Company: DGLY
Filing Date: 2025-08-18
Form Type: 10-Q
Source: 0001641172-25-024667
Chunk: 297

Company: DIGITAL ALLY, INC.
Filing Date: 2025-08-18
Form: 10-Q
Item: Part I, Item 2
Chunk 297
---
 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 June 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 by
$4,680,000 to a balance of $46,290,000 to fully reserve our deferred tax assets at June 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 June 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 be recorded as an income tax benefit and, for some portion related
to deductions for stock option exercises, an increase in shareholders’ equity.

As required by authoritative
guidance, we have performed a comprehensive review of our portfolio of uncertain tax positions in accordance with recognition standards
established by the FASB, an uncertain tax position represents our expected treatment of a tax position taken in a filed tax return or
planned to be taken in a future tax return, that has not been reflected in measuring income tax expense for financial reporting purposes.
We have no recorded liability as of June 30, 2025 and December 31, 2024 representing uncertain tax positions.

67

We have generated substantial
deferred income tax assets related to our operations primarily from the charge to compensation expense taken for stock options, certain
tax credit carryforwards and net operating loss carryforwards. For us to realize the income tax benefit of these assets, we must generate
sufficient taxable income in future periods when such deductions are allowed for income tax purposes. In some cases where deferred taxes
were the result of compensation expense recognized on stock options, our ability to realize the income tax benefit of these assets is
also dependent on our share price increasing to a point where these options have intrinsic value at least equal