Company: DGLY
Filing Date: 2025-08-18
Form Type: 10-Q
Source: 0001641172-25-024667
Chunk: 125

Company: DIGITAL ALLY, INC.
Filing Date: 2025-08-18
Form: 10-Q
Item: Part I, Item 1
Chunk 125
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, both of which was included in goodwill and intangible asset impairment charge on our Condensed Consolidated Statements of Operations
for the three months ended September 30, 2024. The goodwill impairment was primarily driven by recent performance of the revenue cycle
management and entertainment reporting units since our annual impairment testing date, as well as a delay in the projected timing of recovery.
The remaining balance for the goodwill carrying balance related to businesses within our revenue cycle management segment and entertainment
segment was $1,158,966 and $5,805,507, respectively as of June 30, 2025 and December 31, 2024.

66

Warranty Reserves.
We generally provide up to a two-year parts and labor standard warranty on our products to our customers. Provisions for estimated expenses
related to product warranties are made at the time products are sold. These estimates are established using historical information on
the nature, frequency, and average cost of claims. We actively study trends of claims and take action to improve product quality and minimize
claims. Standard warranty exposure on the DVM-800 and DVM-250plus are the responsibility of the contract manufacturers, which reduced
our overall warranty exposure as these are very popular products in our line. There is a risk that we will have higher warranty claim
frequency rates and average cost of claims than our history has indicated on our legacy mirror products compared to our new products for
which we have limited experience. Actual experience could differ from the amounts estimated requiring adjustments to these liabilities
in future periods.

Warrant derivative liabilities.

The Company accounts for their derivative financial
instruments in accordance with ASC 815 “Derivatives and Hedging” therefore any embedded conversion options and warrants accounted
for as derivatives are to be recorded at their fair values as of the inception date of the agreement and at fair 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