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TICKETSMARTER ACQUISTION

9 Months Ended

Sep. 30, 2021

Business Combination and Asset Acquisition [Abstract]

NOTE 16. TICKETSMARTER ACQUISTION

On September 1, 2021, Digital Ally, Inc. formed TicketSmarter, Inc. (“TicketSmarter”), through which the Company completed the acquisition of Goody Tickets, LLC, a Kansas limited liability company (“Goody Tickets”) and TicketSmarter, LLC, a Kansas limited liability company (“TicketSmarter LLC”), collectively the “TicketSmarter Acquisition”. In accordance with the stock purchase agreement, the Company agreed to an initial payment (the “Initial Payment Amount”) of $9,403,600 through a combination of cash and common stock. In addition to the Initial Payment Amount, the Company agreed to issue an earn-out agreement to the stockholders of Goody Tickets and TicketSmarter LLC in the contingent amount of $4,244,400 that is subject to an earn-out adjustment based on actual EBITDA achieved in 2021. Lastly, included in the agreement, the Company agreed to place $500,000 in escrow, subject to a working capital adjustment based on actual working capital amounts on the acquisition date as defined in the agreement, this amount was subject to disbursement 45 days following the close of the acquisition. The parties completed the working capital adjustment resulting in the Company retaining $297,726 of the escrow amount with the $202,274 released to the Sellers. The Company anticipates the earn-out amount to be paid in full, therefore, the total aggregate purchase price of the TicketSmarter Acquisition was determined to be approximately $13,850,274. The total acquisition related costs of the TicketSmarter Acquisition aggregated $40,625, which was expensed as incurred.

The Company accounts for business combinations using the acquisition method. Under the acquisition method, the purchase price of the TicketSmarter Acquisition has been allocated to Goody Tickets’ and TicketSmarter LLC’s acquired tangible and identifiable intangible assets and assumed liabilities based on their estimated fair values at the time of the TicketSmarter Acquisition. This allocation involves a number of assumptions, estimates, and judgments that could materially affect the timing or amounts recognized in our financial statements. The TicketSmarter Acquisition was structured as a stock purchase, however the parties agreed to coordinate the election to invoke IRS Section 338(h)(10) relative to this transaction for tax purposes. Therefore, the excess purchase price over the fair value of net tangible assets acquired was recorded as goodwill, which will be amortized over 15 years for income tax filing purposes. The results of operations of acquired businesses are included in the consolidated financial statements from the acquisition date.

The purchase price of the TicketSmarter Acquisition was allocated to Goody Tickets’ and TicketSmarter LLC’s tangible assets, goodwill, identifiable intangible assets, and assumed liabilities based on their estimated fair values at the time of the TicketSmarter Acquisition. The preliminary fair value of assets acquired, and liabilities assumed in the TicketSmarter Acquisition were as follows:

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

Total TicketSmarter Acquisition purchase price	$	13,850,274