KUSTOM ENTERTAINMENT, INC.

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 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.

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, and our ability to achieve profitability as an entertainment company; (2) substantial doubt about our ability to continue as a going concern; (3) our ability to fund our operations, including through our committed equity financing facility, which depends in part on the market price and trading volume of our common stock; (4) our ability to maintain the listing of our common stock on Nasdaq; (5) dilution from sales of common stock under our committed equity facility and from the issuance of common stock underlying outstanding options and warrants; (6) the seasonality and concentration of our live-events business, including the dependence of our results on the annual Country Stampede music festival; (7) weather, artist availability and performance, public-safety incidents, and other events or conditions that could disrupt or reduce attendance at live events; (8) competition in the ticketing and live-entertainment industries from larger, more established companies with far greater economic and human resources; (9) our ability to acquire ticket inventory on favorable terms and the risk that ticket inventory sells below cost or becomes unsellable following the related event date; (10) our ability to collect the promissory notes received in connection with the dispositions of Nobility Healthcare and the Video Solutions business, including the effects of related earn-out adjustments; (11) risks related to the separation of the Video Solutions business following its sale, including transition matters; (12) our ability to attract and retain quality employees; (13) the fluctuation of our operating results from quarter to quarter, including as a result of event timing; (14) 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; (15) the volatility of our stock price due to a number of factors, including a relatively limited public float; and (16) 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.

Previous wording

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 wording

Effective January 8, 2026, the Company changed its name from Digital Ally, Inc. to Kustom Entertainment, Inc. and its Nasdaq trading symbol from “DGLY” to “KUST,” reflecting the strategic shift to live entertainment as the Company’s primary line of business.

Previous wording

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 wording

Effective January 8, 2026, the Company effected a 1-for-3 reverse stock split of its common stock. Effective April 22, 2026, the Company effected a 1-for-5 reverse stock split to comply with the Nasdaq Minimum Bid Price Requirement. All share and per-share amounts presented in this Report have been retroactively adjusted to reflect both reverse stock splits.

Previous wording

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 wording

Effective January 1, 2026, the Company completed the sale of its 51% membership interest in Nobility Healthcare, exiting the revenue-cycle management business entirely. Total consideration was $1,450,000, consisting of $100,000 in cash paid at closing, closing credits of $209,501, and a promissory note in the principal amount of $1,140,499, recorded at an estimated fair value of $1,117,303. During the three months ended March 31, 2026, the Company recognized a loss on the disposition of $4,013,669, consisting of a $1,556,254 loss on sale and a $2,457,415 loss on deconsolidation. An initial provisional earn-out adjustment of $357,919 to the carrying value of the note was also recorded during the period. During the three months ended June 30, 2026, the Company recorded an additional provisional earn-out adjustment of $81,134; cumulative provisional principal reductions of $429,886 reduced the face amount of the note to $710,613. SeeNote 22, Discontinued Operations.

Previous wording

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 wording

During January 2026, the holder of the 2025 Secured Notes converted the entire $1,070,000 outstanding principal balance into 111,608 shares of common stock, fully extinguishing the notes. In connection with the conversions, the remaining unamortized debt discount of $854,827 was eliminated against additional paid-in capital, and the bifurcated conversion feature derivative liability, with an aggregate fair value of $1,142,191 at the dates of conversion, was reclassified to additional paid-in capital. As of June 30, 2026, the Company has no outstanding convertible debt.

Previous 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

Current wording

Following the dispositions described above, the Company’s continuing operations consist of one reportable segment: Entertainment. Through TicketSmarter, Inc. and its online marketplace, TicketSmarter.com, the Company offers ticket sales, resale, and partnership services for live events nationwide, spanning concerts, sporting events, theatre, and performing arts. Entertainment revenues include ticketing service charges, generally calculated as a percentage of the face value of the underlying ticket, as well as sales of tickets held in Company inventory, both recognized upon the sale of the underlying tickets. Through Kustom 440, Inc., the Company creates and produces live entertainment experiences, including the annual Country Stampede music festival, generating ticket, camping, sponsorship, and related revenues, which are deferred until the related event is held. Direct expenses include the cost of tickets purchased for resale and held in inventory, artist and production costs for Company-produced events, credit card fees, ticketing platform expenses, and website maintenance.

Previous 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:

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 our financial condition, changes in financial condition, results of operations, liquidity, capital expenditures, capital resources, or significant components of revenue or expenses, other than the following:

Previous wording

We are a party to operating leases and license agreements that represent commitments for future payments and we have issued purchase orders in the ordinary course of business that represent commitments to future payments for goods and services.

Current wording

We are a party to operating leases and license agreements that represent commitments for future payments, and we have issued purchase orders in the ordinary course of business that represent commitments to future payments for goods and services. In addition, we are obligated to pay 4% of future gross proceeds raised under our committed equity facility through February 2028 pursuant to a settlement agreement with Aegis Capital Corp.; these amounts become payable only if and as we elect to draw on the facility. SeeNote 13, Commitments and Contingencies.

Previous wording

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 wording

Total identifiable assets as of June 30, 2025 included amounts related to the discontinued Video Solutions and Revenue Cycle Management (Nobility Healthcare) businesses, which were included in the Corporate category. Following the disposition of Nobility Healthcare in January 2026 and the classification of the Video Solutions business as held for sale, no assets of Nobility Healthcare remain as of June 30, 2026, and Corporate identifiable assets as of June 30, 2026 include assets of the Video Solutions business held for sale of $7,147,595. See Note 22, Discontinued Operations, for additional information.

Previous wording

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 wording

The Company records non-cash items affecting gross profit (loss) and operating loss through the establishment of inventory reserves based on estimates of excess and/or obsolete inventory. The Company recorded a reserve for excess and obsolete inventory in the Entertainment segment of $72,203 and $69,817 as of June 30, 2026 and December 31, 2025, respectively, relating primarily to ticket inventory that may sell below cost or become unsellable following the related event date. The inventory reserve of the Video Solutions business, of $2,172,575 and $1,849,124 as of June 30, 2026 and December 31, 2025, respectively, is included within assets of the Video Solutions business held for sale and is excluded from segment information.

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 (loss), which is used in management’s evaluation of segment performance, represents net revenues, less cost of revenues, less all operating expenses.

Current wording

The segment net revenues reported above represent sales to external customers. Segment gross loss represents net revenues less cost of revenues. Segment operating 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 revenues:

Current wording

Our continuing operations generate two types of revenues:

Previous wording

The following table presents revenues by type and segment:

Current wording

The following table presents revenues by type:

Previous wording

Our Entertainment Segment sells our products and services to customers in the following manner:

Current wording

We sell our products and services to customers in the following manner:

Previous wording

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 wording

Product revenues for the three months ended June 30, 2026 and 2025 were $2,644,529 and $1,740,828, respectively, an increase of $903,701 (51.9%), and $2,980,635 and $2,445,416 for the six months ended June 30, 2026 and 2025, respectively, an increase of $535,219 (21.9%), due to the following factors:

Previous 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.

Current wording

Total revenues for the three months ended June 30, 2026 and 2025 were $5,381,310 and $2,859,073, respectively, an increase of $2,522,237 (88.2%), and $8,587,067 and $5,061,504 for the six months ended June 30, 2026 and 2025, respectively, an increase of $3,525,563 (69.7%), due to the reasons noted above.

Previous wording

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 wording

The Company recorded a reserve for excess and obsolete inventory in the Entertainment segment of $72,203 and $69,817 as of June 30, 2026 and December 31, 2025, respectively, an increase of $2,386 (3.4%). 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 are appropriate based on inventory levels and operating conditions as of June 30, 2026. The inventory reserve of the Video Solutions business, of $2,172,575 as of June 30, 2026, is included within assets of the Video Solutions business held for sale.

Previous wording

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 wording

Selling, general and administrative expenses for the three months ended June 30, 2026 and 2025 were $1,676,937 and $2,208,836, respectively, representing a decrease of $531,899 (24.1%), and $2,927,680 and $3,680,777 for the six months ended June 30, 2026 and 2025, respectively, representing a decrease of $753,097 (20.5%). Selling, general and administrative expenses consist primarily of selling, advertising and promotional expenses and general and administrative expenses. The significant components of selling, general and administrative expenses are as follows:

Previous wording

***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 wording

***Selling, advertising and promotional expenses.***Selling, advertising and promotional expenses totaled $370,170 and $95,629 for the three months ended June 30, 2026 and 2025, respectively, representing an increase of $274,541 (287.1%), and $513,545 and $171,493 for the six months ended June 30, 2026 and 2025, respectively, representing an increase of $342,052 (199.5%). The increases reflect higher marketing and promotional activity, primarily related to the 2026 Country Stampede music festival held in June 2026, together with marketing for the TicketSmarter platform.

Previous 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.

Current wording

General and administrative expense. General and administrative expenses totaled $1,306,767 and $2,113,207 for the three months ended June 30, 2026 and 2025, respectively, representing a decrease of $806,440 (38.2%), and $2,414,135 and $3,509,284 for the six months ended June 30, 2026 and 2025, respectively, representing a decrease of $1,095,149 (31.2%). The decrease is primarily attributable to a decrease in administrative salaries and continued reductions in headcount, together with lower professional fees, as the Company continues to right-size its expenses relative to its revenues following the dispositions described above.

Previous 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.

Current wording

For the reasons previously stated, our operating loss was $(2,853,651) and $(3,761,301) for the three months ended June 30, 2026 and 2025, respectively, representing an improvement in operating loss of $907,650 (24.1%), and $(3,885,877) and $(4,655,168) for the six months ended June 30, 2026 and 2025, respectively, representing an improvement of $769,291 (16.5%). Operating loss as a percentage of revenues improved to 53.0% for the three months ended June 30, 2026 as compared to 131.6% for the three months ended June 30, 2025, and to 45.2% from 92.0% for the six-month periods.

Previous wording

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 wording

Interest income increased to $55,481 for the three months ended June 30, 2026, from $45,946 for the three months ended June 30, 2025, and to $132,287 for the six months ended June 30, 2026, from $77,921 for the six months ended June 30, 2025, primarily reflecting interest on the promissory note received as partial consideration in connection with the January 2026 sale of Nobility Healthcare, including amortization of the related discount.

Previous wording

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 wording

We incurred interest expense of $28,648 and $77,280 during the three months ended June 30, 2026 and 2025, respectively, representing a decrease of $48,632 (62.9%), and $96,098 and $869,553 for the six months ended June 30, 2026 and 2025, respectively, representing a decrease of $773,455 (88.9%). The decrease is primarily attributable to the 2025 repayment of the senior secured promissory notes and merchant advances, which carried significant debt discount amortization, together with the conversion of the 2025 Secured Notes to common stock during the three months ended March 31, 2026, which eliminated future interest expense on those instruments. Interest expense in 2026 consists primarily of non-cash amortization of the discount on the note payable – related party and interest on the EIDL loan and the unsecured promissory note.

Previous wording

Gain on Extinguishment of Debt -related party

Current wording

Loss on Extinguishment of Debt -Related party

Previous wording

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 wording

The Company did not recognize any gain or loss on extinguishment of debt – related party during any 2026 period. The $(1,249,372) loss recognized during the three months ended June 30, 2025 reversed the corresponding gain recognized during the three months ended March 31, 2025 in connection with the modification of the note payable – related party; following the June 2025 modification, management determined to treat the arrangement as a deemed capital contribution, and the effect for the six months ended June 30, 2025 was $-0-. SeeNote 17, Related Party Transactions.

Previous wording

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 wording

As a result of the above, we reported a loss before income taxes from continuing operations of $(3,790,332) for the three months ended June 30, 2026, compared to $(4,155,432) for the three months ended June 30, 2025, and a loss of $(5,039,298) for the six months ended June 30, 2026, compared to income of $192,463 for the six months ended June 30, 2025.

Previous 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.

Current wording

We recorded no income tax expense or benefit for any period presented. The effective tax rate varied from the expected statutory rate due to our continuing to provide a 100% valuation allowance on net deferred tax assets, which we have determined to maintain as of June 30, 2026 because of recurring operating losses. We had approximately $159,790,000 of federal net operating loss carryforwards and $1,685,000 of research and development tax credit carryforwards as of June 30, 2026 available to offset future net taxable income. SeeNote 12, Income Taxes.

Previous wording

The Company previously held a 51% equity interest in its consolidated subsidiary, Nobility Healthcare, with the remaining 49% held by third-party venture partners. Nobility Healthcare was sold on January 8, 2026 (effective January 1, 2026), and its results have been classified as discontinued operations for all periods presented. As a result, the noncontrolling interest related to Nobility Healthcare is included within net loss from discontinued operations, and no separate noncontrolling interest is reported in continuing operations for either period. As of March 31, 2026, the Company has no remaining noncontrolling interests in any consolidated subsidiary.

Current wording

The Company previously held a 51% equity interest in its consolidated subsidiary, Nobility Healthcare, with the remaining 49% held by third-party venture partners. Nobility Healthcare was sold effective January 1, 2026, and its results have been classified as discontinued operations for all periods presented; the noncontrolling interest in its results is likewise included within discontinued operations. Net income attributable to noncontrolling interests was $55,997 and $59,608 for the three and six months ended June 30, 2025, respectively. As of June 30, 2026, the Company has no remaining noncontrolling interests in any consolidated subsidiary.

Previous wording

The basic and diluted loss per share from continuing operations was $(3.44) for the three months ended March 31, 2026, compared to basic and diluted income per share from continuing operations of $2,107.72 for the three months ended March 31, 2025. The basic and diluted loss per share from discontinued operations was $(9.95) for the three months ended March 31, 2026, compared to basic and diluted income per share from discontinued operations of $1.86 for the three months ended March 31, 2025, resulting in a net basic and diluted loss per share attributable to common stockholders of $(13.39) for the three months ended March 31, 2026, compared to net basic and diluted income per share attributable to common stockholders of $2,109.58 for the three months ended March 31, 2025. All outstanding stock options, common stock purchase warrants, and shares issuable upon conversion of convertible debt were considered antidilutive and therefore excluded from the calculation of diluted loss per share for the three months ended March 31, 2026 and 2025. All share and per-share amounts have been retroactively adjusted to reflect the 1-for-5 reverse stock split effective April 22, 2026.

Current wording

The basic and diluted loss per share from continuing operations was $(4.58) for the three months ended June 30, 2026, compared to $(60.76) for the three months ended June 30, 2025, and $(7.93) for the six months ended June 30, 2026, compared to basic and diluted income per share of $5.52 for the six months ended June 30, 2025. The basic and diluted loss per share from discontinued operations was $(0.91) and $(5.70) for the three months ended June 30, 2026 and 2025, respectively, and $(8.49) and $(13.60) for the six months ended June 30, 2026 and 2025, respectively, resulting in a net basic and diluted loss per share attributable to common stockholders of $(5.49) and $(66.46) for the three months ended June 30, 2026 and 2025, respectively, and $(16.42) and $(8.08) for the six months ended June 30, 2026 and 2025, respectively. All outstanding stock options, common stock purchase warrants, and other potentially dilutive securities were considered antidilutive and therefore excluded from the calculation of diluted loss per share for all periods presented. All share and per-share amounts have been retroactively adjusted to reflect the reverse stock splits effective January 8, 2026 and April 22, 2026.

Previous wording

Management’s Liquidity Plan: The Company has incurred net losses and negative cash flows from operating activities since inception. The Company incurred an operating loss of $1,296,987 for the three months ended March 31, 2026, continued to incur negative cash flows from operations, and had an accumulated deficit of $147,612,336 as of March 31, 2026. These conditions raise substantial doubt about the Company’s ability to continue as a going concern within one year from the date of issuance of these condensed consolidated financial statements. In response, management has implemented and continues to implement plans intended to mitigate these conditions, including (i) continued access to the Company’s committed equity financing facility (the “ELOC”) providing up to $25,000,000 over a 36-month term, (ii) the January 8, 2026 divestiture of Nobility Healthcare, which eliminated the operating losses and working capital requirements of the Revenue Cycle Management segment, (iii) ongoing cost-reduction initiatives, including headcount reductions and facility consolidations in the Video Solutions segment, and (iv) continued evaluation of additional debt and equity financing alternatives. There can be no assurance that the Company will be successful in restoring positive cash flows and profitability, or that it will be able to raise additional financing on terms acceptable to the Company.Notwithstanding these measures, substantial doubt about the Company’s ability to continue as a going concern has not been alleviated as of the date of issuance of these condensed consolidated financial statements.

Current wording

Management’s Liquidity Plan: The Company has incurred net losses and negative cash flows from operating activities since inception. The Company incurred a net loss of $10,432,083 for the six months ended June 30, 2026, including a loss from continuing operations of $5,039,298, used $3,832,974 of cash in operating activities of continuing operations, and had an accumulated deficit of $152,159,104 as of June 30, 2026. These conditions raise substantial doubt about the Company’s ability to continue as a going concern within one year from the date of issuance of these condensed consolidated financial statements. In response, management has implemented and continues to implement plans intended to mitigate these conditions, including (i) continued access to the Company’s ELOC providing up to $25,000,000 over a 36-month term, under which approximately $19.36 million remained available as of the date of this Report, subject to the terms and conditions of the facility and applicable Nasdaq rules, (ii) the sale of the Video Solutions business, subsequently completed on August 3, 2026, under which the Company received cash consideration of $1,250,000, including a non-refundable $250,000 extension payment received in July 2026, together with a $4,250,000 secured promissory note and shares of the Cycurion’s Series H Preferred Stock, (iii) the January 2026 divestiture of Nobility Healthcare, which eliminated the operating losses and working capital requirements of the Revenue Cycle Management business, and (iv) ongoing cost-reduction initiatives. Management’s plans are not entirely within the Company’s control, including the availability of the ELOC, which depends in part on the market price and trading volume of the Company’s common stock and continued listing on Nasdaq, and there can be no assurance that the Company will be successful in restoring positive cash flows and profitability, or that it will be able to raise additional financing on terms acceptable to the Company. Notwithstanding these measures, substantial doubt about the Company’s ability to continue as a going concern has not been alleviated as of the date of issuance of these condensed consolidated financial statements.

Previous wording

Cash, cash equivalents: As of March 31, 2026, we had cash and cash equivalents of $1,224,321, compared to $757,369 as of December 31, 2025, representing a net increase of $466,952. The changes in cash during the three months ended March 31, 2026 resulted from the following cash flow activities from continuing operations:

Current wording

Cash, cash equivalents: As of June 30, 2026, we had cash and cash equivalents of $830,193, compared to $757,369 as of December 31, 2025, representing a net increase of $72,824. The changes in cash during the six months ended June 30, 2026 resulted from the following cash flow activities:

Previous wording

The net result of these activities was an increase in cash of $466,952 for the three months ended March 31, 2026.

Current wording

The net result of these activities was an increase in cash of $72,824 for the six months ended June 30, 2026.

Previous wording

As of March 31, 2026, the Company had $1,224,321 of cash and cash equivalents and a net negative working capital position of $(63,091), compared to a net negative working capital position of $(2,270,311) as of December 31, 2025 (excluding amounts classified as held for sale in connection with the discontinued Revenue Cycle Management segment), representing an improvement of $2,207,220. The improvement in working capital was primarily driven by proceeds from issuances of common stock under the ELOC, the conversion of the 2025 Senior Secured Convertible Notes into common stock, and the extinguishment of the associated warrant derivative liabilities upon conversion.

Current wording

As of June 30, 2026, the Company had $830,193 of cash and cash equivalents and a net negative working capital position of $(2,052,762), compared to a net negative working capital position of $(1,496,587) as of December 31, 2025. Excluding amounts classified as held for sale, the Company’s working capital position was $(3,113,462) as of June 30, 2026, compared to $(4,577,727) as of December 31, 2025, representing an improvement of $1,464,265. The improvement in working capital was primarily driven by proceeds from issuances of common stock under the ELOC and the conversion of the 2025 Secured Notes into common stock, including the extinguishment of the associated derivative liabilities upon conversion.

Previous wording

Accounts receivable and other receivables represented $3,654,344 of working capital at March 31, 2026. Management intends to collect outstanding receivables on a timely basis and reduce overall receivable balances during 2026, which is expected to provide additional cash flow to support continuing operations. Inventory represented $2,148,228 of working capital as of March 31, 2026. The Company is actively managing inventory levels, and management’s objective is to reduce inventory during 2026 through sales activities. A reduction in inventory levels is expected to generate additional cash flow to support the Company’s continuing operations.

Current wording

Accounts receivable, other receivables, and the current portion of notes receivable represented $1,429,061 of working capital at June 30, 2026. Management intends to collect outstanding receivables on a timely basis, which is expected to provide additional cash flow to support continuing operations. Inventories, consisting of ticket inventory, represented $280,137 of working capital as of June 30, 2026. The Company actively manages ticket inventory levels against event dates, as unsold ticket inventory is written off following the related event date.

Previous 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:

Current wording

Total lease expense under the Company’s operating leases related to continuing operations was approximately $65,227 and $130,454 during the three and six months ended June 30, 2026, respectively. The following sets forth the operating lease right-of-use assets and liabilities associated with continuing operations as of June 30, 2026:

Previous wording

During the three months ended March 31, 2026, the Company incurred capital expenditures of $159,657, consisting primarily of purchases of property, plant and equipment. The Company does not currently have any material commitments for capital expenditures beyond normal course of business activity.

Current wording

During the six months ended June 30, 2026, the Company incurred capital expenditures of $182,047, consisting primarily of purchases of property, plant and equipment. The Company does not currently have any material commitments for capital expenditures beyond normal course of business activity.

Previous wording

The Company has also agreed to pay 4% of future Gross Proceeds raised under its Equity Line of Credit through February 14, 2028, pursuant to a Settlement Agreement entered into with Aegis Capital Corp. in January 2026. The Company’s estimate with respect to the maximum reasonably possible future obligation under this arrangement is approximately $900,000, based upon the remaining undrawn commitment of the facility. This obligation is strictly contingent upon the Company’s discretionary future use of the facility. SeeNote 13, Commitments and Contingencies, for additional details.

Current wording

The Company has agreed to pay 4% of future gross proceeds raised under its equity line of credit through February 14, 2028, pursuant to a settlement agreement entered into with Aegis Capital Corp. in January 2026. During the six months ended June 30, 2026, the Company paid $201,867 under this arrangement. The Company’s estimate with respect to the maximum reasonably possible future obligation under this arrangement is approximately $814,000, based upon the remaining undrawn commitment of the facility as of June 30, 2026. This obligation is strictly contingent upon the Company’s discretionary future use of the facility. SeeNote 13, Commitments and Contingencies, for additional details.

Previous wording

The table above excludes the related party note payable to a trust affiliated with a TicketSmarter officer with a net carrying value of $411,698 as of March 31, 2026 ($0 current, $411,698 long-term). SeeNote 17, Related Party Transactions, for additional details.

Current wording

The table above excludes the related party note payable to a trust affiliated with a TicketSmarter officer with a net carrying value of $424,630 as of June 30, 2026 ($0 current, $424,630 long-term). SeeNote 17, Related Party Transactions, for additional details.

Previous wording

Performance obligations promised in a contract are identified based on the services and the products that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the service either on its own or together with other resources that are readily available from third parties or from us, and are distinct in the context of the contract, whereby the transfer of the services and the products is separately identifiable from other promises in the contract. Our performance obligations consist of (i) products, (ii) professional services, and (iii) extended warranties.

Current wording

Performance obligations promised in a contract are identified based on the services and the products that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the service either on its own or together with other resources that are readily available from third parties or from us, and are distinct in the context of the contract, whereby the transfer of the services and the products is separately identifiable from other promises in the contract. The transaction price is determined based on the consideration to which we expect to be entitled in exchange for transferring services to the customer. Variable consideration is included in the transaction price if, in our judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur. None of our contracts contain a significant financing component.

Previous wording

Revenue for our Entertainment segment is recorded on a gross or net basis based on management’s assessment of whether we are acting as a principal or agent in the transaction. The determination is based upon the evaluation of control over the event ticket, including the right to sell the ticket, prior to its transfer to the ticket buyer.

Current wording

Revenue is recorded on a gross or net basis based on management’s assessment of whether we are acting as a principal or agent in the transaction. The determination is based upon the evaluation of control over the event ticket, including the right to sell the ticket, prior to its transfer to the ticket buyer.