided to expense as a period cost. For the same period in 2021, the Company did not experience these factors, but further reduced the inventory reserve. Additionally, the decrease in cost of product revenues correlates directly correlated with the decrease in ~~revenues~~product sales for the three months ended ~~September 30, 2021~~March 31, 2022 compared to the ~~same period in 2020.~~

three months ended March 31, 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 quarter of 2022. Cost of ~~service and other~~product sold as a percentage of product revenues for the video solutions segment increased to 110.6% for the three months ended ~~September 30, 2021 and 2020 was $2,042,035 and $188,316, respectively, an increase of $1,853,719 (984%).~~ March 31, 2022 as compared to 81.6% for the three months ended March 31, 2021.

The increase in ~~service and other~~ticketing operating segment cost of ~~goods~~product sold is due to the ~~expansion~~acquisition of TicketSmarter in ~~service revenue streams through~~ the ~~acquisitions, and~~third quarter of 2021, resulting in ~~particular, the TicketSmarter acquisition, completed during the three months ended September 30, 2021, of which would not be relevant for comparison~~an increase to ~~the same period in 2020. Our~~ cost of ~~service revenues as a percentage~~product revenue of revenues generated by TicketSmarter and the Nobility Healthcare are at a much higher percentage than our traditional law enforcement/commercial video sales. TicketSmarter and the Nobility Healthcare revenues represented 45% of total revenues$1,344,336 for the three months ended ~~September 30, 2021 which resulted in a substantially higher cost of revenues~~March 31, 2022, compared to $-0- for the three months ended ~~September 30, 2021 compared to the 2020 period.~~

~~Total cost~~March 31, 2021. Cost of ~~sales~~product sold as a percentage of product revenues for the ticketing solutions was ~~70%~~125.2% for the three months ended ~~September 30, 2021 compared to 66%~~March 31, 2022. The Ticketing Segment recorded an allowance for ~~the three months ended September 30, 2020. We believe our gross margins will improve~~unsold and under-market tickets during the ~~remainder~~first quarter 2022 due to event cancellations and restrictions imposed on the size and type of ~~2021 as~~gatherings related to the Omicron Variant. In addition, we ~~increase revenues (in particular service~~provide a reserve related to Major League Baseball reducing their spring training schedule and ~~other revenues), shipping costs moderate and continue~~delaying their regular season due to ~~reduce product warranty issues.~~the player strike in the first quarter of 2022.

We ~~had $2,300,019~~recorded $3,896,460 and ~~$1,960,351~~$3,915,089 in reserves for obsolete and excess inventories at ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively. Total raw materials and component parts were ~~$3,068,418~~$3,839,796 and ~~$3,186,426~~$3,062,046 at ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively, ~~a decrease~~an increase of ~~$118,008 (4%~~$777,750 (25%). Finished goods balances were ~~$10,827,344~~$9,462,527 and ~~$6,974,291~~$10,512,577 at ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively, ~~an increase~~a decrease of ~~$3,853,053 (55%~~$1,050,050 (10%). which was attributable to a decrease in finished goods from our newly acquired ticketing segment. The ~~slight increase~~small decrease in the inventory reserve is primarily due to ~~scrapping~~the reduction in finished goods and movement of older version inventory component parts that were mostly or fully reserved during the three months ended September 30, 2021. The remaining reserve for inventory obsolescence is generally provided for the level of component parts of the older versions of our PCB boards and the phase out of our DVM-750, DVM-500 Plus and LaserAlly legacy products.excess inventory. We believe the reserves are appropriate given our inventory levels ~~at September 30,~~as of March 31, 2022.

Cost of Service Revenue

Overall cost of service revenue sold for the three months ended March 31, 2022, and 2021 was $5,553,111 and $162,637, respectively, an increase of $5,370,474 (3,302%). Overall cost of goods sold for services as a percentage of service revenues for the three months ended March 31, 2022, and 2021 were 70.2% and 26.1%, respectively. Cost of service revenues by operating shipment is as follows:

	Three Months Ended March 31,
	2022		2021
Cost of Service Revenues:
Video Solutions	$	263,903	$	162,637
Revenue Cycle Management		1,206,787		—
Ticketing		4,062,421		—
Total Cost of Service Revenues	$	5,533,111	$	162,637

The increase in cost of service revenues for our video solutions segment is commensurate with the increase in service revenues in the three months ended March 31, 2022 compared to the three months ended March 31, 2021. Cost of service revenues as a percentage of service revenues for the video solutions segment increased to 39.2% for the three months ended March 31, 2022 as compared to 26.1% for the three months ended March 31, 2021.

The increase in revenue cycle management operating segment cost of service revenue is due to the four acquisitions of medical billing companies completed since June 2021. Cost of service revenues as a percentage of product revenues for the revenue cycle management operating segment was 36.7% for the first three months of 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 $4,062,421 for the three months ended March 31, 2022, compared to $-0- for the three months ended March 31, 2021. Cost of service revenues as a percentage of service revenues for the ticketing was 76.5% for the three months ended March 31, 2022.

Gross Profit

~~Gross~~Overall gross profit for the three months ended ~~September 30,~~March 31, 2022 and 2021 was $1,939,619 and ~~2020 was $1,400,570 and $1,222,648~~$811,882, respectively, an increase of ~~$177,922 (15%~~$1,127,737 (138.9%). Gross profit by operating segment was as follows:

Gross Profit:
Video Solutions	$	268,431	$	811,882
Revenue Cycle Management		697,169		—
Ticketing		974,019		—
Total Gross Profit	$	1,939,619	$	811,882

The overall increase is ~~commensurate with~~attributable to the large overall increase in ~~product and service~~ revenues ~~during~~for the three months ended ~~September 30, 2021 compared~~March 31, 2022 and an increase in the overall cost of sales as a percentage of overall revenues to 81.1% for the ~~same period in 2020.~~three months ended March 31, 2022 from 68.0% for the three months ended March 31, 2021. Our goal is to improve our margins over the ~~longer-term~~longer term based on the expected margins ofgenerated by our new recent ~~healthcare billing~~revenue cycle management and ~~TicketSmarter acquisitions~~ticketing operating segments together with our ~~traditional~~ video ~~business including sales traction~~solutions operating segment and its expected margins from our EVO-HD, DVM-800, VuLink, ~~FirstVU~~FirstVu Pro, FirstVu II, FirstVu HD, ThermoVu^TM, Shield^TM disinfectants and our cloud evidence storage and management offering, ifprovided that they gain traction in the marketplace and subject to a normalizing economy in the wake of the COVID-19 pandemic. In addition, if revenues from ~~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 to more efficient management of our supply chain through outsourcing production, quantity purchases and more effective purchasing practices. ~~Lastly, we will continue to seek to further improve our margins through sensible and advantageous acquisitions as evidenced during the three months ended September 30, 2021.~~

Selling, General and Administrative Expenses

Selling, general and administrative expenses were ~~$4,999,543~~$8,742,957 and ~~$3,066,606~~$3,677,575 for the three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ respectively, ~~which is~~ an increase of ~~$1,932,938 (63%~~$5,065,382 (137.7%). 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 85% for the three months ended March 31, 2022 compared to 145% in the same period in 2021. The significant components of selling, general and administrative expenses are as follows:

Three months ended
September 30,

2021 2020
Research and development expense $ 492,221 $ 405,082
Selling, advertising and promotional expense 1,511,682 789,854
Professional fees and expense 142,726 118,344
Executive, sales, and administrative staff payroll 846,000 506,219
Other 2,006,914 1,247,107

Total $ 4,999,543 $ 3,066,606

	Three months ended March 31,
	2022		2021
Research and development expense	$	498,000	$	448,965
Selling, advertising and promotional expense		2,779,404		596,755
General and administrative expense		5,465,553		2,631,855

Total	$	8,742,957	$	3,677,575

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 ~~$492,221~~$498,000 and ~~$405,082~~$448,965 for the three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ respectively, ~~which is~~ an increase of ~~$87,139 (22%~~$49,035 (10.9%). Most of our engineers are dedicated to research and development activities for new products, primarily the ~~ThermoVu~~^®~~, Shield~~^TM,new generation of body-worn cameras, EVO-HD ~~FirstVu II~~ and non-mirror based DVM-250 that can be located in multiple places in a vehicle. We expect our research and development activities will continue to trend higher in future quarters as we continue to expand our product offerings based on our new body-worn camera and EVO-HD product platform and as we outsource more development projects. We consider our research and development capabilities and new product focus to be a competitive advantage and intend to continue to invest in this area on a prudent basis and consistent with our financial resources.

Selling, advertising and promotional expenses. Selling, advertising and promotional ~~expenses~~expense totaled ~~$1,511,682~~$2,779,404 and ~~$789,854~~$596,755 for the three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ respectively, ~~which is~~ an increase of ~~$721,828 (91%~~$2,182,649 (365.8%). The increase primarily reflects the impact of our recent acquisition of TicketSmarter which relies heavily on digital advertising to promote the use of its ticketing services. TicketSmarter is expected to remain very involved in digital promotionalPromotional and advertising ~~space, as it is necessary to its recognition and customer trust, being a part of the live event and sports realm.~~

~~Salesman salaries and commissions~~expenses represent the primary ~~components~~component of these costs and were $405,398 and $336,867 for the three months ended September 30, 2021 and 2020, respectively, which is an increase of $68,531 (20%). The effective commission rate was 8.7% for the three months ended September 30, 2021 compared to 9.4% for the three months ended September 30, 2020. We reduced the number of salesmen in our law enforcement and commercial channels beginning in the first and second quarters of 2020, which had a full effect on the third quarter 2020. In addition, we are utilizing third-party distributors as a major component of our new Shield^TM ~~and ThermoVU~~^® ~~sales channel.~~

~~Promotional and advertising expenses~~ totaled ~~$1,106,284~~$2,389,063 during the three months ended ~~September 30, 2021~~March 31, 2022, compared to ~~$452,987~~$197,203 during the three months ended ~~September 30, 2020, which is~~March 31, 2021, an increase of ~~$653,297 (144%~~$2,191,860 (1,111.5%). The increase is primarily attributable to the 2022 sponsorship of NASCAR and ~~IndyCar seasons resuming~~IndyCar. Additionally, TicketSmarter is very active in ~~the 2021,~~sponsorship and advertising, as ~~they were conversely suspended during the same period in 2020. Additionally, trade shows are beginning~~it continues to ~~take place in the third quarter of 2021, compared to the third quarter of 2020, when they were suspended as a result~~build its brand and gain recognition. TicketSmarter accounted for $1,458,267 of the ~~COVID-19 pandemic.~~total promotional and advertising expense for the three months ended March 31, 2022.

~~Professional fees~~General and administrative expense. ~~Professional fees~~General and administrative expenses totaled ~~$142,726~~$5,465,553 and ~~$118,344~~$2,631,855 for the three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ respectively, ~~which is~~ an increase of ~~$24,382 (21%~~$2,833,698 (107.7%). The increase in professional fees is primarily attributable to increased legal and broker fees associated with the Company’s numerous acquisitions during the period, paired with other current due diligence items and opportunities the Company is exploring. Additionally, increased board fees, audit fees, and service fees are attributable to this increase.

~~Executive, sales~~general and administrative ~~staff payroll.~~ ~~Executive, sales and administrative staff payroll~~ expenses ~~totaled $846,000 and $506,219 for~~in the three months ended September 30, 2021 and 2020, respectively, which is an increase of $339,781 (67%). The primary reason for the increase in executive, sales and administrative staff payroll was the recent acquisitions of the medical billing companies and TicketSmarter which occurred in 2021 and therefore had no impact on 2020 expenses. In addition, a return to regular staff levelsMarch 31, 2022 compared to the same period in ~~2020, during which period~~2021 is primarily attributable to an increase in administrative salaries, as payroll continues to increase with the ~~Company experienced a reduction in technical support staffing in response to~~new acquisition completed by the COVID-19 pandemic during the third quarter of 2020, as the COVID-19 pandemic had significantly impacted the Company’s new event security business channel in 2020 as many sporting venues were closed including those served by these service technicians. Additionally, this trend is expected to continue because of the acquisitions completed during the three months ended September 30, 2021, which resulted in additional payroll expenses with expanded executive positions, sales,Company. General and administrative ~~staff numbers compared~~expense also increased due to ~~2020.~~

~~Other~~~~. Other selling, general~~a substantial increase in depreciation and ~~administrative~~amortization, rent expenses, ~~totaled $2,006,914~~ and ~~$1,248,107~~legal and professional expenses for the three months ended ~~September 30, 2021 and 2020, respectively, which is an increase of $758,807 (61%). The increase in other expenses in the three months ended September 30, 2021~~March 31, 2022 compared to the same period in 2020 is primarily attributable to the increased expenses related to the acquisitions, and associated operating expenses, completed during three months ended September 30, 2021, that were not relevant to the same period of 2020. Additionally, an increase in travel costs as COVID-19 restrictions begin to ease, as well as substantially increased insurance costs compared to the same period in 2020. The increased insurance costs are primarily in general liability and related coverages which premiums have been increased to address exposure to the COVID-19 pandemic.2021.

Operating Loss

For the reasons stated above, our operating loss was ~~$3,598,973~~$6,803,338 and ~~$1,843,957~~$2,865,693 for the three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ respectively, an increase of ~~$1,755,016 (95%~~$3,937,645 (137.4%). Operating loss as a percentage of revenues ~~worsened~~improved to ~~78%~~66% in the three months ended ~~September 30, 2021~~March 31, 2022 from ~~51%~~113% in the same period in ~~2020.~~2021.

Interest Income

Interest income increased to ~~$90,036~~$71,362 for the three months ended ~~September 30,~~March 31, 2022, from $41,686 in the same period of 2021, ~~from $11,339 for the three months ended September 30, 2020,~~ which ~~reflected~~reflects our ~~higher~~improved cash and cash equivalent levels in the ~~third~~first quarter ~~2021~~of 2022 compared to the ~~third~~first quarter of ~~2020.~~2021. The Company held significant cash and cash equivalents throughout the first quarter of 2022, allowing a full three months of interest income. Compared to the completed two registered direct offerings in the first quarter of 2021 which yielded net proceeds of approximately $66.4 million which balances ~~have~~ earned ~~increased~~ interest income ~~when compared to~~for the latter part of the first quarter of ~~2020. Additionally, this increase is a result of interest incurred on debt that the Company has issued, as well as interest incurred on leased products.~~2021.

Interest Expense

We incurred interest expense of ~~$5,675~~$17,009 and ~~$4,940~~$1,428 during the three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ respectively. The increase was attributable to utilizing a portion of the net proceeds from the registered direct offerings to eliminate substantially all interest-bearing debt balances outstanding in the three months ended September 30, 2021 as compared to the same period in 2020. On May 12, 2020, the Company received $150,000 in additional loan funding under the Economic Injury Disaster Loans (“EIDL”) program administered by the Small Business Administration (“SBA”). Under the terms of the EIDL promissory note, interest accrues on the outstanding principal at the rate of 3.75% per annum. The term of the EIDL promissory note is thirty years and monthly principal and interest payments are deferred for twelve months after the date of disbursement and total $731.00 per month thereafter. Additionally, the increase is attributable to the contingent earn-out notes associated with the ~~two~~four Nobility Healthcare acquisitions, currently at a total balance of ~~$1,000,000 between~~$1,762,064 for the ~~two~~four notes, with interest rates of 3.00% per annum.

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

We recorded a gain representing the change in fair value of proceeds investment agreement (the “PIA”) totaling $-0- and $2,365,000 during the three months ended September 30, 2021 and 2020, respectively.

We elected to account for the PIA that we entered into with Brickell Key Investments LP (“BKI”) in July of 2018 on its fair value basis. Therefore, we determined the fair value of the 2018 PIA as of September 30, 2020, and June 30, 2020 to be $-0- and $3,615,000, respectively. The change in fair value from June 30, 2020 to September 30, 2020 was $3,615,000, which was recognized as a gain in the Condensed Consolidated Statement of Operations for the three months ended September 30, 2020.

Change in Fair Value of Short-Term Investments

We recognized a loss on change in fair value of short-term investments totaling ~~$21,656~~$84,818 and ~~$-0-~~$4,964 during the three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ respectively. Such short-term investments are included in cash and cash equivalents as they contain original maturities of ninety (90) days or less. The Company completed two registered direct offerings in the first quarter of 2021, which yielded net proceeds of approximately $66.4 million, a portion of which was invested in short-term securities with original maturities of 90 days or less.

Change in Fair Value of Contingent Consideration Promissory Notes

During 2021, the Company issued a contingent consideration promissory note in connection with the two acquisitions made by our revenue cycle management segment in the amount of $350,000 and $650,000. Management’s estimate of the fair value of the $350,000 contingent promissory note at March 31, 2022 decreased by $51,464 compared to its estimated fair value at December 31, 2021. Management’s estimate of the fair value of the $650,000 contingent promissory note at March 31, 2022 increased by $107,514 compared to its estimated fair value at December 31, 2021. Therefore, the Company recorded a net loss of $56,050 in the Consolidated Statements of Operations for the three months ended March 31, 2022.

Change in Fair Value of Derivative Liabilities

During the first quarter of 2021, the Company issued detachable warrants to purchase a total of ~~42,550,000~~42,500,000 shares of Common Stock in association with the two registered direct offerings previously described. The underlying warrant agreement terms provide for net cash settlement outside the control of the Company in the event of tender offers under certain circumstances. As such, the Company is required to treat these warrants as derivative liabilities which are valued at their estimated fair value at their issuance date and at each reporting date with any subsequent changes reported in the condensed consolidated statement of operations as the change in fair value of warrant derivative liabilities. The change in fair value of the warrant derivative liabilities from ~~June 30,~~December 31, 2021, to ~~September 30, 2021~~March 31, 2022, totaled ~~$11,585,204~~$148,171 which was recognized as a gain in the ~~third~~first quarter of ~~2021.~~2022. The Company determined the fair value of such warrants as of ~~their issuance date,~~December 31, 2021, and as of ~~September 30, 2021,~~March 31, 2022, to be ~~$51,216,058~~$14,846,932 and ~~$17,942,019,~~$14,698,761, respectively.

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

As a result of the above results of operations, we reported ~~income~~an income/(loss) before income tax benefit of ~~$8,048,936~~($6,698,242) and ~~$527,442~~$21,721,858 for the three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ respectively, ~~an improvement~~a decrease of ~~$7,521,494 (1,426%~~$28,420,100 (130.8%).

Income Tax Benefit

We did not record an income tax expense related to our income for the three months ended ~~September 30, 2021~~March 31, 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, 2021.~~March 31, 2022. We had approximately ~~$76,070,000~~$81.4 million of net operating loss carryforwards and ~~$1,795,000~~$1,8 million of research and development tax credit carryforwards as of ~~September 30, 2021~~March 31, 2022 available to offset future net taxable income.

Net ~~income~~Income/(Loss)

As a result of the above results of operations, we reported net ~~income including noncontrolling interests~~income/(loss) of ~~$8,048,936~~($6,698,242) and ~~$527,442~~$21,721,858 for the three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ respectively, ~~an improvement~~a decrease of ~~$7,521,494 (1,426%~~$28,420,100 (130.8%).

Net ~~loss attributable~~Loss Attributable to ~~noncontrolling interests~~Noncontrolling Interests of ~~consolidated subsidiary~~Consolidated Subsidiary

The Company owns a 51% ofequity interest in its consolidated subsidiary, Nobility Healthcare. As a result, the noncontrolling shareholders or minority interest is allocated 49% of the income/loss of Nobility Healthcare which is reflected in the statement of income (loss) as “net income (loss) attributable to noncontrolling interests of consolidated subsidiary”. We reported net loss attributable to noncontrolling interests of consolidated subsidiary of ~~$19,863~~$98,094 and $-0- for the three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ respectively.

Net ~~Income attributable~~Income/(Loss) Attributable to ~~common stockholders~~Common Stockholders

As a result of the above, we reported a net ~~income~~income/(loss) attributable to common stockholders of ~~$8,068,799~~($6,600,148) and ~~$527,442~~$21,721,858 for the years three months ~~ended September 30,~~March 31, 2022 and 2021, ~~and 2020, respectively, an improvement of $7,541,357 (1,430%).~~

~~Basic and Diluted Income per Share~~

Basic and diluted income per share was $0.16 and $0.02 for the three months ended September 30, 2021 and 2020, respectively. Basic income per share is based upon the weighted average number of common shares outstanding during the period. For the three months ended September 30, 2021 and 2020, all shares issuable upon conversion of convertible debt and the exercise of outstanding stock options and warrants were antidilutive, and, therefore, not included in the computation of diluted income per share.

~~For the Nine Months ended September 30, 2021 and 2020~~

~~Results of Operations~~

Summarized immediately below and discussed in more detail in the subsequent sub-sections is an analysis of our operating results for the nine months ended September 30, 2021 and 2020, represented as a percentage of total revenues for each respective year:

Nine months ended
September 30,

2021 2020
Revenue 100 % 100 %
Cost of revenue 64 % 63 %

Gross profit 36 % 37 %
Selling, general and administrative expenses:
Research and development expense 15 % 16 %
Selling, advertising and promotional expense 31 % 25 %
General and administrative expense 84 % 72 %

Total selling, general and administrative expenses 130 % 113 %

Operating loss (94 )% (76 )%

Change in fair value of proceeds investment agreement — % (68 )%
Change in fair value of secured convertible notes — % (17 )%
Change in fair value of derivative liabilities 344 % — %
Other income and interest expense, net 2 % (5 )%

Income (loss) before income tax benefit 252 % (30 )%
Income tax (provision) — % — %

Net income (loss) 252 % (30 )%

Net loss attributable to noncontrolling interests of consolidated subsidiary 0 % — %

Net income (loss) attributable to common stockholders 252 % (30 )%

Net income (loss) per share attributable to common sotkcholders information:
Basic $ 0.49 $ (0.12 )
Diluted $ 0.49 $ (0.12 )

~~Revenues~~

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

	●	Product 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.

	●	Product 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. Accordingly, upon application of steps one through five above, 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.

	●	Service sales through Nobility Healthcare are driven through relationships with medium to large healthcare organizations, in which revenue is recognized upon execution of services. Through TicketSmarter, service sales are driven largely in part to the usage of the TicketSmarter.com marketplace by buyers and sellers, in which the Company collects service fees for each transaction.

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

Nobility Healthcare offers leading-edge revenue cycle management solutions to medium and large healthcare organizations throughout the country. Nobility Healthcare’s customers are spread across a wide range of practices and specialties, including radiology, oncology, orthopedics, pediatrics, internal medicine, and cardiology.

The COVID-19 pandemic had an impact on all of our revenue streams during the nine months ended September 30, 2021 and we expect it to adversely affect our revenues during the remainder of 2021. The COVID-19 pandemic had a negative impact generally on our legacy products and, in particular our commercial event recorder hardware (DVM-250 Plus) and in-car hardware for law enforcement (DVM-800) during the quarter. The COVID-19 pandemic had a positive impact generally on our new Shield^TM ~~disinfectant/sanitizer and ThermoVU~~^®~~product lines.~~

~~Revenues for each of the nine months ended September 30, 2021 and 2020 were derived from the following sources:~~

Nine months ended September 30,
2021 2020
DVM-800 18 % 25 %
ThermoVU/Shield 2 % 16 %
FirstVu HD 9 % 12 %
Cloud service revenue 8 % 9 %
Extended warranty revenue 8 % — %
EVO-HD 12 % 7 %
Repair and service 3 % 14 %
TicketSmarter sales 6 % — %
TicketSmarter TNP sales 16 % — %
Nobility Healthcare RCM 5 % — %
Nobility Healthcare credentialing and services 1 % — %
Accessories and other revenues 12 % 17 %
100 % 100 %

~~Product revenues for the nine months ended September 30, 2021 and 2020 were $4,988,364 and $5,778,695 respectively, which is an increase of $790,331 (14%), due to the following factors:~~

●

The Company generated revenues totaling over $244,982 during the nine months ended September 30, 2021 compared to $1,182,513 for the same period in 2020 from its new product lines. Late in the second quarter of 2020, the Company launched two product lines in direct response to the increased safety precautions that organizations and individuals are taking due to the COVID-19 pandemic. ThermoVu^® was launched as a non-contact temperature-screening instrument that measures temperature through the wrist and controls entry to facilities when temperature measurements exceed pre-determined parameters. ThermoVu^® ~~has optional features such as facial recognition to improve facility security by restricting access based on temperature and/or facial recognition reasons. ThermoVu~~^® provides an instant pass/fail audible tone with its temperature display and controls access to facilities based on such results. We believe that it can be widely applied in schools, office buildings, subway stations, airports and other public venues. The Company also launched its Shield™ disinfectant/sanitizer product lines to fulfill demand by current customers and others for a disinfectant and sanitizer that is less harsh than many of the traditional products now widely distributed. The Shield™ Cleanser product line contains a cleanser with no harsh chemicals or fumes.

The Company began offering the Shield™ line of disinfecting products to its first responder customers including police, fire and paramedics late in the second quarter of 2020. Commercial customers such as cruise lines, taxi-cab and para transit may also be good candidates for the products. The Company is considering enhancing the line of disinfectant products for additional related products including hardware to efficiently and effectively dispense the disinfectants. The Company is hopeful that its law enforcement and commercial customers will adopt this new product offering to combat the spread of the COVID-19 virus as well as other bacteria and viruses.

●

In general, we have experienced pressure on our revenues as our in-car and body-worn systems are facing increased competition because our competitors have released new products with advanced features. Additionally, our law enforcement revenues declined in the nine months ended September 30, 2021 compared to the same period of 2020, due to price-cutting and competitive actions by our competitors, adverse marketplace effects related to our patent litigation proceedings and our recent financial condition. We introduced our EVO-HD late in the second quarter of 2019 with the goal of enhancing our product line features to meet these competitive challenges and we started to see traction in late 2019 but sales in 2020 were hampered due to the COVID-19 pandemic. We expect customers and potential customers to review and test the EVO-HD prior to committing to this new product platform, all of which has been delayed due to the COVID-19 pandemic. We experienced substantial increases in EVO-HD revenues during the nine months ended September 30, 2021 and believe that customers are recognizing and are attracted to its advanced features.

●

The COVID-19 pandemic has continued to delay the shipment of certain law enforcement orders since the first quarter of 2020 as police forces and governments deal with its impact. In addition, our salesmen were generally unable to meet with and demonstrate our products to our law enforcement customers because of travel and other restrictions imposed by cities and states due to the COVID-19 pandemic. In person demonstration of our products to potential customers is generally important in order to obtain new customers or upgrade existing customers. Our product sales to law enforcement increased during the nine months ended September 30, 2021 compared to the same period in 2020, as the impact of the COVID-19 pandemic was at its peak.

The COVID-19 pandemic impact remains relevant, as the shipment of commercial orders during the nine months ended September 30, 2021 remain slow, as cruise lines, taxi cabs, paratransit and other commercial customers continue to deal with its impact. In addition, our salesmen were generally unable to meet with and demonstrate our products to our commercial customers because of travel and other restrictions imposed by cities and states due to the COVID-19 pandemic. In person demonstration of our products to potential customers is generally required in order to obtain new customers or upgrade existing customers. Our product sales to commercial customers increased in the nine months ended September 30, 2021 compared to the same period in 2020 despite the impact of the COVID-19 pandemic.

●

Management has been focusing on migrating customers, from a “hardware sale” to a service fee model. Therefore, we expect a reduction in hardware sales as we convert these customers to a service model under which we provide the hardware as part of a recurring monthly service. In that respect, in the second quarter of 2020 we introduced a monthly subscription plan for our body worn cameras and related equipment that allowed law enforcement agencies to pay a monthly service fee to obtain body worn cameras without incurring a significant upfront capital outlay. We have noticed significant interest and success with this program, as we experienced a vast increase in our subscription contracts during the nine months ended September 30, 2021 compared to the same period in 2020. We expect this program continues to hold traction, resulting in recurring revenues over a span of three to five years

~~Service and other revenues for the nine months ended September 30, 2021 and 2020 were $4,680,959 and $1,967,881, respectively, which is an increase of $2,713,078 (138%), due to the following factors:~~

	●	Cloud revenues were $753,332 and $725,667 for the nine months ended September 30, 2021 and 2020, respectively, which is an increase of $27,665 (4%). We have experienced increased interest in our cloud solutions for law enforcement primarily due to the deployment of our new cloud-based EVO-HD in-car system. However, the fallout from the COVID-19 pandemic and related business shut-downs affected our commercial customers usage of cloud services and offset increases in cloud revenues.

	●	Revenues from extended warranty services were $786,147 and $990,961 for the nine months ended September 30, 2021 and 2020, respectively, which is a decrease of $204,814 (21%). We have many customers that have purchased extended warranty packages, primarily in our DVM-800 premium service program. However, the affects from the COVID-19 pandemic and related restrictions on travel adversely affected our sales of DVM-800 hardware systems resulting in a decrease in their sales over the nine months ended September 30, 2021 compared to the same period in 2020.

	●	Installation service revenues were $141,618 and $137,856 for the nine months ended September 30, 2021 and 2020, respectively, an increase of $3,762 (3%). Installation revenues tend to vary more than other service revenue types and are dependent on larger customer implementations. The slight increase in installation revenues in the nine months ended September 30, 2021 compared to the same period 2020 was attributable to the resumption of previous projects pending install due to the effects related to the COVID-19 pandemic.

	●	Revenues from building rental income were $290,012 and $-0- for the nine months ended September 30, 2021 and 2020, respectively, an increase of $290,012 (100%). The Company completed the purchase of an office/warehouse building during the nine months ended September 30, 2021, in which current tenants were under a lease agreement. The agreement closed at the end of August 2021.

	●	Revenues from TicketSmarter services were $2,050,679 and $-0- for the nine months ended September 30, 2021 and 2020, respectively, an increase of $2,050,679 (100%). The Company completed the acquisitions of Goody Tickets, LLC and TicketSmarter, LLC on September 1, 2021, thus resulting in the new revenue stream for the Company. TicketSmarter collects fees on transactions administered through the TicketSmarter.com platform for the buying and selling of tickets for live events throughout the country. This increase reflects just one month of revenues within the new wholly-owned subsidiary, presenting a strong outlook moving forward.

	●	Revenues from Nobility Healthcare services were $560,484 and $-0- for the nine months ended September 30, 2021 and 2020, respectively, an increase of $560,484 (100%). The Company completed the acquisitions of the first medical billing company on June 30, 2021 and the second medical billing company on August 31, 2021, thus resulting in the new revenue stream added in the third quarter of 2021 for the Company. Nobility Healthcare provided revenue cycle management solutions and back-office services to healthcare organizations throughout the country. This increase reflects three months of the first medical billing company revenues and just one month of the second medical billing company revenues within the new wholly-owned subsidiary, presenting a strong outlook moving forward.

~~Total revenues for the nine months ended September 30, 2021 and 2020 were $9,669,323 and $7,746,576, respectively, which is an increase of $1,922,747 (25%), due to the reasons noted above.~~

~~Cost of Revenue~~

Cost of product revenue on units sold for the nine months ended September 30, 2021 and 2020 was $3,776,185 and $4,332,450, respectively, which is a decrease of $556,265 (13%). The decrease in cost of goods sold for products is due to numerous factors in the period during 2020 that were not relevant to the same period in 2021. In the 2020 period, the Company experienced a move to its new warehouse facility, and a significant manufacturing slow down caused by the COVID-19 pandemic causing unfavorable overhead and labor variances for production in the second quarter of 2020, which management had decided to expense as a period cost. For the same period in 2021, the Company did not experience these factors, but further reduced the inventory reserve. Additionally, the decrease in cost of product revenues correlates directly with the decrease in revenues for the three months ended September 30, 2021 compared to the same period in 2020.

Cost of service and other revenues for the nine months ended September 30, 2021 and 2020 was $2,419,884 and $533,690, respectively, which is an increase of $1,886,194 (353%). The increase in service and other cost of goods sold is due to the expansion in service revenue streams through the acquisitions and in particular the TicketSmarter acquisition completed during the nine months ended September 30, 2021, of which would not be relevant for comparison to the same period in 2020. Our cost of service revenues as a percentage of revenues generated by TicketSmarter and the Nobility Healthcare are at a much higher percentage than our traditional law enforcement/commercial video sales. TicketSmarter and the Nobility Healthcare revenues represented 28% of total revenues for the nine months ended September 30, 2021 which resulted in a substantially higher cost of revenues for the nine months ended September 30, 2021 compared to the 2020 period.

Total cost of sales as a percentage of revenues was 64% for the nine months ended September 30, 2021 compared to 63% for the nine months ended September 30, 2020. We believe our gross margins will improve during the remainder of 2021 if we can increase revenues (in particular service and other revenues), shipping costs moderate and continue to reduce product warranty issues.

We had $2,300,019 and $1,960,351 in reserves for obsolete and excess inventories at September 30, 2021 and December 31, 2020, respectively. Total raw materials and component parts were $3,068,418 and $3,186,426 at September 30, 2021 and December 31, 2020, respectively, a ~~decrease~~deterioration of ~~118,008 (4%~~$28,322,006 (130.4%). Finished goods balances were $10,827,344 and $6,974,291 at September 30, 2021 and December 31, 2020, respectively, an increase of $3,853,053 (55%). The slight increase in the inventory reserve is primarily due to scrapping of older version inventory component parts that were mostly or fully reserved during the three months ended September 30, 2021. The remaining reserve for inventory obsolescence is generally provided for the level of component parts of the older versions of our PCB boards and the phase out of our DVM-750, DVM-500 Plus and LaserAlly legacy products. We believe the reserves are appropriate given our inventory levels at September 30, 2021.

~~Gross Profit~~

Gross profit for the nine months ended September 30, 2021 and 2020 was $3,473,254 and $2,880,436, respectively, which is an increase of $592,818 (21%). The increase is commensurate with the 25% increase in total revenues and the gross margin percentage decrease to 36% during the nine months ended September 30, 2021, from 37% during the nine months ended September 30, 2020. Our goal is to improve our margins over the longer-term based on the expected margins of our recent healthcare billing and TicketSmarter acquisitions together with our traditional video business including sales traction from our EVO-HD, DVM-800, VuLink and FirstVU HD and our cloud evidence storage and management offering if they gain traction in the marketplace and subject to a normalizing economy in the wake of the COVID-19 pandemic. In addition, if revenues from these products increase, we will seek to further improve our margins from them through economies of scale and more efficiently utilizing fixed manufacturing overhead components. We plan to continue our initiative to more efficient management of our supply chain through outsourcing production, quantity purchases and more effective purchasing practices. Lastly, we will continue to seek to further improve our margins through sensible and advantageous acquisitions as evidenced during the nine months ended September 30, 2021.

~~Selling, General and Administrative Expenses~~

Selling, general and administrative expenses were $12,554,807 and $8,794,912 for the nine months ended September 30, 2021 and 2020, respectively, which is an increase of $3,543,513 (40%). The significant components of selling, general and administrative expenses are as follows:

Nine months ended
September 30,

2021 2020
Research and development expense $ 1,402,185 $ 1,250,528
Selling, advertising and promotional expense 2,978,620 1,958,884
Professional fees and expense 1,008,290 701,602
Executive, sales, and administrative staff payroll 2,204,168 1,737,869
Other 4,961,544 3,146,029

Total $ 12,554,807 $ 8,794,912

~~Research and development expense.~~ We continue to focus on bringing new products to market, including updates and improvements to current products. Our research and development expenses totaled $1,402,185 and $1,250,528 for the nine months ended September 30, 2021 and 2020, respectively, which is an increase of $151,657 (12%). Most of our engineers are dedicated to research and development activities for new products, primarily the ThermoVu^®~~, Shield~~^TM, EVO-HD, FirstVu II and non-mirror based DVM-250 that can be located in multiple places in a vehicle. We expect our research and development activities will continue to trend higher in future quarters as we continue to expand our product offerings based on our new EVO-HD product platform and as we outsource more development projects. We consider our research and development capabilities and new product focus to be a competitive advantage and intend to continue to invest in this area on a prudent basis and consistent with our financial resources.

~~Selling, advertising and promotional expenses.~~ Selling, advertising and promotional expense totaled $2,978,620 and $1,958,884 for the nine months ended September 30, 2021 and 2020, respectively, which is an increase of $1,019,736 (52%). The increase primarily reflects the impact of our recent acquisition of TicketSmarter which relies heavily on digital advertising to promote the use of its ticketing services. TicketSmarter is expected to remain very involved in digital promotional and advertising space, as it is necessary to its recognition and customer trust, being a part of the live event and sports realm.

Salesman salaries and commissions represent the primary components of these costs and were $1,301,165 and $1,289,699 for the nine months ended September 30, 2021 and 2020, respectively, which is a, increase of $11,466 (1%). The effective commission rate was 13.5% for the nine months ended September 30, 2021 compared to 16.6% for the nine months ended September 30, 2020.

Promotional and advertising expenses totaled $1,677,455 during the nine months ended September 30, 2021 compared to $669,185 during the nine months ended September 30, 2020, which is an increase of $1,008,270 (151%). The increase is primarily attributable to NASCAR and IndyCar seasons resuming in the 2021, as they were conversely suspended during the same period in 2020. Additionally, trade shows are beginning to take place in the second quarter of 2021, compared to the second quarter of 2020, when they were suspended as a result of the COVID-19 pandemic.

~~Professional fees and expense~~. Professional fees and expenses totaled $1,008,290 and $701,602 for the nine months ended September 30, 2021 and 2020, respectively, which is an increase of $306,688 (44%). The increase in professional fees is primarily attributable to increased legal fees surrounding the two registered direct offerings during the nine months ended September 30, 2021, along with increased legal and broker fees associated with the Company’s numerous acquisitions during the period, paired with other current due diligence items and opportunities the Company is exploring. Additionally, increased board fees, audit fees, and service fees attribute to this increase.

~~Executive, sales and administrative staff payroll.~~ Executive, sales and administrative staff payroll expenses totaled $2,204,168 and $1,737,869 for the nine months ended September 30, 2021 and 2020, respectively, which is an increase of $466,299 (27%). The primary reason for the increase in executive, sales and administrative staff payroll was the recent acquisitions of the medical billing companies and TicketSmarter which occurred in 2021 and therefore had no impact on 2020 expenses. In addition, a return to regular staff levels compared to the same period in 2020, in which the Company experienced a reduction in technical support staffing in response to the COVID-19 pandemic during the second quarter of 2020, as the COVID-19 pandemic had significantly impacted the Company’s new event security business channel in 2020 as many sporting venues were closed including those served by these service technicians. Additionally, this trend is expected to continue because of the acquisitions completed during the nine months ended September 30, 2021, which resulted in additional payroll expenses with expanded executive positions, sales, and administrative staff numbers compared to 2020. Additionally, the acquisitions completed during the nine months ended September 30, 2021, resulted in additional payroll expenses with expanded executive positions, sales, and administrative staff numbers.

~~Other~~. Other selling, general and administrative expenses totaled $4,961,544 and $1,985,198 for the nine months ended September 30, 2021 and 2020, respectively, which is an increase of $2,976,346 (150%). The increase in other expenses in the nine months ended September 30, 2021 compared to the same period in 2020 is primarily attributable to the increased expenses related to the acquisitions, and associated operating expenses, completed during the nine months ended September 30, 2021, that were not relevant to the same period of 2020. Additionally, an increase in travel costs as COVID-19 restrictions begin to ease, as well as substantially increased insurance costs compared to the same period in 2020. The increased insurance costs are primarily in general liability and related coverages which premiums have been increased to address exposure to the COVID-19 pandemic.

~~Operating Loss~~

For the reasons stated above, our operating loss was $9,081,553 and $5,914,476 for the nine months ended September 30, 2021 and 2020, respectively, which is an increase of $3,167,077 (54%). Operating loss as a percentage of revenues worsened to 94% in the nine months ended September 30, 2021 from 76% in the same period in 2020.

~~Interest Income~~

Interest income increased to $222,497 for the nine months ended September 30, 2021 from $33,208 in the same period of 2020, which reflected our increase in cash and cash equivalent levels in the nine months ended September 30, 2021 compared to the same period in 2020. The Company completed two registered direct offerings in the nine months ended June 30, 2021 which yielded net proceeds of approximately $66.4 million which balances have earned increased interest income when compared to the same period in 2020. Additionally, this increase is a result of interest incurred on debt that the Company has issued, as well as interest incurred on leased products.

~~Interest Expense~~

We incurred interest expense of $8,466 and $338,136 during the nine months ended September 30, 2021 and 2020, respectively. The decrease was attributable to utilizing a portion of the net proceeds from the registered direct offerings to eliminate substantially all interest-bearing debt balances outstanding in the nine months ended September 30, 2021 as compared to the same period in 2020. On May 12, 2020, the Company received $150,000 in additional loan funding under the Economic Injury Disaster Loans (“EIDL”) program administered by the Small Business Administration (“SBA”). Under the terms of the EIDL promissory note, interest accrues on the outstanding principal at the rate of 3.75% per annum. The term of the EIDL promissory note is thirty years and monthly principal and interest payments are deferred for twelve months after the date of disbursement and total $731.00 per month thereafter. Additionally, the increase is attributable to the contingent earn-out notes associated with the two Nobility Healthcare acquisitions, currently at a total balance of $1,000,000 between the two notes, with interest rates of 3.00% per annum.

~~Secured Convertible Notes Issuance Expenses~~

~~We recognized secured convertible note issuance expenses of $-0- and $34,906 during the nine months ended September 30, 2021 and 2020, respectively.~~

We elected to account for and record our $1.667 million principal amount of the 2020 Convertible Notes issued in April 2020 on a fair value basis. Accordingly, we were required to expense the related issuance costs to other expense in the condensed consolidated statements of operations. Such costs totaled $34,906 for the nine months ended September 30, 2020. The issuance costs primarily included related legal and accounting fees. No similar debt issuances occurred during the nine months ended September 30, 2021.

~~Gain on Extinguishment of debt~~

We recognized a gain on extinguishment of debt totaling $10,000 and $-0- during the nine months ended September 30, 2021 and 2020, respectively. During the nine months ended September 30, 2021 the Company was notified that its $10,000 EIDL advance received with the PPP Loan was fully forgiven.

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

~~We recognized a loss on change in fair value of Secured Convertible Notes totaling $-0- and $1,300,252 during the nine months ended September 30, 2021 and 2020, respectively.~~

We elected to account for the secured convertible notes that were issued on April 17, 2020 on their fair value basis. Therefore, we determined the fair value of the secured convertible notes as of their issuance date of April 17, 2020 and through June 12, 2020, when they were paid in full. The change in fair value from their issuance date of April 17, 2020 to their pay-off date was $887,807, which was recognized as a charge in the Condensed Consolidated Statement of Operations for the nine months ended September 30, 2020.

We elected to account for the secured convertible notes that were issued in August 2019 on their fair value basis. Therefore, we determined the fair value of the secured convertible notes as of their issuance date on December 31, 2019 until they were paid in full on March 3, 2020. The change in fair value from December 31, 2019 to their pay-off date was $412,445, which was recognized as a charge in the Condensed Consolidated Statement of Operations for the nine months ended September 30, 2020.

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

~~We recognized a gain on the change in fair value of the PIA of $-0- and $5,250,000 during the nine months ended September 30, 2021 and 2020, respectively.~~

We elected to account for the PIA that we entered into with BKI in July of 2018 on its fair value basis. Therefore, we determined the fair value of the 2018 PIA as of September 30, 2020, and December 31, 2019 to be $-0- and $5,250,000, respectively. The change in fair value from December 31, 2019 to September 30, 2020 was $5,250,000, which was recognized as a gain in the Condensed Consolidated Statement of Operations for the nine months ended September 30, 2020.

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

We recognized a loss on change in fair value of short-term investments totaling $28,210 and $-0- during the nine months ended September 30, 2021 and 2020, respectively. Such short-term investments are included in cash and cash equivalents as they contain original maturities of ninety (90) days or less.

~~Change in Fair Value of Derivative Liabilities~~

During the nine months ended September 30, 2021, the Company issued detachable warrants to purchase a total of 42,550,000 shares of Common Stock in association with the two registered direct offerings previously described. The underlying warrant agreement terms provide for net cash settlement outside the control of the Company in the event of tender offers under certain circumstances. As such, the Company is required to treat these warrants as derivative liabilities which are valued at their estimated fair value at their issuance date and at each reporting date with any subsequent changes reported in the condensed consolidated statement of operations as the change in fair value of warrant derivative liabilities. The change in fair value of the warrant derivative liabilities from their issuance date to September 30, 2021 totaled $33,274,039 which was recognized as a gain in the period ended September 30, 2021. The Company determined the fair value of such warrants as of their issuance date, and as of September 30, 2021, to be $51,216,058 and $17,942,019, respectively.

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

As a result of the above results of operations, we reported an income/(loss) before income tax benefit of $24,388,307 and ($2,304,562) for the nine months ended September 30, 2021 and 2020, respectively, which is an increase of $26,692,869 (1,158%).

~~Income Tax Benefit~~

We did not record an income tax benefit related to our losses for the nine months ended September 30, 2021, 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, 2021. We had approximately $76,070,000 of net operating loss carryforwards and $1,795,000 of research and development tax credit carryforwards as of September 30, 2021 available to offset future net taxable income.

~~Net income/(loss)~~

As a result of the above, we reported net income including noncontrolling interests of $24,388,307 and ($2,304,562) for the nine months ended September 30, 2021 and 2020, respectively, an improvement of $26,692,869 (1,158%).

~~Net loss attributable to noncontrolling interests of consolidated subsidiary~~

The Company owns 51% of its consolidated subsidiary, Nobility Healthcare, LLC. As a result, the noncontrolling shareholders or minority interest is allocated 49% of the income/loss of Nobility Healthcare, LLC which is reflected in the statement of income (loss) as “net income (loss) attributable to noncontrolling interests of consolidated subsidiary”. We reported net income (loss) attributable to noncontrolling interests of consolidated subsidiary of $19,863 and $-0- for the nine months ended September 30, 2021 and 2020, respectively.

~~Net Income/(Loss) attributable to common stockholders~~

As a result of the above results of operations, we reported net income/(loss) of $24,408,170 and ($2,304,562) for the nine months ended September 30, 2021 and 2020, respectively, an increase of $26,712,732 (1,159%).

Basic and Diluted Income/(Loss) per Share

~~Basic~~The basic and diluted income/(loss) per share was ~~$0.49~~($0.13) and ~~($0.12)~~$0.49 for the ~~nine~~three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ respectively. Basic income (loss) per share is based upon the weighted average number of common shares outstanding during the period. For the ~~nine~~three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ all shares issuable upon conversion of convertible debt and the exercise of outstanding stock options and warrants were antidilutive, and, therefore, not included in the computation of diluted income (loss) per share.

Liquidity and Capital Resources

Overall:

Management’s Liquidity Plan. The Company has historically raised capital in the form of equity and debt instruments from private and public sources to supplement its needs for funds to support its business operational and strategic plans. In recent years the Company has accessed the public and private capital markets to raise funding through the issuance of debt and equity. The Company believes, that through the outlets mentioned, it has the ability to generate and obtain adequate amounts of capital to meet its requirements and plans for capital in the short-term and long-term. In that regard, the Company had raised net proceeds of approximately $66.4 million in registered direct offerings of ~~Common Stock,~~common stock, pre-funded warrants and warrants during ~~the nine months ended September 30,~~ 2021. Furthermore, the ~~Company has minimal~~Company’s only remaining interest-bearing debt at ~~September 30, 2021 in that of~~March 31, 2022 is $150,000 remaining due on the promissory notes under the SBA’s PPP and EIDL ~~program, and~~programs, along with the ~~two~~four acquired private medical billing ~~companies and TicketSmarter~~companies’ contingent consideration promissory notes, ~~and agreement,~~ as more fully described in Note 3, “Debt Obligations”. ~~The~~We believe that the net proceeds offrom the registered direct offerings ~~are~~will be sufficient to fund our operations during the remainder of ~~2021~~2022 and management believes that it now has adequate liquidity for the foreseeable future from the recently completed registered direct offerings in 2021. Such offerings were completed through utilization of the Company’s shelf-registration statement on Form S-3 (File No. 333-239419), which was initially filed with the U.S. Securities and Exchange Commission (the “SEC) on June 25, 2020 and was declared effective on July 2, 2020 (the “Shelf Registration Statement”).

Shelf Registration Statement on Form S-3 - The Shelf Registration Statement allows the Company to offer and sell, from time to time in one or more offerings, any combination of our shares of ~~Common Stock,~~common stock, debt securities, debt securities convertible into ~~Common Stock~~common stock or other securities in any combination thereof, rights to purchase shares of ~~Common Stock~~common stock or other securities in any combination thereof, warrants to purchase shares of ~~Common Stock~~common stock or other securities in any combination thereof or units consisting of ~~Common Stock~~common stock or other securities in any combination thereof having an aggregate initial offering price not exceeding $125,000,000. ~~The Company utilized~~

Management believes that it has adequate funding to support its business operations for the ~~Shelf Registration Statement for two recent offerings of its securities,~~foreseeable future as ~~more fully described in Note 12~~a result of the ~~notes to the Company’s condensed consolidated financial statements, “Stockholders’ Equity”, raising approximately $66.4 million in net proceeds during the nine months ended September 30, 2021.~~funds raised through these offerings.

Cash, cash equivalents: As of ~~September 30, 2021,~~March 31, 2022, we had cash and cash equivalents with an aggregate balance of ~~$40,743,057, which is an increase~~$20,561,116, a decrease from a balance of ~~$4,361,758~~$32,007,792 at December 31, ~~2020.~~2021. Summarized immediately below and discussed in more detail in the subsequent subsections are the main elements of the ~~$36,381,299~~$11,446,676 net ~~increase~~decrease in cash during the ~~nine~~three months ended ~~September 30, 2021:~~March 31, 2022:

●	Operating activities:	$~~12,230,781~~ 6,055,672 of net cash used in operating activities. Net cash used in operating activities was ~~$12,230,781~~$6,055,672 and ~~$10,115,605~~$3,206,844 for the ~~nine~~three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ respectively, an increase of ~~$2,115,176.~~$2,848,828. The deterioration is attributable to the net loss incurred for the first quarter of 2022, the non-cash gain attributable to the change in value of the warrant derivative liability, the usage of cash to increase ~~was primarily the result of increased inventory levels~~accounts receivable, prepaid expenses, and ~~additional working capital and~~other operating assets ~~for the various acquisitions completed~~ during the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 compared to the same period ~~of 2020.~~in 2021.

●	Investing activities:	$~~17,958,520~~3,195,346 of net cash used in investing activities. Cash used in investing activities was ~~$17,958,520~~$3,195,346 and ~~$889,726~~$99,274 for the ~~nine~~three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020~~ respectively. ~~The increase was primarily~~During the ~~result~~three months ended March 31, 2022, we made capital expenditures for: (i) building improvements of the ~~acquisitions of two acquired medical billing companies~~newly purchased office and ~~TicketSmarter, which were closed during the nine months ended September 30, 2021, together with the office/~~warehouse building, ~~purchase~~and transportation assets; (ii) patent applications on our proprietary technology utilized in our new products and included in intangible assets; and (iii) the ~~Company completed during the nine months ended September 30, 2021.~~closing of a business and asset acquisition.

●	Financing activities:	$~~66,570,600~~2,195,658 of net cash ~~provided by~~used in financing activities. Cash used in financing activities was $2,195,658 and cash provided by financing activities was $66,570,600 ~~and $18,775,977~~ for the ~~nine~~three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ respectively. During ~~January~~the first three months of 2022 the Company repurchased its common stock on the open market pursuant to the stock repurchase plan, as well as principal payments on contingent consideration promissory notes. During 2021, we ~~received net proceeds~~raised substantial funds through the completion of ~~$28,941,000 ($29,013,000 upon full exercise of the prefunded warrants) from the issuance of shares of common stock, warrants and pre-funded warrants through a~~two registered direct ~~offering. In addition, during February 2021, we received net proceeds~~offerings of ~~$37,447,100 ($37,557,600 upon full exercise of the prefunded warrants) from the issuance of shares of~~our common ~~stock, warrants and pre-funded warrants through a registered direct offering.~~stock.

~~The net result of these activities was an increase in cash of $36,381,299 to $40,743,057 for the nine months ended September 30, 2021.~~

Commitments:

We had ~~$40,743,057~~$20,561,116 of cash and cash equivalents and net positive working capital ~~$34,702,688~~$19,483,613 as of ~~September 30, 2021.~~March 31, 2022. Accounts receivable and other receivables balances represented ~~$3,977,464~~$5,602,094 of our net working capital at ~~September 30, 2021.~~March 31, 2022. We believe we will be able to collect our outstanding receivables on a timely basis and reduce the overall level during the ~~remainder~~balance of ~~2021,~~2022, which would provide positive cash flow to support our operations ~~in 2021.~~during 2022. Inventory represents ~~$11,611,249~~$9,405,920 of our net working capital at ~~September 30, 2021,~~March 31, 2022, and finished goods represented ~~$10,827,344~~$9,462,527 of total inventory at ~~September 30, 2021.~~March 31, 2022. We are actively managing the level of inventory and our goal is to reduce such level during the balance of ~~2021~~2022 by our sales activities, ~~thereby increasing~~the increase of which should provide additional cash flow to help support our operations during ~~2021.~~2022.

Capital Expenditures:

We had the following material commitments for capital expenditures at March 31, 2022:

Stock Repurchase Program - On December 6, 2021, the Board of Directors of the Company authorized the repurchase of up to $10.0 million of the Company’s outstanding common stock under the specified terms of a share repurchase program (the “Program”). Subsequent to March 31, 2022, the Company repurchased 1,280,387 shares of its common stock for $1,415,382, in accordance with the Program. The Program does not obligate the Company to acquire any specific number of shares and shares may be repurchased in privately negotiated and/or open market transactions, including under plans complying with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended.

~~Capital Expenditures~~Lease commitments. ~~. On April 30, 2021~~The following sets forth the ~~Company closed on the purchase~~operating lease right of use assets and ~~sale agreement to acquire a 71,361 square feet commercial office/warehouse building located in Lenexa, Kansas which is intended to serve~~liabilities as ~~the Company’s future office and warehouse needs. The building contains approximately 30,000 square feet~~ of office space and the remainder warehouse space. The total purchase price was approximately $5.3 million, the Company funded the purchase price with cash on hand, without the addition of external debt or other financing. The Company will be incurring capital expenditures to renovate the building to suit its office/warehouse needs during the balance of 2021.March 31, 2022:

The Company has also completed its first medical billing company acquisition for a total purchase price of approximately $1.4 million during the nine months ended September 30, 2021. The medical billing company purchase price included a contingent consideration promissory note payable to the sellers with an estimated fair value of $350,000 as of September 30, 2021. Management expects to continue its roll-up strategy in the RCM (medical billing services) industry during the balance of 2021 and beyond.

In addition, the Company completed its second medical billing company acquisition for a total purchase price of approximately $2.9 million during the nine months ended September 30, 2021. The second medical billing company purchase price includes a contingent consideration promissory note payable to the sellers with an estimated fair value of $650,000 as of September 30, 2021. Management expects to continue its roll-up strategy in the RCM (medical billing services) industry during the balance of 2021 and beyond.

Lastly, the Company completed the business acquisitions of Goody Tickets and TicketSmarter for a total purchase price of approximately $13.9 million during the nine months ended September 30, 2021. The TicketSmarter purchase price includes a contingent consideration earn-out payable to the sellers with an estimated fair value of $4,244,400 as of September 30, 2021.

~~Lease commitments~~. On May 13, 2020, the Company entered into an operating lease for new warehouse and office space, which will serve as its new principal executive office and primary business location. The original lease agreement was amended on August 28, 2020 to correct the footage under lease and monthly payment amounts resulting from such correction. The lease terms, as amended include no base rent for the first nine months and monthly payments ranging from $12,398 to $14,741 thereafter, with a termination date of December 2026. The Company is responsible for property taxes, utilities, insurance and its proportionate share of common area costs related to its new location. The Company took possession of the leased facilities on June 15, 2020. The remaining lease term for the Company’s office and warehouse operating lease as of September 30, 2021 was sixty-three months.

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 such equipment at maturity for its estimated fair market value at that point in time. The remaining lease term for the Company’s copier operating lease as of September 30, 2021 was 25 months.

On June 30, 2021, the Company completed the acquisition of is first medical billing company, through its majority owned subsidiary, Nobility Healthcare. Upon completion of this acquisition, the Company became responsible for the operating lease for the Seller’s office space. The lease terms include monthly payments ranging from $2,648 to $2,774 thereafter, with a termination date of July 2024. The Company is responsible for property taxes, utilities, insurance and its proportionate share of common area costs related to this location. The Company took possession of the leased facilities on June 30, 2021. The remaining lease term for the Company’s office and warehouse operating lease as of September 30, 2021 was thirty-four months.

On August 31, 2021, the Company completed the acquisition of its second acquired medical billing company, through its majority owned subsidiary, Nobility Healthcare, LLC. Upon completion of this acquisition, the Company became responsible for the operating lease for the Seller’s office space. The lease terms include monthly payments ranging from $11,579 to $11,811 thereafter, with a termination date of March 2023. The Company is responsible for property taxes, utilities, insurance and its proportionate share of common area costs related to this location. The Company took possession of the leased facilities on September 1, 2021. The remaining lease term for the Company’s office and warehouse operating lease as of September 30, 2021 was eighteen months.

On September 1, 2021, the Company completed the acquisition of Goody Tickets, LLC and TicketSmarter, LLC (“TicketSmarter Acquisition”), through its wholly owned subsidiary, TicketSmarter. Upon completion of this acquisition, the Company became responsible for the operating lease for TicketSmarter’s office space. The lease terms include monthly payments ranging from $7,211 to $7,364 thereafter, with a termination date of December 2022. The Company is responsible for property taxes, utilities, insurance and its proportionate share of common area costs related to this location. The Company took possession of the leased facilities on September 1, 2021. The remaining lease term for the Company’s office and warehouse operating lease as of September 30, 2021 was fifteen months.

Lease expense related to the office spaces and copier operating leases was recorded on a straight-line basis over the lease term. Total lease expense under the five operating leases was approximately $144,443 for the nine months ended September 30, 2021.

The following sets forth the operating lease right of use assets and liabilities as of ~~September 30, 2021:~~March 31, 2022:

Assets:
Operating lease right of use assets $ 1,109,463

Liabilities:
Operating lease obligations-Long-term portion $ 795,704
Operating lease obligations-Current portion 384,222
Total operating lease obligations $ 1,179,926

Assets:
Operating lease right of use assets	$	1,051,139

Liabilities:
Operating lease obligations-current portion	$	402,313
Operating lease obligations-less current portion		717,021
Total operating lease obligations	$	1,119,334

The components of lease expense were as follows for the ~~nine~~three months ended ~~September 30, 2021:~~March 31, 2022:

Selling, general and administrative expenses

~~144,443~~

155,072

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

Year ending December 31:
2021 (October 1, 2021 to December 31, 2021)	$	109,948
2022		445,635
2022 (April 1, to December 31, 2022)				$	374,088
2023		264,329			305,627
2024		191,059			245,761
2025		173,333			196,462
Thereafter		175,113			175,113
Total undiscounted minimum future lease payments		1,359,417			1,297,051
Imputed interest		(179,491	)		(177,717	)
Total operating lease liability	$	1,179,926		$	1,119,334

Debt ~~Obligations~~. obligations – Outstanding debt obligations comprises the following:

	September 30, 2021		March 31, 2022		December 31, 2021
Economic injury disaster loan (EIDL)	$	150,000	$	150,000	$	150,000
Contingent consideration promissory note – Nobility Healthcare Division Acquisition		350,000		234,027		317,212
Contingent consideration promissory note – Nobility Healthcare Division Acquisition		650,000		673,037		650,000
TicketSmarter contingent consideration earn-out		4,244,400
Contingent consideration promissory note – Nobility Healthcare Division Acquisition				750,000		—
Contingent consideration promissory note – Nobility Healthcare Division Acquisition				105,000		—
Debt obligations	$	5,394,400		1,912,064		1,117,212
Less: current maturities of debt obligations				662,717		389,934
Debt obligations, long-term			$	1,249,347	$	727,278

Debt obligations mature as follows as of ~~September 30, 2021:~~March 31, 2022:

September 30, 2021
2021 (October 1, 2021 to December 31, 2021) $ 4,245,882
2022 403,049
2023 403,166
2024 203,286
2025 3,412
2026 and thereafter 135,605

Total $ 5,394,400

	March 31, 2022
2022 (April 1, 2022 to December 31, 2022)	$	475,652
2023		748,305
2024		546,856
2025		3,412
2026		3,542
2027 and thereafter		134,297

Total	$	1,912,064

~~2020 Small Business Administration Notes~~.

On May 4, 2020, the Company issued a promissory note in connection with the receipt of the Paycheck Protection Program (“PPP”) loan of $1,418,900 (the “PPP Loan”) under the SBA’s 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 totaled $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 provides that the PPP Loan may be partially or wholly forgiven if the funds are used for certain qualifying expenses as described in the CARES Act. The Company used the majority of the PPP Loan amount for qualifying expenses and to apply for forgiveness of the PPP Loan in accordance with the terms of the CARES Act. The Company applied for forgiveness of the PPP Loan and December 10, 2020, the Company was fully forgiven of its $1,418,900 PPP Loan. Additionally, the Company was fully forgiven, during the nine 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 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 twelve 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.

~~Medical Billing Company Contingent Consideration Promissory Note Payable.~~

On June 30, 2021, Nobility Healthcare issued a Contingent Consideration Promissory Note (the “Note”) in connection with the Stock Purchase Agreement between Nobility and a private medical billing company of $350,000. The 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 Note is subject to an earn-out adjustment, being the difference between the $975,000 (the “Note Projected Revenue”) and the cash basis revenue (the “Note Measurement Period Revenue”) collected by the Seller in its normal course of business from the clients existing on June 30, 2021, during the period from October 1, 2021 through September 30, 2022 (the “Note Measurement Period”) measured on a quarterly basis and annualized as of the relevant period. If the Note Measurement Period Revenue is less than the Note Projected Revenue, such amount will be subtracted from the principal balance of this Note on a dollar-for-dollar basis. If the Note Measurement Period Revenue is more than the Note Projected Revenue, such amount will be added to the principal balance of this Note on a dollar-for-dollar basis. In no event will the principal balance of this Note become a negative number. The maximum downward earn-out adjustment to the principal balance will be to zero. There are no limits to the increases to the principal balance of the Note as a result of the earn-out adjustments.

The contingent consideration promissory 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 this Note at its estimated fair value of $350,000 at the acquisition date. Management will continue to estimate the fair value of this Note at each reporting date with the change, if any recorded as a gain or loss in the statement of operations during the relevant period.

~~Medical Billing Company~~ ~~Contingent Consideration Promissory Note Payable.~~

On August 31, 2021, Nobility Healthcare issued a contingent consideration promissory note (the “Contingent Note”) in connection with the Stock Purchase Agreement between Nobility and a private medical billing company of $650,000. The Contingent Note has a three-year term and bears interest at a rate of 3.00% per annum. Quarterly principal and interest payments are deferred for six months and is due in equal quarterly installments on the seventh business day of each quarter. The principal amount of the Contingent Note is subject to an earn-out adjustment, being the difference between the $3,000,000 (the “Contingent Note Projected Revenue”) and the cash basis revenue (the “Contingent Note Measurement Period Revenue”) collected by the Seller 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 “Contingent Note Measurement Period”) measured on a quarterly basis and annualized as of the relevant period. If the Contingent Note Measurement Period Revenue is less than the Contingent Note Projected Revenue, such amount will be subtracted from the principal balance of this Contingent Note on a dollar-for-dollar basis. If the Contingent Note Measurement Period Revenue is more than the Contingent Note Projected Revenue, such amount will be added to the principal balance of this Contingent Note on a dollar-for-dollar basis. In no event will the principal balance of this Contingent Note become a negative number. The maximum downward earn-out adjustment to the principal balance will be to zero. There are no limits to the increases to the principal balance of the Contingent Note as a result of the earn-out adjustments.

The contingent consideration promissory 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 this Contingent Note at its estimated fair value of $650,000 at the acquisition date. Management will continue to estimate the fair value of this Contingent Note at each reporting date with the change, if any recorded as a gain or loss in the statement of operations during the relevant period.

~~TicketSmarter Contingent Consideration Earn-Out Agreement~~

On September 1, 2021, TicketSmarter issued a contingent consideration ern-out agreement (the “TicketSmarter Earn-Out”) in connection with the Stock Purchase Agreement between TicketSmarter, Inc., Goody Tickets, LLC and TicketSmarter, LLC of $4,244,400. The TicketSmarter Earn-Out, if earned, will be payable with ninety percent (90%) readily available funds and ten percent (10%) in stock consideration. The amount of the TicketSmarter Earn-Out is subject to an earn-out adjustment, being the difference between the $2,896,829 (the “Projected EBITDA”) and the actual EBITDA the “Measurement Period EBITDA”) generated by TicketSmarter in its normal course of business, during the period from September 1, 2021 through December 31, 2021. If the Measurement Period EBITDA is less than seventy percent (70%) of the Projected EBITDA, there will be zero contingent payment. If the Measurement Period EBITDA is between seventy percent (70%) and one hundred percent (100%) of the Projected EBITDA, then a fractional amount of the contingent payment will be paid out. If the Measurement Period EBITDA is more than the Projected EBITDA, the full balance of this TicketSmarter Earn-Out will be paid out. In no event will the principal balance of this TicketSmarter Earn-Out become a negative number. The maximum downward earn-out adjustment to the principal balance will reduce the TicketSmarter Earn-Out balance to zero.

The contingent consideration earn-out is considered to be additional purchase price, therefore the estimated fair value of the contingent liability is recorded as a liability at the acquisition date and the fair value is considered part of the consideration paid for the acquisition. Management has recorded the TicketSmarter Earn-Out at its estimated fair value of $4,244,400 at the acquisition date. Management will continue to estimate the fair value of this TicketSmarter Earn-Out at each reporting date with the change, if any recorded as a gain or loss in the statement of operations during the relevant period.

Critical Accounting ~~Policies and~~ Estimates

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

	●	Revenue Recognition / Allowance for Doubtful Accounts;

	●	Allowance for Excess and Obsolete Inventory;

	●	Goodwill and other intangible assets;

	●	Warranty Reserves;

	●	~~Goodwill impairment~~
	●	Fair value of warrant derivative liabilities;

	●	Stock-based Compensation Expense;

	●	Fair value of warrants;

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

	●	Accounting for Income Taxes.

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

	(i)	Identify the contract with the customer;

	(ii)	Identify the performance obligations in the contract;

	(iii)	Determine the transaction price;

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

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

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

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

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

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

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

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

Revenue for our ticketing segment is recorded on a gross or net basis based on management’s assessment of whether we are acting as a principal or agent in the transaction. The determination is based upon the evaluation of control over the event ticket, including the right to sell the ticket, prior to its transfer to the ticket buyer.

We sell our tickets held in inventory, which consists of one performance obligation, being to transfer control of an event ticket to the buyer upon confirmation of the order. We act as the principal in these transactions as we own the ticket at the time of sale, therefore we control the ticket prior to transferring to the customer. In these transactions, revenue is recorded on a gross basis based on the value of the ticket and is recognized when an order is confirmed. Payment is typically due upon delivery of the ticket.

We also act as an intermediary between buyers and sellers through the online secondary marketplace. Revenues derived from this marketplace primarily consist of service fees from ticketing operations, and consists of one primary performance obligation, which is facilitating the transaction between the buyer and seller, being satisfied at the time the order has been confirmed. As we do not control the ticket prior to the transfer, we act as an agent in these transactions. Revenue is recognized on a net basis, net of the amount due to the seller when an order is confirmed, the seller is then obligated to deliver the tickets to the buyer per the seller’s listing. Payment is due at the time of sale.

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

~~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 have commercial customers and international distributors that present a greater risk for uncollectible accounts than such law enforcement customers and we consider a specific reserve for bad debts based on their individual circumstances. Our historical bad debts have been negligible, with less than $258,000 charged off as uncollectible on cumulative revenues of ~~$246.1~~$248.0 million since we commenced deliveries during 2006. ~~As of September 30, 2021, and December 31, 2020, we had provided a reserve for doubtful accounts of $123,224 and $123,224, respectively.~~

~~We periodically perform~~For our ticketing segment, our customers are mainly online visitors that pay at the time of the transaction, and we collect the service fees charged with the transaction. Thus, leading to minimal risk for uncollectible accounts, to which we then consider a specific ~~review of significant individual receivables outstanding for risk of loss due to uncollectability. Based on such review, we consider our~~ reserve ~~for doubtful accounts to be adequate as of September 30, 2021. 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 bad debt expense in our statement of operations.~~assess appropriate reserves.

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

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

Inventories consisted of the following at ~~September 30, 2021~~March 31, 2022 and ~~2020:~~December 31, 2021:

September 30, 2021
December 31, 2020

Raw material and component parts $ 3,068,418 $ 3,186,426
Work-in-process 15,506 1,908
Finished goods 10,827,344 6,974,291

Subtotal 13,911,268 10,162,625
Reserve for excess and obsolete inventory (2,300,019 ) (1,960,351 )

Total inventories $ 11,611,249 $ 8,202,274

	March 31, 2022			December 31, 2021
Raw material and component parts– video solutions segment	$	3,839,796		$	3,062,046
Work-in-process– video solutions segment		56			—
Finished goods – video solutions segment		7,990,526			8,410,307
Finished goods – ticketing segment		1,472,002			2,102,272
Subtotal		13,302,380			13,574,625
Reserve for excess and obsolete inventory– video solutions segment		(3,334,829	)		(3,353,458	)
Reserve for excess and obsolete inventory – ticketing segment		(561,631	)		(561,631	)
Total inventories	$	9,405,920		$	9,659,536

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 ~~16.5%~~29.3% of the gross inventory balance at ~~September 30, 2021,~~March 31, 2022, compared to ~~19.3%~~28.8% of the gross inventory balance at December 31, ~~2020.~~2021. We had ~~$2,300,019~~$3,896,460 and ~~$1,960,351~~$3,915,089 in reserves for obsolete and excess inventories at ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively. Total raw materials and component parts were ~~$3,068,418and $3,186,426~~$3,839,796 and $3,062,046 at ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively, ~~a decrease~~an increase of ~~$118,008 (4%~~$777,750 (25%). Finished goods balances were ~~$10,827,344~~$9,462,528 and ~~$6,974,291~~$10,512,579 at ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively, ~~an increase~~a decrease of ~~$3,853,053 (55%~~$1,050,051 (10%). The ~~increase~~decrease in finished goods was primarily attributable to ~~the TicketSmarter acquisition, which increased our finished goods~~a reduction in ticketing inventory ~~by $1,981,481 in ticket inventory. Additionally, the increase can also be attributed~~of $630,270 at March 31, 2022 compared to ~~accumulating inventory for the new and expanding product lines.~~December 31, 2021. The slight ~~increase~~decrease in the inventory reserve is primarily due to ~~scrapping of older version inventory component parts~~the reduction in finished goods that ~~were mostly or fully reserved during the three months ended September 30, 2021.~~had a reserve placed on them prior to sale. The remaining reserve for inventory obsolescence is generally provided for the level of component parts of the older versions of our ~~PCB~~printed circuit boards and the phase out of our DVM-750, DVM-500 Plus and LaserAlly legacy products. Additionally, the Company determined a reasonable reserve for inventory held at the ticket operating segment, in which some inventory items sell below cost or go unsold, thus having to be fully written-off following the event date. We believe the reserves are appropriate given our inventory levels at ~~September 30, 2021.~~March 31, 2022.

If actual future demand or market conditions are less favorable than those projected by management or 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 charges or other changes in our business segments; competitive pressures and changes in the general economy or in the markets in which we operate; and a significant decline in our stock price and our market capitalization relative to our net book value.

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

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

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

Warranty Reserves. We generally provide up to a two-year parts and labor standard warranty on our products to our customers. Provisions for estimated expenses related to product warranties are made at the time products are sold. These estimates are established using historical information on the nature, frequency, and average cost of claims. We actively study trends of claims and take action to improve product quality and minimize claims. Our warranty reserves were decreased to ~~$14,278~~$10,582 as of ~~September 30, 2021~~March 31, 2022 compared to ~~$31,845~~$13,742 as of December 31, ~~2020~~2021 as we begin to slow our warranty exposures through the roll-off of DVM-750 and DVM-800 units from warranty coverage. Standard warranty exposure on the DVM-800 and DVM-250plus are the responsibility of the contract manufacturers which reduced our overall warranty exposure as these are very popular products in our line. There is a risk that we will have higher warranty claim frequency rates and average cost of claims than our history has indicated on our legacy mirror products on our new products for which we have limited experience. Actual experience could differ from the amounts estimated requiring adjustments to these liabilities in future periods.

~~Goodwill Impairment -~~ ~~In connection with acquisitions, we apply the provisions of ASC 805,~~ ~~Business Combinations~~~~, using the acquisition method of accounting. The excess purchase price over the fair value of net tangible assets and identifiable intangible assets acquired is recorded as goodwill.~~

~~The Company has just recently completed several acquisitions that generated goodwill that will be subject to impairment testing for the first time on December 31, 2021. In accordance with ASC 350,~~ ~~Intangibles - Goodwill and Other~~~~, we will assess goodwill for impairment annually as of December 31, and more frequently if events and circumstances indicate that goodwill might be impaired.~~

Goodwill impairment testing will be performed at the reporting unit level. Goodwill is assigned to reporting units at the date the goodwill is initially recorded. Once goodwill has been assigned to reporting units, it no longer retains its association with a particular acquisition, and all of the activities within a reporting unit, whether acquired or internally generated, are available to support the value of the goodwill.

Given the changing dynamics of our medical billing and ticket marketplace customers and the uncertainties regarding the effect on our business, there can be no assurance that the estimates and assumptions made for purposes of our goodwill impairment testing in 2021 will prove to be accurate predictions of the future. If our assumptions, including forecasted EBITDA of certain reporting units, are not achieved, we may be required to record additional goodwill impairment charges in future periods, whether in connection with our next annual impairment testing in the fourth quarter of 2021, or on an interim basis, if any such change constitutes a triggering event (as defined under ASC 350, ~~Intangibles - Goodwill and Other~~) outside of the quarter when we regularly perform our annual goodwill impairment test. It is not possible at this time to determine if any such future impairment charge would result or, if it does, whether such charge would be material.

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.

	Issuance date assumptions			September 30, 2021 assumptions			Issuance date assumptions			March 31, 2022 assumptions
Volatility - range		106.6 – 166.6	%		105.2	%		106.6 – 166.6	%		104.1	%
Risk-free rate		0.08 - 0.49	%		0.98	%		0.08 – 0.49	%		2.42	%
Dividend		0	%		0	%		0	%		0	%
Remaining contractual term		0.01 - 5 years			4.3 - 5 years			0.01 – 5 years			3.8 – 4.5 years
Exercise price	$	2.80 - 3.25		$	3.25		$	2.80 - 3.25		$	3.25
Common stock issuable under the warrants		42,550,000			24,300,000			42,550,000			24,300,000

During the nine months ended September 30, 2021, holders of pre-funded warrants exercised a total of 18,250,000 warrants which were fair valued at $1,817,549 at their date of issuance and recorded as a derivative warrant liability. On the date of exercise such pre-funded warrants were fair valued at zero, which was transitioned to permanent equity during the nine months ended September 30, 2021. The Company reported the $1,817,549 change in fair value from their issuance date to their exercise date in the condensed statements of operations as the change in fair value of warrant derivative liabilities.

Stock-based Compensation Expense. We grant stock options to our employees and directors and such benefits provided are share-based payment awards which require us to make significant estimates related to determining the value of our share-based compensation. Our expected stock-price volatility assumption is based on historical volatilities of the underlying stock that are obtained from public data sources and there were no25,000 stock options granted during the ~~nine~~three months ended ~~September 30, 2021.~~March 31, 2022.

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

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

As required by authoritative guidance, we record deferred tax assets or liabilities based on differences between financial reporting and tax bases of assets and liabilities using currently enacted rates that will be in effect when the differences are expected to reverse. Authoritative guidance also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that all or some portion of the deferred tax asset will not be realized. As of March 31, 2022, we have fully reserved all of our deferred tax assets. Based on a review of our deferred tax assets and recent operating performance, we determined that our valuation allowance should be decreased by $7,615,000 to a balance of $16,980,000 to fully reserve our deferred tax assets at December 31, ~~2020, cumulative valuation allowances in the amount of $24,595,000 were recorded in connection with the net deferred income tax assets.~~2021. We determined that it was appropriate to continue to provide a full valuation reserve on our net deferred tax assets as of ~~December~~March 31, ~~2020~~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 ~~December~~March 31, ~~2020~~2022 representing uncertain tax positions.

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

Inflation and Seasonality

Inflation has not materially affected us during the past fiscal year. We do not believe that our Video Solutions and Revenue Cycle Management segments business is seasonal in ~~nature; however, we usually~~nature, however; the Ticketing Segment is expected to generate higher revenues during the second half of the calendar year than in the first half.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

Not Applicable.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures, as such terms are defined in Rules 13a-15(e) under the Exchange 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 ~~quarterly report on Form 10-Q.~~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, 2021~~March 31, 2022 to provide reasonable assurance that material information required to be disclosed by the Company in this ~~quarterly report on Form 10-Q~~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.

Changes in Internal Control over Financial Reporting

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.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

The information regarding certain legal proceedings in which we are involved as set forth in Note ~~9 –Contingencies~~11 – Contingencies of the Notes to the Condensed Consolidated Financial Statements (Part I, Item 1 of this Quarterly Report on Form 10-Q) is 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 in the normal course of our businesses. At this time, we do not believe any material losses under such other claims and proceedings to be probable. While the ultimate outcome of such claims or legal proceedings cannot be predicted with certainty, it is in the opinion of management, after consultation with legal counsel, that the final outcome in such proceedings, in the aggregate, would not have a material adverse effect on our consolidated financial condition, results of operations or cash flows.

Item 1A. Risk ~~Factors~~Factors.

As a smaller reporting company, we are not required to provide the information required by this Item.

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

Purchases of Equity Securities by the Issuer

~~Pursuant to a securities purchase agreement, dated as~~

On December 6, 2021, the board of ~~January 27, 2021, by and between~~directors of the Company ~~and certain investors~~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 ~~“Purchase Agreement”~~“Program”),. During the three months ended March 31, 2022, the Company ~~issued~~repurchased 1,876,034 shares of its common stock ~~purchase warrants to such investors on February 1, 2021 (the “February Warrants”), which were initially issued and included~~ for ~~registration, along~~$2,063,768, in accordance with the ~~shares of Common Stock underlying such February Warrants and certain other securities, in a registered direct offering by~~Program. The Program does not obligate the Company ~~pursuant~~ to a prospectus supplement, dated January 27, 2021 (the “January 27th Prospectus Supplement”) to the Company’s effective registration statement on Form S-3 (File No. 333-239419), which was initially filedacquire any specific number of shares and shares may be repurchased in privately negotiated and/or open market transactions, including under plans complying with the U.S. Securities and Exchange Commission (the “SEC”) on June 25, 2020, and was declared effective on July 2, 2020 (the “Shelf Registration Statement”). On August 19, 2021, the Company cancelled February Warrants exercisable for up to 7,681,540 shares of Common Stock in consideration for its issuance of the Warrants to the investors. The Company also filed a supplement to the Prospectus Supplement removing the cancelled February Warrants and the shares of Common Stock exercisable thereunder from registrationRule 10b5-1 under the Shelf Registration Statement in order to provide additional availability for the issuance of securities under the Shelf Registration Statement. The Warrants were issued pursuant an exemption from registration under Section 4(a)(2) of the Securities Exchange Act of ~~1933,~~1934, as amended (the ~~“Securities~~“Exchange Act”) ~~because the investors had a pre-existing relationship with the Company, there was no general solicitation made, and the investors represented their sophistication.~~.

Period	Total Number of Shares Purchased		Average Price Paid per Shares		Total Number of Shares Purchased as Part of Publicly Announced Program		Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program
January 2022		697,093		1.11		697,093		—
February 2022		692,984		1.12		692,984		—
March 2022		485,957		1.06		485,957		—
Total all plans		1,876,034	$	1.10		1,876,034	$	5,961,153

On September 2, 2021, the Company, and TicketSmarter, LLC (“TicketSmarter”) on behalf of itself and its wholly owned subsidiary Goody Tickets, LLC, and members of TicketSmarter (“Sellers”), entered into a Unit Purchase Agreement (the “UPA”), pursuant to which, the Company purchased all of the issued and outstanding membership interests of TicketSmarter, for aggregate consideration of approximately $14.1 million,(subject to adjustment) including cash of approximately $8.9 million and 719,738 shares of Company common stock with a value of approximately $990,360, which consideration was paid at closing. Such consideration includes up to approximately $4.2 million structured as contingent payment (the “Contingent Payment”) in additional cash and shares of Common Stock if TicketSmarter achieves certain EBITDA milestones prior to March 31, 2022, as set forth in the UPA.

The UPA contains customary representations and warranties and covenants. The closing of the UPA and the acquisition also occurred on September 2, 2021. Mr. Jeffrey Goodman and Mr. Michael Goodman, will be employed by Digital TicketSmarter as Chief Executive Officer and Chief Operations Officer, respectively, and they each executed certain restricted stock grant agreements with the Company (collectively, the “Restricted Stock Grant Agreements”), whereby the Company issued 100,000 restricted shares of Common Stock and 50,000 shares of Common Stock to Mr. Jeffrey Goodman and Mr. Michael Goodman, respectively, subject to the terms and provisions of the Company’s 2020 Stock Option and Restricted Stock Plan. The restricted shares of Common Stock were valued based on the closing price of the Common Stock on the Nasdaq Stock Market on the day of grant. The restricted shares of Common Stock will vest in equal installments over a five-year period beginning on the first anniversary date each recipient began employment.

The issuance of the 719,738 restricted common shares and the total issuance of the 150,000 restricted common shares to Jefferey Goodman and Michael Goodman were issued pursuant to an exemption from registration under Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”) because Jefferey Goodman and Michael Goodman had a pre-existing relationship with the Company, there was no general solicitation made, and the investors represented their sophistication. Furthermore, the creditor made representations that the securities issued to extinguish the obligations were taken for investment purposes and not with a view to resale.

Item 3. Defaults upon Senior Securities.

Not applicable.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

Not applicable.

Item 6. Exhibits.

(a) Exhibits.

~~Exhibit Number~~		~~Description~~
~~4.1~~		~~Form of Common Stock Purchase Warrant (Exchange Warrant). (Incorporated by reference to the Company’s Current Report on Form 8-K filed August 19, 2021.)~~

~~4.2~~		~~Form of Common Stock Purchase Warrant (Replacement Original Warrant). (Incorporated by reference to the Company’s Current Report on Form 8-K filed August 19, 2021.)~~

~~10.1~~		~~Warrant Exchange Agreement, dated August 19, 2021, among Digital Ally, Inc. and the warrant holders who are signatories thereto. (Incorporated by reference to the Company’s Current Report on Form 8-K filed August 19, 2021.)~~

~~10.2~~		~~Unit Purchase Agreement, dated September 2, 2021. (Incorporated by reference to the Company’s Current Report on Form 8-K filed September 9, 2021.)~~

31.1		Certificate of Stanton E. Ross pursuant to Rule 13a-14(a) under the Securities and Exchange Act of 1934, as amended.

~~31.2~~	31.2	Certificate of Thomas J. Heckman pursuant to Rule 13a-14(a) under the Securities and Exchange Act of 1934, as amended.

~~32.1~~	32.1	Certificate of Stanton E. Ross pursuant to Rule 13a-14(b) under the Securities and Exchange Act of 1934, as amended.

~~32.2~~	32.2	Certificate of Thomas J. Heckman pursuant to Rule 13a-14(b) under the Securities and Exchange Act of 1934, as amended.

~~99.1~~		~~Press release of the Company entitled “Digital Ally Announces Acquisition of Growing National Event Ticket Marketplace” dated September 8, 2021.(Incorporated by reference to the Company’s Current Report on Form 8-K filed September 9, 2021.)~~

101.INS		Inline XBRL Instance ~~Document.~~Document

~~101.SCH~~	101.SCH	Inline XBRL ~~Taxonomy Extension~~ Schema ~~Document. (Filed herewith.)~~Document

~~101.CAL~~	101.CAL	Inline XBRL ~~Taxonomy Extension~~ Calculation Linkbase ~~Document. (Filed herewith.)~~Document

~~101.DEF~~	101.DEF	Inline XBRL ~~Taxonomy Extension~~ Definition Linkbase ~~Document. (Filed herewith.)~~Document

~~101.LAB~~	101.LAB	Inline XBRL ~~Taxonomy Extension~~ Label Linkbase ~~Document. (Filed herewith.)~~Document

~~101.PRE~~	101.PRE	Inline XBRL ~~Taxonomy Extension~~ Presentation Linkbase ~~Document. (Filed herewith.)~~Document

~~104~~	104	Cover Page Interactive Data File ~~(embedded~~(Embedded within the Inline XBRL ~~document)~~document and included in Exhibit)

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

Signatures

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.

Date: ~~November 19, 2021~~May 20, 2022

	DIGITAL ALLY, INC.,

	By:	/s/ Stanton E. Ross
	Name:	Stanton E. Ross
	Title:	President and Chief Executive Officer

	By:	/s/ Thomas J. Heckman
	Name:	Thomas J. Heckman
	Title:	Chief Financial Officer, Secretary and Treasurer (Principal Financial and ~~Principal~~ Accounting ~~Officer~~Officer)


	Common Stock						Additional Paid In			Treasury			Noncontrolling interest in consolidated			Accumulated			Total Stockholders’ Equity
	Shares			Amount			Capital			stock			subsidiary			deficit			(Deficit)
Balance, December 31, 2019		12,079,095		$	12,079		$	83,216,387		$	(2,157,226	)	$	—		$	(87,388,619	)	$	(6,317,379	)
Stock-based compensation		—			—			311,677			—			—			—			311,677
Restricted common stock grant		530,050			530			(530	)		—			—			—			—
Issuance of common stock for services rendered
Issuance of common stock for services rendered, shares
Restricted common stock forfeitures		(22,500	)		(23	)		23			—			—			—			—
Issuance of common stock through registered direct offering at $3.095 per share and accompanying warrants (net of offering expenses and placement agent discount)
Issuance of common stock through registered direct offering at $3.095 per share and accompanying warrants (net of offering expenses and placement agent discount) , shares
Issuance of common stock through registered direct offering at $2.80 per share and accompanying warrants (net of offering expenses and placement agent discount)
Issuance of common stock through registered direct offering at $2.80 per share and accompanying warrants (net of offering expenses and placement agent discount) , shares
Exercise of pre-funded common stock purchase warrants at $3.095 per share
Exercise of pre-funded common stock purchase warrants at $3.095 per share , shares
Exercise of pre-funded common stock purchase warrants at $2.80 per share
Exercise of pre-funded common stock purchase warrants at $2.80 per share , shares
Issuance of pre-funded common stock purchase warrants in connection with the registered direct offerings
Issuance of common stock purchase warrants at exercise price of $3.25 per share in connection with the registered direct offerings
Issuance of common stock upon conversion of secured convertible notes and interest		959,543			960			1,342,400			—			—			—			1,343,360
Issuance of common stock through underwritten public offering at $2.15 per share (net of offering expenses and underwriters’ discount)
Issuance of common stock through underwritten public offering at $2.15 per share (net of offering expenses and underwriters’ discount) , shares
Issuance of common stock upon exercise of common stock purchase warrants
Issuance of common stock upon exercise of common stock purchase warrants, shares
Issuance of common stock upon exercise of stock options
Issuance of common stock upon exercise of stock options, shares
Issuance of common stock purchase warrants in connection with issuance of secured convertible notes
Issuance of common stock as compensation for acquisition
Issuance of common stock as compensation for acquisition, shares
Issuance of common stock through underwritten public offering at $1.15 per share (net of offering expenses and underwriters’ discount)		2,521,740			2,522			2,499,614			—			—			—			2,502,136
Issuance of common stock purchase warrants in connection with issuance of unsecured promissory note payable		—			—			20,806			—			—			—			20,806
Net loss		—			—			—			—			—			(2,334,110	)		(2,334,110	)

Balance, March 31, 2020		16,067,928			16,068			87,390,377			(2,157,226	)		—			(89,722,729	)		(4,473,510	)

Stock-based compensation		—			—			376,738			—			—			—			376,738
Restricted common stock grant		135,450			135			(135	)		—			—			—			—
Restricted common stock forfeitures		(12,750	)		(13	)		13			—			—			—			—
Issuance of common stock upon conversion of secured convertible notes and interest		1,664,669			1,665			1,679,660			—			—			—			1,681,325
Issuance of common stock through underwritten public offering at $1.65 per share (net of offering expenses and underwriters’ discount)		3,554,545			3,554			5,346,859			—			—			—			5,350,413
Issuance of common stock through underwritten public offering (net of offering expenses and underwriters’ discount)		3,554,545			3,554			5,346,859			—						—			5,350,413
Issuance of common stock through underwritten public offering at $2.15 per share (net of offering expenses and underwriters’ discount)		2,539,534			2,540			4,974,152			—			—			—			4,976,692
Issuance of common stock through underwritten public offering (net of offering expenses and underwriters’ discount)		2,539,534			2,540			4,974,152			—						—			4,976,692
Issuance of common stock upon exercise of common stock purchase warrants		2,693,867			2,694			5,200,428			—			—			—			5,203,122
Issuance of common stock upon exercise of stock options		1,875			2			7,798												7,800
Issuance of common stock purchase warrants in connection with issuance of secured convertible notes		—			—			721,141			—			—			—			721,141

Net loss		—			—			—			—			—			(497,894	)		(497,894	)

Balance, June 30, 2020		26,645,118			26,645			105,697,031			(2,157,226	)		—			(90,220,623	)		13,345,827

Stock-based compensation		—			—			498,356			—			—			—			498,356
Restricted common stock grant		181,091			181			(181	)		—			—			—			—
Issuance of common stock for services rendered		10,000			10			30,690			—			—			—			30,700
Net income		—			—			—			—			—			527,442			527,442

Balance, September 30, 2020		26,836,209		$	26,836		$	106,225,896		$	(2,157,226	)	$	—		$	(89,693,181	)	$	14,402,325

Balance, December 31, 2020		26,834,709		$	26,835		$	106,501,396		$	(2,157,226	)	$	—		$	(90,014,500	)	$	14,356,505
Stock-based compensation		—			—			326,164			—			—			—			326,164
Restricted common stock grant		450,000			450			(450	)		—			—			—			—
Restricted common stock forfeitures		(7,500	)		(8	)		8			—			—			—			—
Issuance of common stock through registered direct offering at $3.095 per share and accompanying warrants (net of offering expenses and placement agent discount)		2,800,000			2,800			6,726,200			—			—			—			6,729,000
Issuance of common stock through registered direct offering at $2.80 per share and accompanying warrants (net of offering expenses and placement agent discount)		3,250,000			3,250			6,614,350			—			—			—			6,617,600
Exercise of pre-funded common stock purchase warrants at $3.095 per share		7,200,000			7,200			22,276,800			—			—			—			22,284,000
Exercise of pre-funded common stock purchase warrants		7,200,000			7,200			22,276,800			—						—			22,284,000
Exercise of pre-funded common stock purchase warrants at $2.80 per share		11,050,000			11,050			30,928,950			—			—			—			30,940,000
Exercise of pre-funded common stock purchase warrants		11,050,000			11,050			30,928,950			—						—			30,940,000
Issuance of pre-funded common stock purchase warrants in connection with the registered direct offerings		—			—			(1,817,548	)		—			—			—			(1,817,548	)
Issuance of common stock purchase warrants at exercise price of $3.25 per share in connection with the registered direct offerings		—			—			(49,398,510	)		—			—			—			(49,398,510	)
Issuance of common stock purchase warrants at exercise price in connection with the registered direct offerings		—			—			(49,398,510	)		—						—			(49,398,510	)
Net income		—			—			—			—			—			21,721,858			21,721,858

Balance, March 31, 2021		51,577,209			51,577			122,157,360			(2,157,226	)		—			(68,292,642	)		51,759,069

Stock-based compensation		—			—			330,213			—			—			—			330,213
Net loss		—			—			—			—			—			(5,382,487	)		(5,382,487	)

Balance, June 30, 2021		51,577,209			51,577			122,487,573			(2,157,226	)		—			(73,675,129	)		46,706,795

Issuance of common stock through registered direct offering and accompanying warrants (net of offering expenses and placement agent discount)		-			-			-			—						—			-
Issuance of common stock through registered direct offering accompanying warrants (net of offering expenses and placement agent discount)		-			-			-			—						—			-
Stock-based compensation		—			—			491,950			—			—			—			491,950
Issuance of common stock as consideration for acquisition		719,738			720			989,640						—						990,360
Restricted common stock grant		406,000			406			(406	)					—
Net income		—			—			—			—			(19,863	)		8,068,799			8,048,936
Net income		—			—			—			—			(19,863	)		8,068,799			8,048,936

Balance, September 30, 2021		52,702,947		$	52,703		$	123,968,757		$	(2,157,226	)	$	(19,863	)	$	(65,606,330	)	$	56,238,041

	September 30, 2021			December 31, 2020
Raw material and component parts	$	3,068,418		$	3,186,426
Work-in-process		15,506			1,908
Finished goods		10,827,344			6,974,291

Subtotal		13,911,268			10,162,625
Reserve for excess and obsolete inventory		(2,300,019	)		(1,960,351	)

Total	$	11,611,249		$	8,202,274

	September 30, 2021						December 31, 2020
	Gross value		Accumulated amortization		Net carrying value		Gross value		Accumulated amortization		Net carrying value
Amortized intangible assets:
Licenses	$	331,252	$	61,668	$	278,324	$	104,099	$	52,872	$	51,227
Patents and Trademarks		444,636		188,111		247,785		264,490		135,236		129,254

		775,888		249,779		526,109		368,589		188,108		180,481

Unamortized intangible assets:
Goodwill		15,884,308		—		15,884,308		—		—		—
Patents and trademarks pending		44,529		—		44,529		212,083		—		212,083

Total	$	16,704,725	$	249,779	$	16,454,946	$	580,672	$	188,108	$	392,564

		Outstanding options				Exercisable options
Exercise price range		Number of options		Weighted average remaining contractual life		Number of options		Weighted average remaining contractual life

$	0.01 to $2.49		715,000		8.8 years		490,000		8.4 years
$	2.50 to $3.49		310,313		6.6 years		310,313		6.6 years
$	3.50 to $4.49		45,750		3.4 years		45,750		3.4 years
$	4.50 to $6.99		15,000		0.3 years		15,000		0.3 years
$	7.00 to $9.52		5,375		0.1 years		5,375		0.1 years

			1,091,438		7.8 years		866,438		7.3 years

	Issuance date assumptions			September 30, 2021 assumptions
Volatility - range		106.6 – 166.6	%		105.2	%
Risk-free rate		0.08 - 0.49	%		0.98	%
Dividend		0	%		0	%
Remaining contractual term		0.01 - 5 years			4.3 - 5 years
Exercise price	$	2.80 - 3.25		$	3.25
Common stock issuable under the warrants		42,550,000			24,300,000

	Warrants			Weighted average exercise price
Vested Balance, January 1, 2021		3,388,364		$	6.24
Granted		42,550,000			3.11
Exercised		(18,250,000	)		2.92
Cancelled		(879,766	)		13.43
Vested Balance, September 30, 2021		26,808,598		$	3.29

Description	Amount
Net proceeds received:
Proceeds from the sale of 3,250,000 shares of Common Stock at $2.80 per share	$	9,100,000
Proceeds from the sale of pre-funded warrants to purchase 11,050,000 shares of Common Stock at $2.79 per share		30,829,500
Less: Placement agent fees and other expenses of the offering		(2,482,400	)

Net proceeds of the offering	$	37,447,100

	September 30, 2021			June 30, 2021			March 31, 2021			December 31, 2020			September 30, 2020
Total revenue	$	4,639,822		$	2,493,671		$	2,535,829		$	2,798,291		$	3,558,640
Gross profit (loss)		1,400,570			1,260,800			811,882			1,182,160			1,222,648
Gross profit margin %		30.2	%		50.6	%		32.0	%		43.0	%		34.1	%
Total selling, general and administrative expenses		4,999,543			3,877,684			3,677,575			2,931,334			3,066,606
Operating loss		(3,598,973	)		(2,616,884	)		(2,865,693	)		(1,749,174	)		(1,843,958	)
Operating loss %		(77.6	)%		(105.0	)%		(113.0	)%		(63.2	)%		(51.4	)%
Net income (loss) attributable to common stockholders	$	8,068,799		$	(5,382,487	)	$	21,721,858		$	(321,318	)	$	527,442

	Three months ended September 30,
	2021			2020
DVM-800		11	%		21	%
ThermoVU/Shield		1	%		31	%
FirstVu HD		5	%		11	%
Cloud service revenue		6	%		6	%
Extended warranty revenue		6	%		—	%
EVO-HD		4	%		6	%
Repair and service		1	%		10	%
TicketSmarter sales		12	%		—	%
TicketSmarter TNP sales		33	%		—	%
Nobility Healthcare RCM		10	%		—	%
Nobility Healthcare credentialing and services		2	%		—	%
Accessories and other revenues		9	%		15	%

		100	%		100	%

	Three months ended September 30,
	2021		2020
Research and development expense	$	492,221	$	405,082
Selling, advertising and promotional expense		1,511,682		789,854
Professional fees and expense		142,726		118,344
Executive, sales, and administrative staff payroll		846,000		506,219
Other		2,006,914		1,247,107

Total	$	4,999,543	$	3,066,606

	Nine months ended September 30,
	2021			2020
DVM-800		18	%		25	%
ThermoVU/Shield		2	%		16	%
FirstVu HD		9	%		12	%
Cloud service revenue		8	%		9	%
Extended warranty revenue		8	%		—	%
EVO-HD		12	%		7	%
Repair and service		3	%		14	%
TicketSmarter sales		6	%		—	%
TicketSmarter TNP sales		16	%		—	%
Nobility Healthcare RCM		5	%		—	%
Nobility Healthcare credentialing and services		1	%		—	%
Accessories and other revenues		12	%		17	%
		100	%		100	%

Assets:
Operating lease right of use assets	$	1,109,463

Liabilities:
Operating lease obligations-Long-term portion	$	795,704
Operating lease obligations-Current portion		384,222
Total operating lease obligations	$	1,179,926