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What changed in DIGITAL ALLY, INC.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of DIGITAL ALLY, INC.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+261 added−239 removedSource: 10-K (2024-04-01) vs 10-K (2023-03-31)

Top changes in DIGITAL ALLY, INC.'s 2023 10-K

261 paragraphs added · 239 removed · 195 edited across 5 sections

Item 1. Business

Business — how the company describes what it does

51 edited+24 added−5 removed66 unchanged
Biggest changeEVO Web and FleetVu Manager EVO Web is a web-based software, powered by and hosted on the AWS GovCloud platform, that enables police departments and security agencies to manage digital video evidence quickly and easily. EVO Web is capable of playing back, reviewing, downloading, archiving, unit configuration and management, running customizable reports and maintaining a chain of custody logs.
Biggest changeEVO Web is capable of playing back, reviewing, downloading, archiving, unit configuration and management, running customizable reports and maintaining a chain of custody logs. AWS is the most secure cloud platform on the market with features that go beyond simply storing and reviewing video evidence.
Our Revenue Management Operating Segment Products and Services Through our revenue cycle management segment, we provide assistance in providing working capital and back-office services to healthcare organizations throughout the country. Our RCM operating segment services consist of insurance and benefit verification, medical treatment documentation and coding, and collections.
Our Revenue Cycle Management Operating Segment Products and Services Through our revenue cycle management segment, we provide assistance in providing working capital and back-office services to healthcare organizations throughout the country. Our RCM operating segment services consist of insurance and benefit verification, medical treatment documentation and coding, and collections.
Specifically: 11 ● We provide employee wages that are competitive and consistent with employee positions, skill levels, experience, knowledge and geographic location. ● We align our executives’ long-term equity compensation with our shareholders’ interests by linking realizable pay with stock performance. ● Annual increases and incentive compensation are based on merit, which is communicated to employees at the time of hiring and documented through our talent management process as part of our annual review procedures and upon internal transfer and/or promotion. ● All employees are eligible for health insurance, paid and unpaid leaves, short-term disability, worker’s compensation, long-term disability, a retirement plan and life and disability/accident coverage.
Specifically: ● We provide employee wages that are competitive and consistent with employee positions, skill levels, experience, knowledge and geographic location. ● We align our executives’ long-term equity compensation with our shareholders’ interests by linking realizable pay with stock performance. ● Annual increases and incentive compensation are based on merit, which is communicated to employees at the time of hiring and documented through our talent management process as part of our annual review procedures and upon internal transfer and/or promotion. ● All employees are eligible for health insurance, paid and unpaid leaves, short-term disability, worker’s compensation, long-term disability, a retirement plan and life and disability/accident coverage.
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.
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 EVO Fleet, FLT-250, DVM-250, and DVM-250 Plus, which are our commercial line of digital video products 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 continue to have sales in the commercial fleet and ambulance service provider market, confirming that our DVM-250 Plus and FLT-250 products and FleetVu Manager can become a significant revenue producer for us. Additionally, our body-worn cameras have applications in law enforcement, along with private and event security, as well as commercial segments.
We continue to have sales in the commercial fleet and ambulance service provider market, confirming that our EVO Fleet, DVM-250 Plus and FLT-250 products and FleetVu Manager can become a significant revenue producer for us. Additionally, our body-worn cameras have applications in law enforcement, along with private and event security, as well as commercial segments.
In-Car Digital Video “Event Recorder” System – DVM-250 Plus and FLT-250 for Commercial Fleets Digital Ally provides commercial fleets and commercial fleet managers with the digital video tools that they need to increase driver safety, track assets in real-time and minimize the company’s liability risk while enabling fleet managers to operate the fleet at an optimal level.
In-Car Digital Video “Event Recorder” System – EVO Fleet, DVM-250 Plus and FLT-250 for Commercial Fleets Digital Ally provides commercial fleets and commercial fleet managers with the digital video tools that they need to increase driver safety, track assets in real-time and minimize the company’s liability risk while enabling fleet managers to operate the fleet at an optimal level.
The EVO-HD is a revolutionary in-car system that delivers versatility and reliability for law enforcement. 5 With built-in, patented auto-activation technology, EVO-HD captures multiple recording angles in sync from a FirstVu PRO or FirstVu HD body-worn camera and up to four HD in-car cameras – all from a single trigger.
The EVO-HD is a revolutionary in-car system that delivers versatility and reliability for law enforcement. With built-in, patented auto-activation technology, EVO-HD captures multiple recording angles in sync from a FirstVu PRO or FirstVu HD body-worn camera and up to four HD in-car cameras – all from a single trigger.
We market a product designed to address these commercial fleet markets with our DVM-250 Plus and FLT-250 event recorders that provide various types of commercial fleets with features and capabilities that are fully-customizable and consistent with their specific application and inherent risks.
We market a product designed to address these commercial fleet markets with our EVO Fleet, DVM-250 Plus and FLT-250 event recorders that provide various types of commercial fleets with features and capabilities that are fully-customizable and consistent with their specific application and inherent risks.
It is also MIL-STD-810G compliant capable of handling drops, shock, and vibration, and will function flawlessly in a wide temperature range. 6 In addition to the FirstVu Pro, Digital Ally also added the FirstVu II to its family of next generation technology.
It is also MIL-STD-810G compliant capable of handling drops, shock, and vibration, and will function flawlessly in a wide temperature range. In addition to the FirstVu Pro, Digital Ally also added the FirstVu II to its family of next generation technology.
TicketSmarter offers tickets for over 125,000 live events through its platform, for a wide range of events, including concerts, sporting events, theatres, and performing arts, throughout the country. Our entertainment operating segment consists of ticketing services provided through TicketSmarter and its online platform, TicketSmarter.com.
TicketSmarter offers tickets for over 125,000 live events through its platform, for a wide range of events, including concerts, sporting events, theatres, and performing arts, throughout the country. Our entertainment operating segment consists of entertainment services provided through TicketSmarter and its online platform, TicketSmarter.com.
Nobility Healthcare, our minority interest partner provides all human capital resources to manage and operate the Company’s revenue cycle management operating segment. Our employees are our most important assets and they set the foundation for our ability to achieve our strategic objectives.
Nobility Healthcare, our minority interest partner provides all human capital resources to manage and operate the Company’s revenue cycle management operating segment. 10 Our employees are our most important assets and they set the foundation for our ability to achieve our strategic objectives.
Our Video Operating Segment Products and Services Through our video operating segment we supply technology-based products utilizing our portable digital video and audio recording capabilities for the law enforcement and security industries and for the commercial fleet and mass transit markets.
Our Video Solutions Operating Segment Products and Services Through 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.
Ticketing direct expenses include the cost of tickets purchased for resale by the Company and held as inventory, credit card fees, ticketing platform expenses, website maintenance fees, along with other administrative costs.
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.
Our assistance consists of insurance and benefit verification, medical treatment documentation and coding, and collections. Through our expertise and experience in this field, we aim to maximize our customers’ service revenues collected, leading to substantial improvements in their operating margins and cash flows. 4 Our revenue cycle management segment consists of our medical billing subsidiaries.
Our assistance consists of insurance and benefit verification, medical treatment documentation and coding, and collections. Through our expertise and experience in this field, we aim to maximize our customers’ service revenues collected, leading to substantial improvements in their operating margins and cash flows. 3 Our revenue cycle management segment consists of our medical billing subsidiaries.
Body-Worn Digital Video System – FirstVu Pro, FirstVu II, and FirstVu HD for Law Enforcement and Private Security During 2021, Digital Ally launched two next generation body-worn cameras and docking stations, refreshing the Company’s complete ecosystem of evidence recording devices.
Body-Worn Digital Video System – FirstVu Pro, FirstVu II, and FirstVu HD for Law Enforcement and Private Security Digital Ally launched two next generation body-worn cameras and docking stations, refreshing the Company’s complete ecosystem of evidence recording devices.
With the market continuing to grow, resale marketplaces and websites can reach a vastly larger audience with more convenient access to tickets for a wide variety of events. We continue to build our brand and recognition, through the numerous partnerships and sponsorships throughout the country, in attempt to become a preferred platform for consumers. Worldwide Reinsurance Ltd.
With the market continuing to grow, resale marketplaces and websites can reach a vastly larger audience with more convenient access to tickets for a wide variety of events. We continue to build our brand and recognition, through numerous partnerships and sponsorships throughout the country, in attempt to become a preferred platform for consumers.
(previously DriveCam, Inc.) and SmartDrive Systems, among others. 9 Competition – Revenue Cycle Management Operating Segment Our revenue cycle management segment is a highly competitive market that is only intensifying as the market continues to grow.
(previously DriveCam, Inc.) and SmartDrive Systems, among others. 8 Competition – Revenue Cycle Management Operating Segment Our revenue cycle management segment is a highly competitive market that is only intensifying as the market continues to grow.
Within the suite, there are powerful mapping and reporting tools that are intended to optimize efficiency, serve as training tools for teams on safety, and, ultimately, generate a significant return on investment for the organization. We expect the EVO-HD to become the platform for a new family of in-car video solution products for the commercial markets.
Within the suite, there are powerful mapping and reporting tools that are intended to optimize efficiency, serve as training tools for teams on safety, and, ultimately, generate a significant return on investment for the organization. 5 The EVO-HD has become the platform for a new family of in-car video solution products for the commercial markets.
For the purposes of this Annual Report on Form 10-K, unless the context otherwise requires, (i) the term “our,” or “us” refers to the Predecessor Registrant and its subsidiaries with respect to the period prior to the Effective Time and to the Registrant and its subsidiaries with respect to the period on and after the Effective Time; (ii) as of any period prior to the Effective Time, references to the “directors” mean the directors of the Predecessor Registrant, and, as of any period at and after the Effective Time, the directors of the Registrant, (iii) as of any period prior to the Effective Time, references to “stockholders” mean the holders of Predecessor Common Stock, and, as of any period at and after the Effective Time, the holders of Registrant Common Stock, and (iv) as of any period prior to the Effective Time, references to “Common Stock” means the Predecessor Common Stock, and, as of any period at and after the Effective Time, Registrant Common Stock.
For the purposes of this Annual Report on Form 10-K, unless the context otherwise requires, (i) the term “our,” or “us” refers to the Predecessor Registrant and its subsidiaries with respect to the period prior to the Effective Time and to the Registrant and its subsidiaries with respect to the period on and after the Effective Time; (ii) as of any period prior to the Effective Time, references to the “directors” mean the directors of the Predecessor Registrant, and, as of any period at and after the Effective Time, the directors of the Registrant, (iii) as of any period prior to the Effective Time, references to “stockholders” mean the holders of Predecessor Common Stock, and, as of any period at and after the Effective Time, the holders of Registrant Common Stock, and (iv) as of any period prior to the Effective Time, references to “Common Stock” means the Predecessor Common Stock, and, as of any period at and after the Effective Time, Registrant Common Stock. 2 The business of the Registrant, Digital Ally, Inc.
Entertainment Operating Segment We have also entered into live entertainment and events ticketing services through the formation of our wholly owned subsidiary, TicketSmarter, Inc. (“TicketSmarter”) and its completed acquisitions of Goody Tickets, LLC and TicketSmarter, LLC, on September 1, 2021. TicketSmarter provides ticket sales, partnerships, and mainly, ticket resale services through its online ticketing marketplace for live events, TicketSmarter.com.
Entertainment Operating Segment We also provide live entertainment and events ticketing services through the formation of our wholly owned subsidiary, TicketSmarter, Inc. (“TicketSmarter”) and its completed acquisitions of Goody Tickets, LLC and TicketSmarter, LLC, on September 1, 2021. TicketSmarter provides ticket sales, partnerships, and mainly, ticket resale services through its online ticketing marketplace for live events, TicketSmarter.com.
The innovative EVO-HD technology is expected to replace the current in-car mirror-based systems with a miniaturized system that can be custom-mounted in the vehicle, while offering numerous hardware configurations to meet the varied needs and requirements of our commercial customers.
The innovative EVO-HD technology replaces the current in-car mirror-based systems with a miniaturized system that can be custom-mounted in the vehicle, while offering numerous hardware configurations to meet the varied needs and requirements of our commercial customers.
Human Capital As of December 31, 2022, Digital Ally, and its subsidiaries, had approximately 201 full-time employees spread throughout the country, representing the core values and objectives of the Company.
Human Capital As of December 31, 2023, Digital Ally, and its subsidiaries, had approximately 170 full-time employees spread throughout the country, representing the core values and objectives of the Company.
ThermoVu has optional features such as facial recognition to improve facility security by restricting access based on temperature and/or facial recognition reasons. ThermoVu provides an instant pass/fail audible tone with its temperature display and controls access to facilities based on such results. Shield Electrostatic Sprayer is a compact and lightweight disinfecting sprayer utilizing electrostatic induction.
ThermoVu has optional features such as facial recognition to improve facility security by restricting access based on temperature and/or facial recognition reasons. ThermoVu provides an instant pass/fail audible tone with its temperature display and controls access to facilities based on such results.
We have entered into supply and distribution agreements with several companies that produce certain of our products, including our DVM-250 and DVM-800 products. These supply and distribution agreements contain certain confidentiality provisions that protect our proprietary technology, as well as that of the third-party manufacturers.
We have entered into supply and distribution agreements with several companies that produce certain of our products, including our FirstVu Pro & FirstVu II body cameras, QuickVu docking stations, EVO Fleet, DVM-250 and DVM-800 products. These supply and distribution agreements contain certain confidentiality provisions that protect our proprietary technology, as well as that of the third-party manufacturers.
FleetVu Manager is able to generate driver reports, identify at risk behaviors before an incident takes place, and enable commercial fleet managers to manage the entire fleet through a single, easy to use platform.
FleetVu Manager is able to generate driver reports, identify at risk behaviors before an incident takes place, and enable commercial fleet managers to manage the entire fleet through a single, easy to use platform. Our products compatible with FleetVu Manager include: EVO Fleet, DVM-250 Plus and FLT-250.
These employees are spread amongst our operating segments as follows: As of December 31, 2022 Employee headcount: Video Solutions 109 Revenue Cycle Management [1] 78 Entertainment 14 Total Employee Headcount 201 [1] Our revenue cycle management operating segment has no direct employees.
These employees are spread amongst our operating segments as follows: As of December 31, 2023 Employee headcount: Video Solutions 98 Revenue Cycle Management [1] 60 Entertainment 12 Total Employee Headcount 170 [1] Our revenue cycle management operating segment has no direct employees.
We further diversified and broadened our product offerings in 2020, by introducing two new lines of branded products: (1) the ThermoVu® which is a line of self-contained temperature monitoring stations that provides alerts and controls facility access when an individual’s temperature exceeds a pre-set threshold and (2) our Shield™ disinfectants and cleansers which are for use against viruses and bacteria.
We 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. 4 In-Car Digital Video Mirror System for Law Enforcement – EVO-HD, DVM-800 and DVM-800 Lite In-car video systems for patrol cars are a necessity and have generally become standard.
Our products compatible with FleetVu Manager include: DVM-250 and FLT-250. 7 Shield TM Heath Protection Products The Company’s Shield TM brand offers a variety of products to help keep you safe, including; Shield Cleansers, ThermoVu, Shield Electrostatic Sprayer, Shied Disinfectant, and a variety of personal protection equipment including masks, gloves and sanitizer wipes.
Shield TM Heath Protection Products The Company’s Shield TM brand offers a variety of products to help keep you safe, including; Shield Cleansers, ThermoVu, Shied Disinfectant, and a variety of personal protection equipment including masks, gloves and sanitizer wipes.
The following table sets forth the Company’s total revenue and the revenue derived from each reportable operating segment: Years Ended December 31, 2022 2021 Net Revenues: Video Solutions $ 8,252,288 $ 9,073,626 Revenue Cycle Management 7,886,107 1,630,048 Entertainment 20,871,500 10,709,760 Total Net Revenues $ 37,009,895 $ 21,413,434 3 Additional information regarding each reportable operating segment is also included in Note 23 entitled Segment Data of “Notes to Consolidated Financial Statements”.
The following table sets forth the Company’s total revenue and the revenue derived from each reportable operating segment: Years Ended December 31, 2023 2022 Net Revenues: Video Solutions $ 7,471,285 $ 8,252,288 Revenue Cycle Management 6,713,678 7,886,107 Entertainment 14,063,381 20,871,500 Total Net Revenues $ 28,248,344 $ 37,009,895 Additional information regarding each reportable operating segment is also included in Note 23 entitled Segment Data of “Notes to Consolidated Financial Statements”.
Our products that are compatible with EVO Web include: FirstVu Pro, FirstVu II, FirstVu HD, QuickVu, EVO-HD, DVM-800 and DVM-800 Lite. FleetVu Manager is a web-based software that provides commercial fleet managers with the tools to increase driver safety, track assets in real-time and minimize their companies’ liability risks.
FleetVu Manager is a web-based software that provides commercial fleet managers with the tools to increase driver safety, track assets in real-time and minimize their companies’ liability risks.
We continue to investigate ways to expand our market reach, although can make no assurances in that regard. Market and Industry Overview – Entertainment Operating Segment Our entertainment segment refers to the sale of event tickets primarily through our online and mobile platforms. We will buy inventory of event ticket to then sell tickets through various platforms, including our own.
Market and Industry Overview – Entertainment Operating Segment Our entertainment segment refers to the sale of event tickets primarily through our online and mobile platforms. We will buy inventory of event tickets to then sell tickets through various platforms, including our own.
We have since expanded our scope by pursuing the commercial fleet vehicle and mass transit markets. Additionally, we have expanded into event security services where we provide the hardware and software to supplement private security for NASCAR races, football and other sporting events, concerts and other events where people gather.
Additionally, we have expanded into event security services where we provide the hardware and software to supplement private security for NASCAR races, football and other sporting events, concerts and other events where people gather. We continue to further expand our focus on private security, homeland security, mass transit, healthcare, general retail, educational, general consumer and other commercial markets.
Intellectual Property – Video Solutions Operating Segment Our video solutions operating segment’s ability to compete effectively will depend on our success in protecting our proprietary technology, both in the United States and abroad. We have filed for patent protection in the United States and certain other countries to cover certain design aspects of our products.
Intellectual Property – Video Solutions Operating Segment Our video solutions operating segment’s ability to compete effectively will depend on our success in protecting our proprietary technology, both in the United States and abroad.
We continue to further expand our focus on private security, homeland security, mass transit, healthcare, general retail, educational, general consumer and other commercial markets. In that regard, we have several installations involving private security on cruise ships and similar markets. We believe there are many potential private uses of our product offerings.
In that regard, we have several installations involving private security on cruise ships and similar markets. We believe there are many potential private uses of our product offerings.
(with its wholly-owned subsidiaries, Digital Ally International, Inc., Shield Products, LLC, Digital Ally Healthcare, LLC, TicketSmarter, Inc., Worldwide Reinsurance, Ltd., Digital Connect, Inc., BirdVu Jets, Inc., Kustom 440, Inc., and its majority-owned subsidiary Nobility Healthcare, LLC, collectively, “Digital Ally,” “Digital,” and the “Company”), is divided into three reportable operating segments: 1) the Video Solutions Segment, 2) the Revenue Cycle Management Segment and 3) the Entertainment Segment.
(“Kustom”), 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 Entertainment Segment.
There are direct competitors with technology and products in the law enforcement and surveillance markets for all of our products, including those that are in development.
Competitive factors in these industries include ease of use, quality, portability, versatility, reliability, accuracy and cost. There are direct competitors with technology and products in the law enforcement and surveillance markets for all of our products, including those that are in development.
We offer agreements with customers in which we provide our services and bill the customers monthly for our services. The healthcare industry in the United States represents a strong portion of the United States’ economy, offering a robust market for these services. Our current market includes many diverse specialties, including radiology, oncology, orthopedics, pediatrics, internal medicine, and cardiology.
The healthcare industry in the United States represents a strong portion of the United States’ economy, offering a robust market for these services. Our current market includes many diverse specialties, including radiology, oncology, orthopedics, pediatrics, internal medicine, and cardiology. We continue to investigate ways to expand our market reach, although can make no assurances in that regard.
Moreover, no assurance can be given that others will not independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets and know-how. 10 Intellectual Property – Revenue Cycle Management Operating Segment Our revenue cycle management’s operating segment’s ability to compete effectively primarily depends on our trade secrets and know-how and does not depend heavily on any proprietary technology or patents.
Intellectual Property – Revenue Cycle Management Operating Segment Our revenue cycle management’s operating segment’s ability to compete effectively primarily depends on our trade secrets and know-how and does not depend heavily on any proprietary technology or patents.
We work directly with consumers looking to buy or sell event tickets for particular shows, concerts, games, and other events, allowing a simple and effective platform to move tickets. We also currently partner with more than 35 collegiate conferences, over 300 universities, and hundreds of events and venues.
We work directly with consumers looking to buy or sell event tickets for particular shows, concerts, games, and other events, allowing a simple and effective platform to move tickets. We also offer production and promotion of live music events in third-party venues throughout the country.
We believe that, due to non-mirror-based aspect of this product, the FLT-250 will become more attractive for our potential customers, as it is a much simpler plug and play option compared to mirror-based products. Digital Ally offers a suite of data management web-based tools to assist fleet managers in the organization, archival, and management of videos and telematics information.
The non-mirror-based aspect of this product, allowed the FLT-250 to become more attractive for our potential customers, as it is a much simpler plug and play option compared to mirror-based products.
Prior to our VuLink ecosystem, officers had to manually activate each device while responding to emergency scenarios, a requirement that both decreased the usefulness of the existing camera systems and diverted officers’ attention during critical moments.
Prior to our VuLink ecosystem, officers had to manually activate each device while responding to emergency scenarios, a requirement that both decreased the usefulness of the existing camera systems and diverted officers’ attention during critical moments. 6 EVO Web and FleetVu Manager EVO Web is a web-based software, powered by and hosted on the AWS GovCloud platform, that enables police departments and security agencies to manage digital video evidence quickly and easily.
In-Car Digital Video Mirror System for Law Enforcement – EVO-HD, DVM-800 and DVM-800 Lite In-car video systems for patrol cars are a necessity and have generally become standard. Current systems are primarily digital based systems with cameras mounted on the windshield and the recording device generally in the trunk, headliner, dashboard, console or under the seat of the vehicle.
Current systems are primarily digital based systems with cameras mounted on the windshield and the recording device generally in the trunk, headliner, dashboard, console or under the seat of the vehicle. The Company launched its in-car digital video platform under the name EVO-HD during the second quarter of 2019.
With the recent acquisitions we completed in 2021, we hope to utilize the connections we now have to live events, stadiums, and arenas, as well as new medical connections. 8 Market and Industry Overview – Revenue Cycle Management Operating Segment Our revenue cycle management segment consists of end-to-end revenue cycle management services that focuses on claim reimbursement billing, verification, and related services to medical providers throughout the country.
Market and Industry Overview – Revenue Cycle Management Operating Segment Our revenue cycle management segment consists of end-to-end revenue cycle management services that focuses on claim reimbursement billing, verification, and related services to medical providers throughout the country. We offer agreements with customers in which we provide our services and bill the customers monthly for our services.
Our entertainment operating segment also provides customers with access to tickets which it has purchased or received in return for its sponsorship or partnership from the venue, event or owner. Market and Industry Overview – Video Solutions Operating Segment Our video solutions segment has historically had a primary market of domestic and international law enforcement agencies.
Our entertainment operating segment primarily receives compensation for its services generally determined as a percentage of the face-value of the tickets being purchased. Our entertainment operating segment also provides customers with access to tickets which it has purchased or received in return for its sponsorship or partnership from the venue, event or owner.
In the first quarter of 2021, Digital Ally released the FLT-250, offering the same great features of the DVM-250 Plus in a new compact, non-mirrored form factor that allows for multiple mounting options in any vehicle type for commercial fleets.
Due to our marketing efforts, commercial fleets are beginning to adopt this technology, and in particular, the ambulance and taxi-cab markets. The FLT-250 offers the same great features of the DVM-250 Plus in a new compact, non-mirrored form factor that allows for multiple mounting options in any vehicle type for commercial fleets.
In December 2021, the Company formed a wholly-owned subsidiary, Worldwide Reinsurance Ltd. (“Worldwide Re”), a Bermuda incorporated captive insurance company that will provide primarily liability insurance coverage to the Company for which insurance may not be currently available or economically feasible in today’s insurance marketplace.
(“Worldwide Re”), a Bermuda incorporated captive insurance company that provided primarily liability insurance coverage to the Company for which insurance may not be currently available or economically feasible in today’s insurance marketplace. Worldwide Re is subject to capital and other regulatory requirements imposed by the Bermuda Monetary Authority (“BMA”).
No assurance can be given which, or any, of the patents relating to our existing technology will be issued from the United States or any foreign patent offices.
We were issued several patents in recent years, including a patent on our VuLink product that provides automatic triggering of our body-worn camera and our in-car video systems. No assurance can be given which, or any, of the patents relating to our existing technology will be issued from the United States or any foreign patent offices.
Some of our patent applications are still under review by the USPTO and, therefore, we have not yet been issued all the patents that we applied for in the United States. We were issued several patents in recent years, including a patent on our VuLink product that provides automatic triggering of our body-worn camera and our in-car video systems.
We have filed for patent protection in the United States and certain other countries to cover certain design aspects of our products. 9 Some of our patent applications are still under review by the USPTO and, therefore, we have not yet been issued all the patents that we applied for in the United States.
AWS is the most secure cloud platform on the market with features that go beyond simply storing and reviewing video evidence. AWS GovCloud platform is trusted by the Department of Justice, Defense Digital Services for the US Air Force, U.S. Department of Treasury, and U.S. Department of Homeland Security.
AWS GovCloud platform is trusted by the Department of Justice, Defense Digital Services for the US Air Force, U.S. Department of Treasury, and U.S. Department of Homeland Security. Our products that are compatible with EVO Web include: FirstVu Pro, FirstVu II, FirstVu HD, QuickVu, EVO-HD, DVM-800 and DVM-800 Lite.
TicketSmarter is the official ticket resale partner of more than 35 collegiate conferences, over 300 universities, and hundreds of events and venues. Our entertainment operating segment primarily receives compensation for its services generally determined as a percentage of the face-value of the tickets being purchased.
TicketSmarter is the official ticket resale partner of more than 35 collegiate conferences, over 300 universities, and hundreds of events and venues. 7 Established in late 2022, Kustom 440 is another piece of the entertainment segment of the Company, whose mission it is to attract, manage and promote concerts, sports and private events.
Competition - Video Solutions Operating Segment Our video solutions segment, consisting of law enforcement and security surveillance markets, is extremely competitive. Competitive factors in these industries include ease of use, quality, portability, versatility, reliability, accuracy and cost.
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. Competition - Video Solutions Operating Segment Our video solutions segment, consisting of law enforcement and security surveillance markets, is extremely competitive.
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The business of the Registrant, Digital Ally, Inc.
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(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 (“Kustom 440”), Inc., Kustom Entertainment, Inc.
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The Company launched its in-car digital video platform under the name EVO-HD during the second quarter of 2019.
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Business Combination On June 1, 2023, the Company, entered into an Agreement and Plan of Merger (the “CLOE Merger Agreement”) with Clover Leaf Capital Corp., a Delaware corporation (“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 (“Yntegra”), in the capacity as the representative from and after the effective time for the stockholders of Clover Leaf in accordance with the terms and conditions of the CLOE Merger Agreement (the “Sponsor” or the “Purchaser Representative”), and Kustom, with a focus and mission to own and produce events, festivals, and entertainment alongside its evolving primary and secondary ticketing technologies.
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Due to our marketing efforts, commercial fleets are beginning to adopt this technology, and in particular, the ambulance and taxi-cab markets.
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Pursuant to the CLOE Merger Agreement, subject to the terms and conditions set forth therein upon the consummation of the transactions contemplated by the CLOE Merger Agreement (the “Closing”), Merger Sub will merge with and into Kustom (the “Merger” and, together with the other transactions contemplated by the Merger Agreement, the “Business Combination”), with Kustom continuing as the surviving corporation in the Merger and a wholly owned subsidiary of Clover Leaf.
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The charged particles repel each other and affix to surfaces more evenly, eliminating large droplets for better disinfecting coverage. It is ideal for use in office buildings, schools, and other populated areas.
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In the Merger, all of the issued and outstanding capital stock of Kustom immediately prior to the effective time shall no longer be outstanding and shall automatically be cancelled and shall cease to exist in exchange for the right for the Company to receive the Merger Consideration (as defined below).
Removed
Worldwide Re is subject to capital and other regulatory requirements imposed by the Bermuda Monetary Authority (“BMA”).
Added
Upon consummation of the Business Combination, Clover Leaf will change its name to “Kustom Entertainment, Inc.” The aggregate merger consideration to be paid pursuant to the CLOE Merger Agreement to the Company as of immediately prior to the effective time will be an amount equal to (the “Merger Consideration”) (i) $125 million, minus (ii) the estimated consolidated indebtedness of Kustom as of the Closing (“Closing Indebtedness”).
Added
The Merger Consideration to be paid to the Company will be paid solely by the delivery of new shares of Clover Leaf Class A Common Stock, each valued at $11.14 per share (the “Merger Consideration Shares”).
Added
The Closing Indebtedness (and the resulting Merger Consideration) is based solely on estimates determined shortly prior to the Closing and is not subject to any post-Closing true-up or adjustment. Kustom is comprised of TicketSmarter and Kustom 440, both currently wholly owned subsidiaries.
Added
Both TicketSmarter and Kustom 440 will combine their management teams and focus on concerts, entertainment and garnering additional ticketing partnerships in 2024 and beyond. Kustom 440 and TicketSmarter will use their existing sponsorships and sports property partnerships to develop alternative entertainment options for consumers.
Added
The combined company will be known as Kustom Entertainment and will operate under the same management team as Kustom which is currently led by Stanton E. Ross, the current CEO of the Company. The transaction contemplates an equity value of $125 million for Kustom.
Added
The combined company is expected to have an implied initial pro forma equity value of approximately $222.2 million, with the proposed Business Combination expected to provide approximately $18.1 million in gross proceeds from the cash held in trust by Clover Leaf, assuming no redemptions.
Added
Additionally, the Company will distribute to its shareholders 20% of the Merger Consideration Shares obtained in Kustom immediately following the closing of the Merger and intends to distribute the balance of such Merger Consideration Shares following a six-month lock-up period.
Added
The transaction has been approved by the board of directors of the Company (the “Board” or “Board of Directors”) and the board of directors of Clover Leaf and is subject to approval by the stockholders of Clover Leaf and other customary closing conditions. The Company, as the sole holder of Kustom common stock, has approved the transaction.
Added
Due to the plan to consummate the Business Combination, the Company no longer expects to pursue a separation of Kustom into its own independent publicly traded company via spin-off, as announced on December 8, 2022.
Added
In October 2023, Kustom Entertainment and Clover Leaf announced the filing of a Registration Statement on Form S-4 by Clover Leaf with the Securities and Exchange Commission (the “SEC”) on October 4, 2023, relating to the previously announced proposed Business Combination.
Added
In December 2023, Kustom Entertainment and Clover Leaf announced the filing of the Amendment No. 1 to the Registration Statement on Form S-4 by Clover Leaf with the SEC on December 8, 2023, relating to the previously announced proposed Business Combination.
Added
In February 2024, Kustom Entertainment and Clover Leaf announced the filing of the Amendment No. 2 to the Registration Statement on Form S-4 by Clover Leaf with the SEC on February 5, 2024, relating to the previously announced proposed Business Combination.
Added
In the fourth quarter of 2022, Digital Ally released the EVO Fleet, offering a full-featured solution utilizing the latest in telematics technology, including immediate driver-assist feedback by recognizing pedestrians, distracted or drowsy driving, and lane shifting.
Added
We believe that, due to the new technology, including the A.I. interface, live tracking capabilities, up to four streams of video, and video on command, this product will become a very prominent product in the market and for our current and potential customers.
Added
Digital Ally offers a suite of data management web-based tools to assist fleet managers in the organization, archival, and management of videos and telematics information.
Added
Kustom 440 offers the 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. These events range in size from small corporate events to full stadium multi-day events.
Added
Market and Industry Overview – Video Solutions Operating Segment Our video solutions segment has historically had a primary market of domestic and international law enforcement agencies. We have since expanded our scope by pursuing the commercial fleet vehicle and mass transit markets.
Added
With the recent acquisitions we completed in 2021 and 2022, we hope to utilize the connections we now have to live events, stadiums, and arenas, as well as new medical connections.
Added
The event production portion of this segment faces strong competition ranging from small festival production companies to large concert production companies and venues. Worldwide Reinsurance Ltd. In December 2021, the Company formed a wholly-owned subsidiary, Worldwide Reinsurance Ltd.
Added
Moreover, no assurance can be given that others will not independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets and know-how.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeOn 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 the TicketSmarter office space. The lease terms included monthly payments ranging from $7,211 to $7,364 and expired in December 2022.
Biggest changeUpon completion of this acquisition, the Company became responsible for the operating lease for the TicketSmarter office space. The lease terms included monthly payments ranging from $7,211 to $7,364 and the lease was originally going to expire in December 2022.
The Company signed a six month extension through June 2023, and plans to relocate the entertainment operating segment operations at that time. On January 1, 2022, the Company completed the acquisition of another private 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 Company signed a six-month extension through June 2023 and is currently on a month-to-month lease with plans to relocate the entertainment operating segment. On January 1, 2022, the Company completed the acquisition of another private 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.
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 $11,579 to $11,811 and terminate in March 2023. The Company plans to relocate the revenue cycle management operating segment acquired operations to existing owned or leased facilities upon termination of this operating lease.
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 and terminate in July 2024. The Company plans to relocate the revenue cycle management operating segment acquired operations to existing owned or leased facilities upon termination of this operating lease.
On June 30, 2021, the Company completed the acquisition of a private medical billing company, through Nobility Healthcare, a majority owned subsidiary. 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 and terminate in July 2024.
On August 31, 2021, the Company completed the acquisition of another private 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.
Removed
The Company plans to relocate the revenue cycle management operating segment acquired operations to existing owned or leased facilities upon termination of this operating lease. On August 31, 2021, the Company completed the acquisition of another private medical billing company, through Nobility Healthcare.
Added
On October 26, 2023, the Company entered into a Loan and Security Agreement (the “Kompass Loan Agreement”) by and between the Company, Digital Ally Healthcare, and Kompass Kapital Funding, LLC, a Kansas limited liability company (“Kompass”).
Added
In connection with the Kompass Loan Agreement, on October 26, 2023, the Company entered into a Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing by and between the Company, as grantor, and Kompass, as grantee, and mortgaged its real property having an address of 14001 Marshall Drive, Lenexa, KS 66215. 11 On June 30, 2021, the Company completed the acquisition of a private medical billing company, through Nobility Healthcare, a majority owned subsidiary.
Added
The lease was renewed in April 2023 with favorable terms and payments ranging from 7,436 to 8,877 thereafter, and with a termination date in March 2030. On September 1, 2021, the Company completed the acquisition of Goody Tickets, LLC and TicketSmarter, LLC, through TicketSmarter.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeWe have not concluded that a material loss related to the allegations is probable, nor have we accrued a liability related to these claims.
Biggest changeDuring the second quarter of 2023, we concluded that a $1.8 million loss related to the allegations is probable, with no conclusion on the remaining $2.2 million being a probable loss related to these claims.
Although we believe a loss could be reasonably possible (as defined in ASC 450), we do not have sufficient information to determine the amount or range of reasonably possible loss with respect to the potential damages given that the dispute is yet to enter the discovery process.
Although we believe a further loss could be reasonably possible (as defined in ASC 450), we do not have sufficient information to determine the amount or range of reasonably possible loss with respect to the potential damages given that the dispute is yet to enter the discovery process.
We will continue to vigorously pursue these claims, and we continue to believe that we have valid grounds for recovery of the disputed deliverables. However, there can be no assurances as to the outcome of the dispute. Item 4. Mine Safety Disclosures. Not applicable. 14 PART II
We will continue to vigorously pursue these claims, and we continue to believe that we have valid grounds for recovery of the disputed deliverables. However, there can be no assurances as to the outcome of the dispute. 12 Item 4. Mine Safety Disclosures. Not applicable. PART II
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.
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.
We reevaluate and update accruals as matters progress over time. 13 While the ultimate resolution is unknown, 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.
While the ultimate resolution is unknown, 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.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe holders of our Common Stock will be entitled to non-cumulative dividends on the shares of Common Stock, when and as declared by our board of directors (“Board of Directors” or “Board”) in its discretion. We intend to retain all future earnings, if any, for our business and do not anticipate paying cash dividends in the foreseeable future.
Biggest changeDividend Policy To date, we have not declared or paid cash dividends on our shares of Common Stock. The holders of our Common Stock will be entitled to non-cumulative dividends on the shares of Common Stock, when and as declared by the Board in its discretion.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Holders of Common Stock As of March 31, 2023, we had approximately 170 shareholders of record for our Common Stock. Dividend Policy To date, we have not declared or paid cash dividends on our shares of Common Stock.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Market Information Our Common Stock trades on the Nasdaq Capital Market under the symbol “DGLY”. Holders of Common Stock As of April 1, 2024 , we had approximately 164 shareholders of record for our Common Stock.
Added
We intend to retain all future earnings, if any, for our business and do not anticipate paying cash dividends in the foreseeable future.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

133 edited+38 added−38 removed102 unchanged
Biggest changeFactors 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 2022 and 2021; (2) economic and other risks for our business from the effects of the COVID-19 pandemic, including the impacts on our law-enforcement and commercial customers, suppliers and employees and on our ability to raise capital as required; (3) our ability to increase revenues, increase our margins and return to consistent profitability in the current economic and competitive environment; (4) our operation in developing markets and uncertainty as to market acceptance of our technology and new products; (5) the availability of funding from federal, state and local governments to facilitate the budgets of law enforcement agencies, including the timing, amount and restrictions on such funding; (6) our ability to deliver our new product offerings as scheduled in 2023, and whether new products perform as planned or advertised and whether they will help increase our revenues; (7) whether we will be able to increase the sales, domestically and internationally, for our products in the future; (8) our ability to maintain or expand our share of the market for our products in the domestic and international markets in which we compete, including increasing our international revenues; (9) our ability to produce our products in a cost-effective manner; (10) competition from larger, more established companies with far greater economic and human resources; (11) our ability to attract and retain quality employees; (12) risks related to dealing with governmental entities as customers; (13) our expenditure of significant resources in anticipation of sales due to our lengthy sales cycle and the potential to receive no revenue in return; (14) characterization of our market by new products and rapid technological change; (15) that stockholders may lose all or part of their investment if we are unable to compete in our markets and return to profitability; (16) defects in our products that could impair our ability to sell our products or could result in litigation and other significant costs; (17) our dependence on key personnel; (18) our reliance on third-party distributors and sales representatives for part of our marketing capability; (19) 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; (20) our ability to protect technology through patents and to protect our proprietary technology and information, such as trade secrets, through other similar means; (21) our ability to generate more recurring cloud and service revenues; (22) risks related to our license arrangements; (23) our revenues and operating results may fluctuate unexpectedly from quarter to quarter; (24) 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; (25) the sale of substantial amounts of our Common Stock that may have a depressive effect on the market price of the outstanding shares of our Common Stock; (26) the possible issuance of Common Stock subject to options and warrants that may dilute the interest of stockholders; (27) our nonpayment of dividends and lack of plans to pay dividends in the future; (28) future sale of a substantial number of shares of our Common Stock that could depress the trading price of our common stock, lower our value and make it more difficult for us to raise capital; (29) our additional securities available for issuance, which, if issued, could adversely affect the rights of the holders of our Common Stock; (30) our stock price is likely to be highly volatile due to a number of factors, including a relatively limited public float; (31) whether such technology will have a significant impact on our revenues in the long-term; (32) whether we will be able to meet the standards for continued listing on the Nasdaq Capital Market; and (33) indemnification of our officers and directors. 15 Current Trends and Recent Developments for the Company 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.
Biggest changeThere can be no assurance that the forward-looking statements contained in this document will, in fact, transpire or prove to be accurate. 13 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 2023 and 2022; (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.
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. 20 Service and other revenues consist of cloud and warranty services revenues from our subscription plan and storage offerings of our video solutions segment.
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.
Note 1 — Nature of Business and Summary of Significant Accounting Policies and Note 8 — Goodwill and Other Intangible Assets in the Notes to Consolidated Financial Statements provide additional information regarding the Company’s goodwill and other intangible assets. 36 Warranty Reserves. We generally provide up to a two-year parts and labor standard warranty on our products to our customers.
Note 1 — Nature of Business and Summary of Significant Accounting Policies and Note 8 — 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.
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. 33 If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation.
Variable consideration is included in the transaction price if, in our judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur. None of our contracts contain a significant financing component. If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation.
As such, the Company is required to treat these warrants as derivative liabilities which are valued at their estimated fair value at their issuance date and at each reporting date with any subsequent changes reported in the condensed consolidated statement of operations as the change in fair value of warrant derivative liabilities.
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.
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. Redeemable Preferred Stock. Preferred stock may be classified as a liability, temporary equity (i.e., mezzanine equity) or permanent equity.
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. 37 Redeemable Preferred Stock. Preferred stock may be classified as a liability, temporary equity (i.e., mezzanine equity) or permanent equity.
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.
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. 27 Our Common Stock is currently listed on The Nasdaq Capital Market.
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.
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.
See Item 3, “Legal Proceedings,” of this Annual Report on Form 10-K for information on our litigation. 401 (k) Plan. The Company sponsors a 401(k) retirement savings plan for the benefit of its employees.
See Item 3, “Legal Proceedings,” of this Annual Report on Form 10-K for information on our litigation. 31 401 (k) Plan. The Company sponsors a 401(k) retirement savings plan for the benefit of its employees.
Additionally, our law enforcement revenues declined over the year ended December 31, 2022 due to price-cutting and competitive actions by our competitors, adverse marketplace effects related to our patent litigation proceedings and our recent financial condition. 22 ● Our video solutions operating segment management has continued to focus on migrating commercial customers, from a hardware sale to a service fee model.
Additionally, our law enforcement revenues declined over the year ended December 31, 2023 and 2022 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.
All outstanding stock options and common stock purchase warrants were considered antidilutive and therefore excluded from the calculation of diluted loss per share for the years ended December 31, 2022 and 2021 because all potentially dilutive securities during 2022 had exercise prices in excess of the market value of the company’s common stock and because of the net loss reported for 2022.
All outstanding stock options and common stock purchase warrants were considered antidilutive and therefore excluded from the calculation of diluted loss per share for the years ended December 31, 2023 and 2022 because all potentially dilutive securities during 2023 had exercise prices in excess of the market value of the company’s common stock and because of the net loss reported for 2023.
We continue to experience increased interest in our cloud solutions for law enforcement primarily due to the deployment of our cloud-based EVO-HD in-car system and our next generation body-worn camera products, which contributed to our increased cloud revenues in the year ended December 31, 2022.
We continue to experience increased interest in our cloud solutions for law enforcement primarily due to the deployment of our cloud-based EVO-HD in-car system and our next generation body-worn camera products, which contributed to our increased cloud revenues in the year ended December 31, 2023.
We determined that it was appropriate to continue the full valuation allowance on net deferred tax assets as of December 31, 2022 and 2021 primarily because of the recurring operating losses. We have further determined to continue providing a full valuation reserve on our net deferred tax assets as of December 31, 2022.
We determined that it was appropriate to continue the full valuation allowance on net deferred tax assets as of December 31, 2023 and 2022 primarily because of the recurring operating losses. We have further determined to continue providing a full valuation reserve on our net deferred tax assets as of December 31, 2023.
We are actively managing the level of inventory and our goal is to reduce such level during 2023 by our sales activities, the increase of which should provide additional cash flow to help support our operations during 2023. Capital Expenditures .
We are actively managing the level of inventory and our goal is to reduce such level during 2024 by our sales activities, the increase of which should provide additional cash flow to help support our operations during 2024. Capital Expenditures .
Inflation and Seasonality Inflation has not materially affected us during the past fiscal year; however, we believe that it is likely to have significant impact to all of our operating segments in 2023 and beyond.
Inflation and Seasonality Inflation has not materially affected us during the past fiscal year; however, we believe that it is likely to have significant impact to all of our operating segments in 2024 and beyond.
We periodically perform a specific review of significant individual receivables outstanding for risk of loss due to uncollectability. Based on such review, we consider our reserve for doubtful accounts to be adequate as of December 31, 2022.
We periodically perform a specific review of significant individual receivables outstanding for risk of loss due to uncollectability. Based on such review, we consider our reserve for doubtful accounts to be adequate as of 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 December 31, 2022, because of the overall net operating loss carryforwards available.
We determined that it was appropriate to continue to provide a full valuation reserve on our net deferred tax assets as of December 31, 2023, because of the overall net operating loss carryforwards available.
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 all quarters during 2022 and 2021.
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 all quarters during 2023 and 2022.
We have no recorded liability as of December 31, 2022, representing uncertain tax positions. 37 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.
We have no recorded liability as of December 31, 2023, 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.
The effective tax rate for both 2022 and 2021 varied from the expected statutory rate due to our continuing to provide a 100% valuation allowance on net deferred tax assets.
The effective tax rate for both 2023 and 2022 varied from the expected statutory rate due to our continuing to provide a 100% valuation allowance on net deferred tax assets.
The Company took possession of the leased facilities on January 1, 2022. The remaining lease term for the Company’s office and warehouse operating lease as of December 31, 2022, was thirty months. Lease expense related to the office spaces and copier operating leases was recorded on a straight-line basis over the lease term.
The Company took possession of the leased facilities on January 1, 2022. The remaining lease term for the Company’s office and warehouse operating lease as of December 31, 2023, was seventeen months. Lease expense related to the office spaces and copier operating leases was recorded on a straight-line basis over the lease term.
The acquisition of the medical billing company included a contingent consideration promissory note payable to the sellers of $750,000 at closing, which management estimated its fair value of $208,083 as of December 31, 2022.
The acquisition of the medical billing company included a contingent consideration promissory note payable to the sellers of $750,000 at closing, which management estimated its fair value of $-0- and $208,083 as of December 31, 2023 and 2022.
On August 31, 2021, Nobility Healthcare, issued another contingent consideration promissory note (the “August Contingent Payment Note”) in connection with a stock purchase agreement between Nobility Healthcare and a private company (the “August Sellers”) of $650,000. Principal payments, since its inception, on this contingent consideration promissory note totaled $292,953.
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. Principal payments, since its inception, on this contingent consideration promissory note totaled $552,256.
The acquisition of the fourth medical billing asset purchase price included a contingent consideration promissory note payable to the sellers with an estimated fair value of $105,000 at closing which management estimated its fair value of $4,346 as of December 31, 2022. 30 Lease commitments.
The acquisition of the fourth medical billing asset purchase price included a contingent consideration promissory note payable to the sellers with an estimated fair value of $105,000 at closing which management estimated its fair value of $-0- and $4,346 as of December 31, 2023 and 2022. Lease commitments.
We expect our research and development activities will continue to trend higher in future quarters as we continue to expand our product offerings based on our new EVO-HD product platform and we continue to outsource more development projects.
We 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 .
The Company’s revenue cycle management segment completed its third medical billing company acquisition using approximately $1.2 in cash for the portion of the purchase price during 2022.
The Company’s revenue cycle management segment completed its third medical billing company acquisition using approximately $1.4 million in cash for the portion of the purchase price during 2022.
Change in Fair Value of Short-Term Investments We recognized a loss on change in fair value of short-term investments totaling $84,818 and $101,645 during the years ended December 31, 2022 and 2021, respectively. Such short-term investments are included in cash and cash equivalents as they contain original maturities of ninety (90) days or less.
Change in Fair Value of Short-Term Investments We recognized a loss on change in fair value of short-term investments totaling $-0- and $84,818 during the years ended December 31, 2023 and 2022, respectively. Such short-term investments are included in cash and cash equivalents as they contain original maturities of ninety (90) days or less.
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 December 31, 2022, cumulative valuation allowances in the amount of $34,200,000 were recorded in connection with the net deferred income tax assets.
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 December 31, 2023, cumulative valuation allowances in the amount of $42,070,000 were recorded in connection with the net deferred income tax assets.
The Company is responsible for property taxes, utilities, insurance and its proportionate share of common area costs related to its new location. The Company took possession of the leased facilities on June 15, 2020. The remaining lease term for the Company’s office and warehouse operating lease as of December 31, 2022 was forty-eight months.
The Company is responsible for property taxes, utilities, insurance and its proportionate share of common area costs related to its new location. The Company took possession of the leased facilities on June 15, 2020. The remaining lease term for the Company’s office and warehouse operating lease as of December 31, 2023 was thirty-six months.
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.
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. Warrant derivative liabilities.
Our expected stock-price volatility assumption is based on historical volatilities of the underlying stock that are obtained from public data sources and there were 1,250 stock options granted during the year ended December 31, 2022.
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 year ended December 31, 2023.
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.
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.
Overall cost of goods sold for products as a percentage of product revenues for the years ended December 31, 2022, and 2021 were 131% and 94%, respectively.
Overall cost of goods sold for products as a percentage of product revenues for the years ended December 31, 2023, and 2022 were 107% and 131%, respectively.
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. 34 As of December 31, 2022, and 2021, we had provided a reserve for doubtful accounts of $152,736 and $113,234, respectively.
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. As of December 31, 2023, and 2022, we had provided a reserve for doubtful accounts of $200,668 and $152,736, respectively.
Cost of service revenues as a percentage of service revenues for the video solutions segment increased to 41% for the year ended December 31, 2022 as compared to 33% for the year ended December 31, 2021.
Cost of service revenues as a percentage of service revenues for the video solutions segment increased to 43% for the year ended December 31, 2023 as compared to 41% for the year ended December 31, 2022.
As of December 31, 2022, our historical bad debts have been negligible, with less than $286,000 charged off as uncollectible on cumulative revenues of $256.3 million since we commenced deliveries in 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.
As of December 31, 2023, our historical bad debts have been negligible, with less than $323,000 charged off as uncollectible on cumulative revenues of $284.8 million since we commenced deliveries in 2006. 33 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.
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.
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.
We intend to collect our outstanding receivables on a timely basis and reduce the overall level during 2023, which would help to provide positive cash flow to support our operations during 2023. Inventory represented $6,839,406 of our net working capital as of December 31, 2022.
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 represented $3,845,281 of our net working capital as of December 31, 2023.
During 2022, we decreased our valuation reserve on deferred tax assets by $17,220,000 whereby our deferred tax assets continue to be fully reserved due to our recent operating losses. We had approximately $113,315,000 of federal net operating loss carryforwards and $1,795,000 of research and development tax credit carryforwards as of December 31, 2022 available to offset future net taxable income.
During 2023, we decreased our valuation reserve on deferred tax assets by $7,870,000 whereby our deferred tax assets continue to be fully reserved due to our recent operating losses. We had approximately $145,035,000 of federal net operating loss carryforwards and $1,795,000 of research and development tax credit carryforwards as of December 31, 2023 available to offset future net taxable income.
Therefore, the Company recorded a gain of $421,085 and $-0- in the Consolidated Statements of Operations for the years ended December 31, 2022 and December 31, 2021, respectively.
Therefore, the Company recorded a gain of $175,146 and $421,085 in the Consolidated Statements of Operations for the years ended December 31, 2023 and December 31, 2022, respectively.
In addition, we review the associated costs incurred to assist our customers, and any changes in operating margins and cash flows. Entertainment Operating Segment Our entertainment operating segment consists of ticketing services provided through TicketSmarter and its online platform, TicketSmarter.com.
To judge the health of our revenue cycle management segment, we review the collection success rate and collection timing. In addition, we review the associated costs incurred to assist our customers, and any changes in operating margins and cash flows. Entertainment Operating Segment Our entertainment operating segment consists of ticketing services provided through TicketSmarter and its online platform, TicketSmarter.com.
Basic and Diluted Income/(Loss) per Share The basic and diluted income/(loss) per share was ($8.50) and $10.14 for the years ended December 31, 2022 and 2021, respectively, for the reasons previously noted.
Basic and Diluted Income/(Loss) per Share The basic and diluted income/(loss) per share was ($9.22) and ($8.50) for the years ended December 31, 2023 and 2022, respectively, for the reasons previously noted.
Our warranty reserves were increased to $15,694 as of December 31, 2022 compared to $13,742 as of December 31, 2021 as we begin to slow our warranty exposures through the roll-off of DVM-750 and DVM-800 units from warranty coverage.
Our warranty reserves were increased to $17,699 as of December 31, 2023 compared to $15,964 as of December 31, 2022 as we begin to slow our warranty exposures through the roll-off of DVM-750 and DVM-800 units from warranty coverage.
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.
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. 35 Our most recent annual impairment test of goodwill conducted as of December 31, 2023, indicated no impairment.
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.
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 along with tickets, concession, merchandise, and other sales from the live events produced by this segment.
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.
If successful, we believe that these new market channels could yield recurring service revenues for us in the future. 17 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.
Cost of products sold by operating segment is as follows: Years Ended December 31, 2022 2021 Cost of Product Revenues: Video Solutions $ 8,332,484 $ 6,197,061 Revenue Cycle Management — — Entertainment 6,039,631 2,437,986 Total Cost of Product Revenues $ 14,372,115 $ 8,635,047 The increase in cost of goods sold for our video solutions segment products is due to numerous factors including a sizeable increase in the allowance for excess and obsolete inventory, mostly surrounding the personal protective equipment product line.
Cost of products sold by operating segment is as follows: Years Ended December 31, 2023 2022 Cost of Product Revenues: Video Solutions $ 4,824,967 $ 8,332,484 Revenue Cycle Management — — Entertainment 5,149,923 6,039,631 Total Cost of Product Revenues $ 9,974,890 $ 14,372,115 The decrease in cost of goods sold for our video solutions segment products is due to numerous factors including a sizeable increase in the allowance for excess and obsolete inventory in 2022, mostly surrounding the personal protective equipment product line.
Based on a review of our deferred tax assets and recent operating performance, we determined that our valuation allowance should be increased by $17,220,000 to a balance of $34,200,000 to fully reserve our deferred tax assets at December 31, 2022.
Based on a review of our deferred tax assets and recent operating performance, we determined that our valuation allowance should be increased by $ 7,870,000 to a balance of $42,070,000 to fully reserve our deferred tax assets at December 31, 2023.
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.
Revenue is recognized upon shipment of the repair parts and acceptance of the service or materials by the end customer. 19 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.
Gross profit by operating segment was as follows: Years Ended December 31, 2022 2021 Gross Profit: Video Solutions $ (1,250,278 ) $ 2,002,345 Revenue Cycle Management 3,303,477 521,047 Entertainment 268,742 3,140,383 Total Gross Profit $ 2,321,941 $ 5,663,775 The overall decrease is attributable to the increase in cost of goods sold across our video and entertainment segments for the year ended December 31, 2022, as there was an overall increase in the cost of sales as a percentage of overall revenues to 94% for the year ended December 31, 2022 from 74% for the year ended December 31, 2021.
Gross profit by operating segment was as follows: Years Ended December 31, 2023 2022 Gross Profit: Video Solutions $ 1,290,509 $ (1,250,278 ) Revenue Cycle Management 2,772,271 3,303,477 Entertainment 1,699,704 268,742 Total Gross Profit $ 5,762,484 $ 2,321,941 The increase is attributable to the decrease in cost of goods sold across our video and entertainment segments for the year ended December 31, 2023, as there was an overall decrease in the cost of sales as a percentage of overall revenues to 80% for the year ended December 31, 2023 from 94% for the year ended December 31, 2022.
Cash, cash equivalents: As of December 31, 2022, we had cash and cash equivalents with an aggregate balance of $3,532,199, a decrease from a balance of $32,007,792 for the year December 31, 2021.
Cash, cash equivalents and restricted cash: As of December 31, 2023, we had cash, cash equivalents and restricted cash with an aggregate balance of $778,149, a decrease from a balance of $3,532,199 for the year December 31, 2022.
We expect this trend to continue for 2023 as the migration from local storage to cloud storage continues in our customer base. ● Video solutions operating segment revenues from extended warranty services were $692,017 and $978,018 for the years ended December 31, 2022 and 2021, respectively, an decrease of $286,001 (29%).
We expect this trend to continue for 2024 as the migration from local storage to cloud storage continues in our customer base. ● Video solutions operating segment revenues from extended warranty services were $860,337 and $692,017 for the years ended December 31, 2023 and 2022, respectively, an increase of $168,320 (24%).
Net Income/(Loss) As a result of the above, we reported a net income/(loss) of ($18,873,758) and $25,530,961 for the years ended December 31, 2022 and 2021, respectively, a decline of $44,404,719 (174%). Net Income Attributable to Noncontrolling Interests of Consolidated Subsidiary The Company owns a 51% equity interest in its consolidated subsidiary, Nobility Healthcare.
Net Loss As a result of the above, we reported a net income/(loss) of ($25,463,949) and ($18,873,758) for the years ended December 31, 2023 and 2022, respectively, a decline of $6,590,191 (35%). Net Income Attributable to Noncontrolling Interests of Consolidated Subsidiary The Company owns a 51% equity interest in its consolidated subsidiary, Nobility Healthcare.
Our video solutions operating segment continues to focus on bringing new products to market, including updates and improvements to current products. Our research and development expenses totaled $2,290,293 and $1,930,784 for the years ended December 31, 2022 and 2021, respectively, an increase of $359,509 (19%).
Our video solutions operating segment continues to focus on bringing new products to market, including updates and improvements to current products. Our research and development expenses totaled $2,618,746 and $2,290,293 for the years ended December 31, 2023 and 2022, respectively, an increase of $328,453 (14%).
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. 35 Goodwill and other intangible assets.
The decrease in the inventory reserve is primarily due to disposal of obsolete inventory previously reserved. 34 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.
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.
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.
Finished goods balances were $7,816,618 and $10,512,579 for the years ended December 31, 2022 and December 31, 2021, respectively, a decrease of $2,695,961 (26%) which was attributable to a reduction in inventory for the video solutions product lines and a large decrease in ticket inventory for the newly acquired entertainment segment.
Finished goods balances were $5,322,693 and $7,816,618 for the years ended December 31, 2023 and December 31, 2022, respectively, a decrease of $2,493,925 (32%) which was attributable to a reduction in inventory for the video solutions product lines and a large decrease in ticket inventory for the newly acquired entertainment segment.
Cash used in financing activities was $6,954,617 for the year ended December 31, 2022, compared to cash provided by financing activities of $64,595,521 for the year ended December 31, 2021.
Cash provided by financing activities was $7,380,494 for the year ended December 31, 2023, compared to cash used in financing activities of $6,954,617 for the year ended December 31, 2022.
The weighted-average remaining lease term related to the Company’s lease liabilities as of December 31, 2022 and December 31, 2021 was 3.3 years and 3.8 years, respectively. 31 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.
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 new entertainment operating segment generated $5,598,803 in product revenues for the year ended December 31, 2022, compared to $2,787,237 for the fiscal year ended December 31, 2021.
The entertainment operating segment generated $5,044,576 in product revenues for the year ended December 31, 2023, compared to $5,598,803 for the fiscal year ended December 31, 2022.
The decrease reflects our overall lower cash and cash equivalent levels in 2022 compared to 2021. Change in Fair Value of Warrant Derivative Liabilities During 2021, the Company issued detachable warrants to purchase a total of 2,127,500 shares of Common Stock in association with the two registered direct offerings previously described.
The decrease reflects our overall lower cash and cash equivalent levels in 2023 compared to 2022. Change in Fair Value of Warrant 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.
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.
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. 32 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.
We are a party to operating leases and license agreements that represent commitments for future payments (described in Note 15, “Commitments and Contingencies,” to our 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. 19 For the Years Ended December 31, 2022 and 2021 Results of Operations Summarized immediately below and discussed in more detail in the subsequent sub-sections is an analysis of our operating results for the years ended December 31, 2022 and 2021, represented as a percentage of total revenues for each respective year: Years Ended December 31, 2022 2021 Revenue 100 % 100 % Cost of revenue 94 % 74 % Gross profit 6 % 26 % Selling, general and administrative expenses: Research and development expense 6 % 9 % Selling, advertising and promotional expense 25 % 27 % General and administrative expense 55 % 60 % Total selling, general and administrative expenses 87 % 96 % Operating loss (80 )% (69 )% Change in fair value of derivative liabilities 18 % 171 % Change in fair value of contingent consideration promissory notes and earn-out agreements 1 % 17 % Warrant modification expense — % (1 )% Change in fair value of short-term investments — % — % Gain on extinguishment of warrant derivative liability 10 % — % Gain on extinguishment of debt — % — % Gain on sale of property, plant and equipment 1 % — % Interest income (expense) and other income, net (1 )% 1 % Income (loss) before income tax benefit (51 )% 119 % Income tax expense (benefit) — % — % Net income (loss) (51 )% 119 % Net loss attributable to noncontrolling interests of consolidated subsidiary (1 )% — % Loss on redemption – Series A & B convertible redeemable preferred stock (6 )% — % Net income (loss) attributable to common stockholders (59 )% 119 % Net income (loss) per share information: Basic $ (8.50 ) $ 10.14 Diluted $ (8.50 ) $ 10.14 Revenues Revenues by Type and by Operating Segment Our operating segments generate two types of revenues: Product revenues primarily includes video operating segment hardware sales of in-car and body-worn cameras, along with sales of our ThermoVu TM units, disinfectants, and personal protective equipment.
For the Years Ended December 31, 2023 and 2022 Results of Operations Summarized immediately below and discussed in more detail in the subsequent sub-sections is an analysis of our operating results for the years ended December 31, 2023 and 2022, represented as a percentage of total revenues for each respective year: Years Ended December 31, 2023 2022 Revenue 100 % 100 % Cost of revenue 80 % 94 % Gross profit 20 % 6 % Selling, general and administrative expenses: Research and development expense 9 % 6 % Selling, advertising and promotional expense 25 % 25 % General and administrative expense 65 % 55 % Total selling, general and administrative expenses 99 % 86 % Operating loss (79 )% (80 )% Change in fair value of derivative liabilities 7 % 18 % Change in fair value of contingent consideration promissory notes and earn-out agreements 1 % 1 % Gain on extinguishment of warrant derivative liability — % 10 % Loss on accrual for legal settlement (6 )% — % Loss on extinguishment of convertible debt (4 )% — % Gain on extinguishment of debt 2 % — % Gain on sale of property, plant and equipment — % 1 % Interest expense (11 )% — % Interest income and other income, net 1 % (1 )% Loss before income tax benefit (89 )% (51 )% Income tax expense (benefit) — % — % Net loss (89 )% (51 )% Net loss attributable to noncontrolling interests of consolidated subsidiary (1 )% (1 )% Loss on redemption – Series A & B convertible redeemable preferred stock — % (6 )% Net loss attributable to common stockholders (90 )% (58 )% Net loss per share information: Basic $ (9.22 ) $ (8.50 ) Diluted $ (9.22 ) $ (8.50 ) 18 Revenues Revenues by Type and by Operating Segment Our operating segments generate two types of revenues: Product revenues primarily includes video solutions operating segment hardware sales of in-car and body-worn cameras, along with sales of our ThermoVu TM units, disinfectants, and personal protective equipment.
Inventories consisted of the following as of December 31, 2022 and 2021: December 31, 2022 December 31, 2021 Raw material and component parts $ 4,509,165 $ 3,062,046 Work-in-process 3,164 — Finished goods – video solutions 6,846,091 8,410,307 Finished goods – entertainment 970,527 2,102,272 Subtotal 12,328,947 13,574,625 Reserve for excess and obsolete inventory – video solutions (5,230,261 ) (3,353,458 ) Reserve for excess and obsolete inventory – entertainment (259,280 ) (561,631 ) Total inventories $ 6,839,406 $ 9,659,536 We balance the need to maintain strategic inventory levels to ensure competitive delivery performance to our customers against the risk of inventory obsolescence due to changing technology and customer requirements.
Inventories consisted of the following as of December 31, 2023 and 2022: December 31, 2023 December 31, 2022 Raw material and component parts $ 3,044,653 $ 4,509,165 Work-in-process 20,396 3,164 Finished goods – video solutions 4,623,489 6,846,091 Finished goods – entertainment 699,204 970,527 Subtotal 8,387,742 12,328,947 Reserve for excess and obsolete inventory – video solutions (4,355,666 ) (5,230,261 ) Reserve for excess and obsolete inventory – entertainment (186,795 ) (259,280 ) Total inventories $ 3,845,281 $ 6,839,406 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.
Our revenue cycle management segment is services performed and such services are charged monthly, generally based on a contractual percentage of total customer collections, for which we recognize our net service fees. To judge the health of our revenue cycle management segment, we review the collection success rate and collection timing.
Revenues of this segment are recognized after we perform our obligations of our revenue cycle management services. Our revenue cycle management segment is services performed and such services are charged monthly, generally based on a contractual percentage of total customer collections, for which we recognize our net service fees.
Income/(Loss) before Income Tax Benefit As a result of the above, we reported a net income/(loss) before income tax benefit of ($18,873,758) and $25,530,961 for the years ended December 31, 2022 and 2021, respectively, a decline of $44,404,719 (174%). Income Tax Benefit We recorded an income tax benefit of $-0- for the years ended December 31, 2022 and 2021, respectively.
Income/(Loss) before Income Tax Benefit As a result of the above, we reported a net income/(loss) before income tax benefit of ($25,463,949) and ($18,873,758) for the years ended December 31, 2023 and 2022, respectively, a decline of $6,590,191 (35%). 26 Income Tax Benefit We recorded an income tax benefit of $-0- for the years ended December 31, 2023 and 2022, respectively.
We reported net income (loss) attributable to noncontrolling interests of consolidated subsidiary of $407,933 and $56,453 for the years ended December 31, 2022 and 2021, respectively. 28 Loss on Redemption – Series A & B Convertible Redeemable Preferred Stock During the year ended December 31, 2022, the Company redeemed 1,400,000 shares of Series A & 100,000 shares of Series B Preferred Stock, for a redemption price of $15,750,000, with a $13,365,000 carrying amount, resulting in a $2,385,000 loss on redemption.
Loss on Redemption – Series A & B Convertible Redeemable Preferred Stock During the year ended December 31, 2022, the Company redeemed 1,400,000 shares of Series A & 100,000 shares of Series B Preferred Stock, for a redemption price of $15,750,000, with a $13,365,000 carrying amount, resulting in a $2,385,000 loss on redemption.
Our most recent annual impairment test of goodwill conducted as of December 31, 2022, indicated no impairment. Subsequent to completing our 2022 annual impairment test, no events or changes in circumstances were noted that required an interim goodwill impairment test.
Subsequent to completing our 2023 annual impairment test, no events or changes in circumstances were noted that required an interim goodwill impairment test.
Cost of service revenues by operating segment is as follows: Years Ended December 31, 2022 2021 Cost of Service Revenues: Video Solutions $ 1,170,081 $ 874,219 Revenue Cycle Management 4,582,630 1,109,001 Entertainment 14,563,128 5,131,392 Total Cost of Service Revenues $ 20,315,839 $ 7,114,612 24 The increase in cost of service revenues for our video solutions segment is commensurate with the increase in service revenues in the year ended December 31, 2022 compared to the year ended December 31, 2021.
Cost of service revenues by operating segment is as follows: Years Ended December 31, 2023 2022 Cost of Service Revenues: Video Solutions $ 1,355,809 $ 1,170,081 Revenue Cycle Management 3,941,407 4,582,630 Entertainment 7,213,754 14,563,128 Total Cost of Service Revenues $ 12,510,970 $ 20,315,839 22 The increase in cost of service revenues for our video solutions segment is commensurate with the increase in service revenues in the year ended December 31, 2023 compared to the year ended December 31, 2022.
Each participant is 100% vested at all times in employee and employer matching contributions. 32 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.
The Company made matching contributions totaling $207,463 and $223,084 for the years ended December 31, 2023 and 2022, respectively. Each participant is 100% vested at all times in employee and employer matching contributions. 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.
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. Principal payments, since its inception, on this contingent consideration promissory note totaled $113,617.
Change in Fair Value of Contingent Consideration Promissory Notes and Earn-Out Agreements 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.
Summarized immediately below and discussed in more detail in the subsequent subsections are the main elements of the $28,475,593 net decrease in cash during the year ended December 31, 2022: ● Operating activities : $18,580,385 of net cash used in operating activities.
Summarized immediately below and discussed in more detail in the subsequent subsections are the main elements of the $2,754,050 net decrease in cash during the year ended December 31, 2023: ● Operating activities : $9,893,838 of net cash used in operating activities.
Additionally, the Company determined a reasonable reserve for inventory held at the ticket operating segment, in which some inventory items sell below cost or go unsold, thus having to be fully written-off following the event date. We believe the reserves are appropriate given our inventory levels as of December 31, 2022.
The decrease in the inventory reserve is primarily due to the disposal of obsolete inventory that was included in the reserves during 2022. 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.
In 2022, we utilized over $4.0 million on the stock repurchase program, $2.4 million for completion of the preferred stock transaction, as well as over $0.5 million on payments of contingent consideration promissory notes related to the revenue cycle management segment.
In 2022, we utilized over $4.0 million on the stock repurchase program, $2.4 million for completion of the preferred stock transaction, as well as over $0.5 million on payments of contingent consideration promissory notes related to the revenue cycle management segment. 28 The net result of these activities was a decrease in cash of $2,754,050 to $778,149 for the year ended December 31, 2023.
Therefore, the Company recorded a gain of $100,654 and $-0- in the Consolidated Statements of Operations for the years ended December 31, 2022 and December 31, 2021, respectively. Gain on Extinguishment of Debt We recognized a gain on extinguishment of debt totaling $-0- and $10,000 during the years ended December 31, 2022 and 2021, respectively.
Therefore, the Company recorded a gain of $2,763 and $100,654 in the Consolidated Statements of Operations for the years ended December 31, 2023 and 2022, respectively. Gain on Extinguishment of Warrant Derivative Liabilities We recognized a gain on the extinguishment of warrant derivative liabilities of $-0- and $3,624,794 during the year ended December 31, 2023 and December 31, 2022, respectively.
Net Income/(Loss) Attributable to Common Stockholders As a result of the above, we reported a net income/(loss) of ($21,666,691) and $25,474,508 for the years ended December 31, 2022 and 2021, respectively, a decline of $47,141,199 (185%).
Net Loss Attributable to Common Stockholders As a result of the above, we reported a net loss of $25,688,547 and $21,666,691 for the years ended December 31, 2023 and 2022, respectively, a decline of $4,021,856 (19%).
As reflected above, our inventory reserves represented 44.5% of the gross inventory balance as of December 31, 2022, compared to 28.8% of the gross inventory balance as of December 31, 2021. We had $5,489,541 and $3,915,089 in reserves for obsolete and excess inventories as of December 31, 2022 and 2021, respectively.
As reflected above, our inventory reserves represented 54.2% of the gross inventory balance as of December 31, 2023, compared to 44.5% of the gross inventory balance as of December 31, 2022. We had $4,542,461 and $5,489,541in reserves for obsolete and excess inventories as of December 31, 2023 and 2022, respectively.
Revenues from cloud storages have been increasing in recent quarters and reached approximately $431,167 in the fourth quarter of 2022, an increase of $128,533 (42%) over the fourth quarter of 2021.
Revenues from cloud storages have been increasing in recent quarters and reached approximately $572,892 in the fourth quarter of 2023, an increase of $141,725 (33%) over the fourth quarter of 2022.
Overall, cloud revenues increased to approximately $1,471,860 for the year ended December 31, 2022 compared to approximately $1,055,965 for the year ended December 31, 2021, an increase of $415,895, or 39%.
Overall, cloud revenues increased to approximately $1,994,066 for the year ended December 31, 2023 compared to approximately $1,471,860 for the year ended December 31, 2022, an increase of $522,206, or 35%.
The following table presents revenues by type and segment: Year Ended December 31, 2022 % Change 2021 Product revenues: Video solutions $ 5,401,089 (15.5 )% $ 6,393,050 Entertainment 5,598,803 100.9 % 2,787,237 Total product revenues 10,999,892 19.8 % 9,180,287 Service and other revenues: Video solutions 2,851,199 6.4 % 2,680,576 Entertainment 15,272,697 92.8 % 7,922,523 Revenue cycle management 7,886,107 384.0 % 1,630,048 Total service and other revenues 26,010,003 112.6 % 12,233,147 Total revenues $ 37,009,895 72.8 % $ 21,413,434 21 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.
The following table presents revenues by type and segment: Year Ended December 31, 2023 % Change 2022 Product revenues: Video solutions $ 4,303,369 (20.3 )% $ 5,401,089 Entertainment 5,044,576 (9.9 )% 5,598,803 Total product revenues 9,347,945 (15.0 )% 10,999,892 Service and other revenues: Video solutions 3,167,916 11.1 % 2,851,199 Entertainment 9,018,805 (40.9 )% 15,272,697 Revenue cycle management 6,713,678 (14.9 )% 7,886,107 Total service and other revenues 18,900,399 (27.3 )% 26,010,003 Total revenues $ 28,248,344 (23.7 )% $ 37,009,895 Our video solutions 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.

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