Company: DGLY
Filing Date: 2025-11-12
Form Type: 10-Q
Source: 0001493152-25-021680
Chunk: 133

Company: DIGITAL ALLY, INC.
Filing Date: 2025-11-12
Form: 10-Q
Item: Part I, Item 1
Chunk 133
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 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.

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 September 30, 2025 and December 31, 2024, we have fully reserved
all of our deferred tax assets. Based on a review of our deferred tax assets and recent operating performance, we determined that our
valuation allowance should be increased to fully reserve our deferred tax assets at September 30, 2025 and December 31, 2024. We determined
that it was appropriate to continue to provide a full valuation reserve on our net deferred tax assets as of September 30, 2025 and December
31, 2024, because of the overall net operating loss carryforwards available. We expect to continue to maintain a full valuation allowance
until we determine that we can sustain a level of profitability that demonstrates our ability to realize these assets. To the extent
we determine 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