Company: DGLY
Filing Date: 2025-05-20
Form Type: 10-Q
Source: 0001641172-25-011765
Chunk: 87

Company: DIGITAL ALLY, INC.
Filing Date: 2025-05-20
Form: 10-Q
Item: Part I, Item 1
Chunk 87
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angibles
decreased to $-0- for the three months ended March 31, 2025, from $5,582 during the three months ended March 31, 2024.

Change in Fair Value of Derivative Liabilities

The change in fair value of the
warrant derivative liabilities for the three months ended March 31, 2025 and 2024, respectively totaled a gain of $2,515,891 during the
three months ended March 31, 2025 as compared to a loss of $348,891 during the three months ended March 31, 2024.

During 2024, the Company issued
Series A and Series B detachable warrants in conjunction with its June 2024 capital raise. The underlying warrant terms under both of
the Series A and Series B warrants provide for net cash settlement outside the control of the Company in the event of tender offers under
certain circumstances and requires reset provisions which were triggered upon the approval the warrant issuances by the Company’s
shareholders. As such, the Company is required to treat these warrants as derivative liabilities, which are valued at their estimated
fair value at their issuance date and at each reporting date, with any subsequent changes reported in the condensed consolidated statement
of operations as the change in fair value of warrant derivative liabilities. The warrants were approved by shareholders at the Company’s
annual meeting on December 17, 2024, which triggered the reset provisions which resulted in an increase in the estimated fair value of
the Series A and Series B warrants. The holders fully exercised their Series B warrants during the three months ended March 31, 2025 which
caused a deterioration in the market value of the Company’s Common Stock which resulted in a large decrease in the estimated fair
value of the remaining Class A warrants resulting in the gain from the change in fair value of warrant derivative liabilities in the condensed
consolidated statement of operations for the three months ended March 31, 2025.

51

During 2023, the Company issued
detachable warrants to purchase a total of 56,250 shares of Common Stock in association with the two secured convertible notes. The
underlying warrant terms provide for net cash settlement outside the control of the Company in the event of tender offers under certain
circumstances. As such, the Company is required to treat these warrants as derivative liabilities which are valued at their estimated
fair value at their issuance date and at each reporting date with any subsequent