Company: DGLY
Filing Date: 2025-11-12
Form Type: 10-Q
Source: 0001493152-25-021680
Chunk: 311

Company: DIGITAL ALLY, INC.
Filing Date: 2025-11-12
Form: 10-Q
Item: Part I, Item 2
Chunk 311
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 to the goodwill
carrying balance for the entertainment segment, 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 September 30,
2025 and December 31, 2024.

Warranty
Reserves. Historically, we recorded an assurance-type warranty liability related to hardware sold. As we have transitioned to
a cloud-based, subscription model in which devices are typically provided as part of the service rather than sold, the volume of products
subject to an assurance-type warranty has become insignificant. For subscription deployments, our obligations consist of maintenance/support
and service-level commitments, which are accounted for under ASC 606 as services (and any service-level credits as variable consideration),
not as assurance-type warranties. Based on claims history and expected costs, anticipated assurance-type warranty costs are immaterial.

55

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 Income Taxes. Accounting for income taxes requires significant estimates and judgments on the part of management. Such estimates
and judgments include, but are not limited to, the effective tax rate anticipated to apply to tax differences that are expected to reverse
in the future, the