Company: DGLY
Filing Date: 2025-08-18
Form Type: 10-Q
Source: 0001641172-25-024667
Chunk: 41

Company: DIGITAL ALLY, INC.
Filing Date: 2025-08-18
Form: 10-Q
Item: Part I, Item 1
Chunk 41
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 full valuation allowance
on net deferred tax assets as of June 30, 2025, primarily because of the recent operating losses.

The Company incurred operating
losses in recent years, and it continues to be in a three-year cumulative loss position at June 30, 2025. 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 fully reserve its deferred tax assets at
June 30, 2025. 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 June 30, 2025, the Company
had the following estimated Federal net operating loss carry-forwards available to offset future taxable income:

 SCHEDULE
OF FEDERAL NET OPERATING LOSS CARRY FORWARDS

    Amount 
  
    Tax years generated: 

    2017 and before 
    $49,459,000 
  
    2018 and after 
     106,560,000 

    Federal net operating loss carry-forwards available 
    $156,019,000 

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
$1,742,000 available as of June 30, 2025, which expire between 2025 and 2040.

The Company’s 2022 federal
tax return was recently examined by the Internal Revenue Service resulting