Company: DGLY
Filing Date: 2025-11-12
Form Type: 10-Q
Source: 0001493152-25-021680
Chunk: 312

Company: DIGITAL ALLY, INC.
Filing Date: 2025-11-12
Form: 10-Q
Item: Part I, Item 2
Chunk 312
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 sufficiency of taxable income in future periods to realize the benefits of net deferred tax assets and net operating
losses currently recorded and the likelihood that tax positions taken in tax returns will be sustained on audit.

As
required by authoritative guidance, we record deferred tax assets or liabilities based on differences between financial reporting and
tax bases of assets and liabilities using currently enacted rates that will be in effect when the differences are expected to reverse.
Authoritative guidance also requires that deferred tax assets be reduced 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 September 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 to fully reserve our deferred tax assets at September 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 September 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 September 30, 2025 and December 31, 2024 representing uncertain tax
positions.

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