UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For
the quarterly period ended
or
For the transition period from ___________ to __________.
Commission
File Number:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
(Address of principal executive offices) (Zip Code)
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of exchange on which registered | ||
| The
|
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.
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).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of Exchange Act.
| Large accelerated filer ☐ | 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 May 17, 2024 | |
| Common Stock, $0.001 par value per share |
FORM 10-Q
DIGITAL ALLY, INC.
MARCH 31, 2024
| 2 |
PART I – FINANCIAL INFORMATION
Item 1 – Financial Statements.
DIGITAL ALLY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 2024 AND DECEMBER 31, 2023
| March 31, 2024 (Unaudited) | December 31, 2023 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable – trade, net of $ | ||||||||
| Other receivables, net of $ | ||||||||
| Inventories, net | ||||||||
| Prepaid expenses | ||||||||
| Total current assets | ||||||||
| Property, plant, and equipment, net | ||||||||
| Goodwill and other intangible assets, net | ||||||||
| Operating lease right of use assets, net | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Current portion of operating lease obligations | ||||||||
| Contract liabilities – current portion | ||||||||
| Notes payable – related party – current portion | ||||||||
| Debt obligations – current portion | ||||||||
| Warrant derivative liabilities | ||||||||
| Income taxes payable | ||||||||
| Total current liabilities | ||||||||
| Long-term liabilities: | ||||||||
| Debt obligations – long term | ||||||||
| Operating lease obligation – long term | ||||||||
| Contract liabilities – long term | ||||||||
| Lease Deposit | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Stockholders’ Equity: | ||||||||
| Common stock, $ par value per share; shares authorized; shares issued: shares issued – March 31, 2024 and shares issued – December 31, 2023 | ||||||||
| Additional paid in capital | ||||||||
| Noncontrolling interest in consolidated subsidiary | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
See Notes to the Unaudited Condensed Consolidated Financial Statements.
| 3 |
DIGITAL ALLY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED
MARCH 31, 2024 AND 2023
(Unaudited)
Three months ended March 31, 2024 | Three months ended March 31, 2023 | |||||||
| Revenue: | ||||||||
| Product | $ | $ | ||||||
| Service and other | ||||||||
| Total revenue | ||||||||
| Cost of revenue: | ||||||||
| Product | ||||||||
| Service and other | ||||||||
| Total cost of revenue | ||||||||
| Gross profit | ||||||||
| Selling, general and administrative expenses: | ||||||||
| Research and development expense | ||||||||
| Selling, advertising and promotional expense | ||||||||
| General and administrative expense | ||||||||
| Total selling, general and administrative expenses | ||||||||
| Operating loss | ( | ) | ( | ) | ||||
| Other income (expense): | ||||||||
| Interest income | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Other income | ||||||||
| Change in fair value of warrant derivative liabilities | ( | ) | ||||||
| Change in fair value of contingent consideration promissory notes and earn-out agreements | ||||||||
| Gain on extinguishment of liabilities | ||||||||
| Gain on sale of intangibles | ||||||||
| Loss on sale of property, plant and equipment | ( | ) | ||||||
| Total other income | ( | ) | ||||||
| Income (loss) before income tax benefit | ( | ) | ( | ) | ||||
| Income tax benefit | ||||||||
| Net loss | ( | ) | ( | ) | ||||
| Net (income) loss attributable to noncontrolling interests of consolidated subsidiary | ( | ) | ||||||
| Net loss attributable to common stockholders | $ | ( | ) | $ | ( | ) | ||
| Net loss per share information: | ||||||||
| Basic | $ | ( | ) | $ | ( | ) | ||
| Diluted | $ | ( | ) | $ | ( | ) | ||
| Weighted average shares outstanding: | ||||||||
| Basic | ||||||||
| Diluted | ||||||||
See Notes to the Unaudited Condensed Consolidated Financial Statements.
| 4 |
DIGITAL ALLY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023
(Unaudited)
| Common Stock | Additional Paid In | Noncontrolling interest in consolidated | Accumulated | |||||||||||||||||||||
| Shares | Amount | Capital | subsidiary | deficit | Total | |||||||||||||||||||
| Balance, December 31, 2022 | $ | $ | $ | ( | ) | $ | ||||||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||||||
| Restricted common stock grant | ( | ) | ||||||||||||||||||||||
| Issuance due to rounding from reverse stock split | ||||||||||||||||||||||||
| Net Income (loss) | — | ( | ) | ( | ) | |||||||||||||||||||
| Balance, March 31, 2023 | ( | ) | ||||||||||||||||||||||
| Balance, December 31, 2023 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||||||
| Restricted common stock grant | ( | ) | ||||||||||||||||||||||
| Restricted common stock forfeitures | ( | ) | ( | ) | ||||||||||||||||||||
| Net Income (loss) | — | ( | ) | ( | ) | ( | ) | |||||||||||||||||
| Balance, March 31, 2024 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
See Notes to the Unaudited Condensed Consolidated Financial Statements.
| 5 |
DIGITAL ALLY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2024 AND 2023
(Unaudited)
Three months ended March 31, 2024 | Three months ended March 31, 2023 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash flows used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Loss on sale of property, plant and equipment | ||||||||
| Gain on sale of intangible | ( | ) | ||||||
| Stock-based compensation | ||||||||
| Amortization of debt issuance costs | ||||||||
| Gain on extinguishment of liabilities | ( | ) | ||||||
| Change in fair value of warrant derivative liabilities | ||||||||
| Provision for inventory obsolescence | ( | ) | ||||||
| Provision for doubtful accounts receivable | ||||||||
| Provision for doubtful lease receivable | ||||||||
| Change in fair value of contingent consideration promissory note | ( | ) | ||||||
| Change in operating assets and liabilities (net of assets and liabilities acquired): | ||||||||
| (Increase) decrease in: | ||||||||
| Accounts receivable – trade | ( | ) | ||||||
| Other receivable | ( | ) | ||||||
| Inventories | ||||||||
| Prepaid expenses | ( | ) | ||||||
| Operating lease right of use assets | ||||||||
| Other assets | ( | ) | ||||||
| Increase (decrease) in: | ||||||||
| Accounts payable | ||||||||
| Accrued expenses | ( | ) | ( | ) | ||||
| Operating lease obligations | ( | ) | ( | ) | ||||
| Income taxes payable | ( | ) | ||||||
| Lease deposit | ||||||||
| Contract liabilities | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash Flows from Investing Activities: | ||||||||
| Purchases of furniture, fixtures and equipment | ( | ) | ( | ) | ||||
| Additions to intangible assets | ( | ) | ( | ) | ||||
| Cash paid for acquisition of Country Stampede | ( | ) | ||||||
| Proceeds from sale of intangible assets | ||||||||
| Proceeds from sale of property, plant and equipment | ||||||||
| Net cash provided by (used in) investing activities | ( | ) | ||||||
| Cash Flows from Financing Activities: | ||||||||
| Proceeds – Merchant Advances – Video Solutions Segment | ||||||||
| Proceeds – Merchant Advances – Entertainment Segment | ||||||||
| Proceeds – Commercial Extension of Credit – Entertainment Segment | ||||||||
| Payments on Commercial Extension of Credit – Entertainment Segment | ( | ) | ( | ) | ||||
| Payments on Merchant Advances – Video Solutions Segment | ( | ) | ||||||
| Principal payment on EIDL loan | ( | ) | ||||||
| Principal payment on contingent consideration promissory notes | ( | ) | ( | ) | ||||
| Net cash provided by financing activities | ||||||||
| Net increase (decrease) in cash, cash equivalents, and restricted cash | ( | ) | ||||||
| Cash, cash equivalents, and restricted cash, beginning of period | ||||||||
| Cash, cash equivalents, and restricted cash, end of period | $ | $ | ||||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash payments for interest | $ | $ | ||||||
| Supplemental disclosures of non-cash investing and financing activities: | ||||||||
| Restricted common stock grant | $ | $ | ||||||
| Restricted common stock forfeitures | $ | $ | ||||||
Adjustments of accounts payable with the sale proceeds of property, plant and equipment | $ | $ | ||||||
| Assets acquired in business acquisitions | $ | $ | ||||||
| Goodwill acquired in business acquisitions | $ | $ | ||||||
| Liabilities assumed in business acquisitions | $ | $ | ||||||
Amounts payable for Country Stampede acquisition | $ | $ | ||||||
| Commercial Extension of Credit repaid through accrued revenue – Entertainment Segment | $ | $ | ||||||
| ROU and lease liability recorded on extension (termination) of lease | $ | ( | ) | $ | ||||
See Notes to the Unaudited Condensed Consolidated Financial Statements.
| 6 |
DIGITAL ALLY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations:
Digital Ally, Inc. was originally incorporated in Nevada on December 13, 2000 as Vegas Petra, Inc. and had no operations until 2004. On November 30, 2004, Vegas Petra, Inc. entered into a Plan of Merger with Digital Ally, Inc., at which time the merged entity was renamed Digital Ally, Inc. (such merged entity, the “Predecessor Registrant”).
On August 23, 2022 (the “Effective Time”), the Predecessor Registrant merged with and into its wholly owned subsidiary, DGLY Subsidiary Inc., a Nevada corporation (the “Registrant”), pursuant to an agreement and plan of merger, dated as of August 23, 2022 (the “Merger Agreement”), between the Predecessor Registrant and the Registrant, with the Registrant as the surviving corporation in the merger (such transaction, the “Merger”). At the Effective Time, Articles of Merger were filed with the Secretary of State of the State of Nevada, pursuant to which the Registrant was renamed “Digital Ally, Inc.” and, by operation of law, succeeded to the assets, continued the business and assumed the rights and obligations of the Predecessor Registrant immediately prior to the Merger. Under the Nevada Revised Statutes, shareholder approval was not required in connection with the Merger Agreement or the transactions contemplated thereby.
At the Effective Time, pursuant to the Merger Agreement, (i) each outstanding share of Predecessor Registrant’s common stock, par value $ per share (the “Predecessor Common Stock”) automatically converted into one share of common stock, par value $ per share, of the Registrant (“Registrant Common Stock”), (ii) each outstanding option, right or warrant to acquire shares of Predecessor Common Stock converted into an option, right or warrant, as applicable, to acquire an equal number of shares of Registrant Common Stock under the same terms and conditions as the original options, rights or warrants, and (iii) the directors and executive officers of the Predecessor Registrant were appointed as directors and executive officers, as applicable, of the Registrant, each to serve in the same capacity and for the same term as such person served with the Predecessor Registrant immediately before the Merger.
The business of the Registrant, Digital Ally, Inc. (with its wholly-owned subsidiaries, Digital Ally International, Inc., Shield Products, LLC, Digital Ally Healthcare, LLC (“Digital Ally Healthcare”), TicketSmarter, Inc. (“TicketSmarter”), Worldwide Reinsurance, Ltd., Digital Connect, Inc., BirdVu Jets, Inc., Kustom 440, Inc. (“Kustom 440”), Kustom Entertainment, Inc., and its majority-owned subsidiary Nobility Healthcare, LLC, collectively, “Digital Ally,” “Digital,” and the “Company”), is divided into three reportable operating segments: 1) the Video Solutions Segment, 2) the Revenue Cycle Management Segment and 3) the Ticketing Segment. The Video Solutions Segment is our legacy business that produces digital video imaging, storage products, disinfectant and related safety products for use in law enforcement, security and commercial applications. This segment includes both service and product revenues through our subscription models offering cloud and warranty solutions, and hardware sales for video and health safety solutions. The Revenue Cycle Management Segment provides working capital and back-office services to a variety of healthcare organizations throughout the country, as a monthly service fee. The Entertainment Segment acts as an intermediary between ticket buyers and sellers within our secondary ticketing platform, ticketsmarter.com, and we also acquire tickets from primary sellers to then sell through various platforms. The accounting guidance on Segment Reporting establishes standards for reporting information regarding operating segments in annual financial statements and requires selected information of those segments to be presented in financial statements. Such required segment information is included in Note 18.
Reverse Stock Split
On
February 6, 2023, the Company filed a Certificate of Amendment to its Articles of Incorporation, as amended, with the Secretary of State
of the State of Nevada to effect a
| 7 |
Business Combination
In June 2023, the Company, entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Clover Leaf Capital Corp., a Delaware corporation (Nasdaq: CLOE) (“Clover Leaf”), CL Merger Sub, Inc., a Nevada corporation and a wholly owned subsidiary of Clover Leaf (“Merger Sub”), Yntegra Capital Investments LLC, a Delaware limited liability company, in the capacity as the representative from and after the Effective Time (as defined in the Merger Agreement) for the stockholders of Clover Leaf in accordance with the terms and conditions of the Merger Agreement, and Kustom Entertainment, Inc., a Nevada corporation, a wholly owned subsidiary of the Company, with a focus and mission to own and produce events, festivals, and entertainment alongside its evolving primary and secondary ticketing technologies (“Kustom”). Pursuant to the Merger Agreement, subject to the terms and conditions set forth therein upon the consummation of the transactions contemplated by the Merger Agreement (the “Closing”), Merger Sub will merge with and into Kustom, with Kustom continuing as the surviving corporation in the Merger and a wholly owned subsidiary of Clover Leaf. Upon the Closing which is subject to the approval of Clover Leaf’s shareholders and the satisfaction or waiver of certain other customary closing conditions, the common stock of the combined company is expected to be listed on the Nasdaq under a mutually agreed new ticker symbol that reflects the name “Kustom Entertainment”.
Basis of Presentation:
The unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month period ended March 31, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024.
The balance sheet at December 31, 2023 has been derived from the audited financial statements at that date, but does not include all the information and footnotes required by generally accepted accounting principles in the United States for complete financial statements.
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, 2023.
Liquidity and Going Concern
During the second quarter of 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. This update provided U.S. GAAP guidance on management’s responsibility in evaluating whether there is substantial doubt about a company’s ability to continue as a going concern and about related footnote disclosures. Under this standard, the Company is required to evaluate whether there is substantial doubt about its ability to continue as a going concern each reporting period, including interim periods. In evaluating the Company’s ability to continue as a going concern, management considered the conditions and events that could raise substantial doubt about the Company’s ability to continue as a going concern within 12 months after the Company’s financial statements were issued (May 15, 2023). Management considered the Company’s current financial condition and liquidity sources, including current funds available, forecasted future cash flows and the Company’s obligations due before May 15, 2024.
The
Company has experienced net losses and cash outflows from operating activities since inception. For the three months ended March 31,
2024, the Company had a net loss attributable to common stockholders of $
The Company has implemented an enhanced quality control program to detect and correct product issues before they result in significant rework expenditures affecting its gross margins and has seen progress in that regard. The Company has also implemented a marketing and advertisement reduction plan for its entertainment segment, which will focus on reducing and alleviating current obligations from its media marketing agreements and place a hold on entering into any new agreements. The Company believes that its quality control, cost-cutting initiatives, and new product introduction will eventually restore positive operating cash flows and profitability, although it can offer no assurances in this regard.
Management has evaluated the significance of the conditions described above in relation to the Company’s ability to meet its obligations and concluded that, without additional funding, the Company will not have sufficient funds to meet its obligations within one year from the date the unaudited condensed consolidated financial statements were issued.
Basis of Consolidation:
The accompanying financial statements include the consolidated accounts of Digital Ally, its wholly-owned subsidiaries, Digital Ally International, Inc., Shield Products, LLC, Digital Ally Healthcare, LLC, TicketSmarter, Inc., Worldwide Reinsurance, Ltd., Digital Connect, Inc., BirdVu Jets, Inc., Kustom 440, Inc., and its majority-owned subsidiary Nobility Healthcare, LLC. All intercompany balances and transactions have been eliminated during consolidation.
| 8 |
The Company formed Digital Ally International, Inc. during August 2009 to facilitate the export sales of its products. The Company formed Shield Products, LLC in May 2020 to facilitate the sales of its Shield™ line of disinfectant/cleanser products and ThermoVu™ line of temperature monitoring equipment. The Company formed Nobility Healthcare, LLC (“Nobility Healthcare”) in June 2021 to facilitate the operations of its revenue cycle management solutions and back-office services for healthcare organizations. The Company formed TicketSmarter, Inc. upon its acquisition of Goody Tickets, LLC and TicketSmarter, LLC, to facilitate its global ticketing operations. The Company formed Worldwide Reinsurance Ltd., which is a captive insurance company domiciled in Bermuda. It will provide primarily liability insurance coverage to the Company for which insurance may not be currently available or economically feasible in today’s insurance marketplace. The Company formed Kustom 440, Inc. in 2022 to create unique entertainment experiences directly for consumers, and Kustom Entertainment, Inc. in 2023 to serve as the participant in the Business Combination.
Fair Value of Financial Instruments:
The carrying amounts of financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and subordinated notes payable approximate fair value because of the short-term nature of these items.
Revenue Recognition:
The Company applies the provisions of Accounting Standards Codification (ASC) 606-10, Revenue from Contracts with Customers, and all related appropriate guidance. The Company recognizes revenue under the core principle to depict the transfer of control to its customers in an amount reflecting the consideration to which it expects to be entitled. In order to achieve that core principle, the Company applies the following five-step approach: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when a performance obligation is satisfied.
The Company has two different revenue streams, product and service, represented through its three segments. The Company reports all revenues on a gross basis, other than service revenues from the Company’s entertainment and revenue cycle management segments, Revenues generated by all segments are reported net of sales taxes.
Video Solutions
The Company considers customer purchase orders, which in some cases are governed by master sales agreements, to be the contracts with the customer. In situation where sales are to a distributor, the Company had concluded its contracts are with the distributor as the Company holds a contract bearing enforceable rights and obligations only with the distributor. As part of part of its consideration for the contract, the Company evaluates certain factors including the customers’ ability to pay (or credit risk). For each contract, the Company considers the promise to transfer products, each of which is distinct, to be the identified performance obligations. In determining the transaction price, the Company evaluates whether the price is subject to refund or adjustment to determine the net consideration to which it expects to be entitled. As the Company’s standard payment terms are less than one year, it has elected the practical expedient under ASC 606-10-32-18 to not assess whether a contract has a significant financing component. The Company allocates the transaction price to each distinct product based on its relative standalone selling price. The product price as specified on the purchase order is considered the standalone selling price as it is an observable input which depicts the price as if sold to a similar customer in similar circumstances. Revenue is recognized when control of the product is transferred to the customer (i.e. when the Company’s performance obligations is satisfied), which typically occurs at shipment. Further in determining whether control has been transferred, the Company considers if there is a present right to payment and legal title, along with risks and rewards of ownership having transferred to the customer. Customers do not have a right to return the product other than for warranty reasons for which they would only receive repair services or replacement products. The Company has also elected the practical expedient under ASC 340-40-25-4 to expense commissions for product sales when incurred as the amortization period of the commission asset the Company would have otherwise recognized is less than one year.
| 9 |
Service and other revenue is comprised of revenues from extended warranties, repair services, cloud revenue and software revenue. Revenue is recognized upon shipment of the product and acceptance of the service or materials by the end customer for repair services. Revenue for extended warranty, cloud service or other software-based products is over the term of the contract warranty or service period. A time-elapsed method is used to measure progress because the Company transfers control evenly over the contractual period. Accordingly, the fixed consideration related to these revenues is generally recognized on a straight-line basis over the contract term, as long as the other revenue recognition criteria have been met.
The Company’s multiple performance obligations may include future in-car or body-worn camera devices to be delivered at defined points within a multi-year contract, and in those arrangements, the Company allocates total arrangement consideration over the life of the multi-year contract to future deliverables using management’s best estimate of selling price.
Revenue Cycle Management
The Company reports revenue cycle management revenues on a net basis, as its primary source of revenue is its end-to-end service fees which is generally determined as a percentage of the invoice amounts collected. These service fees are reported as revenue monthly upon completion of the Company’s performance obligation to provide the agreed upon service.
Entertainment
The Company reports ticketing revenue on a gross or net basis based on management’s assessment of whether the Company is acting as a principal or agent in the transaction. The determination is based upon the evaluation of control over the event ticket, including the right to sell the ticket, prior to its transfer to the ticket buyer.
The Company sells tickets held in inventory, which consists of one performance obligation, being to transfer control of an event ticket to the buyer upon confirmation of the order. The Company acts as the principal in these transactions as the ticket is owned by the Company at the time of sale, therefore controlling the ticket prior to transferring to the customer. In these transactions, revenue is recorded on a gross basis based on the value of the ticket and is recognized when an order is confirmed. Payment is typically due upon delivery of the ticket.
The Company also acts as an intermediary between buyers and sellers through online secondary marketplace. Revenues derived from this marketplace primarily consist of service fees from ticketing operations, and consists of one primary performance obligation, which is facilitating the transaction between the buyer and seller, being satisfied at the time the order has been confirmed. As the Company does not control the ticket prior to the transfer, the Company acts as an agent in these transactions. Revenue is recognized on a net basis, net of the amount due to the seller when an order is confirmed, the seller is then obligated to deliver the tickets to the buyer per the seller’s listing. Payment is due at the time of sale.
Other
Contract
liabilities consist of deferred revenue and include payments received in advance of performance under the contract and are reported separately
as current liabilities and non-current liabilities in the Consolidated Balance Sheets. Such amounts consist of extended warranty contracts,
prepaid cloud services and prepaid installation services and are generally recognized as the respective performance obligations are satisfied.
During the three months ended March 31, 2024, the Company recognized revenue of $
| March 31, 2024 | ||||||||||||||||
| December 31, 2023 | Additions/Reclass | Recognized Revenue | March 31, 2024 | |||||||||||||
| Contract liabilities, current | $ | $ | $ | $ | ||||||||||||
| Contract liabilities, non-current | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
| March 31, 2023 | ||||||||||||||||
| December 31, 2022 | Additions/Reclass | Recognized Revenue | March 31, 2023 | |||||||||||||
| Contract liabilities, current | $ | $ | $ | $ | ||||||||||||
| Contract liabilities, non-current | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
| 10 |
Sales
returns and allowances aggregated $
Use of Estimates:
The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates. Management utilizes various other estimates, including but not limited to determining the estimated lives of long-lived assets, determining the potential impairment of long-lived assets, the fair value of warrants, options, the recognition of revenue, allowance for doubtful accounts, the estimate of fair value of the lease liabilities and related right of use asset, inventory valuation reserve, fair value of assets and liabilities acquired in a business combination, incremental borrowing rate on leases, the valuation allowance for deferred tax assets and other legal claims and contingencies. The results of any changes in accounting estimates are reflected in the financial statements in the period in which the changes become evident. Estimates and assumptions are reviewed periodically, and the effects of revisions are reflected in the period that they are determined to be necessary.
Cash and cash equivalents:
Cash and cash equivalents include funds on hand, in bank and short-term investments with original maturities of ninety (90) days or less. The following table shows the Company’s cash and cash equivalents by significant investment category as of March 31, 2024 and December 31, 2023:
| March 31, 2024 | ||||||||||||||||
| Adjusted Cost | Realized Gains | Realized Losses | Fair Value | |||||||||||||
| Demand deposits | $ | $ | $ | $ | ||||||||||||
| Short-term investments with original maturities of 90 days or less (Level 1): | ||||||||||||||||
| Money market funds | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
| December 31, 2023 | ||||||||||||||||
| Adjusted Cost | Realized Gains | Realized Losses | Fair Value | |||||||||||||
| Demand deposits | $ | $ | $ | $ | ||||||||||||
| Short-term investments with original maturities of 90 days or less (Level 1): | ||||||||||||||||
| Money market funds | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
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 $
| 11 |
Restricted Cash:
Restricted
cash of $
The following table provides a reconciliation of cash and cash equivalents in the consolidated balance sheets to cash, cash equivalents and restricted cash in the consolidated statements of cash flows:
| March 31, 2024 | December 31, 2023 | |||||||
| Cash and cash equivalents | $ | $ | ||||||
| Long-term restricted cash included in other assets | ||||||||
| Total cash, cash equivalents and restricted cash in the statements of cash flows | $ | $ | ||||||
Accounts Receivable:
Accounts receivable are carried at original invoice amount less an estimate made for doubtful receivables based on a review of all outstanding amounts on a weekly basis. The Company determines the allowance for doubtful accounts by regularly evaluating individual customer receivables and considering a customer’s financial condition, credit history, and current economic conditions.
Trade receivables are written off when deemed uncollectible. Recoveries of trade receivables previously written off are recorded when received. A trade receivable is considered to be past due if any portion of the receivable balance is outstanding for more than thirty (30) days beyond terms. No interest is charged on overdue trade receivables.
Goodwill and Other Intangibles:
Goodwill - In connection with acquisitions, the Company applies the provisions of ASC 805, Business Combinations, using the acquisition method of accounting. The excess purchase price over the fair value of net tangible assets and identifiable intangible assets acquired is recorded as goodwill. In accordance with ASC 350, Intangibles - Goodwill and Other, the Company assesses goodwill for impairment annually as of December 31, and more frequently if events and circumstances indicate that goodwill might be impaired.
Goodwill impairment testing is performed at the reporting unit level. Goodwill is assigned to reporting units at the date the goodwill is initially recorded. Once goodwill has been assigned to reporting units, it no longer retains its association with a particular acquisition, and all of the activities within a reporting unit, whether acquired or internally generated, are available to support the value of the goodwill.
Traditionally, goodwill impairment testing is a two-step process. Step one involves comparing the fair value of the reporting units to its carrying amount. If the carrying amount of a reporting unit is greater than zero and its fair value is greater than its carrying amount, there is no impairment. If the reporting unit’s carrying amount is greater than the fair value, the second step must be completed to measure the amount of impairment, if any. Step two involves calculating an implied fair value of goodwill. The Company has adopted ASU 2017-04 which simplifies subsequent goodwill measurement by eliminating step two from the goodwill impairment test. As a result, the Company compares the fair value of a reporting unit with its respective carrying value and recognized an impairment charge for the amount by which the carrying amount exceeded the reporting unit’s fair value.
| 12 |
The Company determines the fair value of its reporting units using the market approach. Under the market approach, we estimate the fair value based on multiples of comparable public companies and precedent transactions. Significant estimates in the market approach include: identifying similar companies with comparable business factors such as size, growth, profitability, risk and return on investment, and assessing comparable revenue and operating income multiples in estimating the fair value of the reporting unit.
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 31, 2023 and concluded that there was no impairment. Subsequent to completing our 2023 annual impairment test, no events or changes in circumstances were noted that required an interim goodwill impairment test.
Intangible assets include deferred patent costs, license agreements, trademarks and trade names. Legal expenses incurred in preparation of patent application have been deferred and will be amortized over the useful life of granted patents. Costs incurred in preparation of applications that are not granted will be charged to expense at that time. The Company has entered into several sublicense agreements under which it has been assigned the exclusive rights to certain licensed materials used in its products. These sublicense agreements generally require upfront payments to obtain the exclusive rights to such material. The Company capitalizes the upfront payments as intangible assets and amortizes such costs over their estimated useful life on a straight-line method.
Segment Reporting
The
accounting guidance on Segment Reporting establishes standards for reporting information regarding operating segments in annual financial
statements and requires selected information of those segments to be presented in financial statements. Operating segments are identified
as components of an enterprise for which separate discrete financial information is available for evaluation by the chief operating decision
maker (the Company’s Chief Executive Officer or “CODM”) in making decisions on how to allocate resources and assess
performance. The Company’s
Contingent Consideration
In circumstances where an acquisition involves a contingent consideration arrangement that meets the definition of a liability under the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 480, Distinguishing Liabilities from Equity, the Company recognizes a liability equal to the fair value of the contingent payments the Company expects to make as of the acquisition date. The Company remeasures this liability each reporting period and records changes in the fair value through the consolidated statement of operations.
| 13 |
Non-Controlling Interests
Non-controlling interests in the Company’s Consolidated Financial Statements represent the interest in subsidiaries held by our venture partner. The venture partner holds a noncontrolling interest in the Company’s consolidated subsidiary Nobility Healthcare, LLC. Since the Company consolidates the financial statements of all wholly-owned and majority owned subsidiaries, the noncontrolling owners’ share of each subsidiary’s results of operations are deducted and reported as net income or loss attributable to noncontrolling interest in the Consolidated Statements of Operations.
New Accounting Standards
In November 2023, the FASB issued Accounting Standards Update No. 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures” (“ASU 2023-07”), which is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The guidance is to be applied retrospectively to all prior periods presented in the financial statements. Upon transition, the segment expense categories and amounts disclosed in the prior periods should be based on the significant segment expense categories identified and disclosed in the period of adoption. We are currently evaluating the potential impact of adopting this new guidance on our consolidated financial statements and related disclosures.
In December 2023, the FASB issued Accounting Standards Update No. 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” (“ASU 2023-09”), which modifies the rules on income tax disclosures to require entities to disclose (1) specific categories in the rate reconciliation, (2) the income or loss from continuing operations before income tax expense or benefit (separated between domestic and foreign) and (3) income tax expense or benefit from continuing operations (separated by federal, state and foreign). ASU 2023-09 also requires entities to disclose their income tax payments to international, federal, state and local jurisdictions, among other changes. The guidance is effective for annual periods beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. ASU 2023-09 should be applied on a prospective basis, but retrospective application is permitted. We are currently evaluating the potential impact of adopting this new guidance on our consolidated financial statements and related disclosures.
NOTE 2. INVENTORIES
Inventories consisted of the following at March 31, 2024 and December 31, 2023:
| March 31, 2024 | December 31, 2023 | |||||||
| Raw material and component parts– video solutions segment | $ | $ | ||||||
| Work-in-process– video solutions segment | ||||||||
| Finished goods – video solutions segment | ||||||||
| Finished goods – entertainment segment | ||||||||
| Subtotal | ||||||||
| Reserve for excess and obsolete inventory– video solutions segment | ( | ) | ( | ) | ||||
| Reserve for excess and obsolete inventory – entertainment segment | ( | ) | ( | ) | ||||
| Total inventories | $ | $ | ||||||
| 14 |
Finished
goods inventory includes units held by potential customers and sales agents for test and evaluation purposes. The cost of such units
totaled $
NOTE 3. DEBT OBLIGATIONS
Debt obligations is comprised of the following:
| March 31, 2024 | December 31, 2023 | |||||||
| Economic injury disaster loan (EIDL) | $ | $ | ||||||
| Contingent consideration promissory note – Nobility Healthcare Division Acquisition | ||||||||
| Contingent consideration promissory note – Nobility Healthcare Division Acquisition | ||||||||
| Revolving Loan Agreement | ||||||||
| Commercial Extension of Credit- Entertainment Segment | ||||||||
| Merchant Advances – Video Solutions Segment | ||||||||
| Merchant Advances – Entertainment Segment | ||||||||
| Unamortized debt issuance costs | ( | ) | ( | ) | ||||
| Debt obligations | ||||||||
| Less: current maturities of debt obligations | ||||||||
| Debt obligations, long-term | $ | $ | ||||||
Debt obligations mature as follows as of March 31, 2024:
| March 31, 2024 | ||||
| 2024 | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 and thereafter | ||||
| Total | $ | |||
2020 Small Business Administration Notes.
On
May 12, 2020, the Company received $
Under
the terms of the note issued under the EIDL program, interest accrues on the outstanding principal at the rate of
| 15 |
The
Company made principal payments of $
Contingent Consideration Promissory Notes
On
June 30, 2021, Nobility Healthcare, a subsidiary of the Company, issued a contingent consideration promissory note (the “June Contingent
Note”) in connection with a stock purchase agreement between Nobility Healthcare and a private company (the “June Seller”)
of $
The
June Contingent Note is considered to be additional purchase price; therefore, the estimated fair value of the contingent liability is
recorded as a liability at the acquisition date and the fair value is considered part of the consideration paid for the acquisition with
subsequent changes in fair value recorded as a gain or loss in the Consolidated Statements of Operations. Management recorded the contingent
consideration promissory note at its estimated fair value of $
On
August 31, 2021, Nobility Healthcare, issued another contingent consideration promissory note (the “August Contingent Payment Note”)
in connection with a stock purchase agreement between Nobility Healthcare and a private company (the “August Sellers”) of
$
The
August Contingent Payment Note is considered to be additional purchase price, therefore the estimated fair value of the contingent liability
is recorded as a liability at the acquisition date and the fair value is considered part of the consideration paid for the acquisition.
Management has recorded the contingent consideration promissory note at its estimated fair value of $
| 16 |
2023 Commercial Extension of Credit
On
February 23, 2023, the Company’s Entertainment segment entered into an extension of credit in the form of a loan to use in marketing
and operating its business in accordance with the Private Label Agreement previously entered into with the Lender. The Lender agreed
to extend, subject to the conditions hereof, and Borrower agreed to take, a Loan for Principal Sum of $
Lender
shall retain
During
the three months ended March 31, 2024, the Entertainment segment Company’s Entertainment segment repaid the outstanding principal
of $
2024 Commercial Extension of Credit
On
January 22, 2024, the Company’s Entertainment segment entered into an extension of credit in the form of a loan to use in marketing
and operating its business in accordance with the Ticket Solution Agreement. The Lender, Ticket Evolution, Inc., agreed
to extend, subject to the conditions hereof, and Borrower agreed to take, a Loan for Principal Sum of $
The
advances made are recoupable from client service fees with no more than $
| 17 |
Convertible Note
On April 5, 2023, the Company entered into and consummated the initial closing (the “First Closing”) of the transactions contemplated by a Securities Purchase Agreement, dated as of April 5, 2023 (the “Purchase Agreement”), between the Company and certain investors (the “Purchasers”).
At
the First Closing, the Company issued and sold to the Purchasers Senior Secured Convertible Notes in the aggregate original principal
amount of $
Subject
to certain conditions, within 18 months from the effectiveness date and while the Notes remain outstanding, the Purchasers have the right
to require the Company to consummate a second closing of up to an additional $
The
Notes are convertible into shares of Common Stock at the election of the Purchasers at any time at a fixed conversion price of $
The Notes rank senior to all outstanding and future indebtedness of the Company and its subsidiaries, and are secured by substantially all of the Company’s assets, as evidenced by (i) a security agreement entered into at the Closing, (ii) a trademark security agreement entered into at the Closing, (iii) a patent security agreement entered into at the Closing, (iv) a guaranty executed by all direct and indirect subsidiaries of the Company pursuant to which each of them has agreed to guaranty the obligations of the Company under the Notes, and (v) a mortgage on the Company’s headquarters building in favor of the Purchasers.
Also
at the Closing, the Company entered into a Registration Rights Agreement (the “Registration Rights Agreement”) with the Purchasers.
Pursuant to the terms of the Registration Rights Agreement, the Company has agreed to prepare and file with the SEC within the 10th business
day following the First Closing (the “Filing Date”) a registration statement covering the resale of the shares of Common
Stock issuable upon conversion of the Notes and exercise of the Warrants, and to use its best efforts to cause such Registration Statement
to be declared effective under the Securities Act of 1933, as amended (the “Securities Act”), as promptly as possible, but
in any event no later than 45 days following the Filing Date (the “Effectiveness Date”). If the Registration Statement is
not filed by the Filing Date or is not declared effective by the Effectiveness Date, or under certain other circumstances described in
the Registration Rights Agreement, then the Company shall be obligated to pay, as partial liquidated damages, to each Purchaser an amount
in cash equal to
| 18 |
The
Company recognized the full warrant derivative value, with the remaining amount being allocated to the debt obligation. As the warrant
derivative value exceeded the net proceeds from the issuance, the excess amount is recognized as a loss on the date of the issue date.
Thus, the Company recorded a loss of $
| Terms at April 5, 2023 (issuance date) | ||||
| Volatility - range | % | |||
| Risk-free rate | % | |||
| Dividend | % | |||
| Remaining contractual term | years | |||
| Exercise price | $ | – | ||
| Common stock issuable under the warrants | ||||
On
June 2, 2023, the Purchasers elected to convert $
On October 26, 2023, the Company entered into a Revolving Loan Agreement of which a portion of the net proceeds were used to repay the principal amount of the Convertible debt. The warrants associated with the convertible debt remain outstanding.
Revolving Loan Agreement
On
October 26, 2023, the Company entered into a Loan and Security Agreement (the “Loan Agreement”) by and between the Company,
Digital Ally Healthcare, Inc., a Nevada corporation and wholly-owned subsidiary of the Company (“Digital Ally Healthcare”
and, together with the Company, the “Borrower”), and Kompass Kapital Funding, LLC, a Kansas limited liability company (“Kompass”).
In connection with the Loan Agreement, on October 26, 2023, the Company entered into a Mortgage, Assignment of Leases and Rents, Security
Agreement and Fixture Filing (the “Mortgage”) by and between the Company, as grantor, and Kompass, as grantee, and issued
a Revolving Note (the “Revolving Note”) to Kompass. The gross proceeds to the Company were $
Pursuant
to the Loan Agreement, Kompass agreed to make revolving loans (the “Revolving Loans”) available to the Borrower as the Borrower
may from time to time request until, but not including, October 26, 2025, and in such amounts as the Borrower may from time to time request,
provided, however, that the aggregate principal balance of the Revolving Loans outstanding at any time shall not exceed the lesser of
$
| 19 |
Pursuant
to the Loan Agreement,
The
Company entered into the Mortgage to secure its obligations under the Loan Agreement. The property mortgaged under the Mortgage consists
of the Mortgaged Property. The Mortgage contains customary covenants, representations and warranties by the Company. In addition, the
Company recorded debt issuance costs of $
Merchant Cash Advances – Video Solutions Segment
In
November 2023, the Company obtained a short-term merchant advance, which totaled $
During
the three months ended March 31, 2024 the Company amortized $
Merchant Cash Advances – Entertainment Segment
In
March 2024, the Company obtained a short-term merchant advance, which totaled $
During
the three months ended March 31, 2024 the Company amortized $
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) |
| 20 |
The following table represents the Company’s hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2024 and December 31, 2023:
| March 31, 2024 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Liabilities: | ||||||||||||||||
| Warrant derivative liabilities | $ | $ | $ | $ | ||||||||||||
| Contingent consideration promissory notes and contingent consideration earn-out agreement | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
| December 31, 2023 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Liabilities: | ||||||||||||||||
| Warrant derivative liabilities | $ | $ | $ | $ | ||||||||||||
| Contingent consideration promissory notes and contingent consideration earn-out agreement | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
The following table represents the change in Level 3 tier value measurements for the three months ended March 31, 2024:
| Contingent Consideration Promissory Notes and Earn-Out Agreement | Warrant Derivative Liabilities | |||||||
| Balance, December 31, 2023 | $ | $ | ||||||
| Issuance of warrant derivative liabilities | ||||||||
| Change in fair value of warrant derivative liabilities | ||||||||
| Principal payments on contingent consideration promissory notes – Revenue Cycle Management Acquisitions | ( | ) | ||||||
| Change in fair value of contingent consideration promissory notes - Revenue Cycle Management Acquisitions | ||||||||
| Balance, March 31, 2024 | $ | $ | ||||||
| 21 |
NOTE 5. ACCRUED EXPENSES
Accrued expenses consisted of the following at March 31, 2024 and December 31, 2023:
| March 31, 2024 | December 31, 2023 | |||||||
| Accrued warranty expense | $ | $ | ||||||
| Accrued litigation costs | ||||||||
| Accrued sales commissions | ||||||||
| Accrued payroll and related fringes | ||||||||
| Accrued sales returns and allowances | ||||||||
| Accrued taxes | ||||||||
| Accrued interest - related party | ||||||||
| Customer deposits | ||||||||
| Other | ||||||||
| $ | $ | |||||||
Accrued warranty expense was comprised of the following for the three months ended March 31, 2024:
| Beginning balance | $ | |||
| Provision for warranty expense | ||||
| Charges applied to warranty reserve | ( | ) | ||
| Ending balance | $ |
NOTE 6. INCOME TAXES
The
effective tax rate for the three months ended March 31, 2024 and 2023 varied from the expected statutory rate due to the Company continuing
to provide a
The
Company has incurred operating losses in recent years, and it continues to be in a three-year cumulative loss position at March 31, 2024.
Accordingly, the Company determined there was not sufficient positive evidence regarding its potential for future profits to outweigh
the negative evidence of our three-year cumulative loss position under the guidance provided in ASC 740. Therefore, it is determined
to continue to provide a
NOTE 7. PREPAID EXPENSES
Prepaid expenses were the following at March 31, 2024 and December 31, 2023:
| March 31, 2024 | December 31, 2023 | |||||||
| Prepaid inventory | $ | $ | ||||||
| Prepaid advertising | ||||||||
| Other | ||||||||
| Total prepaid expenses | $ | $ | ||||||
| 22 |
NOTE 8. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following at March 31, 2024 and December 31, 2023:
| Estimated Useful Life | March 31, 2024 | December 31, 2023 | ||||||||
| Building | $ | $ | ||||||||
| Land | ||||||||||
| Office furniture, fixtures, equipment, and aircraft | ||||||||||
| Warehouse and production equipment | ||||||||||
| Demonstration and tradeshow equipment | ||||||||||
| Building improvements | ||||||||||
| Total cost | ||||||||||
| Less: accumulated depreciation and amortization | ( | ) | ( | ) | ||||||
| Net property, plant and equipment | $ | $ | ||||||||
Depreciation
expense for the three months ended March 31, 2024 and 2023 was $
During the three
months ended March 31, 2024 the Company engaged a broker and sold its aircraft for $
NOTE 9. OPERATING LEASE
The
Company entered into an operating lease with a third party in October 2023 for copiers used for office and warehouse purposes. The terms
of the lease include
On
May 13, 2020, the Company entered into an operating lease for new warehouse and office space, which served 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 $
On
June 30, 2021, the Company completed the acquisition of its first medical billing company, through Nobility Healthcare. Upon completion
of this acquisition, Nobility Healthcare became responsible for the operating lease for the seller’s office space. The lease terms
include monthly payments ranging from $
On
August 31, 2021, the Company completed the acquisition of its second acquired medical billing company, through Nobility Healthcare. Upon
completion of this acquisition, Nobility Healthcare became responsible for the operating lease for the seller’s office space. The
lease was renewed in April 2023 with favorable terms and payments ranging from $
On
September 1, 2021, the Company completed the acquisition of Goody Tickets, LLC and TicketSmarter, LLC through 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 $
| 23 |
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 $
Lease
expense related to the office space and copier operating leases were recorded on a straight-line basis over their respective lease terms.
Total lease expense under the operating leases was approximately $
The
weighted-average remaining lease term related to the Company’s lease liabilities as of March 31, 2023 was
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
The following sets forth the operating lease right of use assets and liabilities as of March 31, 2024:
| Assets: | ||||
| Operating lease right of use assets | $ | |||
| Liabilities: | ||||
| Operating lease obligations-current portion | $ | |||
| Operating lease obligations-less current portion | ||||
| Total operating lease obligations | $ |
The components of lease expense were as follows for the three months ended March 31, 2024:
| Selling, general and administrative expenses | $ |
Following are the minimum lease payments for each year and in total:
| Year ending December 31: | ||||
| 2023 (April 1, to December 31, 2024) | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| Total undiscounted minimum future lease payments | ||||
| Imputed interest | ( | ) | ||
| Total operating lease liability | $ | |||
| 24 |
NOTE 10. GOODWILL AND OTHER INTANGIBLE ASSETS
Intangible assets consisted of the following at March 31, 2024 and December 31, 2023:
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, 2024 and 2023 was $
| March 31, 2024 | December 31, 2023 | |||||||||||||||||||||||
| Gross value | Accumulated amortization | Net carrying value | Gross value | Accumulated amortization | Net carrying value | |||||||||||||||||||
| Amortized intangible assets: | ||||||||||||||||||||||||
| Licenses (video solutions segment) | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Patents and trademarks (video solutions segment) | ||||||||||||||||||||||||
| Sponsorship agreement network (entertainment segment) | ||||||||||||||||||||||||
| SEO content (entertainment segment) | ||||||||||||||||||||||||
| Personal seat licenses (entertainment segment) | ||||||||||||||||||||||||
| Software | ||||||||||||||||||||||||
| Website enhancements (entertainment segment) | ||||||||||||||||||||||||
| Client agreements (revenue cycle management segments) | ||||||||||||||||||||||||
| Indefinite life intangible assets: | ||||||||||||||||||||||||
| Goodwill (entertainment and revenue cycle management segments) | ||||||||||||||||||||||||
| Trade name (entertainment segment) | ||||||||||||||||||||||||
| Patents and trademarks pending (video solutions segment) | ||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Year ending December 31: | ||||
| 2024 (April 1, to December 31, 2024) | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 and thereafter | ||||
| $ | ||||
| 25 |
NOTE 11. OTHER ASSETS
Other assets were the following at March 31, 2024 and December 31, 2023:
| March 31, 2024 | December 31, 2023 | |||||||
| Lease receivable | $ | $ | ||||||
| Restricted Cash | ||||||||
| Other | ||||||||
| Total other assets | $ | $ | ||||||
NOTE 12. COMMITMENTS AND CONTINGENCIES
Litigation
From time to time, we are notified that we may be a party to a lawsuit or that a claim is being made against us. It is our policy to not disclose the specifics of any claim or threatened lawsuit until the summons and complaint are actually served on us. After carefully assessing the claim, and assuming we determine that we are not at fault or we disagree with the damages or relief demanded, we vigorously defend any lawsuit filed against us. We record a liability when losses are deemed probable and reasonably estimable. When losses are deemed reasonably possible but not probable, we determine whether it is possible to provide an estimate of the amount of the loss or range of possible losses for the claim, if material for disclosure. In evaluating matters for accrual and disclosure purposes, we take into consideration factors such as our historical experience with matters of a similar nature, the specific facts and circumstances asserted, the likelihood of our prevailing, the availability of insurance, and the severity of any potential loss. We reevaluate and update accruals as matters progress over time.
On May 31, 2022, the Company filed a lawsuit against Culp McAuley, Inc. (“defendant”) in the United States District Court for the District of Kansas. The lawsuit arises from the defendant’s multiple breaches of its obligations to the Company. The Company seeks monetary damages and injunctive relief based on certain conduct by the defendant. On July 18, 2022, the defendant filed its Answer to the Company’s Verified Complaint and included Counterclaims alleging breach of contract and seeking monetary damages. On August 8, 2022, the Company filed its Reply and Affirmative Defenses to the Counterclaims by, among other things, denying the allegations and any and all liability.
As
of March 31, 2024, we are able to estimate a range of reasonably possible loss related to the Culp McCauley case, our estimate of the
aggregate reasonably possible loss (in excess of any accrued amounts) was approximately $
While the ultimate resolution is unknown, based on the information currently available, we do not expect that these lawsuits will individually, or in the aggregate, have a material adverse effect to our results of operations, financial condition or cash flows. However, the outcome of any litigation is inherently uncertain and there can be no assurance that any expense, liability or damages that may ultimately result from the resolution of these matters will be covered by our insurance or will not be in excess of amounts recognized or provided by insurance coverage and will not have a material adverse effect on our operating results, financial condition or cash flows.
| 26 |
Notice of Failure to Satisfy a Continued Listing Rule
On March 14, 2024, the Nasdaq Listing Qualifications staff notified Digital Ally, Inc. (the “Company”), that due to resignation of Mr. Michael J. Caulfield from the Company’s board of directors (the “Board”) effective on January 31, 2024, the Company no longer complies with the audit committee and compensation committee requirements as set forth in Listing Rule 5605 of The Nasdaq Stock Market LLC (“Nasdaq”), including the requirements that there are at least three independent directors on the Company’s audit committee and at least two independent directors on the Company’s compensation committee.
The notification has no immediate effect on the Company’s listing on the Nasdaq Capital Market. In accordance with Nasdaq Listing Rules, the Company is provided a cure period until the earlier of the Company’s next annual shareholders’ meeting (or July 29, 2024 if the next shareholders’ meeting will be held before July 29, 2024) or January 31, 2025 (the “Cure Period”). If the Company does not regain compliance by within the Cure Period, Nasdaq will provide written notice that the Company’s common stock, par value $ per share, will be subject to delisting from the Nasdaq Capital Market, at which time, the Company may appeal the delisting determination to a Hearings Panel.
The management of the Company has resolved to take commercially reasonable steps to fill the vacancy on the Board with a new director who qualifies as independent under the Nasdaq Listing Rules as soon as is practical and anticipates regaining compliance during the Cure Period. However, there can be no assurance that the Company will be able to satisfy Nasdaq Listing Rule 5605 or will otherwise be in compliance with other Nasdaq listing criteria.
The Company recorded pre-tax compensation expense related to the grant of stock options and restricted stock issued of $ and $ for the three months ended March 31, 2024 and 2023, respectively.
As of March 31, 2024, the Company had adopted ten separate stock option and restricted stock plans: (i) the 2005 Stock Option and Restricted Stock Plan (the “2005 Plan”), (ii) the 2006 Stock Option and Restricted Stock Plan (the “2006 Plan”), (iii) the 2007 Stock Option and Restricted Stock Plan (the “2007 Plan”), (iv) the 2008 Stock Option and Restricted Stock Plan (the “2008 Plan”), (v) the 2011 Stock Option and Restricted Stock Plan (the “2011 Plan”), (vi) the 2013 Stock Option and Restricted Stock Plan (the “2013 Plan”), (vii) the 2015 Stock Option and Restricted Stock Plan (the “2015 Plan”), (viii) the 2018 Stock Option and Restricted Stock Plan (the “2018 Plan”), (ix) the 2020 Stock Option and Restricted Stock Plan (the “2020 Plan”), and (x) the 2022 Stock Option and Restricted Stock Plan (the “2022 Plan”). The 2005 Plan, 2006 Plan, 2007 Plan, 2008 Plan, 2011 Plan, 2013 Plan, 2015 Plan, 2018 Plan, 2020 Plan and 2022 Plan are referred to as the “Plans.”
These Plans permit the grant of stock options or restricted stock to its employees, non-employee directors and others for up to a total of shares of common stock. The 2005 Plan terminated during 2015 with 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 March 31, 2024 total . The 2006 Plan terminated during 2016 with 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 March 31, 2024 total . The 2007 Plan terminated during 2017 with shares not awarded or underlying options, which shares are now unavailable for issuance. There are stock options granted under the 2007 Plan that remain unexercised and outstanding as of March 31, 2024. The 2008 Plan terminated during 2018 with shares not awarded or underlying options, which shares are now unavailable for issuance. There are stock options granted under the 2008 Plan that remain unexercised and outstanding as of March 31, 2024.
Stock option grants. The Company believes that such awards better align the interests of our employees with those of its stockholders. Option awards have been granted with an exercise price equal to the market price of its stock at the date of grant with such option awards generally vesting based on the completion of continuous service and having ten-year contractual terms. These option awards typically provide for accelerated vesting if there is a change in control (as defined in the Plans). The Company has registered all shares of common stock that are issuable under its Plans with the SEC. A total of shares remained available for awards under the various Plans as of March 31, 2024.
| 27 |
The fair value of each option award is estimated on the date of grant using a Black-Scholes option valuation model.
| Options | Number of Shares | Weighted Average Exercise Price | ||||||
| Outstanding at December 31, 2023 | $ | |||||||
| Granted | ||||||||
| Exercised | ||||||||
| Forfeited | ||||||||
| Outstanding at March 31, 2024 | $ | |||||||
| Exercisable at March 31, 2024 | $ | |||||||
The Plans allow for the cashless exercise of stock options. This provision allows the option holder to surrender/cancel options with an intrinsic value equivalent to the purchase/exercise price of other options exercised. There were no shares surrendered pursuant to cashless exercises during the three months ended March 31, 2024 and 2023.
The aggregate intrinsic value of options outstanding was $-- and $--, at March 31, 2024 and December 31, 2023, respectively. The aggregate intrinsic value of options exercisable was $-- and $--, at March 31, 2024 and December 31, 2023, respectively.
As of March 31, 2024, the unrecognized portion of stock compensation expense on all existing stock options was $--.
| Outstanding options | Exercisable options | |||||||||||||
Exercise price range | Number of options | Weighted average contractual life | Number of options | Weighted average remaining contractual life | ||||||||||
| $ | to $ | years | years | |||||||||||
| $ | to $ | years | years | |||||||||||
| $ | to $ | years | years | |||||||||||
| years | years | |||||||||||||
Restricted stock grants. The Board of Directors has granted restricted stock awards under the Plans. Restricted stock awards are valued on the date of grant and have no purchase price for the recipient. Restricted stock awards typically vest over one to five years corresponding to anniversaries of the grant date. Under the Plans, unvested shares of restricted stock awards may be forfeited upon the termination of service to or employment with the Company, depending upon the circumstances of termination. Except for restrictions placed on the transferability of restricted stock, holders of unvested restricted stock have full stockholder’s rights, including voting rights and the right to receive cash dividends.
| 28 |
Number of shares | Weighted average grant date | |||||||
| Nonvested balance, December 31, 2023 | $ | |||||||
| Granted | ||||||||
| Vested | ( | ) | ||||||
| Forfeited | ( | ) | ||||||
| Nonvested balance, March 31, 2024 | $ | |||||||
The Company estimated the fair market value of these restricted stock grants based on the closing market price on the date of grant. As of March 31, 2024, there were $ of total unrecognized compensation costs related to all remaining non-vested restricted stock grants, which will be amortized over the next forty-eight months in accordance with their respective vesting scale.
The nonvested balance of restricted stock vests as follows:
| Years ended | Number of shares | |||
| 2024 (April 1, 2024 through December 31, 2024) | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
NOTE 14. COMMON STOCK PURCHASE WARRANTS
2023 Purchase Warrants
On
April 5, 2023, the Company issued warrants to purchase a total of
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 March 31, 2024:
| Issuance date assumptions | March 31, 2024 assumptions | |||||||
| Volatility - range | % | $ | % | |||||
| Risk-free rate | % | % | ||||||
| Dividend | % | % | ||||||
| Remaining contractual term | ||||||||
| Exercise price | ||||||||
| Common stock issuable under the warrants | ||||||||
| 29 |
The following table summarizes information about shares issuable under warrants outstanding during the three months ended March 31, 2024 and 2023:
| Warrants | Weighted average exercise price | |||||||
| Vested Balance, December 31, 2023 | $ | |||||||
| Granted | ||||||||
| Exercised | ||||||||
| Forfeited/cancelled | ||||||||
| Vested Balance, March 31, 2024 | $ | |||||||
The
total intrinsic value of all outstanding warrants aggregated $-
The following table summarizes the range of exercise prices and weighted average remaining contractual life for outstanding and exercisable warrants to purchase shares of common stock as of March 31, 2024:
| Outstanding and exercisable warrants | ||||||||
| Exercise price | Number of warrants | Weighted average remaining contractual life | ||||||
| $ | years | |||||||
| $ | years | |||||||
| $ | years | |||||||
| years | ||||||||
NOTE 15. STOCKHOLDERS’ EQUITY
2023 Issuance of Restricted Common Stock
On January 10, 2023, the board of directors approved the grant of shares of common stock to officers of the Company. . Additionally, the board of directors approved the grant of restricted common shares to certain new employees of the Company. Such shares will generally vest over a period of to on their respective anniversary dates in January through January 2025, provided that each grantee remains an employee of the company on such dates.
2024 Issuance of Restricted Common Stock
In January 2024, the board of directors approved the grant of shares of common stock to officers of the Company. . Additionally, the board of directors approved the grant of restricted common shares to certain new employees of the Company. Such shares will generally vest over a period of to on their respective anniversary dates in January through January 2026, provided that each grantee remains an employee of the company on such dates.
Cancellation of Restricted Stock
During the three months ended March 31, 2024, the Company cancelled shares due to termination of employee.
Reverse Stock Split
On
February 6, 2023, we filed a Certificate of Amendment to the Articles of Incorporation, as amended, with the Secretary of State of the
State of Nevada to effect a
| 30 |
Noncontrolling Interests
The
Company owns a
| Three months ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Numerator for basic and diluted loss per share – Net loss attributable to common stockholders | $ | ( | ) | $ | ( | ) | ||
| Denominator for basic loss per share – weighted average shares outstanding | ||||||||
| Dilutive effect of shares issuable upon conversion of convertible debt and the exercise of stock options and warrants outstanding | ||||||||
| Denominator for diluted loss per share – adjusted weighted average shares outstanding | ||||||||
| Net loss per share: | ||||||||
| Basic | $ | ( | ) | $ | ( | ) | ||
| Diluted | $ | ( | ) | $ | ( | ) | ||
Basic income (loss) per share is based upon the weighted average number of common shares outstanding during the period. For the three months ended March 31, 2024 and 2023, 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.
| 31 |
NOTE 17. COUNTRY STAMPEDE ACQUISITION
On March 1, 2024, Kustom 440, entered into an Asset Purchase Agreement (the “Acquisition Agreement”) with JC Entertainment, LLC, a Kansas limited liability company (“JC Entertainment”). Pursuant to the Acquisition Agreement, Kustom 440 acquired certain assets associated with a music entertainment event (“Country Stampede”), including all intellectual property arising out of and relating to Country Stampede (“Country Stampede Intellectual Property”) and certain contracts in which JC Entertainment is a party to host and operate the 2024 Country Stampede (the “Assumed Contracts”, and together with the Country Stampede Intellectual Property, the “Purchased Assets”).
As consideration for acquiring the Purchased Assets, Kustom 440 paid JC
Entertainment the aggregate purchase price amount $
The Company accounts for business combinations using the acquisition method and that the Company has early adopted the amendments of Regulation S-X dated May 21, 2020 and has concluded that this acquisition was not significant. Accordingly, the presentation of the assets acquired, historical financial statements under Rule 3-05 and related pro forma information under Article 11 of Regulation S-X, respectively, are not required to be presented. Under the acquisition method, the purchase price of the Country Stampede Acquisition has been allocated to the acquired tangible and identifiable intangible assets and assumed liabilities based on their estimated fair values at the time of the Country Stampede Acquisition. This allocation involves a number of assumptions, estimates, and judgments that could materially affect the timing or amounts recognized in our financial statements. The Country Stampede Acquisition was structured as an asset purchase; however the parties agreed to coordinate the election to invoke IRS Section 338(h)(10) relative to this transaction for tax purposes. Therefore, the excess purchase price over the fair value of net tangible assets acquired was recorded as goodwill, which will be amortized over 15 years for income tax filing purposes. Likewise, the other acquired assets were stepped up to fair value and is deductible for income tax purposes. The results of operations of acquired businesses are included in the consolidated financial statements from the acquisition date.
| 32 |
The purchase price of the Country Stampede Acquisition was allocated to tangible assets, goodwill, identifiable intangible assets, and assumed liabilities based on their preliminary estimated fair values at the time of the acquisition. The Company retained the services of an independent valuation firm to determine the fair value of these identifiable intangible assets. The Company will continue to evaluate the fair value of the identified intangible assets. The preliminary estimated fair value of assets acquired, and liabilities assumed in the Country Stampede Acquisition were as follows:
| As allocated (Preliminary) | ||||
| Description | March 1, 2024 | |||
| Assets acquired (provisional): | ||||
| Tangible assets acquired | $ | |||
| Identifiable intangible assets acquired (Trademarks and trade names) | ||||
| Goodwill | ||||
| Liabilities assumed | ( | ) | ||
| Net assets acquired and liabilities assumed | $ | |||
| Consideration: | ||||
| Cash paid at Country Stampede Acquisition date | $ | |||
| Cash paid subsequent to closing | ||||
| Total Country Stampede Acquisition purchase price | $ | |||
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.
| 33 |
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
The Video Solutions Segment encompasses our law, commercial, and Shield™ divisions. This segment includes both service and product revenues through our subscription models offering cloud and warranty solutions, and hardware sales for video and health safety solutions. The Revenue Cycle Management Segment provides working capital and back-office services to a variety of healthcare organizations throughout the country, as a monthly service fee. The Entertainment Segment acts as an intermediary between ticket buyers and sellers within our secondary ticketing platform, ticketsmarter.com, and we also acquire tickets from primary sellers to then sell through various platforms.
The Company’s corporate administration activities are reported in the corporate line item. These activities primarily include expense related to certain corporate officers and support staff, certain accounting staff, expense related to the Company’s Board of Directors, stock option expense for options granted to corporate administration employees, certain consulting expenses, investor relations activities, and a portion of the Company’s legal, auditing and professional fee expenses. Corporate identifiable assets primarily consist of cash, invested cash (if any), refundable income taxes (if any), and deferred income taxes.
Summarized financial information for the Company’s reportable business segments is provided for the indicated periods and as of March 31, 2024, and March 31, 2023:
| Three Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Net Revenues: | ||||||||
| Video Solutions | $ | $ | ||||||
| Revenue Cycle Management | ||||||||
| Entertainment | ||||||||
| Total Net Revenues | $ | $ | ||||||
| Gross Profit: | ||||||||
| Video Solutions | $ | $ | ||||||
| Revenue Cycle Management | ||||||||
| Entertainment | ||||||||
| Total Gross Profit | $ | $ | ||||||
| Operating Income (loss): | ||||||||
| Video Solutions | $ | ( | ) | $ | ( | ) | ||
| Revenue Cycle Management | ( | ) | ||||||
| Entertainment | ( | ) | ( | ) | ||||
| Corporate | ( | ) | ( | ) | ||||
| Total Operating Loss | $ | ( | ) | $ | ( | ) | ||
| Depreciation and Amortization: | ||||||||
| Video Solutions | $ | $ | ||||||
| Revenue Cycle Management | ||||||||
| Entertainment | ||||||||
| Total Depreciation and Amortization | $ | $ | ||||||
| 34 |
March 31, 2024 | December 31, 2023 | |||||||
| Assets (net of eliminations): | ||||||||
| Video Solutions | $ | $ | ||||||
| Revenue Cycle Management | ||||||||
| Entertainment | ||||||||
| Corporate | ||||||||
| Total Identifiable Assets | $ | $ | ||||||
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 $
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 19. RELATED PARTY TRANSACTIONS
Transactions with Managing Member of Nobility Healthcare
The
Company accrued reimbursable expenses payable to Nobility, LLC totaling $
Transactions with Related Party of TicketSmarter
On
September 22, 2023, a trust, the beneficiaries of which are TicketSmarter’s Chief Executive Officer and his spouse, made a loan in the amount of $
NOTE 20. SUBSEQUENT EVENTS
Series A Preferred Stock and Series B Preferred Stock Elimination
On April 5, 2024, Digital Ally, Inc., a Nevada corporation (the “Company”), filed with the Secretary of State of the State of Nevada an Elimination of Certificate of Designations of the Preferences, Rights and Limitations of the Series A Convertible Redeemable Preferred Stock (the “Series A Elimination Certificate”) and Elimination of Certificate of Designations of the Preferences, Rights and Limitations of the Series B Convertible Redeemable Preferred Stock (the “Series B Elimination Certificate”) in order to eliminate and cancel all designations, rights, preferences and limitations of the shares of the Company’s Series A Convertible Redeemable Preferred Stock, par value $ per share (the “Series A Preferred Stock”) and Series B Convertible Redeemable Preferred Stock, par value $ per share (the “Series B Preferred Stock”). In December 2022, all shares of Series A Preferred Stock that had originally been issued pursuant to the Certificate of Designations of the Preferences, Rights and Limitations of the Series A Preferred Stock of the Company (the “Series A Certificate of Designations”) and all shares of Series B Preferred Stock that had originally been issued pursuant to the Certificate of Designations of the Preferences, Rights and Limitations of the Series B Preferred Stock of the Company (the “Series B Certificate of Designations”) were exchanged for shares of the Company’s common stock and warrants to purchase shares of the Company’s common stock. Such shares of Series A Preferred Stock and Series B Preferred Stock have resumed the status of authorized but unissued shares of preferred stock of the Company.
Prior to the filing of the Series A Elimination Certificate, none of the authorized shares of Series A Preferred Stock or authorized shares of Series B Preferred Stock were issued and outstanding, and shares of Series A Preferred Stock or Series B Preferred Stock were to be issued subject to the Series A Certificate of Designations or Series B Certificate of Designations. The Series A Elimination Certificate and Series B Elimination Certificate became effective upon their filing with the Secretary of State of the State of Nevada.
Merchant Cash Advances – Video Solutions Segment
In April 2024, the Company received
additional advances of $
*************************************
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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, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The words “aim,” “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “feel,” “forecast,” “intend,” “may,” “outlook,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “will,” “would,” and similar expressions intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. These forward-looking statements are based largely on our expectations or forecasts of future events, can be affected by inaccurate assumptions, and are subject to various business risks and known and unknown uncertainties, a number of which are beyond our control. Therefore, actual results could differ materially from the forward-looking statements contained in this document, and readers are cautioned not to place undue reliance on such forward-looking statements.
We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. A wide variety of factors could cause or contribute to such differences and could adversely impact revenues, profitability, cash flows and capital needs. There can be no assurance that the forward-looking statements contained in this document will, in fact, transpire or prove to be accurate.
Factors that could cause or contribute to our actual results differing materially from those discussed herein or for our stock price to be adversely affected include, but are not limited to: (1) our losses in recent years, including fiscal years 2024 and 2023; (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 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; (7) our ability to produce our products in a cost-effective manner; (8) competition from larger, more established companies with far greater economic and human resources; (9) our ability to attract and retain quality employees; (10) risks related to dealing with governmental entities as customers; (11) our expenditure of significant resources in anticipation of sales due to our lengthy sales cycle and the potential to receive no revenue in return; (12) characterization of our market by new products and rapid technological change; (13) our dependence on sales of our EVO-HD, DVM-800, DVM-250 and FirstVU products; (14) that stockholders may lose all or part of their investment if we are unable to compete in our markets and return to profitability; (15) defects in our products that could impair our ability to sell our products or could result in litigation and other significant costs; (16) our dependence on a few manufacturers and suppliers for components of our products and our dependence on domestic and foreign manufacturers for certain of our products; (17) our ability to protect technology through patents and to protect our proprietary technology and information, such as trade secrets, through other similar means; (18) our ability to generate more recurring cloud and service revenues; (19) risks related to our license arrangements; (20) the fluctuation of our operation results from quarter to quarter; (21) sufficient voting power by coalitions of a few of our larger stockholders, including directors and officers, to make corporate governance decisions that could have a significant effect on us and the other stockholders; (22) the issuance or sale of substantial amounts of our Common Stock, or the perception that such sales may occur in the future, which may have a depressive effect on the market price of our securities; (23) potential dilution from the issuance of Common Stock underlying outstanding options and warrants; (24) our additional securities available for issuance, which, if issued, could adversely affect the rights of the holders of our Common Stock; (25) the volatility of our stock price due to a number of factors, including, but not limited to, a relatively limited public float; (26) our ability to integrate and realize the anticipated benefits from acquisitions; (27) our ability to maintain the listing of our Common Stock on the Nasdaq Capital Market
Current Trends and Recent Developments for the Company
Segment Overview
Video 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 systems for law enforcement and commercial markets; the FirstVU body-worn camera line, consisting of the FirstVu Pro, FirstVu, and the FirstVU HD; our patented and revolutionary VuLink product integrates our body-worn cameras with our in-car systems by providing hands-free automatic activation for both law enforcement and commercial markets; the FLT-250, DVM-250, and DVM-250 Plus, which are our commercial line of digital video mirrors that serve as “event recorders” for the commercial fleet and mass transit markets; and FleetVu and VuLink, which are our cloud-based evidence management systems. We further diversified and broadened our product offerings in 2020, by introducing two new lines of branded products: (1) the ThermoVu™ which is a line of self-contained temperature monitoring stations that provides alerts and controls facility access when an individual’s temperature exceeds a pre-set threshold and (2) our Shield™ disinfectants and cleansers which are for use against viruses and bacteria.
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.
Revenue Cycle Management Operating Segment – We entered the revenue cycle management business late in the second quarter of 2021 with the formation of our wholly owned subsidiary, Digital Ally Healthcare, Inc. and its majority-owned subsidiary Nobility Healthcare. Nobility Healthcare completed its first acquisition in June 2021, when it acquired a private medical billing company, and has since completed three additional acquisitions of private medical billing companies, in which we will assist in providing working capital and back-office services to healthcare organizations throughout the country. Our assistance consists of insurance and benefit verification, medical treatment documentation and coding, and collections. Through our expertise and experience in this field, we maximize our customers’ service revenues collected, leading to substantial improvements in their operating margins and cash flows.
| 36 |
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.
Entertainment Operating Segment - We also entered into live entertainment and events ticketing services through the formation of our wholly owned subsidiary, TicketSmarter and its completed acquisitions of Goody Tickets, LLC and TicketSmarter, LLC, on September 1, 2021. TicketSmarter provides ticket sales, partnerships, and mainly, ticket resale services through its online ticketing marketplace for live events, TicketSmarter.com. TicketSmarter offers tickets for over 125,000 live events through its platform, for a wide range of events, including concerts, sporting events, theatres, and performing arts, throughout the country. We also offer production and promotion of live music events in third-party venues throughout the country. These services begin with the logistical matters of an event, including artist booking and research, ticketing, staging, on-site operations, vendor sourcing, and day of production.
Our entertainment operating segment consists of entertainment 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. Entertainment 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.
Results of Operations
Summarized financial information for the Company’s reportable business segments is provided for the three months ended March 31, 2024, and 2023:
| Three Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Net Revenues: | ||||||||
| Video Solutions | $ | 1,718,293 | $ | 1,899,364 | ||||
| Revenue Cycle Management | 1,434,598 | 1,781,590 | ||||||
| Entertainment | 2,376,460 | 4,016,236 | ||||||
| Total Net Revenues | $ | 5,529,351 | $ | 7,697,190 | ||||
| Gross Profit: | ||||||||
| Video Solutions | $ | 565,694 | $ | 534,195 | ||||
| Revenue Cycle Management | 463,731 | 775,934 | ||||||
| Entertainment | 494,274 | 234,663 | ||||||
| Total Gross Profit | $ | 1,523,699 | $ | 1,544,792 | ||||
| Operating Income (loss): | ||||||||
| Video Solutions | $ | (891,588 | ) | $ | (1,963,186 | ) | ||
| Revenue Cycle Management | (24,031 | ) | 103,765 | |||||
| Entertainment | (642,219 | ) | (1,233,006 | ) | ||||
| Corporate | (2,081,196 | ) | (3,080,379 | ) | ||||
| Total Operating Loss | $ | (3,639,034 | ) | $ | (6,172,806 | ) | ||
| Depreciation and Amortization: | ||||||||
| Video Solutions | $ | 198,028 | $ | 198,122 | ||||
| Revenue Cycle Management | 26,715 | 25,507 | ||||||
| Entertainment | 326,248 | 319,481 | ||||||
| Total Depreciation and Amortization | $ | 550,991 | $ | 543,110 | ||||
March 31, 2024 | December 31, 2023 | |||||||
| Assets (net of eliminations): | ||||||||
| Video Solutions | $ | 24,172,478 | $ | 26,396,559 | ||||
| Revenue Cycle Management | 1,989,068 | 2,260,376 | ||||||
| Entertainment | 6,482,510 | 6,324,211 | ||||||
| Corporate | 12,520,139 | 12,047,663 | ||||||
| Total Identifiable Assets | $ | 45,164,195 | $ | 47,028,809 | ||||
| 37 |
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 quarter of 2024 and all quarters during 2023. The following is a summary of our recent operating results on a quarterly basis:
| For the Three Months Ended: | ||||||||||||||||||||
March 31, 2024 | December 31, 2023 | September 30, 2023 | June 30, 2023 | March 31, 2023 | ||||||||||||||||
| Total revenue | $ | 5,529,351 | $ | 6,228,351 | $ | 6,337,699 | $ | 8,062,097 | $ | 7,697,190 | ||||||||||
| Gross profit | 1,523,699 | 549,031 | 1,226,149 | 2,519,505 | 1,544,792 | |||||||||||||||
| Gross profit margin % | 27.6 | % | 8.8 | % | 19.3 | % | 31.3 | % | 20.1 | % | ||||||||||
| Total selling, general and administrative expenses | 5,162,733 | 6,528,031 | 6,374,192 | 7,460,209 | 7,717,598 | |||||||||||||||
| Operating income (loss) | (3,639,034 | ) | (5,979,000 | ) | (5,148,043 | ) | (4,940,704 | ) | (6,172,806 | ) | ||||||||||
| Operating income (loss) % | (65.8 | )% | (96.0 | )% | (81.2 | )% | (61.3 | )% | (80.2 | )% | ||||||||||
| Net income (loss) | $ | (3,943,268 | ) | $ | (7,484,778 | ) | $ | (3,679,043 | ) | $ | (8,320,549 | ) | $ | (5,979,579 | ) | |||||
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™ and the Shield™ 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 (6) ongoing patent and other litigation and related expenses respecting outstanding lawsuits; and (7) the completion of corporate acquisitions including the recent purchases in the revenue cycle management and entertainment operating segments. We reported a net loss of $3,943,268 on revenues of $5,529,351 for first quarter of 2024.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet debt, nor did we have any transactions, arrangements, obligations (including contingent obligations) or other relationships with any unconsolidated entities or other persons that may have a material current or future effect on financial conditions, changes in the financial conditions, results of operations, liquidity, capital expenditures, capital resources, or significant components of revenue or expenses other than the following:
We are a party to operating leases and license agreements that represent commitments for future payments (described in Note 9, “Operating Leases,” 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.
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For the Three Months Ended March 31, 2024 and 2023
Results of Operations
Summarized immediately below and discussed in more detail in the subsequent subsections is an analysis of our operating results for the three months ended March 31, 2024 and 2023, represented as a percentage of total revenues for each such quarter:
| Three Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Revenue | 100 | % | 100 | % | ||||
| Cost of revenue | 72 | % | 80 | % | ||||
| Gross profit | 28 | % | 20 | % | ||||
| Selling, general and administrative expenses: | ||||||||
| Research and development expense | 9 | % | 12 | % | ||||
| Selling, advertising and promotional expense | 14 | % | 24 | % | ||||
| General and administrative expense | 71 | % | 64 | % | ||||
| Total selling, general and administrative expenses | 94 | % | 100 | % | ||||
| Operating loss | (66 | )% | (80 | )% | ||||
| Change in fair value of derivative liabilities | (6 | )% | — | % | ||||
| Gain on extinguishment of debt | 13 | % | 2 | % | ||||
| Interest expense | (12 | )% | — | % | ||||
| Other income and interest income (expense), net | — | % | — | % | ||||
| Income (loss) before income tax benefit | (71 | )% | (78 | )% | ||||
| Income tax (provision) | — | % | — | % | ||||
| Net income/(loss) | (71 | )% | (78 | )% | ||||
| Net income (loss) attributable to noncontrolling interests of consolidated subsidiary | — | % | (2 | )% | ||||
| Net income (loss) attributable to common stockholders | (71 | )% | (80 | )% | ||||
| Net income/(loss) per share information: | ||||||||
| Basic | $ | (1.37 | ) | $ | (2.22 | ) | ||
| Diluted | $ | (1.37 | ) | $ | (2.22 | ) | ||
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Revenues
Revenues by Type and by Operating Segment
Our operating segments generate two types of revenues:
Product revenues primarily includes video operating segment hardware sales of in-car and body-worn cameras, along with sales of our ThermoVuTM units, disinfectants, and personal protective equipment. Additionally, product revenues also include the sale of tickets by our entertainment operating segment that have been purchased or received through our sponsorships and partnerships and held in inventory by our entertainment segment until their sale.
Service and other revenues consist of cloud and warranty services revenues from our subscription plan and storage offerings of our video solutions segment. Our entertainment 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 customers in the following manner:
| ● | Sales to domestic customers are made directly to the end customer (typically a law enforcement agency or a commercial customer) through our sales force, comprised of our employees. Revenue is recorded when the product is shipped to the end customer. | |
| ● | Sales to international customers are made through independent distributors who purchase products from us at a wholesale price and sell to the end user (typically law enforcement agencies or a commercial customer) at a retail price. The distributor retains the margin as compensation for its role in the transaction. The distributor generally maintains product inventory, customer receivables and all related risks and rewards of ownership. Revenue is recorded when the product is shipped to the distributor consistent with the terms of the distribution agreement. | |
| ● | Repair parts and services for domestic and international customers are generally handled by our inside customer service employees. Revenue is recognized upon shipment of the repair parts and acceptance of the service or materials by the end customer. |
Our revenue cycle management operating segment sells its services to customers in the following manner:
| ● | Our revenue cycle management operating segment generates service revenues through relationships with medium to large healthcare organizations, in which the underlying service revenue is recognized upon execution of services. Service revenues are generally determined as a percentage of the dollar amount of medical billings collected by the customer. |
Our entertainment operating segment sells our products and services to customers in the following manner:
| ● | Our entertainment operating segment generates product revenues from the sale of tickets directly to consumers for a particular event that the entertainment operating segment has previously purchased and held in inventory for ultimate resale to the end consumer. Service sales through TicketSmarter, are driven largely in part to the usage of the TicketSmarter.com marketplace by buyers and sellers, in which the Company collects service fees for each transaction completed through this platform. |
We may discount our prices on specific orders based upon the size of the order, the specific customer and the competitive landscape.
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Product revenues by operating segment are as follows:
| Three Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Product Revenues: | ||||||||
| Video Solutions | $ | 721,188 | $ | 1,193,021 | ||||
| Revenue Cycle Management | — | — | ||||||
| Entertainment | 844,658 | 1,260,789 | ||||||
| Total Product Revenues | $ | 1,565,846 | $ | 2,453,810 | ||||
Product revenues for the three months ended March 31, 2024 and 2023 were $1,565,846 and $2,453,810 respectively, an decrease of $887,964 (36%), due to the following factors:
| ● | Revenues generated by the entertainment operating segment began with the Company’s September 2021 acquisition of TicketSmarter. The entertainment operating segment generated $844,658 in product revenues for the three months ended March 31, 2024, compared to $1,260,789 for the three months ended March 31, 2023. 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 $721,188 during the three months ended March 31, 2024 compared to $1,193,021 for the three months ended March 31, 2023. In general, our video solutions operating segment has experienced pressure on its product revenues as our in-car and body-worn systems are facing increased competition because our competitors have released new products with advanced features. Additionally, our law enforcement revenues declined compared to the same period in 2023 due to price-cutting and competitive actions by our competitors, adverse marketplace effects related to our patent litigation proceedings and our recent financial condition. | |
| ● | Our video solutions operating segment management has continued to focus on migrating commercial customers, from a hardware sale to a service fee model. Therefore, we expect a reduction in commercial hardware sales (principally DVM-250’s, FLT-250’s, and a portion of our body-worn camera line) as we convert these customers to a service model under which we provide the hardware as part of a recurring monthly service fee. In that respect, we introduced a monthly subscription agreement plan for our body worn cameras and related equipment during the second quarter of 2020 that allowed law enforcement agencies to pay a monthly service fee to obtain body worn cameras without incurring a significant upfront capital outlay. This program has gained some traction, resulting in decreased product revenues and increasing our service revenues. We expect this program to continue to hold traction, resulting in recurring revenues over a span of three to five years. |
Service and other revenues by operating segment are as follows:
| Three Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Service and Other Revenues: | ||||||||
| Video Solutions | $ | 997,105 | $ | 706,343 | ||||
| Revenue Cycle Management | 1,434,599 | 1,781,590 | ||||||
| Entertainment | 1,531,801 | 2,755,447 | ||||||
| Total Service and Other Revenues | $ | 3,963,505 | $ | 5,243,380 | ||||
Service and other revenues for the three months ended March 31, 2024 and 2023 were $3,963,505 and $5,243,380, respectively, a decrease of $1,279,875 (24%), due to the following factors:
| ● | Cloud revenues generated by the video solutions operating segment were $616,488 and $422,823 for the three months ended March 31, 2024 and 2023, respectively, an increase of $193,665 (46%). We have experienced increased interest in our cloud solutions for law enforcement primarily due to the deployment of our cloud-based EVO-HD in-car system and our next generation body-worn camera products, which contributed to our increased cloud revenues in the three months ended March 31, 2024. We expect this trend to continue throughout 2024 as the migration from local storage to cloud storage continues in our customer base. |
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| ● | Video solutions operating segment revenues from extended warranty services and other services were $380,618 and $283,520 for the three months ended March 31, 2024 and 2023, respectively, an increase of $97,098 (34%). This correlates with the increase in sales of DVM-800 hardware systems resulting in an increase in their associated extended warranty. | |
| ● | Our entertainment operating segment generated service revenues totaling $1,531,801 and $2,755,447 for the three months ended March 31, 2024 and 2023, respectively, a decrease of $1,223,646 (44%). TicketSmarter collects fees on transactions administered through the TicketSmarter.com platform for the buying and selling of tickets for live events throughout the country. We expect our entertainment operating segment to continue to present a strong revenue outlook moving forward. | |
| ● | Our revenue cycle management operating segment generated service revenues totaling $1,434,599 and $1,781,590 for the three months ended March 31, 2024 and 2023, respectively, a decrease of $346,991 (20%). Our revenue cycle management operating segment provides revenue cycle management solutions and back-office services to healthcare organizations throughout the country. We expect our revenue cycle management segment to continue to present a strong revenue outlook moving forward. |
Total revenues for the three months ended March 31, 2024 and 2023 were $5,529,351 and $7,697,190, respectively, a decrease of $2,167,839 (28%), due to the reasons noted above.
Cost of Product Revenue
Overall cost of product revenue sold for the three months ended March 31, 2024, and 2023 was $1,567,393 and $2,301,100, respectively, a decrease of $733,707 (32%). Overall cost of goods sold for products as a percentage of product revenues for the three months ended March 31, 2024, and 2023 were 100% and 94%, respectively. Cost of products sold by operating segment is as follows:
| Three Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Cost of Product Revenues: | ||||||||
| Video Solutions | $ | 797,494 | $ | 1,037,594 | ||||
| Revenue Cycle Management | — | — | ||||||
| Entertainment | 769,899 | 1,263,506 | ||||||
| Total Cost of Product Revenues | $ | 1,567,393 | $ | 2,301,100 | ||||
The decrease in cost of goods sold for our video solutions segment products is directly correlated with the decrease in product sales for the three months ended March 31, 2024 compared to the three months ended March 31, 2023. 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 2023. Cost of product sold as a percentage of product revenues for the video solutions segment increased to 111% for the three months ended March 31, 2024 as compared to 87% for the three months ended March 31, 2023.
The decrease in entertainment operating segment cost of product sold directly correlates to the decrease in product revenues for the three months ended March 31, 2024 compared to March 31, 2023, resulting in cost of product revenue of $769,899 for the three months ended March 31, 2024, compared to $1,263,506 for the three months ended March 31, 2023. Cost of product sold as a percentage of product revenues for the entertainment segment was 91% for the three months ended March 31, 2024 as compared to 100% for the three months ended March 31, 2023.
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We recorded $4,486,389 and $4,542,461 in reserves for obsolete and excess inventories at March 31, 2024 and December 31, 2023, respectively. Total raw materials, component parts, and work-in-progress were $2,964,525 and $3,065,049 at March 31, 2024 and December 31, 2023, respectively, a decrease of $100,524 (3%). Finished goods balances were $4,670,553 and $5,322,693 at March 31, 2024 and December 31, 2023, respectively, a decrease of $652,140 (12%) which was attributable to a decrease in finished goods from our entertainment segment. The small decrease in the inventory reserve is primarily due to the reduction in finished goods and movement of excess inventory, offset by the decrease in reserve at the entertainment segment. We believe the reserves are appropriate given our inventory levels as of March 31, 2024.
Cost of Service Revenue
Overall cost of service revenue sold for the three months ended March 31, 2024, and 2023 was $2,438,259 and $3,851,298, respectively, a decrease of $1,413,039 (37%). Overall cost of goods sold for services as a percentage of service revenues for the three months ended March 31, 2024, and 2023 was 62% and 73%, respectively. Cost of service revenues by operating shipment is as follows:
| Three Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Cost of Service Revenues: | ||||||||
| Video Solutions | $ | 355,105 | $ | 327,575 | ||||
| Revenue Cycle Management | 970,867 | 1,005,656 | ||||||
| Entertainment | 1,112,287 | 2,518,067 | ||||||
| Total Cost of Service Revenues | $ | 2,438,259 | $ | 3,851,298 | ||||
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, 2024 compared to the three months ended March 31, 2023. Cost of service revenues as a percentage of service revenues for the video solutions segment decreased to 36% for the three months ended March 31, 2024 as compared to 46% for the three months ended March 31, 2023.
Cost of service revenues as a percentage of service revenues for the revenue cycle management operating segment was 68% for the three months ended March 31, 2024 as compared to 56% for the three months ended March 31, 2023.
The decrease in entertainment operating segment cost of service revenues is commensurate with the decrease in service revenues in the three months ended March 31, 2024, compared to the three months ended March 31, 2023. Cost of service revenues as a percentage of service revenues for the entertainment segment was 73% for the three months ended March 31, 2024 as compared to 91% for the three months ended March 31, 2023.
Gross Profit
Overall gross profit for the three months ended March 31, 2024 and 2023 was $1,523,699 and $1,544,792, respectively, a decrease of $21,093 (1%). Gross profit by operating segment was as follows:
| Three Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Gross Profit: | ||||||||
| Video Solutions | $ | 565,694 | $ | 534,195 | ||||
| Revenue Cycle Management | 463,731 | 775,934 | ||||||
| Entertainment | 494,274 | 234,663 | ||||||
| Total Gross Profit | $ | 1,523,699 | $ | 1,544,792 | ||||
The overall decrease is attributable to the decrease in revenues for the three months ended March 31, 2024 and a decrease in the overall cost of sales as a percentage of overall revenues to 72% for the three months ended March 31, 2024 from 80% for the three months ended March 31, 2023. Our goal is to improve our margins over the longer term based on the expected margins generated by our new recent revenue cycle management and entertainment operating segments together with our video solutions operating segment and its expected margins from our EVO-HD, DVM-800, VuLink, FirstVu Pro, FirstVu II, ShieldTM disinfectants and our cloud evidence storage and management offering, provided that they gain traction in the marketplace. In addition, if revenues from the video solutions segment increase, we will seek to further improve our margins from this segment through expansion and increased efficiency utilizing fixed manufacturing overhead components. We plan to continue our initiative to more efficient management of our supply chain through outsourcing production, quantity purchases and more effective purchasing practices.
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Selling, General and Administrative Expenses
Selling, general and administrative expenses were $5,162,732 and $7,717,598 for the three months ended March 31, 2024 and 2023, respectively, a decrease of $2,554,865 (33%). The decrease was primarily attributable to the reduction in sponsorships and advertising being by the Company. Our selling, general and administrative expenses as a percentage of sales increased to 93% for the three months ended March 31, 2024 compared to 100% in the same period in 2023. The significant components of selling, general and administrative expenses are as follows:
| Three months ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Research and development expense | $ | 487,466 | $ | 934,939 | ||||
| Selling, advertising and promotional expense | 761,118 | 1,847,489 | ||||||
| General and administrative expense | 3,914,149 | 4,935,170 | ||||||
| Total | $ | 5,162,733 | $ | 7,717,598 | ||||
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 $487,466 and $934,939 for the three months ended March 31, 2024 and 2023, respectively, a decrease of $447,473 (48%). Most of our engineers are dedicated to research and development activities for new products, primarily the new generation of body-worn cameras, EVO-HD and EVO Fleet that can be located in multiple places in a vehicle. We expect our research and development activities will continue to trend higher in future quarters as we continue to expand our product offerings based on our new body-worn camera and EVO-HD product platform and as we outsource more development projects. We consider our research and development capabilities and new product focus to be a competitive advantage and intend to continue to invest in this area on a prudent basis and consistent with our financial resources.
Selling, advertising and promotional expenses. Selling, advertising and promotional expense totaled $761,118 and $1,847,489 for the three months ended March 31, 2024 and 2023, respectively, a decrease of $1,086,371 (59%). Promotional and advertising expenses represent the primary component of these costs and totaled $377,231 during the three months ended March 31, 2024, compared to $1,460,823 during the three months ended March 31, 2023, a decrease of $1,083,592 (74%). The decrease is primarily attributable to the reduction in sponsorships being entered into by the Company.
General and administrative expense. General and administrative expenses totaled $3,914,149 and $4,935,170 for the three months ended March 31, 2024 and 2023, respectively, a decrease of $1,021,021 (21%). The decrease in general and administrative expenses in the three months ended March 31, 2024 compared to the same period in 2023 is primarily attributable to a decrease in administrative salaries, as payroll begins to adjust from the new acquisitions completed by the Company and reductions in headcount. General and administrative expenses also decreased due to a decline in rent expenses for the three months ended March 31, 2024 compared to the same period in 2023.
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Operating Loss
For the reasons stated above, our operating loss was $3,639,034 and $6,172,806 for the three months ended March 31, 2024 and 2023, respectively, a decrease of $2,533,772 (41%). Operating loss as a percentage of revenues decreased to 66% in the three months ended March 31, 2024 from 80% in the same period in 2023.
Interest Income
Interest income decreased to $14,938 for the three months ended March 31, 2024, from $15,477 in the same period of 2023, which primarily represents interest charges on our subscription receivables.
Interest Expense
We incurred interest expenses of $648,567 and $5,664 during the three months ended March 31, 2024 and 2023, respectively. The increase is attributable to interest charges and the amortization of debt issuance and discounts associated with several debt issuances.
Change in Fair Value of Contingent Consideration Promissory Notes
The Company recognized a gain on the change in fair value of contingent consideration promissory notes of $-0- compared to a loss of $158,021 during the three months ended March 31, 2024 and 2023, respectively. This is in connection with the four acquisitions made by our revenue cycle management segment.
Change in Fair Value of Derivative Liabilities
During the second quarter of 2023, the Company issued detachable warrants to purchase a total of 1,125,000 shares of Common Stock in association with the two secured convertible notes 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 consolidated statement of operations as the change in fair value of warrant derivative liabilities. The change in fair value of the warrant derivative liabilities during three months ended March 31, 2024 totaled $348,891, compared to $-0- for the three months March 31, 2023, which was recognized as a loss on the Consolidated Statements of Operations.
Gain on Extinguishment of Liabilities
Gain on extinguishment of liabilities increased to $682,345 for the period ended March 31, 2024, from $-0- during the period ended March 31, 2023, which reflects income related to the video segment’s ability to negotiate down payables and contract liabilities during the period.
Loss on sale of fixed asset
The Company recorded a loss on sale of fixed assets of $41,661 and $-0- for the three months ended March 31, 2024 and 2023.
Other income
Other income increased to $27,602 for the three months ended March 31, 2024, from $25,393 during the three months ended March 31, 2023, which largely reflects income related to a warehouse lease within the corporate headquarters.
Loss before Income Tax Benefit
As a result of the above results of operations, we reported a loss before income tax benefit of $3,943,268 and $5,979,579 for the three months ended March 31, 2024 and 2023, respectively, a decrease of $2,036,311 (34%).
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Income Tax Benefit
We did not record an income tax expense related to our income for the three months ended March 31, 2024 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 March 31, 2024. We had approximately $145.0 million of net operating loss carryforwards and $1.8 million of research and development tax credit carryforwards as of March 31, 2024 available to offset future net taxable income.
Net Loss
As a result of the above results of operations, we reported a net loss of $3,943,268 and $5,979,579 for the three months ended March 31, 2024 and 2023, respectively, a decrease of $2,036,311 (34%).
Net Income/(Loss) Attributable to Noncontrolling Interests of Consolidated Subsidiary
The Company owns a 51% equity interest in its consolidated subsidiary, Nobility Healthcare. As a result, the noncontrolling shareholders or minority interest is allocated 49% of the income/(loss) of Nobility Healthcare which is reflected in the statement of income (loss) as “net income (loss) attributable to noncontrolling interests of consolidated subsidiary”. We reported net income/(loss) attributable to noncontrolling interests of consolidated subsidiary of ($12,248) and $126,239 for the three months ended March 31, 2024 and 2023, respectively.
Net Loss Attributable to Common Stockholders
As a result of the above, we reported a net loss attributable to common stockholders of $3,931,020 and $6,105,818 for the three months March 31, 2024 and 2023, respectively, a decrease of $2,174,798 (36%).
Basic and Diluted Loss per Share
The basic and diluted loss per share was $1.37 and $2.22 for the three months ended March 31, 2024 and 2023, respectively. Basic loss per share is based upon the weighted average number of common shares outstanding during the period. For the three months ended March 31, 2024 and 2023, all shares issuable upon conversion of convertible debt and the exercise of outstanding stock options and warrants were antidilutive, and, therefore, not included in the computation of diluted loss per share.
Liquidity and Capital Resources
Overall:
Management’s Liquidity Plan. We have experienced net losses and cash outflows from operating activities since inception. Based upon our current operating forecast, we anticipate that we will need to restore positive operating cash flows and/or raise additional capital in the short-term to fund operations, meet our customary payment obligations and otherwise execute our business plan over the next 12 months. We are continuously in discussions to raise additional capital, which may include a variety of equity and debt instruments; however, there can be no assurance that our capital raising initiatives will be successful. Our recurring losses and level of cash used in operations, along with uncertainties concerning our ability to raise additional capital, raise substantial doubt about our ability to continue as a going concern.
Our Common Stock is currently listed on The Nasdaq Capital Market. In order to maintain our listing, we must satisfy minimum financial and other continued listing requirements and standards, including those regarding director independence and independent committee requirements, minimum stockholders’ equity, minimum share price, and certain corporate governance requirements. There can be no assurances that we will be able to comply with the applicable listing standards. See “Nasdaq Listing” below.
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Cash, cash equivalents, and restricted cash: As of March 31, 2024, we had cash, cash equivalents, and restricted cash with an aggregate balance of $1,025,461, an increase from a balance of $778,149 at December 31, 2023. Summarized immediately below and discussed in more detail in the subsequent subsections are the main elements of the $247,312 net increase in cash during the three months ended March 31, 2024:
| ● | Operating activities: | $918,545 of net cash used in operating activities. Net cash used in operating activities was $918,545 and $1,216,876 for the three months ended March 31, 2024 and 2023, respectively, a decrease of $298,331. The decrease is attributable to the decrease in net loss and a decrease in the usage of cash for operating assets during the three months ended March 31, 2024 compared to the same period in 2023. | |
| ● | Investing activities: | $160,830 of net cash provided by investing activities. Cash provided by investing activities was $160,830 for the three months ended March 31, 2024 compared to cash used in investing activities of $70,645 for the three months ended March 31, 2023. During the three months ended March 31, 2024, we made capital expenditures for: (i) acquired Country Stampede; (ii) sold an aircraft; and (iii) sold personal seat licenses. | |
| ● | Financing activities: | $1,005,027 of net cash provided by financing activities. Cash provided by financing activities was $1,005,027 and $615,045 for the three months ended March 31, 2024 and 2023, respectively. During the first three months of 2024, we most notably made principal payments on contingent consideration promissory notes and merchant advances, received additional funds from the merchant advance and entered into an additional advance agreement. During the first three months of 2023 we received proceeds from a Commercial Extension of Credit agreement and the Company made principal payments on contingent consideration promissory notes and the credit agreement. |
Commitments:
We had $1,025,461 of cash and cash equivalents, including restricted cash of $97,600, and net negative working capital $9,624,118 as of March 31, 2024. Accounts receivable and other receivables balances represented $4,421,492 of our net working capital at March 31, 2024. We intend to collect our outstanding receivables on a timely basis and reduce the overall level during 2024, which would help to provide positive cash flow to support our operations during 2024. Inventory represents $3,148,689 of our net working capital at March 31, 2024. We are actively managing the level of inventory and our goal is to reduce such level during the balance of 2024 by our sales activities, the increase of which should provide additional cash flow to help support our operations during 2024.
Capital Expenditures:
We had the following material commitments for capital expenditures at March 31, 2024:
Lease commitments. The following sets forth the operating lease right of use assets and liabilities as of March 31, 2024:
The following sets forth the operating lease right of use assets and liabilities as of March 31, 2024:
| Assets: | ||||
| Operating lease right of use assets | $ | 925,128 | ||
| Liabilities: | ||||
| Operating lease obligations-current portion | $ | 225,960 | ||
| Operating lease obligations-less current portion | 749,718 | |||
| Total operating lease obligations | $ | 975,678 |
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The components of lease expense were as follows for the three months ended March 31, 2024:
| Selling, general and administrative expenses | $ | 108,879 |
Following are the minimum lease payments for each year and in total:
| Year ending December 31: | ||||
| 2023 (April 1, to December 31, 2024) | $ | 225,247 | ||
| 2024 | 288,720 | |||
| 2025 | 293,300 | |||
| 2026 | 117,492 | |||
| Thereafter | 235,020 | |||
| Total undiscounted minimum future lease payments | 1,159,779 | |||
| Imputed interest | (184,101 | ) | ||
| Total operating lease liability | $ | 975,678 | ||
Debt obligations is comprised of the following:
| March 31, 2024 | December 31, 2023 | |||||||
| Economic injury disaster loan (EIDL) | $ | 146,971 | $ | 147,781 | ||||
| Contingent consideration promissory note – Nobility Healthcare Division Acquisition | 64,826 | 129,651 | ||||||
| Contingent consideration promissory note – Nobility Healthcare Division Acquisition | 29,409 | 58,819 | ||||||
| Revolving Loan Agreement | 4,880,000 | 4,880,000 | ||||||
| Commercial Extension of Credit- Entertainment Segment | 69,643 | 87,928 | ||||||
| Merchant Advances – Video Solutions Segment | 1,348,000 | 1,350,000 | ||||||
| Merchant Advances – Entertainment Segment | 1,425,000 | — | ||||||
| Unamortized debt issuance costs | (684,989 | ) | (540,429 | ) | ||||
| Debt obligations | 7,278,860 | 6,113,750 | ||||||
| Less: current maturities of debt obligations | 2,403,029 | 1,260,513 | ||||||
| Debt obligations, long-term | $ | 4,875,831 | $ | 4,853,237 | ||||
Debt obligations mature as follows as of March 31, 2024:
| March 31, 2024 | ||||
| 2024 | $ | 2,402,188 | ||
| 2025 | 4,735,589 | |||
| 2026 | 3,542 | |||
| 2027 | 3,677 | |||
| 2028 and thereafter | 133,864 | |||
| Total | $ | 7,278,860 | ||
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Critical Accounting Estimates
Our significant accounting policies are summarized in Note 1, “Nature of Business and Summary of Significant Accounting Policies,” to our consolidated financial statements. While the selection and application of any accounting policy may involve some level of subjective judgments and estimates, we believe the following accounting policies and estimates are the most critical to our financial statements, potentially involve the most subjective judgments in their selection and application, and are the most susceptible to uncertainties and changing conditions:
| ● | Revenue Recognition / Allowance for Doubtful Accounts; | |
| ● | Allowance for Excess and Obsolete Inventory; | |
| ● | Goodwill, other intangible assets, fair value of assets and liabilities acquired in business combinations; | |
| ● | Warranty Reserves; | |
| ● | Fair value of warrant derivative liabilities; | |
| ● | Stock-based Compensation Expense; 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.
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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 entertainment 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 entertainment operations, and consists of one primary performance obligation, which is facilitating the transaction between the buyer and seller, being satisfied at the time the order has been confirmed. As we do not control the ticket prior to the transfer, we act as an agent in these transactions. Revenue is recognized on a net basis, net of the amount due to the seller when an order is confirmed, the seller is then obligated to deliver the tickets to the buyer per the seller’s listing. Payment is due at the time of sale.
We review all significant, unusual, or nonstandard shipments of product or delivery of services as a routine part of our accounting and financial reporting process to determine compliance with these requirements. Extended warranties are offered on selected products, and when a customer purchases an extended warranty, the associated proceeds are treated as contract liability and recognized over the term of the extended warranty.
For our video solutions segment, our principal customers are state, local, and federal law enforcement agencies, which historically have been low risks for uncollectible accounts. However, we have commercial customers and international distributors that present a greater risk for uncollectible accounts than such law enforcement customers and we consider a specific reserve for bad debts based on their individual circumstances. Our historical bad debts have been negligible, with less than $258,000 charged off as uncollectible on cumulative revenues of $248.0 million since we commenced deliveries during 2006.
For our entertainment segment, our customers are mainly online visitors that pay at the time of the transaction, and we collect the service fees charged with the transaction. Thus, leading to minimal risk for uncollectible accounts, to which we then consider a specific reserve for bad debts based on their individual circumstances. As we continue to learn more about the collectability related to this recent acquisition, we will track historical bad debts and continue to assess appropriate reserves.
For our revenue cycle management segment, our customers are mainly medium to large healthcare organizations that are charged monthly upon the execution of our services. Being these customers are healthcare organizations with minimal risk for uncollectible accounts, we consider a specific reserve for bad debts based on their individual circumstances. As we continue to learn more about the collectability related to this recently added segment, we will track historical bad debts and continue to assess appropriate reserves.
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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 March 31, 2024 and December 31, 2023:
March 31, 2024 | December 31, 2023 | |||||||
| Raw material and component parts– video solutions segment | $ | 2,938,434 | $ | 3,044,653 | ||||
| Work-in-process– video solutions segment | 26,091 | 20,396 | ||||||
| Finished goods – video solutions segment | 4,180,699 | 4,623,489 | ||||||
| Finished goods – entertainment segment | 489,854 | 699,204 | ||||||
| Subtotal | 7,635,078 | 8,387,742 | ||||||
| Reserve for excess and obsolete inventory– video solutions segment | (4,315,132 | ) | (4,355,666 | ) | ||||
| Reserve for excess and obsolete inventory – entertainment segment | (171,257 | ) | (186,795 | ) | ||||
| Total inventories | $ | 3,148,689 | $ | 3,845,281 | ||||
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 59% of the gross inventory balance at March 31, 2024, compared to 54% of the gross inventory balance at December 31, 2023. We had $4,486,389 and $4,542,461 in reserves for obsolete and excess inventories at March 31, 2024 and December 31, 2023, respectively. Total raw materials, component parts, and work-in-process were $2,964,525 and $3,065,049 at March 31, 2024 and December 31, 2023, respectively, a decrease of $100,524 (3%). Finished goods balances were $4,670,553 and $5,322,693 at March 31, 2024 and December 31, 2023, respectively, a decrease of $652,140 (12%). The small decrease in the inventory reserve is primarily due to the reduction in finished goods and movement of excess inventory. Additionally, the Company determined a reasonable reserve for inventory held at the ticket operating segment, in which some inventory items sell below cost or go unsold, thus having to be fully written-off following the event date. We believe the reserves are appropriate given our inventory levels as of March 31, 2024.
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.
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Determining the fair values of acquired intangible assets requires us to exercise significant judgment. We select reasonable estimates and assumptions based on evaluating a number of factors, including, but not limited to, marketplace participants, consumer awareness and brand history. Additionally, there are significant judgments inherent in discounted cash flows such as estimating the amount and timing of projected future cash flows, the selection of discount rates, hypothetical royalty rates and contributory asset capital charges. Specifically, the selected discount rates are intended to reflect the risk inherent in the projected future cash flows generated by the underlying acquired intangible assets.
Determining an acquired intangible asset’s useful life also requires significant judgment and is based on evaluating a number of factors, including, but not limited to, the expected use of the asset, historical client retention rates, consumer awareness and trade name history, as well as any contractual provisions that could limit or extend an asset’s useful life.
The Company’s goodwill is evaluated in accordance with FASB ASC Topic 350, which requires goodwill to be assessed for impairment at least annually and whenever events or changes in circumstances indicate that the carrying value of goodwill may not be recoverable. In addition, an impairment evaluation of our amortizable intangible assets may also be performed if events or circumstances indicate potential impairment. Among the factors that could trigger an impairment review are current operating results that do not align with our annual plan or historical performance; changes in our strategic plans or the use of our assets; restructuring changes or other changes in our business segments; competitive pressures and changes in the general economy or in the markets in which we operate; and a significant decline in our stock price and our market capitalization relative to our net book value.
When performing our annual assessment of the recoverability of goodwill, we initially perform a qualitative analysis evaluating whether any events or circumstances occurred or exist that provide evidence that it is more likely than not that the fair value of any of our reporting units is less than the related carrying amount. If we do not believe that it is more likely than not that the fair value of any of our reporting units is less than the related carrying amount, then no quantitative impairment test is performed. However, if the results of our qualitative assessment indicate that it is more likely than not that the fair value of a reporting unit is less than its respective carrying amount, then we perform a two-step quantitative impairment test.
Evaluating the recoverability of goodwill requires judgments and assumptions regarding future trends and events. As a result, both the precision and reliability of our estimates are subject to uncertainty. Among the factors that we consider in our qualitative assessment are general economic conditions and the competitive environment; actual and projected reporting unit financial performance; forward-looking business measurements; and external market assessments. To determine the fair values of our reporting units for a quantitative analysis, we typically utilize detailed financial projections, which include significant variables, such as projected rates of revenue growth, profitability and cash flows, as well as assumptions regarding discount rates, the Company’s weighted average cost of capital and other data.
Our most recent annual impairment test of goodwill was a qualitative analysis conducted as of December 31, 2023 that indicated no impairment. Subsequent to completing our 2023 annual impairment test, no events or changes in circumstances were noted that required an interim goodwill impairment test. 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 increased to $20,529 as of March 31, 2024 compared to $17,699 as of December 31, 2023 due to newer products gaining a long history of claims to consider, which was slightly offset 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.
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Warrant derivative liabilities. On April 5, 2023, the Company issued warrants to purchase a total of 1,125,000 shares of Common Stock. The warrant terms provide for net cash settlement outside the control of the Company under certain circumstances 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.
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 March 31, 2024:
| Issuance date assumptions | March 31, 2024 assumptions | |||||||
| Volatility - range | 106.0 | % | $ | 108.5 | % | |||
| Risk-free rate | 3.36 | % | 4.21 | % | ||||
| Dividend | 0 | % | 0 | % | ||||
| Remaining contractual term | 5.0 years | 4.0 years | ||||||
| Exercise price | 5.50 – 7.50 | 5.50 – 7.50 | ||||||
| Common stock issuable under the warrants | 1,125,000 | 1,125,000 | ||||||
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 no stock options granted during the three months ended March 31, 2024.
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, 2024, 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 increased by $7,410,000 to a balance of $41,610,000 to fully reserve our deferred tax assets at December 31, 2023. We determined that it was appropriate to continue to provide a full valuation reserve on our net deferred tax assets as of March 31, 2024, 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 March 31, 2024 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 are seasonal in nature, however; the Entertainment Segment is expected to generate higher revenues during the second half of the calendar year than in the first half.
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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 Report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were not effective as of March 31, 2024 to provide reasonable assurance that material information required to be disclosed by the Company in this 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.
As part of our plan to remediate our controls which were not effective, we are performing a full review of our internal control procedures. We have implemented, and plan to continue to implement, new controls and new processes. We have hired and plan to continue to hire additional qualified personnel and establish more robust processes to support our internal control over financial reporting, including clearly defined roles and responsibilities. The Company anticipates time being required to complete the implementation and to assess and ensure the sustainability of these controls. The effectiveness will not be considered remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.
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 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 12 – 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.
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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.
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.
There were no unregistered sales of equity securities during the first quarter of 2024 that were not disclosed by the Company on a Current Report on Form 8-K.
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.
In accordance with SEC Release 33-8238, Exhibits 32.1 and 32.2 are being furnished and not filed.
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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: May 17, 2024
| DIGITAL ALLY, INC. | ||
| By: | /s/ Stanton E. Ross | |
| Name: | Stanton E. Ross | |
| Title: | Chief Executive Officer | |
| By: | /s/ Thomas J. Heckman | |
| Name: | Thomas J. Heckman | |
| Title: | Chief Financial Officer, Secretary and Treasurer (Principal Financial and Accounting Officer) | |
| 56 |
EXHIBIT 31.1
DIGITAL ALLY, INC.
CERTIFICATIONS
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Stanton E. Ross, Chief Executive Officer of Digital Ally, Inc., certify that:
| 1. | I have reviewed this report on Form 10-Q for the three months ended March 31, 2024 of Digital Ally, Inc. | ||
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report. | ||
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report. | ||
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: | ||
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | ||
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | ||
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | ||
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting. | ||
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions): | ||
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | ||
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting. | ||
Date: May 17, 2024
| /s/ Stanton E. Ross | |
| Stanton E. Ross | |
| Chief Executive Officer | |
| (Principal Executive Officer) |
EXHIBIT 31.2
DIGITAL ALLY, INC.
CERTIFICATIONS
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Thomas J. Heckman, Chief Financial Officer of Digital Ally, Inc., certify that:
| 1. | I have reviewed this report on Form 10-Q for the three months ended March 31, 2024 of Digital Ally, Inc. | ||
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report. | ||
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report. | ||
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: | ||
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | ||
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | ||
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | ||
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and | ||
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions): | ||
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | ||
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting. | ||
Date: May 17, 2024
| /s/ Thomas J. Heckman | |
| THOMAS J. HECKMAN | |
| Chief Financial Officer | |
| (Principal Financial Officer) |
EXHIBIT 32.1
DIGITAL ALLY, INC.
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Digital Ally, Inc. (the “Company”) on Form 10-Q for the three months ended March 31, 2024 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Stanton E. Ross, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| /s/ Stanton E. Ross | |
| Stanton E. Ross | |
| Chief Executive Officer | |
| (Principal Executive Officer) | |
| May 17, 2024 |
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Digital Ally, Inc. and will be retained by Digital Ally, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
EXHIBIT 32.2
DIGITAL ALLY, INC.
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Digital Ally, Inc. (the “Company”) on Form 10-Q for the three months ended March 31, 2024 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Thomas J. Heckman, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| /s/ Thomas J. Heckman | |
| THOMAS J. HECKMAN | |
| Chief Financial Officer | |
| (Principal Financial Officer) | |
| May 17, 2024 |
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Digital Ally, Inc. and will be retained by Digital Ally, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
Condensed Consolidated Balance Sheets (Parenthetical) - USD ($) |
Mar. 31, 2024 |
Dec. 31, 2023 |
|---|---|---|
| Statement of Financial Position [Abstract] | ||
| Allowance for doubtful accounts receivable | $ 234,727 | $ 200,668 |
| Allowance for other receivable, current | $ 25,000 | $ 5,000 |
| Common stock, par value | $ 0.001 | $ 0.001 |
| Common stock, shares authorized | 200,000,000 | 200,000,000 |
| Common stock, shares issued | 2,879,826 | 2,800,754 |
Condensed Consolidated Statements of Stockholders' Equity (Unaudited) - USD ($) |
Common Stock [Member] |
Additional Paid-in Capital [Member] |
Noncontrolling Interest [Member] |
Retained Earnings [Member] |
Total |
|---|---|---|---|---|---|
| Balance at Dec. 31, 2022 | $ 2,721 | $ 127,869,342 | $ 448,694 | $ (91,980,234) | $ 36,340,523 |
| Balance, shares at Dec. 31, 2022 | 2,720,170 | ||||
| Stock-based compensation | 114,848 | 114,848 | |||
| Restricted common stock grant | $ 35 | $ (35) | |||
| Restricted common stock grant, shares | 35,000 | ||||
| Issuance due to rounding from reverse stock split | |||||
| Issuance due to rounding from reverse stock split, shares | 54 | ||||
| Net Income (loss) | 126,239 | $ (6,105,818) | $ (5,979,579) | ||
| Balance at Mar. 31, 2023 | $ 2,756 | 127,984,155 | 574,933 | (98,086,052) | 30,475,792 |
| Balance, shares at Mar. 31, 2023 | 2,755,224 | ||||
| Balance at Dec. 31, 2023 | $ 2,801 | 128,441,083 | 673,292 | (117,668,781) | 11,448,395 |
| Balance, shares at Dec. 31, 2023 | 2,800,754 | ||||
| Stock-based compensation | 40,695 | 40,695 | |||
| Restricted common stock grant | $ 80 | (80) | |||
| Restricted common stock grant, shares | 80,197 | ||||
| Net Income (loss) | (12,248) | (3,931,020) | (3,943,268) | ||
| Restricted common stock forfeitures | $ (1) | 1 | |||
| Restricted common stock grant, shares | (1,125) | 1,125 | |||
| Balance at Mar. 31, 2024 | $ 2,880 | $ 128,481,699 | $ 661,044 | $ (121,599,801) | $ 7,545,822 |
| Balance, shares at Mar. 31, 2024 | 2,879,826 |
NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
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| Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE 1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations:
Digital Ally, Inc. was originally incorporated in Nevada on December 13, 2000 as Vegas Petra, Inc. and had no operations until 2004. On November 30, 2004, Vegas Petra, Inc. entered into a Plan of Merger with Digital Ally, Inc., at which time the merged entity was renamed Digital Ally, Inc. (such merged entity, the “Predecessor Registrant”).
On August 23, 2022 (the “Effective Time”), the Predecessor Registrant merged with and into its wholly owned subsidiary, DGLY Subsidiary Inc., a Nevada corporation (the “Registrant”), pursuant to an agreement and plan of merger, dated as of August 23, 2022 (the “Merger Agreement”), between the Predecessor Registrant and the Registrant, with the Registrant as the surviving corporation in the merger (such transaction, the “Merger”). At the Effective Time, Articles of Merger were filed with the Secretary of State of the State of Nevada, pursuant to which the Registrant was renamed “Digital Ally, Inc.” and, by operation of law, succeeded to the assets, continued the business and assumed the rights and obligations of the Predecessor Registrant immediately prior to the Merger. Under the Nevada Revised Statutes, shareholder approval was not required in connection with the Merger Agreement or the transactions contemplated thereby.
At the Effective Time, pursuant to the Merger Agreement, (i) each outstanding share of Predecessor Registrant’s common stock, par value $ per share (the “Predecessor Common Stock”) automatically converted into one share of common stock, par value $ per share, of the Registrant (“Registrant Common Stock”), (ii) each outstanding option, right or warrant to acquire shares of Predecessor Common Stock converted into an option, right or warrant, as applicable, to acquire an equal number of shares of Registrant Common Stock under the same terms and conditions as the original options, rights or warrants, and (iii) the directors and executive officers of the Predecessor Registrant were appointed as directors and executive officers, as applicable, of the Registrant, each to serve in the same capacity and for the same term as such person served with the Predecessor Registrant immediately before the Merger.
The business of the Registrant, Digital Ally, Inc. (with its wholly-owned subsidiaries, Digital Ally International, Inc., Shield Products, LLC, Digital Ally Healthcare, LLC (“Digital Ally Healthcare”), TicketSmarter, Inc. (“TicketSmarter”), Worldwide Reinsurance, Ltd., Digital Connect, Inc., BirdVu Jets, Inc., Kustom 440, Inc. (“Kustom 440”), Kustom Entertainment, Inc., and its majority-owned subsidiary Nobility Healthcare, LLC, collectively, “Digital Ally,” “Digital,” and the “Company”), is divided into three reportable operating segments: 1) the Video Solutions Segment, 2) the Revenue Cycle Management Segment and 3) the Ticketing Segment. The Video Solutions Segment is our legacy business that produces digital video imaging, storage products, disinfectant and related safety products for use in law enforcement, security and commercial applications. This segment includes both service and product revenues through our subscription models offering cloud and warranty solutions, and hardware sales for video and health safety solutions. The Revenue Cycle Management Segment provides working capital and back-office services to a variety of healthcare organizations throughout the country, as a monthly service fee. The Entertainment Segment acts as an intermediary between ticket buyers and sellers within our secondary ticketing platform, ticketsmarter.com, and we also acquire tickets from primary sellers to then sell through various platforms. The accounting guidance on Segment Reporting establishes standards for reporting information regarding operating segments in annual financial statements and requires selected information of those segments to be presented in financial statements. Such required segment information is included in Note 18.
Reverse Stock Split
On February 6, 2023, the Company filed a Certificate of Amendment to its Articles of Incorporation, as amended, with the Secretary of State of the State of Nevada to effect a 1-for-20 reverse stock split (the “Reverse Stock Split”) of the shares of its common stock. The Reverse Stock Split was effective as of time of filing. No fractional shares were issued in connection with the Reverse Stock Split. Any fractional shares of our Common Stock that would have otherwise resulted from the Reverse Stock Split were rounded up to the nearest whole number. In connection with the Reverse Stock Split, the board of directors of the Company approved appropriate and proportional adjustments to all outstanding securities or other rights convertible or exercisable into shares of the Company’s common stock, including, without limitation, all preferred stock, warrants, options, and other equity compensation rights. All historical share and per-share amounts reflected throughout the Company’s consolidated financial statements and other financial information in this Report have been adjusted to reflect the Reverse Stock Split as if the split occurred as of the earliest period presented. The par value per share of the Company’s common stock was not affected by the Reverse Stock Split.
Business Combination
In June 2023, the Company, entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Clover Leaf Capital Corp., a Delaware corporation (Nasdaq: CLOE) (“Clover Leaf”), CL Merger Sub, Inc., a Nevada corporation and a wholly owned subsidiary of Clover Leaf (“Merger Sub”), Yntegra Capital Investments LLC, a Delaware limited liability company, in the capacity as the representative from and after the Effective Time (as defined in the Merger Agreement) for the stockholders of Clover Leaf in accordance with the terms and conditions of the Merger Agreement, and Kustom Entertainment, Inc., a Nevada corporation, a wholly owned subsidiary of the Company, with a focus and mission to own and produce events, festivals, and entertainment alongside its evolving primary and secondary ticketing technologies (“Kustom”). Pursuant to the Merger Agreement, subject to the terms and conditions set forth therein upon the consummation of the transactions contemplated by the Merger Agreement (the “Closing”), Merger Sub will merge with and into Kustom, with Kustom continuing as the surviving corporation in the Merger and a wholly owned subsidiary of Clover Leaf. Upon the Closing which is subject to the approval of Clover Leaf’s shareholders and the satisfaction or waiver of certain other customary closing conditions, the common stock of the combined company is expected to be listed on the Nasdaq under a mutually agreed new ticker symbol that reflects the name “Kustom Entertainment”.
Basis of Presentation:
The unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month period ended March 31, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024.
The balance sheet at December 31, 2023 has been derived from the audited financial statements at that date, but does not include all the information and footnotes required by generally accepted accounting principles in the United States for complete financial statements.
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, 2023.
Liquidity and Going Concern
During the second quarter of 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. This update provided U.S. GAAP guidance on management’s responsibility in evaluating whether there is substantial doubt about a company’s ability to continue as a going concern and about related footnote disclosures. Under this standard, the Company is required to evaluate whether there is substantial doubt about its ability to continue as a going concern each reporting period, including interim periods. In evaluating the Company’s ability to continue as a going concern, management considered the conditions and events that could raise substantial doubt about the Company’s ability to continue as a going concern within 12 months after the Company’s financial statements were issued (May 15, 2023). Management considered the Company’s current financial condition and liquidity sources, including current funds available, forecasted future cash flows and the Company’s obligations due before May 15, 2024.
The Company has experienced net losses and cash outflows from operating activities since inception. For the three months ended March 31, 2024, the Company had a net loss attributable to common stockholders of $3,931,020, net cash used in operating activities of $918,545, $160,830 provided by investing activities and $1,005,027 provided by financing activities. The Company will have to restore positive operating cash flows and profitability over the next year and/or raise additional capital to fund its operational plans, meet its customary payment obligations and otherwise execute its business plan. There can be no assurance that it will be successful in restoring positive cash flows and profitability, or that it can raise additional financing when needed, and obtain it on terms acceptable or favorable to the Company.
The Company has implemented an enhanced quality control program to detect and correct product issues before they result in significant rework expenditures affecting its gross margins and has seen progress in that regard. The Company has also implemented a marketing and advertisement reduction plan for its entertainment segment, which will focus on reducing and alleviating current obligations from its media marketing agreements and place a hold on entering into any new agreements. The Company believes that its quality control, cost-cutting initiatives, and new product introduction will eventually restore positive operating cash flows and profitability, although it can offer no assurances in this regard.
Management has evaluated the significance of the conditions described above in relation to the Company’s ability to meet its obligations and concluded that, without additional funding, the Company will not have sufficient funds to meet its obligations within one year from the date the unaudited condensed consolidated financial statements were issued.
Basis of Consolidation:
The accompanying financial statements include the consolidated accounts of Digital Ally, its wholly-owned subsidiaries, Digital Ally International, Inc., Shield Products, LLC, Digital Ally Healthcare, LLC, TicketSmarter, Inc., Worldwide Reinsurance, Ltd., Digital Connect, Inc., BirdVu Jets, Inc., Kustom 440, Inc., and its majority-owned subsidiary Nobility Healthcare, LLC. All intercompany balances and transactions have been eliminated during consolidation.
The Company formed Digital Ally International, Inc. during August 2009 to facilitate the export sales of its products. The Company formed Shield Products, LLC in May 2020 to facilitate the sales of its Shield™ line of disinfectant/cleanser products and ThermoVu™ line of temperature monitoring equipment. The Company formed Nobility Healthcare, LLC (“Nobility Healthcare”) in June 2021 to facilitate the operations of its revenue cycle management solutions and back-office services for healthcare organizations. The Company formed TicketSmarter, Inc. upon its acquisition of Goody Tickets, LLC and TicketSmarter, LLC, to facilitate its global ticketing operations. The Company formed Worldwide Reinsurance Ltd., which is a captive insurance company domiciled in Bermuda. It will provide primarily liability insurance coverage to the Company for which insurance may not be currently available or economically feasible in today’s insurance marketplace. The Company formed Kustom 440, Inc. in 2022 to create unique entertainment experiences directly for consumers, and Kustom Entertainment, Inc. in 2023 to serve as the participant in the Business Combination.
Fair Value of Financial Instruments:
The carrying amounts of financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and subordinated notes payable approximate fair value because of the short-term nature of these items.
Revenue Recognition:
The Company applies the provisions of Accounting Standards Codification (ASC) 606-10, Revenue from Contracts with Customers, and all related appropriate guidance. The Company recognizes revenue under the core principle to depict the transfer of control to its customers in an amount reflecting the consideration to which it expects to be entitled. In order to achieve that core principle, the Company applies the following five-step approach: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when a performance obligation is satisfied.
The Company has two different revenue streams, product and service, represented through its three segments. The Company reports all revenues on a gross basis, other than service revenues from the Company’s entertainment and revenue cycle management segments, Revenues generated by all segments are reported net of sales taxes.
Video Solutions
The Company considers customer purchase orders, which in some cases are governed by master sales agreements, to be the contracts with the customer. In situation where sales are to a distributor, the Company had concluded its contracts are with the distributor as the Company holds a contract bearing enforceable rights and obligations only with the distributor. As part of part of its consideration for the contract, the Company evaluates certain factors including the customers’ ability to pay (or credit risk). For each contract, the Company considers the promise to transfer products, each of which is distinct, to be the identified performance obligations. In determining the transaction price, the Company evaluates whether the price is subject to refund or adjustment to determine the net consideration to which it expects to be entitled. As the Company’s standard payment terms are less than one year, it has elected the practical expedient under ASC 606-10-32-18 to not assess whether a contract has a significant financing component. The Company allocates the transaction price to each distinct product based on its relative standalone selling price. The product price as specified on the purchase order is considered the standalone selling price as it is an observable input which depicts the price as if sold to a similar customer in similar circumstances. Revenue is recognized when control of the product is transferred to the customer (i.e. when the Company’s performance obligations is satisfied), which typically occurs at shipment. Further in determining whether control has been transferred, the Company considers if there is a present right to payment and legal title, along with risks and rewards of ownership having transferred to the customer. Customers do not have a right to return the product other than for warranty reasons for which they would only receive repair services or replacement products. The Company has also elected the practical expedient under ASC 340-40-25-4 to expense commissions for product sales when incurred as the amortization period of the commission asset the Company would have otherwise recognized is less than one year.
Service and other revenue is comprised of revenues from extended warranties, repair services, cloud revenue and software revenue. Revenue is recognized upon shipment of the product and acceptance of the service or materials by the end customer for repair services. Revenue for extended warranty, cloud service or other software-based products is over the term of the contract warranty or service period. A time-elapsed method is used to measure progress because the Company transfers control evenly over the contractual period. Accordingly, the fixed consideration related to these revenues is generally recognized on a straight-line basis over the contract term, as long as the other revenue recognition criteria have been met.
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.
Entertainment
The Company reports ticketing revenue on a gross or net basis based on management’s assessment of whether the Company is acting as a principal or agent in the transaction. The determination is based upon the evaluation of control over the event ticket, including the right to sell the ticket, prior to its transfer to the ticket buyer.
The Company sells tickets held in inventory, which consists of one performance obligation, being to transfer control of an event ticket to the buyer upon confirmation of the order. The Company acts as the principal in these transactions as the ticket is owned by the Company at the time of sale, therefore controlling the ticket prior to transferring to the customer. In these transactions, revenue is recorded on a gross basis based on the value of the ticket and is recognized when an order is confirmed. Payment is typically due upon delivery of the ticket.
The Company also acts as an intermediary between buyers and sellers through online secondary marketplace. Revenues derived from this marketplace primarily consist of service fees from ticketing operations, and consists of one primary performance obligation, which is facilitating the transaction between the buyer and seller, being satisfied at the time the order has been confirmed. As the Company does not control the ticket prior to the transfer, the Company acts as an agent in these transactions. Revenue is recognized on a net basis, net of the amount due to the seller when an order is confirmed, the seller is then obligated to deliver the tickets to the buyer per the seller’s listing. Payment is due at the time of sale.
Other
Contract liabilities consist of deferred revenue and include payments received in advance of performance under the contract and are reported separately as current liabilities and non-current liabilities in the Consolidated Balance Sheets. Such amounts consist of extended warranty contracts, prepaid cloud services and prepaid installation services and are generally recognized as the respective performance obligations are satisfied. During the three months ended March 31, 2024, the Company recognized revenue of $241,371 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:
Sales returns and allowances aggregated $93,170 and $117,713 as of March 31, 2024 and December 31, 2023, respectively. Obligations for estimated sales returns and allowances are recognized at the time of sales on an accrual basis. The accrual is determined based upon historical return rates adjusted for known changes in key variables affecting these return rates.
Use of Estimates:
The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates. Management utilizes various other estimates, including but not limited to determining the estimated lives of long-lived assets, determining the potential impairment of long-lived assets, the fair value of warrants, options, the recognition of revenue, allowance for doubtful accounts, the estimate of fair value of the lease liabilities and related right of use asset, inventory valuation reserve, fair value of assets and liabilities acquired in a business combination, incremental borrowing rate on leases, the valuation allowance for deferred tax assets and other legal claims and contingencies. The results of any changes in accounting estimates are reflected in the financial statements in the period in which the changes become evident. Estimates and assumptions are reviewed periodically, and the effects of revisions are reflected in the period that they are determined to be necessary.
Cash and cash equivalents:
Cash and cash equivalents include funds on hand, in bank and short-term investments with original maturities of ninety (90) days or less. The following table shows the Company’s cash and cash equivalents by significant investment category as of March 31, 2024 and December 31, 2023:
The Company maintains its cash and cash equivalents in banks insured by the Federal Deposit Insurance Corporation (FDIC) in accounts that at times may be in excess of the federally insured limit of $250,000 per bank. The Company minimizes this risk by placing its cash deposits with major financial institutions. At March 31, 2024 and December 31, 2023, the uninsured balance amounted to $296,799 and $29,700, respectively.
Restricted Cash:
Restricted cash of $97,600 and $97,600 was included in other assets as of March 31, 2024 and December 31, 2023, respectively. Restricted cash consists of bank deposits that collateralize our debt obligations.
The following table provides a reconciliation of cash and cash equivalents in the consolidated balance sheets to cash, cash equivalents and restricted cash in the consolidated statements of cash flows:
Accounts Receivable:
Accounts receivable are carried at original invoice amount less an estimate made for doubtful receivables based on a review of all outstanding amounts on a weekly basis. The Company determines the allowance for doubtful accounts by regularly evaluating individual customer receivables and considering a customer’s financial condition, credit history, and current economic conditions.
Trade receivables are written off when deemed uncollectible. Recoveries of trade receivables previously written off are recorded when received. A trade receivable is considered to be past due if any portion of the receivable balance is outstanding for more than thirty (30) days beyond terms. No interest is charged on overdue trade receivables.
Goodwill and Other Intangibles:
Goodwill - In connection with acquisitions, the Company applies the provisions of ASC 805, Business Combinations, using the acquisition method of accounting. The excess purchase price over the fair value of net tangible assets and identifiable intangible assets acquired is recorded as goodwill. In accordance with ASC 350, Intangibles - Goodwill and Other, the Company assesses goodwill for impairment annually as of December 31, and more frequently if events and circumstances indicate that goodwill might be impaired.
Goodwill impairment testing is performed at the reporting unit level. Goodwill is assigned to reporting units at the date the goodwill is initially recorded. Once goodwill has been assigned to reporting units, it no longer retains its association with a particular acquisition, and all of the activities within a reporting unit, whether acquired or internally generated, are available to support the value of the goodwill.
Traditionally, goodwill impairment testing is a two-step process. Step one involves comparing the fair value of the reporting units to its carrying amount. If the carrying amount of a reporting unit is greater than zero and its fair value is greater than its carrying amount, there is no impairment. If the reporting unit’s carrying amount is greater than the fair value, the second step must be completed to measure the amount of impairment, if any. Step two involves calculating an implied fair value of goodwill. The Company has adopted ASU 2017-04 which simplifies subsequent goodwill measurement by eliminating step two from the goodwill impairment test. As a result, the Company compares the fair value of a reporting unit with its respective carrying value and recognized an impairment charge for the amount by which the carrying amount exceeded the reporting unit’s fair value.
The Company determines the fair value of its reporting units using the market approach. Under the market approach, we estimate the fair value based on multiples of comparable public companies and precedent transactions. Significant estimates in the market approach include: identifying similar companies with comparable business factors such as size, growth, profitability, risk and return on investment, and assessing comparable revenue and operating income multiples in estimating the fair value of the reporting unit.
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 31, 2023 and concluded that there was no impairment. Subsequent to completing our 2023 annual impairment test, no events or changes in circumstances were noted that required an interim goodwill impairment test.
Intangible assets include deferred patent costs, license agreements, trademarks and trade names. Legal expenses incurred in preparation of patent application have been deferred and will be amortized over the useful life of granted patents. Costs incurred in preparation of applications that are not granted will be charged to expense at that time. The Company has entered into several sublicense agreements under which it has been assigned the exclusive rights to certain licensed materials used in its products. These sublicense agreements generally require upfront payments to obtain the exclusive rights to such material. The Company capitalizes the upfront payments as intangible assets and amortizes such costs over their estimated useful life on a straight-line method.
Segment Reporting
The accounting guidance on Segment Reporting establishes standards for reporting information regarding operating segments in annual financial statements and requires selected information of those segments to be presented in financial statements. Operating segments are identified as components of an enterprise for which separate discrete financial information is available for evaluation by the chief operating decision maker (the Company’s Chief Executive Officer or “CODM”) in making decisions on how to allocate resources and assess performance. The Company’s three operating segments are Video Solutions, Revenue Cycle Management, and Entertainment, each of which has specific personnel responsible for that business and reports to the CODM. Corporate expenses capture the Company’s corporate administrative activities and are also to be reported in the segment information.
Contingent Consideration
In circumstances where an acquisition involves a contingent consideration arrangement that meets the definition of a liability under the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 480, Distinguishing Liabilities from Equity, the Company recognizes a liability equal to the fair value of the contingent payments the Company expects to make as of the acquisition date. The Company remeasures this liability each reporting period and records changes in the fair value through the consolidated statement of operations.
Non-Controlling Interests
Non-controlling interests in the Company’s Consolidated Financial Statements represent the interest in subsidiaries held by our venture partner. The venture partner holds a noncontrolling interest in the Company’s consolidated subsidiary Nobility Healthcare, LLC. Since the Company consolidates the financial statements of all wholly-owned and majority owned subsidiaries, the noncontrolling owners’ share of each subsidiary’s results of operations are deducted and reported as net income or loss attributable to noncontrolling interest in the Consolidated Statements of Operations.
New Accounting Standards
In November 2023, the FASB issued Accounting Standards Update No. 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures” (“ASU 2023-07”), which is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The guidance is to be applied retrospectively to all prior periods presented in the financial statements. Upon transition, the segment expense categories and amounts disclosed in the prior periods should be based on the significant segment expense categories identified and disclosed in the period of adoption. We are currently evaluating the potential impact of adopting this new guidance on our consolidated financial statements and related disclosures.
In December 2023, the FASB issued Accounting Standards Update No. 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” (“ASU 2023-09”), which modifies the rules on income tax disclosures to require entities to disclose (1) specific categories in the rate reconciliation, (2) the income or loss from continuing operations before income tax expense or benefit (separated between domestic and foreign) and (3) income tax expense or benefit from continuing operations (separated by federal, state and foreign). ASU 2023-09 also requires entities to disclose their income tax payments to international, federal, state and local jurisdictions, among other changes. The guidance is effective for annual periods beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. ASU 2023-09 should be applied on a prospective basis, but retrospective application is permitted. We are currently evaluating the potential impact of adopting this new guidance on our consolidated financial statements and related disclosures.
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INVENTORIES |
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| Inventory Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| INVENTORIES | NOTE 2. INVENTORIES
Inventories consisted of the following at March 31, 2024 and December 31, 2023:
Finished goods inventory includes units held by potential customers and sales agents for test and evaluation purposes. The cost of such units totaled $51,099 and $42,797 as of March 31, 2024 and December 31, 2023, respectively.
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DEBT OBLIGATIONS |
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| DEBT OBLIGATIONS | NOTE 3. DEBT OBLIGATIONS
Debt obligations is comprised of the following:
Debt obligations mature as follows as of March 31, 2024:
2020 Small Business Administration Notes.
On May 12, 2020, the Company received $150,000 in loan funding from the SBA under the Economic Injury Disaster Loan (“EIDL”) program administered by the SBA, which program was expanded pursuant to the recently enacted CARES Act. The EIDL is evidenced by a secured promissory note, dated May 8, 2020, in the original principal amount of $150,000 with the SBA, the lender.
Under the terms of the note issued under the EIDL program, interest accrues on the outstanding principal at the rate of 3.75% per annum. The term of such note is thirty years, though it may be payable sooner upon an event of default under such note. Monthly principal and interest payments began in November 2022, after being deferred for thirty months after the date of disbursement and total $731 per month thereafter. Such note may be prepaid in part or in full, at any time, without penalty. The Company granted the SBA a continuing interest in and to any and all collateral, including but not limited to tangible and intangible personal property.
The Company made principal payments of $810 during the three months ended March 31, 2024 and recorded interest expense of $1,383.
Contingent Consideration Promissory Notes
On June 30, 2021, Nobility Healthcare, a subsidiary of the Company, issued a contingent consideration promissory note (the “June Contingent Note”) in connection with a stock purchase agreement between Nobility Healthcare and a private company (the “June Seller”) of $350,000. The June Contingent Note has a three-year term and bears interest at a rate of 3.00% per annum. Quarterly principal and interest payments are deferred for six months and is due in equal quarterly installments on the seventh business day of each quarter. The principal amount of the June Contingent Note is subject to an earn-out adjustment, being the difference between $975,000 (the “June Projected Revenue”) and the cash basis revenue (the “June Measurement Period Revenue”) collected by the June Seller in its normal course of business from the clients existing on June 30, 2021, during the period from October 1, 2021 through September 30, 2022 (the “June Measurement Period”) measured on a quarterly basis and annualized as of the relevant period. If the June Measurement Period Revenue is less than the June Projected Revenue, such amount will be subtracted from the principal balance of this June Contingent Note on a dollar-for-dollar basis. If the June Measurement Period Revenue is more than the June Projected Revenue, such amount will be added to the principal balance of this June Contingent Note on a dollar-for-dollar basis. In no event will the principal balance of this June Contingent Note become a negative number. The maximum downward earn-out adjustment to the principal balance will be a reduction to zero. There are no limits to the increases to the principal balance of the June Contingent Note as a result of the earn-out adjustments.
The June Contingent Note is considered to be additional purchase price; therefore, the estimated fair value of the contingent liability is recorded as a liability at the acquisition date and the fair value is considered part of the consideration paid for the acquisition with subsequent changes in fair value recorded as a gain or loss in the Consolidated Statements of Operations. Management recorded the contingent consideration promissory note at its estimated fair value of $350,000 at the acquisition date. Total principal payments, since inception, on this contingent consideration promissory note totaled $261,543. The estimated fair value of the June Contingent Note at March 31, 2024 is $29,409, representing a reduction in its estimated fair value of $29,409 as compared to its estimated fair value as of December 31, 2023. This reduction only relates to the principal payments made for the three months ended March 31, 2024. Therefore, the Company recorded no gain or loss in the Consolidated Statements of Operations for the three months ended March 31, 2024.
On August 31, 2021, Nobility Healthcare, issued another contingent consideration promissory note (the “August Contingent Payment Note”) in connection with a stock purchase agreement between Nobility Healthcare and a private company (the “August Sellers”) of $650,000. The August Contingent Payment Note has a three-year term and bears interest at a rate of 3.00% per annum. Quarterly principal and interest payments are deferred for six months and is due in equal quarterly installments on the seventh business day of each quarter. The principal amount of the August Contingent Payment Note is subject to an earn-out adjustment, being the difference between the $3,000,000 (the “August Projected Revenue”) and the cash basis revenue (the “August Measurement Period Revenue”) collected by the August Sellers in its normal course of business from the clients existing on September 1, 2021, during the period from December 1, 2021 through November 30, 2022 (the “August Measurement Period”) measured on a quarterly basis and annualized as of the relevant period. If the August Measurement Period Revenue is less than the August Projected Revenue, such amount will be subtracted from the principal balance of this August Contingent Payment Note on a dollar-for-dollar basis. If the August Measurement Period Revenue is more than the August Projected Revenue, such amount will be added to the principal balance of this August Contingent Payment Note on a dollar-for-dollar basis. In no event will the principal balance of this August Contingent Payment Note become a negative number. The maximum downward earn-out adjustment to the principal balance will be to zero. There are no limits to the increases to the principal balance of the August Contingent Payment Note as a result of the earn-out adjustments.
The August Contingent Payment Note is considered to be additional purchase price, therefore the estimated fair value of the contingent liability is recorded as a liability at the acquisition date and the fair value is considered part of the consideration paid for the acquisition. Management has recorded the contingent consideration promissory note at its estimated fair value of $650,000 at the acquisition date. Principal payments, since its inception, on this contingent consideration promissory note totaled $617,082. The estimated fair value of the August Contingent Note at March 31, 2024 is $64,826, representing a decrease in its estimated fair value of $64,826 as compared to is estimated fair value as of December 31, 2023. This reduction only relates to the principal payments made for the three months ended March 31, 2024. Therefore, the Company recorded no gain or loss in the Consolidated Statements of Operations for the three months ended March 31, 2024.
2023 Commercial Extension of Credit
On February 23, 2023, the Company’s Entertainment segment entered into an extension of credit in the form of a loan to use in marketing and operating its business in accordance with the Private Label Agreement previously entered into with the Lender. The Lender agreed to extend, subject to the conditions hereof, and Borrower agreed to take, a Loan for Principal Sum of $1,000,000.
Lender shall retain 25% of each remittance owed to Borrower under the terms of the Private Label Agreement. Such remittances shall include regular weekly remittances and any additional incentive payments to which the Borrower may be entitled. The 25% withholding of the Borrower’s applicable remittance shall be deemed a “Payment” under the terms of this Note, and Payments shall continue until the earlier of (i) repayment of the Principal Sum, accrued Interest, and a fee of $35,000 or (ii) expiration of the Private Label Agreement on December 31, 2023.
During the three months ended March 31, 2024, the Entertainment segment Company’s Entertainment segment repaid the outstanding principal of $87,928 and did not renew this agreement.
2024 Commercial Extension of Credit
On January 22, 2024, the Company’s Entertainment segment entered into an extension of credit in the form of a loan to use in marketing and operating its business in accordance with the Ticket Solution Agreement. The Lender, Ticket Evolution, Inc., agreed to extend, subject to the conditions hereof, and Borrower agreed to take, a Loan for Principal Sum of $75,000 with monthly advances of $100,000.
The advances made are recoupable from client service fees with no more than $25,000 being recouped in any one week. The total advances received for the three months ended March 31, 2024 were $275,000 and payments made totaled $205,357. The outstanding balance as of March 31, 2024 was $69,643.
Convertible Note
On April 5, 2023, the Company entered into and consummated the initial closing (the “First Closing”) of the transactions contemplated by a Securities Purchase Agreement, dated as of April 5, 2023 (the “Purchase Agreement”), between the Company and certain investors (the “Purchasers”).
At the First Closing, the Company issued and sold to the Purchasers Senior Secured Convertible Notes in the aggregate original principal amount of $3,000,000 (the “Notes”) and warrants (the “Warrants”). The Purchase Agreement provided for a ten percent (10%) original interest discount resulting in gross proceeds to the Company of $2,700,000. No interest accrues under the Notes. The Warrants are exercisable for an aggregate shares comprised of 375,000 warrants at an exercise price of $5.50 per share of the Company’s common stock, par value $ (the “Common Stock”), 375,000 warrants at an exercise price of $6.50 per share of Common Stock, and 375,000 warrants at an exercise price of $7.50 per share of Common Stock.
Subject to certain conditions, within 18 months from the effectiveness date and while the Notes remain outstanding, the Purchasers have the right to require the Company to consummate a second closing of up to an additional $3,000,000 of Notes (the “Second Notes”) and Warrants on the same terms and conditions as the First Closing, except that the Second Notes may be subordinate to a mortgage on the Company’s headquarters building (the “Bank Mortgage”).
The Notes are convertible into shares of Common Stock at the election of the Purchasers at any time at a fixed conversion price of $5.00 (the “Conversion Price”) per share of Common Stock. The Conversion Price is subject to customary adjustments for stock dividends, stock splits, reclassifications and the like, and subject to price-based adjustment in the event of any issuances of Common Stock, or securities convertible, exercisable or exchangeable for, Common Stock at a price below the then-applicable Conversion Price (subject to certain exceptions). Subject to certain conditions, including certain equity conditions, the Company may redeem some or all of the then outstanding principal amount of the Note for cash in an amount equal to 110% of the outstanding principal amount of the Notes (the “Optional Redemption Amount”). In addition, the Purchasers may, at their option, demand repayment at the Optional Redemption Amount upon five (5) business days’ written notice following (i) the closing by the Company of the Bank Mortgage, or (ii) a sale by the Company of Common Stock or Common Stock equivalents.
The Notes rank senior to all outstanding and future indebtedness of the Company and its subsidiaries, and are secured by substantially all of the Company’s assets, as evidenced by (i) a security agreement entered into at the Closing, (ii) a trademark security agreement entered into at the Closing, (iii) a patent security agreement entered into at the Closing, (iv) a guaranty executed by all direct and indirect subsidiaries of the Company pursuant to which each of them has agreed to guaranty the obligations of the Company under the Notes, and (v) a mortgage on the Company’s headquarters building in favor of the Purchasers.
Also at the Closing, the Company entered into a Registration Rights Agreement (the “Registration Rights Agreement”) with the Purchasers. Pursuant to the terms of the Registration Rights Agreement, the Company has agreed to prepare and file with the SEC within the 10th business day following the First Closing (the “Filing Date”) a registration statement covering the resale of the shares of Common Stock issuable upon conversion of the Notes and exercise of the Warrants, and to use its best efforts to cause such Registration Statement to be declared effective under the Securities Act of 1933, as amended (the “Securities Act”), as promptly as possible, but in any event no later than 45 days following the Filing Date (the “Effectiveness Date”). If the Registration Statement is not filed by the Filing Date or is not declared effective by the Effectiveness Date, or under certain other circumstances described in the Registration Rights Agreement, then the Company shall be obligated to pay, as partial liquidated damages, to each Purchaser an amount in cash equal to 2% of the original principal amount of the Notes each month until the applicable event giving rise to such payments is cured. If the Company fails to pay any partial liquidated damages in full within seven days after the date payable, the Company will pay interest thereon at a rate of 10% per annum.
The Company recognized the full warrant derivative value, with the remaining amount being allocated to the debt obligation. As the warrant derivative value exceeded the net proceeds from the issuance, the excess amount is recognized as a loss on the date of the issue date. Thus, the Company recorded a loss of $576,380 as an interest expense on the date of issuance relating to the Notes. The following is the assumptions used in calculating the estimated grant-date fair value of the detachable warrants to purchase common stock granted in connection with the Notes:
On June 2, 2023, the Purchasers elected to convert $125,000 principal, at the fixed price of $ per share of common stock, shares valued at $119,750. The loss on conversion of convertible note into common shares, of $93,386, was recorded during the period.
On October 26, 2023, the Company entered into a Revolving Loan Agreement of which a portion of the net proceeds were used to repay the principal amount of the Convertible debt. The warrants associated with the convertible debt remain outstanding.
Revolving Loan Agreement
On October 26, 2023, the Company entered into a Loan and Security Agreement (the “Loan Agreement”) by and between the Company, Digital Ally Healthcare, Inc., a Nevada corporation and wholly-owned subsidiary of the Company (“Digital Ally Healthcare” and, together with the Company, the “Borrower”), and Kompass Kapital Funding, LLC, a Kansas limited liability company (“Kompass”). In connection with the Loan Agreement, on October 26, 2023, the Company entered into a Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing (the “Mortgage”) by and between the Company, as grantor, and Kompass, as grantee, and issued a Revolving Note (the “Revolving Note”) to Kompass. The gross proceeds to the Company were $4,880,000 before repaying those certain Senior Secured Convertible Notes issued on April 5, 2023 in the aggregate amount of $3,162,500 and paying customary fees and expenses.
Pursuant to the Loan Agreement, Kompass agreed to make revolving loans (the “Revolving Loans”) available to the Borrower as the Borrower may from time to time request until, but not including, October 26, 2025, and in such amounts as the Borrower may from time to time request, provided, however, that the aggregate principal balance of the Revolving Loans outstanding at any time shall not exceed the lesser of $4,880,000 or an amount equal to eighty percent of the value of the mortgaged property, which consists of the real property owned by the Company having an address of 14001 Marshall Drive, Lenexa, KS 66215 (the “Mortgaged Property”). Under the Loan Agreement, the Revolving Loans made by Kompass may be repaid and, subject to customary terms and conditions, borrowed again up to, but not including October 26, 2025, unless the Revolving Loans are otherwise accelerated, terminated or extended as provided in the Loan Agreement. The Revolving Loans shall be used by the Borrower for the purpose of working capital and to retire existing debt. Under the Loan Agreement, the Borrower is required to provide written notice to Kompass prior to creating, assuming or incurring any debt or becoming liable, whether as endorser, guarantor, surety or otherwise, for any debt or obligation of any other party. While obligations remain outstanding under the Loan Agreement, the Borrower is required to maintain a minimum balance of $97,600 in a reserve account (the “Capital Reserve Account”). Under the Loan Agreement, the Borrower is prohibited from creating, assuming, incurring or suffering or permitting to exist any lien of any kind or character upon the collateral, which consists of the Mortgaged Property and the Company’s interest in the Capital Reserve Account. The Loan Agreement contains customary covenants, representations and warranties by the Borrower.
Pursuant to the Loan Agreement, the Company issued the Revolving Note to Kompass whereby the Company and Digital Ally Healthcare jointly and severally promise to pay to the order of Kompass the lesser of (i) $4,880,000.00, or (ii) the aggregate principal amount of all Revolving Loans outstanding under and pursuant to the Loan Agreement at the maturity or maturities and in the amount or amounts stated on the records of Kompass, together with interest (computed on the actual number of days elapsed on the basis of a 360 day year) at a floating per annum rate equal to the greater of (i) the Prime Rate plus four percent or (ii) eight percent, on the aggregate principal amount of all Revolving Loans outstanding from time to time as provided in the Loan Agreement.
The Company entered into the Mortgage to secure its obligations under the Loan Agreement. The property mortgaged under the Mortgage consists of the Mortgaged Property. The Mortgage contains customary covenants, representations and warranties by the Company. In addition, the Company recorded debt issuance costs of $188,255. During the three months ended March 31, 2024, the Company amortized $23,435 of debt discount under interest expense.
Merchant Cash Advances – Video Solutions Segment
In November 2023, the Company obtained a short-term merchant advance, which totaled $1,050,000, from a single lender to fund operations. These advances included origination fees totaling $50,000 for net proceeds of $1,000,000. The advance is, for the most part, secured by expected future sales transactions of the Company with expected payments on a weekly basis. The Company will repay an aggregate of $1,512,000 to the lender. The loan bears interest at 2.9% per week. During the three months ended March 31, 2024, the Company made repayments totaling $702,000 and received additional proceeds of $700,000. As of March 31, 2024 the outstanding balance was $1,348,000 which is expected to be repaid in 2024.
During the three months ended March 31, 2024 the Company amortized $278,256 of debt discount under interest expense.
Merchant Cash Advances – Entertainment Segment
In March 2024, the Company obtained a short-term merchant advance, which totaled $1,000,000, from a single lender to fund operations. These advances included origination and issuance fees totaling $85,000 for net proceeds of $915,000. The advance is, for the most part, is secured by expected future sales transactions of the Company with expected payments on a weekly basis. The Company will repay an aggregate of $1,425,000 to the lender. The loan bears interest at 5.05% per annum. During the three months ended March 31, 2024, the Company made no repayments. As of March 31, 2024 the outstanding balance was $1,425,000 which is expected to be repaid in 2024.
During the three months ended March 31, 2024 the Company amortized $63,750 of debt discount and issuance costs under interest expense.
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FAIR VALUE MEASUREMENT |
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| FAIR VALUE MEASUREMENT | 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:
The following table represents the Company’s hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2024 and December 31, 2023:
The following table represents the change in Level 3 tier value measurements for the three months ended March 31, 2024:
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ACCRUED EXPENSES |
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| ACCRUED EXPENSES | NOTE 5. ACCRUED EXPENSES
Accrued expenses consisted of the following at March 31, 2024 and December 31, 2023:
Accrued warranty expense was comprised of the following for the three months ended March 31, 2024:
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INCOME TAXES |
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Mar. 31, 2024 | |
| Income Tax Disclosure [Abstract] | |
| INCOME TAXES | NOTE 6. INCOME TAXES
The effective tax rate for the three months ended March 31, 2024 and 2023 varied from the expected statutory rate due to the Company continuing to provide a 100% valuation allowance on net deferred tax assets. The Company determined that it was appropriate to continue the full valuation allowance on net deferred tax assets as of March 31, 2024, 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 March 31, 2024. Accordingly, the Company determined there was not sufficient positive evidence regarding its potential for future profits to outweigh the negative evidence of our three-year cumulative loss position under the guidance provided in ASC 740. Therefore, it is determined to continue to provide a 100% valuation allowance on its net deferred tax assets. The Company expects to continue to maintain a full valuation allowance until it determines that it can sustain a level of profitability that demonstrates its ability to realize these assets. To the extent the Company determines that the realization of some or all of these benefits is more likely than not based upon expected future taxable income, a portion or all of the valuation allowance will be reversed. The Company has available to it approximately $140.9 million (based on its December 31, 2023 tax return) in net operating loss carryforwards to offset future taxable income as of March 31, 2024.
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PREPAID EXPENSES |
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| Prepaid Expenses | ||||||||||||||||||||||||||||||||||||||||||||||
| PREPAID EXPENSES | NOTE 7. PREPAID EXPENSES
Prepaid expenses were the following at March 31, 2024 and December 31, 2023:
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PROPERTY, PLANT AND EQUIPMENT |
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| Property, Plant and Equipment [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| PROPERTY, PLANT AND EQUIPMENT | NOTE 8. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following at March 31, 2024 and December 31, 2023:
Depreciation expense for the three months ended March 31, 2024 and 2023 was $162,712 and $171,631, respectively, and is included in general and administrative expenses.
During the three months ended March 31, 2024 the Company engaged a broker and sold its aircraft for $1,100,000 less closing costs of $1,500. The carrying amount of the aircraft on the date of sale was $1,141,661. As a result of the sale the Company recorded a loss of $41,161 in the Consolidated Statement of Operations.
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OPERATING LEASE |
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| OPERATING LEASE | NOTE 9. OPERATING LEASE
The Company entered into an operating lease with a third party in October 2023 for copiers used for office and warehouse purposes. The terms of the lease include 48 monthly payments of $1,786 with a maturity date of October 2027. 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 March 31, 2024 was forty-three months.
On May 13, 2020, the Company entered into an operating lease for new warehouse and office space, which served 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 March 31, 2024 was .
On June 30, 2021, the Company completed the acquisition of its first medical billing company, through Nobility Healthcare. Upon completion of this acquisition, Nobility Healthcare 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 in July 2024. The Company is responsible for property taxes, utilities, insurance and its proportionate share of common area costs related to this location. The remaining lease term for the Company’s office operating lease as of March 31, 2024 was four months.
On August 31, 2021, the Company completed the acquisition of its second acquired medical billing company, through Nobility Healthcare. Upon completion of this acquisition, Nobility Healthcare became responsible for the operating lease for the seller’s office space. The lease was renewed in April 2023 with favorable terms and payments ranging from $7,436 to $8,877 thereafter, with a termination date in March 2030. The Company is responsible for property taxes, utilities, insurance and its proportionate share of common area costs related to this location. The remaining term for the Company’s office operating lease was as of March 31, 2024.
On September 1, 2021, the Company completed the acquisition of Goody Tickets, LLC and TicketSmarter, LLC through 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 Company currently rents this space on a month-to-month basis with intentions to relocate upon the identification of suitable space.
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 Company terminated this lease in January 2024 and reversed the right of use asset and lease liability by $73,894.
Lease expense related to the office space and copier operating leases were recorded on a straight-line basis over their respective lease terms. Total lease expense under the operating leases was approximately $108,879 during the three months ended March 31, 2023.
The weighted-average remaining lease term related to the Company’s lease liabilities as of March 31, 2023 was 4.5 years.
The discount rate implicit within the Company’s operating leases was not generally determinable and therefore the Company determined the discount rate based on its incremental borrowing rate on the information available at commencement date. As of commencement date, the operating lease liabilities reflect a weighted average discount rate of 8%.
The following sets forth the operating lease right of use assets and liabilities as of March 31, 2024:
The components of lease expense were as follows for the three months ended March 31, 2024:
Following are the minimum lease payments for each year and in total:
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GOODWILL AND OTHER INTANGIBLE ASSETS |
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| Goodwill and Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| GOODWILL AND OTHER INTANGIBLE ASSETS | NOTE 10. GOODWILL AND OTHER INTANGIBLE ASSETS
Intangible assets consisted of the following at March 31, 2024 and December 31, 2023:
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, 2024 and 2023 was $388,278 and $371,478, respectively. Estimated amortization for intangible assets with definite lives for the next five years ending December 31 and thereafter is as follows:
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OTHER ASSETS |
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| Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
| OTHER ASSETS | NOTE 11. OTHER ASSETS
Other assets were the following at March 31, 2024 and December 31, 2023:
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COMMITMENTS AND CONTINGENCIES |
3 Months Ended |
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Mar. 31, 2024 | |
| Commitments and Contingencies Disclosure [Abstract] | |
| COMMITMENTS AND CONTINGENCIES | NOTE 12. COMMITMENTS AND CONTINGENCIES
Litigation
From time to time, we are notified that we may be a party to a lawsuit or that a claim is being made against us. It is our policy to not disclose the specifics of any claim or threatened lawsuit until the summons and complaint are actually served on us. After carefully assessing the claim, and assuming we determine that we are not at fault or we disagree with the damages or relief demanded, we vigorously defend any lawsuit filed against us. We record a liability when losses are deemed probable and reasonably estimable. When losses are deemed reasonably possible but not probable, we determine whether it is possible to provide an estimate of the amount of the loss or range of possible losses for the claim, if material for disclosure. In evaluating matters for accrual and disclosure purposes, we take into consideration factors such as our historical experience with matters of a similar nature, the specific facts and circumstances asserted, the likelihood of our prevailing, the availability of insurance, and the severity of any potential loss. We reevaluate and update accruals as matters progress over time.
On May 31, 2022, the Company filed a lawsuit against Culp McAuley, Inc. (“defendant”) in the United States District Court for the District of Kansas. The lawsuit arises from the defendant’s multiple breaches of its obligations to the Company. The Company seeks monetary damages and injunctive relief based on certain conduct by the defendant. On July 18, 2022, the defendant filed its Answer to the Company’s Verified Complaint and included Counterclaims alleging breach of contract and seeking monetary damages. On August 8, 2022, the Company filed its Reply and Affirmative Defenses to the Counterclaims by, among other things, denying the allegations and any and all liability.
As of March 31, 2024, we are able to estimate a range of reasonably possible loss related to the Culp McCauley case, our estimate of the aggregate reasonably possible loss (in excess of any accrued amounts) was approximately $1.8 million. Our estimate with respect to the aggregate reasonably possible loss is based upon currently available information and is subject to significant judgment and a variety of assumptions and known and unknown uncertainties, which may change quickly and significantly from time to time, particularly if and as we engage with applicable governmental agencies or plaintiffs in connection with a proceeding. Also, the matters underlying the reasonably possible loss will change from time to time. As a result, actual results may vary significantly from the current estimate.
While the ultimate resolution is unknown, based on the information currently available, we do not expect that these lawsuits will individually, or in the aggregate, have a material adverse effect to our results of operations, financial condition or cash flows. However, the outcome of any litigation is inherently uncertain and there can be no assurance that any expense, liability or damages that may ultimately result from the resolution of these matters will be covered by our insurance or will not be in excess of amounts recognized or provided by insurance coverage and will not have a material adverse effect on our operating results, financial condition or cash flows.
Notice of Failure to Satisfy a Continued Listing Rule
On March 14, 2024, the Nasdaq Listing Qualifications staff notified Digital Ally, Inc. (the “Company”), that due to resignation of Mr. Michael J. Caulfield from the Company’s board of directors (the “Board”) effective on January 31, 2024, the Company no longer complies with the audit committee and compensation committee requirements as set forth in Listing Rule 5605 of The Nasdaq Stock Market LLC (“Nasdaq”), including the requirements that there are at least three independent directors on the Company’s audit committee and at least two independent directors on the Company’s compensation committee.
The notification has no immediate effect on the Company’s listing on the Nasdaq Capital Market. In accordance with Nasdaq Listing Rules, the Company is provided a cure period until the earlier of the Company’s next annual shareholders’ meeting (or July 29, 2024 if the next shareholders’ meeting will be held before July 29, 2024) or January 31, 2025 (the “Cure Period”). If the Company does not regain compliance by within the Cure Period, Nasdaq will provide written notice that the Company’s common stock, par value $ per share, will be subject to delisting from the Nasdaq Capital Market, at which time, the Company may appeal the delisting determination to a Hearings Panel.
The management of the Company has resolved to take commercially reasonable steps to fill the vacancy on the Board with a new director who qualifies as independent under the Nasdaq Listing Rules as soon as is practical and anticipates regaining compliance during the Cure Period. However, there can be no assurance that the Company will be able to satisfy Nasdaq Listing Rule 5605 or will otherwise be in compliance with other Nasdaq listing criteria.
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STOCK-BASED COMPENSATION |
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| Share-Based Payment Arrangement [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| STOCK-BASED COMPENSATION |
The Company recorded pre-tax compensation expense related to the grant of stock options and restricted stock issued of $ and $ for the three months ended March 31, 2024 and 2023, respectively.
As of March 31, 2024, the Company had adopted ten separate stock option and restricted stock plans: (i) the 2005 Stock Option and Restricted Stock Plan (the “2005 Plan”), (ii) the 2006 Stock Option and Restricted Stock Plan (the “2006 Plan”), (iii) the 2007 Stock Option and Restricted Stock Plan (the “2007 Plan”), (iv) the 2008 Stock Option and Restricted Stock Plan (the “2008 Plan”), (v) the 2011 Stock Option and Restricted Stock Plan (the “2011 Plan”), (vi) the 2013 Stock Option and Restricted Stock Plan (the “2013 Plan”), (vii) the 2015 Stock Option and Restricted Stock Plan (the “2015 Plan”), (viii) the 2018 Stock Option and Restricted Stock Plan (the “2018 Plan”), (ix) the 2020 Stock Option and Restricted Stock Plan (the “2020 Plan”), and (x) the 2022 Stock Option and Restricted Stock Plan (the “2022 Plan”). The 2005 Plan, 2006 Plan, 2007 Plan, 2008 Plan, 2011 Plan, 2013 Plan, 2015 Plan, 2018 Plan, 2020 Plan and 2022 Plan are referred to as the “Plans.”
These Plans permit the grant of stock options or restricted stock to its employees, non-employee directors and others for up to a total of shares of common stock. The 2005 Plan terminated during 2015 with 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 March 31, 2024 total . The 2006 Plan terminated during 2016 with 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 March 31, 2024 total . The 2007 Plan terminated during 2017 with shares not awarded or underlying options, which shares are now unavailable for issuance. There are stock options granted under the 2007 Plan that remain unexercised and outstanding as of March 31, 2024. The 2008 Plan terminated during 2018 with shares not awarded or underlying options, which shares are now unavailable for issuance. There are stock options granted under the 2008 Plan that remain unexercised and outstanding as of March 31, 2024.
Stock option grants. The Company believes that such awards better align the interests of our employees with those of its stockholders. Option awards have been granted with an exercise price equal to the market price of its stock at the date of grant with such option awards generally vesting based on the completion of continuous service and having ten-year contractual terms. These option awards typically provide for accelerated vesting if there is a change in control (as defined in the Plans). The Company has registered all shares of common stock that are issuable under its Plans with the SEC. A total of shares remained available for awards under the various Plans as of March 31, 2024.
The fair value of each option award is estimated on the date of grant using a Black-Scholes option valuation model.
The Plans allow for the cashless exercise of stock options. This provision allows the option holder to surrender/cancel options with an intrinsic value equivalent to the purchase/exercise price of other options exercised. There were no shares surrendered pursuant to cashless exercises during the three months ended March 31, 2024 and 2023.
The aggregate intrinsic value of options outstanding was $-- and $--, at March 31, 2024 and December 31, 2023, respectively. The aggregate intrinsic value of options exercisable was $-- and $--, at March 31, 2024 and December 31, 2023, respectively.
As of March 31, 2024, the unrecognized portion of stock compensation expense on all existing stock options was $--.
Restricted stock grants. The Board of Directors has granted restricted stock awards under the Plans. Restricted stock awards are valued on the date of grant and have no purchase price for the recipient. Restricted stock awards typically vest over one to five years corresponding to anniversaries of the grant date. Under the Plans, unvested shares of restricted stock awards may be forfeited upon the termination of service to or employment with the Company, depending upon the circumstances of termination. Except for restrictions placed on the transferability of restricted stock, holders of unvested restricted stock have full stockholder’s rights, including voting rights and the right to receive cash dividends.
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 March 31, 2024, there were $ of total unrecognized compensation costs related to all remaining non-vested restricted stock grants, which will be amortized over the next forty-eight months in accordance with their respective vesting scale.
The nonvested balance of restricted stock vests as follows:
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COMMON STOCK PURCHASE WARRANTS |
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| COMMON STOCK PURCHASE WARRANTS | NOTE 14. COMMON STOCK PURCHASE WARRANTS
2023 Purchase Warrants
On April 5, 2023, the Company issued warrants to purchase a total of 1,125,000 shares of Common Stock. The warrant terms provide for net cash settlement outside the control of the Company under certain circumstances. As such, the Company is required to treat these warrants as derivative liabilities which are valued at their estimated fair value at their issuance date and at each reporting date with any subsequent changes reported in the consolidated statements of operations as the change in fair value of warrant derivative liabilities. Furthermore, the Company re-values the fair value of warrant derivative liability as of the date the warrant is exercised with the resulting warrant derivative liability transitioned to change in fair value of warrant derivative liabilities through the consolidated statement of operations.
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 March 31, 2024:
The following table summarizes information about shares issuable under warrants outstanding during the three months ended March 31, 2024 and 2023:
The total intrinsic value of all outstanding warrants aggregated $-0- as of March 31, 2024 and 2023, and the weighted average remaining term was months as of March 31, 2024, respectively.
The following table summarizes the range of exercise prices and weighted average remaining contractual life for outstanding and exercisable warrants to purchase shares of common stock as of March 31, 2024:
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STOCKHOLDERS’ EQUITY |
3 Months Ended |
|---|---|
Mar. 31, 2024 | |
| Equity [Abstract] | |
| STOCKHOLDERS’ EQUITY | NOTE 15. STOCKHOLDERS’ EQUITY
2023 Issuance of Restricted Common Stock
On January 10, 2023, the board of directors approved the grant of shares of common stock to officers of the Company. . Additionally, the board of directors approved the grant of restricted common shares to certain new employees of the Company. Such shares will generally vest over a period of to on their respective anniversary dates in January through January 2025, provided that each grantee remains an employee of the company on such dates.
2024 Issuance of Restricted Common Stock
In January 2024, the board of directors approved the grant of shares of common stock to officers of the Company. . Additionally, the board of directors approved the grant of restricted common shares to certain new employees of the Company. Such shares will generally vest over a period of to on their respective anniversary dates in January through January 2026, provided that each grantee remains an employee of the company on such dates.
Cancellation of Restricted Stock
During the three months ended March 31, 2024, the Company cancelled shares due to termination of employee.
Reverse Stock Split
On February 6, 2023, we filed a Certificate of Amendment to the Articles of Incorporation, as amended, with the Secretary of State of the State of Nevada to effect a 1-for-20 reverse stock split (the “Reverse Stock Split”) of the shares of our common stock. The Reverse Stock Split was effective as of time of filing. No fractional shares were issued in connection with the Reverse Stock Split. Any fractional shares of our Common Stock that would have otherwise resulted from the Reverse Stock Split were rounded up to the nearest whole number. In connection with the Reverse Stock Split, our board approved appropriate and proportional adjustments to all outstanding securities or other rights convertible or exercisable into shares of our Common Stock, including, without limitation, all preferred stock, warrants, options, and other equity compensation rights. All historical share and per-share amounts reflected throughout our consolidated financial statements and other financial information in this Report have been adjusted to reflect the Reverse Stock Split as if the split occurred as of the earliest period presented. The par value per share of our common stock was not affected by the Reverse Stock Split.
Noncontrolling Interests
The Company owns a 51% equity interest in its consolidated subsidiary, Nobility Healthcare. As a result, the noncontrolling shareholders or minority interest is allocated 49% of the income/loss of Nobility Healthcare which is reflected in the statement of (income) loss as “net (income) loss attributable to noncontrolling interests of consolidated subsidiary”. We reported net (income) loss attributable to noncontrolling interests of consolidated subsidiary of $12,248 and ($126,239) for the three months ended March 31, 2024 and 2023, respectively.
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NET LOSS PER SHARE |
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| Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| NET LOSS PER SHARE |
Basic income (loss) per share is based upon the weighted average number of common shares outstanding during the period. For the three months ended March 31, 2024 and 2023, 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.
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COUNTRY STAMPEDE ACQUISITION |
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| COUNTRY STAMPEDE ACQUISITION | NOTE 17. COUNTRY STAMPEDE ACQUISITION
On March 1, 2024, Kustom 440, entered into an Asset Purchase Agreement (the “Acquisition Agreement”) with JC Entertainment, LLC, a Kansas limited liability company (“JC Entertainment”). Pursuant to the Acquisition Agreement, Kustom 440 acquired certain assets associated with a music entertainment event (“Country Stampede”), including all intellectual property arising out of and relating to Country Stampede (“Country Stampede Intellectual Property”) and certain contracts in which JC Entertainment is a party to host and operate the 2024 Country Stampede (the “Assumed Contracts”, and together with the Country Stampede Intellectual Property, the “Purchased Assets”).
As consideration for acquiring the Purchased Assets, Kustom 440 paid JC Entertainment the aggregate purchase price amount $542,959, with the sum of $400,000 paid at the time of closing (“Closing”), and the remainder to be paid on or before thirty days from the time of Closing. Kustom 440 shall receive a credit for all non-refunded festival ticket sales for the 2024 Country Stampede to be calculated immediately prior to Closing, and JC Entertainment shall be entitled to keep all ticket sale proceeds made and/or received prior to Closing. Kustom 440 shall be obligated, to the extent a refund is sought after Closing, to provide such refund, if appropriate, to the customer requesting a refund, and shall indemnify and hold harmless JC Entertainment from any and all claims, liabilities, costs, suits, or the like relating to such refund request.
The Company accounts for business combinations using the acquisition method and that the Company has early adopted the amendments of Regulation S-X dated May 21, 2020 and has concluded that this acquisition was not significant. Accordingly, the presentation of the assets acquired, historical financial statements under Rule 3-05 and related pro forma information under Article 11 of Regulation S-X, respectively, are not required to be presented. Under the acquisition method, the purchase price of the Country Stampede Acquisition has been allocated to the acquired tangible and identifiable intangible assets and assumed liabilities based on their estimated fair values at the time of the Country Stampede Acquisition. This allocation involves a number of assumptions, estimates, and judgments that could materially affect the timing or amounts recognized in our financial statements. The Country Stampede Acquisition was structured as an asset purchase; however the parties agreed to coordinate the election to invoke IRS Section 338(h)(10) relative to this transaction for tax purposes. Therefore, the excess purchase price over the fair value of net tangible assets acquired was recorded as goodwill, which will be amortized over 15 years for income tax filing purposes. Likewise, the other acquired assets were stepped up to fair value and is deductible for income tax purposes. The results of operations of acquired businesses are included in the consolidated financial statements from the acquisition date.
The purchase price of the Country Stampede Acquisition was allocated to tangible assets, goodwill, identifiable intangible assets, and assumed liabilities based on their preliminary estimated fair values at the time of the acquisition. The Company retained the services of an independent valuation firm to determine the fair value of these identifiable intangible assets. The Company will continue to evaluate the fair value of the identified intangible assets. The preliminary estimated fair value of assets acquired, and liabilities assumed in the Country Stampede Acquisition were as follows:
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.
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SEGMENT DATA |
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| Segment Reporting [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SEGMENT DATA | 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 Entertainment, each of which has specific personnel responsible for that business and reports to the CODM. Corporate expenses capture the Company’s corporate administrative activities, is also to be reported in the segment information. The Company’s captive insurance subsidiary provides services to the Company’s other business segments and not to outside customers. Therefore, its operations are eliminated in consolidation and is not considered a separate business segment for financial reporting purposes.
The Video Solutions Segment encompasses our law, commercial, and Shield™ divisions. This segment includes both service and product revenues through our subscription models offering cloud and warranty solutions, and hardware sales for video and health safety solutions. The Revenue Cycle Management Segment provides working capital and back-office services to a variety of healthcare organizations throughout the country, as a monthly service fee. The Entertainment Segment acts as an intermediary between ticket buyers and sellers within our secondary ticketing platform, ticketsmarter.com, and we also acquire tickets from primary sellers to then sell through various platforms.
The Company’s corporate administration activities are reported in the corporate line item. These activities primarily include expense related to certain corporate officers and support staff, certain accounting staff, expense related to the Company’s Board of Directors, stock option expense for options granted to corporate administration employees, certain consulting expenses, investor relations activities, and a portion of the Company’s legal, auditing and professional fee expenses. Corporate identifiable assets primarily consist of cash, invested cash (if any), refundable income taxes (if any), and deferred income taxes.
Summarized financial information for the Company’s reportable business segments is provided for the indicated periods and as of March 31, 2024, and March 31, 2023:
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 $4,315,132 and a reserve for the entertainment segment of $171,257 as of March 31, 2024.
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.
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RELATED PARTY TRANSACTIONS |
3 Months Ended |
|---|---|
Mar. 31, 2024 | |
| Related Party Transactions [Abstract] | |
| RELATED PARTY TRANSACTIONS | NOTE 19. RELATED PARTY TRANSACTIONS
Transactions with Managing Member of Nobility Healthcare
The Company accrued reimbursable expenses payable to Nobility, LLC totaling $576,690 and $265,241 for the three months ended March 31, 2024 and 2023 and management fees in accordance with the operating agreement of $12,379 and $32,181 for the three months ended March 31, 2024 and 2023.
Transactions with Related Party of TicketSmarter
On September 22, 2023, a trust, the beneficiaries of which are TicketSmarter’s Chief Executive Officer and his spouse, made a loan in the amount of $2,325,000 to TicketSmarter to support TicketSmarter’s operations. On October 2, 2023 an additional $375,000 was advanced to Ticketsmarter. The transaction was recorded as a related party note payable (the “TicketSmarter Related Party Note”). The TicketSmarter Related Party Note bears interest of 13.25% per annum with repayment beginning January 2, 2024. As of March 31 2024, the entire TicketSmarter Related Party note is $2,700,000, is classified as current, with an accrued interest balance of $187,346. The use of proceeds of the TicketSmarter Related Party Note was to resolve numerous outstanding payables at a discounted rate, the discount received is recognized as a gain on extinguishment of liabilities on the statement of operations. Additionally, these negotiations relieved TicketSmarter of numerous future obligations following fiscal year 2023.
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SUBSEQUENT EVENTS |
3 Months Ended |
|---|---|
Mar. 31, 2024 | |
| Subsequent Events [Abstract] | |
| SUBSEQUENT EVENTS | NOTE 20. SUBSEQUENT EVENTS
Series A Preferred Stock and Series B Preferred Stock Elimination
On April 5, 2024, Digital Ally, Inc., a Nevada corporation (the “Company”), filed with the Secretary of State of the State of Nevada an Elimination of Certificate of Designations of the Preferences, Rights and Limitations of the Series A Convertible Redeemable Preferred Stock (the “Series A Elimination Certificate”) and Elimination of Certificate of Designations of the Preferences, Rights and Limitations of the Series B Convertible Redeemable Preferred Stock (the “Series B Elimination Certificate”) in order to eliminate and cancel all designations, rights, preferences and limitations of the shares of the Company’s Series A Convertible Redeemable Preferred Stock, par value $ per share (the “Series A Preferred Stock”) and Series B Convertible Redeemable Preferred Stock, par value $ per share (the “Series B Preferred Stock”). In December 2022, all shares of Series A Preferred Stock that had originally been issued pursuant to the Certificate of Designations of the Preferences, Rights and Limitations of the Series A Preferred Stock of the Company (the “Series A Certificate of Designations”) and all shares of Series B Preferred Stock that had originally been issued pursuant to the Certificate of Designations of the Preferences, Rights and Limitations of the Series B Preferred Stock of the Company (the “Series B Certificate of Designations”) were exchanged for shares of the Company’s common stock and warrants to purchase shares of the Company’s common stock. Such shares of Series A Preferred Stock and Series B Preferred Stock have resumed the status of authorized but unissued shares of preferred stock of the Company.
Prior to the filing of the Series A Elimination Certificate, none of the authorized shares of Series A Preferred Stock or authorized shares of Series B Preferred Stock were issued and outstanding, and shares of Series A Preferred Stock or Series B Preferred Stock were to be issued subject to the Series A Certificate of Designations or Series B Certificate of Designations. The Series A Elimination Certificate and Series B Elimination Certificate became effective upon their filing with the Secretary of State of the State of Nevada.
Merchant Cash Advances – Video Solutions Segment
In April 2024, the Company received additional advances of $444,000 from the lender and agreed to new terms where total proceeds received since inception totaled $2,144,000. The Company will repay an aggregate of $2,880,000 to the lender. The advances remain secured by expected future sales of the Company with payments on a weekly basis and the full amount is expected to be repaid in 2024. |
NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) |
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| Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Business Combination | Business Combination
In June 2023, the Company, entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Clover Leaf Capital Corp., a Delaware corporation (Nasdaq: CLOE) (“Clover Leaf”), CL Merger Sub, Inc., a Nevada corporation and a wholly owned subsidiary of Clover Leaf (“Merger Sub”), Yntegra Capital Investments LLC, a Delaware limited liability company, in the capacity as the representative from and after the Effective Time (as defined in the Merger Agreement) for the stockholders of Clover Leaf in accordance with the terms and conditions of the Merger Agreement, and Kustom Entertainment, Inc., a Nevada corporation, a wholly owned subsidiary of the Company, with a focus and mission to own and produce events, festivals, and entertainment alongside its evolving primary and secondary ticketing technologies (“Kustom”). Pursuant to the Merger Agreement, subject to the terms and conditions set forth therein upon the consummation of the transactions contemplated by the Merger Agreement (the “Closing”), Merger Sub will merge with and into Kustom, with Kustom continuing as the surviving corporation in the Merger and a wholly owned subsidiary of Clover Leaf. Upon the Closing which is subject to the approval of Clover Leaf’s shareholders and the satisfaction or waiver of certain other customary closing conditions, the common stock of the combined company is expected to be listed on the Nasdaq under a mutually agreed new ticker symbol that reflects the name “Kustom Entertainment”.
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| Basis of Presentation | Basis of Presentation:
The unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month period ended March 31, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024.
The balance sheet at December 31, 2023 has been derived from the audited financial statements at that date, but does not include all the information and footnotes required by generally accepted accounting principles in the United States for complete financial statements.
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, 2023.
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| Liquidity and Going Concern | Liquidity and Going Concern
During the second quarter of 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. This update provided U.S. GAAP guidance on management’s responsibility in evaluating whether there is substantial doubt about a company’s ability to continue as a going concern and about related footnote disclosures. Under this standard, the Company is required to evaluate whether there is substantial doubt about its ability to continue as a going concern each reporting period, including interim periods. In evaluating the Company’s ability to continue as a going concern, management considered the conditions and events that could raise substantial doubt about the Company’s ability to continue as a going concern within 12 months after the Company’s financial statements were issued (May 15, 2023). Management considered the Company’s current financial condition and liquidity sources, including current funds available, forecasted future cash flows and the Company’s obligations due before May 15, 2024.
The Company has experienced net losses and cash outflows from operating activities since inception. For the three months ended March 31, 2024, the Company had a net loss attributable to common stockholders of $3,931,020, net cash used in operating activities of $918,545, $160,830 provided by investing activities and $1,005,027 provided by financing activities. The Company will have to restore positive operating cash flows and profitability over the next year and/or raise additional capital to fund its operational plans, meet its customary payment obligations and otherwise execute its business plan. There can be no assurance that it will be successful in restoring positive cash flows and profitability, or that it can raise additional financing when needed, and obtain it on terms acceptable or favorable to the Company.
The Company has implemented an enhanced quality control program to detect and correct product issues before they result in significant rework expenditures affecting its gross margins and has seen progress in that regard. The Company has also implemented a marketing and advertisement reduction plan for its entertainment segment, which will focus on reducing and alleviating current obligations from its media marketing agreements and place a hold on entering into any new agreements. The Company believes that its quality control, cost-cutting initiatives, and new product introduction will eventually restore positive operating cash flows and profitability, although it can offer no assurances in this regard.
Management has evaluated the significance of the conditions described above in relation to the Company’s ability to meet its obligations and concluded that, without additional funding, the Company will not have sufficient funds to meet its obligations within one year from the date the unaudited condensed consolidated financial statements were issued.
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| Basis of Consolidation | Basis of Consolidation:
The accompanying financial statements include the consolidated accounts of Digital Ally, its wholly-owned subsidiaries, Digital Ally International, Inc., Shield Products, LLC, Digital Ally Healthcare, LLC, TicketSmarter, Inc., Worldwide Reinsurance, Ltd., Digital Connect, Inc., BirdVu Jets, Inc., Kustom 440, Inc., and its majority-owned subsidiary Nobility Healthcare, LLC. All intercompany balances and transactions have been eliminated during consolidation.
The Company formed Digital Ally International, Inc. during August 2009 to facilitate the export sales of its products. The Company formed Shield Products, LLC in May 2020 to facilitate the sales of its Shield™ line of disinfectant/cleanser products and ThermoVu™ line of temperature monitoring equipment. The Company formed Nobility Healthcare, LLC (“Nobility Healthcare”) in June 2021 to facilitate the operations of its revenue cycle management solutions and back-office services for healthcare organizations. The Company formed TicketSmarter, Inc. upon its acquisition of Goody Tickets, LLC and TicketSmarter, LLC, to facilitate its global ticketing operations. The Company formed Worldwide Reinsurance Ltd., which is a captive insurance company domiciled in Bermuda. It will provide primarily liability insurance coverage to the Company for which insurance may not be currently available or economically feasible in today’s insurance marketplace. The Company formed Kustom 440, Inc. in 2022 to create unique entertainment experiences directly for consumers, and Kustom Entertainment, Inc. in 2023 to serve as the participant in the Business Combination.
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| Fair Value of Financial Instruments | 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.
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| Revenue Recognition | Revenue Recognition:
The Company applies the provisions of Accounting Standards Codification (ASC) 606-10, Revenue from Contracts with Customers, and all related appropriate guidance. The Company recognizes revenue under the core principle to depict the transfer of control to its customers in an amount reflecting the consideration to which it expects to be entitled. In order to achieve that core principle, the Company applies the following five-step approach: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when a performance obligation is satisfied.
The Company has two different revenue streams, product and service, represented through its three segments. The Company reports all revenues on a gross basis, other than service revenues from the Company’s entertainment and revenue cycle management segments, Revenues generated by all segments are reported net of sales taxes.
Video Solutions
The Company considers customer purchase orders, which in some cases are governed by master sales agreements, to be the contracts with the customer. In situation where sales are to a distributor, the Company had concluded its contracts are with the distributor as the Company holds a contract bearing enforceable rights and obligations only with the distributor. As part of part of its consideration for the contract, the Company evaluates certain factors including the customers’ ability to pay (or credit risk). For each contract, the Company considers the promise to transfer products, each of which is distinct, to be the identified performance obligations. In determining the transaction price, the Company evaluates whether the price is subject to refund or adjustment to determine the net consideration to which it expects to be entitled. As the Company’s standard payment terms are less than one year, it has elected the practical expedient under ASC 606-10-32-18 to not assess whether a contract has a significant financing component. The Company allocates the transaction price to each distinct product based on its relative standalone selling price. The product price as specified on the purchase order is considered the standalone selling price as it is an observable input which depicts the price as if sold to a similar customer in similar circumstances. Revenue is recognized when control of the product is transferred to the customer (i.e. when the Company’s performance obligations is satisfied), which typically occurs at shipment. Further in determining whether control has been transferred, the Company considers if there is a present right to payment and legal title, along with risks and rewards of ownership having transferred to the customer. Customers do not have a right to return the product other than for warranty reasons for which they would only receive repair services or replacement products. The Company has also elected the practical expedient under ASC 340-40-25-4 to expense commissions for product sales when incurred as the amortization period of the commission asset the Company would have otherwise recognized is less than one year.
Service and other revenue is comprised of revenues from extended warranties, repair services, cloud revenue and software revenue. Revenue is recognized upon shipment of the product and acceptance of the service or materials by the end customer for repair services. Revenue for extended warranty, cloud service or other software-based products is over the term of the contract warranty or service period. A time-elapsed method is used to measure progress because the Company transfers control evenly over the contractual period. Accordingly, the fixed consideration related to these revenues is generally recognized on a straight-line basis over the contract term, as long as the other revenue recognition criteria have been met.
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.
Entertainment
The Company reports ticketing revenue on a gross or net basis based on management’s assessment of whether the Company is acting as a principal or agent in the transaction. The determination is based upon the evaluation of control over the event ticket, including the right to sell the ticket, prior to its transfer to the ticket buyer.
The Company sells tickets held in inventory, which consists of one performance obligation, being to transfer control of an event ticket to the buyer upon confirmation of the order. The Company acts as the principal in these transactions as the ticket is owned by the Company at the time of sale, therefore controlling the ticket prior to transferring to the customer. In these transactions, revenue is recorded on a gross basis based on the value of the ticket and is recognized when an order is confirmed. Payment is typically due upon delivery of the ticket.
The Company also acts as an intermediary between buyers and sellers through online secondary marketplace. Revenues derived from this marketplace primarily consist of service fees from ticketing operations, and consists of one primary performance obligation, which is facilitating the transaction between the buyer and seller, being satisfied at the time the order has been confirmed. As the Company does not control the ticket prior to the transfer, the Company acts as an agent in these transactions. Revenue is recognized on a net basis, net of the amount due to the seller when an order is confirmed, the seller is then obligated to deliver the tickets to the buyer per the seller’s listing. Payment is due at the time of sale.
Other
Contract liabilities consist of deferred revenue and include payments received in advance of performance under the contract and are reported separately as current liabilities and non-current liabilities in the Consolidated Balance Sheets. Such amounts consist of extended warranty contracts, prepaid cloud services and prepaid installation services and are generally recognized as the respective performance obligations are satisfied. During the three months ended March 31, 2024, the Company recognized revenue of $241,371 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:
Sales returns and allowances aggregated $93,170 and $117,713 as of March 31, 2024 and December 31, 2023, respectively. Obligations for estimated sales returns and allowances are recognized at the time of sales on an accrual basis. The accrual is determined based upon historical return rates adjusted for known changes in key variables affecting these return rates.
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| Use of Estimates | Use of Estimates:
The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates. Management utilizes various other estimates, including but not limited to determining the estimated lives of long-lived assets, determining the potential impairment of long-lived assets, the fair value of warrants, options, the recognition of revenue, allowance for doubtful accounts, the estimate of fair value of the lease liabilities and related right of use asset, 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.
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| Cash and cash equivalents | Cash and cash equivalents:
Cash and cash equivalents include funds on hand, in bank and short-term investments with original maturities of ninety (90) days or less. The following table shows the Company’s cash and cash equivalents by significant investment category as of March 31, 2024 and December 31, 2023:
The Company maintains its cash and cash equivalents in banks insured by the Federal Deposit Insurance Corporation (FDIC) in accounts that at times may be in excess of the federally insured limit of $250,000 per bank. The Company minimizes this risk by placing its cash deposits with major financial institutions. At March 31, 2024 and December 31, 2023, the uninsured balance amounted to $296,799 and $29,700, respectively.
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| Restricted Cash | Restricted Cash:
Restricted cash of $97,600 and $97,600 was included in other assets as of March 31, 2024 and December 31, 2023, respectively. Restricted cash consists of bank deposits that collateralize our debt obligations.
The following table provides a reconciliation of cash and cash equivalents in the consolidated balance sheets to cash, cash equivalents and restricted cash in the consolidated statements of cash flows:
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| Accounts Receivable | Accounts Receivable:
Accounts receivable are carried at original invoice amount less an estimate made for doubtful receivables based on a review of all outstanding amounts on a weekly basis. The Company determines the allowance for doubtful accounts by regularly evaluating individual customer receivables and considering a customer’s financial condition, credit history, and current economic conditions.
Trade receivables are written off when deemed uncollectible. Recoveries of trade receivables previously written off are recorded when received. A trade receivable is considered to be past due if any portion of the receivable balance is outstanding for more than thirty (30) days beyond terms. No interest is charged on overdue trade receivables.
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| Goodwill and Other Intangibles | Goodwill and Other Intangibles:
Goodwill - In connection with acquisitions, the Company applies the provisions of ASC 805, Business Combinations, using the acquisition method of accounting. The excess purchase price over the fair value of net tangible assets and identifiable intangible assets acquired is recorded as goodwill. In accordance with ASC 350, Intangibles - Goodwill and Other, the Company assesses goodwill for impairment annually as of December 31, and more frequently if events and circumstances indicate that goodwill might be impaired.
Goodwill impairment testing is performed at the reporting unit level. Goodwill is assigned to reporting units at the date the goodwill is initially recorded. Once goodwill has been assigned to reporting units, it no longer retains its association with a particular acquisition, and all of the activities within a reporting unit, whether acquired or internally generated, are available to support the value of the goodwill.
Traditionally, goodwill impairment testing is a two-step process. Step one involves comparing the fair value of the reporting units to its carrying amount. If the carrying amount of a reporting unit is greater than zero and its fair value is greater than its carrying amount, there is no impairment. If the reporting unit’s carrying amount is greater than the fair value, the second step must be completed to measure the amount of impairment, if any. Step two involves calculating an implied fair value of goodwill. The Company has adopted ASU 2017-04 which simplifies subsequent goodwill measurement by eliminating step two from the goodwill impairment test. As a result, the Company compares the fair value of a reporting unit with its respective carrying value and recognized an impairment charge for the amount by which the carrying amount exceeded the reporting unit’s fair value.
The Company determines the fair value of its reporting units using the market approach. Under the market approach, we estimate the fair value based on multiples of comparable public companies and precedent transactions. Significant estimates in the market approach include: identifying similar companies with comparable business factors such as size, growth, profitability, risk and return on investment, and assessing comparable revenue and operating income multiples in estimating the fair value of the reporting unit.
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 31, 2023 and concluded that there was no impairment. Subsequent to completing our 2023 annual impairment test, no events or changes in circumstances were noted that required an interim goodwill impairment test.
Intangible assets include deferred patent costs, license agreements, trademarks and trade names. Legal expenses incurred in preparation of patent application have been deferred and will be amortized over the useful life of granted patents. Costs incurred in preparation of applications that are not granted will be charged to expense at that time. The Company has entered into several sublicense agreements under which it has been assigned the exclusive rights to certain licensed materials used in its products. These sublicense agreements generally require upfront payments to obtain the exclusive rights to such material. The Company capitalizes the upfront payments as intangible assets and amortizes such costs over their estimated useful life on a straight-line method.
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| Segment Reporting | Segment Reporting
The accounting guidance on Segment Reporting establishes standards for reporting information regarding operating segments in annual financial statements and requires selected information of those segments to be presented in financial statements. Operating segments are identified as components of an enterprise for which separate discrete financial information is available for evaluation by the chief operating decision maker (the Company’s Chief Executive Officer or “CODM”) in making decisions on how to allocate resources and assess performance. The Company’s three operating segments are Video Solutions, Revenue Cycle Management, and Entertainment, each of which has specific personnel responsible for that business and reports to the CODM. Corporate expenses capture the Company’s corporate administrative activities and are also to be reported in the segment information.
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| Contingent Consideration | Contingent Consideration
In circumstances where an acquisition involves a contingent consideration arrangement that meets the definition of a liability under the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 480, Distinguishing Liabilities from Equity, the Company recognizes a liability equal to the fair value of the contingent payments the Company expects to make as of the acquisition date. The Company remeasures this liability each reporting period and records changes in the fair value through the consolidated statement of operations.
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| Non-Controlling Interests | Non-Controlling Interests
Non-controlling interests in the Company’s Consolidated Financial Statements represent the interest in subsidiaries held by our venture partner. The venture partner holds a noncontrolling interest in the Company’s consolidated subsidiary Nobility Healthcare, LLC. Since the Company consolidates the financial statements of all wholly-owned and majority owned subsidiaries, the noncontrolling owners’ share of each subsidiary’s results of operations are deducted and reported as net income or loss attributable to noncontrolling interest in the Consolidated Statements of Operations.
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| New Accounting Standards | New Accounting Standards
In November 2023, the FASB issued Accounting Standards Update No. 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures” (“ASU 2023-07”), which is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The guidance is to be applied retrospectively to all prior periods presented in the financial statements. Upon transition, the segment expense categories and amounts disclosed in the prior periods should be based on the significant segment expense categories identified and disclosed in the period of adoption. We are currently evaluating the potential impact of adopting this new guidance on our consolidated financial statements and related disclosures.
In December 2023, the FASB issued Accounting Standards Update No. 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” (“ASU 2023-09”), which modifies the rules on income tax disclosures to require entities to disclose (1) specific categories in the rate reconciliation, (2) the income or loss from continuing operations before income tax expense or benefit (separated between domestic and foreign) and (3) income tax expense or benefit from continuing operations (separated by federal, state and foreign). ASU 2023-09 also requires entities to disclose their income tax payments to international, federal, state and local jurisdictions, among other changes. The guidance is effective for annual periods beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. ASU 2023-09 should be applied on a prospective basis, but retrospective application is permitted. We are currently evaluating the potential impact of adopting this new guidance on our consolidated financial statements and related disclosures. |
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NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables) |
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| Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF CONTRACT LIABILITIES |
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| SCHEDULE OF SHORT TERM INVESTMENTS | Cash and cash equivalents include funds on hand, in bank and short-term investments with original maturities of ninety (90) days or less. The following table shows the Company’s cash and cash equivalents by significant investment category as of March 31, 2024 and December 31, 2023:
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| SCHEDULE OF RECONCILIATION OF CASH AND CASH EQUIVALENTS | The following table provides a reconciliation of cash and cash equivalents in the consolidated balance sheets to cash, cash equivalents and restricted cash in the consolidated statements of cash flows:
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INVENTORIES (Tables) |
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| SCHEDULE OF INVENTORIES | Inventories consisted of the following at March 31, 2024 and December 31, 2023:
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DEBT OBLIGATIONS (Tables) |
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| Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SUMMARY OF DEBT OBLIGATIONS | Debt obligations is comprised of the following:
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| SCHEDULE OF MATURITY OF DEBT OBLIGATIONS | Debt obligations mature as follows as of March 31, 2024:
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| SCHEDULE OF WARRANT TO PURCHASE COMMON STOCK GRANTED |
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FAIR VALUE MEASUREMENT (Tables) |
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| Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF FINANCIAL ASSETS AND LIABILITIES MEASURED AT FAIR VALUE ON RECURRING BASIS | The following table represents the Company’s hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2024 and December 31, 2023:
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| SCHEDULE OF FAIR VALUE MEASUREMENTS CHANGE IN LEVEL 3 INPUTS | The following table represents the change in Level 3 tier value measurements for the three months ended March 31, 2024:
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ACCRUED EXPENSES (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Payables and Accruals [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF ACCRUED EXPENSES | Accrued expenses consisted of the following at March 31, 2024 and December 31, 2023:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF ACCRUED WARRANTY EXPENSE | Accrued warranty expense was comprised of the following for the three months ended March 31, 2024:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
PREPAID EXPENSES (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||
| Prepaid Expenses | ||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF PREPAID EXPENSE | Prepaid expenses were the following at March 31, 2024 and December 31, 2023:
|
|||||||||||||||||||||||||||||||||||||||||||||
PROPERTY, PLANT AND EQUIPMENT (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property, Plant and Equipment [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF PROPERTY, PLANT AND EQUIPMENT | Property, plant and equipment consisted of the following at March 31, 2024 and December 31, 2023:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
OPERATING LEASE (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||
| Operating Lease | ||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF OPERATING LEASES RIGHT OF USE ASSETS AND LIABILITIES | The following sets forth the operating lease right of use assets and liabilities as of March 31, 2024:
|
|||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF LEASE EXPENSE | The components of lease expense were as follows for the three months ended March 31, 2024:
|
|||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF FUTURE MINIMUM LEASE PAYMENTS | Following are the minimum lease payments for each year and in total:
|
|||||||||||||||||||||||||||||||||||||||||||||
GOODWILL AND OTHER INTANGIBLE ASSETS (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Goodwill and Intangible Assets Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF INTANGIBLE ASSETS |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF ESTIMATED AMORTIZATION FOR INTANGIBLE ASSETS |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
OTHER ASSETS (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||
| Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF OTHER ASSETS | Other assets were the following at March 31, 2024 and December 31, 2023:
|
|||||||||||||||||||||||||||||||||||||||||||||
STOCK-BASED COMPENSATION (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-Based Payment Arrangement [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SUMMARY OF STOCK OPTIONS OUTSTANDING |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF SHARES AUTHORIZED UNDER STOCK OPTION PLANS BY EXERCISE PRICE RANGE |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SUMMARY OF RESTRICTED STOCK ACTIVITY |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF NON-VESTED BALANCE OF RESTRICTED STOCK | The nonvested balance of restricted stock vests as follows:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
COMMON STOCK PURCHASE WARRANTS (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock Purchase Warrants | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF WARRANT MODIFICATION |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SUMMARY OF WARRANT ACTIVITY | The following table summarizes information about shares issuable under warrants outstanding during the three months ended March 31, 2024 and 2023:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SUMMARY OF RANGE OF EXERCISE PRICES AND WEIGHTED AVERAGE REMAINING CONTRACTUAL LIFE OF WARRANTS | The following table summarizes the range of exercise prices and weighted average remaining contractual life for outstanding and exercisable warrants to purchase shares of common stock as of March 31, 2024:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
NET LOSS PER SHARE (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING AND LOSS PER SHARE OUTSTANDING |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
COUNTRY STAMPEDE ACQUISITION (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Country Stampede Acquisition [Member] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Business Acquisition [Line Items] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF ESTIMATED FAIR VALUE OF ASSETS ACQUIRED AND LIABILITIES ASSUMED ACQUISITION |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SEGMENT DATA (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Segment Reporting [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF SEGMENT REPORTING | Summarized financial information for the Company’s reportable business segments is provided for the indicated periods and as of March 31, 2024, and March 31, 2023:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SCHEDULE OF CONTRACT LIABILITIES (Details) - USD ($) |
3 Months Ended | |
|---|---|---|
Mar. 31, 2024 |
Mar. 31, 2023 |
|
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | ||
| Contract liabilities, current, beginning | $ 2,937,168 | $ 2,154,874 |
| Contract liabilities, current, additions/reclass | 535,598 | 562,809 |
| Contract liabilities, current, revenue recognized | 173,052 | 92,813 |
| Contract liabilities, current, ending | 3,299,714 | 2,624,870 |
| Contract liabilities, non-current, beginning | 7,340,459 | 5,818,082 |
| Contract liabilities, non-current, additions/reclass | 13,066 | 868,211 |
| Contract liabilities, non-current, revenue recognized | 68,319 | 370,646 |
| Contract liabilities, non-current, ending | 7,285,206 | 6,315,647 |
| Contract liabilities, current, beginning | 10,277,627 | 7,972,956 |
| Contract liabilities, additions/reclass | 548,664 | 1,431,020 |
| Contract liabilities, revenue recognized | 241,371 | 463,459 |
| Contract liabilities, ending | $ 10,584,920 | $ 8,940,517 |
SCHEDULE OF SHORT TERM INVESTMENTS (Details) - USD ($) |
3 Months Ended | 12 Months Ended |
|---|---|---|
Mar. 31, 2024 |
Dec. 31, 2023 |
|
| Debt Securities, Held-to-Maturity, Allowance for Credit Loss [Line Items] | ||
| Adjusted cost | $ 927,861 | $ 680,549 |
| Realized gains | ||
| Realized Losses | ||
| Fair value | 927,861 | 680,549 |
| Cash [Member] | ||
| Debt Securities, Held-to-Maturity, Allowance for Credit Loss [Line Items] | ||
| Adjusted cost | 769,982 | 545,207 |
| Realized gains | ||
| Realized Losses | ||
| Fair value | 769,982 | 545,207 |
| Money Market Funds [Member] | ||
| Debt Securities, Held-to-Maturity, Allowance for Credit Loss [Line Items] | ||
| Adjusted cost | 157,879 | 135,342 |
| Realized gains | ||
| Realized Losses | ||
| Fair value | $ 157,879 | $ 135,342 |
SCHEDULE OF RECONCILIATION OF CASH AND CASH EQUIVALENTS (Details) - USD ($) |
Mar. 31, 2024 |
Dec. 31, 2023 |
Mar. 31, 2023 |
Dec. 31, 2022 |
|---|---|---|---|---|
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | ||||
| Cash and cash equivalents | $ 927,861 | $ 680,549 | ||
| Long-term restricted cash included in other assets | 97,600 | 97,600 | ||
| Total cash, cash equivalents and restricted cash in the statements of cash flows | $ 1,025,461 | $ 778,149 | $ 2,859,723 | $ 3,532,199 |
SCHEDULE OF INVENTORIES (Details) - USD ($) |
Mar. 31, 2024 |
Dec. 31, 2023 |
|---|---|---|
| Inventory Disclosure [Abstract] | ||
| Raw material and component parts– video solutions segment | $ 2,938,434 | $ 3,044,653 |
| Work-in-process– video solutions segment | 26,091 | 20,396 |
| Finished goods – video solutions segment | 4,180,699 | 4,623,489 |
| Finished goods – entertainment segment | 489,854 | 699,204 |
| Subtotal | 7,635,078 | 8,387,742 |
| Reserve for excess and obsolete inventory– video solutions segment | (4,315,132) | (4,355,666) |
| Reserve for excess and obsolete inventory – entertainment segment | (171,257) | (186,795) |
| Total inventories | $ 3,148,689 | $ 3,845,281 |
INVENTORIES (Details Narrative) - USD ($) |
Mar. 31, 2024 |
Dec. 31, 2023 |
|---|---|---|
| Inventory Disclosure [Abstract] | ||
| Inventory cost | $ 51,099 | $ 42,797 |
SUMMARY OF DEBT OBLIGATIONS (Details) - USD ($) |
Mar. 31, 2024 |
Dec. 31, 2023 |
Jun. 02, 2023 |
|---|---|---|---|
| Debt Disclosure [Abstract] | |||
| Economic injury disaster loan (EIDL) | $ 146,971 | $ 147,781 | $ 125,000 |
| Contingent consideration promissory note – Nobility Healthcare Division Acquisition | 64,826 | 129,651 | |
| Contingent consideration promissory note – Nobility Healthcare Division Acquisition | 29,409 | 58,819 | |
| Revolving Loan Agreement | 4,880,000 | 4,880,000 | |
| Commercial Extension of Credit- Entertainment Segment | 69,643 | 87,928 | |
| Merchant Advances – Video Solutions Segment | 1,348,000 | 1,350,000 | |
| Merchant Advances – Entertainment Segment | 1,425,000 | ||
| Unamortized debt issuance costs | (684,989) | (540,429) | |
| Debt obligations | 7,278,860 | 6,113,750 | |
| Less: current maturities of debt obligations | 2,403,029 | 1,260,513 | |
| Debt obligations, long-term | $ 4,875,831 | $ 4,853,237 |
SCHEDULE OF MATURITY OF DEBT OBLIGATIONS (Details) - USD ($) |
Mar. 31, 2024 |
Dec. 31, 2023 |
|---|---|---|
| Debt Disclosure [Abstract] | ||
| 2024 | $ 2,402,188 | |
| 2025 | 4,735,589 | |
| 2026 | 3,542 | |
| 2027 | 3,677 | |
| 2028 and thereafter | 133,864 | |
| Debt obligations | $ 7,278,860 | $ 6,113,750 |
SCHEDULE OF WARRANT TO PURCHASE COMMON STOCK GRANTED (Details) - Warrant [Member] - $ / shares |
Apr. 05, 2023 |
Mar. 31, 2024 |
|---|---|---|
| Debt Instrument [Line Items] | ||
| Volatility - range | 106.00% | |
| Risk-free rate | 3.36% | |
| Dividend | 0.00% | |
| Remaining contractual term | 5 years | |
| Common stock issuable under the warrants | 1,125,000 | 1,125,000 |
| Minimum [Member] | ||
| Debt Instrument [Line Items] | ||
| Exercise price | $ 5.50 | |
| Maximum [Member] | ||
| Debt Instrument [Line Items] | ||
| Exercise price | $ 7.50 |
SCHEDULE OF ACCRUED EXPENSES (Details) - USD ($) |
Mar. 31, 2024 |
Dec. 31, 2023 |
|---|---|---|
| Payables and Accruals [Abstract] | ||
| Accrued warranty expense | $ 20,529 | $ 17,699 |
| Accrued litigation costs | 2,040,292 | 2,040,292 |
| Accrued sales commissions | 40,000 | 87,421 |
| Accrued payroll and related fringes | 161,763 | 367,826 |
| Accrued sales returns and allowances | 93,170 | 117,713 |
| Accrued taxes | 66,114 | 150,981 |
| Accrued interest - related party | 187,346 | 95,031 |
| Customer deposits | 45,380 | 219,462 |
| Other | 482,550 | 172,905 |
| Total accrued expenses | $ 3,137,144 | $ 3,269,330 |
SCHEDULE OF ACCRUED WARRANTY EXPENSE (Details) |
3 Months Ended |
|---|---|
|
Mar. 31, 2024
USD ($)
| |
| Payables and Accruals [Abstract] | |
| Beginning balance | $ 17,699 |
| Provision for warranty expense | 14,201 |
| Charges applied to warranty reserve | (11,371) |
| Ending balance | $ 20,529 |
INCOME TAXES (Details Narrative) - USD ($) $ in Millions |
3 Months Ended | |
|---|---|---|
Mar. 31, 2024 |
Mar. 31, 2023 |
|
| Income Tax Disclosure [Abstract] | ||
| Statutory rate valuation allowances | 100.00% | 100.00% |
| Deferred tax assets valuation allowance percentage | 100.00% | |
| Operating loss carryforwards | $ 140.9 | |
SCHEDULE OF PREPAID EXPENSE (Details) - USD ($) |
Mar. 31, 2024 |
Dec. 31, 2023 |
|---|---|---|
| Prepaid Expenses | ||
| Prepaid inventory | $ 5,570,087 | $ 5,318,939 |
| Prepaid advertising | 485,429 | 612,292 |
| Other | 519,497 | 435,137 |
| Total prepaid expenses | $ 6,575,013 | $ 6,366,368 |
PROPERTY, PLANT AND EQUIPMENT (Details Narrative) - USD ($) |
3 Months Ended | |
|---|---|---|
Mar. 31, 2024 |
Mar. 31, 2023 |
|
| Property, Plant and Equipment [Line Items] | ||
| Depreciation expense | $ 162,712 | $ 171,631 |
| Sold aircraft | 1,100,000 | |
| Closing cost | 1,500 | |
| Carrying amount | 1,141,661 | |
| Loss on sale of assets | (41,661) | |
| Aircraft [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Loss on sale of assets | $ 41,161 | |
SCHEDULE OF OPERATING LEASES RIGHT OF USE ASSETS AND LIABILITIES (Details) - USD ($) |
Mar. 31, 2024 |
Dec. 31, 2023 |
|---|---|---|
| Operating Lease | ||
| Operating lease right of use assets | $ 925,128 | $ 1,053,159 |
| Operating lease obligations-current portion | 225,960 | 279,538 |
| Operating lease obligations-less current portion | 749,718 | $ 827,836 |
| Total operating lease obligations | $ 975,678 |
SCHEDULE OF LEASE EXPENSE (Details) |
3 Months Ended |
|---|---|
|
Mar. 31, 2024
USD ($)
| |
| Selling, General and Administrative Expenses [Member] | |
| Selling, general and administrative expenses | $ 108,879 |
SCHEDULE OF FUTURE MINIMUM LEASE PAYMENTS (Details) |
Mar. 31, 2024
USD ($)
|
|---|---|
| Operating Lease | |
| 2023 (April 1, to December 31, 2024) | $ 225,247 |
| 2024 | 288,720 |
| 2025 | 293,300 |
| 2026 | 117,492 |
| Thereafter | 235,020 |
| Total undiscounted minimum future lease payments | 1,159,779 |
| Imputed interest | (184,101) |
| Total operating lease liability | $ 975,678 |
SCHEDULE OF ESTIMATED AMORTIZATION FOR INTANGIBLE ASSETS (Details) |
Mar. 31, 2024
USD ($)
|
|---|---|
| Goodwill and Intangible Assets Disclosure [Abstract] | |
| 2024 (April 1, to December 31, 2024) | $ 1,117,290 |
| 2025 | 1,413,938 |
| 2026 | 909,400 |
| 2027 | 113,600 |
| 2028 and thereafter | 549,610 |
| Total | $ 4,103,838 |
GOODWILL AND OTHER INTANGIBLE ASSETS (Details Narrative) - USD ($) |
3 Months Ended | |
|---|---|---|
Mar. 31, 2024 |
Mar. 31, 2023 |
|
| Goodwill and Intangible Assets Disclosure [Abstract] | ||
| Amortization expense | $ 388,278 | $ 371,478 |
SCHEDULE OF OTHER ASSETS (Details) - USD ($) |
Mar. 31, 2024 |
Dec. 31, 2023 |
|---|---|---|
| Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract] | ||
| Lease receivable | $ 5,880,809 | $ 6,095,050 |
| Restricted Cash | 97,600 | 97,600 |
| Other | 354,776 | 404,382 |
| Total other assets | $ 6,333,185 | $ 6,597,032 |
COMMITMENTS AND CONTINGENCIES (Details Narrative) - USD ($) $ / shares in Units, $ in Millions |
Mar. 31, 2024 |
Mar. 14, 2024 |
Dec. 31, 2023 |
|---|---|---|---|
| Commitments and Contingencies Disclosure [Abstract] | |||
| Aggregate carrying amount of litigation loss | $ 1.8 | ||
| Common stock, par value | $ 0.001 | $ 0.001 | $ 0.001 |
SUMMARY OF STOCK OPTIONS OUTSTANDING (Details) - Stock Options [Member] |
3 Months Ended |
|---|---|
|
Mar. 31, 2024
$ / shares
shares
| |
| Options outstanding, beginning balance | shares | 53,600 |
| Weighted average exercise price, outstanding, beginning balance | $ / shares | $ 45.55 |
| Options granted | shares | |
| Weighted average exercise price, granted | $ / shares | |
| Options exercised | shares | |
| Weighted average exercise price, exercised | $ / shares | |
| Options forfeited | shares | |
| Weighted average exercise price, forfeited | $ / shares | |
| Options outstanding, ending balance | shares | 53,600 |
| Weighted average exercise price, outstanding, ending balance | $ / shares | $ 45.55 |
| Options exercisable, ending balance | shares | 53,600 |
| Weighted average exercise price, exercisable, ending balance | $ / shares | $ 45.55 |
SUMMARY OF RESTRICTED STOCK ACTIVITY (Details) - Restricted Stock [Member] |
3 Months Ended |
|---|---|
|
Mar. 31, 2024
$ / shares
shares
| |
| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | |
| Number of restricted shares, non-vested beginning balance | shares | 53,875 |
| Weighted average grant date fair value, non-vested beginning balance | $ / shares | $ 11.27 |
| Number of restricted shares, granted | shares | 80,197 |
| Weighted average grant date fair value, granted | $ / shares | $ 2.12 |
| Number of restricted shares, vested | shares | (30,750) |
| Weighted average grant date fair value, vested | $ / shares | $ 10.06 |
| Number of restricted shares, forfeited | shares | (1,125) |
| Weighted average grant date fair value, forfeited | $ / shares | $ 22.20 |
| Number of restricted shares, non-vested ending balance | shares | 102,197 |
| Weighted average grant date fair value, non-vested ending balance | $ / shares | $ 4.34 |
SCHEDULE OF NON-VESTED BALANCE OF RESTRICTED STOCK (Details) |
Mar. 31, 2024
shares
|
|---|---|
| Share-Based Payment Arrangement [Abstract] | |
| 2024 (April 1, 2024 through December 31, 2024) | 1,500 |
| 2025 | 73,349 |
| 2026 | 18,349 |
| 2027 | 5,000 |
| 2028 | 4,000 |
SCHEDULE OF WARRANT MODIFICATION (Details) - Warrant [Member] |
Mar. 31, 2024
shares
|
Apr. 05, 2023
shares
|
|---|---|---|
| Common stock issuable under the warrants | 1,125,000 | 1,125,000 |
| Measurement Input, Price Volatility [Member] | ||
| Warrants measurement input | 108.5 | 106.0 |
| Measurement Input, Risk Free Interest Rate [Member] | ||
| Warrants measurement input | 4.21 | 3.36 |
| Measurement Input, Expected Dividend Rate [Member] | ||
| Warrants measurement input | 0 | 0 |
| Measurement Input, Expected Term [Member] | ||
| Remaining contractual term | 4 years | 5 years |
| Measurement Input, Exercise Price [Member] | Minimum [Member] | ||
| Warrants measurement input | 5.50 | 5.50 |
| Measurement Input, Exercise Price [Member] | Maximum [Member] | ||
| Warrants measurement input | 7.50 | 7.50 |
SUMMARY OF WARRANT ACTIVITY (Details) - Warrant [Member] |
3 Months Ended |
|---|---|
|
Mar. 31, 2024
$ / shares
shares
| |
| Warrants, vested, beginning balance | shares | 1,125,000 |
| Weighted average exercise price, vested, beginning balance | $ / shares | $ 6.50 |
| Warrants, granted | shares | |
| Weighted average exercise price, granted | $ / shares | |
| Warrants, exercised | shares | |
| Weighted average exercise price, exercised | $ / shares | |
| Warrants, forfeited/cancelled | shares | |
| Weighted average exercise price, forfeited/cancelled | $ / shares | |
| Warrants, vested, ending balance | shares | 1,125,000 |
| Weighted average exercise price, vested, ending balance | $ / shares | $ 6.50 |
COMMON STOCK PURCHASE WARRANTS (Details Narrative) - USD ($) |
3 Months Ended | ||
|---|---|---|---|
Mar. 31, 2024 |
Apr. 05, 2023 |
Mar. 31, 2023 |
|
| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | |||
| Outstanding and exercisable warrants, weighted average remaining contractual life | 48 years 2 months 12 days | ||
| Warrant [Member] | |||
| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | |||
| Warrant to purchase | 1,125,000 | 1,125,000 | |
| Intrinsic value of outstanding warrants | $ 0 | $ 0 | |
| Outstanding and exercisable warrants, weighted average remaining contractual life | 4 years | ||
| 2023 Purchase Warrants [Member] | |||
| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | |||
| Warrant to purchase | 1,125,000 |
STOCKHOLDERS’ EQUITY (Details Narrative) - USD ($) |
1 Months Ended | 3 Months Ended | |||
|---|---|---|---|---|---|
Feb. 06, 2023 |
Jan. 10, 2023 |
Jan. 31, 2024 |
Mar. 31, 2024 |
Mar. 31, 2023 |
|
| Cancellation of restricted stock, shares | 1,125 | ||||
| Reverse stock split | 1-for-20 reverse stock split | ||||
| Net income (loss) attributable to noncontrolling interest | $ (12,248) | $ 126,239 | |||
| Nobility Healthcare LLC [Member] | |||||
| Subsidiary, ownership percentage, parent | 49.00% | ||||
| Net income (loss) attributable to noncontrolling interest | $ 12,248 | $ 126,239 | |||
| Nobility Healthcare LLC [Member] | |||||
| Equity method investment, ownership percentage | 51.00% | ||||
| Officers [Member] | |||||
| Common stock issuance granted | 22,500 | 55,000 | |||
| Vesting drescription | Such shares will generally vest over a period of one to five years on their respective anniversary dates in January through January 2028, provided that each grantee remains an officer or employee on such dates | Such shares will generally vest over a period of one to five years on their respective anniversary dates in January through January 2028, provided that each grantee remains an officer or employee on such dates | |||
| New Employees [Member] | |||||
| Common stock issuance granted | 12,500 | 25,197 | |||
| New Employees [Member] | Minimum [Member] | |||||
| Vesting period | 1 year | 1 year | |||
| New Employees [Member] | Maximum [Member] | |||||
| Vesting period | 2 years | 2 years | |||
SCHEDULE OF WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING AND LOSS PER SHARE OUTSTANDING (Details) - USD ($) |
3 Months Ended | |
|---|---|---|
Mar. 31, 2024 |
Mar. 31, 2023 |
|
| Earnings Per Share [Abstract] | ||
| Numerator for basic income loss per share | $ (3,931,020) | $ (6,105,818) |
| Numerator for diluted loss per share | $ (3,931,020) | $ (6,105,818) |
| Denominator for basic loss per share – weighted average shares outstanding | 2,861,229 | 2,751,662 |
| Dilutive effect of shares issuable upon conversion of convertible debt and the exercise of stock options and warrants outstanding | ||
| Denominator for diluted loss per share – adjusted weighted average shares outstanding | 2,861,229 | 2,751,662 |
| Basic | $ (1.37) | $ (2.22) |
| Diluted | $ (1.37) | $ (2.22) |
SCHEDULE OF ESTIMATED FAIR VALUE OF ASSETS ACQUIRED AND LIABILITIES ASSUMED ACQUISITION (Details) - Country Stampede Acquisition [Member] |
Mar. 01, 2024
USD ($)
|
|---|---|
| Business Acquisition [Line Items] | |
| Tangible assets acquired | $ 305,000 |
| Identifiable intangible assets acquired (Trademarks and trade names) | 300,000 |
| Goodwill | 225,959 |
| Liabilities assumed pursuant to stock purchase agreement | (288,000) |
| Net assets acquired and liabilities assumed | 542,959 |
| Cash paid at Country Stampede Acquisition date | 400,000 |
| Cash paid subsequent to closing | 142,959 |
| Acquisition purchase price | $ 542,959 |
COUNTRY STAMPEDE ACQUISITION (Details Narrative) - USD ($) |
3 Months Ended | ||
|---|---|---|---|
Mar. 01, 2024 |
Mar. 31, 2024 |
Mar. 31, 2023 |
|
| Business Acquisition [Line Items] | |||
| Cash | $ 400,000 | ||
| JC Entertainment LLC [Member] | |||
| Business Acquisition [Line Items] | |||
| Aggregate purchase price | $ 542,959 | ||
| Cash | $ 400,000 | ||
SEGMENT DATA (Details Narrative) |
3 Months Ended |
|---|---|
|
Mar. 31, 2024
USD ($)
Segments
| |
| Segment Reporting Information [Line Items] | |
| Number of operating segments | Segments | 3 |
| Video Solutions [Member] | |
| Segment Reporting Information [Line Items] | |
| Inventory reserve | $ 4,315,132 |
| Entertainment Segment [Member] | |
| Segment Reporting Information [Line Items] | |
| Inventory reserve | $ 171,257 |
RELATED PARTY TRANSACTIONS (Details Narrative) - USD ($) |
3 Months Ended | ||||
|---|---|---|---|---|---|
Mar. 31, 2024 |
Mar. 31, 2023 |
Dec. 31, 2023 |
Oct. 02, 2023 |
Sep. 22, 2023 |
|
| Related Party Transaction [Line Items] | |||||
| Notes payable current | $ 2,700,000 | $ 2,700,000 | |||
| Nobility LLC [Member] | |||||
| Related Party Transaction [Line Items] | |||||
| Accrued reimbursable expenses payable | 576,690 | $ 265,241 | |||
| Nobility LLC [Member] | Operating Agreement [Member] | |||||
| Related Party Transaction [Line Items] | |||||
| Management fees | 12,379 | $ 32,181 | |||
| Related Party [Member] | |||||
| Related Party Transaction [Line Items] | |||||
| Notes payable current | 2,700,000 | $ 2,325,000 | |||
| Business combination, contingent consideration, asset | $ 375,000 | ||||
| Interest rate | 13.25% | ||||
| Accrued interest | $ 187,346 | ||||
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