KUSTOM ENTERTAINMENT, INC.
For the period ended Mar 31, 2025. Filed May 20, 2025.
View on SEC.govAbout this filing
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, 2025 · Filed May 20, 2025
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 2024-09-30; filed 2024-12-30.
0001493152-24-052422
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2025-03-31; filed 2025-05-20.
0001641172-25-011765
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 206 previous paragraphs and 154 current paragraphs.
70 unchanged; 37 reworded; 46 added; 87 removed; 12 previous and 1 current paragraphs rearranged.
Tables are not compared: 39 previous and 25 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 (46)
Current 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.
Current report
Nasdaq Notifications
Current 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.
Current 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).
Current 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”).
Current 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, which hearing date has not been set as of the date of this Form 10-K. While the appeal process is pending, the suspension of trading of the Company’s Common Stock, will be stayed and the Common Stock will continue 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.
Current 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 following conditions:
Current report
There are no assurances however, that the Company will be able to meet and maintain all such conditions required by the Panel.
Current report
Comparison of the Three Months Ended March 31, 2025 and 2024
Current report
Summary Financial Data
Current report
Results of Operations
Current report
The following table presents revenues by type and segment:
Current report
Product revenues for the three months ended March 31, 2025 and 2024 were $721,350 and $1,565,846, respectively, a decrease of $844,496 (53.9%), due to the following factors:
Current report
Service and other revenues for the three months ended March 31, 2025 and 2024 were $3,753,914 and $3,963,505, respectively, a decrease of $209,591 (5%), due to the following factors:
Current report
The decrease in cost of goods sold for our video solutions segment products is due to large decrease in product sales experienced during the three months ended March 31, 2025. We were not able to fulfil open orders due to low inventory levels. We have utilized funds from the February 2025 public equity offering to ramp the supply chain which we believe will lead to improved product sales. Cost of product sold as a percentage of product revenues for the video solutions segment decreased to 119% for the three months ended March 31, 2025 as compared to 111% for the three months ended March 31, 2024.
Current report
The decrease in entertainment operating segment cost of product sold directly correlates to the lower product revenues for the three months ended March 31, 2025. Cost of Product Revenues were $611,087 and $769,899 for the three months ended March 31, 2025 and 2024, a decrease of $158,812 (21%). Cost of product sold as a percentage of product revenues for the entertainment segment increased to 92% for the three months ended March 31, 2025 as compared to 91% for the three months ended March 31, 2024.
Current report
The decrease 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 March 31, 2025 compared to the three months ended March 31, 2024. Cost of service revenues as a percentage of service revenues for the video solutions segment decreased to 35% for the three months ended March 31, 2025 as compared to 36% for the three months ended March 31, 2024.
Current report
The decrease in revenue cycle management operating segment cost of service revenue is commensurate with the decline in revenues due to certain loss generating services being eliminated during the year. Cost of service revenues as a percentage of product revenues for the revenue cycle management operating segment decreased to 65% for the three months ended March 31, 2025 as compared to 68% for the three months ended March 31, 2024.
Current report
Interest income increased to $31,975 for the three months ended March 31, 2025, from $19,356 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.
Current report
We incurred interest expenses of $792,273 and $648,567 during the three months ended March 31, 2025 and 2024, respectively. The increase is attributable to the amortization of debt discounts associated with the senior secured promissory notes that were paid off with proceeds from the February 2025 public equity offering..
Current report
Gain on Extinguishment of Debt -related party
Current report
On September 22, 2023, a trust, the beneficiaries of which are TicketSmarter’s Chief Executive Officer and his spouse, made a loan in the amount of $2,325,000 to TicketSmarter to support TicketSmarter’s operations. The Related Party Note bears interest of 13.25% per annum with repayment beginning January 2, 2024. On October 2, 2023 an additional $375,000 was advanced to Ticketsmarter which increased the loan balance to $2,700,000. The use of proceeds of the TicketSmarter Related Party Note was to resolve numerous outstanding payables at a discounted rate, the discount received is recognized as a gain on extinguishment of liabilities on the condensed consolidated statement of operations. Additionally, these negotiations relieved TicketSmarter of numerous future obligations following fiscal year 2023.
Current report
On August 19, 2024, the parties agreed to amend the note whereby the repayment dates were extended to begin on January 2, 2025 and continue at $54,000 for 50 consecutive weeks plus interest. The parties did not change any other provisions or terms of the note. The amendment was determined to be a modification of the note rather than an extinguishment and reissuance of a new note. No payments have been made during the three months ended March 31, 2025.
Current report
On March 20, 2025, the parties agreed to a second modification of the TicketSmarter Related Party Note. The modification eliminated all accrued interest totaling $582,203 as of the date of the second modification, reduced the interest rate from 13.25% per annum to 8% per annum, and extended and reduced the repayment amount from $54,000 per week to $11,000 per week beginning April 1, 2025. The modification was deemed to be an extinguishment of debt resulting in a gain of $1,249,372 during the three months ended March 31, 2025.
Current report
Gain on disposal of intangibles
Current report
Gain on disposal of intangibles decreased to $-0- for the three months ended March 31, 2025, from $5,582 during the three months ended March 31, 2024.
Current report
The change in fair value of the warrant derivative liabilities for the three months ended March 31, 2025 and 2024, respectively totaled a gain of $2,515,891 during the three months ended March 31, 2025 as compared to a loss of $348,891 during the three months ended March 31, 2024.
Current report
During 2024, the Company issued Series A and Series B detachable warrants in conjunction with its June 2024 capital raise. The underlying warrant terms under both of the Series A and Series B warrants provide for net cash settlement outside the control of the Company in the event of tender offers under certain circumstances and requires reset provisions which were triggered upon the approval the warrant issuances by the Company’s shareholders. As such, the Company is required to treat these warrants as derivative liabilities, which are valued at their estimated fair value at their issuance date and at each reporting date, with any subsequent changes reported in the condensed consolidated statement of operations as the change in fair value of warrant derivative liabilities. The warrants were approved by shareholders at the Company’s annual meeting on December 17, 2024, which triggered the reset provisions which resulted in an increase in the estimated fair value of the Series A and Series B warrants. The holders fully exercised their Series B warrants during the three months ended March 31, 2025 which caused a deterioration in the market value of the Company’s Common Stock which resulted in a large decrease in the estimated fair value of the remaining Class A warrants resulting in the gain from the change in fair value of warrant derivative liabilities in the condensed consolidated statement of operations for the three months ended March 31, 2025.
Current report
The Company reported a loss on sale of property, plant and equipment of $-0- and $41,661 during the three months ended March 31, 2025, and 2024, respectively.
Current report
Income (loss) before Income Tax Benefit
Current report
As a result of the above, we reported net income (loss) before income tax benefit of $4,267,082 and $(3,943,268) for the three months ended March 31, 2025 and 2024, respectively, an improvement of $8,210,350 (208%).
Current report
We recorded an income tax benefit of $-0- for the three months ended March 31, 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 March 31, 2025 and December 31, 2024 primarily because of the recurring operating losses.
Current report
Net Income (Loss)
Current report
As a result of the above, we reported a net income (loss) of $4,267,082 and $(3,943,268) for the three months ended March 31, 2025 and 2024, respectively, an improvement of $8,210,350 (208%).
Current report
As a result of the above, we reported a net income (loss) of $4,263,471 and $(3,931,020) for the three months ended March 31, 2025 and 2024, respectively, an improvement of $8,194,491 (208%).
Current report
Basic and Diluted Income/(Loss) per Share
Current report
The basic and diluted income/(loss) per share was $1.41 and ($27.48) for the three months ended March 31, 2025 and 2024, respectively, for the 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 three months ended March 31, 2025 and 2024 because all potentially dilutive securities were excluded from the computation because of their exercise price being higher than the market value of our Common Stock in 2025 and the net loss reported for 2024.
Current report
The net result of these activities was an increase in cash of $3,308,294 to $3,762,608 for the three months ended March 31, 2025.
Current report
Debt obligations - We have the following outstanding debt as of March 31, 2025 which require future principal payments:
Showing the first 40 of 46 passages. Open the source sections for the rest.
Removed paragraphs (87)
Previous report
Consolidated Results of Operations
Previous report
We experienced operating losses for the nine months of 2024 and all quarters during 2023. The following is a summary of our recent operating results on a quarterly basis:
Previous report
Our business is subject to substantial fluctuations on a quarterly basis as reflected in the significant variations in revenues and operating results in the above table. These variations result from various factors, including but not limited to: (1) the timing of large individual orders; (2) the traction gained by products, such as the recently released FirstVu Pro, FirstVu II, FLT-250, EVO HD, the ThermoVu™ and the Shield™ lines; (3) production, quality and other supply chain issues affecting our cost of goods sold; (4) unusual increases in operating expenses, such as the timing of trade shows and stock-based and bonus compensation; (5) the timing of patent infringement litigation settlements (6) ongoing patent and other litigation and related expenses respecting outstanding lawsuits; and (7) the completion of corporate acquisitions including the recent purchases in the revenue cycle management and entertainment operating segments. We reported a net loss of $5,470,712 on revenues of $4,051,711 for the third quarter of 2024.
Previous report
Summarized immediately below and discussed in more detail in the subsequent subsections is an analysis of our operating results for the three months ended September 30, 2024 and 2023, represented as a percentage of total revenues for each such quarter:
Previous report
Product revenues for the three months ended September 30, 2024 and 2023 were $803,945 and $2,095,237 respectively, a decrease of $1,291,292 (62%), due to the following factors:
Previous report
Service and other revenues for the three months ended September 30, 2024 and 2023 were $3,247,766 and $4,242,462, respectively, a decrease of $994,696 (23%), due to the following factors:
Previous report
The decrease in cost of goods sold for our video solutions segment products was primarily driven by the sale of repair inventory and components as compared to the same period in the prior year. We have been unable to ship backlog due to low inventory levels of finished goods. Cost of product sold as a percentage of product revenues for the video solutions segment decreased to 51% for the three months ended September 30, 2024 as compared to 98% for the three months ended September 30, 2023.
Previous report
The decrease in entertainment operating segment cost of product sold was driven by the reduction in sponsored events and primary ticket sales as we selectively limited our events presented for the three months ended September 30, 2024 compared to September 30, 2023, resulting in cost of product revenue of $390,226 for the three months ended September 30, 2024, compared to $1,629,763 for the three months ended September 30, 2023. Cost of product sold as a percentage of product revenues for the entertainment segment was 78% for the three months ended September 30, 2024 as compared to 146% for the three months ended September 30, 2023.
Previous report
The decrease in cost of service revenues for our video solutions segment reflects our staffing reductions implemented during 2024 in order to right-size our operations commensurate with our service revenues in the three months ended September 30, 2024 compared to the three months ended September 30, 2023. Cost of service revenues as a percentage of service revenues for the video solutions segment decreased to 30% for the three months ended September 30, 2024 as compared to 47% for the three months ended September 30, 2023.
Previous report
Cost of service revenues as a percentage of service revenues for the revenue cycle management operating segment remained consistent at 58% for the three months ended September 30, 2024 as compared to 62% for the three months ended September 30, 2023.
Previous report
The decrease in entertainment operating segment cost of service revenues is commensurate with the decrease in service revenues in the three months ended September 30, 2024, compared to the three months ended September 30, 2023. Cost of service revenues as a percentage of service revenues for the entertainment segment was 74% for the three months ended September 30, 2024 as compared to 63% for the three months ended September 30, 2023.
Previous report
Selling, general and administrative expenses were $9,122,273 and $6,374,192 for the three months ended September 30, 2024 and 2023, respectively, an increase of $2,748,081 (43%). The increase was primarily attributable to the goodwill and intangible asset impairment charge recorded during the 2024 period offset by a reduction in new sponsorships being entered into by the Company. Our selling, general and administrative expenses as a percentage of sales increased to 225% for the three months ended September 30, 2024 compared to 101% in the same period in 2023. The significant components of selling, general and administrative expenses are as follows:
Previous report
***Goodwill and intangible asset impairment charge.***We performed an interim impairment test as of the last day of the fiscal third quarter of 2024 as management determined that a triggering event had occurred resulting from the additional decline in demand for our services, prolonged economic uncertainty, the fact that the split-off transaction did not occur when and as expected and a further decrease in our stock price. Therefore, we performed an interim impairment test as of the September 30, 2024 for our reporting units with remaining goodwill.
Previous report
As a result of our September 30, 2024 interim impairment test, we concluded that the carrying amount of the revenue cycle management and entertainment reporting units exceeded their estimated fair value. Thus, we recorded a non-cash goodwill impairment charge of $4,322,000, representing a portion of the goodwill balance for the revenue cycle management segment, which was included in goodwill and intangible asset impairment charge on our Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2024. In addition, we recorded a non-cash goodwill impairment charge of $307,000, representing a portion of the goodwill balance for the entertainment segment, which was included in goodwill and intangible asset impairment charge on our Condensed Consolidated Statements of Operations for the three months ended September 30, 2024. The goodwill impairment was primarily driven by recent performance of the entertainment reporting unit since our annual impairment testing date, as well as a delay in the projected timing of recovery.
Previous report
During the three months ended September 30, 2024, we concluded that the carrying amount of a trade name/trademark related to the entertainment segment exceeded its estimated fair value and we recorded a non-cash impairment charge of $201,000, which was included in goodwill and intangible asset impairment charge on our Condensed Consolidated Statements of Operations for the three months ended September 30, 2024. The charge was primarily driven by the split-off transaction not being completed when and as expected and our recent revenue performance of the related business given a decline in demand and overall economic uncertainty. The remaining balance for this trade name/trademark was $699,000 as of September 30, 2024.
Previous report
Interest income increased slightly to $13,775 for the three months ended September 30, 2024, from $12,986 in the same period of 2024.
Previous report
We incurred interest expenses of $771,846 and $959,898 during the three months ended September 30, 2024 and 2023, respectively. The decrease is attributable to the pay-off of the building loan from proceeds of sale of the building and by a reduction and pay-off of the contingent earn-out notes associated with the four Nobility Healthcare acquisitions in 2024.
Previous report
Other income (loss)
Previous report
Other income (loss) decreased to $8,920 for the three months ended September 30, 2024, from $25,394 during the three months ended September 30, 2023, which reflects a reduction in rental income related to a warehouse lease within the corporate headquarters that was terminated when the building was sold.
Previous report
During the third quarter of 2024, the Company negotiated a termination of its lease on its former headquarters. As a result, the Company recorded a gain of $9,385 on the termination during the three months ended September 30, 2024.
Previous report
Loss on Extinguishment of Debt
Previous report
On March 1, 2024, the Company obtained a short-term merchant advance, which totalled $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 and nine months ended September 30, 2024.
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 results of operations, we reported a loss before income tax benefit of $5,470,712, and $3,679,043 for the three months ended September 30, 2024 and 2023, respectively, an increase of$1,791,669 (49%).
Previous report
Net Loss
Previous report
As a result of the above results of operations, we reported a net loss of $5,470,712, and $3,679,043 for the three months ended September 30, 2024 and 2023, respectively, an increase of $1,791,669 (49%).
Previous report
As a result of the above, we reported a net loss attributable to common stockholders of $3,470,506 and $3,708,673 for the three months September 30, 2024 and 2023, respectively, an improvement of $238,167 (6%).
Previous report
Basic and Diluted Loss per Share
Previous report
The basic and diluted loss per share was $0.91 and $1.32 for the three months ended September 30, 2024 and 2023, respectively. Basic loss per share is based upon the weighted average number of common shares outstanding during the period. For the three months ended September 30, 2024 and 2023, all shares issuable upon conversion of convertible debt and the exercise of outstanding stock options and warrants were antidilutive, and, therefore, not included in the computation of diluted loss per share.
Previous report
For the Nine months Ended September 30, 2024 and 2023
Previous report
Summarized immediately below and discussed in more detail in the subsequent subsections is an analysis of our operating results for the nine months ended September 30, 2024 and 2023, represented as a percentage of total revenues for each such quarter:
Previous report
Product revenues for the nine months ended September 30, 2024 and 2023 were $4,577,392 and $7,626,706 respectively, a decrease of $3,049,314 (40%), due to the following factors:
Previous report
Service and other revenues for the nine months ended September 30, 2024 and 2023 were $10,619,905 and $14,687,813, respectively, a decrease of $4,067,908 (28%), due to the following factors:
Previous report
Total revenues for the nine months ended September 30, 2024 and 2023 were $15,197,297 and $22,314,519, respectively, a decrease of $7,117,222 (32%), due to the reasons noted above.
Previous report
Cost of Product Revenue
Previous report
Overall cost of product revenue sold for the nine months ended September 30, 2024, and 2023 was $5,534,209 and $7,108,366, respectively, a decrease of $1,574,157 (22%). Overall cost of goods sold for products as a percentage of product revenues for the nine months ended September 30, 2024, and 2023 were 121% and 93%, respectively. Cost of products sold by operating segment is as follows:
Previous report
The decrease in cost of goods sold for our video solutions segment products is directly correlated with the decrease in product sales for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. In addition, the video solutions segment recorded valuation allowances for its older product lines and a portion of its Shield products during the first nine months of 2023, directly increasing cost of goods sold for the period. Cost of product sold as a percentage of product revenues for the video solutions segment remained steady at 116% for the nine months ended September 30, 2024 as compared to 110% for the nine months ended September 30, 2023.
Previous report
The increase in entertainment operating segment cost of product sold was driven by the costs of the Country Stampede music festival for the nine months ended September 30, 2024 compared to September 30, 2023, resulting in cost of product revenue of $3,620,853 for the nine months ended September 30, 2024, compared to $3,449,876 for the nine months ended September 30, 2023. Cost of product sold as a percentage of product revenues for the entertainment segment was 124% for the three months ended September 30, 2024 as compared to 80% for the nine months ended September 30, 2023.
Previous report
Cost of Service Revenue
Showing the first 40 of 87 passages. Open the source sections for the rest.
Reworded paragraphs (37)
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 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, 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; the FLT-250, DVM-250, and DVM-250 Plus, which are our commercial line of digital video mirrors 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
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 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, 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.
Previous wording
Entertainment Operating Segment - We also entered into 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 through its platform, for a wide range of events, including concerts, sporting events, theatres, and performing arts, throughout the country. We also offer production and promotion of live music events in third-party venues throughout the country. 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
Entertainment Operating Segment - We also entered into 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 offer production and promotion of live music events in third-party venues throughout the country. 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.
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, along with other administrative costs.
Current 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.
Previous wording
Summarized financial information for the Company’s reportable business segments is provided for the indicated periods and as of September 30, 2024, and September 30, 2023:
Current wording
Summarized financial information for the Company’s reportable business segments is provided for the three months ended March 31, 2025, and 2024:
Previous wording
Segment net revenues reported above represent only 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. 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, 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 wording
Product revenuesprimarily includes video 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.
Current wording
Product revenuesprimarily includes 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
Our video operating segment sells our products and services to customers in the following manner:
Current wording
Our video solutions operating segment sells our products and services to customers in the following manner:
Previous wording
Total revenues for the three months ended September 30, 2024 and 2023 were $4,051,711 and $6,337,699, respectively, a decrease of $2,285,988 (36%), due to the reasons noted above.
Current wording
Total revenues for the three months ended March 31, 2025, and 2024 were $4,475,264 and $5,529,351, respectively, a decrease of $1,054,087 (19%), due to the reasons noted above.
Previous wording
Overall cost of product revenue sold for the three months ended September 30, 2024, and 2023 was $547,562 and $2,587,750, respectively, a decrease of $2,040,188 (79%). Overall cost of goods sold for products as a percentage of product revenues for the three months ended September 30, 2024, and 2023 were 68% and 124%, 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, 2025, and 2024 was $675,639 and $1,567,393, respectively, a decrease of $891,754 (57%). Overall cost of goods sold for products as a percentage of product revenues for the three months ended March 31, 2025, and 2024 were 94% and 100%, respectively. Cost of products sold by operating segment is as follows:
Previous wording
Overall cost of service revenue sold for the three months ended September 30, 2024, and 2023 was $1,764,175 and $2,523,800, respectively, a decrease of $759,625 (30%). Overall cost of goods sold for services as a percentage of service revenues for the three months ended September 30, 2024, and 2023 were 54% and 59%, respectively. Cost of service revenues by operating shipment is as follows:
Current wording
Overall cost of service revenue sold for the three months ended March 31, 2025, and 2024 was $2,198,126 and $2,438,259, respectively, a decrease of $240,133 (10%). Overall cost of goods sold for services as a percentage of service revenues for the three months ended March 31, 2025, and 2024 were 59% and 62%, respectively. Cost of service revenues by operating segment is as follows:
Previous wording
The decrease in entertainment operating segment cost of service revenues is commensurate with the decrease in service revenues in the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. Cost of service revenues as a percentage of service revenues for the entertainment operating segment was 73% for the nine months ended September 30, 2024 as compared to 79% for the nine months ended September 30, 2023.
Current wording
The decrease in entertainment operating segment cost of service revenues is due to management right sizing the business working towards profitability. The Entertainment cost of service revenue was $1,013,170 for the three months ended March 31, 2025, compared to $1,112,287 for the three months ended March 31, 2024. Cost of service revenues as a percentage of service revenues for the entertainment segment decreased to 66% for the three months ended March 31, 2025 as compared to 73% for the three months ended March 31, 2024.
Previous wording
Overall gross profit for the three months ended September 30, 2024 and 2023 was $1,739,974 and $1,226,149, respectively, an increase of $513,825 (42%). Gross profit by operating segment was as follows:
Current wording
Overall gross profit for the three months ended March 31, 2025 and 2024 was $1,796,034 and $1,523,699, respectively, an increase of $272,335 (18%). Gross profit by operating segment was as follows:
Previous wording
The overall increase is attributable to the improvement in gross profit generated by the video solutions and entertainment segments for the three months ended September 30, 2024 compared to 2023 along with a decrease in the overall cost of sales as a percentage of overall revenues to 57% for the three months ended September 30, 2024 from 81% for the three months ended September 30, 2023. Our goal is to continue to improve our margins over the longer term based on the expected margins generated by our new recent revenue cycle management and entertainment operating segments together with our video solutions operating segment and its expected margins from our EVO-HD, DVM-800, VuLink, FirstVu Pro, FirstVu II, and our cloud evidence storage and management offering, provided that they gain traction in the marketplace. In addition, if revenues from the video solutions segment increase, we will seek to further improve our margins from this segment through expansion and increased efficiency utilizing fixed manufacturing overhead components. We plan to continue our initiative to more efficiently management of our supply chain through outsourcing production, quantity purchases and more effective purchasing practices.
Current wording
The increase in gross profits is primarily due to improvements in our cost of sales as a percentage of sales particularly in our entertainment segment service revenues. There was an overall decrease in the cost of sales as a percentage of overall revenues to 64% for the three months ended March 31, 2025 from 72% for the three months ended March 31, 2024. This is primarily driven by large head-count reductions in our work-force during the three months ended March 31, 2025 as compared to 2024, a focus on right sizing recent acquisitions to increase profitability and a transition to a service subscription-based model in our video solutions segment. Our goal is to improve our margins over the longer term based on the expected margins generated by our new recent revenue cycle management and entertainment operating segments together with our video solutions operating segment and its expected margins from our EVO-HD, DVM-800, VuLink, FirstVu Pro, FirstVu II, EVO Fleet, FLT-250, DVM-250, DVM-250 Plus and our cloud evidence storage and management offering, provided that they gain traction in the marketplace. We plan to continue our initiative to more efficient management of our supply chain through outsourcing production, quantity purchases and more effective purchasing practices.
Previous wording
Selling, general and administrative expenses were $18,439,296 and $21,769,532 for the nine months ended September 30, 2024 and 2023, respectively, a decrease of $3,330,236 (15%). The decrease was primarily attributable to the reduction in new sponsorships being entered into by the Company offset by the goodwill and intangible asset impairment charge. Our selling, general and administrative expenses as a percentage of sales increased to 121% for the nine months ended September 30, 2024 compared to 98% in the same period in 2023. The significant components of selling, general and administrative expenses are as follows:
Current wording
Selling, general and administrative expenses were $2,576,179 and $5,162,733 for the three months ended March 31, 2025 and 2024, respectively, a decrease of $2,586,554 (50%). The decrease was primarily attributable to the reduction in new advertising sponsorships being entered into by the Company. Our selling, general and administrative expenses as a percentage of sales increased to 58% for the three months ended March 31, 2025 compared to 93% in the same period in 2024. The significant components of selling, general and administrative expenses are as follows:
Previous wording
***Research and development expense.***Our research and development expenses totalled $210,818 and $564,146 for the three months ended September 30, 2024 and 2023, respectively which represents a decrease of $353,328 (63%). We have focused on controlling our expenditures on bringing new products to market, including updates and improvements to current products in response to our decline in revenues. The decrease in research and development expense reflects the large cut-back in our engineering staff and research activities in order to right-size our expenses in this area with our revenues.
Current wording
***Research and development expense.***Our research and development expenses totaled $84,417 and $487,466 for the three months ended March 31, 2025 and 2024, respectively which represents a decrease of $403,049 (83%). We have focused on controlling our expenditures on bringing new products to market, including updates and improvements to current products in response to our decline in revenues. The decrease in research and development expense reflects the large cut-back in our engineering staff and research activities in order to right-size our expenses in this area with our revenues.
Previous wording
***Selling, advertising and promotional expenses.***Selling, advertising and promotional expense totalled $414,727 and $1,932,982 for the three months ended September 30, 2024 and 2023, respectively, a decrease of $1,518,255 (79%). The decrease in selling, advertising and promotional expenses reflects the large cut-back in selling staff and promotional and advertising activities in order to right-size our expenses in this area with our revenues. In addition, the decrease is attributable to the reduction in new sponsorships being entered into by the Company and its subsidiary TicketSmarter.
Current wording
***Selling, advertising and promotional expenses.***Selling, advertising and promotional expense totaled $108,041 and $761,118 for the three months ended March 31, 2025 and 2024, respectively, a decrease of $653,077 (86%). The decrease in selling, advertising and promotional expenses reflects the large cut-back in selling staff and promotional and advertising activities in order to right-size our expenses in this area with our revenues. In addition, the decrease is attributable to the reduction in new sponsorships being entered into by the Company and its subsidiary TicketSmarter.
Previous wording
General and administrative expense. General and administrative expenses totalled $3,666,728 and $3,877,064 for the three months ended September 30, 2024 and 2023, respectively. The decrease in general and administrative expenses in the three months ended September 30, 2024 compared to the same period in 2023 is primarily attributable to a decrease in administrative salaries and reductions in headcount in order to right-size our expenses in this area with our revenues. The decrease in general and administrative expenses was offset by a substantial increase legal and professional expenses for the three months ended September 30, 2024 compared to the same period in 2023 due to the failed merger with CloverLeaf and various capital raises we have undertaken.
Current wording
General and administrative expense. General and administrative expenses totaled $2,383,721 and $3,914,149 for the three months ended March 31, 2025 and 2024, respectively which represents a decrease of $1,530,428 (39%). The decrease in general and administrative expenses in the three months ended March 31, 2025 compared to the same period in 2024 is primarily attributable to a decrease in administrative salaries and reductions in headcount in order to right-size our expenses in this area with our revenues. The decrease in general and administrative expenses was offset by a substantial increase legal and professional expenses for the three months ended March 31, 2025 compared to the same period in 2024 due to the failed merger with CloverLeaf and various capital raises we have undertaken.
Previous wording
For the reasons stated above, our operating loss was $7,382,299 and $5,148,043 for the three months ended September 30, 2024 and 2023, respectively, an increase of $2,234,256 (43%). Operating loss as a percentage of revenues improved to 182% in the three months ended September 30, 2024 from 81% in the same period in 2023.
Current wording
For the reasons previously stated, our operating loss was $974,680 and $3,639,034 for the three months ended March 31, 2025 and 2024, respectively, an improvement of $2,664,354 (73%). Operating loss as a percentage of revenues improved to 22% in 2025 as compared to 66% in 2024.
Previous wording
Other income (expense) decreased to $66,966 for the nine months ended September 30, 2024, from $76,180 during the nine months ended September 30, 2023, which reflects income related to a warehouse lease within the corporate headquarters which ceased in 2024 upon the sale of the building.
Current wording
Other income (expense) decreased to $16,700 for the three months ended March 31, 2025, from $27,602 during the three months ended March 31, 2024, which reflects income related to a warehouse sublease within the corporate headquarters during early 2024 which ceased upon the sale of the building which occurred in 2024.
Previous wording
The Company recorded a gain on the extinguishment of liabilities for the nine months ended September 30, 2024 of $682,345, which reflects income related to the video segment’s ability to negotiate down payables and contract liabilities during the period. In addition, the Company negotiated a termination of its lease on its former headquarters which resulted in a gain of $9,385 on the termination during the nine months ended September 30, 2024.
Current wording
The Company recorded a gain on the extinguishment of liabilities for the three months ended March 31, 2025 and 2024 of $2,220,097, and $682,345, respectively. The gains reflect income related to the video solutions and entertainment segment’s ability to negotiate down payables and other contract obligations during the three months ended March 31, 2025 utilizing funds generated by the closing of the February 2025 public equity offering on February 13, 2025.
Previous wording
The gain on extinguishment of liabilities was $507,304 for the nine months ended September 30, 2023, which reflects income related to the entertainment segment’s ability to negotiate down payables and contract liabilities during the period. The Company utilized funds from the related party note payable to resolve numerous outstanding payables at a discounted rate, the discount received was recognized as a gain on extinguishment of liabilities in the statement of operations for the nine months ended September 30, 2023.
Current wording
The gain on extinguishment of liabilities was $682,345 for the three months ended March 31, 2024, which reflects income related to the entertainment segment’s ability to negotiate down payables and other contract obligations during the period. The Company utilized funds from the related party note payable to resolve numerous outstanding payables at a discounted rate, the discount received was recognized as a gain on extinguishment of liabilities in the condensed consolidated statement of operations for the three months ended March 31, 2024.
Previous wording
During the second quarter of 2023, the Company issued detachable warrants to purchase a total of 1,125,000 shares of Common Stock in association with the two secured convertible notes previously described. The Company issued an additional 1,195,219 warrants in June 2024. The underlying warrant agreement terms provide for net cash settlement outside the control of the Company in the event of tender offers under certain circumstances. As such, the Company is required to treat these warrants as derivative liabilities which are valued at their estimated fair value at their issuance date and at each reporting date with any subsequent changes reported in the condensed consolidated statement of operations as the change in fair value of warrant derivative liabilities. The change in fair value of the warrant derivative liabilities from July 1, 2024, to September 30, 2024, totalled $2,530,675 which was recognized as income in the third quarter of 2024.
Current wording
During 2023, the Company issued detachable warrants to purchase a total of 56,250 shares of Common Stock in association with the two secured convertible notes. The underlying warrant terms provide for net cash settlement outside the control of the Company in the event of tender offers under certain circumstances. As such, the Company is required to treat these warrants as derivative liabilities which are valued at their estimated fair value at their issuance date and at each reporting date with any subsequent changes reported in the condensed consolidated statement of operations as the change in fair value of warrant derivative liabilities. The increase in the estimated fair value of the 2023 warrants resulted in a loss from the change in fair value of warrant derivative liabilities in the condensed consolidated statement of operations for the three months ended March 31, 2025.
Previous wording
Gain on Sale of Property, Plant and Equipment
Current wording
Loss on Sale of Property, Plant and Equipment
Previous wording
We did not record an income tax expense related to our income for the three months ended September 30, 2024 due to our overall net operating loss carryforwards available. We have further determined to continue providing a full valuation reserve on our net deferred tax assets as of September 30, 2023. We had approximately $113.3 million of net operating loss carryforwards and $1.8 million of research and development tax credit carryforwards as of September 30, 2024 available to offset future net taxable income.
Current wording
We have further determined to continue providing a full valuation reserve on our net deferred tax assets as of March 31, 2025.
Previous wording
The Company owns a 51% equity interest in its consolidated, Nobility Healthcare. As a result, the noncontrolling shareholders or minority interest is allocated 49% of the income of Nobility Healthcare which is reflected in the statement of income as “net income attributable to noncontrolling interests of consolidated subsidiary”. We reported net loss (income) attributable to noncontrolling interests of consolidated subsidiary of $2,000,206 and $(29,630) for the three months ended September 30, 2024 and 2023, respectively.
Current wording
The Company owns a 51% equity interest in its consolidated subsidiary, Nobility Healthcare. As a result, the noncontrolling shareholders or minority interest is allocated 49% of the income/loss of Nobility Healthcare which is reflected in the condensed consolidated statement of income (loss) as “net income (loss) attributable to noncontrolling interests of consolidated subsidiary”. We reported net income attributable to noncontrolling interests of consolidated subsidiary of $3,611 and $12,248 for the three months ended March 31, 2025 and 2024, respectively.
Previous wording
Cash, cash equivalents: As of September 30, 2024, we had cash and cash equivalents with an aggregate balance of $415,131, a decrease from a balance of $778,149 (including restricted cash) at December 31, 2023. Summarized immediately below and discussed in more detail in the subsequent subsections are the main elements of the $363,018 net decrease in cash during the nine months ended September 30, 2024:
Current wording
Cash, cash equivalents: As of March 31, 2025, we had cash and cash equivalents with an aggregate balance of $3,762,608, an increase from a balance of $454,314 at December 31, 2024. Summarized immediately below and discussed in more detail in the subsequent subsections are the main elements of the $3,308,294 net increase in cash during the three months ended March 31, 2025:
Previous wording
We had $415,131 of cash and cash equivalents and net negative working capital of $13,181,861 as of September 30, 2024. Accounts receivable and other receivables balances represented $5,253,535 of our net working capital at September 30, 2024. We intend to collect our outstanding receivables on a timely basis and reduce the overall level during 2024, which would help to provide positive cash flow to support our operations during 2024. Inventory represents $2,325,118 of our net working capital at September 30, 2024. We are actively managing the level of inventory and our goal is to reduce such level during the balance of 2024 by our sales activities, the increase of which should provide additional cash flow to help support our operations during 2024.
Current wording
We had $3,762,608 of cash and cash equivalents and net positive working capital of $3,385,051 as of March 31, 2025. Accounts receivable and other receivables balances represented $4,923,191 of our net working capital at March 31, 2025. We intend to collect our outstanding receivables on a timely basis and reduce the overall level during 2025, which would help to provide positive cash flow to support our operations during 2025 and beyond. Inventory represents $2,489,111 of our net working capital at March 31, 2025. We are actively managing the level of inventory and our goal is to reduce such level during 2025 by our sales activities, the decrease of which should provide additional cash flow to help support our operations during 2025 and beyond.
Previous wording
***Lease commitments.***Total lease expense under the five operating leases was approximately $160,751 and $360,934, during the three and nine months ended September 30, 2024, respectively.
Current wording
***Lease commitments.***Total lease expense under the Company’s operating leases was approximately $223,580 during the three months ended March 31, 2025.
Previous wording
Our significant accounting policies are summarized inNote 1, “Nature of Business and Summary of Significant Accounting Policies,” to our consolidated financial statements. While the selection and application of any accounting policy may involve some level of subjective judgments and estimates, we believe the following accounting policies and estimates are the most critical to our financial statements, potentially involve the most subjective judgments in their selection and application, and are the most susceptible to uncertainties and changing conditions:
Current wording
Our significant accounting policies are summarized inNote 1, “Nature of Business and Summary of Significant Accounting Policies,” to our condensed consolidated financial statements. While the selection and application of any accounting policy may involve some level of subjective judgments and estimates, we believe the following accounting policies and estimates are the most critical to our financial statements, potentially involve the most subjective judgments in their selection and application, and are the most susceptible to uncertainties and changing conditions:
Previous 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 liability 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 deferred revenue and recognized over the term of the extended warranty.
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 65% of the gross inventory balance at September 30, 2024, compared to 54% of the gross inventory balance at December 31, 2023. We had $4,222,990 and $4,542,461 in reserves for obsolete and excess inventories at September 30, 2024 and December 31, 2023, 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, 2024.
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 40% of the gross inventory balance at March 31, 2025, compared to 46% of the gross inventory balance at December 31, 2024. We had $1,648,542 and $2,169,655 in reserves for obsolete and excess inventories at March 31, 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 March 31, 2025.
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 21% 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
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.
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 20% 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
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.
Previous wording
We held goodwill of $5,480,966 as of September 30, 2024 and December 31, 2023, related to businesses within our revenue cycle management segment. We held goodwill of $6,112,507 and $5,886,548 as of September 30, 2024 and December 31, 2023, respectively, related to businesses within our entertainment segment. As a result of our September 30, 2024 interim impairment test, we concluded that the carrying amount of the revenue cycle management and the entertainment reporting units exceeded its estimated fair values. Thus, we recorded a non-cash goodwill impairment charge of $4,322,000, related to the goodwill carrying balance for the revenue cycle management segment, and a non-cash goodwill impairment charge of $307,000, related to the goodwill carrying balance for the entertainment segment, both of which was included in goodwill and intangible asset impairment charge on our Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2024. The goodwill impairment was primarily driven by recent performance of the revenue cycle management and entertainment reporting units since our annual impairment testing date, as well as a delay in the projected timing of recovery. The remaining balance for the goodwill carrying balance related to businesses within our revenue cycle management segment and entertainment segment was $1,158,966 and $5,805,507, respectively as of September 30, 2024.
Current wording
We held goodwill of $5,480,966 as of September 30, 2024, related to businesses within our revenue cycle management segment. We held goodwill of $6,112,507 as of September 30, 2024, respectively, related to businesses within our entertainment segment. As a result of our September 30, 2024 interim impairment test, we concluded that the carrying amount of the revenue cycle management and the entertainment reporting units exceeded its estimated fair values. Thus, we recorded a non-cash goodwill impairment charge of $4,322,000, related to the goodwill carrying balance for the revenue cycle management segment, and a non-cash goodwill impairment charge of $307,000, related to the goodwill carrying balance for the entertainment segment, both of which was included in goodwill and intangible asset impairment charge on our Condensed Consolidated Statements of Operations for the three months ended September 30, 2024. The goodwill impairment was primarily driven by recent performance of the revenue cycle management and entertainment reporting units since our annual impairment testing date, as well as a delay in the projected timing of recovery. The remaining balance for the goodwill carrying balance related to businesses within our revenue cycle management segment and entertainment segment was $1,158,966 and $5,805,507, respectively as of March 31, 2025 and December 31, 2024.
Previous wording
Warranty Reserves. We generally provide up to a two-year parts and labor standard warranty on our products to our customers. Provisions for estimated expenses related to product warranties are made at the time products are sold. These estimates are established using historical information on the nature, frequency, and average cost of claims. We actively study trends of claims and take action to improve product quality and minimize claims. Our warranty reserves were decreased to $11,615 as of September 30, 2024 compared to $17,699 as of December 31, 2023 due to newer products gaining a long history of claims to consider, which was slightly offset as we begin to slow our warranty exposures through the roll-off of DVM-750 and DVM-800 units from warranty coverage. Standard warranty exposure on the DVM-800 and DVM-250plus are the responsibility of the contract manufacturers which reduced our overall warranty exposure as these are very popular products in our line. There is a risk that we will have higher warranty claim frequency rates and average cost of claims than our history has indicated on our legacy mirror products on our new products for which we have limited experience. Actual experience could differ from the amounts estimated requiring adjustments to these liabilities in future periods.
Current wording
Warranty Reserves. We generally provide up to a two-year parts and labor standard warranty on our products to our customers. Provisions for estimated expenses related to product warranties are made at the time products are sold. These estimates are established using historical information on the nature, frequency, and average cost of claims. We actively study trends of claims and take action to improve product quality and minimize claims. Standard warranty exposure on the DVM-800 and DVM-250plus are the responsibility of the contract manufacturers, which reduced our overall warranty exposure as these are very popular products in our line. There is a risk that we will have higher warranty claim frequency rates and average cost of claims than our history has indicated on our legacy mirror products compared to our new products for which we have limited experience. Actual experience could differ from the amounts estimated requiring adjustments to these liabilities in future periods.
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, 2023, 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 by $17,220,000 to a balance of $34,200,000 to fully reserve our deferred tax assets at December 31, 2023. We determined that it was appropriate to continue to provide a full valuation reserve on our net deferred tax assets as of September 30, 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, 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 by $4,680,000 to a balance of $46,290,000 to fully reserve our deferred tax assets at March 31, 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 March 31, 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.
Previous wording
As required by authoritative guidance, we have performed a comprehensive review of our portfolio of uncertain tax positions in accordance with recognition standards established by the FASB, an uncertain tax position represents our expected treatment of a tax position taken in a filed tax return or planned to be taken in a future tax return, that has not been reflected in measuring income tax expense for financial reporting purposes. We have no recorded liability as of September 30, 2024 representing uncertain tax positions.
Current wording
As required by authoritative guidance, we have performed a comprehensive review of our portfolio of uncertain tax positions in accordance with recognition standards established by the FASB, an uncertain tax position represents our expected treatment of a tax position taken in a filed tax return or planned to be taken in a future tax return, that has not been reflected in measuring income tax expense for financial reporting purposes. We have no recorded liability as of March 31, 2025 and December 31, 2024 representing uncertain tax positions.
Rearranged current paragraphs (1)
Current report — wording carried from elsewhere
We had approximately $159,280,000 of federal net operating loss carryforwards and $1,742,000 of research and development tax credit carryforwards as of March 31, 2025 and December 31, 2024 available to offset future net taxable income.
Rearranged previous paragraphs (12)
Previous report — wording carried elsewhere
For the Three Months Ended September 30, 2024 and 2023
Previous report — wording carried elsewhere
Product revenues by operating segment is as follows:
Previous report — wording carried elsewhere
Service and other revenues by operating segment is as follows:
Previous report — wording carried elsewhere
The overall decrease is attributable to the overall decrease in revenues for the nine months ended September 30, 2024 and an increase in the overall cost of sales as a percentage of overall revenues to 77% for the nine months ended September 30, 2024 from 75% for the nine months ended September 30, 2023. Our goal is to improve our margins over the longer term based on the expected margins generated by our new recent revenue cycle management and entertainment operating segments together with our video solutions operating segment and its expected margins from our EVO-HD, DVM-800, VuLink, FirstVu Pro, FirstVu II, ShieldTM disinfectants and our cloud evidence storage and management offering, provided that they gain traction in the marketplace. In addition, if revenues from the video solutions segment increase, we will seek to further improve our margins from this segment through expansion and increased efficiency utilizing fixed manufacturing overhead components. We plan to continue our initiative to more efficient management of our supply chain through outsourcing production, quantity purchases and more effective purchasing practices.
Previous report — wording carried elsewhere
***Research and development expense.***Our research and development expenses totalled $1,244,060 and $2,039,361 for the nine months ended September 30, 2024 and 2023, respectively which represents a decrease of $795,301 (39%). We have focused on controlling our expenditures on bringing new products to market, including updates and improvements to current products in response to our decline in revenues. The decrease in research and development expense reflects the large cut-back in our engineering staff and research activities in order to right-size our expenses in this area with our revenues.
Previous report — wording carried elsewhere
***Selling, advertising and promotional expenses.***Selling, advertising and promotional expense totalled $1,902,489 and $5,885,097 for the nine months ended September 30, 2024 and 2023, respectively, a decrease of $3,982,608 (68%). The decrease in selling, advertising and promotional expenses reflects the large cut-back in selling staff and promotional and advertising activities in order to right-size our expenses in this area with our revenues. In addition, the decrease is attributable to the reduction in new sponsorships being entered into by the Company and its subsidiary TicketSmarter.
Previous report — wording carried elsewhere
General and administrative expense. General and administrative expenses totalled $10,462,747 and $13,845,074 for the nine months ended September 30, 2024 and 2023, respectively. The decrease in general and administrative expenses in the three months ended September 30, 2024 compared to the same period in 2023 is primarily attributable to a decrease in administrative salaries and reductions in headcount in order to right-size our expenses in this area with our revenues. The decrease in general and administrative expenses was offset by a substantial increase legal and professional expenses for the nine months ended September 30, 2024 compared to the same period in 2023 due to the failed merger with CloverLeaf and various capital raises we have undertaken.
Previous report — wording carried elsewhere
Change in Fair Value of Derivative Liabilities
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Gain on Sale of Property, Plant and Equipment
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Net Income Attributable to Noncontrolling Interests of Consolidated Subsidiary
Previous report — wording carried elsewhere
The Company owns a 51% equity interest in its consolidated subsidiary, Nobility Healthcare. As a result, the noncontrolling shareholders or minority interest is allocated 49% of the income of Nobility Healthcare which is reflected in the statement of income as “net income attributable to noncontrolling interests of consolidated subsidiary”. We reported net loss (income) attributable to noncontrolling interests of consolidated subsidiary of $1,939,143 and $228,624 for the nine months ended September 30, 2024 and 2023, respectively.
Previous report — wording carried elsewhere
Net Loss Attributable to Common Stockholders