Company: DGLY
Filing Date: 2025-08-18
Form Type: 10-Q
Source: 0001641172-25-024667
Chunk: 98

Company: DIGITAL ALLY, INC.
Filing Date: 2025-08-18
Form: 10-Q
Item: Part I, Item 1
Chunk 98
---

to a third modification of the TicketSmarter Related Party Note. The modification reduced the outstanding principal amount from $2,678,000
to $2,000,000, eliminated all accrued interest totaling $43,515 as of the date of the third modification, the interest rate remained at
8% per annum, and extended and reduced the repayment amount from $11,000 per week to $9,600 per week beginning January 1, 2026. The modification
was deemed to be an extinguishment of debt resulting in a gain on extinguishment of note payable – related party of $622,622 during
the three and six months ended June 30, 2025.

At the time of the June 4, 2025 modification, management considered the repetitive nature of the modifications as
an indication that the Officer was acting more in his capacity as an equity holder. In addition, management reconsidered the accounting
treatment for the March 20, 2025 modification and changed its estimate whereby, the officer was more likely than not acting in his capacity
as an equity holder in the Company when negotiating the March 20, 2025 debt modification, as well. As a result, the Company determined
the proper accounting treatment for the $622,622 gain on the June 4, 2025 modification as a deemed contribution of capital rather than
a gain recognized in the condensed consolidated statement of operations. In addition, the Company reconsidered the accounting treatment
for the $1,249,372 gain on the March 20, 2025 modification as a deemed contribution of capital rather than a gain recognized in the condensed
consolidated statement of operations. Therefore the $1,249,372 gain on the March 20, 2025 modification was reversed during the quarter
ended June 30, 2025 and recorded as a deemed contribution of capital rather than a gain recognized in the condensed consolidated statement
of operations.

Loss on Extinguishment of debt

During the second quarter of 2024, the Company
refinanced its merchant advance loan and determined the refinancing of the debt should be treated as a debt extinguishment. As a result,
the Company recorded a loss of $68,827 on debt extinguishment during the three months ended June 30, 2024. 

Change in Fair Value of Derivative Liabilities

The change in fair value of
the warrant derivative liabilities for the three months ended June 30, 2025 and