May 2, 2025 (U.S. Markets via PUBT) –
Form 10-K
☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended
or
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to __________.
Commission file number: 001-33899
(Exact name of registrant as specified in its charter)
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20-0064269 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
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66211 | |
| (Address of principal executive offices) | (
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Registrant's telephone number, including area code: (913)814-7774
Securities registered pursuant to Section 12(b) of the Act:
| Common Stock,
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DGLY | NasdaqCapital Market | ||
| (Title of class) | (Trading Symbol) | (
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Securities registered pursuant to Section 12(g) of the Exchange Act: None.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ | |
| Non-accelerated filer☒ |
| Smaller reporting company ☒ | ||
| Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to § 240.10D-1(b). ☐
Indicate by check mark whether the registrant is a
As of
The number of shares of the registrant's common stock issued and outstanding as of
FORM 10-K
Table of Contents
Part I
| Item 1. | Business. |
Overview
We were incorporated in
On
On
At the Effective Time, pursuant to the Merger Agreement, (i) each outstanding share of Predecessor Registrant's common stock, par value
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.
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The business of the Registrant,
| Years Ended
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| 2024 | 2023 | |||||||
| Net Revenues: | ||||||||
| Video Solutions | $ | 5,755,391 | $ | 7,471,285 | ||||
| Revenue Cycle Management | 6,131,650 | 6,713,678 | ||||||
| Entertainment | 7,763,761 | 14,063,381 | ||||||
| Total Net Revenues | $ | 19,650,802 | $ | 28,248,344 | ||||
Additional information regarding each reportable operating segment is also included in Note 22 entitled Segment Data of "Notes to Consolidated Financial Statements".
Video Solutions Operating Segment
Within our video solutions operating segment we supply technology-based products utilizing our portable digital video and audio recording capabilities for the law enforcement and security industries and for the commercial fleet and mass transit markets. We have the ability to integrate electronic, radio, computer, mechanical, and multi-media technologies to create positive solutions to our customers' requests. Our products include: the EVO-HD, DVM-800 and DVM-800 Lite, which are in-car digital video systems for law enforcement and commercial markets; the FirstVu body-wocamera line, consisting of the FirstVu Pro, FirstVu II, and the FirstVu HD; our patented and revolutionary VuLink product, which integrates our body-wocameras with our in-car systems by providing hands-free automatic activation for both law enforcement and commercial markets; EVO Web Portal, which is our cloud-based evidence management system for Law enforcement and commercial market; 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 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.
Revenue from our video solutions operating segment encompasses video recording products and services for our law enforcement and commercial customers and the sale of ShieldTM disinfectant and personal protective products. This segment generates revenues through our subscription models offering cloud and warranty solutions, and hardware sales for video and personal protective safety products and solutions. Revenues for product sales are recognized upon delivery of the product, and revenues from our cloud and warranty subscription plans are deferred over the term of the subscription, typically 3 or 5 years.
Revenue Cycle Management Operating Segment
We entered the revenue cycle management business late in the second quarter of 2021 with the formation of our wholly owned subsidiary,
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Our revenue cycle management segment consists of our medical billing subsidiaries. Revenues of this segment are recognized after we perform the obligations of our revenue cycle management services. Our revenue cycle management services are services, performed and charged monthly, generally based on a contractual percentage of total customer collections, for which we recognize our net service fees.
Entertainment Operating Segment
We also provide live entertainment and events ticketing services through the formation of our wholly owned subsidiary, TicketSmarter and its completed acquisitions of
Our entertainment operating segment consists of entertainment services provided through TicketSmarter and its online platform, TicketSmarter.com. Revenues of this segment include ticketing service charges generally determined as a percentage of the face value of the underlying ticket and ticket sales from our ticket inventory which are recognized when the underlying tickets are sold. This segment's 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, and other administrative costs.
In-Car Digital Video Mirror System for Law Enforcement - EVO-HD, DVM-800 and DVM-800 Lite
In-car video systems for patrol cars are a necessity and have generally become standard. Current systems are primarily digital based systems, with cameras mounted on the windshield and the recording device generally in the trunk, headliner, dashboard, console or under the seat of the vehicle.
The Company launched its in-car digital video platform under the name EVO-HD during the second quarter of 2019. 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-wocamera and up to four HD in-car cameras - all from a single trigger. The EVO-HD maximizes space and offers top-end reliability when paired with remote service capabilities. An internal cell modem will allow for connectivity to EVO Web Portal, powered by
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The Company offers the DVM-800, a continuation in the family of highly successful digital video mirrored (DVM) systems developed by the Company. The DVM-800 is a time-tested, compact, powerful and easy-to-use solution designed for law enforcement. The DVM-800 system has built-in road and driver facing cameras and can record up to two external HD cameras. The DVM-800 is compatible with the patented VuLink® auto-activation technology and can be paired with a FirstVu HD body-wocamera.
The Company also offers the DVM-800 Lite, an entry level system with a self-contained video recorder, microphone and digital storage system that is integrated into a rear-view mirror and is designed for law enforcement. The system can record up to two internal HD cameras.
In-Car Digital Video "Event Recorder" System - EVO Fleet, DVM-250 Plus and FLT-250 for Commercial Fleets
The DVM-250 Plus is a part of the DVM family and is designed for commercial fleets, featuring built-in digital audio and video recording technology and other features to provide commercial fleet managers unmatched driver and asset management - all while aiming to deliver the retuon investment that matters most: the safety and security of drivers and passengers. The DVM-250 Plus is designed to capture events, such as wrecks and erratic driving or other abnormal occurrences, for evidentiary or training purposes. The commercial fleet markets may find our units attractive from both feature and cost perspective compared to other providers. Due to our marketing efforts, commercial fleets, in particular the ambulance and taxi-cab markets, are beginning to adopt this technology.
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. 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.
In the fourth quarter of 2022,
The EVO-HD has become the platform for a new family of in-car video solution products for the commercial markets. 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. In its commercial market application, the EVO-HD can support up to four HD cameras, with two cameras having pre-event and ECA capabilities to allow customers to review entire shifts. An internal cell modem will allow for connectivity to the FleetVu Manager cloud-based system for commercial fleet tracking and monitoring, which is powered by AWS and real time metadata when in the field.
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Body-WoDigital Video System - FirstVu Pro, FirstVu II, and FirstVu HD for Law Enforcement and Private Security
In addition to the FirstVu Pro,
With the newly introduced body-wocameras,
Auto-activation and Interconnectivity Between In-car Video Systems and Body-woCamera Products - VuLink for Law Enforcement
Recognizing a critical limitation in law enforcement camera technology, we pioneered the development of our VuLink ecosystem that provides intuitive auto-activation functionality as well as coordination between multiple recording devices. The United States Patent and Trademark Office (the "USPTO") has recognized these pioneering efforts by granting us multiple patents with claims covering a variety of triggers, including emergency lights and sirens, extreme acceleration or braking, g-force or any 12-volt relay. Additionally, the awarded patent claims cover automatic coordination between multiple recording devices. Prior to our VuLink ecosystem, officers had to manually activate each device while responding to emergency scenarios, a requirement that both decreased the usefulness of the existing camera systems and diverted officers' attention during critical moments.
EVO Web and FleetVu Manager
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 and archiving video, as well as 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. The AWS GovCloud platform is trusted by the
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FleetVu Manager is a web-based software that provides commercial fleet managers with the tools to increase driver safety, track assets in real-time and minimize their companies' liability risks. FleetVu Manager is able to generate driver reports, identify at risk behaviors before an incident takes place, and enable commercial fleet managers to manage the entire fleet through a single, easy to use platform. Our products compatible with FleetVu Manager include: EVO Fleet, DVM-250 Plus and FLT-250.
ShieldTM Heath Protection Products
The Company's ShieldTM brand offers a variety of products to help keep you safe, including Shield Cleansers, ThermoVu, Shied Disinfectant, and a variety of personal protection equipment including masks, gloves and sanitizer wipes.
Shield Cleansers is a full line of safe and effective hypochlorous acid (HOCl) based products - and is free of toxic bleach, ammonia, methanol, ethanol, and alcohol ingredients. Shield Disinfectant is
ThermoVu is a non-contact temperature-screening instrument that measures temperature through the wrist and controls entry to facilities when temperature measurements exceed pre-determined parameters. ThermoVu has optional features such as facial recognition to improve facility security by restricting access based on temperature and/or facial recognition. ThermoVu provides an instant pass/fail audible tone with its temperature display and controls access to facilities based on such results.
The Company has been distributing other personal protective equipment and supplies, since the second quarter of 2021, such as masks and gloves to supplement its ShieldTM brand of products to health care workers as well as other consumers, consisting of vinyl and nitrile gloves, level 3 and N95 NIOSH certified face masks, and disposable wipes.
Our Revenue 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. Through our expertise and experience in this field, we maximize our customers' service revenues collected, leading to substantial improvements in their operating margins and cash flows. We generally receive a service fee based on a percentage of the service revenues collected by our customers.
Our Entertainment Operating Segment Products and Services
Through our entertainment segment, we provide customers with access to the online live event ticketing marketplace through our online platform - TicketSmarter.com. Offering over 48 million tickets for sale for over 125,000 live events, TicketSmarter is a national ticket marketplace, offering tickets for live events featuring sports, concerts and theatre. TicketSmarter is the official ticket resale partner of more than 35 collegiate conferences, over 300 universities, and hundreds of events and venues.
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. 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 events, 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.
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 retufor sponsorship or partnership from the venue, event or owner.
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Market and Industry Overview - Video Solutions Operating Segment
Our video solutions segment has historically had a primary market of domestic and international law enforcement agencies. We have since expanded our scope by pursuing the commercial fleet vehicle and mass transit markets. Additionally, we have expanded into event security services, where we provide the hardware and software to supplement private security for
Market and Industry Overview - Revenue Cycle Management Operating Segment
Our revenue cycle management segment consists of end-to-end revenue cycle management services that focus on claim reimbursement billing, verification, and providing related services to medical providers throughout the country. We offer agreements with customers in which we provide our services and bill the customers monthly for our services. The healthcare industry in
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 buy inventory of event tickets to then sell through various platforms, including our own. Our resale services refer to the sale of tickets by a holder, who originally obtained the tickets directly from a venue or entity, through our platform, after which we collect services fees on the transaction. This is commonly referred to as secondary ticketing. We work directly with consumers looking to buy or sell event tickets for particular shows, concerts, games, and other events, allowing a simple and effective platform to move tickets. We also offer production and promotion of live music events in third-party venues throughout the country. These services begin with the logistical matters of an event, including artist booking and research, ticketing, staging, on-site operations, vendor sourcing, and day of production.
Competition - Video Solutions Operating Segment
Our video solutions segment, consisting of law enforcement and security surveillance markets, is extremely competitive. Competitive factors in these industries include ease of use, quality, portability, versatility, reliability, accuracy and cost. There are direct competitors with technology and products in the law enforcement and surveillance markets for all of our products, including those that are in development. Many of these competitors have significant advantages over us, including greater financial, technical, marketing and manufacturing resources, more extensive distribution channels, larger customer bases and faster response times to adapt to new or emerging technologies and changes in customer requirements. Our primary competitors in the in-car video systems market include
Competition - Revenue Cycle Management Operating Segment
Our revenue cycle management segment is a highly competitive market that is only intensifying as the market continues to grow. We face competition from a variety of sources, including internal revenue cycle management departments within healthcare organizations, as these organizations are beginning to make internal investments in these departments to keep these services in-house. Additionally, other revenue cycle management providers exist and offer similar services through software vendors, traditional consultants, and information technology sources.
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Competition - Entertainment Operating Segment
Our entertainment segment faces robust competition from several sources throughout the industry. As the online and mobile ticketing market continues to increase, it has allowed for more technology-based companies to offer ticketing services and systems. The online environment consists of numerous other websites and platforms for all markets. With the market continuing to grow, resale marketplaces and websites can reach a vastly larger audience with more convenient access to tickets for a wide variety of events. We continue to build our brand and recognition, through numerous partnerships and sponsorships throughout the country, in an attempt to become a preferred platform for consumers. The event production portion of this segment faces strong competition ranging from small festival production companies to large concert production companies and venues.
In
Worldwide Re is subject to capital and other regulatory requirements imposed by the
As of
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
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
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.
In addition to seeking patent protection, we rely on trade secrets, know-how and continuing technological advancement to seek to achieve and thereafter maintain a competitive advantage. Although we have entered into or intend to enter into confidentiality and invention agreements with our employees, consultants and advisors, no assurance can be given that such agreements will be honored or that we will be able to effectively protect our rights to our unpatented trade secrets and know-how. Moreover, no assurance can be given that others will not independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets and know-how.
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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 - Entertainment Operating Segment
Our entertainment 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.
Government Approval
Government approval is not required for us to license our video solutions technology or sell such devices or products. However, government support for semiconductors and certain of our target markets including law enforcement and commercial vehicles, taxi-cab and private security operations may impact the size and growth rate of video solutions devices and these potential target markets. In recent years, there has been a trend in both
Environmental Regulation
While the Company believes that it has the environmental permits necessary to conduct its business and that its operations conform to current environmental regulations, increased public attention has been focused on the environmental impact of video manufacturing operations. The Company, in the conduct of its manufacturing operations, has handled and does handle materials that are considered hazardous, toxic or volatile under federal, state and local laws and, therefore, is subject to regulations related to their use, storage, discharge and disposal. No assurance can be made that the risk of accidental release of such materials can be completely eliminated. In the event of a violation of environmental laws, the Company could be held liable for damages and the costs of remediation. In addition, the Company, along with the rest of the video solutions industry, is subject to variable interpretations and governmental priorities concerning environmental laws and regulations. The annual cost of complying with the regulations is minimal.
Environmental statutes have been interpreted to provide for joint and several liability and strict liability regardless of actual fault. There can be no assurance that the Company and its subsidiaries will not be required to incur costs to comply with, or that the operations, business or financial condition of the Company will not be materially adversely affected by current or future environmental laws or regulations.
Human Capital
As of
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| Employee headcount: | ||||
| Video Solutions | 14 | |||
| Revenue Cycle Management [1] | 6 | |||
| Entertainment | 11 | |||
| Total Employee Headcount | 31 | |||
[1] Our revenue cycle management operating segment has no direct employees.
Our employees are our most important assets and they set the foundation for our ability to achieve our strategic objectives. All of our employees contribute to
Our employees are not covered by any collective bargaining agreement, and we have never experienced a work stoppage. We strive to create a culture and work environment that enables us to attract, train, promote, and retain a diverse group of talented employees who together can help us gain a competitive advantage. Our key programs and initiatives that are focused to attract, develop and retain our diverse workforce include:
| ● | Compensation Programs and Employee Benefits: the main objective of
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| ● | 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. |
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| ● | 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. We also offer a variety of voluntary benefits that allow employees to select the options that meet their needs. |
SOURCES AND AVAILABILITY OF RAW MATERIAL
The Company purchases its raw materials from multiple suppliers and has a minimum of two suppliers for most of its material requirements. The largest supplier in the fiscal year ended
Recent Developments
Potential Business Combination - In
On
Public Offering of Securities -On
The Series A and Series B warrants will be exercisable only upon receipt of stockholder approval of (i) certain terms in the Series A and B warrants and the issuance of the shares of common stock issuable upon the exercise of such Series A and Series B warrants, as may be required by the applicable rules and regulations of
The offering closed on
The Company granted the underwriter an option to purchase additional shares of common stock and/or Series A and Series B warrants of (i) up to 15.0% of the number of shares of Common Stock sold in the offering, (ii) up to 15.0% of the number of Series A warrants sold in the offering and (iii) up to 15.0% of the number of Series B warrants sold in the offering. The Underwriter may exercise this option in whole or in part at any time within forty-five calendar days after the date of the final prospectus relating to the offering. The Underwriter may exercise the over-allotment option with respect to shares of common stock only, Series A and Series B warrants only, or any combination thereof. The purchase price to be paid per additional share of Common Stock will be equal to the public offering price of one Unit (less
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The units and pre-funded units were offered by the Company pursuant to an effective registration statement on Form S-1, as amended, which was declared effective by the
| Item 1A. | Risk Factors. |
Not applicable.
| Item 1B. | Unresolved Staff Comments. |
None.
| Item 1C. | Cybersecurity. |
Risk management and strategy
We assess material risks from cybersecurity threats on an ongoing basis, including any potential unauthorized occurrence on or conducted through our information systems that may result in adverse effects on the confidentiality, integrity, or availability of our information systems or any information residing therein. As our Company grows, we plan to develop a more robust and detailed strategy for cybersecurity in alignment with nationally accepted standards. We have notencountered cybersecurity challenges that have materially impaired our operations or financial standing.
Governance
Our management and the Board recognize the critical importance of maintaining the trust and confidence of our business partners and employees, including the importance of managing cybersecurity risks as part of our larger risk management program. While all of our personnel play a part in managing cybersecurity risks, one of the key functions of our Board is informed oversight of our risk management process, including risks from cybersecurity threats.Our Board is responsible for monitoring and assessing strategic risk exposure, and our executive officers are responsible for the day-to-day management of the material risks that we face. In general, we seek to address cybersecurity risks through a cross-functional approach that is focused on preserving the confidentiality, integrity, and availability of the information that we collect and store by identifying, preventing, and mitigating cybersecurity threats and effectively responding to cybersecurity incidents when they occur.
| Item 2. | Properties. |
On
On
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During the year ended
The Company entered into an operating lease with a third party on
On
On
On
On
| Item 3. | Legal Proceedings. |
From time to time, we are notified that we may be a party to a lawsuit or that a claim is being made against us. It is our policy to not disclose the specifics of any claim or threatened lawsuit until the summons and complaint are actually served on us. After carefully assessing the claim, and assuming we determine that we are not at fault or we disagree with the damages or relief demanded, we vigorously defend any lawsuit filed against us. We record a liability when losses are deemed probable and reasonably estimable. When losses are deemed reasonably possible but not probable, we determine whether it is possible to provide an estimate of the amount of the loss or range of possible losses for the claim, if material for disclosure. In evaluating matters for accrual and disclosure purposes, we take into consideration factors such as our historical experience with matters of a similar nature, the specific facts and circumstances asserted, the likelihood of our prevailing, the availability of insurance, and the severity of any potential loss. We reevaluate and update accruals as matters progress over time.
On
On
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In February and March, 2023, defendants
On
On
In
As of
While the ultimate resolution is unknown, based on the information currently available, we do not expect that the pending lawsuit or the enforcement of the judgment will have a material adverse effect on our operations, financial condition or cash flows. However, the outcome of any litigation is inherently uncertain and there can be no assurance that any expense, liability or damages that may ultimately result from the resolution of the pending lawsuit or enforcement of the judgment will be covered by our insurance or will not be in excess of amounts recognized or provided by insurance coverage and will not have a material adverse effect on our operating results, financial condition or cash flows.
| Item 4. | Mine Safety Disclosures. |
Not applicable.
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PART II
| Item 5. | Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of
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Market Information
Our Common Stock trades on the Nasdaq Capital Market under the symbol "DGLY".
Holders of Common Stock
As of
Dividend Policy
To date, we have not declared or paid cash dividends on our shares of Common Stock. The holders of our Common Stock will be entitled to non-cumulative dividends on the shares of Common Stock, when and as declared by the Board in its discretion. We intend to retain all future earnings, if any, for our business and do not anticipate paying cash dividends in the foreseeable future.
Any future determination to pay cash dividends will be at the discretion of our Board and will be dependent upon our financial condition, results of operations, capital requirements, general business conditions and such other factors as our Board may deem relevant.
Securities Authorized for Issuance under Equity Compensation Plans
Reference is made to "Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters-Securities Authorized for Issuance under Equity Compensation Plans" for the information required by this item.
Recent Sales of
Except as previously reported by the Company on its Quarterly Reports on Form 10-Q or its Current Reports on Form 8-K, as applicable, we did not sell any securities during the period covered by this Annual Report on Form 10-K that were not registered under the Securities Act.
| Item 6. | [Reserved]. |
| Item 7. | Management's Discussion and Analysis of Financial Condition and Results of Operation. |
This discussion contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. The words "believe," "expect," "anticipate," "intend," "estimate," "may," "should," "could," "will," "plan," "future," "continue," and other expressions that are predictions of or indicate future events and trends and that do not relate to historical matters identify forward-looking statements. These forward-looking statements are based largely on our expectations or forecasts of future events, can be affected by inaccurate assumptions, and are subject to various business risks and known and unknown uncertainties, a number of which are beyond our control. Therefore, actual results could differ materially from the forward-looking statements contained in this document, and readers are cautioned not to place undue reliance on such forward-looking statements.
We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. A wide variety of factors could cause or contribute to such differences and could adversely impact revenues, profitability, cash flows and capital needs. There can be no assurance that the forward-looking statements contained in this document will, in fact, transpire or prove to be accurate.
You should read the following discussion together with our financial statements and the related notes included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements that are based on our current expectations, estimates and projections about our business and operations
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Current Trends and Recent Developments for the Company
Segment Overview
Video Solutions Operating Segment - Within our video solutions operating segment we supply technology-based products utilizing our portable digital video and audio recording capabilities for the law enforcement and security industries and for the commercial fleet and mass transit markets. We have the ability to integrate electronic, radio, computer, mechanical, and multi-media technologies to create positive solutions to our customers' requests. Our products include: the EVO-HD, DVM-800 and DVM-800 Lite, which are in-car digital video systems for law enforcement and commercial markets; the FirstVU body-wocamera line, consisting of the FirstVu Pro, FirstVu, and the FirstVU HD; our patented and revolutionary VuLink product integrates our body-wocameras with our in-car systems by providing hands-free automatic activation for both law enforcement and commercial markets; EVO Web Portal, which is our cloud-based evidence management system for Law enforcement and commercial market; 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 further diversified and broadened our product offerings in 2020, by introducing two new lines of branded products: (1) the ThermoVu™ which is a line of self-contained temperature monitoring stations that provides alerts and controls facility access when an individual's temperature exceeds a pre-set threshold and (2) our Shield™ disinfectants and cleansers which are for use against viruses and bacteria.
Our video solutions segment revenue encompasses video recording products and services for our law enforcement and commercial customers and the sale of Shield disinfectant and personal protective products. This segment generates revenues through our subscription models offering cloud and warranty solutions, and hardware sales for video and personal protective safety products and solutions. Revenues for product sales are recognized upon delivery of the product, and revenues from our cloud and warranty subscription plans are deferred over the term of the subscription, typically 3 or 5 years.
Revenue Cycle Management Operating Segment - We entered the revenue cycle management business late in the second quarter of 2021 with the formation of our wholly owned subsidiary,
Our revenue cycle management segment consists of our medical billing subsidiaries. Revenues of this segment are recognized after we perform the obligations of our revenue cycle management services. Our revenue cycle management services are services, performed and charged monthly, generally based on a contractual percentage of total customer collections, for which we recognize our net service fees.
Entertainment Operating Segment - We also entered into live entertainment and events ticketing services through the formation of our wholly owned subsidiary, TicketSmarter and its completed acquisitions of
Our entertainment operating segment consists of entertainment services provided through TicketSmarter and its online platform, TicketSmarter.com. Revenues of this segment include ticketing service charges generally determined as a percentage of the face value of the underlying ticket and ticket sales from our ticket inventory which are recognized when the underlying tickets are sold. Entertainment direct expenses include the cost of tickets purchased for resale by the Company and held as inventory, credit card fees, ticketing platform expenses, website maintenance fees, as well as other administrative costs.
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Comparison of the Year Ended
Summary Financial Data
Summarized financial information for the Company's reportable business segments is provided for the years ended
| Years Ended
|
||||||||
| 2024 | 2023 | |||||||
| Net Revenues: | ||||||||
| Video Solutions | $ | 5,755,391 | $ | 7,471,285 | ||||
| Revenue Cycle Management | 6,131,650 | 6,713,678 | ||||||
| Entertainment | 7,763,761 | 14,063,381 | ||||||
| Total Net Revenues | $ | 19,650,802 | $ | 28,248,344 | ||||
| Gross Profit (loss): | ||||||||
| Video Solutions | $ | 2,722,894 | $ | 1,290,509 | ||||
| Revenue Cycle Management | 2,365,314 | 2,772,271 | ||||||
| Entertainment | 401,124 | 1,699,704 | ||||||
| Total Gross Profit | $ | 5,489,332 | $ | 5,762,484 | ||||
| Operating Income (loss): | ||||||||
| Video Solutions | $ | (1,199,855 | ) | $ | (7,135,584 | ) | ||
| Revenue Cycle Management | (3,818,614 | ) | 292,543 | |||||
| Entertainment | (4,804,853 | ) | (3,646,770 | ) | ||||
| Corporate | (5,378,218 | ) | (11,750,742 | ) | ||||
| Total Operating Income (Loss) | $ | (15,201,540 | ) | $ | (22,240,553 | ) | ||
| Depreciation and Amortization: | ||||||||
| Video Solutions | $ | 598,895 | $ | 836,699 | ||||
| Revenue Cycle Management | 106,878 | 104,352 | ||||||
| Entertainment | 1,316,541 | 1,277,186 | ||||||
| Total Depreciation and Amortization | $ | 2,022,314 | $ | 2,218,237 | ||||
| Assets (net of eliminations): | ||||||||
| Video Solutions | $ | 12,804,820 | $ | 26,396,559 | ||||
| Revenue Cycle Management | 1,771,850 | 2,260,376 | ||||||
| Entertainment | 5,741,116 | 6,324,211 | ||||||
| Corporate | 7,418,787 | 12,047,663 | ||||||
| Total Identifiable Assets | $ | 27,736,573 | $ | 47,028,809 | ||||
The segments recorded noncash items affecting the gross profit and operating income (loss) through the established inventory reserves based on estimates of excess and/or obsolete current and non-current inventory. The Company recorded a reserve for excess and obsolete inventory in the video solutions segment of
The segment net revenues reported above represent sales to external customers. Segment gross profit represents net revenues less cost of revenues. Segment operating income, which is used in management's evaluation of segment performance, represents net revenues, less cost of revenues, less all operating expenses. Identifiable assets are those assets used by each segment in its operations. Corporate assets primarily consist of cash, property, plant and equipment, accounts receivable, inventories, and other assets.
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Off-Balance Sheet Arrangements
We do not have any off-balance sheet debt, nor did we have any transactions, arrangements, obligations (including contingent obligations) or other relationships with any unconsolidated entities or other persons that may have a material current or future effect on financial conditions, changes in the financial conditions, results of operations, liquidity, capital expenditures, capital resources, or significant components of revenue or expenses.
We are a party to operating leases and license agreements that represent commitments for future payments (described in Note 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.
For the Years Ended
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
| Years Ended
|
||||||||
| 2024 | 2023 | |||||||
| Revenue | 100 | % | 100 | % | ||||
| Cost of revenue | 72 | % | 80 | % | ||||
| Gross profit | 28 | % | 20 | % | ||||
| Selling, general and administrative expenses: | ||||||||
| Research and development expense | 7 | % | 9 | % | ||||
| Selling, advertising and promotional expense | 11 | % | 25 | % | ||||
| General and administrative expense | 63 | % | 65 | % | ||||
|
|
24 | % | - | % | ||||
| Total selling, general and administrative expenses | 105 | % | 99 | % | ||||
| Operating loss | (77 | )% | (79 | )% | ||||
| Change in fair value of derivative liabilities | (6 | )% | 7 | % | ||||
| Change in fair value of contingent consideration promissory notes and earn-out agreements | - | % | 1 | % | ||||
| Loss on disposal of intangible assets | (1 | )% | - | % | ||||
| Loss on litigation | (10 | )% | (6 | )% | ||||
| Loss on extinguishment of debt | (4 | )% | (4 | )% | ||||
| Gain on extinguishment of liabilities | 5 | % | 2 | % | ||||
| Gain on sale of property, plant and equipment | 2 | % | - | % | ||||
| Interest expense | (19 | )% | (11 | )% | ||||
| Interest income and other income, net | - | % | 1 | % | ||||
| Loss before income tax benefit | (110 | )% | (89 | )% | ||||
| Income tax expense (benefit) | - | % | - | % | ||||
| Net loss | (110 | )% | (89 | )% | ||||
| Net (loss) income attributable to noncontrolling interests of consolidated subsidiary | 10 | % | (1 | )% | ||||
| Net loss attributable to common stockholders | (100 | )% | (90 | )% | ||||
| Net loss per share information: | ||||||||
| Basic | $ | (5.58 | ) | $ | (9.22 | ) | ||
| Diluted | $ | (5.58 | ) | $ | (9.22 | ) | ||
| 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-wocameras, along with sales of our ThermoVuTM units, disinfectants, and personal protective equipment. Additionally, product revenues also include the sale of tickets by our entertainment operating segment that have been purchased or received through our sponsorships and partnerships and held in inventory by our entertainment segment until their sale.
Service and other revenues consist of cloud and warranty services revenues from our subscription plan and storage offerings of our video solutions segment. Our entertainment operating segment's secondary ticketing marketplace revenues are included in service revenue. We recognize service revenue from sales generated through its secondary ticketing marketplace as we collect net services fees on secondary ticketing marketplace transactions. Lastly, our revenue cycle management segment revenues are included in the service revenues for services provided to medical providers throughout the country.
The following table presents revenues by type and segment:
| Year Ended
|
||||||||||||
| 2024 | % Change | 2023 | ||||||||||
| Product revenues: | ||||||||||||
| Video solutions | $ | 1,997,389 | (53.6 | )% | $ | 4,303,369 | ||||||
| Entertainment | 3,406,928 | (32.5 | )% | 5,044,576 | ||||||||
| Total product revenues | 5,404,317 | (42.2 | )% | 9,347,945 | ||||||||
| Service and other revenues: | ||||||||||||
| Video solutions | 3,758,002 | 18.6 | % | 3,167,916 | ||||||||
| Entertainment | 4,356,833 | (51.7 | )% | 9,018,805 | ||||||||
| Revenue cycle management | 6,131,650 | (8.7 | )% | 6,713,678 | ||||||||
| Total service and other revenues | 14,246,485 | (24.6 | )% | 18,900,399 | ||||||||
| Total revenues | $ | 19,650,802 | (30.4 | )% | $ | 28,248,344 | ||||||
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. Revenue is recorded when the product is shipped to the end customer. | |
| ● | Sales to international customers are made through independent distributors who purchase products from us at a wholesale price and sell to the end user (typically law enforcement agencies or a commercial customer) at a retail price. The distributor retains the margin as compensation for its role in the transaction. The distributor generally maintains product inventory, customer receivables and all related risks and rewards of ownership. Revenue is recorded when the product is shipped to the distributor consistent with the terms of the distribution agreement. | |
| ● | Repair parts and services for domestic and international customers are generally handled by our inside customer service employees. Revenue is recognized upon shipment of the repair parts and acceptance of the service or materials by the end customer. |
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Our revenue cycle management operating segment sells its services to customers in the following manner:
| ● | Our revenue cycle management operating segment generates service revenues through relationships with medium to large healthcare organizations, in which the underlying service revenue is recognized upon execution of services. Service revenues are generally determined as a percentage of the dollar amount of medical billings collected by the customer. |
Our entertainment operating segment sells our products and services to customers in the following manner:
| ● | Our entertainment operating segment generates product revenues from the sale of tickets directly to consumers for a particular event that the entertainment operating segment has previously purchased and held in inventory for ultimate resale to the end consumer. Service sales through TicketSmarter are driven largely in part to the usage of the TicketSmarter.com marketplace by buyers and sellers, in which the Company collects service fees for each transaction completed through this platform. |
We may discount our prices on specific orders based upon the size of the order, the specific customer and the competitive landscape.
Product revenues by operating segment is as follows:
| Years ended
|
||||||||
| 2024 | 2023 | |||||||
| Product Revenues: | ||||||||
| Video Solutions | $ | 1,997,389 | $ | 4,303,369 | ||||
| Revenue Cycle Management | - | - | ||||||
| Entertainment | 3,406,928 | 5,044,576 | ||||||
| Total Product Revenues | $ | 5,404,317 | $ | 9,347,945 | ||||
Product revenues for the years ended
| ● | Revenues generated by the entertainment operating segment began with the Company's
|
| ● | The Company's video segment operating segment generated revenues totaling
|
| 20 |
| ● | Our video solutions operating segment management has continued to focus on migrating commercial customers, from a hardware sale to a service fee model. Therefore, we expect a reduction in commercial hardware sales (principally DVM-250's, FLT-250's, and a portion of our body-wocamera line) as we convert these customers to a service model under which we provide the hardware as part of a recurring monthly service fee. In that respect, we introduced a monthly subscription agreement plan for our body wocameras and related equipment during the second quarter of 2020 that allowed law enforcement agencies to pay a monthly service fee to obtain body wocameras without incurring a significant upfront capital outlay. This program has gained some traction, resulting in decreased product revenues and increasing our service revenues. We expect this program to continue to hold traction, resulting in recurring revenues over a span of three to five years. |
Service and other revenues by operating segment is as follows:
| Years ended
|
||||||||
| 2024 | 2023 | |||||||
| Service and Other Revenues: | ||||||||
| Video Solutions | $ | 3,758,002 | $ | 3,167,916 | ||||
| Revenue Cycle Management | 6,131,650 | 6,713,678 | ||||||
| Entertainment | 4,356,833 | 9,018,805 | ||||||
| Total Service and Other Revenues | $ | 14,246,485 | $ | 18,900,399 | ||||
Service and other revenues for the years ended
| ● | Cloud revenues generated by the video solutions operating segment were
|
|
| ● | Video solutions operating segment revenues from extended warranty services were
|
|
| ● | Our entertainment operating segment generated service revenues totaling
|
|
| ● | Our revenue cycle management operating segment generated service revenues totaling
|
Total revenues for the years ended
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Cost of Product Revenue
Overall cost of product revenue sold for the years ended
| Years Ended
|
||||||||
| 2024 | 2023 | |||||||
| Cost of Product Revenues: | ||||||||
| Video Solutions | $ | 1,780,284 | $ | 4,824,967 | ||||
| Revenue Cycle Management | - | - | ||||||
| Entertainment | 4,118,846 | 5,149,923 | ||||||
| Total Cost of Product Revenues | $ | 5,899,130 | $ | 9,974,890 | ||||
The decrease in cost of goods sold for our video solutions segment products is due to numerous factors including a sizeable decrease in the allowance for excess and obsolete inventory in 2024, mostly surrounding the personal protective equipment product line. Cost of product sold as a percentage of product revenues for the video solutions segment decreased to 89% for the year ended
The decrease in entertainment operating segment cost of product sold directly correlates to the lower product revenues for the year ended
We recorded
Cost of Service Revenue
Overall cost of service revenue sold for the years ended
| Years Ended
|
||||||||
| 2024 | 2023 | |||||||
| Cost of Service Revenues: | ||||||||
| Video Solutions | $ | 1,252,213 | $ | 1,355,809 | ||||
| Revenue Cycle Management | 3,766,336 | 3,941,407 | ||||||
| Entertainment | 3,243,791 | 7,213,754 | ||||||
| Total Cost of Service Revenues | $ | 8,262,340 | $ | 12,510,970 | ||||
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The decrease in cost of service revenues for our video solutions segment demonstrates the leverage we are enjoying as we increase our service revenues during the year ended
The decrease in revenue cycle management operating segment cost of service revenue is commensurate with the decline in revenues due to certain loss generating services being eliminated during the year. Cost of service revenues as a percentage of product revenues for the revenue cycle management operating segment increased to 61% for the year ended
The decrease in entertainment operating segment cost of service revenues is due to management right sizing the business working towards profitability. The Entertainment cost of service revenue was
Gross Profit
Overall gross profit for the years ended
| Years Ended
|
||||||||
| 2024 | 2023 | |||||||
| Gross Profit: | ||||||||
| Video Solutions | $ | 2,722,894 | $ | 1,290,509 | ||||
| Revenue Cycle Management | 2,365,314 | 2,772,271 | ||||||
| Entertainment | 401,124 | 1,699,704 | ||||||
| Total Gross Profit | $ | 5,489,332 | $ | 5,762,484 | ||||
The decrease is commensurate with the decrease in overall revenues offset by a decrease in cost of goods sold across our video and entertainment segment for the year ended
Selling, General and Administrative Expenses
Selling, general and administrative expenses were
| Year ended
|
||||||||
| 2024 | 2023 | |||||||
| Research and development expense | $ | 1,339,673 | $ | 2,618,746 | ||||
| Selling, advertising and promotional expense | 2,144,494 | 7,137,529 | ||||||
| General and administrative expense | 12,376,705 | 18,246,762 | ||||||
|
|
4,830,000 | - | ||||||
| Total | $ | 20,690,872 | $ | 28,003,037 | ||||
| 23 |
Research and development expense. Our research and development expenses totaled
Selling, advertising and promotional expenses. Selling, advertising and promotional expense totaled
General and administrative expense. General and administrative expenses totaled
As a result of our impairment test, we concluded that the carrying amount of the revenue cycle management and entertainment reporting units exceeded their estimated fair value. Thus, we recorded a non-cash goodwill impairment charge of
During the year ended
| 24 |
Operating Loss
For the reasons previously stated, our operating loss was
Interest Income
Interest income decreased to
Interest Expense
We incurred interest expenses of
Other income (expense)
Other income (expense) decreased to
Loss on Litigation
The Company recognized a loss on litigationof
Loss on Conversion of Convertible Debt
The Company recognized a loss on conversion of convertible debt of
Loss on Disposal of Intangible assets
During the year ended
Change in Fair Value of Derivative Liabilities
The change in fair value of the warrant derivative liabilities for the years ended
During 2024, the Company issued Series A and Series B detachable warrants in conjunction with its
During 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. The Company issued an additional 1,195,219 warrants in
Change in Fair Value of Contingent Consideration Promissory Notes
During the year ended
| 25 |
Gain on Extinguishment of Liabilities
The Company recorded a gain on the extinguishment of liabilities for the year ended
The gain on extinguishment of liabilities was
Loss on Extinguishment of Debt
On
On
During the year ended
Gain on Sale of Property, Plant and Equipment
During the year ended
Loss before Income Tax Benefit
As a result of the above, we reported a net loss before income tax benefit of
Income Tax Benefit
We recorded an income tax benefit of
We have further determined to continue providing a full valuation reserve on our net deferred tax assets as of
We had approximately
| 26 |
Net Loss
As a result of the above, we reported a net loss of
Net Income Attributable to Noncontrolling Interests of Consolidated Subsidiary
The Company owns a 51% equity interest in its consolidated subsidiary,
Net Loss Attributable to Common Stockholders
As a result of the above, we reported a net loss of
Basic and Diluted Income/(Loss) per Share
The basic and diluted income/(loss) per share was (
Liquidity and Capital Resources
Overall:
Management's Liquidity Plan. We have experienced net losses and cash outflows from operating activities since inception. Based upon our current operating forecast, we anticipate that we will need to restore positive operating cash flows and/or raise additional capital in the short-term to fund operations, meet our customary payment obligations and otherwise execute our business plan over the next 12 months. We are continuously in discussions to raise additional capital, which may include a variety of equity and debt instruments; however, there can be no assurance that our capital raising initiatives will be successful. Our recurring losses and level of cash used in operations, along with uncertainties concerning our ability to raise additional capital, raise substantial doubt about our ability to continue as a going concern.
Cash, cash equivalents: As of
| ● | Operating activities: | Net cash used in operating activities was
|
|
| ● | Investing activities: | Net cash provided by (used in) investing activities was
|
| 27 |
| ● | Financing activities: | Net cash provided by financing activities was
|
The net result of these activities was a decrease in cash of
Commitments:
We had
Capital Expenditures:
We had the following material commitments for capital expenditures at
Lease commitments. Total lease expense under the Company's operating leases was approximately
The following sets forth the operating lease right of use assets and liabilities as of
| Assets: | ||||
| Operating lease right of use assets | $ | 718,509 | ||
| Liabilities: | ||||
| Operating lease obligations-current portion | 158,304 | |||
| Operating lease obligations-less current portion | 560,205 | |||
| Total operating lease obligations | $ | 718,509 | ||
Following are the minimum lease payments for each year and in total.
| Year ending
|
||||
| 2025 | $ | 210,086 | ||
| 2026 | 210,925 | |||
| 2027 | 189,275 | |||
| 2028 | 100,863 | |||
| 2029 and thereafter | 130,086 | |||
| Total undiscounted minimum future lease payments | 841,235 | |||
| Imputed interest | (122,726 | ) | ||
| Total operating lease liability | $ | 718,509 | ||
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Debt obligations - We have the following outstanding debt as of
|
|
||||
| Economic injury disaster loan (EIDL) | $ | 144,495 | ||
| Commercial Extension of Credit- Entertainment Segment | 100,000 | |||
| Merchant Advances - Video Solutions Segment | 1,922,750 | |||
| Senior Secured Promissory Notes | 3,600,000 | |||
| Unamortized debt issuance costs | (664,719 | ) | ||
| Debt obligations | 5,102,526 | |||
| Less: current maturities of debt obligations | 4,961,443 | |||
| Debt obligations, long-term | $ | 141,083 | ||
Debt obligations mature on an annual basis as follows as of
|
|
||||
| 2025 | $ | 4,961,443 | ||
| 2026 | 3,412 | |||
| 2027 | 3,542 | |||
| 2028 | 3,677 | |||
| 2029 and thereafter | 130,452 | |||
| Total | $ | 5,102,526 | ||
Litigation.
From time to time, we are notified that we may be a party to a lawsuit or that a claim is being made against us. It is our policy to not disclose the specifics of any claim or threatened lawsuit until the summons and complaint are actually served on us. After carefully assessing the claim, and assuming we determine that we are not at fault or we disagree with the damages or relief demanded, we vigorously defend any lawsuit filed against us. We record a liability when losses are deemed probable and reasonably estimable. When losses are deemed reasonably possible but not probable, we determine whether it is possible to provide an estimate of the amount of the loss or range of possible losses for the claim, if material for disclosure. In evaluating matters for accrual and disclosure purposes, we take into consideration factors such as our historical experience with matters of a similar nature, the specific facts and circumstances asserted, the likelihood of our prevailing, the availability of insurance, and the severity of any potential loss. We re-evaluate and update accruals as matters progress over time.
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. However, the outcome of any litigation is inherently uncertain and there can be no assurance that any expense, liability or damages that may ultimately result from the resolution of these matters will be covered by our insurance or will not be in excess of amounts recognized or provided by insurance coverage and will not have a material adverse effect on our operating results, financial condition or cash flows. See Item 3, "Legal Proceedings," of this Annual Report on Form 10-K for information on our litigation.
| 29 |
401 (k) Plan. The Company sponsors a 401(k) retirement savings plan for the benefit of its employees. The plan, as amended, requires it to provide 100% matching contributions for employees, who elect to contribute up to 3% of their compensation to the plan and 50% matching contributions for employee's elective deferrals on the next 2% of their contributions. The Company made matching contributions totaling
Critical Accounting Estimates
Our significant accounting policies are summarized in Note 1, "Nature of Business and Summary of Significant Accounting Policies," to our consolidated financial statements. While the selection and application of any accounting policy may involve some level of subjective judgments and estimates, we believe the following accounting policies and estimates are the most critical to our financial statements, potentially involve the most subjective judgments in their selection and application, and are the most susceptible to uncertainties and changing conditions:
| ● | Revenue Recognition / Allowance for Doubtful Accounts; | |
| ● | Allowance for Excess and Obsolete Inventory; | |
| ● |
|
|
| ● | Warranty Reserves; | |
| ● | Fair value of assets and liabilities acquired in business combinations; | |
| ● | Fair value of warrant derivative liabilities; | |
| ● | Stock-based Compensation Expense; and | |
| ● | Accounting for Income Taxes. |
Revenue Recognition / Allowances for Doubtful Accounts. Revenue is recognized for the shipment of products or delivery of service when all five of the following conditions are met:
| (i) | Identify the contract with the customer; | |
| (ii) | Identify the performance obligations in the contract; | |
| (iii) | Determine the transaction price; | |
| (iv) | Allocate the transaction price to the performance obligations in the contract; and | |
| (v) | Recognize revenue when a performance obligation is satisfied. |
We consider the terms and conditions of the contract and our customary business practices in identifying our contracts under ASC 606. We determine we have a contract when the customer order is approved, we can identify each party's rights regarding the services to be transferred, we can identify the payment terms for the services, we have determined the customer has the ability and intent to pay and the contract has commercial substance. At contract inception we evaluate whether the contract includes more than one performance obligation. We apply judgment in determining the customer's ability and intent to pay, which is based on a variety of factors, including the customer's historical payment experience or, in the case of a new customer, credit and financial information pertaining to the customer.
Performance obligations promised in a contract are identified based on the services and the products that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the service either on its own or together with other resources that are readily available from third parties or from us, and are distinct in the context of the contract, whereby the transfer of the services and the products is separately identifiable from other promises in the contract. Our performance obligations consist of (i) products, (ii) professional services, and (iii) extended warranties.
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The transaction price is determined based on the consideration to which we expect to be entitled in exchange for transferring services to the customer. Variable consideration is included in the transaction price if, in our judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur. None of our contracts contain a significant financing component.
If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on the relative standalone selling price ("SSP").
Revenue for our video solutions segment is recognized at the time the related performance obligation is satisfied by transferring the control of the promised service to a customer. Revenue is recognized when control of the service is transferred to the customer, in an amount that reflects the consideration that we expect to receive in exchange for our services. We generate all our revenue from contracts with customers.
Revenue for our revenue cycle management segment is recorded on a net basis, as its primary source of revenue is its end-to-end service fees. These service fees are reported as revenue monthly, upon completion of our performance obligation to provide the agreed upon services.
Revenue for our entertainment segment is recorded on a gross or net basis based on management's assessment of whether we are acting as a principal or agent in the transaction. The determination is based upon the evaluation of control over the event ticket, including the right to sell the ticket, prior to its transfer to the ticket buyer.
We sell our tickets held in inventory, which consists of one performance obligation, being to transfer control of an event ticket to the buyer upon confirmation of the order. We act as the principal in these transactions as we own the ticket at the time of sale, therefore we control the ticket prior to transferring to the customer. In these transactions, revenue is recorded on a gross basis based on the value of the ticket and is recognized when an order is confirmed. Payment is typically due upon delivery of the ticket.
We also act as an intermediary between buyers and sellers through the online secondary marketplace. Revenues derived from this marketplace primarily consist of service fees from entertainment operations, and consists of one primary performance obligation, which is facilitating the transaction between the buyer and seller, being satisfied at the time the order has been confirmed. As we do not control the ticket prior to the transfer, we act as an agent in these transactions. Revenue is recognized on a net basis, net of the amount due to the seller when an order is confirmed, the seller is then obligated to deliver the tickets to the buyer per the seller's listing. Payment is due at the time of sale.
We review all significant, unusual, or nonstandard shipments of product or delivery of services as a routine part of our accounting and financial reporting process to determine compliance with these requirements. Extended warranties are offered on selected products, and when a customer purchases an extended warranty, the associated proceeds are treated as contract liability and recognized over the term of the extended warranty.
For our video solutions segment, our principal customers are state, local, and federal law enforcement agencies, which historically have been low risks for uncollectible accounts. However, we have commercial customers and international distributors that present a greater risk for uncollectible accounts than such law enforcement customers and we consider a specific reserve for bad debts based on their individual circumstances. Our historical bad debts have been negligible since we commenced deliveries during 2006.
For our entertainment segment, our customers are mainly online visitors that pay at the time of the transaction, and we collect the service fees charged with the transaction. Thus, leading to minimal risk for uncollectible accounts, to which we then consider a specific reserve for bad debts based on their individual circumstances. As we continue to leamore about the collectability related to this recent acquisition, we will track historical bad debts and continue to assess appropriate reserves.
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For our revenue cycle management segment, our customers are mainly medium to large healthcare organizations that are charged monthly upon the execution of our services. Being these customers are healthcare organizations with minimal risk for uncollectible accounts, we consider a specific reserve for bad debts based on their individual circumstances. As we continue to leamore about the collectability related to this recently added segment, we will track historical bad debts and continue to assess appropriate reserves.
Allowance for Excess and Obsolete Inventory. We record valuation reserves on our inventory for estimated excess or obsolete inventory items. The amount of the reserve is equal to the difference between the cost of the inventory and the estimated market value based upon assumptions about future demand and market conditions. On a quarterly basis, management performs an analysis of the underlying inventory to identify reserves needed for excess and obsolescence. Management uses its best judgment to estimate appropriate reserves based on this analysis. In addition, we adjust the carrying value of inventory if the current market value of that inventory is below its cost.
Inventories consisted of the following at
|
|
|
|||||||
| Raw material and component parts- video solutions segment | $ | 2,589,804 | $ | 3,044,653 | ||||
| Work-in-process- video solutions segment | 4,906 | 20,396 | ||||||
| Finished goods - video solutions segment | 1,655,317 | 4,623,489 | ||||||
| Finished goods - entertainment segment | 505,694 | 699,204 | ||||||
| Subtotal | 4,755,721 | 8,387,742 | ||||||
| Reserve for excess and obsolete inventory- video solutions segment | (2,037,252 | ) | (4,355,666 | ) | ||||
| Reserve for excess and obsolete inventory - entertainment segment | (132,403 | ) | (186,795 | ) | ||||
| Total inventories | $ | 2,586,066 | $ | 3,845,281 | ||||
We balance the need to maintain strategic inventory levels to ensure competitive delivery performance to our customers against the risk of inventory obsolescence due to changing technology and customer requirements. As reflected above, our inventory reserves represented 46% of the gross inventory balance at
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.
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Determining the fair values of acquired intangible assets requires us to exercise significant judgment. We select reasonable estimates and assumptions based on evaluating a number of factors, including, but not limited to, marketplace participants, consumer awareness and brand history. Additionally, there are significant judgments inherent in discounted cash flows such as estimating the amount and timing of projected future cash flows, the selection of discount rates, hypothetical royalty rates and contributory asset capital charges. Specifically, the selected discount rates are intended to reflect the risk inherent in the projected future cash flows generated by the underlying acquired intangible assets.
Determining an acquired intangible asset's useful life also requires significant judgment and is based on evaluating a number of factors, including, but not limited to, the expected use of the asset, historical client retention rates, consumer awareness and trade name history, as well as any contractual provisions that could limit or extend an asset's useful life.
The Company's goodwill is evaluated in accordance with FASB ASC Topic 350, which requires goodwill to be assessed for impairment at least annually and whenever events or changes in circumstances indicate that the carrying value of goodwill may not be recoverable. In addition, an impairment evaluation of our amortizable intangible assets may also be performed if events or circumstances indicate potential impairment. Among the factors that could trigger an impairment review are current operating results that do not align with our annual plan or historical performance; changes in our strategic plans or the use of our assets; restructuring changes or other changes in our business segments; competitive pressures and changes in the general economy or in the markets in which we operate; and a significant decline in our stock price and our market capitalization relative to our net book value.
When performing our annual assessment of the recoverability of goodwill, we initially perform a qualitative analysis evaluating whether any events or circumstances occurred or exist that provide evidence that it is more likely than not that the fair value of any of our reporting units is less than the related carrying amount. If we do not believe that it is more likely than not that the fair value of any of our reporting units is less than the related carrying amount, then no quantitative impairment test is performed. However, if the results of our qualitative assessment indicate that it is more likely than not that the fair value of a reporting unit is less than its respective carrying amount, then we perform a two-step quantitative impairment test.
Evaluating the recoverability of goodwill requires judgments and assumptions regarding future trends and events. As a result, both the precision and reliability of our estimates are subject to uncertainty. Among the factors that we consider in our qualitative assessment are general economic conditions and the competitive environment; actual and projected reporting unit financial performance; forward-looking business measurements; and external market assessments. To determine the fair values of our reporting units for a quantitative analysis, we typically utilize detailed financial projections, which include significant variables, such as projected rates of revenue growth, profitability and cash flows, as well as assumptions regarding discount rates, the Company's weighted average cost of capital and other data.
We performed an impairment test as of the last day of the fiscal third quarter of 2024 as management determined that a triggering event had occurred resulting from the additional decline in demand for our services, prolonged economic uncertainty, the fact that the split-off transaction did not occur when and as expected and a further decrease in our stock price. Therefore, we performed an impairment test for our reporting units with remaining goodwill.
The fair value of each reporting unit was estimated using a weighting of the income and market valuation approaches. The income approach applied a fair value methodology to each reporting unit based on discounted cash flows. This analysis requires significant judgments, including estimation of future cash flows, which is dependent on internally-developed forecasts of revenue and profitability, estimation of the long-term rate of growth for our business, estimation of the useful life over which cash flows will occur, and determination of our weighted average cost of capital, which is risk-adjusted to reflect the specific risk profile of the reporting unit being tested. The weighted average cost of capital used in our most recent impairment test ranged from 18.3% to 21.3%. We also applied a market approach, which develops a value correlation based on the market capitalization of similar publicly traded companies, referred to as a multiple, to apply to the operating results of the reporting units. The primary market multiple used is revenue. The income and market approaches were equally weighted in our most recent annual impairment test, for all of the reporting units.
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The combined fair values for all reporting units were then reconciled to our aggregate market value of our shares of common stock on the date of valuation, while considering a reasonable control premium. We consider a reporting unit's fair value to be substantially in excess of the reporting unit's carrying value at a 25% premium or greater. Based on our most recent impairment test, the video solutions reporting unit's fair value was substantially in excess of its carrying value, while the revenue cycle management and entertainment segments were determined to be impaired.
We held goodwill of
We held indefinite-lived trade names/trademarks of
During the year ended
Fair value of assets and liabilities acquired in business combinations.The Company allocates the amount it pays for each acquisition to the assets acquired and liabilities assumed based on their fair values at the date of acquisition, including identifiable intangible assets which arise from a contractual or legal right or are separable from goodwill. The Company bases the fair value of identifiable intangible assets acquired in a business combination on detailed valuations that use information and assumptions provided by management to valuation specialists, which consider management's best estimates of inputs and assumptions that a market participant would use. The Company allocates any excess purchase price that exceeds the fair value of the net tangible and identifiable intangible assets acquired to goodwill. The use of alternative valuation assumptions, including estimated growth rates, cash flows, discount rates and estimated useful lives could result in different purchase price allocations and amortization expense in current and future periods. Transaction costs associated with these acquisitions are expensed as incurred through selling, general and administrative expense on the consolidated statement of operations. In those circumstances where an acquisition involves a contingent consideration arrangement, the Company recognizes a liability equal to the fair value of the contingent payments expected to be made as of the acquisition date. The Company re-measures this liability each reporting period and records changes in the fair value through operating income within the consolidated statements of operations.
Warranty Reserves. We generally provide up to a two-year parts and labor standard warranty on our products to our customers. Provisions for estimated expenses related to product warranties are made at the time products are sold. These estimates are established using historical information on the nature, frequency, and average cost of claims. We actively study trends of claims and take action to improve product quality and minimize claims. Our warranty reserves were decreased to
Warrant derivative liabilities.
The Company accounts for their derivative financial instruments in accordance with ASC 815 "Derivatives and Hedging" therefore any embedded conversion options and warrants accounted for as derivatives are to be recorded at their fair values as of the inception date of the agreement and at fair value as of each subsequent balance sheet date. Any change in fair value is recorded as non-operating, non-cash income or expense for each reporting period at each balance sheet date. The Company reassesses the classification of its derivative instruments at each balance sheet date. If the classification changes as a result of events during the period, the contract is reclassified as of the date of the event that caused the reclassification.
The Black-Scholes option valuation model was used to estimate the fair value of the embedded conversion options and warrants. The model includes subjective input assumptions that can materially affect the fair value estimates.
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Accounting for Income Taxes. Accounting for income taxes requires significant estimates and judgments on the part of management. Such estimates and judgments include, but are not limited to, the effective tax rate anticipated to apply to tax differences that are expected to reverse in the future, the sufficiency of taxable income in future periods to realize the benefits of net deferred tax assets and net operating losses currently recorded and the likelihood that tax positions taken in tax returns will be sustained on audit.
As required by authoritative guidance, we record deferred tax assets or liabilities based on differences between financial reporting and tax bases of assets and liabilities using currently enacted rates that will be in effect when the differences are expected to reverse. Authoritative guidance also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that all or some portion of the deferred tax asset will not be realized. As of
As required by authoritative guidance, we have performed a comprehensive review of our portfolio of uncertain tax positions in accordance with recognition standards established by the FASB, an uncertain tax position represents our expected treatment of a tax position taken in a filed tax retuor planned to be taken in a future tax return, that has not been reflected in measuring income tax expense for financial reporting purposes. We have no recorded liability as of
We have generated substantial deferred income tax assets related to our operations primarily from the charge to compensation expense taken for stock options, certain tax credit carryforwards and net operating loss carryforwards. For us to realize the income tax benefit of these assets, we must generate sufficient taxable income in future periods when such deductions are allowed for income tax purposes. In some cases where deferred taxes were the result of compensation expense recognized on stock options, our ability to realize the income tax benefit of these assets is also dependent on our share price increasing to a point where these options have intrinsic value at least equal to the grant date fair value and are exercised. In assessing whether a valuation allowance is needed in connection with our deferred income tax assets, we have evaluated our ability to generate sufficient taxable income in future periods to utilize the benefit of the deferred income tax assets. We continue to evaluate our ability to use recorded deferred income tax asset balances. If we fail to generate taxable income for financial reporting in future years, no additional tax benefit would be recognized for those losses, since we will not have accumulated enough positive evidence to support our ability to utilize net operating loss carryforwards in the future. Therefore, we may be required to increase our valuation allowance in future periods should our assumptions regarding the generation of future taxable income not be realized.
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Inflation and Seasonality
Inflation has not materially affected us during the past fiscal year. We do not believe that our Video Solutions and Revenue Cycle Management segments business is seasonal in nature, however; the Entertainment Segment is expected to generate higher revenues during the second half of the calendar year than in the first half.
| Item 7a. | Quantitative and Qualitative Disclosures About Market Risk. |
Not applicable.
| Item 8. | Financial Statements and Supplementary Data. |
Our financial statements are included in this Annual Report on Form 10-K commencing on page F-1.
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Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. |
None.
| Item 9A. | Controls and Procedures. |
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures to provide reasonable assurance of achieving the control objectives, as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Based on their evaluation as of
Management's Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
| ● | Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; |
| ● | Provide reasonable assurance that the transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and | |
| ● | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements. |
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All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
In connection with the filing of this Annual Report on Form 10-K, our management assessed the effectiveness of our internal control over financial reporting as of
Material Weakness
In connection with the audit of our consolidated financial statements as of
Remediation Activities
As part of our plan to remediate this material weakness, we are performing a full review of our internal control procedures. We have implemented, and plan to continue to implement, new controls and new processes. We have hired and plan to continue to hire additional qualified personnel and establish more robust processes to support our internal control over financial reporting, including clearly defined roles and responsibilities. The Company anticipates time being required to complete the implementation and to assess and ensure the sustainability of these controls. The material weakness will not be considered remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.
Changes in Internal Control Over Financial Reporting
We have completed the process of integrating our recent business acquisition into our overall internal control over the financial reporting process. Other than this integration, there have been no changes in our internal control over financial reporting during the year ended
| Item 9B. | Other Information. |
None of the Company's directors or officers adoptedor terminateda Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the Company's fiscal quarter ended
| Item 9C. | Disclosure Regarding Foreign Jurisdictions that Prevent Inspections. |
Not applicable.
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PART III
| Item 10. | Directors, Executive Officers and Corporate Governance. |
Directors
The names of the members of our Board and our executive officers and certain information about them as of
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Positions | Age | Director Since | |||
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Chairman, President and Chief Executive Officer | 63 | 2005 | |||
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Lead Independent Director, Chairman of the
|
83 | 2005 | |||
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Independent Director; Chairman of Audit Committee | 60 | 2023 | |||
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Independent Director | 66 | 2024 |
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Positions | Age | Executive Officer Since | |||
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Vice President, Chief Financial Officer, Treasurer & Secretary | 65 | 2007 | |||
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Chief Operating Officer | 51 | 2021 |
| (1) | Member of Audit Committee | |
| (2) | Member of Compensation Committee | |
| (3) | Member of Nominating Committee | |
| (4) | The address of each executive officer and director listed is
|
The Board has determined that Messrs. Richie, Daughtery and Anderson are "independent directors," as defined by the rules and listing standards of Nasdaq. In making this determination, the Board considered the transactions and relationships disclosed under "Certain Relationships and Related Transactions" below.
Biographical Information - Directors
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Our Directors are elected annually and hold office until the next annual meeting of our stockholders or until their successors are elected and qualified. Officers are elected annually and serve at the discretion of the Board. There is no family relationship between any of our directors, director nominees and executive officers. Board vacancies are filled by a majority vote of the Board.
Biographical Information - Executive Officers
Involvement in Certain Legal Proceedings
None.
Board of Directors and Committee Meetings
Our Board held four meetings and acted a number of times by unanimous consent resolutions during the fiscal year ended
Committees of the Board of Directors
Our Board currently has three committees: an Audit Committee, a Compensation Committee and a Nominating Committee. Each committee has a written charter approved by the Board, outlining the principal responsibilities of the committee. These charters are also available on the Investor Relations page of our website. All of our directors, other than our Chairman and Chief Executive Officer, have met in executive sessions without management present on a regular basis in 2024 and year-to-date 2025.
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Audit Committee
Our Audit Committee appoints the Company's independent auditors, reviews audit reports and plans, accounting policies, financial statements, internal controls, audit fees, and certain other expenses and oversees our accounting and financial reporting process. Specific responsibilities include selecting, hiring and terminating our independent auditors; evaluating the qualifications, independence and performance of our independent auditors; approving the audit and non-audit services to be performed by our auditors; reviewing the design, implementation, adequacy and effectiveness of our internal controls and critical accounting policies; overseeing and monitoring the integrity of our financial statements and our compliance with legal and regulatory requirements as they relate to financial statements or accounting matters; reviewing any earnings announcements and other public announcements regarding our results of operations in conjunction with management and our public auditors; conferring with management and the independent auditors regarding the effectiveness of internal controls, financial reporting processes and disclosure controls; consulting with management and the independent auditors regarding Company policies governing financial risk management; reviewing and discussing reports from the independent auditors on critical accounting policies used by the Company; establishing procedures, as required under applicable law, for the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls or auditing matters and the confidential and anonymous submission by employees of concerns regarding questionable accounting or auditing matters; reviewing and approving related-person transactions in accordance with the Company's policies and procedures with respect to related-person transactions and applicable rules; reviewing the financial statements to be included in our Annual Report on Form 10-K; discussing with management and the independent auditors the results of the annual audit and the results of quarterly reviews and any significant changes in our accounting principles; and preparing the report that the
The Audit Committee is comprised of three Directors, each of whom is independent, as defined by the rules and regulations of the
Under the Sarbanes-Oxley Act of 2002, all audit and non-audit services performed by the Company's independent registered public accounting firm must be approved in advance by the Audit Committee to assure that such services do not impair the auditor's independence from the Company. Accordingly, the Audit Committee has adopted an Audit and Non-Audit Services Pre-Approval Policy (the "Policy") that sets forth the procedures and the conditions pursuant to which services to be performed by the independent auditors are to be pre-approved. Pursuant to the Policy, certain services described in detail in the Policy may be pre-approved on an annual basis together with pre-approved maximum fee levels for such services. The services eligible for annual pre-approval consist of services that would be included under the categories of Audit Fees, Audit-Related Fees and Tax Fees in the table, as well as services for limited review of actuarial reports and calculations. If not pre-approved on an annual basis, proposed services must otherwise be separately approved prior to being performed by the independent registered public accounting firm. In addition, any services that receive annual pre-approval but exceed the pre-approved maximum fee level also will require separate approval by the Audit Committee prior to being performed. The Audit Committee may delegate authority to pre-approve audit and non-audit services to any member of the Audit Committee but may not delegate such authority to management.
Compensation Committee
Our Compensation Committee assists our Board in determining the development plans and compensation of our officers, directors and employees. Specific responsibilities include approving the compensation and benefits of our executive officers; reviewing the performance objectives and actual performance of our officers; administering our stock option and other equity compensation plans; and reviewing and discussing with management the compensation discussion and analysis that the
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Our Compensation Committee is comprised of three Directors, whom the Board considers to be independent under the applicable rules and listing standards of Nasdaq and
Nominating Committee
Our Nominating Committee assists our Board by identifying and recommending individuals qualified to become members of our Board, reviewing correspondence from our stockholders, and establishing, evaluating, and overseeing our corporate governance guidelines. Specific responsibilities include the following: evaluating the composition, size and governance of our Board and its committees and making recommendations regarding future planning and appointing directors to our committees; establishing a policy for considering stockholder nominees for election to our Board; and evaluating and recommending candidates for election to our Board.
Our Nominating Committee strives for a Board composed of individuals who bring a variety of complementary skills, expertise, or background and who, as a group, will possess the appropriate skills and experience to oversee our business. The diversity of the members of the Board relates to the selection of its nominees. While the Committee considers diversity and variety of experiences and viewpoints to be important factors, it does not believe that a director nominee should be chosen or excluded solely or largely because of race, color, gender, national origin or sexual orientation or identity. In selecting a director nominee for recommendation to our Board, our Nominating Committee focuses on skills, expertise or background that would complement the existing members on the Board. Accordingly, although diversity may be a consideration in the Committee's process, the Committee and the Board do not have a formal policy regarding the consideration of diversity in identifying director nominees.
When the Nominating Committee has either identified a prospective nominee or determined that an additional or replacement director is required, the Nominating Committee may take such measures as it considers appropriate in connection with its evaluation of a director candidate, including candidate interviews, inquiry of the person or persons making the recommendation or nomination, engagement of an outside search firm to gather additional information, or reliance on the knowledge of the members of the Board or management. In its evaluation of director candidates, including the members of the Board eligible for re-election, the Nominating Committee considers a number of factors, including: the current size and composition of the Board, the needs of the Board and the respective committees of the Board, and such factors as judgment, independence, character and integrity, age, area of expertise, diversity of experience, length of service and potential conflicts of interest.
The Nominating Committee of the Board selects director nominees and recommends them to the full Board. In relation to such nomination process, the Nominating Committee:
| ● | determines the criteria for the selection of prospective directors and committee members; |
| ● | reviews the composition and size of the Board and its committees to ensure proper expertise and diversity among its members; |
| ● | evaluates the performance and contributions of directors eligible for re-election; |
| ● | determines the desired qualifications for individual directors and desired skills and characteristics for the Board; |
| ● | identifies persons who can provide needed skills and characteristics; |
| ● | screens possible candidates for Board membership; |
| ● | reviews any potential conflicts of interests between such candidates and the Company's interests; and |
| ● | shares information concerning the candidates with the Board and solicits input from other directors. |
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The Nominating Committee has specified the following minimum qualifications that it believes must be met by a nominee for a position on the Board: the highest personal and professional ethics and integrity; proven achievement and competence in the nominee's field and the ability to exercise sound business judgment; skills that are complementary to those of the existing Board; the ability to assist and support management and make significant contributions to our success; the ability to work well with the other directors; the extent of the person's familiarity with the issues affecting our business; an understanding of the fiduciary responsibilities that are required of a member of the Board; and the commitment of time and energy necessary to diligently carry out those responsibilities. A candidate for director must agree to abide by our Code of Ethics and Conduct.
After completing its evaluation, the Nominating Committee makes a recommendation to the full Board as to the persons who should be nominated to the Board, and the Board determines the nominees after considering the recommendation and report of the Committee.
Our Nominating Committee is comprised of two Directors, whom the Board considers to be independent under the applicable rules and listing standards of Nasdaq and
Board of Directors' Role in the Oversight of Risk Management
We face a variety of risks, including credit, liquidity, and operational risks. In fulfilling its risk oversight role, our Board focuses on the adequacy of our risk management process and overall risk management system. Our Board believes that an effective risk management system will (i) adequately identify the material risks that we face in a timely manner; (ii) implement appropriate risk management strategies that are responsive to our risk profile and specific material risk exposures; (iii) integrate consideration of risk and risk management into our business decision-making; and (iv) include policies and procedures that adequately transmit necessary information regarding material risks to senior executives and, as appropriate, to the Board or relevant committee.
The Board has designated the Audit Committee to take the lead in overseeing risk management at the Board level. Accordingly, the Audit Committee schedules time for periodic review of risk management, in addition to its other duties. In this role, the Audit Committee receives reports from management, independent registered public accounting firm, outside legal counsel, and other advisors, and strives to generate serious and thoughtful attention to our risk management process and system, the nature of the material risks we face, and the adequacy of our policies and procedures designed to respond to and mitigate these risks.
Although the Board has assigned the primary risk oversight to the Audit Committee, it also periodically receives information about our risk management system and the most significant risks that we face. This is principally accomplished through Audit Committee reports to the Board and summary versions of the briefings provided by management and advisors to the Audit Committee.
In addition to the formal compliance program, our Board and the Audit Committee encourage management to promote a corporate culture that understands risk management and incorporates it into our overall corporate strategy and day-to-day business operations. Our risk management structure also includes an ongoing effort to assess and analyze the most likely areas of future risk for us. As a result, the Board and the Audit Committee periodically ask our executives to discuss the most likely sources of material future risks and how we are addressing any significant potential vulnerability.
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Board Leadership Structure
Our Board does not have a policy on whether the roles of Chief Executive Officer and Chairman of the Board should be separate and, if they are to be separate, whether the Chairman of the Board should be selected from the non-employee directors or be an employee. Our Board believes that it should be free to make a choice from time to time in any manner that is in the best interest of us and our stockholders. The Board believes that
Our Board also believes that a lead independent director is part of an effective Board leadership structure. To this end, the Board has appointed
Stockholders may communicate with the Board by writing to us as follows:
Policy for Director Recommendations and Nominations
Our Nominating Committee will consider candidates for Board membership suggested by Board members, management and our stockholders. The policy of our Nominating Committee is to consider recommendations for candidates to the Board from any stockholder of record in accordance with the Company's bylaws (the "Bylaws"). A director candidate recommended by our stockholders will be considered in the same manner as a nominee recommended by a Board member, management or other sources. In addition, a stockholder may nominate a person directly for election to the Board at an annual meeting of stockholders, provided the stockholder meets the requirements set forth in our Bylaws. We do not pay a fee to any third party to identify or evaluate or assist in identifying or evaluating potential nominees.
Stockholder Recommendations for Director Nominations. Stockholder recommendations for director nominations may be submitted to the Company at the following address:
Stockholder Nominations of Directors. Our Bylaws provide that, in order for a stockholder to nominate a director at an annual meeting of stockholders, the stockholder must give timely written notice to our Secretary and such notice must be received at our principal executive offices not less than one-hundred-and-twenty (120) days before the date of our release of the proxy statement to stockholders in connection with our previous year's annual meeting of stockholders. Such stockholder's notice shall include, with respect to each person whom the stockholder proposes to nominate for election as a director, all information relating to such nominee that is required under the Exchange Act, including such person's written consent to being named in the proxy statement as a nominee and serving as a director, and cooperating with a background investigation. In addition, the stockholder must include in such notice the name and address, as they appear on our records, of the stockholder proposing the nomination of such person, and the name and address of the beneficial owner, if any, on whose behalf the nomination is made, the class and number of shares of our capital stock that are owned beneficially and of record by such stockholder of record and by the beneficial owner, if any, on whose behalf the nomination is made, and any material interest or relationship that such stockholder of record and/or the beneficial owner, if any, on whose behalf the nomination is made may respectively have in such business or with such nominee. At the request of the Board, any person nominated for election as a director shall furnish to our Secretary the information required to be set forth in a stockholder's notice of nomination that pertains to the nominee.
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To be timely in the case of a special meeting or if the date of the annual meeting is changed by more than thirty (30) days from such anniversary date, a stockholder's notice must be received at our principal executive offices no later than the close of business on the tenth (10th) day following the earlier of the day on which notice of the meeting date was mailed or public disclosure of the meeting date was made.
Compensation Committee Interlocks and Insider Participation
None of our executive officers serves, or in the past has served, as a member of the Compensation Committee. None of the members of our Compensation Committee is, or has ever been, an officer or employee of the Company.
Code of Ethics and Conduct
Our Board has adopted a Code of Ethics and Conduct that is applicable to all of our employees, officers and directors. Our Code of Ethics and Conduct is intended to ensure that our employees, officers and directors act in accordance with the highest ethical standards. The Code of Ethics and Conduct is available on the Investor Relations page of our website at http://www.digitalally.com and the Code of Ethics and Conduct was filed as an exhibit to our Annual Report on Form 10-KSB filed
Delinquent Section 16(a) Reports
Under the securities laws of
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Number of Late Reports | Description | ||
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1 |
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1 |
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Insider Trading Arrangements and Policies
We have a written insider trading policy that applies to our directors, officers, employees and contractors, including our principal executive officer, principal financial officer, principal accounting officer or controller, and persons performing similar functions. We intend to disclose future amendments to such policy, or any waivers of its requirements, applicable to any principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions or our directors on our website identified above or in a current report on Form 8-K that we would file with the
Our directors and executive officers may adopt written plans, known as Rule 10b5-1 plans, in which they will contract with a broker to buy or sell shares of our common stock on a periodic basis. Under a Rule 10b5-1 plan, a broker executes trades pursuant to parameters established by the director or officer when entering into the plan, without further direction from them. The director or officer may amend a Rule 10b5-1 plan in some circumstances and may terminate a plan at any time. Our directors and executive officers also may buy or sell additional shares outside of a Rule 10b5-1 plan when they are not in possession of material non-public information subject to compliance with the terms of our insider trading policy.
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| Item 11. | Executive Compensation. |
The Company's Policies and Practices Related to the Grant of Certain Equity Awards Close in Time to the Release of Material Nonpublic Information
We do not have any formal policy that requires the Company to grant, or avoid granting, equity-based compensation at certain times. We do not grant equity awards in anticipation of the release of material nonpublic information that is likely to result in changes to the price of our common stock, and do not time the public release of such information based on award grant dates. The timing of any equity grants to executive officers or directors in connection with new hires, promotions, or other non-routine grants is tied to the event giving rise to the award (such as an executive officer's commencement of employment or promotion effective date).
During the year ended
The following table presents information concerning the total compensation of the Company's Chief Executive Officer, Chief Financial Officer and Chief Operating Officer ("COO") (collectively, the "Named Executive Officers") for services rendered to the Company in all capacities for the years ended
Summary Compensation Table
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Year | Salary ($) |
Bonus ($) |
Stock awards ($) |
Option awards ($) (1) |
All other compensation ($) (2) |
Total ($) |
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2024 | $ | 112,885 | $ | - | $ | 42,600 | (3) | $ | - | $ | 6,175 | $ | 161,660 | |||||||||||||
| Chairman, CEO and President | 2023 | $ | 250,000 | $ | - | $ | 87,325 | (5) | $ | - | $ | 11,200 | $ | 348,525 | |||||||||||||
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|
2024 | $ | 51,923 | $ | - | $ | - | $ | - | $ | 2,885 | $ | 54,808 | ||||||||||||||
| CFO, Treasurer and Secretary | 2023 | $ | 120,000 | $ | - | $ | 18,713 | (6) | $ | - | $ | 6,354 | $ | 145,067 | |||||||||||||
|
|
2024 | $ | 112,885 | $ | - | $ | 31,950 | (4) | $ | - | $ | 5,706 | $ | 150,541 | |||||||||||||
| COO | 2023 | $ | 250,000 | $ | - | $ | 24,950 | (7) | $ | - | $ | 10,821 | $ | 285,771 | |||||||||||||
| (1) | Represents aggregate grant date fair value pursuant to ASC Topic 718 for the respective year for stock options granted. | |
| (2) | Amounts included in all other compensation include the following items: the employer contribution to the Company's 401(k) Retirement Savings Plan (the "401(k) Plan") on behalf of the named executive. We are required to provide a 100% matching contribution for all who elect to contribute up to 3% of their compensation to the plan and a 50% matching contribution for all employees' elective deferral between 4% and 5%. The employee (i) is 100% vested at all times in the employee contributions and employer matching contributions; (ii) receives Company paid healthcare insurance; (iii) receives Company paid contributions to health savings accounts; and (iv) receives Company paid life, accident and disability insurance. See "All Other Compensation Table" below. | |
| (3) | Stock awards include the following restricted stock granted during 2024 to
|
|
| (4) | Stock awards include the following restricted stock granted during 2024 to
|
|
| (5) | Stock awards include the following restricted stock granted during 2023 to
|
|
| (6) | Stock awards include the following restricted stock granted during 2023 to Mr. Heckman: 3,750 shares at
|
|
| (7) | Stock awards include the following restricted stock granted during 2023 to
|
| 46 |
All Other Compensation Table
| 401(k) Plan | Company paid |
Flexible & health savings account |
Company paid life, accident & |
Other | ||||||||||||||||||||||
|
|
Year | contribution by Company |
healthcare insurance |
contributions by Company |
disability insurance |
Contractual payments |
Total | |||||||||||||||||||
|
|
2024 | $ | 4,635 | $ | - | $ | 719 | $ | 821 | $ | - | $ | 6,175 | |||||||||||||
| Chairman, CEO and President | 2023 | $ | 11,200 | $ | - | $ | 1,100 | $ | 821 | $ | - | $ | 13,121 | |||||||||||||
|
|
2024 | $ | 1,869 | $ | - | $ | 379 | $ | 637 | $ | - | $ | 2,885 | |||||||||||||
| CFO, Treasurer and Secretary | 2023 | $ | 4,800 | $ | - | $ | 895 | $ | 659 | $ | - | $ | 6,354 | |||||||||||||
|
|
2024 | $ | 4,885 | $ | - | $ | - | $ | 821 | $ | - | $ | 5,706 | |||||||||||||
| COO | 2023 | $ | 10,000 | $ | - | $ | - | $ | 821 | $ | - | $ | 10,821 | |||||||||||||
Compensation Policy. Our executive compensation plan is based on attracting and retaining qualified professionals who possess the skills and leadership necessary to enable us to achieve earnings and profitability growth to satisfy its stockholders. We must, therefore, create incentives for these executives to achieve both our and individual performance objectives using performance-based compensation programs. No one component is considered by itself, but all forms of the compensation package are considered in total. Wherever possible, objective measurements will be utilized to quantify performance, but many subjective factors still come into play when determining performance.
Compensation Components. The main elements of its compensation package consist of base salary, stock options or restricted stock awards and bonus.
Base Salary. The base salary for each executive officer is reviewed and compared to the prior year, with considerations given for increase or decrease. The review is generally on an annual basis but may take place more often in the discretion of the Compensation Committee.
On
The Compensation Committee plans to review the base salaries for possible adjustments on an annual basis. Base salary adjustments will be based on both individual and our performances and will include both objective and subjective criteria specific to each executive's role and responsibility with us.
Stock Options and Restricted Stock Awards. The Compensation Committee determined stock option and restricted stock awards based on numerous factors, some of which include responsibilities incumbent with the role of each executive with us, tenure with us, as well as our performance. The vesting period of options and restricted stock is also tied, in some instances, to our performance directly related to certain executive's responsibilities with us. The Compensation Committee determined that Messrs. Ross and Han were eligible for awards of stock options or restricted stock in 2024 based on their performance. Refer to the "Grants of Plan-Based Awards" table below for restricted stock awards made in 2024. The Committee also determined that Messrs. Ross, Heckman, and Han would be eligible in 2024 for awards of restricted stock or stock options. On
| 47 |
Bonuses. The Compensation Committee determined to award no bonuses to each of the executive officers in 2023 and 2024, as set forth in the foregoing table. Refer to the "Summary Compensation Table" above.
Other. In
The following table presents information concerning the grants of plan-based awards to the Named Executive Officers during the year ended
Grants of Plan-Based Awards
|
|
Grant date | Date approved by Compensation Committee |
All other stock awards: Number of shares of stock or units: (2) |
Exercise or base price of option awards ($/Share) |
Grant date fair value of stock awards ($) (2) |
|||||||||||||
|
|
||||||||||||||||||
| Chairman and CEO |
|
|
20,000 | (1) | $ | 2.13 | $ | 42,600 | ||||||||||
|
|
||||||||||||||||||
| CFO, Treasurer and Secretary | - | - | - | $ | - | $ | - | |||||||||||
|
|
||||||||||||||||||
| COO |
|
|
15,000 | (1) | $ | 2.13 | $ | 31,950 | ||||||||||
(1) These restricted stock awards were made under the
(2) Stock awards noted represent the aggregate amount of grant date fair value as determined under ASC Topic 718. Please refer to Note 16 to the consolidated financial statements that appear in our Annual Report on Form 10-K, filed with the
Employment Contracts; Termination of Employment and Change-in-Control Arrangements
We do not have any employment agreements with any of our executive officers. However, on
Retention Agreements - Potential Payments upon Termination or Change of Control
The following table sets forth for each named executive officer potential post-employment payments and payments on a change in control and assumes that the triggering event took place on
| 48 |
Retention Agreement Compensation
|
|
Change in control payment due based upon successful completion of transaction |
Severance payment due based on termination after Change of Control occurs |
Total | |||||||||
|
|
$ | 125,000 | $ | 500,000 | $ | 625,000 | ||||||
|
|
$ | 115,000 | $ | 460,000 | $ | 575,000 | ||||||
| Total | $ | 240,000 | $ | 960,000 | $ | 1,200,000 | ||||||
The retention agreements guarantee the executive officers' specific payments and benefits upon a Change in Control of the Company. The retention agreements also provide for specified severance benefits if, after a Change in Control of the Company occurs, the executive officer voluntarily terminates employment for "Good Reason" or is involuntarily terminated without "Cause."
Under the retention agreements, a "Change in Control" means (i) one party alone, or acting with others, has acquired or gained control over more than 50% of the voting shares of the Company; (ii) the Company merges or consolidates with or into another entity or completes any other corporate reorganization, if more than 50% of the combined voting power of the surviving entity's securities outstanding immediately after such merger, consolidation or other reorganization is owned by persons who were not stockholders of the Company immediately prior to such merger, consolidation or other reorganization; (iii) a majority of the Board is replaced and/or dismissed by the stockholders of the Company without the recommendation of or nomination by the Company's current Board; (iv) the Company's CEO is replaced and/or dismissed by stockholders without the approval of the Board; or (v) the Company sells, transfers or otherwise disposes of all or substantially all of the consolidated assets of the Company and the Company does not own stock in the purchaser or purchasers having more than 50% of the voting power of the entity owning all or substantially all of the consolidated assets of the Company after such purchase.
"Good Reason" means either (i) a material adverse change in the executive's status as an executive or other key employee of the Company, including without limitation, a material adverse change in the executive's position, authority, or aggregate duties or responsibilities; (ii) any adverse change in the executive's base salary, target bonus or benefits; or (iii) a request by the Company to materially change the executive's geographic work location.
"Cause" means (i) the executive has acted in bad faith and to the detriment of the Company; (ii) the executive has refused or failed to act in accordance with any specific lawful and material direction or order of his or her supervisor; (iii) the executive has exhibited, in regard to employment, unfitness or unavailability for service, misconduct, dishonesty, habitual neglect, incompetence, or has committed an act of embezzlement, fraud or theft with respect to the property of the Company; (iv) the executive has abused alcohol or drugs on the job or in a manner that affects the executive's job performance; and/or (v) the executive has been found guilty of or has plead nolo contendere to the commission of a crime involving dishonesty, breach of trust, or physical or emotional harm to any person. Prior to termination for Cause, the Company shall give the executive written notice of the reason for such potential termination and provide the executive a 30-day period to cure such conduct or act or omission alleged to provide grounds for such termination.
If any Change in Control occurs and the executive continues to be employed as of the completion of such Change in Control, upon completion of such Change in Control, as payment for the executive's additional efforts during such Change in Control, the Company shall pay the executive a Change in Control benefit payment equal to three months of the his base salary at the rate in effect immediately prior to the Change in Control completion date, payable in a lump sum net of required tax withholdings. If any Change in Control occurs, and if, during the one-year period following the Change in Control, the Company terminates the executive's employment without Cause or the executive submits a resignation for Good Reason (the effective date of such termination or resignation, the "Termination Date"), then:
| a) | The Company shall pay the executive severance pay equal to 12 months of his base salary at the higher of the rate in effect immediately prior to the Termination Date or the rate in effect immediately prior to the occurrence of the event or events constituting Good Reason, payable on the Termination Date in a lump sum net of required tax withholdings, plus all other amounts then payable by the Company to the executive less any amounts then due and owing from the executive to the Company; |
| 49 |
| b) | The Company shall provide continuation of the executive's health benefits at the Company's expense for 18 months following the Termination Date; and | |
| c) | The executive's outstanding employee stock options shall fully vest and be exercisable for a 90-day period following the Termination Date. |
The executive is not entitled to the above severance benefits for a termination based on death or disability, resignation without Good Reason or termination for Cause. Following the Termination Date, the Company shall also pay the executive all reimbursements for expenses in accordance with the Company' policies, within ten days of submission of appropriate evidence thereof by the executive.
The following table presents information concerning the outstanding equity awards for the Named Executive Officers as of
Outstanding Equity Awards at Fiscal Year-End
| Option Awards | Stock Awards | |||||||||||||||||||||||||||||||||||
|
|
Number of securities underlying unexercised options (#) exercisable (1) | Number of securities underlying unexercised options (#) unexercisable | Equity incentive plan awards: Number of securities underlying unexercised unearned options (#) | Option exercise price ($) | Option expiration date | Number of shares or units of stock that have not vested (1) | Market value of shares or units of stock that have not vested (2) | Equity incentive plan awards: Number of unearned shares, units or other rights that have not vested | Equity incentive plan awards: Market or Payout value of unearned shares, units or other rights that have not vested | |||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||
| Chairman and CEO | - | - | - | - | 28,750 | $ | 15,238 | - | $ | - | ||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||
| CFO, Treasurer and Secretary | - | - | - | - | - | - | $ | - | - | $ | - | |||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||
| COO | - | - | - | - | - | 19,000 | $ | 10,070 | - | $ | - | |||||||||||||||||||||||||
(1) These stock option and restricted stock awards were made under the
(2) Market value based upon the closing market price of
| 50 |
The following table presents information concerning the stock options exercised and the vesting of restricted stock awards during 2024 for the Named Executive Officers for the year ended
| Option Exercises and Restricted Stock Vested | ||||||||||||||||
| Option Awards | Stock Awards | |||||||||||||||
Number of Shares acquired realized on exercise |
Value realized on exercise |
Number of Shares acquired on vesting (#) |
Value on vesting ($) |
|||||||||||||
|
Chairman and CEO |
- | $ | - | 17,500 | $ | 37,450 | (1) | |||||||||
|
CFO, Treasurer and Secretary |
- | $ | - | - | $ | - | ||||||||||
|
COO |
- | $ | - | 5,000 | $ | 10,670 | (2) | |||||||||
| (1) | Based on the closing market price of our common stock of
|
|
| (2) | Based on the closing market price of our common stock of
|
The number of stock options and restricted stock awards that an employee, director, or consultant may receive under our Plans (defined below under "Information Regarding Plans and Other Arrangements Not Subject to Security
The following table sets forth (a) the aggregate number of shares of common stock subject to options granted under the Plans during the year ended December 31, 2024 and (b) the average per share exercise price of such options.
| Number of | ||||||||||||
| Restricted | ||||||||||||
| Shares of | Number of | Average per | ||||||||||
| Common | Options | Share Exercise | ||||||||||
|
|
Stock Granted | Granted | Price | |||||||||
|
|
20,000 | - | $ | - | ||||||||
|
|
- | - | $ | - | ||||||||
|
|
- | - | $ | - | ||||||||
|
|
15,000 | - | $ | - | ||||||||
| All executive officers, as a group | 35,000 | - | $ | - | ||||||||
| All directors who are not executive officers, as a group | - | - | $ | - | ||||||||
| All employees who are not executive officers, as a group | 45,197 | - | $ | - | ||||||||
| 51 |
Director Compensation
Our non-employee directors received no stock option or restricted stock grants as noted in the "Director Compensation" table below for their service on the Board in 2024, including on the Audit, Nominating and Compensation Committees.
Director compensation for the year ended December 31, 2024 was as follows:
Director Compensation
|
|
Fees earned or paid in cash ($) |
Stock awards ($) |
Option awards ($) (2) |
Total ($) |
||||||||||||
|
|
$ | - | $ | - | $ | - | $ | - | ||||||||
|
|
$ | 15,000 | $ | - | $ | - | $ | 15,000 | ||||||||
| D Duke Daughtery (2) | $ | 13,750 | $ | - | $ | - | $ | 13,750 | ||||||||
| Charles M Anderson (3) | $ | - | $ | - | $ | - | $ | - | ||||||||
| (1) | As a Named Executive Officer,
|
|
| (2) | The Board suspended their cash fees for the second, third and fourth quarters of 2024. The amounts shown represent the respective Director's accrued but unpaid fees for the first quarter of 2024. | |
| (3) |
|
On November 17, 2023, our Board adopted a clawback policy (the "Clawback Policy") permitting the Company to seek the recovery of incentive compensation received by any of the Company's current and former executive officers (as determined by the board in accordance with Section 10D of the Exchange Act) and such other senior executives/employees who may from time to time be deemed subject to the Clawback Policy by the board (collectively, the "Covered Executives"). The amount to be recovered will be the excess of the incentive compensation paid to the Covered Executive based on the erroneous data over the incentive compensation that would have been paid to the Covered Executive had it been based on the restated results, as determined by the board. If the board cannot determine the amount of excess incentive compensation received by the Covered Executive directly from the information in the accounting restatement, then it will make its determination based on a reasonable estimate of the effect of the accounting restatement.
| 52 |
Outstanding Stock Options Held by Directors
The following table presents information concerning the outstanding equity awards for the Board as of December 31, 2024:
Outstanding Equity Awards at Fiscal Year-End
| Equity | ||||||||||||||||||||
| incentive | ||||||||||||||||||||
| plan | ||||||||||||||||||||
| awards: | ||||||||||||||||||||
| Number of | Number of | Number of | ||||||||||||||||||
| securities | securities | securities | ||||||||||||||||||
| underlying | underlying | underlying | Option | |||||||||||||||||
| unexercised | unexercised | unexercised | exercise | Option | ||||||||||||||||
| options (#) | options (#) | unearned | price | expiration | ||||||||||||||||
|
|
exercisable | unexercisable | options (#) | ($) | date | |||||||||||||||
|
Chairman, CEO and President |
- | - | - | $ | - | - | ||||||||||||||
|
Lead Outside Director |
5,000 | $ | 33.40 | 7/8/2031 | ||||||||||||||||
| 3,750 | $ | 41.80 | 5/1/2030 | |||||||||||||||||
| 3,000 | $ | 60.20 | 5/24/2029 | |||||||||||||||||
| 2,500 | $ | 44.00 | 7/5/2028 | |||||||||||||||||
| 1,500 | $ | 60.00 | 8/14/2027 | |||||||||||||||||
| 500 | - | - | $ | 78.40 | 5/11/2026 | |||||||||||||||
| D Duke Daughtery | ||||||||||||||||||||
| Director | - | - | $ | - | - | |||||||||||||||
| Charles M Anderson | ||||||||||||||||||||
| Director | - | - | $ | - | - | |||||||||||||||
Pay Versus Performance
The following table sets forth compensation information for our Chief Executive Officer,
| Average | ||||||||||||||||||||
| Summary | Average | |||||||||||||||||||
| Summary | Compensation | Compensation | Compensation | |||||||||||||||||
| Compensation | Actually | Table Total for | Actually Paid | Net | ||||||||||||||||
| Table Total | Paid to | Non-PEO | to Non-PEO | Income | ||||||||||||||||
| Year | for PEO | PEO | NEOs | NEOs | (Loss) | |||||||||||||||
| (1) | (2) | (3) | (4) | |||||||||||||||||
| 2024 | $ | 161,660 | $ | 116,097 | $ | 102,675 | $ | 88,325 | $ | (21,715,725 | ) | |||||||||
| 2023 | $ | 348,525 | $ | 279,525 | $ | 215,419 | $ | 205,552 | $ | (25,463,949 | ) | |||||||||
| (1) | The dollar amounts reported are the amounts of total compensation reported for
|
| (2) | The dollar amounts reported represent the amount of "compensation actually paid", as computed in accordance with
|
| 53 |
| (3) | The dollar amounts reported are the average total compensation reported for our Non-
|
| (4) | The dollar amounts reported represent the average amount of "compensation actually paid", as computed in accordance with
|
PEO Equity Award Adjustment Breakout
To calculate the amounts in the "Compensation Actually Paid to PEO" column in the table above, the following amounts were deducted from and added to (as applicable) our PEO's "Total" compensation as reported in the Summary Compensation Table:
| Fair Value | ||||||||||||||||||||||||||||
| Increase or | ||||||||||||||||||||||||||||
| Fair | Fair Value | Decrease | ||||||||||||||||||||||||||
| Value | Year over | Fair | from | |||||||||||||||||||||||||
| as of Year | Year | Value of | Prior Year | |||||||||||||||||||||||||
| Reported | End for | Increase or | Awards | end for | ||||||||||||||||||||||||
| Value of | Awards | Decrease in | Granted | Awards | ||||||||||||||||||||||||
| Summary | Equity | Granted | Unvested | and | that | |||||||||||||||||||||||
| Compensation | Awards | During | Awards | Vested | Vested | Compensation | ||||||||||||||||||||||
| Table Total | for | The | Granted in | During | during | Actually Paid | ||||||||||||||||||||||
| Year | for PEO | PEO(1) | Year |
|
the Year | the Year | to PEO | |||||||||||||||||||||
| 2024 | $ | 161,660 | $ | (42,600 | ) | $ | 10,600 | $ | (13,913 | ) | $ | -0- | $ | 350 | $ | 116,097 | ||||||||||||
| 2023 | $ | 348,525 | $ | (87,325 | ) | $ | 37,100 | $ | (21,700 | ) | $ | -0- | $ | 2,925 | $ | 279,525 | ||||||||||||
| (1) | Represents the grant date fair value of the equity awards to our PEO, as reported in the Summary Compensation Table. |
Non-PEO NEOs Equity Award Adjustment Breakout
To calculate the amounts in the "Compensation Actually Paid to Non-PEO NEOs" column in the table above, the following amounts were deducted from and added to (as applicable) the "Total" compensation of our Non-PEO NEOs as reported in the Summary Compensation Table:
Summary Compensation Table Total for Non-PEO |
Reported Value of Equity Awards for Non-PEO |
Fair Value as of Year End for Awards Granted During The |
Fair Value Year over Year Increase or Decrease in Unvested Awards Granted in Prior |
Fair Value of Awards Granted and Vested During the |
Fair Value Increase or Decrease from Prior Year end for Awards that Vested during |
Compensation Actually Paid to Non-PEO |
||||||||||||||||||||||
| Year (1) | NEOs | NEOs(2) | Year | Years | Year | the Year | NEOs | |||||||||||||||||||||
| 2024 | $ | 102,675 | $ | (15,975 | ) | $ | 3,975 | $ | (5,565 | ) | $ | 3,195 | $ | 20 | $ | 88,325 | ||||||||||||
| 2023 | $ | 215,419 | $ | (12,475 | ) | $ | 5,300 | $ | (4,960 | ) | $ | -0- | $ | 2,268 | $ | 205,552 | ||||||||||||
| (1) | All the amounts are average for Non-PEO NEOs. | |
| (2) | Represents the grant date fair value of the equity awards to our Non-PEO NEOs, as reported in the Summary Compensation Table. |
| 54 |
| Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. |
Common stock for:
| ● | each person, or group of affiliated persons, known by us to beneficially own more than 5% of our common stock; | |
| ● | each of our executive officers; | |
| ● | each of our directors; and | |
| ● | all of our current executive officers and directors as a group. |
Beneficial ownership is determined according to the rules of the
Common stock subject to securities currently exercisable or exercisable within sixty (60) days of April 30, 2025 are deemed to be outstanding for computing the percentage ownership of the person holding such securities and the percentage ownership of any group of which the holder is a member but are not deemed outstanding for computing the percentage of any other person.
Unless otherwise indicated, the address of each beneficial owner listed in the table below is c/o
| Number of Shares of Common Stock Beneficially Owned (1) |
% of Total | |||||||||||
| Shares | % | Voting Power | ||||||||||
| 5% or Greater Stockholders: | ||||||||||||
| None | - | - | % | - | % | |||||||
| Executive Officers and Directors: | ||||||||||||
|
|
136,065 | * | * | |||||||||
|
|
18,211 | * | * | |||||||||
|
|
1,405 | * | * | |||||||||
|
|
138,968 | * | * | |||||||||
|
|
28,781 | * | * | |||||||||
|
|
- | * | * | |||||||||
| All executive officers and directors as a group (six individuals) | 323,430 | 0.28 | % | 0.28 | % | |||||||
* Represents less than 1%.
| (1) | Based on 115,601,371 shares of common stock issued and outstanding as of April 30, 2025 and, with respect only to the ownership by all executive officers and directors as a group. |
| (2) |
|
| (3) |
|
| (4) | Mr. Heckman's total shares of common stock include 85,401 shares of common stock held in the Company's 401(k) Retirement Savings Plan (the "401(k) Plan") (on December 31, 2024) as to which Mr. Heckman has voting power as trustee of the 401(k) Plan. |
| (5) |
|
| 55 |
Securities Authorized for Issuance Under Equity Compensation Plans
As of December 31, 2024, the Company had adopted ten separate stock option and restricted stock plans: (i) the 2005 Stock Option and Restricted Stock Plan (the "2005 Plan"), (ii) the 2006 Stock Option and Restricted Stock Plan (the "2006 Plan"), (iii) the 2007 Stock Option and Restricted Stock Plan (the "2007 Plan"), (iv) the 2008 Stock Option and Restricted Stock Plan (the "2008 Plan"), (v) the 2011 Stock Option and Restricted Stock Plan (the "2011 Plan"), (vi) the 2013 Stock Option and Restricted Stock Plan (the "2013 Plan"), (vii) the 2015 Stock Option and Restricted Stock Plan (the "2015 Plan"), (viii) the 2018 Stock Option and Restricted Stock Plan (the "2018 Plan"), (ix) the 2020 Stock Option and Restricted Stock Plan (the "2020 Plan"), and (x) the 2022 Stock Option and Restricted Stock Plan (the "2022 Plan"). The 2005 Plan, 2006 Plan, 2007 Plan, 2008 Plan, 2011 Plan, 2013 Plan, 2015 Plan, 2018 Plan, 2020 Plan and 2022 Plan are referred to as the "Plans."
Stock option grants. The Company believes that such awards better align the interests of our employees with those of its stockholders. Option awards have been granted with an exercise price equal to the market price of its stock at the date of grant with such option awards generally vesting based on the completion of continuous service and having ten-year contractual terms. These option awards typically provide for accelerated vesting if there is a change in control (as defined in the Plans). The Company has registered all shares of common stock that are issuable under its Plans with the
The Plans authorize us to grant (i) to the key employees incentive stock options (except for the 2007 Plan) to purchase shares of Common Stock and non-qualified stock options to purchase shares of Common Stock and restricted stock awards, and (ii) to non-employee directors and consultants' non-qualified stock options and restricted stock. The Compensation Committee of our Board (the "Compensation Committee") administers the Plans by making recommendations to the Board or determinations regarding the persons to whom options or restricted stock should be granted and the amount, terms, conditions and restrictions of the awards.
The Plans allow for the grant of incentive stock options (except for the 2007 Plan), non-qualified stock options and restricted stock awards. Incentive stock options granted under the Plans must have an exercise price at least equal to 100% of the fair market value of the Common Stock as of the date of grant. Incentive stock options granted to any person who owns, immediately after the grant, stock possessing more than 10% of the combined voting power of all classes of our stock, or of any parent or subsidiary corporation, must have an exercise price at least equal to 110% of the fair market value of the Common Stock on the date of grant. Non-statutory stock options may have exercise prices as determined by our Compensation Committee.
The Compensation Committee is also authorized to grant restricted stock awards under the Plans. A restricted stock award is a grant of shares of the Common Stock that is subject to restrictions on transferability, risk of forfeiture and other restrictions and that may be forfeited in the event of certain terminations of employment or service prior to the end of a restricted period specified by the Compensation Committee.
We have filed various registration statements on Form S-8 and amendments to previously filed Form S-8's with
The following table sets forth certain information regarding the Plans as of December 31, 2024:
Equity Compensation Plan Information
| Plan category | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | Weighted-average exercise price of outstanding options, warrants and rights (b) | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) | |||||||||
| Equity compensation plans approved by stockholders | 52,500 | $ | 45.14 | 408,750 | ||||||||
| Equity compensation plans not approved by stockholders | - | $ | - | - | ||||||||
| Total all plans | 52,500 | $ | 45.14 | 408,750 | ||||||||
| 56 |
| Item 13. | Certain Relationships and Related Transactions, and Director Independence. |
Transactions with Managing Member of Nobility Healthcare
The Company accrued reimbursable expenses payable to Nobility, LLC totaling $245,716 and $619,301 as of December 31, 2024 and 2023, respectively. Total management fees accrued and payable in accordance with the operating agreement totaled $38,625 and $49,014 as of December 31, 2024 and 2023, respectively. The company recorded management fee expense of $67,905 and $169,075 for the years ended December 31, 2024 and 2023, respectively.
Transactions with Related Party of TicketSmarter
On September 22, 2023, a trust, the beneficiaries of which are TicketSmarter's Chief Executive Officer and his spouse, made a loan in the amount of $2,325,000 to TicketSmarter to support TicketSmarter's operations. On October 2, 2023 an additional $375,000 was advanced to Ticketsmarter. The transaction was recorded as a related party note payable (the "TicketSmarter Related Party Note"). The TicketSmarter Related Party Note bears interest of 13.25% per annum with repayment beginning January 2, 2024. As of December 31, 2024 and 2023, the entire TicketSmarter Related Party note balance totaled $2,700,000, and is classified as current, with an accrued interest balance of $488,711 and $95,031, respectively. The use of proceeds of the TicketSmarter Related Party Note was to resolve numerous outstanding payables at a discounted rate, the discount received to resolve such outstanding payables is recognized as a gain on extinguishment of liabilities on the statement of operations. Additionally, these negotiations relieved TicketSmarter of numerous future obligations following fiscal year 2023.
On August 19, 2024, the parties agreed to amend the note whereby the repayment dates were extended to begin on January 2, 2025 and continue at $54,000 for 50 consecutive weeks plus interest. The parties did not change any other provisions or terms of the note. The amendment was determined to be a modification of the note rather than an extinguishment and reissuance of a new note. No payments have been made to date in 2025.
Company Related Party Note
On August 22, 2024,
| 57 |
| Item 14. | Principal Accountant Fees and Services. |
Audit and Related Fees
The following table is a summary of the fees billed to us by RBSM LLP for the fiscal years ended December 31, 2024 and 2023:
| Fee Category | Fiscal 2024 fees |
Fiscal 2023 fees |
||||||
| Audit fees | $ | 275,000 | $ | 312,500 | ||||
| Audit-related fees | 165,000 | 145,000 | ||||||
| Tax fees | - | - | ||||||
| All other fees | - | - | ||||||
| Total fees | $ | 440,000 | $ | 457,500 | ||||
Audit Fees. Such amount consists of fees billed for professional services rendered in connection with the audit of our annual financial statements and review of the interim financial statements included in our quarterly reports. It also includes services that are normally provided by our independent registered public accounting firms in connection with statutory and regulatory filings or engagements.
Audit-Related Fees. Consists of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements and are not reported under "Audit Fees." These services include employee benefit plan audits, consents issued for certain filings with the
Tax Fees. Tax fees consist of fees billed for professional services related to tax compliance, tax advice and tax planning. These services include assistance regarding federal, state and international tax compliance, tax audit defense, customs and duties, mergers and acquisitions, and international tax planning.
All Other Fees. Consists of fees for products and services other than the services reported above.
The Audit Committee's practice is to consider and approve in advance all proposed audit and non-audit services to be provided by our independent registered public accounting firm. All the fees shown above were pre-approved by the Audit Committee.
PART IV
| Item 15. | Exhibits and Financial Statement Schedules. |
| (a) | The following documents are filed as part of this Annual Report on Form 10-K: |
| 1. | Consolidated Financial Statements: | |
| The consolidated financial statements required to be included in Part II, Item 8, Financial Statements and Supplementary Data, begin on Page F-1 and are submitted as a separate section of this Annual Report on Form 10-K. |
| 2. | Financial Statement Schedules: | |
| All schedules are omitted because they are not applicable or are not required, or because the required information is included in the consolidated financial statements or notes in this Annual Report on Form 10-K. |
| 58 |
| 3. | Exhibits: |
| 59 |
| 60 |
| 101.INS | Inline XBRL Instance Document ** |
| 101.SCH | Inline XBRL Taxonomy Schema ** |
| 101.CAL | Inline XBRL Taxonomy Calculation Linkbase ** |
| 101.LAB | Inline XBRL Taxonomy Label Linkbase ** |
| 101.PRE | Inline XBRL Taxonomy Presentation Linkbase ** |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
*Filed herewith.
** The XBRL related information in Exhibit 101 to this Annual Report on Form 10-K shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability of that Section and shall not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing or document.
| (1) | Filed as an exhibit to the Company's Annual Report on Form 10KSB for the Year ended December 31, 2007. | |
| (2) | Filed as an exhibit to the Company's October 2006 Form SB-2. | |
| (3) | Filed as an exhibit to the Company's Annual Report on Form 10K for the Year ended December 31, 2009. | |
| (4) | Filed as an exhibit to the Company's Form 8-K filed June 1, 2011. | |
| (5) | Filed as an exhibit to the Company's Form S-8 filed May 23, 2016. | |
| (6) | Filed as an exhibit to the Company's Form 8-K filed August 2, 2018. | |
| (7) | Filed as an exhibit to the Company's Registration Statement on Form S-8 filed August 20, 2018. | |
| (8) | Filed as an exhibit to the Company's Registration Statement on Form S-8 filed November 16, 2020. | |
| (9) | Filed as Appendix A to the Company's Definitive Proxy Statement on Schedule 14A filed April 27, 2021. | |
| (10) | Filed as an exhibit to the Company's Form 8-K filed May 3, 2021. | |
| (11) | Filed as an exhibit to the Company's Form 8-K filed June 9, 2021. | |
| (12) | Filed as an exhibit to the Company's Form 8-K filed September 9, 2021. | |
| (13) | Filed as an exhibit to the Company's Form 8-K filed August 23, 2022. | |
| (14) | Filed as an exhibit to the Company's Form 8-K filed October 19, 2022. | |
| (15) | Filed as Appendix A to the Company's Definitive Proxy Statement on Schedule 14A filed October 28, 2022. | |
| (16) | Filed as an exhibit to the Company's Form 8-K filed December 8, 2022. | |
| (17) | Filed as an exhibit to the Company's Form 8-K filed February 7, 2023. | |
| (18) | Filed as an exhibit to the Company's Registration Statement on Form S-8 filed February 28, 2023. | |
| (19) | Filed as an exhibit to the Company's Annual Report on Form 10K for the Year ended December 31, 2022. | |
| (20) | Filed as an exhibit to the Company's Form 8-K filed April 7, 2023. | |
| (21) | Filed as an exhibit to the Company's Form 8-K filed June 6, 2023. | |
| (22) | Filed as an exhibit to the Company's Form 8-K filed October 27, 2023. | |
| (23) | Filed as an Exhibit to the Company's Form 8-K filed March 5, 2024 | |
| (24) | Filed as an Exhibit to the Company's Form 8-K filed April 5, 2024 | |
| (25) | Filed as an Exhibit to the Company's Form 8-K filed June 28, 2024 | |
| (26) | Filed as an Exhibit to the Company's Form 8-K filed July 18, 2024 | |
| (27) | Filed as an Exhibit to the Company's Form 8-K filed August 6, 2024 | |
| (28) | Filed as an Exhibit to the Company's Form 8-K filed September 13, 2024 | |
| (29) | Filed as an Exhibit to the Company's Form 8-K filed September 27, 2024 | |
| (30) | Filed as an Exhibit to the Company's Form 8-K filed November 1, 2024 | |
| (31) | Filed as an Exhibit to the Company's Form 8-K filed November 7, 2024 | |
| (32) | Filed as an Exhibit to the Company's Form 8-K filed November 8, 2024 | |
| (33) | Filed as an Exhibit to the Company's Form 8-K filed December 11, 2024 | |
| (34) | Filed as an Exhibit to the Company's Form 8-K filed November 15, 2024 | |
| (35) | Filed as an Exhibit to the Company's Form 8-K filed February 19, 2025 | |
| (36) | Filed as an Exhibit to the Company's Annual Report on Form 10-K filed April 1, 2024 |
| (b) | No financial statement schedules have been provided because the information is not required or is shown either in the financial statements or the notes thereto. |
| 61 |
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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Chief Executive Officer (Principal Executive Officer) |
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| Dated: | May 2, 2025 |
Each person whose signature appears below authorizes
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Signature and Title | Date | |
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May 2, 2025 | |
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Principal Accounting Officer (Principal Financial Officer and Principal Accounting Officer) |
| 62 |
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS |
Page(s) | |
| Report of Independent Registered Public Accounting Firm (PCAOB ID No: 587) | F-2 | |
| Consolidated Financial Statements: | ||
| Consolidated Balance Sheets - December 31, 2024 and 2023 | F-4 | |
| Consolidated Statements of Operations for the Years Ended December 31, 2024 and 2023 | F-5 | |
| Consolidated Statements of Stockholders' Equity (Deficit) for the Years Ended December 31, 2024 and 2023 | F-6 | |
| Consolidated Statements of Cash Flows for the Years Ended December 31, 2024 and 2023 | F-7 | |
| Notes to the Consolidated Financial Statements | F-8 |
| F-1 |
805 Third Avenue
212.838-5100 www.rbsmllp.com |
Report of Independent Registered Public Accounting Firm
To the Stockholders and the
Board of Directors of
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of
The Company's Ability to Continue as a Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has incurred substantial operating losses and will require additional capital to continue as a going concern. This raises substantial doubt about the Company's ability to continue as a going concern. Management's plans regarding these matters are also described in Note 1. The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's consolidated financial statements based on our audits. We are a public accounting firm registered with the
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Critical Audit Matter Description
As described in Note 8 to the financial statements, the Company's goodwill and indefinite life intangible asset balance was $5,805,507 and $699,000, respectively as of December 31, 2024. The Company also has amortizable identifiable intangible assets of $1,866,667 - sponsorship agreement network and $100,000 - SEO content, which are being amortized over 5 years and 4 years, respectively, and are related to the entertainment segment. Management tests these assets annually for impairment or more frequently when potential impairment triggering events are present.
| F-2 |
The principal considerations for our determination that performing procedures relating to the goodwill and intangible asset impairment assessments of the entertainment reporting unit is a critical audit matter because (i) the significant judgment used by management when determining the fair value estimates of the reporting units; (ii) the high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating the significant assumptions used in management's fair value estimates; and (iii) the audit effort involved in the use of professionals with specialized skill and knowledge.
How the Critical Audit Matter Was Addressed in the Audit
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the financial statements.
| ● | These procedures included, among others, (i) testing management's process for determining the fair value estimates of the entertainment segment; (ii) testing the completeness and accuracy of the underlying data used in the income and market approach; and (iii) evaluating the reasonableness of the significant assumptions used by management related to future levels of revenue growth, gross profit margin, EBITDA as a percentage of revenue, cash-free debt-free net working capital as a percentage of revenue, capital expenditures as a percentage of revenue, discount rate, selection of guideline public companies and revenue market multiples. | |
| ● | Evaluating management's assumptions related to the future levels of revenue growth, gross profit margin, EBITDA as a percentage of revenue, cash-free debt-free net working capital as a percentage of revenue, capital expenditures as a percentage of revenue, discount rate, selection of guideline public companies and revenue market multiples and involved evaluating whether the assumptions were reasonable considering (i) current and past performance of the entertainment segment; (ii) the consistency with external market and industry data; and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit. | |
| ● | Professionals with specialized skill and knowledge were used to assist in evaluating (i) the appropriateness of the income and market approach and (ii) the reasonableness of significant assumptions related to the future levels of revenue growth, gross profit margin, EBITDA as a percentage of revenue, cash-free debt-free net working capital as a percentage of revenue, capital expenditures as a percentage of revenue, discount rate, selection of guideline public companies and revenue market multiples. |
Critical Audit Matter Description
As disclosed in Note 1,
As disclosed in Note 21, on March 1, 2024, the Company completed an acquisition referred to as the Country Stampede Acquisition in accordance with the asset purchase agreement. The consideration included payment of cash of $542,959 of which $400,000 was paid on March 1, 2024 and remainder on or before thirty days. Auditing the accounting for the acquisition was complex due to the significant estimation uncertainty in determining the fair values of identified intangible assets, which consisted of trademarks and trade names of $300,000 and
The principal considerations for our determination that performing procedures relating to the intangible assets acquired with the Country Stampede Acquisition is a critical audit matter because (i) the significant judgment used by management when determining the fair value estimates of the intangible assets acquired; (ii) the high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating the significant assumptions used in management's fair value estimates; and (iii) the audit effort involved in the use of professionals with specialized skill and knowledge.
How the Critical Audit Matter Was Addressed in the Audit
| ● | We utilized personnel with specialized knowledge and skill in valuation to assist in: a) assessing the appropriateness of valuation methodology for the trademarks and trade names using Relief from Royalty, b) evaluating the reasonableness of the growth rates, percent of revenues lost without existing agreements, discount rate used in the income approach. | |
| ● | Evaluate the reasonableness of management's significant estimates and assumptions including revenue growth rates, percent of revenues lost without existing agreements and discount rate in the valuation of the trademarks and trade names. | |
| ● | Evaluate if there have been events and circumstances that might indicate that intangible asset and goodwill has been impaired. |
/s/ RBSM LLP
We have served as the Company's auditor since 2019.
May 2, 2025
PCAOB ID Number 587
Member:
| F-3 |
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2024 AND 2023
| 2024 | 2023 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 454,314 | $ | 680,549 | ||||
| Accounts receivable-trade, less allowance for doubtful accounts of $314,304- 2024 and $200,668- 2023 | 1,301,253 | 1,584,662 | ||||||
| Other receivables, net of $25,000allowance - 2024 and $5,000- 2023 | 4,144,845 | 3,107,634 | ||||||
| Inventories, net | 2,586,066 | 3,845,281 | ||||||
| Prepaid expenses | 1,867,258 | 6,366,368 | ||||||
| Total current assets | 10,353,736 | 15,584,494 | ||||||
| Property, plant, and equipment, net | 365,857 | 7,283,702 | ||||||
|
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10,654,325 | 16,510,422 | ||||||
| Operating lease right of use assets, net | 718,509 | 1,053,159 | ||||||
| Other assets | 5,644,146 | 6,597,032 | ||||||
| Total assets | $ | 27,736,573 | $ | 47,028,809 | ||||
| Liabilities and Equity (Deficit) | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 11,486,947 | $ | 10,732,089 | ||||
| Accrued expenses | 1,514,508 | 3,269,330 | ||||||
| Current portion of operating lease obligations | 158,304 | 279,538 | ||||||
| Contract liabilities - current | 4,215,401 | 2,937,168 | ||||||
| Notes payable - related party - current portion | 2,840,000 | 2,700,000 | ||||||
| Debt obligations - current | 4,961,443 | 1,260,513 | ||||||
| Warrant derivative liabilities | 4,554,640 | 1,369,738 | ||||||
| Income taxes payable | - | 61 | ||||||
| Total current liabilities | 29,731,243 | 22,548,437 | ||||||
| Long-term liabilities: | ||||||||
| Debt obligations - long term | 141,083 | 4,853,237 | ||||||
| Operating lease obligation - long term | 560,205 | 827,836 | ||||||
| Contract liabilities - long term | 6,317,472 | 7,340,459 | ||||||
| Lease deposit | - | 10,445 | ||||||
| Total liabilities | 36,750,003 | 35,580,414 | ||||||
| Commitments and contingencies | ||||||||
| Stockholders' Equity (Deficit): | ||||||||
| Preferred stock, $0.001par value per share, 10,000,000shares authorized; noneissued or outstanding - 2024 and 2023 | ||||||||
| Common stock, $0.001par value; 200,000,000shares authorized; shares issued: 5,807,596- 2024 and 2,800,754- 2023 | 5,808 | 2,801 | ||||||
| Additional paid in capital | 129,691,976 | 128,441,083 | ||||||
| Noncontrolling interest in consolidated subsidiary | (1,198,286 | ) | 673,292 | |||||
| Accumulated deficit | (137,512,928 | ) | (117,668,781 | ) | ||||
| Total equity (deficit) | (9,013,430 | ) | 11,448,395 | |||||
| Total liabilities and equity (deficit) | $ | 27,736,573 | $ | 47,028,809 | ||||
See Notes to Consolidated Financial Statements.
| F-4 |
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED
DECEMBER 31, 2024 AND 2023
| 2024 | 2023 | |||||||
| Revenue: | ||||||||
| Product | $ | 5,404,317 | $ | 9,347,945 | ||||
| Service and other | 14,246,485 | 18,900,399 | ||||||
| Total revenue | 19,650,802 | 28,248,344 | ||||||
| Cost of revenue: | ||||||||
| Product | 5,899,130 | 9,974,890 | ||||||
| Service and other | 8,262,340 | 12,510,970 | ||||||
| Total cost of revenue | 14,161,470 | 22,485,860 | ||||||
| Gross profit | 5,489,332 | 5,762,484 | ||||||
| Selling, general and administrative expenses: | ||||||||
| Research and development expense | 1,339,673 | 2,618,746 | ||||||
| Selling, advertising and promotional expense | 2,144,494 | 7,137,529 | ||||||
| General and administrative expense | 12,376,705 | 18,246,762 | ||||||
|
|
4,830,000 | - | ||||||
| Total selling, general and administrative expenses | 20,690,872 | 28,003,037 | ||||||
| Operating loss | (15,201,540 | ) | (22,240,553 | ) | ||||
| Other income (expense): | ||||||||
| Interest income | 69,509 | 95,717 | ||||||
| Interest expense | (3,815,323 | ) | (3,134,253 | ) | ||||
| Other income | 26,733 | 144,735 | ||||||
| Loss on litigation | (1,959,396 | ) | (1,792,308 | ) | ||||
| Loss on extinguishment of convertible debt | - | (1,112,705 | ) | |||||
| Loss on disposal of intangibles | (119,979 | ) | - | |||||
| Change in fair value of warrant derivative liabilities | (1,240,407 | ) | 1,846,642 | |||||
| Change in fair value of contingent consideration promissory notes and earn-out agreements | - | 177,909 | ||||||
| Gain on the extinguishment of liabilities | 917,935 | 550,867 | ||||||
| Loss on extinguishment of debt | (753,339 | ) | - | |||||
| Gain on sale of property, plant and equipment | 360,082 | - | ||||||
| Total other expense | (6,514,185 | ) | (3,223,396 | ) | ||||
| Loss before income tax benefit (provision) | (21,715,725 | ) | (25,463,949 | ) | ||||
| Income tax expense benefit (provision) | - | - | ||||||
| Net loss | (21,715,725 | ) | (25,463,949 | ) | ||||
| Net (income) loss attributable to noncontrolling interests of consolidated subsidiary | 1,871,578 | (224,598 | ) | |||||
| Net loss attributable to common stockholders | $ | (19,844,147 |
) | $ | (25,688,547 | ) | ||
| Net loss per share attributable to common information: | ||||||||
| Basic | $ | (5.58 | ) | $ | (9.22 | ) | ||
| Diluted | $ | (5.58 | ) | $ | (9.22 | ) | ||
| Weighted average shares outstanding: | ||||||||
| Basic | 3,555,371 | 2,784,894 | ||||||
| Diluted | 3,555,371 | 2,784,894 | ||||||
See Notes to Consolidated Financial Statements.
| F-5 |
CONSOLIDATED STATEMENTS OF EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 2024 AND 2023
| Noncontrolling | ||||||||||||||||||||||||
| Additional | Interest in | |||||||||||||||||||||||
| Common Stock | Paid In | consolidated | Accumulated | |||||||||||||||||||||
| Shares | Amount | Capital | subsidiary | Deficit | Total | |||||||||||||||||||
| Balance, December 31, 2022 | 2,720,171 | $ | 2,721 | $ | 127,869,342 | $ | 448,694 | $ | (91,980,234 | ) | $ | 36,340,523 | ||||||||||||
| Stock-based compensation | - | - | 452,071 | - | - | 452,071 | ||||||||||||||||||
| Restricted common stock grant | 35,000 | 35 | (35 | ) | - | - | - | |||||||||||||||||
| Restricted common stock forfeitures | (3,625 | ) | (4 | ) | 4 | - | - | - | ||||||||||||||||
| Conversion of convertible note into common stock | 25,000 | 25 | 119,725 | - | - | 119,750 | ||||||||||||||||||
| Issuance due to rounding from reverse stock split | 24,208 | 24 | (24 | ) | - | - | - | |||||||||||||||||
| Net loss | - | - | - | 224,598 | (25,688,547 | ) | (25,463,949 | ) | ||||||||||||||||
| Balance, December 31, 2023 | 2,800,754 | $ | 2,801 | $ | 128,441,083 | $ | 673,292 | $ | (117,668,781 | ) | $ | 11,448,395 | ||||||||||||
| Stock-based compensation | - | - | 128,519 | - | - | 128,519 | ||||||||||||||||||
| Restricted common stock grant | 80,197 | 80 | (80 | ) | - | - | - | |||||||||||||||||
| Restricted common stock forfeitures | (49,947 | ) | (49 | ) | 49 | - | - | - | ||||||||||||||||
| Sale of common stock and pre-funded warrants, net of offering costs | 622,211 | 622 | 2,528,826 | - | - | 2,529,448 | ||||||||||||||||||
| Fair value of warrants issued along with sale of common stock | - | - | (2,075,300 | ) | - | - | (2,075,300 | ) | ||||||||||||||||
| Issuance of commitment shares in connection with bridge financing | 808,377 | 808 | 538,647 | - | - | 539,455 | ||||||||||||||||||
| Issuance of common stock upon exercise of pre-funded warrants | 573,004 | 573 | (573 | ) | - | - | - | |||||||||||||||||
| Allocation of fair value of Series B warrants approved by shareholders | - | - | (454,150 | ) | - | - | (454,150 | ) | ||||||||||||||||
| Transition of warrant derivative liability to equity upon exercise of Series B warrants | - | - | 584,955 | - | - | 584,955 | ||||||||||||||||||
| Issuance of common stock upon exercise of common stock purchase warrants | 973,000 | 973 | - | - | - | 973 | ||||||||||||||||||
| Net loss | - | - | - | (1,871,578 | ) | (19,844,147 | ) | (21,715,725 | ) | |||||||||||||||
| Balance, December 31, 2024 | 5,807,596 | $ | 5,808 | $ | 129,691,976 | $ | (1,198,286 | ) | $ | (137,512,928 | ) | $ | (9,013,430 | ) | ||||||||||
See Notes to Consolidated Financial Statements.
| F-6 |
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2024 AND 2023
| 2024 | 2023 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net loss | $ | (21,715,725 | ) | $ | (25,463,949 | ) | ||
| Adjustments to reconcile net loss to net cash flows used in operating activities: | ||||||||
| Depreciation and amortization | 2,022,314 | 2,218,237 | ||||||
| Gain on sale of property, plant and equipment | (360,082 | ) | - | |||||
| Loss on disposal of intangible assets | 119,979 | - | ||||||
|
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4,830,000 | - | ||||||
| Stock based compensation | 128,519 | 452,071 | ||||||
| Non-cash interest expense | 2,968,938 |
576,380 | ||||||
| Amortization of debt issuance costs | - | 161,893 | ||||||
| Gain on extinguishment of liabilities | (917,935 | ) | (550,867 | ) | ||||
| Convertible debt discount amortization | - | 2,169,545 | ||||||
| Loss on extinguishment of convertible debt | - | 1,112,705 | ||||||
| Loss on extinguishment of debt | 753,339 | - | ||||||
| Loss on litigation | 1,959,396 | 1,792,308 | ||||||
| Provision for doubtful accounts receivable | 113,636 | 47,932 | ||||||
| Provision for doubtful lease receivable | 20,000 | 5,000 | ||||||
| Change in fair value of contingent consideration promissory notes and earn-out agreements | - | (177,909 | ) | |||||
| Change in fair value of warrant derivative liability | 1,240,407 | (1,846,642 | ) | |||||
| Provision for inventory obsolescence | (2,372,806 | ) | (947,080 | ) | ||||
| Change in operating assets and liabilities: | ||||||||
| (Increase) decrease in: | ||||||||
| Accounts receivable - trade | (1,018,155 |
) | 411,462 | |||||
| Accounts receivable - other (including related party) | (1,057,211 | ) | 963,888 | |||||
| Inventories | 3,673,021 | 3,941,205 | ||||||
| Prepaid expenses | 4,837,508 | 2,100,045 | ||||||
| Operating lease right of use assets | 146,902 | 340,672 | ||||||
| Other assets | 817,786 | (1,343,751 | ) | |||||
| Increase (decrease) in: | ||||||||
| Accounts payable | 2,499,810 |
1,805,601 | ||||||
| Accrued expenses | (4,004,013 |
) | 289,957 | |||||
| Accrued interest - related party | 397,146 | 95,031 | ||||||
| Income taxes payable | (61 | ) | (8,036 | ) | ||||
| Lease deposit | (10,445 | ) | 10,445 | |||||
| Operating lease obligations | (154,232 | ) | (354,652 | ) | ||||
| Contract liabilities | (32,754 | ) | 2,304,671 | |||||
| Net cash used in operating activities | (5,114,718 |
) | (9,893,838 | ) | ||||
| Cash Flows from Investing Activities: | ||||||||
| Purchases of property, plant and equipment | (28,795 | ) | (94,165 | ) | ||||
| Proceeds from sale of property, plant and equipment | 550,644 | - | ||||||
| Purchases of intangible assets | (136,056 | ) | (146,541 | ) | ||||
| Proceeds from sale of intangible assets | 90,535 | - | ||||||
| Cash paid for acquisition of Country Stampede | (514,432 | ) | - | |||||
| Proceeds from sale of land and building | 425,653 | - | ||||||
| Net cash provided by (used in) investing activities | 387,549 |
(240,706 | ) | |||||
| Cash Flows from Financing Activities: | ||||||||
| Net proceeds of equity offering with detachable warrants | 2,194,745 | - | ||||||
| Net proceeds of senior promissory notes with commitment shares | 2,669,252 | - | ||||||
| Net proceeds of convertible debt with detachable warrants | - | 2,640,000 | ||||||
| Net proceeds of related party note payable | 140,000 | 2,700,000 | ||||||
| Net proceeds of revolving loan agreement - Video Solutions Segment | - | 4,691,745 | ||||||
| Proceeds - Commercial Extension of Credit - Entertainment Segment | 1,475,000 |
1,455,643 | ||||||
| Payments on Commercial Extension of Credit - Entertainment Segment | (275,000 |
) | (1,367,715 | ) | ||||
| Proceeds - Merchant Advances - Video Solutions Segment | 1,144,000 | 1,000,000 | ||||||
| Payments on Merchant Advances - Video Solutions Segment | (1,551,250 | ) | (162,000 | ) | ||||
| Payments on convertible debt | - | (3,162,500 | ) | |||||
| Proceeds - Merchant Advances - Entertainment Segment | 1,511,826 | - | ||||||
| Payments on Merchant Advances - Entertainment Segment | (2,714,456 | ) | - | |||||
| Principal payment on EIDL loan | (3,286 | ) | (2,219 | ) | ||||
| Principal payment on contingent consideration promissory notes | (188,470 | ) | (412,460 | ) | ||||
| Proceeds from issuance of common shares upon exercise of Series B warrants | 973 | - | ||||||
| Net cash provided by financing activities | 4,403,334 |
7,380,494 | ||||||
| Net decrease in cash, cash equivalents and restricted cash | (323,835 | ) | (2,754,050 | ) | ||||
| Cash, cash equivalents and restricted cash, beginning of year | 778,149 | 3,532,199 | ||||||
| Cash, cash equivalents, and restricted cash, end of year | $ | 454,314 | $ | 778,149 | ||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash payments for interest | $ | 753,569 |
$ | 88,631 | ||||
| Cash payments for income taxes | $ | 8,006 | $ | 1,606 | ||||
| Supplemental disclosures of non-cash investing and financing activities: | ||||||||
| Restricted common stock grant | $ | 80 | $ | 35 | ||||
| Restricted common stock forfeitures | $ | 50 | $ | 4 | ||||
| Commercial extension of credit repaid through accrued revenue - Entertainment segment | $ | 1,187,928 | $ | - | ||||
| ROU and lease liability recorded on extension (termination) of lease | $ | 234,633 | $ | 611,702 | ||||
| Assets acquired in business acquisitions | $ | 605,000 | $ | - | ||||
|
|
$ | 225,959 | $ | - | ||||
| Liabilities assumed in business acquisitions | $ | 288,000 | $ | - | ||||
| Adjustments of accounts payable with the sale proceeds of property, plant and equipment | $ | 549,356 | $ | - | ||||
| Fair value of warrants issued with sale of shares | $ | 2,529,450 | $ | - | ||||
| Transition of warrant derivative liability to equity upon exercise of warrants | $ | 584,955 | $ | - | ||||
| Reduction in proceeds from sale of building for loan, prepaid rent, and other accrued expenses | $ | 5,474,347 | $ | - | ||||
| Issuance of common stock upon exercise of pre-funded warrants | $ | 573 | - | |||||
| Payments to vendors directly from proceeds of sale of common stock | $ | 334,703 | $ | - | ||||
| Issuance of commitment shares in connection with bridge financing | $ | 539,455 |
$ | - |
||||
| Conversion of convertible notes payable into common stock | $ | - | $ | 119,750 | ||||
| Debt discount on convertible note | $ | - | $ | 3,000,000 | ||||
| F-7 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business:
The business of the Registrant,
Reverse Stock Split
On February 6, 2023, the Company filed a Certificate of Amendment to its Articles of Incorporation, as amended, with the Secretary of State of the
| F-8 |
Potential Business Combination
In June 2023, the Company, entered into an Agreement and Plan of Merger (the "Merger Agreement") with
On November 8, 2024,
The following is a summary of the Company's Significant Accounting Policies:
Basis of Consolidation:
The accompanying financial statements include the consolidated accounts of
The Company formed Digital Ally International, Inc. during August 2009 to facilitate the export sales of its products. The Company formed Shield Products, LLC in May 2020 to facilitate the sales of its Shield™ line of disinfectant/cleanser products and ThermoVu™ line of temperature monitoring equipment. The Company formed Nobility Healthcare, LLC ("Nobility Healthcare") in June 2021 to facilitate the operations of its revenue cycle management solutions and back-office services for healthcare organizations. The Company formed TicketSmarter, Inc. upon its acquisition of Goody Tickets, LLC and TicketSmarter, LLC, to facilitate its global ticketing operations. The Company formed Worldwide Reinsurance Ltd., which is a captive insurance company domiciled in
Fair Value of Financial Instruments:
The carrying amounts of financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and subordinated notes payable approximate fair value because of the short-term nature of these items.
Revenue Recognition:
The Company applies the provisions of Accounting Standards Codification (ASC) 606-10, Revenue from Contracts with Customers, and all related appropriate guidance. The Company recognizes revenue under the core principle to depict the transfer of control to its customers in an amount reflecting the consideration to which it expects to be entitled. In order to achieve that core principle, the Company applies the following five-step approach: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when a performance obligation is satisfied.
The Company has two different revenue streams, product and service, represented through its three segments. The Company reports all revenues on a gross basis, other than service revenues from the Company's entertainment and revenue cycle management segments, Revenues generated by all segments are reported net of sales taxes.
| F-9 |
Video Solutions
The Company considers customer purchase orders, which in some cases are governed by master sales agreements, to be the contracts with the customer. In situations where sales are to a distributor, the Company has concluded its contracts are with the distributor as the Company holds a contract bearing enforceable rights and obligations only with the distributor. As part of its consideration for the contract, the Company evaluates certain factors including the customers' ability to pay (or credit risk). For each contract, the Company considers the promise to transfer products, each of which is distinct, to be the identified performance obligations. In determining the transaction price, the Company evaluates whether the price is subject to refunds or adjustment to determine the net consideration to which it expects to be entitled. As the Company's standard payment terms are generally less than one year for product sales (although some subscriptions for services may reach out 3-5 years), it has elected the practical expedient under ASC 606-10-32-18 to not assess whether a contract has a significant financing component. The Company allocates the transaction price to each distinct product based on its relative standalone selling price. The product price, as specified on the purchase order, is considered the standalone selling price as it is an observable input which depicts the price as if sold to a similar customer in similar circumstances. Revenue is recognized when control of the product is transferred to the customer (i.e. when the Company's performance obligations is satisfied), which typically occurs at shipment. Further in determining whether control has been transferred, the Company considers if there is a present right to payment and legal title, along with risks and rewards of ownership having transferred to the customer. Customers do not have a right to retuthe product other than for warranty reasons for which they would only receive repair services or replacement products. The Company has also elected the practical expedient under ASC 340-40-25-4 to expense commissions for product sales when incurred as the amortization period of the commission asset the Company would have otherwise recognized is less than one year.
Service and other revenue is comprised of revenues from extended warranties, repair services, cloud revenue and software revenue. Revenue is recognized upon shipment of the product and acceptance of the service or materials by the end customer for repair services. Revenue for extended warranty, cloud service or other software-based products is over the term of the contract warranty or service period. A time-elapsed method is used to measure progress because the Company transfers control evenly over the contractual period. Accordingly, the fixed consideration related to these revenues is generally recognized on a straight-line basis over the contract term, as long as the other revenue recognition criteria have been met.
The Company's multiple performance obligations may include future in-car or body-wocamera devices to be delivered at defined points within a multi-year contract, and in those arrangements, the Company allocates total arrangement consideration over the life of the multi-year contract to future deliverables using management's best estimate of selling price.
Revenue Cycle Management
The Company reports revenue cycle management revenues on a net basis, as its primary source of revenue is its end-to-end service fees which is generally determined as a percentage of the invoice amounts collected. These service fees are reported as monthly revenue upon completion of the Company's performance obligation to provide the agreed upon service.
Entertainment
The Company reports ticketing revenue on a gross or net basis based on management's assessment of whether the Company is acting as a principal or agent in the transaction. The determination is based upon the evaluation of control over the event ticket, including the right to sell the ticket, prior to its transfer to the ticket buyer.
The Company sells tickets held in inventory, which consists of one performance obligation, being to transfer control of an event ticket to the buyer upon confirmation of the order. The Company acts as the principal in these transactions as the ticket is owned by the Company at the time of the sale, therefore controlling the ticket prior to transferring to the customer. In these transactions, revenue is recorded on a gross basis based on the value of the ticket and is recognized when an order is confirmed. Payment is typically due upon delivery of the ticket.
| F-10 |
The Company also acts as an intermediary between buyers and sellers through online secondary marketplace. Revenues derived from this marketplace primarily consist of service fees from ticketing operations, and consists of one primary performance obligation, which is facilitating the transaction between the buyer and seller, being satisfied at the time the order has been confirmed. As the Company does not control the ticket prior to the transfer, the Company acts as an agent in these transactions. Revenue is recognized on a net basis, net of the amount due to the seller when an order is confirmed, the seller is then obligated to deliver the tickets to the buyer per the seller's listing. Payment is due at the time of sale.
Other
Contract liabilities consist of deferred revenue and include payments received in advance of performance under the contract and are reported separately as current liabilities and non-current liabilities in the Consolidated Balance Sheets. Such amounts consist of extended warranty contracts, prepaid cloud services and prepaid installation services and are generally recognized as the respective performance obligations are satisfied. During the year ended December 31, 2024, the Company recognized revenue of $4.4million related to its contract liabilities. Contract liabilities consist of deferred revenue and include payments received in advance of performance under the contract and are reported separately as current liabilities and non-current liabilities in the Consolidated Balance Sheets. Such amounts consist of extended warranty contracts, prepaid cloud services and prepaid installation services and are generally recognized as the respective performance obligations are satisfied. Total contract liabilities consist of the following:
| December 31, 2024 | ||||||||||||||||
| December 31, 2023 | Additions/Reclass | Recognized Revenue | December 31, 2024 | |||||||||||||
| Contract liabilities, current | $ | 2,937,168 | $ | 2,799,956 | $ | 1,521,723 | $ | 4,215,401 | ||||||||
| Contract liabilities, non-current | 7,340,459 | 1,814,351 | 2,837,338 | 6,317,472 | ||||||||||||
| $ | 10,277,627 | $ | 4,614,307 | $ | 4,359,061 | $ | 10,532,873 | |||||||||
| December 31, 2023 | ||||||||||||||||
| December 31, 2022 | Additions/Reclass | Recognized Revenue | December 31, 2023 | |||||||||||||
| Contract liabilities, current | $ | 2,154,874 | $ | 2,538,187 | $ | 1,755,893 | $ | 2,937,168 | ||||||||
| Contract liabilities, non-current | 5,818,082 | 2,328,994 | 806,617 | 7,340,459 | ||||||||||||
| $ | 7,972,956 | $ | 4,867,181 | $ | 2,562,510 | $ | 10,277,627 | |||||||||
Sales returns and allowances aggregated $86,370and $117,713for the years ended December 31, 2024 and 2023, respectively. Obligations for estimated sales returns and allowances are recognized at the time of sales on an accrual basis. The accrual is determined based upon historical returates adjusted for known changes in key variables affecting these returates.
Use of Estimates:
The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in
| F-11 |
Cash and cash equivalents:
Cash and cash equivalents include funds on hand, in bank and short-term investments with original maturities of ninety (90) days or less.
The Company maintains its cash and cash equivalents in banks insured by the
Restricted Cash:
Restricted cash of $-0- and $97,600was included in other assets as of December 31, 2024 and 2023, respectively. Restricted cash consists of bank deposits that collateralize a debt obligation. Such debt obligation was paid off as of December 31, 2024.
The following table provides a reconciliation of cash and cash equivalents in the consolidated balance sheets to cash, cash equivalents and restricted cash in the consolidated statements of cash flows:
| December 31, 2024 | December 31, 2023 | |||||||
| Cash and cash equivalents | $ | 454,314 | $ | 680,549 | ||||
| Long-term restricted cash included in other assets | - | 97,600 | ||||||
| Total cash, cash equivalents and restricted cash in the statements of cash flows | $ | 454,314 | $ | 778,149 | ||||
Accounts Receivable:
Accounts receivables are carried at original invoice amount less an estimate made for doubtful receivables based on a review of all outstanding amounts on a weekly basis. The Company determines the allowance for doubtful accounts by regularly evaluating individual customer receivables and considering a customer's financial condition, credit history, and current economic conditions.
Trade receivables are written off when deemed uncollectible. Recoveries of trade receivables previously written off are recorded when received. A trade receivable is considered to be past due if any portion of the receivable balance is outstanding for more than thirty (30) days beyond terms. No interest is charged on overdue trade receivables.
| F-12 |
Traditionally, goodwill impairment testing is a two-step process. Step one involves comparing the fair value of the reporting units to its carrying amount. If the carrying amount of a reporting unit is greater than zero and its fair value is greater than its carrying amount, there is no impairment. If the reporting unit's carrying amount is greater than the fair value, the second step must be completed to measure the amount of impairment, if any. Step two involves calculating an implied fair value of goodwill. The Company has adopted ASU 2017-04 which simplifies subsequent goodwill measurement by eliminating step two from the goodwill impairment test. As a result, the Company compares the fair value of a reporting unit with its respective carrying value and recognizes an impairment charge for the amount by which the carrying amount exceeded the reporting unit's fair value.
The Company determines the fair value of its reporting units using a weighting of the income and market valuation approaches. The income approach applies a fair value methodology to each reporting unit based on discounted cash flows. This analysis requires significant judgments, including estimation of future cash flows, which is dependent on internally-developed forecasts of revenue and profitability, estimation of the long-term rate of growth for our business, estimation of the useful life over which cash flows will occur, and determination of our weighted average cost of capital, which is risk-adjusted to reflect the specific risk profile of the reporting unit being tested. Under the market approach, we estimate the fair value based on multiples of comparable public companies and precedent transactions. Significant estimates in the income and market approach include: future levels of revenue growth, gross profit margin, EBITDA as a percentage of revenue, cash-free debt-free net working capital as a percentage of revenue, capital expenditures as a percentage of revenue, discount rate, selection of guideline public companies and revenue market multiples.
Long-lived and Other Intangible Assets - The Company periodically assesses potential impairments of its long-lived assets in accordance with the provisions of ASC 360, Accounting for the Impairment or Disposal of Long-lived Assets. An impairment review is performed whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. The Company groups its assets at the lowest level for which identifiable cash flows are largely independent of the cash flows of the other assets and liabilities. The Company has determined that the lowest level for which identifiable cash flows are available is the operating segment level.
Factors considered by the Company include, but are not limited to, significant underperformance relative to historical or projected operating results; significant changes in the manner of use of the acquired assets or the strategy for the overall business; and significant negative industry or economic trends. When the carrying value of a long-lived asset may not be recoverable based upon the existence of one or more of the above indicators of impairment, the Company estimates the future undiscounted cash flows expected to result from the use of the asset and its eventual disposition. If the sum of the expected future undiscounted cash flows and eventual disposition is less than the carrying amount of the asset, the Company recognizes an impairment loss. An impairment loss is reflected as the amount by which the carrying amount of the asset exceeds the fair value of the asset, based on the fair value if available, or discounted cash flows, if fair value is not available. The Company assessed potential impairments of its long-lived assets as of an interim date of September 30, 2024 and concluded that there was an impairment which was recorded during the year ended December 31, 2024. Subsequent to completing our 2023 annual impairment test, no events or changes in circumstances were noted that required an interim goodwill impairment test until the fiscal third quarter of 2024, when events occurred that we considered triggering events.
During the third fiscal quarter of 2024, management determined that triggering events had occurred resulting from the additional decline in demand for our services, prolonged economic uncertainty, the split-off transaction did not occur when and as expected and a further decrease in our stock price. Therefore, we performed an interim impairment test as of September 30, 2024. Refer to Note 8.
Intangible assets include deferred patent costs, license agreements, trademarks and trade names. Legal expenses incurred in preparation of patent application have been deferred and will be amortized over the useful life of granted patents. Costs incurred in preparation of applications that are not granted will be charged to expense at that time. The Company has entered into several sublicense agreements under which it has been assigned the exclusive rights to certain licensed materials used in its products. These sublicense agreements generally require upfront payments to obtain exclusive rights to such material. The Company capitalizes the upfront payments as intangible assets and amortizes such costs over their estimated useful life on a straight-line method.
| F-13 |
Fair value of assets and liabilities acquired in business combinations:
The Company allocates the amount it pays for each acquisition to the assets acquired and liabilities assumed based on their fair values at the date of acquisition, including identifiable intangible assets which arise from a contractual or legal right or are separable from goodwill. The Company bases the fair value of identifiable intangible assets acquired in a business combination on detailed valuations that use information and assumptions provided by management to valuation specialists, which consider management's best estimates of inputs and assumptions that a market participant would use. The Company allocates any excess purchase price that exceeds the fair value of the net tangible and identifiable intangible assets acquired to goodwill. The use of alternative valuation assumptions, including estimated growth rates, cash flows, discount rates and estimated useful lives could result in different purchase price allocations and amortization expense in current and future periods. Transaction costs associated with these acquisitions are expensed as incurred through selling, general and administrative expense on the consolidated statement of operations. In those circumstances where an acquisition involves a contingent consideration arrangement, the Company recognizes a liability equal to the fair value of the contingent payments expected to be made as of the acquisition date. The Company re-measures this liability each reporting period and records changes in the fair value through operating income within the consolidated statements of operations.
Inventories:
Inventories for the video solutions segment consist of electronic parts, circuitry boards, camera parts and ancillary parts (collectively, "components"), work-in-process and finished goods. Finished goods that are manufactured and assembled by the Company are carried at the lower-of-cost or net realizable value, with cost determined by standard cost methods, which approximate the first-in, first-out method. Inventory costs include material, labor and manufacturing overhead. Inventories for the entertainment segment consist of tickets to live events purchased, which are held at lower of cost or net realizable value and written-off after the event has occurred. Event tickets for the entertainment segment are carried at lower of cost or net realizable value and fully written off at the time the event occurs if the ticket is unsold and remains in inventory after the completion of the event. Management has established inventory reserves based on estimates of excess and/or obsolete current inventory.
Manufacturing inventory for the video solutions segment is reviewed for obsolescence and excess quantities on a quarterly basis, based on estimated future use of quantities on hand, which is determined based on past usage, planned changes to products and known trends in markets and technology. Changes in support plans or technology could have a significant impact on obsolescence.
To support our world-wide service operations for the video solutions segment, we maintain service spare parts inventory, which consists of both consumable and repairable spare parts. Consumable service spare parts are used within our service business to replace woor damaged parts in a system during a service call and are generally classified in current inventory as our stock of this inventory turns relatively quickly. However, if there has been no recent usage for a consumable service spare part, but the part is still necessary to support systems under service contracts, the part is non-current and included within non-current inventories within our consolidated balance sheet. Consumables are charged to cost of goods sold when issued during the service call.
As these service parts age over the related product group's post-production service life, we reduce the net carrying value of our repairable spare part inventory on the consolidated balance sheet to account for the excess that builds over the service life. The post-production service life of our systems is generally seven to twelve years and, at the end of twelve years, the carrying value for these parts in our consolidated balance sheet is reduced to zero. We also perform periodic monitoring of our installed base for premature end of service life events and expense, through cost of sales, the remaining net carrying value of any related spare parts inventory in the period incurred.
Property, plant and equipment:
Property, plant and equipment is stated at cost net of accumulated depreciation. Additions and improvements are capitalized while ordinary maintenance and repair expenditures are charged to expense as incurred. Depreciation is recorded by the straight-line method over the estimated useful life of the asset, which ranges from three to thirty years, other than the infinite useful life of land. Amortization expense on capitalized leases is included with depreciation expense. The cost and accumulated depreciation related to assets sold or retired are removed from the accounts and any gain or loss is credited or charged to income.
Leases:
The Company determines if an arrangement contains a lease at inception. For arrangements where the Company is the lessee, the Company will evaluate whether to account for the lease as an operating or finance lease. Operating leases are included in the right of use assets (ROU) and operating lease liabilities on the consolidated balance sheet as of December 31, 2024 and 2023. Finance leases would be included in property, plant and equipment, net and long-term debt and finance lease obligations on the balance sheet. The Company had operating leases for copiers, offices and warehouse space on December 31, 2024 and 2023 but no financing leases.
ROU assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. The Company uses its incremental borrowing rate based on the information available at the commencement date in determining the operating lease liabilities if the operating lease does not provide an implicit rate. Lease terms may include the option to extend when Company is reasonably certain that the option will be exercised. Lease expense for operating leases is recognized on a straight-line basis over the lease term.
The Company elected to apply the short-term lease measurement and recognition exemption in which ROU assets and lease liabilities are not recognized for short term leases.
| F-14 |
Warranties:
The Company's video solutions segment products carry explicit product warranties that extend up to two years from the date of shipment. The Company records a provision for estimated warranty costs based upon historical warranty loss experience and periodically adjusts these provisions to reflect actual experience. Accrued warranty costs are included in accrued expenses. Extended warranties are offered on selected products and when a customer purchases an extended warranty the associated proceeds are treated as contract liabilities and recognized over the term of the extended warranty.
Shipping and Handling Costs:
Shipping and handling costs video solutions segment for outbound sales orders totaled $38,143and $51,061for the years ended December 31, 2024 and 2023, respectively. Such costs are included in selling, general and administrative expenses in the Consolidated Statements of Operations.
Advertising Costs:
Advertising expense video solutions segment and entertainment segments includes costs related to trade shows and conventions, promotional material and supplies, and media costs. Advertising costs are expensed in the period in which they are incurred. The Company incurred total advertising expenses of approximately $1,121,116and $5,773,965for the years ended December 31, 2024 and 2023, respectively. Such costs are included in selling, advertising and promotional expenses in the Consolidated Statements of Operations.
Income Taxes:
Deferred taxes are provided for by the liability method in which deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax basis. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
The Company applies the provisions of the
The Company's policy is to record estimated interest and penalties related to the underpayment of income taxes as income tax expense in the Consolidated Statements of Operations. There was nointerest expense related to the underpayment of estimated taxes during the years ended December 31, 2024 and 2023. There were nopenalties in 2024 and 2023.
The Company is subject to taxation in
| F-15 |
Research and Development Expenses:
The Company expenses all research and development costs as incurred, which is generally incurred by the video solutions segment. Development costs of computer software to be sold, leased, or otherwise marketed are subject to capitalization beginning when a product's technological feasibility has been established and ending when a product is available for general release to customers. In most instances, the Company's products are released soon after technological feasibility has been established. Costs incurred after achievement of technological feasibility were not significant, and software development costs were expensed as incurred during 2024 and 2023.
Warrant Derivative Liabilities:
In accordance with FASB ASC 815-40, Derivatives and Hedging: Contracts in an Entities Own Equity, entities must consider whether to classify contracts that may be settled in its own stock, such as warrants to purchase shares of Common Stock, as equity of the entity or as an asset or liability. If an event that is not within the entity's control could require net cash settlement, then the contract should be classified as an asset or a liability rather than as equity. We have determined that because the terms of the various warrants issued and remain outstanding, include a provision that entitles all the warrant holders to receive cash for their warrants in the event of a qualifying cash tender offer, while only certain of the holders of the underlying shares of common stock would be entitled to cash, our warrants should be classified as liability measured at fair value, with changes in fair value each period reported in earnings. Volatility in the price of our common stock may result in significant changes in the value of the derivatives and resulting gains and losses on our statement of operations.
Stock-Based Compensation:
The Company grants stock-based compensation to its employees, board of directors and certain third-party contractors. Share-based compensation arrangements may include the issuance of options to purchase common stock in the future or the issuance of restricted stock, which generally are subject to vesting requirements. The Company records stock-based compensation expense for all stock-based compensation granted based on the grant-date fair value. The Company recognizes these compensation costs on a straight-line basis over the requisite service period of the award.
The Company estimates the grant-date fair value of stock-based compensation using the Black-Scholes valuation model. Assumptions used to estimate compensation expense are determined as follows:
| ● | Expected term is determined using the contractual term and vesting period of the award; | |
| ● | Expected volatility of award grants made in the Company's plan is measured using the weighted average of historical daily changes in the market price of the Company's common stock over the period equal to the expected term of the award; | |
| ● | Expected dividend rate is determined based on expected dividends to be declared; | |
| ● | Risk-free interest rate is equivalent to the implied yield on zero-coupon
|
|
| ● | Forfeitures are accounted for as they occur. |
| F-16 |
Segment Reporting
The accounting guidance on Segment Reporting establishes standards for reporting information regarding operating segments in annual financial statements and requires selected information of those segments to be presented in financial statements. Operating segments are identified as components of an enterprise for which separate discrete financial information is available for evaluation by the chief operating decision maker (the Company's Chief Executive Officer or "CODM") in making decisions on how to allocate resources and assess performance. The Company's three operating segments are Video Solutions, Revenue Cycle Management, and Entertainment, each of which has specific personnel responsible for that business and reports to the CODM. Corporate expenses capture the Company's corporate administrative activities, is also to be reported in the segment information. Therefore, its operations are eliminated in consolidation and is not considered a separate business segment for financial reporting purposes.
The Company adopted ASU 2023-07 in 2024 and applied the amendment retrospectively to all periods presented in the Company's consolidated financial statements. See Note 22, Operating Segments, for more information.
Contingent Consideration
In circumstances where an acquisition involves a contingent consideration arrangement that meets the definition of a liability under the
Non-Controlling Interests
Non-controlling interests in the Company's Consolidated Financial Statements represent the interest in subsidiaries held by venture partners. The venture partners hold noncontrolling interests in the Company's consolidated subsidiary Nobility Healthcare, LLC. Since the Company consolidates the financial statements of all wholly-owned and majority owned subsidiaries, the noncontrolling owners' share of each subsidiary's results of operations are deducted and reported as net income attributable to noncontrolling interest in the Consolidated Statements of Operations.
Lease Receivable
Lease receivables are carried at the original invoice amount less the total payments received pertaining to each individual customer's lease agreement. These agreements range from three to five years and are removed from lease receivable upon termination of the agreement. The Company determines if an allowance for doubtful accounts by regularly evaluating individual customer lease receivables and considering a customer's financial condition, credit history, and current economic conditions. The allowance for uncollectible accounts totaled $25,000and $5,000as of December 31, 2024 and 2023, respectively.
New Accounting Standards
Recently Adopted Accounting Standard Updates. - ASU 2023-07, Improvements to Reportable Segment Disclosures, which requires companies to disclose significant segment expenses provided to the chief operating decision maker ("CODM") and a description of other segment items. Additionally, all existing annual disclosures must be provided on an interim basis. This ASU is effective for annual periods beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. This ASU is required to be applied retrospectively to all prior periods presented in the consolidated financial statements. The Company adopted ASU 2023-07 in 2024 and applied the amendment retrospectively to all periods presented in the Company's consolidated financial statements. See Note 22, Operating Segments, for more information.
| F-17 |
Recently Issued Accounting Pronouncements. - ASU 2023-09, Improvements to Income Tax Disclosures, requires improved disclosures related to the rate reconciliation and income taxes paid. This ASU requires companies to reconcile the income tax expense attributable to continuing operations to the
ASU 2024-03, Disaggregation of Income Statement Expenses, requires disaggregated disclosures in the notes to the consolidated financial statements of certain categories of expenses that are included in expense line items on the Consolidated Statement of Income. This ASU is effective for annual periods beginning after December 15, 2026 and interim reporting periods beginning after December 15, 2027, with early adoption permitted. The guidance is required to be applied on a prospective basis with the option to apply retrospectively to all prior periods presented in the consolidated financial statements. The Company is currently evaluating the impact to the Company's consolidated financial statements.
ASU 2024-04, Induced Conversions of Convertible Debt Instruments, clarifies the requirement for determining whether certain settlements of convertible debt instruments should be accounted for as induced conversions or extinguishments. This ASU is effective for annual periods beginning after December 15, 2025. Early adoption is permitted and can be applied either on a prospective basis or retrospective basis. The Company is currently evaluating the impact of this ASU to the Company's consolidated financial statements, however the Company does not anticipate this guidance having a material impact to the consolidated financial stat
The other recent accounting pronouncements issued by the
Going ConceMatters and Management's Plans
The accompanying consolidated financial statements have been prepared on a going-concebasis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company incurred substantial operating losses in the years ended December 31, 2024 and December 31, 2023 primarily due to reduced gross margins caused by a combination of competitors' introduction of newer products with more advanced features together with significant price cutting of their products and the recent acquisitions with much smaller margins than the video solutions segment, historically. The Company incurred operating losses of approximately $15.2million for the year ended December 31, 2024 and $22.2million during the year ended December 31, 2023 and it had an accumulated deficit of $137.5million as of December 31, 2024. These matters raise substantial doubt about Company's ability to continue as a going concern. In recent years the Company has accessed the public and private capital markets to raise funding through the issuance of debt and equity. In that regard, the Company raised approximately $4.9million in the year ended December 31, 2024 through a private placement transaction and an underwritten public offering. During February 2025, the Company raised net proceeds of approximately $13.48 million through an underwritten public offering. These equity raises were utilized to fund its operations and acquisitions. Management expects this patteto continue until it achieves positive cash flow from operations, although it can offer no assurance in this regard.
The Company will have to restore positive operating cash flows and profitability over the next year and/or raise additional capital to fund its operational plans, meet its customary payment obligations and otherwise execute its business plan. There can be no assurance that it will be successful in restoring positive cash flows and profitability, or that it can raise additional financing when needed, and obtain it on terms acceptable or favorable to the Company.
The Company has increased its contract liabilities to nearly $10.5million as of December 31, 2024, which results in recurring revenue during the period of 2025 to 2027. The Company believes that its quality control and cost-cutting initiatives, expansion to non-law enforcement sales channels and new product introduction will eventually restore positive operating cash flows and profitability, although it can offer no assurances in this regard.
| F-18 |
The Company has significantly cut costs in its entertainment segment through the removal of several large partnerships and sponsorships. These did not yield the results management expected; thus, it is not expected that these costs will significantly hinder total revenues in 2025 and beyond.
The Company has significantly cut costs in its video segment through the reduction in headcount and relocating to smaller and less costly facilities after completing the sale of its warehouse/office building.
In addition to the initiatives described above, the Board of Directors is conducting a review of a full range of strategic alternatives to best position the Company for the future including, but not limited to, the sale of all or certain assets, properties or groups of properties or individual businesses or merger or combination with another company. The result of this review may also include the continued implementation of the Company's business plan. There can be no assurance that any additional transactions or financing will result from this process.
Based on the uncertainties described above, the Company believes its business plan does not alleviate the existence of substantial doubt about its ability to continue as a going concewithin one year from the date of the issuance of these consolidated financial statements. The accompanying consolidated financial statements do not include any adjustments related to the recoverability and classification of asset amounts or the classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
NOTE 2. CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS
Financial instruments that potentially subject the Company to concentration of credit risk consist of accounts receivable. Sales to domestic customers are typically made on credit and the Company generally does not require collateral while sales to international customers require payment before shipment or backing by an irrevocable letter or credit. The Company performs ongoing credit evaluations of its customers' financial condition and maintains an allowance for estimated losses. Accounts are written off when deemed uncollectible and accounts receivable are presented net of an allowance for doubtful accounts. The allowance for doubtful accounts totaled $314,304as of December 31, 2024 and $200,668as of December 31, 2023.
The Company maintains its cash and cash equivalents in banks insured by the Federal Deposit Insurance Corporation (FDIC) in accounts that at times may be in excess of the federally insured limit of $250,000per bank. The Company minimizes this risk by placing its cash deposits with major financial institutions. At December 31, 2024 and 2023, the uninsured balance amounted to $-0- and $29,700, respectively. The Company uses primarily a network of unaffiliated distributors for international sales and an employee-based direct sales force for domestic sales. No international distributor individually exceeded 10% of total revenues. No one individual customer receivable balance exceeded 10% of total accounts receivable as of December 31, 2024 and 2023.
The Company's video solutions segment purchases finished circuit boards and other proprietary component parts from suppliers located in the United States and on a limited basis from Asia. Although the Company obtains certain of these components from single source suppliers, it generally owns all tooling and management has located alternative suppliers to reduce the risk in most cases to supplier problems that could result in significant production delays. The Company has not historically experienced significant supply disruptions from any of its principal vendors and does not anticipate future supply disruptions. The Company acquires most of its components on a purchase order basis and does not have long-term contracts with its suppliers.
NOTE 3. ACCOUNTS RECEIVABLE - ALLOWANCE FOR DOUBTFUL ACCOUNTS
The allowance for doubtful accounts receivable was comprised of the following for the years ended December 31, 2024 and 2023:
| December 31, 2024 | December 31, 2023 | |||||||
| Beginning balance | $ | 200,668 | $ | 152,736 | ||||
| Provision for bad debts | 190,101 | 84,446 | ||||||
| Charge-offs to allowance, net of recoveries | (76,465 | ) | (36,514 | ) | ||||
| Ending balance | $ | 314,304 | $ | 200,668 | ||||
| F-19 |
NOTE 4. OTHER RECEIVABLES
Other receivables were the following at December 31, 2024 and 2023:
| December 31, 2024 | December 31, 2023 | |||||||
| Notes receivable | $ | 150,154 | $ | 150,154 | ||||
| Lease receivable, net | 3,988,994 | 2,940,261 | ||||||
| Other | 5,697 | 17,219 | ||||||
| Total other receivables | $ | 4,144,845 | $ | 3,107,634 | ||||
NOTE 5. INVENTORIES
Inventories consisted of the following at December 31, 2024 and 2023:
| December 31, 2024 | December 31, 2023 | |||||||
| Raw material and component parts- video solutions segment | $ | 2,589,804 | $ | 3,044,653 | ||||
| Work-in-process- video solutions segment | 4,906 | 20,396 | ||||||
| Finished goods - video solutions segment | 1,655,317 | 4,623,489 | ||||||
| Finished goods - entertainment segment | 505,694 | 699,204 | ||||||
| Subtotal | 4,755,721 | 8,387,742 | ||||||
| Reserve for excess and obsolete inventory- video solutions segment | (2,037,252 | ) | (4,355,666 | ) | ||||
| Reserve for excess and obsolete inventory - entertainment segment | (132,403 | ) | (186,795 | ) | ||||
| Total inventories | $ | 2,586,066 | $ | 3,845,281 | ||||
Finished goods inventory includes units held by potential customers and sales agents for test and evaluation purposes. The cost of such units totaled $36,080and $42,797as of December 31, 2024 and 2023, respectively.
NOTE 6. PREPAID EXPENSES
Prepaid expenses were the following at December 31, 2024 and 2023:
| December 31, 2024 | December 31, 2023 | |||||||
| Prepaid inventory | $ | 1,158,867 | $ | 5,318,939 | ||||
| Prepaid advertising | 334,882 | 612,292 | ||||||
| Other | 373,509 | 435,137 | ||||||
| Total prepaid expenses | $ | 1,867,258 | $ | 6,366,368 | ||||
| F-20 |
NOTE 7. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following at December 31, 2024 and 2023:
Estimated Useful Life |
December 31, 2024 | December 31, 2023 | ||||||||
| Building | 25years | $ | - | $ | 4,537,037 | |||||
| Land | Infinite | - | 739,734 | |||||||
| Office furniture, fixtures, equipment, and aircraft | 3-20years | 783,791 | 2,065,092 | |||||||
| Warehouse and production equipment | 3-7years | 237,141 | 29,055 | |||||||
| Demonstration and tradeshow equipment | 3-7years | 77,791 | 87,987 | |||||||
| Building improvements | 5-7years | 12,185 | 1,328,654 | |||||||
| Total cost | 1,110,908 | 8,787,559 | ||||||||
| Less: accumulated depreciation and amortization | (745,051 | ) | (1,503,857 | ) | ||||||
| Net property, plant and equipment | $ | 365,857 | $ | 7,283,702 | ||||||
Depreciation and amortization of property, plant and equipment aggregated $544,602and $711,103for the years ended December 31, 2024 and 2023, respectively. The cost and accumulated depreciation related to assets sold or retired are removed from the accounts and any gain or loss is credited or charged to income.
During the year ended December 31, 2024 the Company sold its aircraft for $1,100,000less closing costs of $1,500. The carrying amount of the aircraft on the date of sale was $1,141,661. As a result of the sale the Company recorded a loss of $41,661in the Consolidated Statement of Operations. In addition, during the year ended December 31, 2024 the Company sold its building for $5,900,000less closing costs of $36,634. The carrying amount of the building on the date of sale was $5,461,623. As a result of the sale the Company recorded a gain of $401,743in the Consolidated Statement of Operations during the year ended December 31, 2024.
NOTE 8. GOODWILL AND OTHER INTANGIBLE ASSETS
Intangible assets consisted of the following as of December 31, 2024 and 2023:
| December 31, 2024 | December 31, 2023 | |||||||||||||||||||||||||||
Gross value |
Accumulated amortization |
Accumulated Impairment | Net carrying value |
Gross value |
Accumulated amortization |
Net carrying value |
||||||||||||||||||||||
| Amortized intangible assets: | ||||||||||||||||||||||||||||
| Licenses (video solutions segment) | $ | - | $ | - | $ | - | $ | - | $ | 225,545 | $ | 89,887 | $ | 135,658 | ||||||||||||||
| Patents and trademarks (video solutions segment) | 483,521 | 377,459 | - | 106,062 | 483,521 | 266,403 | 217,118 | |||||||||||||||||||||
| Sponsorship agreement network (entertainment segment) | 5,600,000 | 3,733,333 | - | 1,866,667 | 5,600,000 | 2,613,333 | 2,986,667 | |||||||||||||||||||||
| SEO content (entertainment segment) | 600,000 | 500,000 | - | 100,000 | 600,000 | 350,000 | 250,000 | |||||||||||||||||||||
| Personal seat licenses (entertainment segment) | 117,339 | 13,037 | - | 104,302 | 180,081 | 14,004 | 166,077 | |||||||||||||||||||||
| Software | 23,653 | - | - | 23,653 | ||||||||||||||||||||||||
| Website enhancements (entertainment segment) | 35,900 | 9,833 | - | 26,067 | 13,500 | - | 13,500 | |||||||||||||||||||||
| Client agreements (revenue cycle management segments) | 999,034 | 326,671 | - | 672,363 | 999,034 | 226,768 | 772,266 | |||||||||||||||||||||
| 7,859,447 | 4,960,333 | - | 2,899,114 | 8,101,681 | 3,560,395 | 4,541,286 | ||||||||||||||||||||||
| Indefinite life intangible assets: | ||||||||||||||||||||||||||||
| Goodwill (Entertainment segment) | 6,112,507 | - | 307,000 | 5,805,507 | 5,886,548 | - | 5,886,548 | |||||||||||||||||||||
| Goodwill (Revenue cycle management segment) | 5,480,966 | - | 4,322,000 | 1,158,966 | 5,480,966 | - | 5,480,966 | |||||||||||||||||||||
| Trade name and trademarks (entertainment segment) | 900,000 | - | 201,000 | 699,000 | 600,000 | - | 600,000 | |||||||||||||||||||||
| Patents and trademarks pending (video solutions segment) | 91,738 | - | - | 91,738 | 1,622 | - | 1,622 | |||||||||||||||||||||
| Total | $ | 20,444,658 | $ | 4,960,333 | $ | 4,830,000 | $ | 10,654,325 | $ | 20,070,817 | $ | 3,560,395 | $ | 16,510,422 | ||||||||||||||
Patents and trademarks pending will be amortized beginning at the time they are issued by the appropriate authorities. If issuance of the final patent or trademark is denied, then the amount deferred will be immediately charged to expense.
Amortization for the years ended December 31, 2024 and 2023 was $1,477,712and $1,507,134, respectively. Estimated amortization for intangible assets with definite lives for the next five years ending December 31 and thereafter is as follows:
| Year ending December 31: | ||||
| 2025 | $ | 1,407,721 | ||
| 2026 | 903,328 | |||
| 2027 | 109,328 | |||
| 2028 | 107,194 | |||
| 2029 | 107,194 | |||
| 2030 and thereafter | 264,349 | |||
| $ | 2,899,114 | |||
| F-21 |
Annual impairment test
We performed an annual impairment test as of December 31, 2024 for each of our reporting units with remaining goodwill.
The fair value of each reporting unit was estimated using a weighting of the income and market valuation approaches. The income approach applied a fair value methodology to each reporting unit based on discounted cash flows. This analysis requires significant judgments, including estimation of future cash flows, which is dependent on internally-developed forecasts of revenue and profitability, estimation of the long-term rate of growth for our business, estimation of the useful life over which cash flows will occur, and determination of our weighted average cost of capital, which is risk-adjusted to reflect the specific risk profile of the reporting unit being tested. The weighted average cost of capital used in our most recent impairment test ranged from 18.3% to 21.3%. We also applied a market approach, which develops a value correlation based on the market capitalization of similar publicly traded companies, referred to as a multiple, to apply to the operating results of the reporting units. The primary market multiples used are revenue and earnings before interest, taxes, depreciation, and amortization. The income and market approaches were equally weighted in our most recent annual impairment test, for all of the reporting units.
The combined fair values for all reporting units were then reconciled to our aggregate market value of our shares of common stock on the date of valuation, while considering a reasonable control premium. We consider a reporting unit's fair value to be substantially in excess of the reporting unit's carrying value at a 25% premium or greater. Based on our most recent impairment test, the video solutions reporting unit's fair value was substantially in excess of its carrying value, while the revenue cycle management and entertainment segments were determined not to be impaired, as well,
Interim impairment test
We performed an interim impairment test as of the last day of the fiscal third quarter of 2024 as management determined that a triggering event had occurred resulting from the additional decline in demand for our services, prolonged economic uncertainty, the fact that the split-off transaction did not occur when and as expected and a further decrease in our stock price. Therefore, we performed an interim impairment test as of September 30, 2024 for our reporting units with remaining goodwill.
The fair value of each reporting unit was estimated using a weighting of the income and market valuation approaches. The income approach applied a fair value methodology to each reporting unit based on discounted cash flows. This analysis requires significant judgments, including estimation of future cash flows, which is dependent on internally-developed forecasts of revenue and profitability, estimation of the long-term rate of growth for our business, estimation of the useful life over which cash flows will occur, and determination of our weighted average cost of capital, which is risk-adjusted to reflect the specific risk profile of the reporting unit being tested. The weighted average cost of capital used in our most recent impairment test ranged from 20.9% to 32.5%. We also applied a market approach, which develops a value correlation based on the market capitalization of similar publicly traded companies, referred to as a multiple, to apply to the operating results of the reporting units. The primary market multiples used are revenue and earnings before interest, taxes, depreciation, and amortization. The income and market approaches were equally weighted in our most recent annual impairment test, for all of the reporting units.
The combined fair values for all reporting units were then reconciled to our aggregate market value of our shares of common stock on the date of valuation, while considering a reasonable control premium. We consider a reporting unit's fair value to be substantially in excess of the reporting unit's carrying value at a 25% premium or greater. Based on our most recent impairment test, the video solutions reporting unit's fair value was substantially in excess of its carrying value, while the revenue cycle management and entertainment segments were determined to be impaired.
We held goodwill of $5,480,966as of September 30, 2024 and December 31, 2023, related to businesses within our revenue cycle management segment. We held goodwill of $6,112,507and $5,886,548as of September 30, 2024 and December 31, 2023, respectively, related to businesses within our entertainment segment. As a result of our September 30, 2024 interim impairment test, we concluded that the carrying amount of the revenue cycle management and the entertainment reporting units exceeded its estimated fair values. Thus, we recorded a non-cash goodwill impairment charge of $4,322,000, related to the goodwill carrying balance for the revenue cycle management segment, and a non-cash goodwill impairment charge of $307,000, related to the goodwill carrying balance for the entertainment segment, both of which was included in goodwill and intangible asset impairment charge on our Consolidated Statements of Operations for the year ended December 31, 2024. The goodwill impairment was primarily driven by recent performance of the revenue cycle management and entertainment reporting units since our annual impairment testing date, as well as a delay in the projected timing of recovery. The remaining balance for the goodwill carrying balance related to businesses within our revenue cycle management segment and entertainment segment was $1,158,966and $5,805,507, respectively as of December 31, 2024.
Indefinite-lived intangible assets
We held indefinite-lived trade names/trademarks of $900,000and $600,000as of September 30, 2024 and December 31, 2023, respectively, related to businesses within our entertainment segment.
As a result of our interim impairment test as of the last day of the fiscal third quarter of 2024 management concluded that the carrying amount of a trade name/trademark related to the entertainment segment exceeded its estimated fair value and we recorded a non-cash impairment charge of $201,000, which was included in goodwill and intangible asset impairment charge on our Consolidated Statements of Operations for the year ended December 31, 2024. The charge was primarily driven by the split-off transaction not being completed when and as expected and our recent revenue and operating performance of the related business given a decline in demand and overall economic uncertainty. The remaining balance for this trade name/trademark was $699,000as of December 31, 2024.
| F-22 |
NOTE 9. OTHER ASSETS
Other assets were the following at December 31, 2024 and 2023:
| December 31, 2024 |
December 31, 2023 |
|||||||
| Lease receivable | $ | 4,889,289 | $ | 6,095,050 | ||||
| Deposits | 549,272 | - | ||||||
| Restricted Cash | - | 97,600 | ||||||
| Other | 205,585 | 404,382 | ||||||
| Total other assets | $ | 5,644,146 | $ | 6,597,032 | ||||
NOTE 10. DEBT OBLIGATIONS
Debt obligations is comprised of the following:
| December 31, 2024 | December 31, 2023 | |||||||
| Economic injury disaster loan (EIDL) | $ | 144,495 | $ | 147,781 | ||||
| Contingent consideration promissory note - Nobility Healthcare Division Acquisition | - | 129,651 | ||||||
| Contingent consideration promissory note - Nobility Healthcare Division Acquisition | - | 58,819 | ||||||
| Revolving Loan Agreement | - | 4,880,000 | ||||||
| Commercial Extension of Credit- Entertainment Segment | 100,000 | 87,928 | ||||||
| Merchant Advances - Video Solutions Segment | 1,922,750 | 1,350,000 | ||||||
| Senior Secured Promissory Notes | 3,600,000 | - | ||||||
| Unamortized debt issuance costs | (664,719 | ) | (540,429 | ) | ||||
| Debt obligations | 5,102,526 | 6,113,750 | ||||||
| Less: current maturities of debt obligations | 4,961,443 | 1,260,513 | ||||||
| Debt obligations, long-term | $ | 141,083 | $ | 4,853,237 | ||||
Debt obligations mature on an annual basis as follows as of December 31, 2024:
| December 31, 2024 | ||||
| 2025 | $ | 4,961,443 | ||
| 2026 | 3,412 | |||
| 2027 | 3,542 | |||
| 2028 | 3,677 | |||
| 2029 and thereafter | 130,452 | |||
| Total | $ | 5,102,526 | ||
| F-23 |
2020 Small Business Administration Notes.
On May 12, 2020, the Company received $150,000in loan funding from the SBA under the Economic Injury Disaster Loan ("EIDL") program administered by the SBA, which program was expanded pursuant to the recently enacted CARES Act. The EIDL is evidenced by a secured promissory note, dated May 8, 2020, in the original principal amount of $150,000with the SBA, the lender.
Under the terms of the note issued under the EIDL program, interest accrues on the outstanding principal at the rate of 3.75% per annum. The term of such note is thirty years, though it may be payable sooner upon an event of default under such note. Monthly principal and interest payments began in November 2022, after being deferred for thirty months after the date of disbursement and total $731per month thereafter. Such note may be prepaid in part or in full, at any time, without penalty. The Company granted the SBA a continuing interest in and to any and all collateral, including but not limited to tangible and intangible personal property.
The Company made principal payments of $3,286and $2,219during the years ended December 31, 2024 and 2023, respectively, and recorded interest expense of $5,486and $5,606for the years ended December 31, 2024 and 2023, respectively.
Contingent Consideration Promissory Notes
On June 30, 2021, Nobility Healthcare, a subsidiary of the Company, issued a contingent consideration promissory note (the "June Contingent Note") in connection with a stock purchase agreement between Nobility Healthcare and a private company (the "June Seller") of $350,000. The June Contingent Note has a three-yearterm and bears interest at a rate of 3.00% per annum. Quarterly principal and interest payments are deferred for nine months and is due in equal quarterly installments on the seventh business day of each quarter. The principal amount of the June Contingent Note is subject to an earn-out adjustment, being the difference between $975,000(the "June Projected Revenue") and the cash basis revenue (the "June Measurement Period Revenue") collected by the June Seller in its normal course of business from the clients existing on June 30, 2021, during the period from October 1, 2021 through September 30, 2022 (the "June Measurement Period") measured on a quarterly basis and annualized as of the relevant period. If the June Measurement Period Revenue is less than the June Projected Revenue, such amount will be subtracted from the principal balance of this June Contingent Note on a dollar-for-dollar basis. If the June Measurement Period Revenue is more than the June Projected Revenue, such amount will be added to the principal balance of this June Contingent Note on a dollar-for-dollar basis. In no event will the principal balance of this June Contingent Note become a negative number. The maximum downward earn-out adjustment to the principal balance will be a reduction to zero. There are no limits to the increases to the principal balance of the June Contingent Note as a result of the earn-out adjustments.
The June Contingent Note is considered to be additional purchase price; therefore, the estimated fair value of the contingent liability is recorded as a liability at the acquisition date and the fair value is considered part of the consideration paid for the acquisition with subsequent changes in fair value recorded as a gain or loss in the Consolidated Statements of Operations. Management recorded the contingent consideration promissory note at its estimated fair value of $350,000at the acquisition date. Total principal payments, since inception, on this contingent consideration promissory note totaled $290,073. The estimated fair value of the June Contingent Note at December 31, 2024 is $-0-, representing a reduction in its estimated fair value of $58,819as compared to its estimated fair value as of December 31, 2023. This reduction only relates to the principal payments made for the year ended December 31, 2024. Therefore, the Company recorded no gain or loss in the Consolidated Statements of Operations for the year ended December 31, 2024.
On August 31, 2021, Nobility Healthcare, issued another contingent consideration promissory note (the "August Contingent Payment Note") in connection with a stock purchase agreement between Nobility Healthcare and a private company (the "August Sellers") of $650,000.The August Contingent Payment Note has a three-year term and bears interest at a rate of 3.00% per annum. Quarterly principal and interest payments are deferred for nine months and is due in equal quarterly installments on the seventh business day of each quarter. The principal amount of the August Contingent Payment Note is subject to an earn-out adjustment, being the difference between the $3,000,000 (the "August Projected Revenue") and the cash basis revenue (the "August Measurement Period Revenue") collected by the August Sellers in its normal course of business from the clients existing on September 1, 2021, during the period from December 1, 2021 through November 30, 2022 (the "August Measurement Period") measured on a quarterly basis and annualized as of the relevant period. If the August Measurement Period Revenue is less than the August Projected Revenue, such amount will be subtracted from the principal balance of this August Contingent Payment Note on a dollar-for-dollar basis. If the August Measurement Period Revenue is more than the August Projected Revenue, such amount will be added to the principal balance of this August Contingent Payment Note on a dollar-for-dollar basis. In no event will the principal balance of this August Contingent Payment Note become a negative number. The maximum downward earn-out adjustment to the principal balance will be to zero. There are no limits to the increases to the principal balance of the August Contingent Payment Note as a result of the earn-out adjustments.
| F-24 |
The August Contingent Payment Note is considered to be additional purchase price, therefore the estimated fair value of the contingent liability is recorded as a liability at the acquisition date and the fair value is considered part of the consideration paid for the acquisition. Management has recorded the contingent consideration promissory note at its estimated fair value of $650,000at the acquisition date. Principal payments, since its inception, on this contingent consideration promissory note totalled $681,907. The estimated fair value of the August Contingent Note at December 31, 2024 is $-0-, representing a decrease in its estimated fair value of $129,651as compared to is estimated fair value as of December 31, 2023. This reduction only relates to the principal payments made for the year ended December 31, 2024. Therefore, the Company recorded no gain or loss in the Consolidated Statements of Operations for the year ended December 31, 2024.
On January 1, 2022, Nobility Healthcare issued another contingent consideration promissory note (the "January Contingent Payment Note") in connection with a stock purchase agreement between Nobility Healthcare and a private company (the "January Sellers") of $750,000. The January Contingent Payment Note has a two-and-a-half-year term and bears interest at a rate of 3.00% per annum. Quarterly principal and interest payments are deferred for seven months and is due in equal quarterly installments on the tenth business day of each quarter. The principal amount of the January Contingent Payment Note is subject to an earn-out adjustment, being the difference between $3,500,000 (the "January Projected Revenue") and the cash basis revenue (the "January Measurement Period Revenue") collected by the January Sellers in its normal course of business from the clients existing on January 1, 2022, during the period from April 1, 2022 through March 31, 2023 (the "January Measurement Period") measured on a quarterly basis and annualized as of the relevant period. If the January Measurement Period Revenue is less than the January Projected Revenue, such amount will be subtracted from the principal balance of this January Contingent Payment Note on a dollar-for-dollar basis. If the January Measurement Period Revenue is more than the January Projected Revenue, such amount will be added to the principal balance of this January Contingent Payment Note on a dollar-for-dollar basis. In no event will the principal balance of this January Contingent Payment Note become a negative number. The maximum downward earn-out adjustment to the principal balance will be a reduction to zero. There are no limits to the increases to the principal balance of the January Contingent Payment Note as a result of the earn-out adjustments.
On January 1, 2022, Nobility Healthcare issued another contingent consideration promissory note (the "January Contingent Payment Note") in connection with a stock purchase agreement between Nobility Healthcare and a private company (the "January Sellers") of $750,000. Principal payments, since its inception, on this contingent consideration promissory note totalled $153,769. The estimated fair value of the January Contingent Note at December 31, 2023 is $-0-, representing a decrease in its estimated fair value of $208,083 as compared to its estimated fair value as of December 31, 2022, of which $32,936 represents payments made during the year ended December 31, 2023. Therefore, the Company recorded a gain of $175,146 in the Consolidated Statements of Operations for the year ended December 31, 2023.
On February 1, 2022, Nobility Healthcare issued another contingent consideration promissory note (the "February Contingent Payment Note") in connection with an asset purchase agreement between Nobility Healthcare and a private company (the "February Sellers") of $105,000. The February Contingent Payment Note has a three-year term and bears interest at a rate of 3.00% per annum. Quarterly principal and interest payments are deferred for seven months and are due in equal quarterly installments on the tenth business day of each quarter. The principal amount of the February Contingent Payment Note is subject to an earn-out adjustment, being the difference between $440,000(the "February Projected Revenue") and the cash basis revenue (the "February Measurement Period Revenue") collected by the February Sellers in its normal course of business from the clients existing on February 1, 2022, during the period from May 1, 2022 through April 30, 2023 (the "February Measurement Period") measured on a quarterly basis and annualized as of the relevant period. If the February Measurement Period Revenue is less than the February Projected Revenue, such amount will be subtracted from the principal balance of this February Contingent Payment Note on a dollar-for-dollar basis. If the February Measurement Period Revenue is more than the February Projected Revenue, such amount will be added to the principal balance of this February Contingent Payment Note on a dollar-for-dollar basis. In no event will the principal balance of this February Contingent Payment Note become a negative number. The maximum downward earn-out adjustment to the principal balance will be a reduction to zero. There are no limits to the increases to the principal balance of the February Contingent Payment Note as a result of the earn-out adjustments.
The February Contingent Payment Note is considered to be additional purchase price, therefore the estimated fair value of the contingent liability is recorded as a liability at the acquisition date and the fair value is considered part of the consideration paid for the acquisition. Management has recorded the contingent consideration promissory note at its estimated fair value of $105,000at the acquisition date. The estimated fair value of the February Contingent Note at December 31, 2023 is $-0-, representing a decrease in its estimated fair value of $4,347as compared to its estimated fair value as of December 31, 2022, of which $1,584represents payments made during the year ended December 31, 2023. Therefore, the Company recorded a gain of $2,763in the Consolidated Statements of Operations for the year ended December 31, 2023.
| F-25 |
2023 Commercial Extension of Credit
On February 23, 2023, the Company's Entertainment segment entered into an extension of credit in the form of a loan to use in marketing and operating its business in accordance with the Private Label Agreement previously entered into with the Lender. The Lender agreed to extend, subject to the conditions hereof, and Borrower agreed to take, a Loan for Principal Sum of $1,000,000.
The Lender retains 25% of each remittance owed to Borrower under the terms of the Private Label Agreement. Such remittances includes regular weekly remittances and any additional incentive payments to which the Borrower may be entitled. The 25% withholding of the Borrower's applicable remittance is deemed a "Payment" under the terms of this Note, and Payments shall continue until the earlier of (i) repayment of the Principal Sum, accrued Interest, and a fee of $35,000 or (ii) expiration of the Private Label Agreement on December 31, 2023.
During the year ended December 31, 2023, the Entertainment segment drew an additional $455,643on this agreement, with the principal balance never exceeding $1,000,000. During the year ended December 31, 2023, the Company's Entertainment segment had repaid $1,367,715towards the principal on the loan through remittances and had an outstanding balance of $87,928. During the year ended December 31, 2024, the Company's Entertainment segment repaid the outstanding principal of $87,928and did not renew this agreement. During the year ended December 31, 2024, the Company's Entertainment segment fully amortized $35,000fees.
2024 Commercial Extension of Credit
On January 22, 2024, the Company's Entertainment segment entered into an extension of credit in the form of a loan to use in marketing and operating its business in accordance with the Ticket Solution Agreement. The Lender, Ticket Evolution, Inc., agreed to extend, subject to the conditions hereof, and Borrower agreed to take, an advance for a sum of $75,000with monthly advances of $100,000.
The advances made are recoupable from client service fees with no more than $25,000being recouped in any one week. The total advances received for the year ended December 31, 2024 were $1,275,000and payments made totaled $1,175,000. The outstanding balance as of December 31, 2024 was $100,000.
On August 7, 2024 and as amended on September 25, 2024, the Company's Entertainment segment entered into an extension of credit (the "Agreement") with Vegas Tickets in the form of a prepayment for the rights to acquire certain Major League Baseball and National Football League playoff and season tickets. Vegas Tickets agreed to advance, subject to the conditions of the Agreement, and the Company's Entertainment segment agreed to take, an advance for a sum of $200,000. Under the Agreement, the Company's Entertainment segment has the right to reacquire the tickets for a cash amount of $220,000by November 1, 2024. The repurchase date was extended to December 1, 2024 by an amendment dated October 31, 2024. The repurchase was completed and the remaining balance is $-0- as of December 31, 2024.
Convertible Note
On April 5, 2023, the Company entered into and consummated the initial closing (the "First Closing") of the transactions contemplated by a Securities Purchase Agreement, dated as of April 5, 2023 (the "Purchase Agreement"), between the Company and certain investors (the "Purchasers").
At the First Closing, the Company issued and sold to the Purchasers Senior Secured Convertible Notes in the aggregate original principal amount of $3,000,000(the "Notes") and warrants (the "Warrants"). The Purchase Agreement provided for a ten percent (10%) original interest discount resulting in gross proceeds to the Company of $2,700,000. No interest accrues under the Notes. The Warrants are exercisable for an aggregate 1,125,000shares comprised of 375,000warrants at an exercise price of $5.50per share of the Company's common stock, par value $0.001(the "Common Stock"), 375,000warrants at an exercise price of $6.50per share of Common Stock, and 375,000warrants at an exercise price of $7.50per share of Common Stock.
| F-26 |
Subject to certain conditions, within 18 months from the effectiveness date and while the Notes remain outstanding, the Purchasers have the right to require the Company to consummate a second closing of up to an additional $3,000,000of Notes (the "Second Notes") and Warrants on the same terms and conditions as the First Closing, except that the Second Notes may be subordinate to a mortgage on the Company's headquarters building (the "Bank Mortgage").
The Notes are convertible into shares of Common Stock at the election of the Purchasers at any time at a fixed conversion price of $5.00(the "Conversion Price") per share of Common Stock. The Conversion Price is subject to customary adjustments for stock dividends, stock splits, reclassifications and the like, and subject to price-based adjustment in the event of any issuances of Common Stock, or securities convertible, exercisable or exchangeable for, Common Stock at a price below the then-applicable Conversion Price (subject to certain exceptions). Subject to certain conditions, including certain equity conditions, the Company may redeem some or all of the then outstanding principal amount of the Note for cash in an amount equal to 110% of the outstanding principal amount of the Notes (the "Optional Redemption Amount"). In addition, the Purchasers may, at their option, demand repayment at the Optional Redemption Amount upon five (5) business days' written notice following (i) the closing by the Company of the Bank Mortgage, or (ii) a sale by the Company of Common Stock or Common Stock equivalents.
The Notes rank senior to all outstanding and future indebtedness of the Company and its subsidiaries, and are secured by substantially all of the Company's assets, as evidenced by (i) a security agreement entered into at the Closing, (ii) a trademark security agreement entered into at the Closing, (iii) a patent security agreement entered into at the Closing, (iv) a guaranty executed by all direct and indirect subsidiaries of the Company pursuant to which each of them has agreed to guaranty the obligations of the Company under the Notes, and (v) a mortgage on the Company's headquarters building in favor of the Purchasers.
Also at the Closing, the Company entered into a Registration Rights Agreement (the "Registration Rights Agreement") with the Purchasers. Pursuant to the terms of the Registration Rights Agreement, the Company has agreed to prepare and file with the SEC within the 10th business day following the First Closing (the "Filing Date") a registration statement covering the resale of the shares of Common Stock issuable upon conversion of the Notes and exercise of the Warrants, and to use its best efforts to cause such Registration Statement to be declared effective under the Securities Act of 1933, as amended (the "Securities Act"), as promptly as possible, but in any event no later than 45 days following the Filing Date (the "Effectiveness Date"). If the Registration Statement is not filed by the Filing Date or is not declared effective by the Effectiveness Date, or under certain other circumstances described in the Registration Rights Agreement, then the Company shall be obligated to pay, as partial liquidated damages, to each Purchaser an amount in cash equal to 2% of the original principal amount of the Notes each month until the applicable event giving rise to such payments is cured. If the Company fails to pay any partial liquidated damages in full within seven days after the date payable, the Company will pay interest thereon at a rate of 10% per annum.
The Company recognized the full warrant derivative value, with the remaining amount being allocated to the debt obligation. As the warrant derivative value exceeded the net proceeds from the issuance, the excess amount is recognized as a loss on the date of the issue date. Thus, the Company recorded a loss of $576,380as an interest expense on the date of issuance relating to the Notes. The following is the assumptions used in calculating the estimated grant-date fair value of the detachable warrants to purchase common stock granted in connection with the Notes:
| Terms at April 5, 2023 (issuance date) |
||||
| Volatility - range | 106.0 | % | ||
| Risk-free rate | 3.36 | % | ||
| Dividend | 0 | % | ||
| Remaining contractual term | 5.0years | |||
| Exercise price | $ | 5.50- 7.50 | ||
| Common stock issuable under the warrants | 1,125,000 |
| F-27 |
On June 2, 2023, the Purchasers elected to convert $125,000principal, at the fixed price of $5.00per share of common stock, 25,000shares valued at $119,750. The loss on conversion of convertible note into common shares, of $93,386, was recorded during the period.
On October 26, 2023, the Company entered into a Revolving Loan Agreement of which a portion of the net proceeds were used to repay the principal amount of the Convertible debt. The Company made an aggregate payment of $3,162,500from the proceeds, inclusive of fees to retire the convertible notes. In 2023, the Company amortized $2,169,545in debt issuance costs associated with the convertible notes and expensed the remaining balance of $731,819upon extinguishment of the notes. As a result, a loss on extinguishment of convertible debt totaling $1,112,705was recorded in our Consolidated Statements of Operations for the year ended December 31, 2023. The warrants associated with the convertible debt remain outstanding.
Revolving Loan Agreement
On October 26, 2023, the Company entered into a Loan and Security Agreement (the "Loan Agreement") by and between the Company, Digital Ally Healthcare, Inc., a Nevada corporation and wholly-owned subsidiary of the Company ("Digital Ally Healthcare" and, together with the Company, the "Borrower"), and Kompass Kapital Funding, LLC, a Kansas limited liability company ("Kompass"). In connection with the Loan Agreement, on October 26, 2023, the Company entered into a Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing (the "Mortgage") by and between the Company, as grantor, and Kompass, as grantee, and issued a Revolving Note (the "Revolving Note") to Kompass. The gross proceeds to the Company were $4,880,000before repaying those certain Senior Secured Convertible Notes issued on April 5, 2023 in the aggregate amount of $3,162,500and paying customary fees and expenses.
Pursuant to the Loan Agreement, Kompass agreed to make revolving loans (the "Revolving Loans") available to the Borrower as the Borrower may from time to time request until, but not including, October 26, 2025, and in such amounts as the Borrower may from time to time request, provided, however, that the aggregate principal balance of the Revolving Loans outstanding at any time shall not exceed the lesser of $4,880,000or an amount equal to eighty percent of the value of the mortgaged property, which consists of the real property owned by the Company having an address of 14001 Marshall Drive, Lenexa, KS 66215 (the "Mortgaged Property"). Under the Loan Agreement, the Revolving Loans made by Kompass may be repaid and, subject to customary terms and conditions, borrowed again up to, but not including October 26, 2025, unless the Revolving Loans are otherwise accelerated, terminated or extended as provided in the Loan Agreement. The Revolving Loans shall be used by the Borrower for the purpose of working capital and to retire existing debt. Under the Loan Agreement, the Borrower is required to provide written notice to Kompass prior to creating, assuming or incurring any debt or becoming liable, whether as endorser, guarantor, surety or otherwise, for any debt or obligation of any other party. While obligations remain outstanding under the Loan Agreement, the Borrower is required to maintain a minimum balance of $97,600in a reserve account (the "Capital Reserve Account"). Under the Loan Agreement, the Borrower is prohibited from creating, assuming, incurring or suffering or permitting to exist any lien of any kind or character upon the collateral, which consists of the Mortgaged Property and the Company's interest in the Capital Reserve Account. The Loan Agreement contains customary covenants, representations and warranties by the Borrower.
Pursuant to the Loan Agreement, the Company issued the Revolving Note to Kompass whereby the Company and Digital Ally Healthcare jointly and severally promise to pay to the order of Kompass the lesser of (i) $4,880,000.00, or (ii) the aggregate principal amount of all Revolving Loans outstanding under and pursuant to the Loan Agreement at the maturity or maturities and in the amount or amounts stated on the records of Kompass, together with interest (computed on the actual number of days elapsed on the basis of a 360 day year) at a floating per annum rate equal to the greater of (i) the Prime Rate plus four percent or (ii) eight percent, on the aggregate principal amount of all Revolving Loans outstanding from time to time as provided in the Loan Agreement.
The Company entered into the Mortgage to secure its obligations under the Loan Agreement. The property mortgaged under the Mortgage consists of the Mortgaged Property. The Mortgage contains customary covenants, representations and warranties by the Company.
On August 12, 2024, the Company sold the Mortgaged Property and paid off the $4,880,000outstanding principal balance together with all accrued and unpaid interest. In addition, upon origination of the Revolving Loan, the Company recorded debt issuance costs of $188,255which was fully amortized as of the date the Mortgage was paid in full. The remaining unamortized discount was $-0- and $171,258as December 31, 2024 and 2023, respectively. During the year ended December 31, 2024 and 2023, the Company amortized $171,258and $16,997of debt discount under interest expense, respectively.
| F-28 |
Merchant Cash Advances - Video Solutions Segment
In November 2023, the Company obtained a short-term merchant advance, which totaled $1,050,000, from a single lender to fund operations. These advances included origination fees totaling $50,000for net proceeds of $1,000,000. The advance is, for the most part, secured by expected future sales transactions of the Company with expected payments on a weekly basis. The Company will repay an aggregate of $1,512,000to the lender. The loan bears interest at 2.9% per week.
During the year ended December 31, 2024, the Company made repayments totaling $1,551,250and received additional proceeds of $1,144,000and recorded additional discount of $980,000. The Company refinanced this loan in April 2024 resulting in the additional proceeds received during the year ended December 31, 2024. The refinancing was deemed to be an extinguishment of debt and a loss on extinguishment of debt was recorded during the year ended December 31, 2024 of $68,827.
As of December 31, 2024 the outstanding principal balance was $1,922,750which is expected to be repaid in early 2025. The remaining unamortized discount was $-0- and $369,171as of December 31, 2024 and 2023, respectively. During the year ended December 31, 2024 and 2023, the Company amortized $1,180,343and $142,829, of debt discount under interest expense, respectively. During 2024 and 2023, the Company made repayments totaling $1,551,250and $162,000, respectively.
Merchant Cash Advances - Entertainment Segment
On March 1, 2024, the Company obtained a short-term merchant advance, which totaled $1,000,000, from a single lender to fund operations. These advances included origination and issuance fees totaling $85,000for net proceeds of $915,000. The advance is, for the most part, secured by expected future sales transactions of the Company with expected payments on a weekly basis. The Company will repay an aggregate of $1,425,000to the lender. The loan bears interest at a 40.4523% annual effective rate based on latest debt modification.
The Company entered into the original agreement on March 1, 2024. On July 13, 2024, the Company entered into a letter agreement with the Purchaser, amending the terms of the note agreement, and on September 12, 2024, the Company entered into a second letter agreement further amending the terms of the note agreement. The two amendments to the underlying loan agreement, resulting in additional proceeds totaling $393,836. The modifications were both deemed to be extinguishments of debt resulting in a $310,505loss on the extinguishment of debt during the year ended December 31, 2024.
On July 13, 2024, the Company entered into a Letter Agreement with the note holder, which modified the note payable by increasing the principal amount of the note payable from $1,425,000to $1,725,000; provided, however, that if the Borrowers repay the Note in full on or before August 15, 2024, then the principal amount of the Note shall be reduced automatically by $100,000. Pursuant to the Letter Agreement, the Borrowers' failure to adhere to certain repayment requirements of the underlying note purchase agreement did not constitute an event of default, as defined in the note purchase agreement. Pursuant to the modified/amended note, the Company agreed to make a cash payment to the note holder in the amount of $150,000on or before July 26, 2024. The Company also agreed to sell or enter into a firm commitment to sell the office building owned by the Company and pay to the Purchaser: (i) $325,000, if the Company sells or enters into a firm commitment to sell the building on or before August 7, 2024; or (ii) $400,000, if the Company sells or enters into a firm commitment to sell the building after August 7, 2024. Pursuant to the modified/amended note, the Company's failure to sell or enter into a firm commitment to sell the building prior to September 1, 2024 shall constitute an event of default, as defined in the note purchase agreement. The Company also agreed to pay to the note holder $100,000per month until the modified/amended note is repaid in full, with the first such payment occurring on August 12, 2024, and each subsequent payment occurring on the 12th calendar day of each month thereafter.
On September 25, 2024, the Company and the note holder agreed to an amended and restated senior secured promissory note with a new principal amount of up to $2,000,000. The amended note evidences the new principal amount and amends and restates in its entirety, the terms and provisions of the Note. Pursuant to the amended note the Company promised to pay to the note holder the new principal amount, together with accrued interest or the amount outstanding under the amended note from time to time, to be computed from the date of the amended note at the rates and in the amounts set forth in the amended note. The amount of the unpaid balance, including such interest, that shall be due and payable under the Amended Note may increase and decrease as advances and payments are made thereunder. The Amended Note bears interest at a rate of 1.58% per month.
| F-29 |
The Company can request advances in writing to the note holder and upon approval by the note holder to be determined in its sole discretion, (but which shall not be unreasonably withheld), the note holder can either make payment directly to specified vendor(s) or other creditors on behalf of the Company or deposit the advance into the Company's account.
The amended note, requires the Company to repay the amended note, in full, on the earlier of (i) November 1, 2024, and (ii) the consummation of the merger between Kustom Entertainment and CL Merger Sub, Inc. ("CL Merger Sub") pursuant to the merger agreement among the Company, Kustom Entertainment, Clover Leaf Capital Corp. the Company is also required to pay in arrears in cash an amount equal to 50% of revenues from all ticket sales generated by Kustom Entertainment, up to nine thousand tickets sold, and thereafter equal to 10% of all revenues from all ticket sales until the earlier of the date on which the amended note is repaid in full or the November 1, 2024 maturity date. The Company has the right, but not the obligation, under the amended note to prepay the amended note, upon written notice to the Company, by payment in full of the entire outstanding principal balance plus interest.
Furthermore, pursuant to the amended note, the parties agreed to extend the repayment date of $100,000, by the Company to the note holder, from September 26, 2024, to October 10, 2024.
The Company was unable to make certain required payments under the terms of the amended note.On October 22, 2024, the Company received a Default and Reservation Letter (the "Default Notice") from counsel for the administrative agent for the amended note, (i) notifying the Company that it was in default under the amended note for, among other reasons, failing to make a $100,000payment that was due on October 10, 2024, (ii) accelerating all principal and interest payments due under the amended note, and (iii) demanding the Borrowers enter into a lockbox control agreement within ten (10) business days of the date of the Default Notice. As of the date of the Default Notice, the outstanding obligation of the Company under the amended note was approximately $1,600,000.
On October 24, 2024, the Company received a Notice of UCC Article 9 Public Sale (the "Sale Notice") from counsel to the administrative agent for the amended note notifying the Company that it intended to conduct a public sale of the collateral securing the Company's obligations under the Note and Security Agreement on November 5, 2024.
As further described below (see Securities Purchase Agreement and Senior Secured Promissory Notes), the Company raised sufficient funds through a private placement which closed on November 7, 2024, to repay the amended note in full. The Company's full repayment of the outstanding obligations under such amended note effectively cured all defaults under the Agreement and terminated the public sale process of the collateral securing the Borrowers' obligations thereunder.
During the year ended December 31, 2024 and 2023, the Company amortized $384,302and $-0-, of debt discount under interest expense, respectively. The Company recorded total losses of $684,512from the extinguishments of such debt during the year ended December 31, 2024.
Securities Purchase Agreement and Senior Secured Promissory Notes
On November 6, 2024, the Company entered into a Securities Purchase Agreement (the "SPA") with certain institutional investors (the "Purchasers"), pursuant to which the Company agreed to issue and sell to such Purchasers, in a private placement transaction, (i) senior secured promissory notes in aggregate principal amount of $3,600,000(the "Notes"), and (ii) 808,377shares (the "Commitment Shares") of the Company's common stock, for aggregate gross proceeds of approximately $3.0million, before deducting placement agent fees and other offering expenses payable by the Company. This private placement closed on November 7, 2024 (the "Closing Date").
| F-30 |
Pursuant to the SPA, the Company was required to use approximately $2,015,623of the net proceeds from the private placement to pay, in full, all liabilities, obligations and indebtedness owing by the Company and its subsidiary, Kustom Entertainment, Inc., to Mosh Man, LLC (the "Borrower"). See Merchant Cash Advances - Entertainment Segment.
The Company's full repayment of the outstanding obligations under such promissory note effectively cured all defaults under the promissory note and terminated the public sale process of the collateral securing the Borrowers' obligations thereunder. The Company's recorded a loss of $374,007from the extinguishment of such debt during the year ended December 31, 2024.
Pursuant to the SPA, the Company is required to file within 30 days of the Closing Date a registration statement with the SEC for a public offering and use its reasonable best efforts to pursue and consummate a follow-on financing transaction within 90 days of the Closing Date. The proceeds of the public offering shall be first used for the repayment of the principal amounts of the Notes. The Company is also required to file within 30 days of the Closing Date a registration statement on Form S-1 (or other appropriate form if the Company is not then S-1 eligible) providing for the resale by the Purchasers of the Commitment Shares issued under the SPA. The Company is required to use commercially reasonable efforts to cause such registration statement to become effective within 60 days following the filing thereof and to keep such registration statement effective at all times until no Purchaser owns any Commitment Shares.
Furthermore, pursuant to the SPA, the Company was required to complete the following: (i) the Company's board of directors shall approve an amendment to the Company's bylaws setting the quorum required for a special meeting of stockholders to one-third of all stockholders entitled to vote at such special meeting and (ii) the Company shall file with the SEC a preliminary proxy statement on Schedule 14A announcing a meeting of stockholders for the purpose of approving the Series A and Series B warrants issued by the Company on June 25, 2024.
The senior secured promissory notes mature ninety (90) days following their issuance date (the "Maturity Date") and shall accrue no interest unless and until an Event of Default (as defined in the senior secured promissory notes) has occurred, in which case interest shall accrue at a rate of 14% per annum during the pendency of such Event of Default. In addition, upon customary Events of Default, the Purchasers may require the Company to redeem all or any portion of the senior secured promissory notes in cash with a 125% redemption premium. The Purchasers may also require the Company to redeem all or any portion of the senior secured promissory notes in cash upon a Change of Control, as defined in the senior secured promissory notes, at the prices set forth therein. Upon a Bankruptcy Event of Default (as defined in the senior secured promissory notes), the Company shall immediately pay to the Purchasers an amount in cash representing 100% of all outstanding principal, accrued and unpaid interest, if any, in addition to any and all other amounts due under the senior secured promissory notes, without the requirement for any notice or demand or other action by the Purchaser or any other person.
If the Company engages in one or more subsequent financings while the senior secured promissory notes are outstanding, the Company will be required to use at least 100% of the gross proceeds of such financing to redeem all or any portion of the senior secured promissory notes outstanding. The Company may also prepay the senior secured promissory notes in whole or in part at any time or from time to time. The senior secured promissory notes also contain customary representations and warranties and covenants of each of the parties. Subject to certain exceptions, the senior secured promissory notes are secured by a first lien and continuing security interest in and to the Collateral (as defined in the senior secured promissory notes).
The net proceeds of the private placement on November 7, 2024 was $2,669,250(after $330,750deduction of costs of the offering). The Company allocated the net proceeds from the private placement of the senior secured promissory notes and the commitment shares based upon their relative fair values as of the date of issuance as follows:
| Amount | ||||
| Allocated to the following: | ||||
| Senior secured promissory notes | $ | 2,129,795 | ||
| Commitment shares | 539,455 | |||
| Total | $ | 2,669,250 | ||
| F-31 |
Following is analysis of the senior secured promissory notes balance:
| Amount | ||||
| Balance, as of December 31, 2023 | $ | - | ||
| Issuance of senior secured promissory notes, at par | 3,600,000 | |||
| Discount recognized at issuance date | (1,470,205 | ) | ||
| Amortization of discount | 805,486 | |||
| Balance, as of December 31, 2024 | $ | 2,935,281 | ||
NOTE 11. FAIR VALUE MEASUREMENT
In accordance with ASC Topic 820 - Fair Value Measurements and Disclosures ("ASC 820"), the Company utilizes the market approach to measure fair value for its financial assets and liabilities. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets, liabilities or a group of assets or liabilities, such as a business.
ASC 820 utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:
| ● | Level 1 - Quoted prices in active markets for identical assets and liabilities |
| ● | Level 2 - Other significant observable inputs (including quoted prices in active markets for similar assets or liabilities) |
| ● | Level 3 - Significant unobservable inputs (including the Company's own assumptions in determining the fair value) |
The following table represents the Company's hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2024 and 2023.
| December 31, 2024 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Liabilities: | ||||||||||||||||
| Warrant derivative liabilities | $ | - | $ | - | $ | 4,554,640 | $ | 4,554,640 | ||||||||
| Contingent consideration promissory notes and contingent consideration earn-out agreement | - | - | - | - | ||||||||||||
| $ | - | $ | - | $ | 4,554,640 | $ | 4,554,640 | |||||||||
| F-32 |
| December 31, 2023 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Liabilities: | ||||||||||||||||
| Warrant derivative liabilities | $ | - | $ | - | $ | 1,369,738 | $ | 1,369,738 | ||||||||
| Contingent consideration promissory notes and contingent consideration earn-out agreement | - | - | 188,470 | 188,470 | ||||||||||||
| $ | - | $ | - | $ | 1,558,208 | $ | 1,558,208 | |||||||||
The following table represents the change in Level 3 tier value measurements:
| Contingent Consideration Promissory Notes and Earn-Out Agreement |
Warrant Derivative Liabilities |
|||||||
| Balance, December 31, 2023 | $ | 188,470 | $ | 1,369,738 | ||||
| Issuance of Series A and pre-funded warrant derivative liabilities in June 2024 Private Placement |
- | 2,075,300 | ||||||
| Issuance of Series B warrant derivative liabilities in June 2024 Private Placement upon Stockholder Approval | - | 454,150 | ||||||
| Transition of warrant derivative liability to equity due to exercise of common stock purchase warrants | - | (584,955 | ) | |||||
| Change in fair value of warrant derivative liabilities | - | 1,240,407 | ||||||
| Principal payments on contingent consideration promissory notes - Revenue Cycle Management Acquisitions | (188,470 | ) | - | |||||
| Balance, December 31, 2024 | $ | - | $ | 4,554,640 | ||||
| Contingent Consideration Promissory Notes and Earn-Out Agreement |
Warrant Derivative Liabilities |
|||||||
| Balance, December 31, 2022 | $ | 777,840 | $ | |||||
| Issuance of warrant derivative liabilities | - | 3,216,380 | ||||||
| Change in fair value of warrant derivative liabilities | - | (1,846,642 | ) | |||||
| Principal payments on contingent consideration promissory notes - Revenue Cycle Management Acquisitions | (411,460 | ) | - | |||||
| Change in fair value of contingent consideration promissory notes - Revenue Cycle Management Acquisitions | (177,910 | ) | - | |||||
| Balance, December 31, 2023 | $ | 188,470 | $ | 1,369,738 | ||||
NOTE 12. ACCRUED EXPENSES
Accrued expenses consisted of the following at December 31, 2024 and 2023:
| December 31, 2024 |
December 31, 2023 |
|||||||
| Accrued warranty expense | $ | 11,615 | $ | 17,699 | ||||
| Accrued litigation costs | - | 2,040,292 | ||||||
| Accrued sales commissions | - |
87,421 | ||||||
| Accrued payroll and related fringes | 428,380 | 367,826 | ||||||
| Accrued sales returns and allowances | 93,170 | 117,713 | ||||||
| Accrued taxes | 104,404 | 150,981 | ||||||
| Accrued interest - related party | 492,177 | 95,031 | ||||||
| Accrued board of directors' fees | 197,000 | 165,000 |
||||||
| Customer deposits | 165,779 | 219,462 | ||||||
| Other | 21,983 | 7,905 |
||||||
| $ | 1,514,508 | $ | 3,269,330 | |||||
| F-33 |
Accrued warranty expense was comprised of the following for the years ended December 31, 2024 and 2023:
| 2024 | 2023 | |||||||
| Beginning balance | $ | 17,699 | $ | 15,694 | ||||
| Provision for warranty expense | 38,898 | 63,980 | ||||||
| Charges applied to warranty reserve | (44,982 | ) | (61,975 | ) | ||||
| Ending balance | $ | 11,615 | $ | 17,699 | ||||
NOTE 13. INCOME TAXES
The components of income tax provision (benefit) for the years ended December 31, 2024 and 2023 are as follows:
| 2024 | 2023 | |||||||
| Current taxes: | ||||||||
| Federal | $ | - | $ | - | ||||
| State | - | - | ||||||
| Total current taxes | - | - | ||||||
| Deferred tax provision (benefit) | - | - | ||||||
| Income tax provision (benefit) | $ | - | $ | - | ||||
A reconciliation of the income tax (provision) benefit at the statutory rate of 21% for the years ended December 31, 2024, and 2023 to the Company's effective tax rate is as follows:
| 2024 | 2023 | |||||||
| U.S. Statutory tax rate | 21.0 | % | 21.0 | % | ||||
| State taxes, net of Federal benefit | 6.0 | % | 6.0 | % | ||||
| Stock based compensation | - | % | 4.3 | % | ||||
| Change in valuation reserve on deferred tax assets | (21.6 | )% | (28.8 | )% | ||||
| Contingent consideration for acquisition | - | % | (3.0 | )% | ||||
| Extinguishment of convertible debt | - | % | 3.2 | % | ||||
| Other, net | (5.4 | )% | (2.7 | )% | ||||
| Income tax (provision) benefit | - | % | - | % | ||||
The effective tax rate for the years ended December 31, 2024, and 2023 varied from the expected statutory rate due to the Company continuing to provide a 100% valuation allowance on net deferred tax assets. The Company determined that it was appropriate to continue the full valuation allowance on net deferred tax assets as of December 31, 2024, primarily because of the current year operating losses.
| F-34 |
Significant components of the Company's deferred tax assets (liabilities) as of December 31, 2024 and 2023 are as follows:
| 2024 | 2023 | |||||||
| Deferred tax assets: | ||||||||
| Stock-based compensation | $ | 540,000 | $ | 305,000 | ||||
| Start-up costs | 110,000 | 110,000 | ||||||
| Inventory reserves | 535,000 | 1,120,000 | ||||||
| Warrant derivative liabilities | - | - | ||||||
| Investment in subsidiaries | 185,000 | - | ||||||
| Research & development expenses | 1,030,000 | - | ||||||
| Allowance for doubtful accounts receivable | 60,000 | 50,000 | ||||||
| Property, plant and equipment depreciation | 90,000 | 230,000 | ||||||
| Deferred revenue | 2,340,000 | 2,535,000 | ||||||
| Accrued litigation reserve | 985,000 | 500,000 | ||||||
| Accrued expenses | 60,000 | 35,000 | ||||||
| Net operating loss carryforward | 39,275,000 | 35,365,000 | ||||||
| Research and development tax credit carryforward | 1,740,000 | 1,795,000 | ||||||
| State jobs credit carryforward | 230,000 | 230,000 | ||||||
| Charitable contributions carryforward | 115,000 | 95,000 | ||||||
| Uniform capitalization of inventory costs | 15,000 | 115,000 | ||||||
| Total deferred tax assets | 47,310,000 | 42,485,000 | ||||||
| Valuation reserve | (46,290,000 | ) | (41,610,000 | ) | ||||
| Total deferred tax assets | 1,020,000 | 875,000 | ||||||
| Deferred tax liabilities: | ||||||||
| Warrant derivative liabilities | (650,000 | ) | (455,000 | ) | ||||
| Intangible assets | (230,000 | ) | (265,000 | ) | ||||
| Domestic international sales company | (140,000 | ) | (155,000 | ) | ||||
| Total deferred tax liabilities | (1,020,000 | ) | (875,000 | ) | ||||
| Net deferred tax assets (liability) | $ | - | $ | - | ||||
The valuation allowance on deferred tax assets totaled $46,290,000and $41,610,000as of December 31, 2024, and 2023, respectively. The Company records the benefit it will derive in future accounting periods from tax losses and credits and deductible temporary differences as "deferred tax assets." In accordance with ASC 740, "Income Taxes," the Company records a valuation allowance to reduce the carrying value of our deferred tax assets if, based on all available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.
The Company incurred operating losses in 2024 and 2023 and it continues to be in a three-year cumulative loss position at December 31, 2024 and 2023. Accordingly, the Company determined there was not sufficient positive evidence regarding its potential for future profits to outweigh the negative evidence of our three-year cumulative loss position under the guidance provided in ASC 740. Therefore, it determined to increase our valuation allowance by $4,680,000but continue to fully reserve its deferred tax assets at December 31, 2024. The Company expects to continue to maintain a full valuation allowance until it determines that it can sustain a level of profitability that demonstrates its ability to realize these assets. To the extent the Company determines that the realization of some or all of these benefits is more likely than not based upon expected future taxable income, a portion or all of the valuation allowance will be reversed. Such a reversal would be recorded as an income tax benefit and, for some portion related to deductions for stock option exercises, an increase in shareholders' equity.
As of December 31, 2024, the Company had the following Federal net operating loss carry-forwards available to offset future taxable income:
| Amount | ||||
| Tax years generated: | ||||
| 2017 and before | $ | 49,459,000 | ||
| 2018 and after | 109,821,000 | |||
| Federal net operating loss carry-forwards available | $ | 159,280,000 | ||
Such tax net operating loss carry-forwards expire between 2025 and 2043 relative to Federal net operating loss carry-forwards generated in tax years 2017 and prior. Federal net operating loss carry-forwards generated in tax years 2018 and after cannot be carried back to prior years and have an indefinite life since the enactment of the Tax Cuts and Jobs Act of 2017. The Tax Cuts and Jobs Act of 2017 further provides for an annual limitation on usage equivalent to 80% of taxable income. In addition, the Company had research and development tax credit carry-forwards totaling $1,742,000available as of December 31, 2024, which expire between 2025 and 2040.
| F-35 |
The Internal Revenue Code contains provisions under Section 382 which limit a company's ability to utilize net operating loss carry-forwards in the event that it has experienced a more than 50% change in ownership over a three-year period. Current estimates prepared by the Company indicate that there may have been ownership changes in the past that could limit our ability to utilize a portion of our net operating loss carryforwards and our research and development tax credit carry-forwards.
As discussed in Note 1, "Summary of Significant Accounting Policies," tax positions are evaluated in a two-step process. The Company first determines whether it is more likely than not that a tax position will be sustained upon examination. If a tax position meets the more-likely-than-not recognition threshold, it is then measured to determine the amount of benefit to recognize in the financial statements. The tax position is measured as the largest amount of benefit that is greater than 50% likelyof being realized upon ultimate settlement. Management has identified no tax positions taken that would meet or exceed these thresholds and therefore there are no gross interest, penalties and unrecognized tax expense/benefits that are not expected to ultimately result in payment or receipt of cash in the consolidated financial statements.
The effective tax rate for the years ended December 31, 2024, and 2023 varied from the expected statutory rate due to the Company continuing to provide a 100% valuation allowance on net deferred tax assets. The Company determined that it was appropriate to continue the full valuation allowance on net deferred tax assets as of December 31, 2024, primarily because of the current year operating losses.
The Company's 2022 federal tax retuwas recently examined by the Internal Revenue Service resulting in no proposed adjustments.
NOTE 14. OPERATING LEASE
The Company entered into an operating lease with a third party in October 2019 for copiers used for office and warehouse purposes. The terms of the lease include 48monthly payments of $1,598with a maturity date of October 2023. The Company has the option to purchase such equipment at maturity for its estimated fair market value at that point in time. The lease for the Company's copier operating lease expired and was renewed in October 2023.
The Company entered into an operating lease with a third party in October 2023 for copiers used for office and warehouse purposes. The terms of the lease include 48monthly payments of $1,786with a maturity date of October 2027. The Company has the option to purchase such equipment at maturity for its estimated fair market value at that point in time. The remaining lease term for the Company's copier operating lease as of December 31, 2024 was thirty-four months.
The Company entered into an operating lease with a third party on November 27, 2024 for a copier used for office purposes. The terms of the lease include 36monthly payments of $90with a maturity date of November 27, 2027. The Company has the option to purchase such equipment at maturity for its estimated fair market value at that point in time. The remaining lease term for the Company's copier operating lease as of December 31, 2024 was thirty-five months.
The Company entered into an operating lease with a third party on October 16, 2024 for office space used by the entertainment segment and temporarily by the video solutions segment. The terms of the lease include 36monthly payments of $7,251.92with a maturity date of October 31, 2027. The remaining lease term for the Company's office space lease as of December 31, 2024 was thirty-four months.
On May 13, 2020, the Company entered into an operating lease for new warehouse and office space, which served as its new principal executive office and primary business location prior to the April 30 purchase and sale agreement. The original lease agreement was amended on August 28, 2020 to correct the footage under lease and monthly payment amounts resulting from such correction. The lease terms, as amended include no base rent for the first nine months and monthly payments ranging from $12,398to $14,741thereafter, with a termination date of December 2026. The Company is responsible for property taxes, utilities, insurance and its proportionate share of common area costs related to its new location. The Company took possession of the leased facilities on June 15, 2020. On September 16, 2024, the Company and the landlord agreed to terminate the lease and the Company relinquished possession and control of the premises. The Company reversed the related right of use asset by $349,710and its $37,500rent deposit. In addition, the Company reversed its right of use lease liability by $396,595, resulting in a net gain from the lease extinguishment totaling $9,385for the year ended December 31, 2024.
On June 30, 2021, the Company completed the acquisition of its first medical billing company, through Nobility Healthcare. Upon completion of this acquisition, Nobility Healthcare became responsible for the operating lease for the seller's office space. The lease terms include monthly payments ranging from $2,648to $2,774thereafter, with a termination date in July 2024. The Company was responsible for property taxes, utilities, insurance and its proportionate share of common area costs related to this location. The lease term expired in July 2024 and was not renewed by the Company.
| F-36 |
On August 31, 2021, the Company completed the acquisition of its second acquired medical billing company, through Nobility Healthcare. Upon completion of this acquisition, Nobility Healthcare became responsible for the operating lease for the seller's office space. The lease was renewed in April 2023 with favorable terms and payments ranging from $7,436to $8,877thereafter, with a termination date in March 2030. The Company is responsible for property taxes, utilities, insurance and its proportionate share of common area costs related to this location. The remaining term for the Company's office operating lease was sixty-three months as of December 31, 2024.
On September 1, 2021, the Company completed the acquisition of Goody Tickets, LLC and TicketSmarter, LLC through TicketSmarter. Upon completion of this acquisition, the Company became responsible for the operating lease for TicketSmarter's office space. The lease terms include monthly payments ranging from $7,211to $7,364thereafter, with a termination date of December 2022. The Company is responsible for property taxes, utilities, insurance and its proportionate share of common area costs related to this location. The Company took possession of the leased facilities on September 1, 2021. The Company currently rents this space on a month-to-month basis with intentions to relocate upon the identification of suitable space.
On January 1, 2022, the Company completed the acquisition of a private medical billing company, through its revenue cycle management segment. Upon completion of this acquisition, the Company became responsible for the operating lease for the seller's office space. The lease terms include monthly payments ranging from $4,233to $4,626, with a termination date of June 2025. The Company is responsible for property taxes, utilities, insurance and its proportionate share of common area costs related to this location. The Company took possession of the leased facilities on January 1, 2022. The Company terminated this lease in January 2024 and reversed the right of use asset and lease liability by $73,894.
Lease expense related to the Company's office space and copier operating leases was recorded on a straight-line basis over the lease term. Total lease expense under the five operating leases was approximately $627,212for the year ended December 31, 2024.
The weighted-average remaining lease-term related to the Company's lease liabilities as of December 31, 2024 and December 31, 2023 were 4.3years and 4.5years, respectively.
The discount rate implicit within the Company's operating leases was not generally determinable, and therefore, the Company determined the discount rate based on its incremental borrowing rate on the information available at commencement date. As of the commencement date, the operating lease liabilities reflect a weighted average discount rate of 8%.
The following sets forth the operating lease right of use assets and liabilities as of December 31, 2024:
| Assets: | ||||
| Operating lease right of use assets | $ | 718,509 | ||
| Liabilities: | ||||
| Operating lease obligations-current portion | 158,304 | |||
| Operating lease obligations-less current portion | 560,205 | |||
| Total operating lease obligations | $ | 718,509 | ||
Following are the minimum lease payments for each year and in total.
| Year ending December 31: | ||||
| 2025 | $ | 210,086 | ||
| 2026 | 210,925 | |||
| 2027 | 189,275 | |||
| 2028 | 100,863 | |||
| 2029 and thereafter | 130,086 | |||
| Total undiscounted minimum future lease payments | 841,235 | |||
| Imputed interest | (122,726 | ) | ||
| Total operating lease liability | $ | 718,509 | ||
| F-37 |
NOTE 15. COMMITMENTS AND CONTINGENCIES
Litigation.
From time to time, we are notified that we may be a party to a lawsuit or that a claim is being made against us. It is our policy to not disclose the specifics of any claim or threatened lawsuit until the summons and complaint are actually served on us. After carefully assessing the claim, and assuming we determine that we are not at fault or we disagree with the damages or relief demanded, we vigorously defend any lawsuit filed against us. We record a liability when losses are deemed probable and reasonably estimable. When losses are deemed reasonably possible but not probable, we determine whether it is possible to provide an estimate of the amount of the loss or range of possible losses for the claim, if material for disclosure. In evaluating matters for accrual and disclosure purposes, we take into consideration factors such as our historical experience with matters of a similar nature, the specific facts and circumstances asserted, the likelihood of our prevailing, the availability of insurance, and the severity of any potential loss. We reevaluate and update accruals as matters progress over time.
On May 31, 2022, the Company filed a lawsuit against Culp McAuley, Inc. ("Culp McAuley") and four individuals (Brandon Culp, Campbell McAuley, Mark Depew and Larry Roberts) (collectively the "defendants") in the United States District Court for the District of Kansas, seeking monetary damages and injunctive relief based on certain conduct by the defendants. On July 18, 2022, Culp McAuley filed its Answer to the Company's Verified Complaint and included Counterclaims alleging breach of contract and seeking monetary damages. On August 8, 2022, the Company filed its Reply and Affirmative Defenses to the Counterclaims by, among other things, denying the allegations and any and all liability.
On December 20, 2022, the Company filed a motion for leave to file a second amended complaint to add additional claims against the defendants to avoid fraudulent transfers, to pierce the corporate veil of Culp McAuley, and for remedies related to the claims for fraudulent transfers and piercing the corporate veil. On December 22, 2022, the Court issued an Order granting the Company's motion for leave to file a second amended complaint, which was filed with the Court on December 27, 2022. Because Culp McAuley's original counsel withdrew, Culp McAuley was ordered to obtain new counsel on or before December 2, 2022. On December 5, 2022, the Court ordered that Culp McAuley show cause in writing by December 21, 2022, why the Court should not direct the Clerk to enter default against it. On December 22, 2022, the Court directed the Clerk to enter default against Culp McAuley. On February 21, 2023, the Clerk entered default against Culp McAuley.
In February and March, 2023, defendants Larry Roberts and Mark Depew filed separate motions to dismiss, respectively. The Company opposed both motions. On July 7, 2023, the Court issued an Order granting Roberts' motion to dismiss and denying Depew's motion to dismiss. On December 7, 2023, the Company filed an application for the Clerk's entry of default against defendant Brandon Culp. On December 13, 2023, the Clerk entered default against Brandon Culp.
On January 5, 2024, the Company filed a motion for summary judgment against defendants Campbell McAuley and Mark Depew. On the same date, the Company also filed separate motions for default judgment against Culp McAuley and Brandon Culp, respectively. On January 5, 2024, defendant Mark Depew filed a motion for summary judgment against the Company. On May 17, 2024, the Court issued Orders which, respectively, (i) granted defendant Mark Depew's motion for summary judgment against the Company; (ii) denied the Company's motion for summary judgment against Depew; (iii) granted the Company's motion for summary judgment against defendant Campbell McAuley; and (iv) granted the Company's motions for default judgment against defendants Culp McAuley and Brandon Culp. Finding that defendants Brandon Culp and Campbell McAuley were each the alter ego of Culp McAuley, on June 4, 2024, the Court entered judgment in favor of the Company in the amount of $3,999,984against Culp McAuley, Brandon Culp, and Campbell McAuley, jointly and severally (the "judgment"). The Company is currently uncertain as to what amount, if any, of the judgment amount it will ultimately be able to recover.
| F-38 |
On June 14, 2024, the Company filed a Notice of Appeal to the United States Court of Appeals for the Tenth Circuit from the Court's May 17, 2024 Order that granted summary judgment in favor of Mark Depew. On December 10, 2024, the Company and Depew filed a Stipulation of Dismissal in the Tenth Circuit that ended the appeal after the Company and Depew reached a settlement.
In March 2024, the Company filed a complaint against Larry Roberts ("defendant") in the Superior Court of the State of California, County of Orange. The lawsuit arises from the defendant's multiple breaches of his obligations to the Company. The Company seeks monetary damages based on certain conduct by the defendant. On May 28, 2024, the defendant filed a motion to strike portions of the complaint and a motion for demurrer. On October 4, 2024, the Court sustained in part and overruled in part defendant's motion for demurrer. The Court further denied the defendant's motion to strike in its entirety. A jury trial has been scheduled for October 19, 2026.
As of December 31, 2024, we are able to estimate a range of reasonably possible loss related to the Culp McCauley case (when taking into account, among other things, the uncertainty of recovering the judgment amount owed to the Company by Culp McAuley, Brandon Culp and Campbell McAuley, jointly and severally), our estimate of the aggregate reasonably possible loss could be the entire balance of the judgment. The Company has recorded an additional loss of $1,959,396on this matter as of December 31, 2024 which together with the previously recorded losses in prior years, reduces the Company's net exposure to zero at December 31, 2024. Our estimate with respect to the aggregate reasonably possible loss is based upon currently available information and is subject to significant judgment and a variety of assumptions and known and unknown uncertainties, which may change quickly and significantly from time to time, particularly if and as we engage with applicable governmental agencies or plaintiffs in connection with a proceeding. Also, the matters underlying the reasonably possible loss will change from time to time. As a result, actual results may vary significantly from the current estimate.
While the ultimate resolution is unknown, based on the information currently available, we do not expect that the pending lawsuit or the enforcement of the judgment will have a material adverse effect on our operations, financial condition or cash flows. However, the outcome of any litigation is inherently uncertain and there can be no assurance that any expense, liability or damages that may ultimately result from the resolution of the pending lawsuit or enforcement of the judgment will be covered by our insurance or will not be in excess of amounts recognized or provided by insurance coverage and will not have a material adverse effect on our operating results, financial condition or cash flows.
General
401 (k) Plan. The Company sponsors a 401(k) retirement savings plan for the benefit of its employees. The plan, as amended, requires it to provide 100% matching contributions for employees, who elect to contribute up to 3% of their compensation to the plan and 50% matching contributions for employee's elective deferrals on the next 2% of their contributions. The Company made matching contributions totaling $144,589and $207,463for the years ended December 31, 2024 and 2023, respectively. Each participant is 100% vested at all times in employee and employer matching contributions.
NOTE 16. STOCK-BASED COMPENSATION
The Company recorded pre-tax compensation expense related to the grant of stock options and restricted stock issued of $128,519and $452,071for the years ended December 31, 2024 and 2023, respectively.
As of December 31, 2024, the Company had adopted ten separate stock option and restricted stock plans: (i) the 2005 Stock Option and Restricted Stock Plan (the "2005 Plan"), (ii) the 2006 Stock Option and Restricted Stock Plan (the "2006 Plan"), (iii) the 2007 Stock Option and Restricted Stock Plan (the "2007 Plan"), (iv) the 2008 Stock Option and Restricted Stock Plan (the "2008 Plan"), (v) the 2011 Stock Option and Restricted Stock Plan (the "2011 Plan"), (vi) the 2013 Stock Option and Restricted Stock Plan (the "2013 Plan"), (vii) the 2015 Stock Option and Restricted Stock Plan (the "2015 Plan"), (viii) the 2018 Stock Option and Restricted Stock Plan (the "2018 Plan"), (ix) the 2020 Stock Option and Restricted Stock Plan (the "2020 Plan"), and (x) the 2022 Stock Option and Restricted Stock Plan (the "2022 Plan"). The 2005 Plan, 2006 Plan, 2007 Plan, 2008 Plan, 2011 Plan, 2013 Plan, 2015 Plan, 2018 Plan, 2020 Plan and 2022 Plan are referred to as the "Plans."
| F-39 |
Stock option grants. The Company believes that such awards better align the interests of our employees with those of its stockholders. Option awards have been granted with an exercise price equal to the market price of its stock at the date of grant with such option awards generally vesting based on the completion of continuous service and having ten-year contractual terms. These option awards typically provide for accelerated vesting if there is a change in control (as defined in the Plans). The Company has registered all shares of common stock that are issuable under its Plans with the SEC. A total of 137,042shares remained available for awards under the various Plans as of December 31, 2024.
The fair value of each option award is estimated on the date of grant using a Black-Scholes option valuation model.
Activity in the various Plans during the years ended December 31, 2024 and 2023 is reflected in the following table:
| Options | Number of Shares |
Weighted Average Exercise Price |
||||||
| Outstanding at January 1, 2024 | 53,600 | $ | 45.55 | |||||
| Granted | - | - | ||||||
| Exercised | - | - | ||||||
| Forfeited | (1,100 | ) | (65.00 | ) | ||||
| Outstanding at December 31, 2024 | 52,500 | $ | 45.14 | |||||
| Exercisable at December 31, 2024 | 52,500 | $ | 45.14 | |||||
| Options | Number of Shares |
Weighted Average Exercise Price |
||||||
| Outstanding at January 1, 2023 | 53,950 | $ | 45.80 | |||||
| Granted | - | - | ||||||
| Exercised | - | - | ||||||
| Forfeited | (350 | ) | (83.20 | ) | ||||
| Outstanding at December 31, 2023 | 53,600 | $ | 45.55 | |||||
| Exercisable at December 31, 2023 | 53,600 | $ | 45.55 | |||||
The fair value of each option award is estimated on the date of grant using a Black-Scholes option valuation model
The Plans allow for the cashless exercise of stock options. This provision allows the option holder to surrender/cancel options with an intrinsic value equivalent to the purchase/exercise price of other options exercised. There were no shares surrendered pursuant to cashless exercises during the years ended December 31, 2024 and 2023.
At December 31, 2024 and 2023, the aggregate intrinsic value of options outstanding was approximately $-0- and $-0-, respectively, and the aggregate intrinsic value of options exercisable was approximately $-0- and $-0-, respectively.
| F-40 |
The following table summarizes the range of exercise prices and weighted average remaining contractual life for outstanding and exercisable options under the Company's option plans as of December 31, 2024:
| Outstanding options | Exercisable options | |||||||||||||
| Exercise price range |
Number of options |
Weighted average remaining contractual life |
Number of options |
Weighted average remaining contractual life |
||||||||||
| $ | 0.01to $49.99 | 37,000 | 5.6years | |||||||||||
| 37,000 | 5.6years | |||||||
| $ | 50.00to $69.99 | 14,000 | 3.8years |
| 14,000 | 3.8years | |||||||
| $ | 70.00to $89.99 | 1,500 | 1.4years |
| 1,500 | 1.4years | |||||||||||||
| Total | 52,500 | 5.0years |
Restricted stock grants. The Board of Directors has granted restricted stock awards under the Plans. Restricted stock awards are valued on the date of grant and have no purchase price for the recipient. Restricted stock awards typically vest over one to four years corresponding to anniversaries of the grant date. Under the Plans, unvested shares of restricted stock awards may be forfeited upon the termination of service to or employment with the Company, depending upon the circumstances of termination. Except for restrictions placed on the transferability of restricted stock, holders of unvested restricted stock have full stockholder's rights, including voting rights and the right to receive cash dividends.
A summary of all restricted stock activity under the equity compensation plans for the years ended December 31, 2024 and 2023 is as follows:
| 52,500 | 5.0years | |||||||
| Number of Restricted shares |
Weighted average grant date fair value |
|||||||
| Nonvested balance, January 1, 2024 | 53,875 | $ | 11.27 | |||||
| Granted | 80,197 | 2.12 | ||||||
| Vested | (33,375 | ) | (11.25 | ) | ||||
| Forfeited | (49,947 | ) | (2.48 | ) | ||||
| Nonvested balance, December 31, 2024 | 50,750 | $ | 5.48 | |||||
| Number of Restricted shares |
Weighted average grant date fair value |
|||||||
| Nonvested balance, January 1, 2023 | 79,125 | $ | 21.73 | |||||
| Granted | 35,000 | 5.00 | ||||||
| Vested | (56,625 | ) | (21.29 | ) | ||||
| Forfeited | (3,625 | ) | (22.41 | ) | ||||
| Nonvested balance, December 31, 2023 | 53,875 | $ | 11.27 | |||||
The Company estimated the fair market value of these restricted stock grants based on the closing market price on the date of the grant. As of December 31, 2024, there was $58,534of total unrecognized compensation costs related to all remaining non-vested restricted stock grants, which will be amortized over the next thirty-seven months in accordance with their respective vesting scale.
The nonvested balance of restricted stock vests as follows:
| Years ended | Number of shares |
|||
| 2025 | 35,250 | |||
| 2026 | 6,500 | |||
| 2027 | 5,000 | |||
| 2028 | 4,000 | |||
| 2029 | - | |||
| F-41 |
NOTE 17. COMMON STOCK PURCHASE WARRANTS
2024 Purchase Warrants
On June 25, 2024, the Company issued Series A and prefunded warrants to purchase a total of 1,768,227shares of Common Stock along with the sale of common stock. The Company also issued Series B Warrants that will be issuable and exercisable at any time or times on or after the date Stockholder Approval is obtained in addition to the Series A warrants that are not included in outstanding warrants until such time as Stockholder Approval is obtained. Both the Series A and Series B warrants have reset provisions that are activated upon the date Stockholder Approval is obtained. The warrant terms provide for net cash settlement outside the control of the Company under certain circumstances. As such, the Company is required to treat these warrants as derivative liabilities which are valued at their estimated fair value at their issuance date and at each reporting date with any subsequent changes reported in the consolidated statements of operations as the change in fair value of warrant derivative liabilities. Furthermore, the Company re-values the fair value of warrant derivative liability as of the date the warrant is exercised with the resulting warrant derivative liability transitioned to change in fair value of warrant derivative liabilities through the consolidated statement of operations.
During the year ended December 31, 2024, prefunded warrants to purchase 573,008shares of common stock were fully exercised.
The Series B warrants issued in this transaction became issuable and exercisable on the date Stockholder Approval is obtained. Stockholder approval was obtained on December 17, 2024 which activated the Series B warrants. Both the Series A and Series B warrants also contain price and warrant reset provisions that were activated upon the date of Stockholder Approval. The reset provisions increased the number of common shares issuable under the Series A warrant from 1,195,219to 5,976,095shares and the exercise price per Series A warrant was reduced from $2.51to $0.50per share effective December 17, 2024. In addition, the Series B warrants became effective and exercisable upon Stockholder Approval on December 17, 2024 which resulted in 4,766,777common shares issuable under the Series B warrants with an exercise price of $0.001per share effective December 17, 2024. The Company recognized the full Series B warrant derivative liability value of $2,865,727as of the date of Stockholder Approval when it became effective and exercisable of which $454,150 was recorded in equity and $2,411,577was charged as a loss in the statement of operations for the year ended December 31, 2024. The following are the assumptions used in calculating the estimated fair value of the detachable Series B warrants to purchase common stock which became effective and exercisable upon Stockholder Approval on December 17, 2024 and on December 31, 2024:
| Series B issuance date - December 17, 2024 assumptions |
Series B - December 31, 2024 |
|||||||
| Volatility - range | 105.5 | % | 105.7 | % | ||||
| Risk-free rate | 4.26 | % | 4.38 | % | ||||
| Dividend | - | % | - | % | ||||
| Remaining contractual term | 4.5years | |||||||
| 4.48years | ||||||||
| Exercise price | $ | 0.001 | $ | 0.001 | ||||
| Common stock issuable under the warrants | 4,766,777 | 3,793,777 |
During the year ended December 31, 2024, Series B warrants to purchase 973,000shares of common stock were fully exercised. In conjunction with the exercise of the Series B warrants, the Company transitioned the related warrant derivative liability totaling $584,955to equity as of their exercise date. The warrant derivative liability related to the Series B warrants was $1,989,806as of December 31, 2024. The change in fair value of the Series B warrant derivative liability from their issuance date through December 31, 2024 totaled $290,965which was included as a loss in the statement of operations for the year ended December 31, 2024.
The Company has utilized the following assumptions in its Black-Scholes option valuation model to calculate the estimated fair value of the derivative liability relative to the prefunded warrants and Series A warrants as of their date of issuance and as of December 31, 2024:
| Issuance date assumptions |
December 31, 2024 assumptions |
|||||||
| Volatility - range | 72.1- 101.1 | % | 105.7 | % | ||||
| Risk-free rate | 4.25- 5.46 | % | 4.38 | % | ||||
| Dividend | - | % | - | % | ||||
| Remaining contractual term | 0.1- 5.0years | |||||||
| 4.5years | ||||||||
| Exercise price | $ | 2.51 | $ | 0.502 | ||||
| Common stock issuable under the warrants | 1,768,227 | 5,976,872 |
| F-42 |
The Company recognized the fair value of the Series A warrants of $1,998,074as a warrant derivative liability as of the date of issuance. During the year ended December 31, 2024, there were no Series A warrants exercised. The fair value of the warrant derivative liability related to the Series A warrants was $2,408,598as of December 31, 2024. The change in fair value of the Series A warrant derivative liability from their issuance date through December 31, 2024 totaled $410,524which was included as a loss in the statement of operations for the year ended December 31, 2024.
2023 Purchase Warrants
On April 5, 2023, the Company issued warrants to purchase a total of 1,125,000shares of Common Stock. The warrant terms provide for net cash settlement outside the control of the Company under certain circumstances. As such, the Company is required to treat these warrants as derivative liabilities which are valued at their estimated fair value at their issuance date and at each reporting date with any subsequent changes reported in the consolidated statements of operations as the change in fair value of warrant derivative liabilities. Furthermore, the Company re-values the fair value of warrant derivative liability as of the date the warrant is exercised with the resulting warrant derivative liability transitioned to change in fair value of warrant derivative liabilities through the consolidated statement of operations.
The Company has utilized the following assumptions in its Black-Scholes option valuation model to calculate the estimated fair value of the warrant derivative liabilities as of their date of issuance and as of December 31, 2024:
| Issuance date assumptions | December 31, 2024 assumptions | |||||||
| Volatility - range | 106.0 | % | $ | 109.5 | % | |||
| Risk-free rate | 3.36 | % | 4.38 | % | ||||
| Dividend | - | % | - | % | ||||
| Remaining contractual term | 5.0years | |||||||
| 3.3years | ||||||||
| Exercise price | 5.50- 7.50 | 5.50- 7.50 | ||||||
| Common stock issuable under the warrants | 1,125,000 | 1,125,000 |
The following table summarizes information about shares issuable under warrants outstanding during the years ended December 31, 2024 and 2023:
| Warrants | Weighted average exercise price |
|||||||
| Balance, January 1, 2024 | 1,125,000 | $ | 6.50 | |||||
| Issuance - Series A and Prefunded Warrants | 1,768,227 | 2.51 | ||||||
| Issuance - Series B warrants | 4,766,777 | 0.001 | ||||||
| Series A warrant reset provisions | 4,780,876 | 0.502 | ||||||
| Exercised | (1,546,008 | ) | (0.93 | ) | ||||
| Terminated/Cancelled | - | - | ||||||
| Balance, December 31, 2024 | 10,894,872 | $ | 0.95 | |||||
| Warrants | Weighted average exercise price |
|||||||
| Balance, January 1, 2023 | 67,459 | $ | 60.26 | |||||
| Issued | 1,125,000 | 6.50 | ||||||
| Exercised | - | - | ||||||
| Terminated/Cancelled | (67,459 | ) | (60.26 | ) | ||||
| Balance, December 31, 2023 | 1,125,000 | $ | 6.50 | |||||
| F-43 |
The total intrinsic value of all outstanding warrants aggregated $2,128,320and $-0- as of December 31, 2024 and 2023, respectively and the weighted average remaining term was 52.3and 51.2months as of December 31, 2024 and 2023, respectively.
The following table summarizes the range of exercise prices and weighted average remaining contractual life for outstanding and exercisable warrants to purchase shares of common stock as of December 31, 2024:
| Outstanding and exercisable warrants | ||||||||
| Exercise price |
Number of warrants |
Weighted average remaining contractual life |
||||||
| $ | 0.001 |
3,793,777 |
4.5years | |||||
| $ | 0.502 | 5,976,095 | 4.5years | |||||
| $ | 5.50 | 375,000 | 3.3years |
| $ | 6.50 | 375,000 | 3.3years |
| $ | 7.50 | 375,000 | 3.3years |
| 10,894,872 | 4.4years |
NOTE 18 - STOCKHOLDERS' EQUITY
2023 Issuance of Restricted Common Stock
On January 10, 2023, the board of directors approved the grant of 22,500shares of common stock to officers of the Company. Such shares will generally vest over a period of one to five years on their respective anniversary dates in January through January 2028, provided that each grantee remains an officer or employee on such dates.Additionally, the board of directors approved the grant of 12,500restricted common shares to certain new employees of the Company. Such shares will generally vest over a period of one to two yearson their respective anniversary dates in January through January 2025, provided that each grantee remains an employee of the company on such dates.
2024 Issuance of Restricted Common Stock
In January 2024, the board of directors approved the grant of 55,000shares of common stock to officers of the Company. Such shares will generally vest over a period of one to five years on their respective anniversary dates in January through January 2028, provided that each grantee remains an officer or employee on such dates.Additionally, the board of directors approved the grant of 25,197restricted common shares to certain new employees of the Company. Such shares will generally vest over a period of one to two yearson their respective anniversary dates in January through January 2026, provided that each grantee remains an employee of the company on such dates.
2024 Private Placement Transaction
On June 24, 2024, the Company entered into a private placement transaction (the "Private Placement"), pursuant to a Securities Purchase Agreement (the "Securities Purchase Agreement") with certain institutional investors (the "Purchasers") for aggregate gross proceeds of approximately $2.9million, before deducting fees to the placement agent and other expenses payable by the Company in connection with the Private Placement.
As part of the Private Placement, the Company issued an aggregate of 1,195,219units and pre-funded units (collectively, the "June Units") at a purchase price of $2.51per unit (less $0.0001per pre-funded unit). Each June Unit consists of (i) one share of common stock, par value $0.001per share, of the Company (the "Common Stock") (or one pre-funded warrant to purchase one share of Common Stock (the "Pre-Funded Warrants")), (ii) one Series A warrant to purchase one share of Common Stock (the "Series A Warrant") and (iii) one Series B warrant to purchase such number of shares of Common Stock as will be determined on the Reset Date and in accordance with the terms therein (the "Series B Warrant", and together with the Series A Warrant, the "Warrants").
| F-44 |
Securities Purchase Agreement and Senior Secured Promissory Notes
On November 6, 2024, the Company entered into a Securities Purchase Agreement (the "SPA") with certain institutional investors, pursuant to which the Company agreed to issue and sell to such investors, in a private placement transaction, (i) senior secured promissory notes in aggregate principal amount of $3,600,000, and (ii) 808,377shares (the "Commitment Shares") of the Company's common stock, for aggregate gross proceeds of approximately $3.0million, before deducting placement agent fees and other offering expenses payable by the Company. This private placement closed on November 7, 2024.
The net proceeds of the private placement on November 7, 2024 was $2,669,250(after $330,750deduction of costs of the offering). The Company allocated the net proceeds from the private placement of the senior secured promissory notes and the commitment shares based upon their relative fair values as of the date of issuance as follows:
| Amount | ||||
| Allocated to the following: | ||||
| Senior secured promissory notes | $ | 2,129,795 | ||
| Commitment shares | 539,455 | |||
| Total | $ | 2,669,250 | ||
Cancellation of Restricted Stock
During the years ended December 31, 2024 and 2023, the Company cancelled 49,947and 3,625shares due to termination of employees, respectively.
Exercise of Prefunded Warrants
During the year ended December 31, 2024, prefunded warrants to purchase 573,008shares of common stock were fully exercised at an exercise price of $0.0001per share.
During the year ended December 31, 2024, Series B warrants to purchase 973,000shares of common stock were fully exercised for $973. In conjunction with the exercise of the Series B warrants, the Company transitioned the related warrant derivative liability totaling $584,955to equity as of their exercise date.
Conversion of Convertible Note
During the year ended December 31, 2023, pursuant to the Convertible Note, the Purchasers elected to convert $125,000principal, at the fixed price of $5.00per share of common stock, 25,000shares valued at $119,750.
Reverse Stock Split
On February 6, 2023, we filed a Certificate of Amendment to the Articles of Incorporation, as amended, with the Secretary of State of the State of Nevada to effect a 1-for-20 reverse stock split(the "Reverse Stock Split") of the shares of our common stock. The Reverse Stock Split was effective as of time of filing. No fractional shares were issued in connection with the Reverse Stock Split. Any fractional shares of our Common Stock that would have otherwise resulted from the Reverse Stock Split were rounded up to the nearest whole number. In connection with the Reverse Stock Split, our board approved appropriate and proportional adjustments to all outstanding securities or other rights convertible or exercisable into shares of our Common Stock, including, without limitation, all preferred stock, warrants, options, and other equity compensation rights. All historical share and per-share amounts reflected throughout our consolidated financial statements and other financial information in this Report have been adjusted to reflect the Reverse Stock Split as if the split occurred as of the earliest period presented. The par value per share of our common stock was not affected by the Reverse Stock Split.
| F-45 |
Noncontrolling Interests
The Company owns a 51% equity interest in its consolidated subsidiary, Nobility Healthcare. As a result, the noncontrolling shareholders or minority interest is allocated 49% of the income/loss of Nobility Healthcare which is reflected in the statement of (income) loss as "net (income) loss attributable to noncontrolling interests of consolidated subsidiary". We reported net loss (income) attributable to noncontrolling interests of consolidated subsidiary of $1,871,578and $(224,598) for the years ended December 31, 2024 and 2023, respectively.
NOTE 19. RELATED PARTY TRANSACTIONS
Transactions with Managing Member of Nobility Healthcare
The Company accrued reimbursable expenses payable to Nobility, LLC totaling $245,716and $619,301as of December 31, 2024 and 2023, respectively. Total management fees accrued and payable in accordance with the operating agreement totaled $38,625and $49,014as of December 31, 2024 and 2023, respectively. The company recorded management fee expense of $67,905and $169,075for the years ended December 31, 2024 and 2023, respectively.
Transactions with Related Party of TicketSmarter
On September 22, 2023, a trust, the beneficiaries of which are TicketSmarter's Chief Executive Officer and his spouse, made a loan in the amount of $2,325,000to TicketSmarter to support TicketSmarter's operations. On October 2, 2023 an additional $375,000was advanced to Ticketsmarter. The transaction was recorded as a related party note payable (the "TicketSmarter Related Party Note"). The TicketSmarter Related Party Note bears interest of 13.25% per annum with repayment beginning January 2, 2024. As of December 31, 2024 and 2023, the entire TicketSmarter Related Party note balance totaled $2,700,000, and is classified as current, with an accrued interest balance of $488,711and $95,031, respectively. The use of proceeds of the TicketSmarter Related Party Note was to resolve numerous outstanding payables at a discounted rate, the discount received to resolve such outstanding payables is recognized as a gain on extinguishment of liabilities on the statement of operations. Additionally, these negotiations relieved TicketSmarter of numerous future obligations following fiscal year 2023.
On August 19, 2024, the parties agreed to amend the note whereby the repayment dates were extended to begin on January 2, 2025 and continue at $54,000for 50 consecutive weeks plus interest. The parties did not change any other provisions or terms of the note. The amendment was determined to be a modification of the note rather than an extinguishment and reissuance of a new note. No payments have been made to date in 2025.
Company Related Party Note
On August 22, 2024, Digital Ally's Chief Executive Officer, made a loan in the amount of $100,000to the Company to support its operations. In addition, on October 24, 2024, Digital Ally's Chief Executive Officer, made an additional loan in the amount of $40,000to the Company to support its operations. These transactions were recorded as related party notes payable (the "Company Related Party Notes"). The Company Related Party Notes bear interest at prime rate (8.00% as of December 31, 2024) per annum with repayment due on demand. As of December 31, 2024, the entire Company Related Party note of $140,000, is classified as current, with an accrued interest balance of $3,465.
NOTE 20. NET LOSS PER SHARE
The calculation of the weighted average number of shares outstanding and loss per share outstanding for the years ended December 31, 2024 and 2023 are as follows:
| Year ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Numerator for basic and diluted loss per share - Net loss attributable to common stockholders | $ | (19,844,147 | ) | $ | (25,688,547 | ) | ||
| Denominator for basic loss per share - weighted average shares outstanding | 3,555,371 | 2,784,894 | ||||||
| Dilutive effect of shares issuable upon conversion of convertible debt and the exercise of stock options and warrants outstanding | - | - | ||||||
| Denominator for diluted loss per share - adjusted weighted average shares outstanding | 3,555,371 | 2,784,894 | ||||||
| Net loss per share: | ||||||||
| Basic | $ | (5.58 | ) | $ | (9.22 | ) | ||
| Diluted | $ | (5.58 | ) | $ | (9.22 | ) | ||
| F-46 |
Basic loss per share is based upon the weighted average number of shares of common stock outstanding during the period. For the years ended December 31, 2024 and 2023, all shares issuable upon conversion of convertible debt and the exercise of outstanding stock options and warrants were antidilutive, and, therefore, not included in the computation of diluted loss per share.
NOTE 21. COUNTRY STAMPEDE ACQUISITION
On March 1, 2024, Kustom 440, entered into an Asset Purchase Agreement (the "Acquisition Agreement") with JC Entertainment, LLC, a Kansas limited liability company ("JC Entertainment"). Pursuant to the Acquisition Agreement, Kustom 440 acquired certain assets associated with a music entertainment event ("Country Stampede"), including all intellectual property arising out of and relating to Country Stampede ("Country Stampede Intellectual Property") and certain contracts in which JC Entertainment is a party to host and operate the 2024 Country Stampede (the "Assumed Contracts", and together with the Country Stampede Intellectual Property, the "Purchased Assets").
As consideration for acquiring the Purchased Assets, Kustom 440 paid JC Entertainment the aggregate purchase price amount $542,959, with the sum of $400,000paid at the time of closing ("Closing"), and the remainder to be paid on or before thirty days from the time of Closing. Kustom 440 shall receive a credit for all non-refunded festival ticket sales for the 2024 Country Stampede to be calculated immediately prior to Closing, and JC Entertainment shall be entitled to keep all ticket sale proceeds made and/or received prior to Closing. Kustom 440 shall be obligated, to the extent a refund is sought after Closing, to provide such refund, if appropriate, to the customer requesting a refund, and shall indemnify and hold harmless JC Entertainment from any and all claims, liabilities, costs, suits, or the like relating to such refund request.
The Company accounts for business combinations using the acquisition method and that the Company has early adopted the amendments of Regulation S-X dated May 21, 2020 and has concluded that this acquisition was not significant. Accordingly, the presentation of the assets acquired, historical financial statements under Rule 3-05 and related pro forma information under Article 11 of Regulation S-X, respectively, are not required to be presented. Under the acquisition method, the purchase price of the Country Stampede Acquisition has been allocated to the acquired tangible and identifiable intangible assets and assumed liabilities based on their estimated fair values at the time of the Country Stampede Acquisition. This allocation involves a number of assumptions, estimates, and judgments that could materially affect the timing or amounts recognized in our financial statements. The Country Stampede Acquisition was structured as an asset purchase; however the parties agreed to coordinate the election to invoke IRS Section 338(h)(10) relative to this transaction for tax purposes. Therefore, the excess purchase price over the fair value of net tangible assets acquired was recorded as goodwill, which will be amortized over 15 years for income tax filing purposes. Likewise, the other acquired assets were stepped up to fair value and is deductible for income tax purposes. The results of operations of acquired businesses are included in the consolidated financial statements from the acquisition date.
The purchase price of the Country Stampede Acquisition was allocated to tangible assets, goodwill, identifiable intangible assets, and assumed liabilities based on their preliminary estimated fair values at the time of the acquisition. The Company retained the services of an independent valuation firm to determine the fair value of these identifiable intangible assets. The Company has finalized the estimated fair value of assets acquired, and liabilities assumed in the Country Stampede Acquisition which are as follows:
As allocated (Final) |
||||
| Description | March 1, 2024 | |||
| Assets acquired (provisional): | ||||
| Tangible assets acquired | $ | 305,000 | ||
| Identifiable intangible assets acquired (Trademarks and trade names) | 300,000 | |||
| Goodwill | 225,959 | |||
| Liabilities assumed | (288,000 | ) | ||
| Net assets acquired and liabilities assumed | $ | 542,959 | ||
| Consideration: | ||||
| Cash paid at Country Stampede Acquisition date | $ | 400,000 | ||
| Cash paid subsequent to closing | 142,959 | |||
| Total Country Stampede Acquisition purchase price | $ | 542,959 | ||
| F-47 |
During the measurement period (which is the period required to obtain all necessary information that existed at the acquisition date, or to conclude that such information is unavailable, not to exceed one year), additional assets or liabilities may be recognized, or there could be changes to the amounts of assets or liabilities previously recognized on a preliminary basis, if new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have resulted in the recognition of these assets or liabilities as of that date.
NOTE 22. OPERATING SEGMENTS
The Company adopted ASU 2023-07 in 2024 and applied the amendment retrospectively to all periods presented in the Company's consolidated financial statements. Segment financial information is prepared in accordance with GAAP and our significant accounting policies described in Note 1. Resources are allocated and performance is assessed using segment operating income by our Chief Executive Officer, whom we have determined to be our Chief Operating Decision Maker ("CODM"). Our CODM utilizes segment operating income when making decisions about allocating capital and personnel to the segments, predominantly in the annual budget and quarterly forecasting processes. In addition, our CODM uses operating income, including comparison of actual results to budget and forecast, in assessing the performance of each segment and in evaluating product pricing, distribution strategies and marketing investments. Our CODM reviews balance sheet information at a consolidated level. We compute segment operating income based on net sales revenue, less cost of goods sold, SG&A, asset impairment charges and restructuring charges. The SG&A used to compute each segment's operating income is directly associated with the segment. We do not allocate non-operating income and expense, including interest or income taxes, to operating segments.
We operate in three strategic business segments. The Video Solutions Segment encompasses our law, commercial, and shield divisions. This segment includes both service and product revenues through our subscription models offering cloud and warranty solutions, and hardware sales for video and health safety solutions. The Revenue Cycle Management Segment provides working capital and back-office services to a variety of healthcare organizations throughout the country, as a monthly service fee. The Entertainment Segment acts as an intermediary between ticket buyers and sellers within our secondary ticketing platform, ticketsmarter.com, and we also acquire tickets from primary sellers to then sell through various platforms.
The Company's corporate administration activities are reported in the corporate line item. These activities primarily include expense related to certain corporate officers and support staff, certain accounting staff, expense related to the Company's Board of Directors, stock option expense for options granted to corporate administration employees, certain consulting expenses, investor relations activities, and a portion of the Company's legal, auditing and professional fee expenses. Corporate identifiable assets primarily consist of cash, invested cash (if any), refundable income taxes (if any), and deferred income taxes.
| F-48 |
Summarized financial information for the Company's reportable business segments is provided for the years ended December 31, 2024, and 2023:
| Year ended December 31, 2024 | ||||||||||||||||||||
| Video Solutions | Entertainment | Revenue cycle Management | Corporate and other | Total | ||||||||||||||||
| Net revenues: | ||||||||||||||||||||
| Product | $ | 1,997,389 | $ | 3,406,928 | $ | - | $ | - | $ | 5,404,317 | ||||||||||
| Service | 3,758,002 | 4,356,833 | 6,131,650 | - | 14,246,485 | |||||||||||||||
| Total segment net revenues | $ | 5,755,391 | $ | 7,763,761 | $ | 6,131,650 | $ | - | $ | 19,650,802 | ||||||||||
| Less significant segment expenses: |
||||||||||||||||||||
| Cost of Revenue - Product | $ | 1,780,284 | $ | 4,118,846 | $ | - | $ | - | $ | 5,899,130 | ||||||||||
| Cost of Revenue - Service and other |
1,252,213 | 3,243,791 | 3,766,336 | - | 8,262,340 | |||||||||||||||
| Research and development expense | 1,339,673 | - | - | - | 1,339,673 | |||||||||||||||
| Selling, advertising and promotional expense |
1,124,012 | 996,953 | 23,529 | - | 2,144,494 | |||||||||||||||
| General and administrative expense |
1,459,064 | 3,701,024 | 1,838,399 | 5,378,218 | 12,376,705 | |||||||||||||||
| Goodwill and intangible asset impairment charge |
- | 508,000 | 4,322,000 | - | 4,830,000 | |||||||||||||||
| Total segment operating income (loss) | $ | (1,199,855 | ) | $ | (4,804,853 | ) | $ | (3,818,614 | ) | $ | (5,378,218 | ) | $ | (15,201,540 | ) | |||||
| Interest expense | (3,815,323 | ) | ||||||||||||||||||
| Loss on litigation | (1,959,396 | ) | ||||||||||||||||||
| Change in fair value of derivative liabilities | (1,240,407 | ) | ||||||||||||||||||
| Gain on the extinguishment of liabilities | 917,935 | |||||||||||||||||||
| Loss on extinguishment of debt | (753,339 | ) | ||||||||||||||||||
| Gain on sale of property, plant and equipment | 360,082 | |||||||||||||||||||
| Other non-operating income (loss) | (23,737 | ) | ||||||||||||||||||
| Total non-operating income (loss) | (6,514,185 | ) | ||||||||||||||||||
| Loss before income tax benefit (provision) | $ | (21,715,725 | ) | |||||||||||||||||
| Depreciation and amortization expense | $ | 598,895 | $ | 1,316,541 | $ | 106,878 | $ | - | $ | 2,022,314 | ||||||||||
| Total identifiable assets, net of eliminations |
$ | 12,804,820 | $ | 5,741,116 | $ | 1,771,850 | $ | 7,418,787 | $ | 27,736,573 | ||||||||||
| Year ended December 31, 2023 | ||||||||||||||||||||
| Video Solutions | Entertainment | Revenue cycle Management | Corporate and other | Total | ||||||||||||||||
| Net revenues: | ||||||||||||||||||||
| Product | $ | 4,303,369 | $ | 5,044,576 | $ | - | $ | - | $ | 9,347,945 | ||||||||||
| Service | 3,167,916 | 9,018,805 | 6,713,678 | - | 18,900,399 | |||||||||||||||
| Total segment net revenues | $ | 7,471,285 | $ | 14,063,381 | $ | 6,713,678 | $ | - | $ | 28,248,344 | ||||||||||
| Less significant segment expenses: |
||||||||||||||||||||
| Cost of Revenue - Product | $ | 4,824,967 | $ | 5,149,923 | $ | - | $ | - | $ | 9,974,890 | ||||||||||
| Cost of Revenue - Service and other |
1,355,809 | 7,213,754 | 3,941,407 | - | 12,510,970 | |||||||||||||||
| Research and development expense |
2,618,746 | - | - | - | 2,618,746 | |||||||||||||||
| Selling, advertising and promotional expense |
4,780,184 | 2,328,759 | 28,586 | - | 7,137,529 | |||||||||||||||
| General and administrative expense |
1,027,163 | 3,017,715 | 2,451,142 | 11,750,742 | 18,246,762 | |||||||||||||||
| Goodwill and intangible asset impairment charge |
- | - | - | - | - | |||||||||||||||
| Total segment operating income (loss) |
$ | (7,135,584 | ) | $ | (3,646,770 | ) | $ | 292,543 | $ | (11,750,742 | ) | $ | (22,240,553 | ) | ||||||
| Interest expense | (3,134,253 | ) | ||||||||||||||||||
| Change in fair value of derivative liabilities | 1,846,642 | |||||||||||||||||||
| Gain on the extinguishment of liabilities | 550,867 | |||||||||||||||||||
| Loss on litigation | (1,792,308 | ) | ||||||||||||||||||
| Loss on extinguishment of convertible debt | (1,112,705 | ) | ||||||||||||||||||
| Other non-operating income (loss) | 418,361 | |||||||||||||||||||
| Total non-operating income (loss) | (3,223,396 | ) | ||||||||||||||||||
| Loss before income tax benefit (provision) | $ | (25,463,949 | ) | |||||||||||||||||
| Depreciation and amortization expense |
$ | 836,699 | $ | 1,277,186 | $ | 104,352 | $ | - | $ | 2,218,237 | ||||||||||
| Total identifiable assets, net of eliminations |
$ | 26,396,559 | $ | 6,324,211 | $ | 2,260,376 | $ | 12,047,663 | $ | 47,028,809 | ||||||||||
The segments recorded noncash items affecting the gross profit and operating income (loss) through the established inventory reserves based on estimates of excess and/or obsolete current and non-current inventory. The Company recorded a reserve for excess and obsolete inventory in the video solutions segment of $2,037,252and $4,355,666and a reserve for the entertainment segment of $132,403and $186,795as of December 31, 2024 and 2023.
The segment net revenues reported above represent sales to external customers. Segment gross profit represents net revenues less cost of revenues. Segment operating income, which is used in management's evaluation of segment performance, represents net revenues, less cost of revenues, less all operating expenses. Identifiable assets are those assets used by each segment in its operations. Corporate assets primarily consist of cash, property, plant and equipment, accounts receivable, inventories, and other assets.
Note 23. SUBSEQUENT EVENTS
Public Offering of Securities
On February 13, 2025, the Company entered into an underwriting agreement with Aegis Capital Corp. for the sale and issuance of (i) 7,850,000units (the "Units") at a public offering price per Unit of $0.15with each Unit consisting of one share of common stock, par value $0.001per share, one Series A warrant to purchase one share of common stock at an exercise price of $0.1875per share and one Series B warrant to purchase one share of common stock at an exercise price of $0.30and (ii) 92,150,000pre-funded units at a public offering price of $0.149per pre-funded unit, with each pre-funded unit consisting of one pre-funded warrant exercisable for one share of Common Stock at an exercise price of $0.001per share, one Series A Warrant and one Series B Warrant. The Pre-Funded Warrants will be immediately exercisable and may be exercised at any time until all of the pre-funded warrants are exercised in full.
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The Series A and Series B warrants will be exercisable only upon receipt of stockholder approval of (i) certain terms in the Series A and B warrants and the issuance of the shares of common stock issuable upon the exercise of such Series A and Series B warrants, as may be required by the applicable rules and regulations of The Nasdaq Stock Market LLC and (ii) if necessary, a proposal to amend the Company's Articles of Incorporation, to increase the authorized share capital of the Company to an amount sufficient to cover the shares of common stock issuable upon the exercise of the Series A and Series B warrants. The Series A warrants will be exercisable commencing upon the date of Stockholder Approval until five years after such approval date, and the Series B Warrants will be exercisable commencing upon the date of Stockholder Approval until two and one-half years after such date.
The offering closed on February 14, 2025. The net proceeds to the Company from the offering were approximately $13.48million, after deducting underwriter's fees and the payment of other offering expenses associated with the offering payable by the Company. The Company intends to use the net proceeds from the offering for working capital and other general corporate purposes, to pay amounts owed under a short-term merchant advance and to pay in full the aggregate face value of senior secured promissory notes that were previously issued as part of a private placement that the Company entered into with certain institutional investors on November 6, 2024.
The Company granted the underwriter an option to purchase additional shares of common stock and/or Series A and Series B warrants of (i) up to 15.0% of the number of shares of Common Stock sold in the offering, (ii) up to 15.0% of the number of Series A warrants sold in the offering and (iii) up to 15.0% of the number of Series B warrants sold in the offering. The Underwriter may exercise this option in whole or in part at any time within forty-five calendar days after the date of the final prospectus relating to the offering. The Underwriter may exercise the over-allotment option with respect to shares of common stock only, Series A and Series B warrants only, or any combination thereof. The purchase price to be paid per additional share of Common Stock will be equal to the public offering price of one Unit (less $0.00001allocated to each Series A and Series B warrant), as applicable, less the underwriting discount, and the purchase price to be paid per over-allotment Series A and Series B warrant will be $0.00001. On February 14, 2025, the Underwriter exercised its over-allotment option with respect to 6,000,000pre-funded warrants/common shares, 15,000,000Series A warrants and 15,000,000Series B warrants. Settlement occurred on April 17, 2025.
Aegis Capital Corp. served as the sole book-running manager in the offering, pursuant to the terms of the Underwriting Agreement, and received seven percent (7%) of the aggregate purchase price paid by investors in the offering, a one percent (1%) non-accountable expense and reimbursement of the legal fees of its counsel.
The units and pre-funded units were offered by the Company pursuant to an effective registration statement on Form S-1, as amended, which was declared effective by the SEC on February 12, 2025. The final prospectus relating to the offering was filed with the SEC on February 13, 2025.
Exercise of Warrants
Subsequent to December 31, 2024, the holders of Series B warrants remaining outstanding pursuant to the June 2024 private placement were exercised to acquire a total of 3,793,777shares at an exercise price of $.001per share. The Series B warrants issued pursuant to the June 2024 private placement are now fully exercised.
The Company issued 98,150,000pre-funded warrants at a public offering price of $0.149per pre-funded warrant at an exercise price of $0.001per share. Subsequent to their issuance on February 13, 2025, all 98,150,000pre-funded warrants were exercised in full.
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Special Shareholder Meeting
The Company has called a special meeting of stockholders to be held on April 1, 2025 for the following purpose:
| ● | To approve an amendment to our articles of incorporation to increase the number of authorized shares of our capital stock that we may issue from 210,000,000shares to 5,010,000,000shares, of which 5,000,000,000shares shall be classified as common stock, par value $0.001per share; |
| ● | To approve a proposal to authorize the board of directors of the Company, in its sole and absolute discretion, and without further action of the stockholders, to file an amendment to our articles of incorporation, to effect a reverse stock split of our issued and outstanding Common Stock at a ratio to be determined by the Board, ranging from one-for-five (1:5) to one-for-one hundred (1:100), with such reverse stock split to be effected at such time and date, if at all, as determined by the Board in its sole discretion, but no later than April 1, 2026; |
| ● | To authorize, for purposes of complying with Nasdaq listing rule 5635(d), the issuance of Series A Warrants to purchase shares of Common Stock and Series B Warrants to purchase shares of Common Stock shares of Common Stock underlying the Warrants and certain provisions of the Warrants, issued in connection with an offering and sale of securities of the Company that was consummated on February 14, 2025; |
| ● | to approve one or more adjournments of the Special Meeting, if necessary or appropriate, to solicit additional proxies in favor of the Authorized Share Increase Proposal, the Reverse Stock Split Proposal or the Issuance Proposal if there are not sufficient votes at the Special Meeting to approve and adopt the proposals |
On April 1, 2025, the Company convened a special meeting of stockholders and immediately adjourned the Special Meeting in order to allow the Company to solicit additional votes on its proposal to approve an amendment to its articles of incorporation, as amended, to increase the number of authorized shares of its capital stock that it may issue from 210,000,000shares to 5,010,000,000shares, of which 5,000,000,000shares shall be classified as common stock, par value $0.001per share. The chairman of the Special Meeting adjourned the Special Meeting to reconvene on April 13, 2025.
On April 13, 2025, the Company convened a special meeting of stockholders and immediately adjourned the Special Meeting in order to allow the Company to solicit additional votes on its proposal to approve an amendment to its articles of incorporation, as amended, to increase the number of authorized shares of its capital stock that it may issue from 210,000,000shares to 5,010,000,000shares, of which 5,000,000,000shares shall be classified as common stock, par value $0.001per share. The chairman of the Special Meeting adjourned the Special Meeting to reconvene on April 13, 2025.
On April 13, 2025, the Company convened a special meeting of stockholders and immediately adjourned the Special Meeting in order to allow the Company to solicit additional votes on its proposal to approve an amendment to its articles of incorporation, as amended, to increase the number of authorized shares of its capital stock that it may issue from 210,000,000shares to 5,010,000,000shares, of which 5,000,000,000shares shall be classified as common stock, par value $0.001per share. The chairman of the Special Meeting adjourned the Special Meeting to reconvene on April 21, 2025.
On April 21, 2025, the Company convened a special meeting of stockholders and immediately adjourned the Special Meeting in order to allow the Company to solicit additional votes on its proposal to approve an amendment to its articles of incorporation, as amended, to increase the number of authorized shares of its capital stock that it may issue from 210,000,000shares to 5,010,000,000shares, of which 5,000,000,000shares shall be classified as common stock, par value $0.001per share. The chairman of the Special Meeting adjourned the Special Meeting to reconvene on April 29, 2025.
On April 29, 2025, the Company convened a special meeting of stockholders and immediately adjourned the Special Meeting in order to allow the Company to solicit additional votes on its proposal to approve an amendment to its articles of incorporation, as amended, to increase the number of authorized shares of its capital stock that it may issue from 210,000,000shares to 5,010,000,000shares, of which 5,000,000,000shares shall be classified as common stock, par value $0.001per share. The chairman of the Special Meeting adjourned the Special Meeting to reconvene on May 5, 2025.
Notices of Failure to Satisfy a Continued Listing Rule
Quarterly Report on Form 10-Q - On November 25, 2024, the Company received a notice (the "Notice") from the Nasdaq Stock Market LLC, which indicated that, as a result of the Company's delay in filing its Quarterly Report on Form 10-Q for the period ended September 30, 2024, the Company was not in compliance with Nasdaq Listing Rule 5250(c)(1), which requires Nasdaq-listed companies to timely file all required periodic financial reports with the U.S. Securities and Exchange Commission.
On December 30, 2024, the Company filed the Quarterly Report. On January 2, 2025, Nasdaq delivered a written notification notifying the Company that it had regained compliance with the Quarterly Report Requirement.
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Minimum Bid Price Requirement - December 20, 2024, the Company received a written notification from The Nasdaq Stock Market LLC indicating that the Company was not in compliance with Nasdaq Listing Rule 5550(a)(2) (the "Minimum Bid Price Requirement"), as the Company's closing bid price for its common stock was below $1.00 per share for the prior thirty (30) consecutive business days. The Company has been granted a 180-calendar day compliance period, or until June 18, 2025, to regain compliance with the Minimum Bid Price Requirement. If the Company is not in compliance by June 18, 2025, the Company may be afforded a second 180-calendar day compliance period. If the Company does not regain compliance within such compliance period, including any granted extensions, its common stock may be subject to delisting, which delisting may be appealed to a Nasdaq hearings panel.
Minimum Stockholders' Equity Standard - On January 2, 2025, the Company received a notice (the "Notice") from the staff of the Listing Qualifications department (the "Staff") of Nasdaq, which indicated that the Company was not in compliance with Nasdaq Listing Rule 5550(b)(1) (the "Stockholders' Equity Requirement"), as the Company's stockholders' equity of ($2,448,310), as reported in the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2024, was below the required minimum of $2.5million, and the Company did not meet either the alternative compliance standards relating to market value of listed securities of at least $35million or net income from continuing operations of at least $500,000in the most recently completed fiscal year or in two of the last three most recently completed fiscal years.
Under Nasdaq listing rules and as specified in the Notice, the Company has 45 calendar days from the date of the Notice to submit to the Staff a plan to regain compliance with the Stockholders' Equity Requirement. If the Company's plan to regain compliance is accepted, Nasdaq may grant an extension of up to 180 calendar days from the date of the Notice for the Company to evidence compliance.
The Company submitted its plan to Nasdaq to regain compliance with the Stockholders' Equity Requirement on February 17, 2025. There can be no assurance that the Company's plan will be accepted or that if it is, that the Company will be able to regain compliance with the Stockholders' Equity Requirement.
If the Company does not regain compliance within the allotted compliance period(s), including any extensions that may be granted by Nasdaq, Nasdaq will provide notice that the common stock will be subject to delisting from the Nasdaq Capital Market. At that time, the Company may appeal any such delisting determination to a Nasdaq hearings panel.
The Company continues to work diligently to regain compliance with the Minimum Bid Price Requirement and Stockholders' Equity Requirement as promptly as possible to regain compliance with such continued listing rules of the Nasdaq.
Minimum Bid Price Requirement - On March 6, 2025, the Company received notice (the "March 6 Letter") from the Nasdaq Staff that the Staff had determined that as of March 5, 2025, the Company's securities had a closing bid price of $0.10 or less for ten consecutive trading days triggering application of Listing Rule 5810(c)(3)(A)(iii) which states in part: if during any compliance period specified in Rule 5810(c)(3)(A), a company's security has a closing bid price of $0.10 or less for ten consecutive trading days, the Listing Qualifications Department shall issue a Staff Delisting Determination under Rule 5810 with respect to that security (the "Low Priced Stocks Rule"). As a result, the Staff determined to delist the Company's securities from Nasdaq, unless the Company timely requests an appeal of the Staff's determination to a Hearings Panel (the "Panel"), pursuant to the procedures set forth in the Nasdaq Listing Rule 5800 Series. The Company must request a hearing no later than 4:00 p.m. EasteTime on March 13, 2025.
The Company timely requested a hearing before the Panel to appeal the March 6 Letter and to address all outstanding matters, including compliance with the Minimum Bid Price Requirement, the Low Priced Stocks Rule and the Stockholders' Equity Requirement, which hearing date has not been set as of the date of this Form 10-K. While the appeal process is pending, the suspension of trading of the Company's common stock, par value $0.001per share (the "Common Stock"), will be stayed and the Common Stock will continue to trade on the Nasdaq Capital Market until the hearing process concludes and the Panel issues a written decision. The Company held its hearing with the Panel as scheduled on April 17, 2025.
On May 1, 2025, the Panel rendered its decision which granted the Company's request for continued listing on the Nasdaq Exchange. Such decision is subject to the following conditions:
| ● | On or before May 2, 2025, the Company shall file Form 10-K for 2024 in compliance with Listing Rule 5250(c)(1). | |
| ● | On or before May 20, 2025, the Company must file a public disclosure describing any transactions undertaken by the Company to increase its equity and providing an indication of its equity following those transactions. | |
| ● | In addition, on or before May 20, 2025, the Company must provide the Panel with an update on its fundraising plans, and updated income projections for the next 12 months, with all underlying assumptions clearly stated. | |
| ● | On or before June 6, 2025, the Company shall demonstrate compliance with the Bid Price Rule. | |
| ● | If, prior to September 2, 2025, the Company becomes non-compliant with any Listing Rule, the Company will be delisted. |
There are no assurances however, that the Company will be able to meet and maintain all such conditions required by the Panel.
Obligations
Promissory Note - On February 1, 2025, the Company's Entertainment Segment entered into a $600,000unsecured promissory note with a third party. The promissory note bears an interest rate of 10.0% per annum, compounded monthly. Payments of principal and interest are due on May 5, 2025.
Commercial Extension of Credit -On January 31, 2025, the Company's Entertainment Segment entered into a $300,000 purchase agreement with TFL, LLC ("TFL"). TFL agreed to purchase Major League Baseball tickets from the Company's Entertainment Segment for $177,227.93 as well as pay off the remaining balance due to those teams for the Company's Entertainment Segment season tickets of $122,772.07. Profits generated from 2025 All Star Game and 2025 Post season tickets will be split 50/50 between the Parties, paid upon completion of the respective events.
Accounts payable - The Company continues to negotiate with its vendors to settle outstanding balances owed for lesser amounts. In that regard, the Company's Video Solutions Segment and one of its significant vendor's agreed to extinguish accounts payable totaling $2,250,000 for an immediate payment of $500,000. The payment was made on February 25, 2025 resulting in a gain on the extinguishment of liabilities of $1,750,000. The Company continues to negotiate with its vendors to settle outstanding balances owed for lesser amounts.
Termination of Co-Marketing Agreement - On February 20, 2025, the Company's Entertainment Segment entered into a settlement agreement with TicketSocket, Inc. to terminate their Co-Marketing Agreement (which had been in place since September 15, 2022. Both parties acknowledged and agreed that $650,000was still outstanding and due to the Company's Entertainment Segment under the provisions of the Co-Marketing Agreement. However, the parties agreed that $500,000would be accepted by the Company's Entertainment Segment as payment in full if such amount was paid before Tuesday, February 25, 2025. This $500,000was received before February 25, 2025 so, as such, the amounts receivable from TicketSocket, Inc. was fully extinguished. The Company's Entertainment Segment had recorded a reserve for loss on the termination of the Co-Marketing Agreement of $150,000as of December 31, 2024.
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