Company: DGLY
Filing Date: 2025-08-18
Form Type: 10-Q
Source: 0001641172-25-024667
Chunk: 294

Company: DIGITAL ALLY, INC.
Filing Date: 2025-08-18
Form: 10-Q
Item: Part I, Item 2
Chunk 294
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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 20.9% to 32.5