PART I – FINANCIAL INFORMATION [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements.) The financial statements show improved equity and reduced net loss, despite ongoing operating losses and a significant Entertainment segment gross loss, supported by capital raises and debt reduction [Condensed Consolidated Financial Statements](index=4&type=section&id=Condensed%20Consolidated%20Financial%20Statements) This section provides the company's condensed consolidated balance sheets, statements of operations, and cash flows Condensed Consolidated Balance Sheets | Financial Metric | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total Assets | $25,963,663 | $27,736,573 | | Total Liabilities | $17,811,958 | $36,750,003 | | **Total Equity (Deficit)** | **$8,151,705** | **($9,013,430)** | Condensed Consolidated Statements of Operations (Three Months Ended June 30) | Income Statement (Three Months Ended June 30) | 2025 | 2024 | | :--- | :--- | :--- | | Total Revenue | $5,632,039 | $5,616,235 | | Gross Profit (Loss) | ($632,625) | $242,392 | | Operating Loss | ($4,095,073) | ($3,914,221) | | Net Loss Attributable to Common Stockholders | ($4,545,201) | ($5,083,861) | | Diluted EPS | ($3.21) | ($3,479.71) | Condensed Consolidated Statements of Operations (Six Months Ended June 30) | Income Statement (Six Months Ended June 30) | 2025 | 2024 | | :--- | :--- | :--- | | Total Revenue | $10,107,303 | $11,145,586 | | Gross Profit | $968,874 | $1,763,830 | | Operating Loss | ($5,069,753) | ($7,553,193) | | Net Loss Attributable to Common Stockholders | ($281,730) | ($9,014,882) | | Diluted EPS | ($0.54) | ($6,234.36) | Condensed Consolidated Statements of Cash Flows (Six Months Ended June 30) | Cash Flow (Six Months Ended June 30) | 2025 | 2024 | | :--- | :--- | :--- | | Net Cash Used in Operating Activities | ($8,644,106) | ($3,408,757) | | Net Cash (Used in) Provided by Investing Activities | ($313,041) | $36,504 | | Net Cash Provided by Financing Activities | $9,125,653 | $3,208,817 | [Note 1: Nature of Business, Policies, and Going Concern](index=12&type=section&id=Note%201%3A%20Nature%20of%20Business%2C%20Policies%2C%20and%20Going%20Concern) This note details the company's operating segments, recent reverse stock splits, and management's assessment of its going concern status - The company operates in three reportable segments: Video Solutions, Revenue Cycle Management, and Entertainment[24](index=24&type=chunk) - The company executed two reverse stock splits in May 2025: a **1-for-20 split** on May 6, and a **1-for-100 split** on May 22[25](index=25&type=chunk)[26](index=26&type=chunk) - The company acknowledges that substantial operating losses raise doubt about its ability to continue as a going concern, however, management believes its cost-cutting measures and recent equity offerings (raising **$14.3 million** in Feb 2025) mitigate this doubt, having improved working capital and stockholders' equity to positive balances as of June 30, 2025[63](index=63&type=chunk)[64](index=64&type=chunk)[69](index=69&type=chunk) [Note 4: Goodwill and Other Intangible Assets](index=21&type=section&id=Note%204%3A%20Goodwill%20and%20Other%20Intangible%20Assets) This note details the company's goodwill and intangible assets, including a significant impairment charge taken in late 2024 - As of June 30, 2025, the company held net goodwill and other intangible assets of **$9,972,472**, a decrease from **$10,654,325** at year-end 2024[72](index=72&type=chunk) - An interim impairment test as of September 30, 2024, resulted in a non-cash goodwill impairment charge of **$4.32 million** for the Revenue Cycle Management segment and **$307,000** for the Entertainment segment, driven by declines in service demand, economic uncertainty, and a decrease in stock price[78](index=78&type=chunk)[81](index=81&type=chunk) - No additional impairment was noted during the annual test as of December 31, 2024, or in the first two quarters of 2025[75](index=75&type=chunk) [Note 5: Debt Obligations](index=24&type=section&id=Note%205%3A%20Debt%20Obligations) This note outlines the company's debt structure and significant reductions achieved through public offering proceeds Debt Obligations Summary | Debt Obligations | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total Debt Obligations | $742,805 | $5,102,526 | | Current Maturities | $603,476 | $4,961,443 | | Long-Term Debt | $139,329 | $141,083 | - The company significantly reduced its debt, paying off **$3.6 million** in Senior Secured Promissory Notes in full on February 13, 2025, using proceeds from its public equity offering[100](index=100&type=chunk) - In February 2025, the Entertainment Segment entered into a new **$600,000** unsecured promissory note[88](index=88&type=chunk) [Note 9: Commitments and Contingencies](index=29&type=section&id=Note%209%3A%20Commitments%20and%20Contingencies) This note details Nasdaq listing compliance issues and the status of significant legal proceedings - The company received multiple notifications from Nasdaq regarding non-compliance with listing rules, including the Minimum Bid Price Requirement, the Stockholders' Equity Requirement, and the Low Priced Stocks Rule[120](index=120&type=chunk)[121](index=121&type=chunk)[125](index=125&type=chunk) - On May 1, 2025, a Nasdaq Hearings Panel granted the company's request for continued listing, subject to meeting certain conditions by specific dates, and management believes it has regained compliance with the key requirements as of June 30, 2025[127](index=127&type=chunk) - In the Culp McAuley lawsuit, the court entered a judgment in favor of the Company for approximately **$4.0 million** against Culp McAuley and two individuals, though the company is uncertain about the amount it will ultimately recover[114](index=114&type=chunk) [Note 12: Stockholders' Equity](index=40&type=section&id=Note%2012%3A%20Stockholders%27%20Equity) This note details the significant increase in stockholders' equity primarily due to a public equity offering in February 2025 - On February 13, 2025, the company completed an underwritten public offering of units and pre-funded units, raising aggregate net proceeds of approximately **$14.3 million**[150](index=150&type=chunk)[156](index=156&type=chunk) - The proceeds were used for working capital, to repay a short-term merchant advance, and to pay off the **$3.6 million** senior secured promissory notes issued in November 2024[152](index=152&type=chunk) [Note 13: Related Party Transactions](index=42&type=section&id=Note%2013%3A%20Related%20Party%20Transactions) This note outlines modifications to a related-party note payable and repayment of loans from the CEO - A related-party note payable to a trust associated with an officer of TicketSmarter was modified multiple times in 2025, with these modifications, including principal reduction and interest elimination, ultimately treated as deemed capital contributions totaling **$1,871,994**, rather than gains on debt extinguishment[169](index=169&type=chunk)[170](index=170&type=chunk)[171](index=171&type=chunk) - The company's CEO provided loans totaling **$140,000** in late 2024, which were paid off in full during the first six months of 2025[172](index=172&type=chunk) [Note 17: Operating Segments](index=45&type=section&id=Note%2017%3A%20Operating%20Segments) This note presents detailed financial performance data for the company's Video Solutions, Revenue Cycle Management, and Entertainment operating segments Segment Performance (Three Months Ended June 30, 2025) | Segment Performance (Three Months Ended June 30, 2025) | Net Revenues | Operating Income (Loss) | | :--- | :--- | :--- | | Video Solutions | $1,340,672 | ($172,646) | | Revenue Cycle Management | $1,432,294 | $114,281 | | Entertainment | $2,859,073 | ($2,567,886) | | Corporate | N/A | ($1,468,822) | | **Total** | **$5,632,039** | **($4,095,073)** | Segment Performance (Six Months Ended June 30, 2025) | Segment Performance (Six Months Ended June 30, 2025) | Net Revenues | Operating Income (Loss) | | :--- | :--- | :--- | | Video Solutions | $2,262,954 | ($5,365) | | Revenue Cycle Management | $2,782,845 | $121,651 | | Entertainment | $5,061,504 | ($2,872,465) | | Corporate | N/A | ($2,313,574) | | **Total** | **$10,107,303** | **($5,069,753)** | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=50&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations.) Management discusses operational and financial events, highlighting improved liquidity from a public offering, reduced SG&A, and a lower net loss despite gross profit declines from the Entertainment segment [Results of Operations - Comparison of Three Months Ended June 30, 2025 and 2024](index=53&type=section&id=Results%20of%20Operations%20-%20Comparison%20of%20Three%20Months%20Ended%20June%2030%2C%202025%20and%202024) This section analyzes the company's financial performance for the three months ended June 30, 2025, compared to the prior year - Total revenue was flat at **~$5.6 million**, with Video Solutions product revenue falling **29.4%** due to competition and inventory shortages, while Entertainment product revenue grew **9.7%** driven by the Country Stampede music festival[217](index=217&type=chunk)[223](index=223&type=chunk) - Gross profit swung from a **$242k profit** in Q2 2024 to a **($633k) loss** in Q2 2025, primarily caused by the Entertainment segment's gross loss widening significantly to **($1.55 million)**, largely due to negative margins from the 2025 Country Stampede Music Festival[233](index=233&type=chunk) - Selling, General and Administrative (SG&A) expenses decreased by **17%** to **$3.5 million** from **$4.2 million**, reflecting significant cost-cutting in R&D and selling/advertising[234](index=234&type=chunk) - Net loss attributable to common stockholders improved to **($4.5 million)** from **($5.1 million)**, mainly due to a non-cash gain of **$857k** from the change in fair value of warrant derivative liabilities[249](index=249&type=chunk)[257](index=257&type=chunk) [Results of Operations - Comparison of Six Months Ended June 30, 2025 and 2024](index=64&type=section&id=Results%20of%20Operations%20-%20Comparison%20of%20Six%20Months%20Ended%20June%2030%2C%202025%20and%202024) This section analyzes the company's financial performance for the six months ended June 30, 2025, compared to the prior year - Total revenue decreased **9.3%** to **$10.1 million** from **$11.1 million**, driven by a **63.3%** drop in Video Solutions product revenue[262](index=262&type=chunk)[264](index=264&type=chunk) - Gross profit decreased to **$0.97 million** from **$1.76 million**, with the Entertainment segment's gross loss widening from **($155k)** to **($974k)**[273](index=273&type=chunk) - Operating loss improved by **32.9%** to **($5.1 million)** from **($7.6 million)**, a direct result of a **35% ($3.3 million)** reduction in SG&A expenses from company-wide right-sizing efforts[274](index=274&type=chunk)[277](index=277&type=chunk) - Net loss attributable to common stockholders improved dramatically to **($282k)** from **($9.0 million)**, primarily due to a **$3.4 million** non-cash gain on warrant derivative liabilities and a **$2.2 million** gain on extinguishment of liabilities[282](index=282&type=chunk)[283](index=283&type=chunk)[292](index=292&type=chunk) [Liquidity and Capital Resources](index=72&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses the company's cash position, operating cash flows, and significant capital raising activities - Cash and cash equivalents increased to **$622,820** at June 30, 2025, from **$454,314** at year-end 2024[295](index=295&type=chunk) - Net cash used in operating activities was **$8.6 million** for the six-month period, a significant increase from **$3.4 million** in the prior year, mainly due to repayment of accounts payable[299](index=299&type=chunk) - Financing activities provided **$9.1 million** in cash, primarily from the February 2025 public equity offering which raised **$14.3 million** in net proceeds, with these funds used to repay debt and fund operations[299](index=299&type=chunk) - The company's recurring losses and accumulated deficit raise substantial doubt about its ability to continue as a going concern[294](index=294&type=chunk) [Critical Accounting Estimates](index=75&type=section&id=Critical%20Accounting%20Estimates) This section identifies key accounting estimates requiring significant management judgment, including goodwill impairment and warrant derivative valuations - Management identifies several critical accounting estimates, including Revenue Recognition, Allowance for Excess and Obsolete Inventory, Goodwill and other intangible assets, Warranty Reserves, Fair value of assets and liabilities acquired in business combinations, Fair value of warrant derivative liabilities, Stock-based Compensation Expense, and Accounting for Income Taxes[308](index=308&type=chunk) - Goodwill impairment testing requires significant judgment regarding future cash flows and discount rates, with an interim test in Q3 2024 leading to a significant impairment charge[329](index=329&type=chunk)[332](index=332&type=chunk) - Warrant derivative liabilities are accounted for at fair value using the Black-Scholes model, which includes subjective inputs that can materially affect fair value estimates and result in non-cash gains or losses[334](index=334&type=chunk)[335](index=335&type=chunk) - The company maintains a full valuation allowance against its deferred tax assets due to a history of operating losses, meaning it is not recognizing any potential future tax benefits from its losses[337](index=337&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=80&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk.) As a smaller reporting company, the company is not required to provide disclosures on market risk - Not Applicable[341](index=341&type=chunk) [Item 4. Controls and Procedures](index=80&type=section&id=Item%204.%20Controls%20and%20Procedures.) Management concluded that disclosure controls and procedures were ineffective as of June 30, 2025, with a remediation plan currently in progress - The CEO and CFO have concluded that the Company's disclosure controls and procedures were not effective as of June 30, 2025[342](index=342&type=chunk) - A remediation plan is in progress, involving a full review of internal controls, hiring additional personnel, and establishing more robust processes[343](index=343&type=chunk) PART II - OTHER INFORMATION [Item 1. Legal Proceedings](index=81&type=section&id=Item%201.%20Legal%20Proceedings.) The company refers to Note 9 for legal proceedings and does not expect current claims to materially affect its financial condition - Information regarding legal proceedings is incorporated by reference from Note 9 – Commitments and Contingencies[346](index=346&type=chunk) - Management does not expect pending lawsuits to have a material adverse effect on the company's operations, financial condition, or cash flows[347](index=347&type=chunk) [Item 1A. Risk Factors](index=81&type=section&id=Item%201A.%20Risk%20Factors.) As a smaller reporting company, the company is not required to provide information on risk factors - As a smaller reporting company, the company is not required to provide the information required by this Item[348](index=348&type=chunk)

Core Insights - Digital Ally, Inc. has made significant progress in reducing its backlog and securing high-value contracts, indicating operational improvements and strong market demand for its products [1][3]. Group 1: Backlog Reduction - The company has successfully reduced its backlog to $1.7 million from $2.2 million at the end of Q1 2025, reflecting its commitment to optimizing processes [2]. - Digital Ally aims to continue reducing its backlog while enhancing operational efficiency to ensure faster turnaround times and improved customer satisfaction [4]. Group 2: Contract Acquisition - Recently, Digital Ally finalized at least seven notable contracts expected to generate revenues exceeding $800,000, reinforcing its industry leadership [3]. - The contracts highlight the growing demand for the company's advanced video surveillance technology across various sectors [3]. Group 3: Operational Focus - The company is focused on streamlining production and enhancing operational efficiency to better serve clients and strengthen its market presence [5]. - Digital Ally is dedicated to advancing its portfolio of innovative safety solutions and driving sustainable growth [5].

Financial Data and Key Metrics Changes - Year-over-year revenues decreased by over $1 million or 19% for the first quarter of 2025 compared to the first quarter of 2024 [10] - Despite the revenue decline, gross margin dollars improved by $78,000 to 5%, and overall gross margin percentage increased to 36% from 28% year-over-year [13] - Operating loss improved to almost $1 million from $3.6 million in the prior year, representing a 73% improvement [16] - Net income for the first quarter of 2025 was $4.2 million or $1.41 per share, a turnaround of over $8 million from a loss of $3.9 million in 2024 [17] Business Line Data and Key Metrics Changes - Video product sales were down significantly year-over-year, but service revenue increased, indicating a positive trend [11] - The entertainment segment saw a decrease in revenues due to shedding uneconomical sponsorships, but profits improved [12] - The Custom 440 event production group has not had any events in 2025 yet, with the first event scheduled for June 29 [12] Market Data and Key Metrics Changes - The company reported a backlog of over $2 million, which is expected to be fulfilled in the upcoming quarters [11] - Deferred revenue remains strong at over $10 million, indicating growth potential in the subscription model [30] Company Strategy and Development Direction - The company is focused on core businesses and aims to rebuild its legacy, particularly in video solutions and customer entertainment [4][5] - Plans to explore new products and patents are in place, with announcements expected in the coming quarters [31] - The company is working on regaining compliance with NASDAQ, having improved its equity position significantly [23][24] Management's Comments on Operating Environment and Future Outlook - Management described the first quarter of 2025 as a watershed moment, marking a shift from previous challenges [9] - There is optimism about the future, with expectations for improved revenue figures in the second quarter due to upcoming events [12][18] - The company is excited about securing headliners for future events, which is expected to enhance cash flow and growth [33] Other Important Information - The company successfully completed a $14 million public offering, which significantly improved its liquidity and balance sheet [19][20] - Accounts payable were reduced by $6.7 million during the quarter, contributing to a positive working capital position [20] - The company executed two reverse stock splits to regain compliance with NASDAQ, which was deemed necessary to avoid delisting [26][27] Q&A Session Summary Question: What are the expectations for future revenue growth? - Management expressed optimism about the second quarter revenue figures turning around due to upcoming events and a strong backlog [12][18] Question: How is the company addressing NASDAQ compliance issues? - The company has improved its equity position and is working on meeting the minimum bid price requirement for NASDAQ compliance [23][24][25] Question: What is the outlook for new product developments? - Management indicated that new products and patents will be announced in the coming quarters, with positive market reception anticipated [31]

Financial Data and Key Metrics Changes - Year-over-year revenues decreased by over $1 million or 19% in Q1 2025 compared to Q1 2024, primarily due to a significant drop in video product sales [11][12] - Despite the revenue decline, gross margin dollars improved by $78,000 to 5%, with overall gross margin percentage increasing to 36% from 28% year-over-year [14] - Operating loss improved to nearly $1 million from $3.6 million in the prior year, marking a 73% improvement [17] - Net income for Q1 2025 was $4.2 million or $1.41 per share, a turnaround of over $8 million from a loss of $3.9 million in 2024 [18][19] - Cash on the balance sheet increased to $3.8 million from $400,000 at the end of 2024, with working capital turning positive at $3.4 million [20][21] Business Line Data and Key Metrics Changes - Video product sales saw a significant decline year-over-year, but service revenue increased, indicating a positive trend in service offerings [12] - The entertainment segment's revenues decreased, but profits increased due to the refocusing of TicketSmarter to eliminate uneconomical sponsorships [13] - The Custom 440 event production group has not held any events in 2025 yet, with the first event scheduled for June 29, which is expected to positively impact second-quarter revenues [13][14] Market Data and Key Metrics Changes - The company has a backlog of over $2 million, which is expected to be fulfilled in the upcoming quarters, positively affecting future revenue figures [12][30] - Deferred revenue remains strong at over $10 million, indicating a healthy subscription model that is growing [31] Company Strategy and Development Direction - The company is focused on core businesses and aims to rebuild its legacy, particularly in video solutions and customer entertainment [5][6] - Plans to explore new products and patents are in place, with announcements expected in the coming quarters [32] - The company is working on regaining compliance with NASDAQ, having addressed previous noncompliance issues related to equity and share price [24][26] Management's Comments on Operating Environment and Future Outlook - Management views Q1 2025 as a watershed moment, indicating a significant turnaround and a focus on operational improvements [19] - There is optimism about the future, with expectations of growth in both the legal solutions and entertainment sectors [32][36] - The company is excited about upcoming events and partnerships, which are anticipated to enhance cash flow and market presence [34][36] Other Important Information - The company executed two reverse stock splits to regain compliance with NASDAQ, which was deemed necessary to avoid delisting [27][28] - The total common shares outstanding are now 1,668,735, with a market capitalization of over $7 million [29] Q&A Session Summary Question: What are the company's plans for future growth? - The company is focusing on fulfilling back orders and leveraging its deferred revenue from the subscription model, which remains attractive and is expected to grow [30][31] Question: How is the company addressing NASDAQ compliance? - The company has resolved previous noncompliance issues and is currently working on meeting the $1 minimum bid price requirement [24][26] Question: What is the outlook for the entertainment segment? - The company anticipates significant growth in the entertainment segment, with plans for multiple events in 2026 and a clear path for development [34][36]

Group 1 - Digital Ally, Inc. will host an investor conference call on May 28, 2025, at 11:15 a.m. Eastern time to discuss its Q1 2025 operating results and future plans [1] - The company filed its Quarterly Report on Form 10-Q for Q1 2025 on May 21, 2025, and encourages participants to review it prior to the call [1] - Shareholders can join the conference call by dialing (646) 307-1865 or toll-free (800) 717-1738 with conference ID 03891 [2] Group 2 - A replay of the conference call will be available two hours after its completion, accessible until June 28, 2025, at 11:59 PM EDT [2] - Digital Ally, Inc. operates in video solution technology, healthcare revenue cycle management, ticket brokering, and marketing and event production [3] - The company continues to acquire organizations that exhibit positive earnings, growth potential, innovation, and organizational synergies [3] Group 3 - For additional inquiries, Stanton E. Ross, CEO, can be contacted at (913) 814-7774 [4]

Company Overview - Digital Ally, Inc. announced its first quarter operating results on May 21, 2025[4] - The company is listed on the Nasdaq Capital Market under the trading symbol DGLY[3] - The company has not indicated if it is an emerging growth company[3] Financial Reporting - The report includes forward-looking statements that may impact future performance[7] - The financial condition and results of operations are disclosed in Item 2.02 of the report[4] - The report does not include specific financial metrics or performance data[4] - The company has not provided guidance or outlook for future quarters in the current report[4] Product and Market Information - There are no mentions of new products, technologies, or market expansions in the current report[4] Regulatory Information - The report is not deemed "filed" under the Securities Exchange Act of 1934[5] - The press release is attached as Exhibit 99.1, detailing the financial results[8]

Core Insights - Digital Ally, Inc. reported earnings per share of $1.41 for the first quarter of 2025, a significant turnaround from a net loss of ($27.48) per share in the prior year [1][5]. Financial Performance - Total revenue decreased by 19% to $4.4 million compared to $5.5 million in the first quarter of 2024 [5]. - Gross profit margin improved to 35.8% of revenue, up from 27.6% in the prior-year period [5]. - Selling, general and administrative expenses declined by 50.1% from year-earlier levels [5]. - The company reported an operating loss of $974,680, which is an improvement of $2,664,354 or 73.2% compared to the first quarter of 2024 [5]. - Non-operating gains amounted to $5,241,762, representing an improvement of $5,545,996 from the first quarter of 2024 [5]. - Net income attributable to common stockholders improved to $4,263,471, compared to a net loss of ($3,931,020) in the previous year [5]. - Total working capital improved to a positive $3,385,051 as of March 31, 2025, compared to a deficit of $(19,377,507) as of December 31, 2024 [5]. - Total stockholders' equity improved to $11,569,375 as of March 31, 2025, compared to a deficit of $(9,013,430) as of December 31, 2024 [5]. Strategic Initiatives - The company has focused on reducing overhead expenses, decreasing headcount, and emphasizing a subscription-based sales model for its video solutions segment [3]. - A successful restructuring of the law enforcement products sales organization has contributed to improved financial performance [3]. - The company completed a $14.3 million public equity offering in the first quarter of 2025, enhancing liquidity and exceeding the minimum equity threshold for Nasdaq listing [3]. Future Outlook - The company anticipates improved revenues and operating profits in its entertainment segment as it approaches the Country Stampede Music Festival scheduled for June 26-28, 2025 [3]. - Despite challenges in the law enforcement products market, the company is optimistic about its ability to respond to industry changes and maintain sustainable profitability [3].

Financial Position - The company reported a stockholders' equity deficit of ($2,448,310) as of September 30, 2024, failing to meet the Nasdaq Stockholders' Equity Requirement of $2,500,000 [201]. - The company is required to demonstrate compliance with the Minimum Bid Price Requirement by June 6, 2025, to avoid delisting from Nasdaq [205]. - The company has no off-balance sheet debt or significant contingent obligations that could materially affect its financial condition [213]. - Total identifiable assets decreased to $30,256,336 in Q1 2025 from $45,164,195 in Q1 2024, reflecting a significant reduction in asset base [221]. - The company had net positive working capital of $3,385,051 as of March 31, 2025, with accounts receivable and other receivables totaling $4,923,191 [257]. - Total operating lease obligations amounted to $680,628 as of March 31, 2025, with minimum future lease payments totaling $789,235 [260]. - The company has fully reserved all deferred tax assets, increasing the valuation allowance by $4,680,000 to a total of $46,290,000 as of March 31, 2025, due to net operating loss carryforwards [296]. - The company has no recorded liability for uncertain tax positions as of March 31, 2025, and December 31, 2024, indicating a stable tax position [297]. Revenue Performance - Total net revenues for the three months ended March 31, 2025, were $4,475,264, a decrease of $1,054,087 (19%) compared to $5,529,351 in 2024 [221]. - Product revenues decreased by $844,496 (53.9%) to $721,350 in Q1 2025 from $1,565,846 in Q1 2024, primarily due to declines in the video solutions and entertainment segments [219]. - Video solutions segment generated revenues of $54,231 in Q1 2025, down from $721,188 in Q1 2024, reflecting increased competition and inventory shortages [219]. - Service and other revenues totaled $3,753,914 in Q1 2025, a decrease of $209,591 (5%) from $3,963,505 in Q1 2024 [220]. - The entertainment segment generated service revenues of $1,535,313 in Q1 2025, a slight increase of $3,512 (0.2%) compared to $1,531,801 in Q1 2024 [222]. - Cloud revenues from the video solutions segment were $594,742 in Q1 2025, a slight decrease of $21,746 (4%) from $616,488 in Q1 2024, indicating ongoing interest in cloud solutions [222]. - The entertainment segment is expected to generate higher revenues in the second half of the calendar year compared to the first half, indicating a seasonal revenue pattern [299]. Operating Results - Operating income for the total company was a loss of $974,680 in Q1 2025, an improvement from a loss of $3,639,034 in Q1 2024 [221]. - Operating loss improved by $2,664,354 (73%) from $3,639,034 in Q1 2024 to $974,680 in Q1 2025 [233]. - Gross profit increased by $272,335 (18%) from $1,523,699 in Q1 2024 to $1,796,034 in Q1 2025 [228]. - Cost of service revenues as a percentage of service revenues decreased to 59% in Q1 2025 from 62% in Q1 2024 [225]. Expenses and Cash Flow - Selling, general and administrative expenses decreased by $2,586,554 (50%) from $5,162,733 in Q1 2024 to $2,576,179 in Q1 2025 [229]. - Research and development expenses decreased by $403,049 (83%) from $487,466 in Q1 2024 to $84,417 in Q1 2025 [230]. - Net cash used in operating activities was $5,754,761 for the three months ended March 31, 2025, a deterioration of $4,836,216 compared to $918,545 in 2024 [255]. - Net cash provided by financing activities was $9,148,502 for the three months ended March 31, 2025, significantly higher than $1,005,027 in 2024, driven by a public equity offering [255]. Inventory and Capital Management - The company intends to reduce inventory levels of $2,489,111 during 2025 to improve cash flow [257]. - Total inventories as of March 31, 2025, amounted to $2,489,111, a decrease from $2,586,066 on December 31, 2024, reflecting a reduction in finished goods and movement of excess inventory [279]. - Inventory reserves represented 40% of the gross inventory balance at March 31, 2025, down from 46% at December 31, 2024, with reserves for obsolete and excess inventories totaling $1,648,542 as of March 31, 2025 [279]. Impairment and Goodwill - The company recorded a non-cash goodwill impairment charge of $4,322,000 for the revenue cycle management segment and $307,000 for the entertainment segment as of September 30, 2024, due to performance declines and delays in recovery [290]. - The company performed an impairment test for reporting units with remaining goodwill due to a decline in demand and economic uncertainty, leading to a comprehensive evaluation of fair values [287]. - The weighted average cost of capital used in the most recent impairment test ranged from 20.9% to 32.5%, with fair values for the video solutions reporting unit substantially exceeding its carrying value [288]. Business Risks and Future Outlook - The company has faced significant business risks, including losses in recent years and the impact of the COVID-19 pandemic on its customer base [198]. - The company has a lengthy sales cycle, which may lead to significant resource expenditure without guaranteed revenue [198]. - The company expects to improve video solutions product sales in 2025 due to the ramping up of the supply chain funded by a public equity offering [223]. - The company is in discussions to raise additional capital to restore positive operating cash flows and fund operations over the next 12 months [254].

Core Points - Digital Ally, Inc. has received approval from the Nasdaq Hearings Panel for continued listing on Nasdaq, contingent upon meeting specific criteria [1] - The company must achieve a stockholders' equity of $2.5 million by May 20, 2025, and maintain a bid price of at least $1.00 by June 6, 2025 [1] - Compliance with all other applicable listing criteria is required through September 2, 2025 [1][2] Company Overview - Digital Ally operates in various sectors including video solution technology, health protection products, healthcare revenue cycle management, ticket brokering, marketing, event production, and jet chartering [3] - The company aims to acquire organizations that exhibit positive earnings, growth potential, innovation, and organizational synergies [3]

Company Announcement - Digital Ally, Inc. announced a 1-for-20 reverse stock split of its common stock, which will begin trading on a split-adjusted basis on May 7, 2025 [1] - The reverse stock split was approved by stockholders at the annual meeting held on December 17, 2024, with the Board of Directors determining the specific ratio [2] Stockholder Information - Securities Transfer Corporation will provide instructions to stockholders regarding the exchange of stock certificates, while those holding shares in book-entry form or brokerage accounts do not need to take any action [3] Company Overview - Digital Ally operates in various sectors including video solution technology, health protection products, healthcare revenue cycle management, ticket brokering, event production, and jet chartering, focusing on organizations with positive earnings and growth potential [4]