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

Company: DIGITAL ALLY, INC.
Filing Date: 2025-05-20
Form: 10-Q
Item: Part I, Item 1
Chunk 20
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 first quarter
of 2025.

Intangible assets include deferred
patent costs, license agreements, trademarks and trade names. Legal expenses incurred in preparation of patent application have been deferred
and will be amortized over the useful life of granted patents. Costs incurred in preparation of applications that are not granted will
be charged to expense at that time. The Company has entered into several sublicense agreements under which it has been assigned the exclusive
rights to certain licensed materials used in its products. These sublicense agreements generally require upfront payments to obtain exclusive
rights to such material. The Company capitalizes the upfront payments as intangible assets and amortizes such costs over their estimated
useful life on a straight-line method.

Fair value of assets and liabilities acquired in
business combinations: 

The Company allocates the amount
it pays for each acquisition to the assets acquired and liabilities assumed based on their fair values at the date of acquisition, including
identifiable intangible assets which arise from a contractual or legal right or are separable from goodwill. The Company bases the fair
value of identifiable intangible assets acquired in a business combination on detailed valuations that use information and assumptions
provided by management to valuation specialists, which consider management’s best estimates of inputs and assumptions that a market
participant would use. The Company allocates any excess purchase price that exceeds the fair value of the net tangible and identifiable
intangible assets acquired to goodwill. The use of alternative valuation assumptions, including estimated growth rates, cash flows, discount
rates and estimated useful lives could result in different purchase price allocations and amortization expense in current and future periods.
Transaction costs associated with these acquisitions are expensed as incurred through selling, general and administrative expense on the
condensed consolidated statement of operations. In those circumstances where an acquisition involves a contingent consideration arrangement,
the Company recognizes a liability equal to the fair value of the contingent payments expected to be made as of the acquisition date.
The Company re-measures this liability each reporting period and records changes in the fair value through operating income within the
condensed consolidated statements of operations.

Warrant Derivative Liabilities:

In accordance with FASB ASC 815-40,
Derivatives and Hedging: Contracts in an Entities Own Equity, entities must consider whether to classify contracts that may be settled
in its own stock, such as warrants to purchase shares of Common Stock, as equity of the entity or as an asset or liability. If an event
that is not within the entity’s control could require net cash settlement, then the