Company: DGLY
Filing Date: 2025-05-20
Form Type: 10-Q
Source: 0001641172-25-011765
Chunk: 230

Company: DIGITAL ALLY, INC.
Filing Date: 2025-05-20
Form: 10-Q
Item: Part I, Item 2
Chunk 230
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– video solutions segment 
     (1,600,459) 
     (2,037,252)
  
    Reserve for excess and obsolete inventory – entertainment segment 
     (48,083) 
     (132,403)
  
    Total inventories 
    $2,489,111  
    $2,586,066 

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 40% of the gross inventory balance
at March 31, 2025, compared to 46% of the gross inventory balance at December 31, 2024. We had $1,648,542 and $2,169,655 in reserves for
obsolete and excess inventories at March 31, 2025 and December 31, 2024, respectively. The decrease in the inventory reserve is primarily
due to the reduction in finished goods and movement of excess inventory. Additionally, the Company determined a reasonable reserve for
inventory held at the ticket operating segment, in which some inventory items sell below cost or go unsold, thus having to be fully written-off
following the event date. We believe the reserves are appropriate given our inventory levels as of March 31, 2025.

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.

57

Goodwill and other intangible
assets. When we acquire a business, we determine the fair value of the assets acquired and liabilities assumed on the date of
acquisition, which may include a significant amount of intangible assets such as customer relationships, software and content, as well
as goodwill. When determining the fair values of the acquired intangible assets, we consider, among other factors, analyses of historical
financial performance and an estimate of the future performance of the acquired business. The fair values of the acquired intangible assets
are primarily calculated using an income approach that relies on discounted cash flows. This method starts with a forecast of the expected
future net cash flows for the asset and then adjusts the forecast to present value by applying a discount rate that reflects the risk
factors associated with the cash flow streams. We consider this approach to be the most appropriate valuation technique