KUSTOM ENTERTAINMENT, INC.
For the period ended Mar 31, 2026. Filed May 15, 2026.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Mar 31, 2026 · Filed May 15, 2026
KUST$3.16-0.9%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2025-09-30; filed 2025-11-12.
0001493152-25-021680
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2026-03-31; filed 2026-05-15.
0001493152-26-023222
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 222 previous paragraphs and 166 current paragraphs.
53 unchanged; 41 reworded; 70 added; 112 removed; 16 previous and 2 current paragraphs rearranged.
Tables are not compared: 41 previous and 23 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (70)
Current report
Name change
Current report
The Company changed its name from Digital Ally, Inc. to Kustom Entertainment, Inc., reflecting the strategic shift to live entertainment as the Company’s primary line of business.
Current report
Reverse stock splits
Current report
Effective January 8, 2026, the Company effected a 1-for-3 reverse stock split of its common stock. Subsequently, effective April 22, 2026, the Company effected a 1-for-5 reverse stock split to comply with the Minimum Bid Price Requirement. All share and per-share amounts presented in this Report have been retroactively adjusted to reflect both reverse stock splits.
Current report
Disposition of Nobility Healthcare
Current report
Effective January 1, 2026, pursuant to a Unit Purchase Agreement, the Company completed the sale of its 51% membership interest in Nobility Healthcare, exiting the revenue cycle management business entirely. Total consideration stated in the Agreement was $1,450,000, consisting of (i) $100,000 in cash paid at closing, (ii) closing credits of $209,501 related to prior advances from the Buyer and net working capital adjustments, and (iii) a promissory note issued by the Buyer to the Seller in the principal amount of $1,140,499, recorded at an estimated fair value of $1,117,303 on the date of disposition. The principal amount of the note is subject to quarterly earn-out adjustments during the twelve-month measurement period following the January 8, 2026 issue date, with the first installment payment scheduled for July 28, 2026 and the earn-out mechanism terminating January 8, 2027. The disposition has been accounted for as a discontinued operation, and all prior-period results of Nobility Healthcare have been reclassified accordingly. For the three months ended March 31, 2026, the Company recognized a loss from discontinued operations of $(4,371,588), consisting of (i) a $(1,556,254) loss on sale, (ii) a $(2,457,415) loss on deconsolidation, and (iii) a $(357,919) adjustment to the carrying value of the note receivable based on post-closing performance of the divested business. SeeNote 22, Discontinued Operations to the condensed consolidated financial statements for additional information.
Current report
Extinguishment of senior secured convertible notes
Current report
During January 2026, the holder of the Company’s Senior Secured Convertible Notes (originally issued in September 2025 and December 2025) converted the entire $1,070,000 aggregate outstanding principal balance into 111,608 shares of the Company’s common stock across eight conversion tranches, fully extinguishing the notes. In connection with the conversions, the $854,827 of remaining unamortized debt discount was eliminated against additional paid-in capital in accordance with ASC 470-20, and the bifurcated conversion feature derivative liability, with an aggregate fair value of $1,142,191 at the dates of conversion, was reclassified from derivative liabilities to additional paid-in capital. As of March 31, 2026, the Company has no outstanding convertible debt.
Current report
Video Solutions Operating Segment
Current report
Entertainment Operating Segment
Current report
Total identifiable assets as of March 31, 2025 included amounts related to the discontinued Revenue Cycle Management segment (Nobility Healthcare), which were included in the “Corporate and other” category. Following the disposition of Nobility Healthcare on January 8, 2026, no discontinued operations assets are included in identifiable assets as of March 31, 2026. SeeNote 22, Discontinued Operations, for additional information.
Current report
The segments recorded non-cash items affecting gross profit and operating income (loss) through the establishment of inventory reserves based on estimates of excess and/or obsolete current and non-current inventory. The Company recorded a reserve for excess and obsolete inventory in the Video Solutions segment of $1,751,603 and $1,849,124, and a reserve for the Entertainment segment of $71,223 and $69,817, as of March 31, 2026 and December 31, 2025, respectively.
Current report
Our Video Solutions segment sells our products and services to customers in the following manner:
Current report
Our Entertainment Segment sells our products and services to customers in the following manner:
Current report
Product revenues for the three months ended March 31, 2026 and 2025 were $562,226 and $721,350, respectively, a decrease of $159,124 (22.1%), due to the following factors:
Current report
Service and other revenues for the three months ended March 31, 2026 and 2025 were $3,752,010 and $2,403,363, respectively, an increase of $1,348,647 (56.1%), due to the following factors:
Current report
The increase in Video Solutions segment cost of product revenues to $401,591 for the three months ended March 31, 2026 from $64,552 for the three months ended March 31, 2025 was primarily attributable to higher product sales volumes following the replenishment of the product supply chain funded by the February 2025 public equity offering, which enabled the Company to fulfill a portion of its previously existing backlog orders during the first quarter of 2026. Cost of product revenues as a percentage of product revenues for the Video Solutions segment increased to approximately 177.6% for the three months ended March 31, 2026 from approximately 119.0% for the three months ended March 31, 2025, reflecting changes in inventory reserve activity and the continued impact of fixed manufacturing and overhead costs on the segment’s product revenue base.
Current report
The decrease in Entertainment segment cost of product revenues reflects lower absolute costs, with cost of product revenues decreasing to $380,657 for the three months ended March 31, 2026 from $611,087 for the three months ended March 31, 2025. This represents a decrease of $230,430 (37.7%), which correlates with the decrease in Entertainment segment product revenues during the period. Cost of product revenues as a percentage of product revenues increased to approximately 113.3% for the three months ended March 31, 2026 compared to approximately 91.6% for the three months ended March 31, 2025, primarily driven by changes in ticket inventory mix and write-offs of ticket inventory sold below cost or unsold following event dates.
Current report
The Company recorded a reserve for excess and obsolete inventory in the Video Solutions segment of $1,751,603 and $1,849,124 as of March 31, 2026 and December 31, 2025, respectively, representing a decrease of $97,521 (5.3%). The decrease in the reserve balance was primarily attributable to the disposal and utilization of inventory that had been fully reserved in prior periods, as well as continued inventory management and lower on-hand inventory levels during the period. The Company also recorded a reserve for excess and obsolete inventory in the Entertainment segment of $71,223 and $69,817 as of March 31, 2026 and December 31, 2025, respectively, representing a slight increase of $1,406 (2.0%). The reserve relates primarily to ticket inventory, where certain items may sell below cost or become unsellable following the related event date and therefore require write-off. The Company evaluates inventory reserves on a regular basis, considering factors such as historical sales activity, expected future demand, inventory aging, and realizable value. Management believes the recorded reserves for excess and obsolete inventories are appropriate based on inventory levels and operating conditions as of March 31, 2026.
Current report
Overall cost of service revenues for the three months ended March 31, 2026 and 2025 was $2,927,941 and $1,315,238, respectively, representing an increase of $1,612,703 (122.6%). Cost of service revenues as a percentage of total service revenues increased to approximately 78.0% for the three months ended March 31, 2026 compared to approximately 54.7% for the three months ended March 31, 2025. Cost of service revenues by operating segment is as follows:
Current report
The Video Solutions segment cost of service revenues remained relatively stable, increasing slightly to $321,358 for the three months ended March 31, 2026 from $301,968 for the three months ended March 31, 2025, an increase of $19,390 (6.4%). Cost of service revenues as a percentage of service revenues for the Video Solutions segment increased to approximately 36.4% for the three months ended March 31, 2026 compared to approximately 34.8% for the three months ended March 31, 2025. The modest increase reflects higher cloud storage and service delivery costs partially offset by stable revenue performance across the Company’s cloud-based solutions and extended warranty services.
Current report
The increase in Entertainment segment cost of service revenues was primarily driven by higher transaction volumes and increased service activity within the TicketSmarter platform, including payment processing, fulfillment, and other transaction-based costs. Cost of service revenues increased to $2,606,583 for the three months ended March 31, 2026 from $1,013,270 for the three months ended March 31, 2025, an increase of $1,593,313 (157.2%). Cost of service revenues as a percentage of service revenues for the Entertainment segment increased to approximately 90.8% for the three months ended March 31, 2026 compared to approximately 66.0% for the three months ended March 31, 2025. The increase in cost as a percentage of service revenues reflects changes in transaction mix, higher variable processing costs, and continued investments to support platform scale. Management is focused on right-sizing the business and improving operational efficiency to support long-term profitability and operational stability.
Current report
The decrease in gross profit reflects increases in cost of revenue that outpaced revenue growth across both the Video Solutions segment and Entertainment segment for the three months ended March 31, 2026. Cost of revenue as a percentage of overall revenues increased to approximately 86.0% for the three months ended March 31, 2026 compared to approximately 63.7% for the three months ended March 31, 2025, resulting in a corresponding decline in gross margin. This increase was driven primarily by lower product and service margins within the Entertainment segment, including higher variable processing and fulfillment costs on the TicketSmarter platform and ticket inventory sold below cost or written off when unsold following event dates, as well as elevated cost ratios within the Video Solutions segment reflecting inventory reserve activity and continued pricing pressure. During the three months ended March 31, 2026, the Company continued to implement cost-containment and margin improvement initiatives, including workforce reductions, the completed divestiture of the Revenue Cycle Management segment, and a continued transition toward a service and subscription-based revenue model within the Video Solutions segment. Management’s longer-term objective is to improve gross margins through a more favorable revenue mix, increased adoption of higher-margin service offerings, and operational efficiencies across the organization. We plan to continue initiatives focused on more efficient management of our supply chain, including outsourcing production where appropriate, optimizing purchase quantities, and implementing more effective purchasing practices.
Current report
Selling, general and administrative expenses for the three months ended March 31, 2026 and 2025 were $1,901,034 and $2,115,886, respectively, representing a decrease of $214,852 (10.2%). Selling, general and administrative expenses consist primarily of research and development expenses, selling, advertising and promotional expenses, general and administrative expenses, and goodwill and intangible asset impairment charges. The significant components of selling, general and administrative expenses are as follows:
Current report
***Research and development expense.***Our research and development expenses totaled $143,089 and $84,417 for the three months ended March 31, 2026 and 2025, respectively, representing an increase of $58,672, or 69.5%. The increase reflects continued investment in the development of new products and enhancements to existing products within the Video Solutions segment. Research and development activities include engineering costs, product design, testing, and related development efforts.
Current report
***Selling, advertising and promotional expenses.***Selling, advertising and promotional expenses totaled $274,411 and $96,381 for the three months ended March 31, 2026 and 2025, respectively, representing an increase of $178,030 (184.7%). The increase in selling, advertising and promotional expenses reflects higher marketing and promotional activity, including expenditures related to the TicketSmarter platform and the 2026 Country Stampede music festival scheduled for June 2026.
Current report
Interest income increased to $76,806 for the three months ended March 31, 2026, from $31,975 in 2025, primarily reflecting interest accretion on the promissory note received as partial consideration in connection with the January 2026 sale of Nobility Healthcare.
Current report
We incurred interest expense of $67,450 and $792,273 during the three months ended March 31, 2026 and 2025, respectively, representing a decrease of $724,823 (91.5%). The decrease is primarily attributable to the extinguishment of the senior secured promissory notes in 2025 that carried significant debt discount amortization, as well as the conversion of the 2025 Senior Secured Convertible Notes to common stock during the three months ended March 31, 2026, which eliminated future interest expense on those instruments.
Current report
The Company recognized no other income for the three months ended March 31, 2026, compared to $16,700 for the three months ended March 31, 2025, which related to income associated with a warehouse sublease at the corporate headquarters that ceased during 2025.
Current report
Gain on Extinguishment of Debt -related party
Current report
The Company did not recognize any gain on extinguishment of debt - related party during the three months ended March 31, 2026, compared to a gain of $1,249,372 during the three months ended March 31, 2025. The prior-period gain arose from the March 20, 2025 modification of the TicketSmarter Related Party Note. Following a subsequent modification in June 2025, management changed its estimate regarding the capacity in which the noteholder was acting and reclassified the $1,249,372 to additional paid-in capital as a deemed capital contribution during the three months ended June 30, 2025. SeeNote 17, Related Party Transactions, for additional information.
Current report
The Company recorded a gain on the extinguishment of liabilities of $63,259 and $2,220,097 for the three months ended March 31, 2026 and 2025, respectively, representing a decrease of $2,156,838 (97.2%).
Current report
The gain recognized during the three months ended March 31, 2026 reflects discounts received by the Company in connection with the negotiated settlement of outstanding payables during the period.
Current report
The change in fair value of derivative liabilities for the three months ended March 31, 2026 and 2025 totaled a loss of $289,355 during the three months ended March 31, 2026 as compared to a gain of $2,515,891 during the three months ended March 31, 2025.
Current report
The loss recognized during the three months ended March 31, 2026 consists of a $289,516 loss on the bifurcated conversion feature embedded in the 2025 Senior Secured Convertible Notes (the “2025 Secured Notes”) issued in September 2025 and December 2025, partially offset by a $161 gain on the Company’s 2023 warrants resulting from the decline in their fair value over the period. Because the conversion price of the 2025 Secured Notes was variable and did not meet the fixed-for-fixed requirement under ASC 815-40, the conversion feature was bifurcated from the host debt instrument and accounted for as a derivative liability at fair value, with changes in fair value recorded as a gain or loss in the condensed consolidated statement of operations. During the three months ended March 31, 2026, the holders of the 2025 Secured Notes elected to convert the entire $1,070,000 outstanding principal balance into 111,608 shares of the Company’s common stock. The $289,516 loss reflects the change in fair value of the bifurcated conversion feature through the dates of conversion, after which the aggregate fair value of $1,142,191 was reclassified from derivative liabilities to additional paid-in capital. Following the conversions, no balance remains outstanding under the 2025 Secured Notes and the related bifurcated derivative liability was fully extinguished.
Current report
The gain recognized during the three months ended March 31, 2025 related primarily to the Series A and Series B detachable warrants issued in connection with the Company’s June 2024 capital raise, the terms of which required derivative liability treatment due to net cash settlement provisions outside the control of the Company under certain circumstances. The holders fully exercised their Series B warrants during the three months ended March 31, 2025, which contributed to a decline in the market value of the Company’s common stock and a corresponding decrease in the estimated fair value of the remaining Series A warrants.
Current report
The Company has also classified as derivative liabilities 184 warrants issued in 2023, which remained outstanding as of March 31, 2026 with an aggregate fair value of $169. These warrants are marked to market at each reporting date, with changes in fair value recorded in the condensed consolidated statement of operations.
Current report
Income (loss) before Income Tax Benefit
Current report
As a result of the above, we reported a loss before income tax benefit from continuing operations of $(1,513,727) for the three months ended March 31, 2026, compared to income before income tax benefit from continuing operations of $4,259,712 for the three months ended March 31, 2025, a decrease of $5,773,439.
Current report
Net Loss from continuing operations
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Removed paragraphs (112)
Previous report
Reverse Stock Split
Previous report
On May 6, 2025, the Company, acting pursuant to authority received at an annual meeting of its stockholders on December 17, 2024, filed with the Secretary of State of the State of Nevada a certificate of amendment (the “Charter Amendment”) to its articles of incorporation, as amended (the “Articles of Incorporation”), which effected a one-for-twenty reverse stock split (the “Reverse Stock Split”) of all of the Company’s outstanding shares of common stock, par value $0.001 per share (the “Common Stock”). Pursuant to the Charter Amendment, the Reverse Stock Split became effective as of 5:30 p.m. Eastern Time on May 6, 2025. As a result of the Reverse Stock Split, every twenty (20) shares of Common Stock were exchanged for one (1) share of Common Stock. The Common Stock began trading on the Nasdaq Capital Market on a split-adjusted basis at the start of trading on May 7, 2025. The Reverse Stock Split did not affect the total number of shares of capital stock, including the Common Stock, that the Company is authorized to issue, which remain as set forth pursuant to the Articles of Incorporation. No fractional shares of Common Stock were issued in connection with the Reverse Stock Split. Stockholders who otherwise were entitled to receive fractional shares of Common Stock were automatically entitled to receive an additional fraction of a share of Common Stock to round up to the next whole share, at a participant level. The Reverse Stock Split also had a proportionate effect on all other options and warrants of the Company outstanding as of the effective date of the Reverse Stock Split.
Previous report
On May 22, 2025, the Company, acting pursuant to authority received at a special meeting of its stockholders on May 6, 2025, filed with the Secretary of State of the State of Nevada a certificate of amendment (the “May 22, 2025 Charter Amendment”) to its articles of incorporation, as amended, to effect a one (1)-for-one hundred (100) share reverse split (the “May 22, 2025 Reverse Stock Split”) of all of the Company’s outstanding shares of Common Stock, par value $0.001 per share. Pursuant to the May 22, 2025 Charter Amendment, the Reverse Stock Split became effective at 5:30 p.m. Eastern Time on May 22, 2025. As a result of the May 22, 2025 Reverse Stock Split, every one hundred (100) shares of Common Stock were exchanged for one (1) share of Common Stock. The Common Stock will begin trading on a split-adjusted basis on Nasdaq effective with the open of the market on Friday, May 23, 2025. The May 22, 2025 Reverse Stock Split did not affect the total number of shares of capital stock, including the Common Stock, that the Company is authorized to issue, which remain as set forth pursuant to the Articles of Incorporation. No fractional shares of Common Stock were issued in connection with the May 22, 2025 Reverse Stock Split. Stockholders who otherwise were entitled to receive fractional shares of Common Stock were automatically entitled to receive an additional fraction of a share of Common Stock to round up to the next whole share, at a participant level. The May 22, 2025 Reverse Stock Split also had a proportionate effect on all other options and warrants of the Company outstanding as of the effective date of the May 22, 2025 Reverse Stock Split. All historical share and per-share amounts reflected throughout the Company’s condensed consolidated financial statements and other financial information in this Report have been adjusted to reflect the May 22, 2025 Reverse Stock Split as if the split occurred as of the earliest period presented. The par value per share of the Company’s Common Stock was not affected by the May 22, 2025 Reverse Stock Split.
Previous report
Nasdaq Notifications
Previous report
As previously disclosed, on December 20, 2024, the Company received notice from the Listing Qualifications Staff (the “Staff”) of The Nasdaq Stock Market LLC (“Nasdaq”) that the bid price of its listed securities had closed at less than $1 per share over the previous 30 consecutive business days, and, as a result, did not comply with Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Price Requirement”). Therefore, in accordance with Listing Rule 5810(c)(3)(A), the Company was provided 180 calendar days, or until June 18, 2025, to regain compliance with the Minimum Bid Price Requirement.
Previous report
As previously disclosed, on January 2, 2025, the Staff notified the Company that it was not in compliance with Nasdaq Listing Rule 5550(b)(1), which requires companies listed on Nasdaq to maintain a minimum of $2,500,000 in stockholders’ equity for continued listing (the “Stockholders’ Equity Requirement”). The Company reported stockholders’ equity (deficit) of ($2,448,310) in its Quarterly Report on Form 10-Q for the quarter ended September 30, 2024, and, as a result, did not satisfy the Stockholders’ Equity Requirement pursuant to Listing Rule 5550(b)(1).
Previous report
As previously disclosed, on March 6, 2025, the Company received notice (the “March 6 Letter”) from the Staff that the Staff had determined that as of March 5, 2025, the Company’s securities had a closing bid price of $0.10 or less for ten consecutive trading days triggering application of Listing Rule 5810(c)(3)(A)(iii) which states in part: if during any compliance period specified in Rule 5810(c)(3)(A), a company’s security has a closing bid price of $0.10 or less for ten consecutive trading days, the Listing Qualifications Department shall issue a Staff Delisting Determination under Rule 5810 with respect to that security (the “Low Priced Stocks Rule”).
Previous report
The Company timely requested a hearing before the Panel to appeal the March 6 Letter and to address all outstanding matters, including compliance with the Minimum Bid Price Requirement, the Low-Priced Stocks Rule and the Stockholders’ Equity Requirement. While the appeal process was pending, the suspension of trading of the Company’s Common Stock, was stayed and the Common Stock continued to trade on the Nasdaq Capital Market until the hearing process concludes, and the Panel issues a written decision. The Company held its hearing with the Panel as scheduled on April 17, 2025.
Previous report
On May 1, 2025, the Panel rendered its decision which granted the Company’s request for continued listing on the Nasdaq Exchange. Such decision is subject to the Company meeting and maintaining the following conditions:
Previous report
The Company has worked diligently to regain and maintain compliance with the Minimum Bid Price Requirement and Stockholders’ Equity Requirement as promptly as possible. In that regard, management believes that it has achieved compliance with the Stockholders’ Equity Requirement as reported in the accompanying Statement of Stockholders’ Equity (Deficit) as of September 30, 2025. Furthermore, management believes that it has achieved compliance with the Minimum Bid Price Requirement prior to June 6, 2025, as required by the Panel. Management believes that it has met all other requirements as requested by the Panel. There are no assurances however, that the Company will be able to meet and maintain all such conditions required by the Panel.
Previous report
On October 17, 2025, the Company received notice from Nasdaq that it had regained full compliance with the Minimum Bid Price Requirement and Stockholders’ Equity Requirement. The Nasdaq has now placed the Company under a one-year Discretionary Panel Monitor. Under the Discretionary Panel Monitor, the Company will not be permitted to request additional time to regain compliance with any deficiencies that occur within the one-year period regarding noncompliance with the Periodic Filing or Bid Price Rules. Such one-year period expires on July 31, 2026 with regard to the Periodic Filing Rules and September 2, 2026 regarding the Bid Price Rules.
Previous report
Revenue Cycle Management Operating Segment– We entered the revenue cycle management business late in the second quarter of 2021 with the formation of our wholly owned subsidiary, Digital Ally Healthcare, Inc., and its majority-owned subsidiary Nobility Healthcare. Nobility Healthcare completed its first acquisition in June 2021, when it acquired a private medical billing company, and has since completed three additional acquisitions of private medical billing companies, in which we will assist in providing working capital and back-office services to healthcare organizations throughout the country. Our assistance consists of insurance and benefit verification, medical treatment documentation and coding, and collections. Through our expertise and experience in this field, we maximize our customers’ service revenues collected, leading to substantial improvements in their operating margins and cash flows.
Previous report
Our revenue cycle management segment consists of our medical billing subsidiaries. Revenues of this segment are recognized after we fulfil the obligations of our revenue cycle management services. Our revenue cycle management services are services, performed and charged monthly, generally based on a contractual percentage of total customer collections, for which we recognize our net service fees.
Previous report
Our video solutions operating segment sells our products and services to customers in the following manner:
Previous report
Our revenue cycle management operating segment sells its services to customers in the following manner:
Previous report
Our entertainment operating segment sells our products and services to customers in the following manner:
Previous report
Product revenues for the three months ended September 30, 2025 and 2024 were $664,422 and $803,945, respectively, a decrease of $139,523 (17.4%), due to the following factors:
Previous report
Service and other revenues for the three months ended September 30, 2025 and 2024 were $3,872,735 and $3,247,766, respectively, an increase of $624,969 (19.2%), due to the following factors:
Previous report
The increase in cost of goods sold for our video solutions segment was primarily attributable to a higher component and expedite freight costs, increased repair and refurbishment costs for returned units, and increased scrap – receiving associated with incoming inspection failures as compared to the same period in the prior year. Cost of product sold as a percentage of product revenues for the video solutions segment increased to 207.6% for the three months ended September 30, 2025 as compared to 51% for the three months ended September 30, 2024.
Previous report
Cost of products sold within the entertainment segment increased slightly period over period, principally due to higher variable costs (ticket acquisition, event settlement, and payment processing). The increase was partially offset by a continued focus on higher-margin events, which limited cost growth as a percentage of revenue. Cost of product sold as a percentage of product revenues for the entertainment segment increased to 98.6% for the three months ended September 30, 2025 as compared to 78.40% for the three months ended September 30, 2024.
Previous report
Overall cost of service revenue sold for the three months ended September 30, 2025, and 2024 was $2,260,392 and $1,764,175, respectively, an increase of $496,217 (28.1%). Overall cost of goods sold for services as a percentage of service revenues for the three months ended September 30, 2025, and 2024 were 58% and 54%, respectively. Cost of service revenues by operating segment is as follows:
Previous report
The increase in cost of service revenues for our video solutions segment demonstrates the leverage we are enjoying as we increase our service revenues during the three months ended September 30, 2025 compared to the three months ended September 30, 2024. Cost of service revenues as a percentage of service revenues for the video solutions segment decreased to 24.5% for the three months ended September 30, 2025 as compared to 30.3% for the three months ended September 30, 2024.
Previous report
Cost of service revenues as a percentage of service revenues for the revenue cycle management operating segment remained consistent at 62.5% for the three months ended September 30, 2025 as compared to 58.4% for the three months ended September 30, 2024.
Previous report
The increase in entertainment operating segment cost of service revenues is due to management right sizing the business working towards profitability. The entertainment segment terminated several unprofitable sponsorships which required termination payments during the three months ended September 30, 2025, that is expected to lead to improvements in costs of service revenues during the remainder of 2025. The entertainment segment cost of service revenue was $1,111,577 for the three months ended September 30, 2025, compared to $559,143 for the three months ended September 30, 2024. Cost of service revenues as a percentage of service revenues for the entertainment segment increased to 85.8% for the three months ended September 30, 2025 as compared to 74.0% for the three months ended September 30, 2024.
Previous report
The decrease in gross profits is primarily due to lower revenue and a higher cost of sales as a percentage of revenue, particularly within the entertainment segment’s service revenues. Cost of sales as a percentage of total revenues increased to 69.8% for the three months ended September 30, 2025, from 57% in the prior-year period, resulting in margin compression. We are pursuing a multi-pronged margin-improvement plan for the Entertainment business—focused on right-sizing, pricing discipline, and mix optimization.
Previous report
Selling, general and administrative expenses were $2,493,357 and $9,122,273 for the three months ended September 30, 2025 and 2024, respectively, a decrease of $6,628,916 (72.7%). The decrease was primarily driven by fewer new advertising sponsorships and reductions in headcount within selling, general and administrative functions as the Company right-sized operations across all segments. Additionally, the prior-year period included a goodwill and intangible asset impairment charge that did not recur, further contributing to the year-over-year decrease. Our selling, general and administrative expenses as a percentage of sales decreased to 55% for the three months ended September 30, 2025 compared to 225% in the same period in 2024. The significant components of selling, general and administrative expenses are as follows:
Previous report
***Research and development expense.***Our research and development expenses totaled $137,755 and $210,818 for the three months ended September 30, 2025 and 2024, respectively which represents a decrease of $73,063 (34.7%). The decrease in research and development expense reflects a narrower project portfolio and a reallocation of resources toward sustaining engineering and targeted enhancements, including reductions in engineering headcount and third-party development spend.
Previous report
***Selling, advertising and promotional expenses.***Selling, advertising and promotional expense totaled $110,006 and $414,727 for the three months ended September 30, 2025 and 2024, respectively, a decrease of $304,721 (73.5%). Selling, advertising, and promotional expenses decreased due to significant reductions in sales staffing and in promotional and advertising activities, undertaken to right-size these expenses to current revenue levels. Additionally, the decline reflects fewer new sponsorship agreements at the Company and its subsidiary, TicketSmarter.
Previous report
Interest income increased to $17,887 for the three months ended September 30, 2025, from $13,775 in 2024, which reflects our overall increase in our cash and cash equivalent levels in 2025 compared to 2024 due to funds generated in the February 2025 public equity offering and the net proceeds from our September 2025 senior convertible note issuance.
Previous report
We incurred interest expenses of $90,697 and $771,846 during the three months ended September 30, 2025 and 2024, respectively. The large decrease is attributable to the Company paying off most of its interest-bearing debt in late 2024 and early 2025 including the $3.6 million of senior secured promissory notes that were paid off with proceeds from the February 2025 public equity offering.
Previous report
Other income (expense) increased to $217,136 for the three months ended September 30, 2025 from $8,920 for the comparable 2024 period, primarily due to weather insurance proceeds that we received related to the 2025 Country Stampede music festival.
Previous report
Loss on Extinguishment of debt
Previous report
On March 1, 2024, the Company obtained a short-term merchant advance, which totaled $1,000,000, from a single lender to fund operations. The Company modified/amended the underlying loan agreement twice during the three months ended September 30, 2024. The modifications were both deemed to be extinguishments of debt resulting in a $310,505 total loss during the three months ended September 30, 2024.
Previous report
The change in fair value of the warrant derivative liabilities for the three months ended September 30, 2025 and 2024, respectively totaled a gain of $839 during the three months ended September 30, 2025 as compared to a gain of $2,530,675 during the three months ended September 30, 2024. The Company has issued various detachable warrants in connection with capital raises during 2024 and 2025 that were required to be treated as warrant derivative liabilities. Warrant derivative liabilities are required to be marked-to-market at each balance sheet date with the change in fair value recorded as a gain or loss in the Condensed Statement of Operations. The gain recorded in the three months ended September 30, 2025 reflects relatively minor fair value changes resulting from reduced stock price volatility and fewer warrants outstanding during the period.
Previous report
Gain on Sale of Property, Plant and Equipment
Previous report
During the three months ended September 30, 2024, the Company sold its building for $5,900,000 less closing costs of $7,194. The carrying amount of the building on the date of sale was $5,461,623. As a result of the sale the Company recorded a gain of $431,183 in the Consolidated Statement of Operation during the three months ended September 30, 2024.
Previous report
Loss before Income Tax Benefit
Previous report
As a result of the above, we reported a net loss before income tax benefit of $(963,342) and $(5,470,712) for the three months ended September 30, 2025 and 2024, respectively, an improvement of $4,507,370 (82.4%).
Previous report
Net Income (Loss)
Previous report
As a result of the above, we reported net income (loss) of $(963,342) and $(5,470,712) for the three months ended September 30, 2025 and 2024, respectively, an improvement of $4,507,370 (82.4%).
Showing the first 40 of 112 passages. Open the source sections for the rest.
Reworded paragraphs (41)
Previous wording
This quarterly report on Form 10-Q (the “Report”) of Digital Ally, Inc. (the “Company”, “we”, “us”, or “our”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The words “aim,” “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “feel,” “forecast,” “intend,” “may,” “outlook,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “will,” “would,” and similar expressions intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. These forward-looking statements are based largely on our expectations or forecasts of future events, can be affected by inaccurate assumptions, and are subject to various business risks and known and unknown uncertainties, a number of which are beyond our control. Therefore, actual results could differ materially from the forward-looking statements contained in this document, and readers are cautioned not to place undue reliance on such forward-looking statements.
Current wording
This quarterly report on Form 10-Q (the “Report”) of Kustom Entertainment, Inc. (the “Company”, “we”, “us”, or “our”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The words “aim,” “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “feel,” “forecast,” “intend,” “may,” “outlook,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “will,” “would,” and similar expressions intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. These forward-looking statements are based largely on our expectations or forecasts of future events, can be affected by inaccurate assumptions, and are subject to various business risks and known and unknown uncertainties, a number of which are beyond our control. Therefore, actual results could differ materially from the forward-looking statements contained in this document, and readers are cautioned not to place undue reliance on such forward-looking statements.
Previous wording
Factors that could cause or contribute to our actual results differing materially from those discussed herein or for our stock price to be adversely affected include, but are not limited to: (1) our losses in recent years, including fiscal years 2024 and 2023; (2) economic and other risks for our business from the effects of the COVID-19 pandemic, including the impacts on our law-enforcement and commercial customers, suppliers and employees and on our ability to raise capital as required; (3) our ability to increase revenues, increase our margins and return to consistent profitability in the current economic and competitive environment; (4) our operation in developing markets and uncertainty as to market acceptance of our technology and new products; (5) the availability of funding from federal, state and local governments to facilitate the budgets of law enforcement agencies, including the timing, amount and restrictions on such funding; (6) our ability to maintain or expand our share of the market for our products in the domestic and international markets in which we compete, including increasing our international revenues; (7) our ability to produce our products in a cost-effective manner; (8) competition from larger, more established companies with far greater economic and human resources; (9) our ability to attract and retain quality employees; (10) risks related to dealing with governmental entities as customers; (11) our expenditure of significant resources in anticipation of sales due to our lengthy sales cycle and the potential to receive no revenue in return; (12) characterization of our market by new products and rapid technological change; (13) our dependence on sales of our EVO-HD, DVM-800, DVM-250 and FirstVU products; (14) that stockholders may lose all or part of their investment if we are unable to compete in our markets and return to profitability; (15) defects in our products that could impair our ability to sell our products or could result in litigation and other significant costs; (16) our dependence on a few manufacturers and suppliers for components of our products and our dependence on domestic and foreign manufacturers for certain of our products; (17) our ability to protect technology through patents and to protect our proprietary technology and information, such as trade secrets, through other similar means; (18) our ability to generate more recurring cloud and service revenues; (19) risks related to our license arrangements; (20) the fluctuation of our operation results from quarter to quarter; (21) sufficient voting power by coalitions of a few of our larger stockholders, including directors and officers, to make corporate governance decisions that could have a significant effect on us and the other stockholders; (22) the issuance or sale of substantial amounts of our Common Stock, or the perception that such sales may occur in the future, which may have a depressive effect on the market price of our securities; (23)…
Excerpt shortened here; the source contains the full paragraph.
Current wording
Factors that could cause or contribute to our actual results differing materially from those discussed herein or for our stock price to be adversely affected include, but are not limited to: (1) our losses in recent years, including fiscal years 2025 and 2024; (2) economic and other risks for our business from the effects of the COVID-19 pandemic, including the impacts on our law-enforcement and commercial customers, suppliers and employees and on our ability to raise capital as required; (3) our ability to increase revenues, increase our margins and return to consistent profitability in the current economic and competitive environment; (4) our operation in developing markets and uncertainty as to market acceptance of our technology and new products; (5) the availability of funding from federal, state and local governments to facilitate the budgets of law enforcement agencies, including the timing, amount and restrictions on such funding; (6) our ability to maintain or expand our share of the market for our products in the domestic and international markets in which we compete, including increasing our international revenues; (7) our ability to produce our products in a cost-effective manner; (8) competition from larger, more established companies with far greater economic and human resources; (9) our ability to attract and retain quality employees; (10) risks related to dealing with governmental entities as customers; (11) our expenditure of significant resources in anticipation of sales due to our lengthy sales cycle and the potential to receive no revenue in return; (12) characterization of our market by new products and rapid technological change; (13) our dependence on sales of our EVO-HD, DVM-800, DVM-250 and FirstVu products; (14) that stockholders may lose all or part of their investment if we are unable to compete in our markets and return to profitability; (15) defects in our products that could impair our ability to sell our products or could result in litigation and other significant costs; (16) our dependence on a few manufacturers and suppliers for components of our products and our dependence on domestic and foreign manufacturers for certain of our products; (17) our ability to protect technology through patents and to protect our proprietary technology and information, such as trade secrets, through other similar means; (18) our ability to generate more recurring cloud and service revenues; (19) risks related to our license arrangements; (20) the fluctuation of our operation results from quarter to quarter; (21) sufficient voting power by coalitions of a few of our larger stockholders, including directors and officers, to make corporate governance decisions that could have a significant effect on us and the other stockholders; (22) the issuance or sale of substantial amounts of our common stock, or the perception that such sales may occur in the future, which may have a depressive effect on the market price of our securities; (23)…
Excerpt shortened here; the source contains the full paragraph.
Previous wording
Video Solutions Operating Segment – Within our video solutions operating segment we supply technology-based products utilizing our portable digital video and audio recording capabilities for the law enforcement and security industries and for the commercial fleet and mass transit markets. We can integrate electronic, radio, computer, mechanical, and multi-media technologies to create positive solutions to our customers’ requests. Our products include: the EVO-HD, DVM-800 and DVM-800 Lite, which are in-car digital video systems for law enforcement and commercial markets; the FirstVU body-worn camera line, consisting of the FirstVu Pro, FirstVu, and the FirstVU HD; our patented and revolutionary VuLink product integrates our body-worn cameras with our in-car systems by providing hands-free automatic activation for both law enforcement and commercial markets; EVO Web Portal, which is our cloud-based evidence management system for Law enforcement and commercial market; the EVO Fleet, FLT-250, DVM-250, and DVM-250 Plus, which are our commercial line of digital video products that serve as “event recorders” for the commercial fleet and mass transit markets; and FleetVu and VuLink, which are our cloud-based evidence management systems. We further diversified and broadened our product offerings in 2020, by introducing two new lines of branded products: (1) the ThermoVu™ which is a line of self-contained temperature monitoring stations that provides alerts and controls facility access when an individual’s temperature exceeds a pre-set threshold and (2) our Shield™ disinfectants and cleansers which are for use against viruses and bacteria.
Current wording
Within our Video Solutions segment, we supply technology-based products utilizing our portable digital video and audio recording capabilities for the law enforcement and security industries and for the commercial fleet and mass transit markets. We have the ability to integrate electronic, radio, computer, mechanical, and multi-media technologies to create positive solutions to our customers’ requests. Our products include: the EVO-HD, DVM-800 and DVM-800 Lite, which are in-car digital video systems for law enforcement and commercial markets; the FirstVu body-worn camera line, consisting of the FirstVu Pro, FirstVu II, and the FirstVu HD; our patented and revolutionary VuLink product, which integrates our body-worn cameras with our in-car systems by providing hands-free automatic activation for both law enforcement and commercial markets; EVO Web Portal, which is our cloud-based evidence management system for the law enforcement market; the EVO Fleet, FLT-250, DVM-250, and DVM-250 Plus, which are our commercial line of digital video products that serve as “event recorders” for the commercial fleet and mass transit markets; and FleetVu, which is our cloud-based evidence management system for commercial fleets.
Previous wording
Our video solutions segment revenue encompasses video recording products and services for our law enforcement and commercial customers and the sale of Shield disinfectant and personal protective products. This segment generates revenue through our subscription models offering cloud and warranty solutions, and hardware sales for video and personal protective safety products and solutions. Revenues for product sales are recognized upon delivery of the product, and revenues from our cloud and warranty subscription plans are deferred over the term of the subscription, typically 3 or 5 years.
Current wording
Revenue from our Video Solutions segment is derived from the sale of video recording products and related services to law enforcement and commercial customers, as well as from the sale of our Shield™ disinfectant and personal protective equipment products. This segment generates revenues through subscription models offering cloud and warranty solutions, and hardware sales for video and personal protective safety products and solutions. Revenues for product sales are recognized upon delivery of the product, and revenues from our cloud and warranty subscription plans are deferred over the term of the subscription, typically 3 or 5 years.
Previous wording
Entertainment Operating Segment - We also entered the live entertainment and events ticketing services through the formation of our wholly owned subsidiary, TicketSmarter and its completed acquisitions of Goody Tickets, LLC and TicketSmarter, LLC, on September 1, 2021. TicketSmarter provides ticket sales, partnerships, and mainly, ticket resale services through its online ticketing marketplace for live events, TicketSmarter.com. TicketSmarter offers tickets for over 125,000 live events throughout the country through its platform, including concerts, sporting events, theatres, and performing arts. We also began offering production and promotion services in relation to live music events in third-party venues throughout the country through our Kustom Entertainment, Inc. subsidiary. These services begin with the logistical matters of an event, including artist booking and research, ticketing, staging, on-site operations, vendor sourcing, and day of production.
Current wording
We provide live entertainment and events ticketing services through our wholly owned subsidiary, TicketSmarter, Inc. (“TicketSmarter”), which was formed through the completed acquisitions of Goody Tickets, LLC and TicketSmarter, LLC on September 1, 2021. Through its online marketplace, TicketSmarter.com, TicketSmarter offers ticket sales, resale, and partnership services for over 125,000 live events nationwide, spanning concerts, sporting events, theatre, and performing arts.
Previous wording
Our entertainment operating segment consists of entertainment services provided through TicketSmarter and its online platform, TicketSmarter.com. Revenues of this segment include ticketing service charges generally determined as a percentage of the face value of the underlying ticket and ticket sales from our ticket inventory which are recognized when the underlying tickets are sold. Entertainment direct expenses include the cost of tickets purchased for resale by the Company and held as inventory, credit card fees, ticketing platform expenses, website maintenance fees, as well as other administrative costs.
Current wording
Our Entertainment segment encompasses all services provided through TicketSmarter and TicketSmarter.com. Entertainment segment revenues include ticketing service charges, generally calculated as a percentage of the face value of the underlying ticket, as well as ticket sales from Company-held inventory, both of which are recognized upon the sale of the underlying tickets. Direct expenses include the cost of tickets purchased for resale and held as inventory, credit card fees, ticketing platform expenses, website maintenance, and other administrative costs
Previous wording
We do not have any off-balance sheet debt, nor did we have any transactions, arrangements, obligations (including contingent obligations) or other relationships with any unconsolidated entities or other persons that may have a material current or future effect on financial conditions, changes in the financial conditions, results of operations, liquidity, capital expenditures, capital resources, or significant components of revenue or expenses other than the following:
Current wording
We do not have any off-balance sheet debt, nor do we have any transactions, arrangements, obligations (including contingent obligations) or other relationships with any unconsolidated entities or other persons that may have a material current or future effect on financial conditions, changes in the financial conditions, results of operations, liquidity, capital expenditures, capital resources, or significant components of revenue or expenses other than the following:
Previous wording
The segment net revenues reported above represent sales to external customers. Segment gross profit represents net revenues less cost of revenues. Segment operating income, which is used in management’s evaluation of segment performance, represents net revenues, less cost of revenues, less all operating expenses. Identifiable assets are those assets used by each segment in its operations. Corporate assets primarily consist of cash, property, plant and equipment, accounts receivable, inventories, and other assets.
Current wording
The segment net revenues reported above represent sales to external customers. Segment gross profit represents net revenues less cost of revenues. Segment operating income (loss), which is used in management’s evaluation of segment performance, represents net revenues, less cost of revenues, less all operating expenses.
Previous wording
Our operating segments generate two types of revenue:
Current wording
Our operating segments generate two types of revenues:
Previous wording
Product revenuesprimarily include video solutions operating segment hardware sales of in-car and body-worn cameras. Additionally, product revenues also include the sale of tickets by our entertainment operating segment that have been purchased or received through our sponsorships and partnerships and held in inventory by our entertainment segment until their sale. Our entertainment sector also generates product revenue through our production of live events and concerts including our annual Country Stampede music festival.
Current wording
Product revenuesprimarily include video solutions operating segment hardware sales of in-car and body-worn cameras, along with sales of our ThermoVu TMunits, disinfectants, and personal protective equipment. Additionally, product revenues also include the sale of tickets by our entertainment operating segment that have been purchased or received through our sponsorships and partnerships and held in inventory by our Entertainment Segment until their sale.
Previous wording
Service and other revenuesconsist of cloud and warranty services revenues from our subscription plan and storage offerings of our video solutions segment. Our entertainment operating segment’s secondary ticketing marketplace revenues are included in service revenue. We recognize service revenue from sales generated through its secondary ticketing marketplace as we collect net services fees on secondary ticketing marketplace transactions. Lastly, our revenue cycle management segment revenues are included in the service revenues for services provided to medical providers throughout the country.
Current wording
Service and other revenuesconsist of cloud and warranty services revenues from our subscription plan and storage offerings of our Video Solutions segment. Our Entertainment segments’ secondary ticketing marketplace revenues are included in service revenue. We recognize service revenue from sales generated through its secondary ticketing marketplace as we collect net services fees on secondary ticketing marketplace transactions.
Previous wording
Product revenues by operating segment are as follows:
Current wording
Product revenues by operating segment is as follows:
Previous wording
Total revenues for the three months ended September 30, 2025, and 2024 were $4,537,157 and $4,051,711, respectively, an increase of $485,446 (12.0%) due to the reasons noted above.
Current wording
Total revenues for the three months ended March 31, 2026 and 2025 were $4,314,236 and $3,124,713, respectively, representing an increase of $1,189,523 (38.1%), due to the reasons noted above.
Previous wording
Overall cost of product revenue sold for the three months ended September 30, 2025, and 2024 was $905,190 and $547,562, respectively, an increase of $482,610 (19.9%). Overall cost of goods sold for products as a percentage of product revenues for the three months ended September 30, 2025, and 2024 were 179% and 155%, respectively. Cost of products sold by operating segment is as follows:
Current wording
Overall cost of product revenue sold for the three months ended March 31, 2026 and 2025 was $782,248 and $675,639, respectively, an increase of $106,609 (15.8%). Overall cost of goods sold for products as a percentage of product revenues for the three months ended March 31, 2026 and 2025 was 139.1% and 93.7%, respectively. Cost of products sold by operating segment is as follows:
Previous wording
Overall gross profit for the three months ended September 30, 2025 and 2024 was $1,371,575 and $1,739,974, respectively, a decrease of $368,399 (21.2%). Gross profit by operating segment was as follows:
Current wording
Overall gross profit for the three months ended March 31, 2026 and 2025 was $604,047 and $1,133,836, respectively, representing a decrease of $529,789, or 46.7%. Gross profit by operating segment was as follows:
Previous wording
General and administrative expense. General and administrative expenses totaled $2,245,596 and $3,666,728 for the three months ended September 30, 2025 and 2024, respectively which represents a decrease of $1,421,132 (38.8%). The decrease in general and administrative expenses in the three months ended September 30, 2025 compared to the same period in 2024 is primarily attributable to a substantial decrease in legal and professional expenses for the three months ended September 30, 2025 compared to the same period in 2024 due to the failed merger with CloverLeaf in the 2024 period and various capital raises we have undertaken in 2024. We also implemented decreases in administrative salaries and reductions in headcount during the 2025 period in order to right-size our expenses across all operating segments with our revenues.
Current wording
General and administrative expense. General and administrative expenses totaled $1,483,534 and $1,935,088 for the three months ended March 31, 2026 and 2025, respectively, representing a decrease of $451,554 (23.3%). The decrease in general and administrative expenses in the three months ended March 31, 2026 compared to the same period in 2025 is primarily attributable to a decrease in administrative salaries and continued reductions in headcount as the Company continues to right-size its expenses in this area relative to its revenues.
Previous wording
For the reasons previously stated, our operating loss was $1,121,782 and $7,382,299 for the three months ended September 30, 2025 and 2024, respectively, an improvement in our operating loss of $6,260,517 (84.8%). Operating loss as a percentage of revenues improved to 24.7% in 2025 as compared to 182% in 2024.
Current wording
For the reasons previously stated, our operating loss was $1,296,987 and $982,050 for the three months ended March 31, 2026 and 2025, respectively, representing an increase in operating loss of $314,937 (32.1%). Operating loss as a percentage of revenues was 30.1% in 2026 as compared to 31.4% in 2025.
Previous wording
The Company recorded a gain on the extinguishment of liabilities for the three months ended September 30, 2025 and 2024 of $13,275, and $9,385, respectively. The gains reflect income related to the entertainment segment’s ability to negotiate down payables and other contract obligations during the three months ended September 30, 2025 utilizing funds generated by the closing of the February 2025 public equity offering on February 13, 2025.
Current wording
The gain recognized during the three months ended March 31, 2025 reflects income related to the Video Solutions and Entertainment segments’ ability to negotiate down payables and contract liabilities during the period, utilizing funds generated by the closing of the February 2025 public equity offering on February 13, 2025.
Previous wording
We recorded an income tax benefit of $-0- for the three months ended September 30, 2025 and 2024, respectively. The effective tax rate for both 2025 and 2024 varied from the expected statutory rate due to our continuing to provide a 100% valuation allowance on net deferred tax assets. We determined that it was appropriate to continue the full valuation allowance on net deferred tax assets as of September 30, 2025 and December 31, 2024 primarily because of the recurring operating losses.
Current wording
We recorded an income tax benefit of $0 for the three months ended March 31, 2026 and 2025, respectively. The effective tax rate for both periods varied from the expected statutory rate due to our continuing to provide a 100% valuation allowance on net deferred tax assets. We determined that it was appropriate to continue the full valuation allowance on net deferred tax assets as of March 31, 2026 and December 31, 2025 primarily because of the recurring operating losses.
Previous wording
We had approximately $159,965,000 of federal net operating loss carryforwards and $1,796,111 of research and development tax credit carryforwards as of September 30, 2025 and December 31, 2024 available to offset future net taxable income.
Current wording
We had approximately $168,405,000 of federal net operating loss carryforwards and $1,685,000 of research and development tax credit carryforwards as of March 31, 2026 available to offset future net taxable income.
Previous wording
The basic and diluted loss per share was $1.40 and $7,793.63 for the nine months ended September 30, 2025 and 2024, respectively, for reasons previously noted. All outstanding stock options and Common Stock purchase warrants were considered antidilutive and therefore excluded from the calculation of diluted income (loss) per share for the nine months ended September 30, 2025 and 2024. Such potentially dilutive securities were excluded from the computation because of their exercise price being higher than the market value of our Common Stock and the net loss reported for 2025 and 2024.
Current wording
Basic and Diluted Income/(Loss) per Share
Previous wording
The net result of these activities was an increase in cash of $339,046 to $793,360 for the nine months ended September 30, 2025.
Current wording
The net result of these activities was an increase in cash of $466,952 for the three months ended March 31, 2026.
Previous wording
The following sets forth the operating lease right of use assets and liabilities as of September 30, 2025:
Current wording
Total lease expense under the Company’s operating leases related to continuing operations was approximately $68,596 during the three months ended March 31, 2026. The following sets forth the operating lease right-of-use assets and liabilities associated with continuing operations as of March 31, 2026:
Previous wording
Debt obligations - We have the following outstanding debt as of September 30, 2025 which require future principal payments:
Current wording
Debt obligations - We have the following outstanding debt related to continuing operations as of March 31, 2026, which requires future principal payments:
Previous wording
From time to time, we are notified that we may be a party to a lawsuit or that a claim is being made against us. It is our policy to not disclose the specifics of any claim or threatened lawsuit until the summons and complaint are actually served on us. After carefully assessing the claim, and assuming we determine that we are not at fault or we disagree with the damages or relief demanded, we vigorously defend any lawsuit filed against us. We record a liability when losses are deemed probable and reasonably estimable. When losses are deemed reasonably possible but not probable, we determine whether it is possible to provide an estimate of the amount of the loss or range of possible losses for the claim, if material for disclosure. In evaluating matters for accrual and disclosure purposes, we take into consideration factors such as our historical experience with matters of a similar nature, the specific facts and circumstances asserted, the likelihood of our prevailing, the availability of insurance, and the severity of any potential loss. We re-evaluate and update accruals as matters progress over time.
Current wording
From time to time, we are notified that we may be a party to a lawsuit or that a claim is being made against us. It is our policy not to disclose the specifics of any claim or threatened lawsuit until the summons and complaint are actually served on us. After carefully assessing the claim, and assuming we determine that we are not at fault or we disagree with the damages or relief demanded, we vigorously defend any lawsuit filed against us. We record a liability when losses are deemed probable and reasonably estimable. When losses are deemed reasonably possible but not probable, we determine whether it is possible to provide an estimate of the amount of the loss or range of possible losses for the claim, if material for disclosure. In evaluating matters for accrual and disclosure purposes, we take into consideration factors such as our historical experience with matters of a similar nature, the specific facts and circumstances asserted, the likelihood of our prevailing, the availability of insurance, and the severity of any potential loss. We re-evaluate and update accruals as matters progress over time.
Previous wording
While the ultimate resolution is unknown, we do not expect that these lawsuits will individually, or in the aggregate, have a material adverse effect to our results of operations, financial condition or cash flows. However, the outcome of any litigation is inherently uncertain and there can be no assurance that any expense, liability or damages that may ultimately result from the resolution of these matters will be covered by our insurance or will not be in excess of amounts recognized or provided by insurance coverage and will not have a material adverse effect on our operating results, financial condition or cash flows. See Note 9, “Commitments and Contingencies,” to the condensed consolidated financial statements of this Quarterly Report on Form 10-Q for information on our litigation.
Current wording
While the ultimate resolution is unknown, we do not expect that these lawsuits will individually, or in the aggregate, have a material adverse effect on our results of operations, financial condition or cash flows. However, the outcome of any litigation is inherently uncertain and there can be no assurance that any expense, liability or damages that may ultimately result from the resolution of these matters will be covered by our insurance or will not be in excess of amounts recognized or provided by insurance coverage and will not have a material adverse effect on our operating results, financial condition or cash flows. SeeNote 13, Commitments and Contingencies, to the condensed consolidated financial statements and Part II, Item 1, “Legal Proceedings,” of this Quarterly Report on Form 10-Q for information on our litigation.
Previous wording
Revenue Recognition / Allowances for Doubtful Accounts. Revenue is recognized for the shipment of products or delivery of service when all five of the following conditions are met:
Current wording
Revenue Recognition / Allowances for Doubtful Accounts.
Previous wording
We also act as an intermediary between buyers and sellers through the online secondary marketplace. Revenues derived from this marketplace primarily consist of service fees from entertainment operations, and consist of one primary performance obligation, which is facilitating the transaction between the buyer and seller, being satisfied at the time the order has been confirmed. As we do not control the ticket prior to the transfer, we act as an agent in these transactions. Revenue is recognized on a net basis, net of the amount due to the seller when an order is confirmed, the seller is then obligated to deliver the tickets to the buyer per the seller’s listing. Payment is due at the time of sale.
Current wording
We also act as an intermediary between buyers and sellers through our online secondary marketplace. Revenues derived from this marketplace primarily consist of service fees from entertainment operations, and consist of one primary performance obligation, which is facilitating the transaction between the buyer and seller, being satisfied at the time the order has been confirmed. As we do not control the ticket prior to the transfer, we act as an agent in these transactions. Revenue is recognized on a net basis, net of the amount due to the seller when an order is confirmed, and the seller is then obligated to deliver the tickets to the buyer per the seller’s listing. Payment is due at the time of sale.
Previous wording
We review all significant, unusual, or non-standard shipments of product or delivery of services as a routine part of our accounting and financial reporting process to determine compliance with these requirements. Extended warranties are offered on selected products, and when a customer purchases an extended warranty, the associated proceeds are treated as deferred revenue and recognized over the term of the extended warranty.
Current wording
We review all significant, unusual, or nonstandard shipments of product or delivery of services as a routine part of our accounting and financial reporting process to determine compliance with these requirements. Extended warranties are offered on selected products, and when a customer purchases an extended warranty, the associated proceeds are treated as contract liabilities and recognized over the term of the extended warranty.
Previous wording
For our entertainment segment, our customers are mainly online visitors that pay at the time of the transaction, and we collect the service fees charged with the transaction. Thus, leading to minimal risk for uncollectible accounts, to which we then consider a specific reserve for bad debts based on their individual circumstances. As we continue to learn more about the collectability related to this recent acquisition, we will track historical bad debts and continue to assess appropriate reserves.
Current wording
For our Entertainment segment, our customers are mainly online visitors that pay at the time of the transaction, and we collect the service fees charged with the transaction. This leads to minimal risk for uncollectible accounts, and we consider a specific reserve for bad debts based on individual customer circumstances. We continue to monitor collectability trends and assess appropriate reserve levels based on our operating history within this segment.
Previous wording
***Allowance for Excess and Obsolete Inventory.***We record valuation reserves on our inventory for estimated excess or obsolete inventory items. The amount of the reserve is equal to the difference between the cost of the inventory and the estimated market value based upon assumptions about future demand and market conditions. On a quarterly basis, management performs an analysis of the underlying inventory to identify reserves needed for excess and obsolescence. Management uses its best judgment to estimate appropriate reserves based on this analysis. In addition, we adjust the carrying value of inventory if the current market value of that inventory is below its cost.
Current wording
We record valuation reserves on inventory for estimated excess or obsolete items. The amount of the reserve represents the difference between the cost of the inventory and its estimated net realizable value based on assumptions regarding future demand, inventory aging, and market conditions. Management performs a detailed review of inventory balances on a quarterly basis to identify inventory that may be excess or obsolete and uses judgment to estimate appropriate reserve levels. We also adjust the carrying value of inventory when its estimated net realizable value is below cost.
Previous wording
We balance the need to maintain strategic inventory levels to ensure competitive delivery performance to our customers against the risk of inventory obsolescence due to changing technology and customer requirements. As reflected above, our inventory reserves represented 40% of the gross inventory balance at September 30, 2025, compared to 46% of the gross inventory balance at December 31, 2024. We had $1,766,885 and $2,169,655 in reserves for obsolete and excess inventories at September 30, 2025 and December 31, 2024, respectively. The decrease in the inventory reserve is primarily due to the reduction in finished goods and movement of excess inventory. Additionally, the Company determined a reasonable reserve for inventory held at the ticket operating segment, in which some inventory items sell below cost or go unsold, thus having to be fully written-off following the event date. We believe the reserves are appropriate given our inventory levels as of September 30, 2025.
Current wording
We balance the need to maintain strategic inventory levels to ensure competitive delivery performance to our customers against the risk of inventory obsolescence due to changing technology and customer requirements. As reflected above, our inventory reserves represented 45.9% of the gross inventory balance at March 31, 2026, compared to 45.2% of the gross inventory balance at December 31, 2025. We had $1,822,826 and $1,918,941 in reserves for obsolete and excess inventories at March 31, 2026 and December 31, 2025, respectively. The slight decrease in the inventory reserve is primarily attributable to write-offs of inventory that had been fully reserved in prior periods, as well as continued inventory management and lower on-hand inventory levels during the period. Additionally, the Company maintains a reasonable reserve for inventory held at the Entertainment segment, within which some inventory items sell below cost or go unsold, thus having to be fully written off following the event date. We believe the reserves are appropriate given our inventory levels as of March 31, 2026.
Previous wording
If actual future demand or market conditions are less favorable than those projected by management or significant engineering changes to our products that are not anticipated and appropriately managed, additional inventory write-downs may be required in excess of the inventory reserves already established.
Current wording
If actual future demand or market conditions are less favorable than those projected by management, or if significant engineering changes to our products occur that are not anticipated and appropriately managed, additional inventory write-downs may be required in excess of the inventory reserves already established.
Previous wording
***Goodwill and other intangible assets.***When we acquire a business, we determine the fair value of the assets acquired and liabilities assumed on the date of acquisition, which may include a significant amount of intangible assets such as customer relationships, software and content, as well as goodwill. When determining the fair values of the acquired intangible assets, we consider, among other factors, analyses of historical financial performance and an estimate of the future performance of the acquired business. The fair values of the acquired intangible assets are primarily calculated using an income approach that relies on discounted cash flows. This method starts with a forecast of the expected future net cash flows for the asset and then adjusts the forecast to present value by applying a discount rate that reflects the risk factors associated with the cash flow streams. We consider this approach to be the most appropriate valuation technique because the inherent value of an acquired intangible asset is its ability to generate future income. In a typical acquisition, we engage a third-party valuation expert to assist us with the fair value analysis for acquired intangible assets.
Current wording
When we acquire a business, we determine the fair value of the assets acquired and liabilities assumed on the date of acquisition, which may include a significant amount of intangible assets such as customer relationships, software and content, as well as goodwill. When determining the fair values of the acquired intangible assets, we consider, among other factors, analyses of historical financial performance and an estimate of the future performance of the acquired business. The fair values of the acquired intangible assets are primarily calculated using an income approach that relies on discounted cash flows. This method starts with a forecast of the expected future net cash flows for the asset and then adjusts the forecast to present value by applying a discount rate that reflects the risk factors associated with the cash flow streams. We consider this approach to be the most appropriate valuation technique because the inherent value of an acquired intangible asset is its ability to generate future income. In a typical acquisition, we engage a third-party valuation expert to assist us with the fair value analyses for acquired intangible assets.
Previous wording
When performing our annual assessment of the recoverability of goodwill, we initially perform a qualitative analysis evaluating whether any events or circumstances occurred or exist that provide evidence that it is more likely than not that the fair value of any of our reporting units is less than the related carrying amount. If we do not believe that it is more likely than not that the fair value of any of our reporting units is less than the related carrying amount, then no quantitative impairment test is performed. However, if the results of our qualitative assessment indicate that it is more likely than not that the fair value of a reporting unit is less than its respective carrying amount, then we perform a two-step quantitative impairment test.
Current wording
When performing our annual assessment of the recoverability of goodwill, we initially perform a qualitative analysis evaluating whether any events or circumstances occurred or exist that provide evidence that it is more likely than not that the fair value of any of our reporting units is less than the related carrying amount. If we do not believe that it is more likely than not that the fair value of any of our reporting units is less than the related carrying amount, then no quantitative impairment test is performed. However, if the results of our qualitative assessment indicate that it is more likely than not that the fair value of a reporting unit is less than its respective carrying amount, then we perform a quantitative impairment test.
Previous wording
The fair value of each reporting unit was estimated using a weighting of the income and market valuation approaches. The income approach applied a fair value methodology to each reporting unit based on discounted cash flows. This analysis requires significant judgments, including estimation of future cash flows, which is dependent on internally-developed forecasts of revenue and profitability, estimation of the long-term rate of growth for our business, estimation of the useful life over which cash flows will occur, and determination of our weighted average cost of capital, which is risk-adjusted to reflect the specific risk profile of the reporting unit being tested. The weighted average cost of capital used in our most recent impairment test ranged from 20.9% to 32.5%. We also applied a market approach, which develops a value correlation based on the market capitalization of similar publicly traded companies, referred to as a multiple, to apply to the operating results of the reporting units. The primary market multiples used are revenue and earnings before interest, taxes, depreciation, and amortization. The income and market approaches were equally weighted in our most recent annual impairment test, for all of the reporting units.
Current wording
We performed our annual goodwill and intangible asset impairment test as of December 31, 2025 on a full quantitative basis, given our prior-year impairment history and continued operating losses across certain segments. The Revenue Cycle Management segment (Nobility Healthcare) was classified as discontinued operations prior to the measurement date and was excluded from the annual impairment analysis. The fair value of each continuing reporting unit was estimated using a weighting of the income and market valuation approaches. The income approach applied a fair value methodology to each reporting unit based on discounted cash flows, requiring significant judgments including estimation of future cash flows, long-term revenue growth rates, and determination of our weighted average cost of capital risk-adjusted to reflect the specific risk profile of each reporting unit. The weighted average cost of capital used in our December 31, 2025 impairment test ranged from 18.4% to 22.7%. We also applied a market approach using revenue multiples of comparable publicly traded companies. The income and market approaches were equally weighted for all reporting units.
Previous wording
The combined fair values for all reporting units were then reconciled to our aggregate market value of our shares of Common Stock on the date of valuation, while considering a reasonable control premium. We consider a reporting unit’s fair value to be substantially in excess of the reporting unit’s carrying value at a 25% premium or greater. Based on our most recent impairment test, the video solutions reporting unit’s fair value was substantially in excess of its carrying value, while the revenue cycle management and entertainment segments were determined to be impaired.
Current wording
We consider a reporting unit’s fair value to be substantially in excess of the reporting unit’s carrying value at a 20% premium or greater. Based on our December 31, 2025 annual impairment test, the Video Solutions segment’s fair value was substantially in excess of its carrying value, with an indicated equity fair value of $2,580,000 compared to a carrying value of approximately $595,000. The Video Solutions segment carries no goodwill. The Entertainment segment was determined to be impaired.
Previous wording
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.
Current wording
Historically, the Company recorded an assurance-type warranty liability related to hardware products sold. As the Company has continued its transition to a cloud-based, subscription model — where devices are typically provided as part of the service arrangement rather than sold outright — the volume of products subject to assurance-type warranties has become insignificant. For subscription deployments, the Company’s obligations primarily consist of maintenance, support, and service-level commitments, which are accounted for under ASC 606 as service obligations, with any service-level credits treated as variable consideration, rather than as assurance-type warranties. Based on historical claims experience and expected future costs, anticipated assurance-type warranty expenses are not material. Accordingly, the Company’s warranty reserve was $0 as of both March 31, 2026 and December 31, 2025, reflecting the factors noted above.
Previous wording
***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 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.
Current wording
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 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.
Previous wording
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.
Current wording
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 March 31, 2026 and December 31, 2025, we have fully reserved all of our deferred tax assets. We determined that it was appropriate to maintain a full valuation allowance on our net deferred tax assets at March 31, 2026 and December 31, 2025 based on our assessment of recoverability and continued operating losses. 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.
Showing the first 40 of 41 pairs. Open the source sections for the rest.
Rearranged current paragraphs (2)
Current report — wording carried from elsewhere
Revenue is recognized for the shipment of products or delivery of service in accordance with ASC 606 by applying the following five-step model:
Current report — wording carried from elsewhere
Allowance for Excess and Obsolete Inventory.
Rearranged previous paragraphs (16)
Previous report — wording carried elsewhere
Basic and Diluted Loss per Share
Previous report — wording carried elsewhere
Summarized financial information for the Company’s reportable business segments is provided for the nine months ended September 30, 2025, and 2024:
Previous report — wording carried elsewhere
The segment net revenues reported above represent sales to external customers. Segment gross profit represents net revenues less cost of revenues. Segment operating income, which is used in management’s evaluation of segment performance, represents net revenues, less cost of revenues, less all operating expenses. Identifiable assets are those assets used by each segment in its operations. Corporate assets primarily consist of cash, property, plant and equipment, accounts receivable, inventories, and other assets.
Previous report — wording carried elsewhere
Revenues by Type and by Operating Segment
Previous report — wording carried elsewhere
Our operating segments generate two types of revenue:
Previous report — wording carried elsewhere
Product revenuesprimarily include video solutions operating segment hardware sales of in-car and body-worn cameras. Additionally, product revenues also include the sale of tickets by our entertainment operating segment that have been purchased or received through our sponsorships and partnerships and held in inventory by our entertainment segment until their sale. Our entertainment sector also generates product revenue through our production of live events and concerts including our annual Country Stampede music festival.
Previous report — wording carried elsewhere
Service and other revenuesconsist of cloud and warranty services revenues from our subscription plan and storage offerings of our video solutions segment. Our entertainment operating segment’s secondary ticketing marketplace revenues are included in service revenue. We recognize service revenue from sales generated through its secondary ticketing marketplace as we collect net services fees on secondary ticketing marketplace transactions. Lastly, our revenue cycle management segment revenues are included in the service revenues for services provided to medical providers throughout the country.
Previous report — wording carried elsewhere
The following table presents revenues by type and segment:
Previous report — wording carried elsewhere
We may discount our prices on specific orders based upon the size of the order, the specific customer and the competitive landscape.
Previous report — wording carried elsewhere
Service and other revenues by operating segment is as follows:
Previous report — wording carried elsewhere
Change in Fair Value of Derivative Liabilities
Previous report — wording carried elsewhere
We recorded an income tax benefit of $-0- for the nine months ended September 30, 2025 and 2024, respectively. The effective tax rate for both 2025 and 2024 varied from the expected statutory rate due to our continuing to provide a 100% valuation allowance on net deferred tax assets. We determined that it was appropriate to continue the full valuation allowance on net deferred tax assets as of September 30, 2025 and December 31, 2024 primarily because of the recurring operating losses.
Previous report — wording carried elsewhere
We have further determined to continue providing a full valuation reserve on our net deferred tax assets as of September 30, 2025.
Previous report — wording carried elsewhere
We had approximately $159,965,000 of federal net operating loss carryforwards and $1,796,111 of research and development tax credit carryforwards as of September 30, 2025 and December 31, 2024 available to offset future net taxable income.
Previous report — wording carried elsewhere
Net Loss Attributable to Common Stockholders
Previous report — wording carried elsewhere
Basic and Diluted Loss per Share