Cycurion puts initial Video Solutions deal value at $5.32M
The $4,250,000 secured note bears 7% annual interest, with six months of interest-only payments followed by 30 monthly installments of $154,836.
Sentiment and the balance of points
Rhea-AI Sentiment reads the wording of the document, how positive or negative its language is on a 1 to 5 scale. The balance of points shown with the takes weighs what the document actually discloses, so the two can disagree, for example when a trial that missed its main goal is described in upbeat language.
Rhea-AI Filing Summary
Cycurion, Inc. completed its acquisition of substantially all assets, and assumed certain specified liabilities, of Kustom Entertainment’s Video Solutions Business on August 3, 2026. Stated consideration includes $1,250,000 in cash, a secured promissory note with $4,250,000 principal, Series H preferred stock with $600,000 aggregate stated value, and a revenue-based earnout and clawback arrangement tied to 2026 and 2027 performance, capped at $500,000 per year and $1,000,000 in aggregate.
Pro forma operating statements assume both this acquisition and the Secuvant acquisition occurred on January 1, 2025. They report combined revenue of $22,570,960 and net loss of $24,780,776 for 2025, and revenue of $10,161,724 and net loss of $7,603,151 for the six months ended June 30, 2026. These figures are illustrative and are not necessarily indicative of results had the acquisitions occurred on the assumed dates or of future results; the purchase price allocation remains preliminary.
Filing Explained
If converted, the Series H preferred stock would add about 51,724 common shares; the pro forma June 30 balance sheet shows cash of $623,287.
This amendment supplies the acquired business’s financial statements and replaces the prior pro forma exhibit for Cycurion’s completed August 3 purchase of substantially all of the Video Solutions Business’s assets and specified liabilities. The pro forma June 30 balance sheet shows cash of
Consideration also includes a secured
The pro forma information is illustrative, not a statement of actual combined results; the acquired business’s abbreviated statements omit cash flows and certain corporate costs, interest, other income or expense, and income taxes.
8-K Event Classification
Key Figures
Key Terms
preliminary purchase consideration financial
purchase price allocation financial
earnout and clawback arrangement financial
Level 3 fair value measurements financial
FAQ
AI-generated questions and answers. How Rhea-AI works. Not financial advice.
How much was the preliminary consideration for CYCU’s Video Solutions acquisition?
What were CYCU’s pro forma combined results?
What are the payment terms for CYCU’s acquisition note?
How does the CYCU Video Solutions earnout and clawback work?
AI-generated analysis. How Rhea-AI works. Not financial advice.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Date
of report (Date of earliest event reported):
(Exact Name of Registrant as Specified in Its Charter)
| (State
or other jurisdiction of incorporation) |
(Commission File Number) |
(IRS
Employer Identification No.) |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s
telephone number, including area code:
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | |
| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) | |
| Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) | |
| Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of each exchange on which registered | ||
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging
growth company
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Explanatory Note
This Amendment is being filed to provide the financial statements required by Item 9.01(a) of Form 8-K and the unaudited pro forma financial information required by Item 9.01(b) of Form 8-K. The unaudited pro forma condensed combined financial information filed as Exhibit 99.2 to this Amendment supersedes the unaudited pro forma financial information furnished as Exhibit 99.2 to the Original Form 8-K.
Except as expressly provided herein, this Amendment does not modify, amend or supplement any information contained in the Original Form 8-K.
Item 9.01 Financial Statements and Exhibits
(a) Financial Statements of Businesses Acquired.
The audited abbreviated financial statements of the Video Solutions Business, consisting of the statements of assets acquired and liabilities assumed as of December 31, 2025 and 2024 and the related statements of revenues and direct expenses for the years then ended, together with the related notes and the report of Victor Mokuolu, CPA PLLC, independent auditor, and the unaudited abbreviated financial statements of the Video Solutions Business, consisting of the statement of assets acquired and liabilities assumed as of June 30, 2026 and the statements of revenues and direct expenses for the six months ended June 30, 2026 and 2025, together with the related notes, are filed as Exhibit 99.1 to this Current Report on Form 8-K/A and are incorporated herein by reference. The Video Solutions Business was not a separate legal entity or subsidiary of Kustom, and separate financial statements have not historically been prepared for it; accordingly, the financial statements are presented in accordance with Rule 3-05(e) of Regulation S-X.
(b) Pro Forma Financial Information.
The unaudited pro forma condensed combined financial information of the Company giving effect to the acquisition of the Video Solutions Business, consisting of the unaudited pro forma condensed combined balance sheet as of June 30, 2026 and the unaudited pro forma condensed combined statements of operations for the year ended December 31, 2025 and the six months ended June 30, 2026, and the related notes, is filed as Exhibit 99.2 to this Current Report on Form 8-K/A and is incorporated herein by reference.
The unaudited pro forma condensed combined financial information has been prepared for informational purposes only in accordance with Article 11 of Regulation S-X and is not necessarily indicative of the financial position or results of operations that would have occurred had the acquisition been completed on the dates assumed therein, nor is it necessarily indicative of future results.
(d) Exhibits.
| Exhibit No. | Description | |
| 23.1 | Consent of Victor Mokuolu, CPA PLLC, independent auditor. | |
| 99.1 | Abbreviated Financial Statements of the Video Solutions Business of Kustom Entertainment, Inc. (formerly Digital Ally, Inc.). | |
| 99.2 | Unaudited Pro Forma Condensed Combined Financial Information. | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document). |
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| CYCURION, INC. | ||||
| Date: | October 28, 2026 | By: | /s/ L. Kevin Kelly | |
| Name: | L. Kevin Kelly | |||
| Title: | Chief Executive Officer | |||
Exhibit 99.1
VIDEO SOLUTIONS BUSINESS OF KUSTOM ENTERTAINMENT, INC.
(formerly Digital Ally, Inc.)
ABBREVIATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2025 and 2024
and the Six Months Ended June 30, 2026 and 2025 (unaudited)
Index to Abbreviated Financial Statements
| Page | ||
| Independent Auditor’s Report | 1-2 | |
| Abbreviated Financial Statements: | ||
| Statements of Assets Acquired and Liabilities Assumed | 3 | |
| Statements of Revenues and Direct Expenses | 4 | |
| Notes to the Abbreviated Financial Statements | 5 - 9 |
INDEPENDENT AUDITOR’S REPORT
To the Board of Directors of Kustom Entertainment, Inc.
Opinion
We have audited the abbreviated financial statements of the Video Solutions Business of Kustom Entertainment, Inc. (formerly Digital Ally, Inc.) (the “Business”), which comprise the Statements of Assets Acquired and Liabilities Assumed as of December 31, 2025 and 2024, and the related Statements of Revenues and Direct Expenses for the years then ended, and the related notes to the abbreviated financial statements (collectively referred to as the “financial statements”).
In our opinion, the accompanying financial statements present fairly, in all material respects, the assets acquired and liabilities assumed of the Business as of December 31, 2025 and 2024, and its revenues and direct expenses for the years then ended in accordance with accounting principles generally accepted in the United States of America.
Basis for Opinion
We conducted our audits in accordance with auditing standards generally accepted in the United States of America (GAAS). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of the Business and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audits. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Basis of Accounting
As discussed in Note 1 to the financial statements, the financial statements have been prepared for the purposes of complying with the rules and regulations of the U.S. Securities and Exchange Commission and are not intended to be a complete presentation of the Business’ financial position or results of operations. Our opinion is not modified with respect to this matter.
Responsibilities of Management for the Financial Statements
Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with U.S. GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements.
| 1 |
In performing an audit in accordance with U.S. GAAS, we:
| ● | Exercise professional judgment and maintain professional skepticism throughout the audit. |
| ● | Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. |
| ● | Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Business’ internal control. Accordingly, no such opinion is expressed. |
| ● | Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements. |
We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control-related matters that we identified during the audit.
/s/ Victor Mokuolu, CPA PLLC
Houston, Texas
October 8, 2026
| 2 |
VIDEO SOLUTIONS BUSINESS OF KUSTOM ENTERTAINMENT, INC.
(formerly Digital Ally, Inc.)
STATEMENTS OF ASSETS ACQUIRED AND LIABILITIES ASSUMED
| June 30, 2026 | December 31, 2025 | December 31, 2024 | ||||||||||
| (Unaudited) | ||||||||||||
| Assets acquired | ||||||||||||
| Accounts receivable, net | $ | 86,812 | $ | 382,082 | $ | 126,474 | ||||||
| Subscription receivables, current | 2,690,503 | 3,219,647 | 3,988,994 | |||||||||
| Inventories, net | 1,498,601 | 2,129,453 | 2,212,774 | |||||||||
| Prepaid expenses | 261,995 | 333,930 | 318,636 | |||||||||
| Total current assets acquired | 4,537,911 | 6,065,112 | 6,646,878 | |||||||||
| Property, plant and equipment, net | 63,834 | 87,368 | 176,546 | |||||||||
| Operating lease right-of-use assets | 109,711 | 147,937 | 219,966 | |||||||||
| Intangible assets, net | 168,024 | 182,211 | 197,800 | |||||||||
| Subscription receivables, long-term | 2,178,923 | 2,976,758 | 4,889,289 | |||||||||
| Other assets | 82,216 | 125,249 | 205,585 | |||||||||
| Total non-current assets acquired | 2,602,708 | 3,519,523 | 5,689,186 | |||||||||
| Total assets acquired | $ | 7,140,619 | $ | 9,584,635 | $ | 12,336,064 | ||||||
| Liabilities assumed | ||||||||||||
| Accounts payable | $ | 193,935 | $ | 316,089 | $ | 874,324 | ||||||
| Accrued expenses | 138,824 | 113,455 | 270,780 | |||||||||
| Customer deposits | 61,054 | 101,387 | 246,916 | |||||||||
| Deferred revenue, current | 3,009,194 | 3,239,340 | 3,210,396 | |||||||||
| Operating lease liabilities, current | 81,180 | 78,007 | 72,029 | |||||||||
| Total current liabilities assumed | 3,484,187 | 3,848,278 | 4,674,445 | |||||||||
| Deferred revenue, long-term | 3,613,846 | 4,739,356 | 6,317,472 | |||||||||
| Operating lease liabilities, long-term | 28,531 | 69,930 | 147,937 | |||||||||
| Total long-term liabilities assumed | 3,642,377 | 4,809,286 | 6,465,409 | |||||||||
| Total liabilities assumed | 7,126,564 | 8,657,564 | 11,139,854 | |||||||||
| Net assets acquired and liabilities assumed | $ | 14,055 | $ | 927,071 | $ | 1,196,210 | ||||||
See accompanying notes to the abbreviated financial statements.
| 3 |
VIDEO SOLUTIONS BUSINESS OF KUSTOM ENTERTAINMENT, INC.
(formerly Digital Ally, Inc.)
STATEMENTS OF REVENUES AND DIRECT EXPENSES
Six Months Ended June 30, 2026 | Six Months Ended June 30, 2025 | Year Ended December 31, 2025 | Year Ended December 31, 2024 | |||||||||||||
| (Unaudited) | (Unaudited) | |||||||||||||||
| Net revenues | ||||||||||||||||
| Product | $ | 475,517 | $ | 492,364 | $ | 1,184,079 | $ | 1,983,769 | ||||||||
| Service | 1,775,102 | 1,770,589 | 3,916,678 | 3,758,002 | ||||||||||||
| Total net revenues | 2,250,619 | 2,262,953 | 5,100,757 | 5,741,771 | ||||||||||||
| Direct expenses | ||||||||||||||||
| Cost of revenue, product | 1,177,774 | 649,009 | 1,523,613 | 1,780,283 | ||||||||||||
| Cost of revenue, service and other | 625,542 | 687,406 | 1,259,293 | 1,252,213 | ||||||||||||
| Research and development expense | 274,838 | 268,228 | 551,447 | 1,339,673 | ||||||||||||
| Selling, advertising and promotional expense | 238,129 | 204,211 | 426,047 | 1,153,839 | ||||||||||||
| General and administrative expense | 945,816 | 1,009,181 | 1,990,187 | 2,874,683 | ||||||||||||
| Total direct expenses | 3,262,099 | 2,818,035 | 5,750,587 | 8,400,691 | ||||||||||||
| Revenues less direct expenses | $ | (1,011,480 | ) | $ | (555,082 | ) | $ | (649,830 | ) | $ | (2,658,920 | ) | ||||
See accompanying notes to the abbreviated financial statements.
| 4 |
VIDEO SOLUTIONS BUSINESS OF KUSTOM ENTERTAINMENT, INC.
(formerly Digital Ally, Inc.)
NOTES TO THE ABBREVIATED FINANCIAL STATEMENTS
NOTE 1. DESCRIPTION OF THE TRANSACTION AND BASIS OF PRESENTATION
Description of the Transaction:
On June 24, 2026, Kustom Entertainment, Inc. (“Kustom” or the “Company”) entered into an Asset Purchase Agreement (the “APA”) with Cycurion, Inc. (“Cycurion”), pursuant to which the Company agreed to sell the assets and transfer certain specified liabilities of its Video Solutions business (the “Business”). On July 23, 2026, the parties amended the APA to extend the closing date and to replace the warrants originally contemplated with shares of Cycurion’s Series H Preferred Stock, and Cycurion paid the Company a non-refundable extension payment of $250,000, which was credited against the cash consideration at closing. The sale was completed on August 3, 2026. Total consideration consists of $1,250,000 in cash, including the $250,000 extension payment, a secured promissory note in the principal amount of $4,250,000 bearing interest at 7% per annum over a three-year term, shares of Cycurion’s Series H Preferred Stock, and a revenue-based earn-out and clawback arrangement based on 2026 and 2027 performance, each capped at $500,000 per year and $1,000,000 in the aggregate. The purchase price was determined by reference to the financial position of the Business as of June 30, 2026. There is no material relationship between the Company or its affiliates and Cycurion other than in connection with the transaction.
Description of the Business:
The Business develops, sells, and services video hardware, camera products, software and related solutions for law enforcement, public safety and commercial customers under the Digital Ally brand, including in-car video systems, body-worn cameras, and cloud-based digital evidence management and warranty solutions offered through both hardware sales and subscription models.
Basis of Presentation:
The accompanying statements of assets acquired and liabilities assumed and statements of revenues and direct expenses (collectively, the “abbreviated financial statements”) were prepared in accordance with the recognition and measurement principles of accounting principles generally accepted in the United States of America (“U.S. GAAP”) for the purpose of complying with the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”), including Rule 3-05 of Regulation S-X, as amended by SEC Final Rule Release No. 33-10786, Amendments to Financial Disclosures About Acquired and Disposed Businesses. They are not intended to be a complete presentation of the financial position, results of operations, or cash flows of the Business.
The Business historically operated as an integrated part of the Company rather than as a separate legal entity. Separate stand-alone financial statements have not previously been prepared for the Business, and the Company has not maintained the distinct and separate accounts necessary to prepare such financial statements. The Business did not maintain separate cash accounts, and its cash activities were commingled with those of the Company and funded through the Company’s centralized cash management function; no cash or cash equivalents were conveyed to Cycurion in the transaction. Because the transaction was structured as a purchase of assets and an assumption of specified liabilities rather than a purchase of equity interests, no legal entity or equity interests were transferred, and the Business did not maintain separate equity accounts. Accordingly, it is impracticable to prepare complete financial statements of the Business, including statements of cash flows and statements of equity.
The abbreviated financial statements were derived from the accounting records of the Company and reflect the historical carrying amounts of the assets acquired and liabilities assumed as recorded by the Company. They do not reflect any purchase accounting or fair value adjustments arising from Cycurion’s acquisition of the Business. The statements of assets acquired and liabilities assumed include only the assets acquired and liabilities assumed pursuant to the APA. Assets and liabilities not acquired or assumed are excluded, including cash and cash equivalents, corporate facilities and other corporate assets, leases of real property other than 6366 College Boulevard and equipment leases retained by the Company and the related right-of-use assets and lease liabilities, intercompany balances, income tax balances, litigation reserves retained by the Company, and corporate-level debt.
| 5 |
Attribution of Costs and Expenses:
The statements of revenues and direct expenses include costs and expenses directly attributable to the revenue-producing activities of the Business, including cost of revenue, research and development, selling, advertising and promotional, and general and administrative expenses. Direct expenses were identified on the basis of whether the underlying cost obligation transferred with, or terminated upon, the sale of the Business, rather than on the basis of general ledger departmental coding or time- or usage-based allocation. Accordingly, the costs of employees, contractors, and contracts that transferred with the Business are included in full by specific identification, including such costs historically recorded in corporate or shared departmental accounts and the full cost of transferring personnel who historically supported both the Business and the Company’s other operations. No time- or usage-based allocations were used.
The statements of revenues and direct expenses exclude the costs of corporate-level functions that remain with the Company following the sale and that were not directly associated with the revenue-producing activities of the Business, as well as interest expense, other income (expense), and income taxes. These retained corporate-level functions include executive management, board of directors, corporate accounting and audit, legal, treasury, insurance administration, and public-company costs. Such retained corporate-level costs were not historically attributed to the Business in the Company’s accounting records, and any allocation of such costs would be arbitrary and would not be indicative of the costs the Business will incur as part of Cycurion. The basis of attribution described above is consistent with the basis on which the Business is presented as discontinued operations in the Company’s consolidated financial statements. The financial information presented herein is not indicative of the results that would have been achieved had the Business operated as a separate, stand-alone entity during the periods presented, nor of the results to be expected in future periods.
Unaudited Interim Information:
The
statement of assets acquired and liabilities assumed as of June 30,
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates:
The preparation of the abbreviated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and revenues and direct expenses. Significant estimates include allowances for doubtful accounts on trade and subscription receivables, the inventory valuation reserve, warranty accruals, useful lives of long-lived assets, standalone selling prices used in the allocation of revenue, the incremental borrowing rate on leases, and the determination of costs directly attributable to the Business as described in Note 1. Actual results could differ from those estimates.
Accounts Receivable and Subscription Receivables:
Trade
accounts receivable are carried at original invoice amount less an allowance for credit losses estimated under the current expected credit
loss (“CECL”) model in ASC 326-20, based on individual customer evaluation, customer financial condition and credit history,
current economic conditions, and reasonable and supportable forecasts. Subscription receivables represent amounts due from customers
under multi-year subscription and lease-style arrangements for hardware and related
Inventories:
Inventories consist of electronic parts, circuitry boards, camera parts and ancillary parts (collectively, “components”), work-in-process, and finished goods, carried at the lower of cost or net realizable value, with cost determined by standard cost methods, which approximate the first-in, first-out method. Inventory costs include material, labor, and manufacturing overhead. Manufacturing inventory is reviewed for obsolescence and excess quantities on a quarterly basis, based on estimated future use of quantities on hand, which is determined based on past usage, planned changes to products, and known trends in markets and technology. Changes in support plans or technology could have a significant impact on obsolescence. To support its service operations, the Business maintains service spare parts inventory consisting of both consumable and repairable spare parts; consumables are charged to cost of revenue when issued during a service call, and the net carrying value of repairable spare parts is reduced over the related product group’s post-production service life, which is generally seven to twelve years.
| 6 |
Property, Plant and Equipment:
Property, plant and equipment is stated at cost, net of accumulated depreciation. Additions and improvements are capitalized, while ordinary maintenance and repair expenditures are charged to expense as incurred. Depreciation is recorded using the straight-line method over the estimated useful lives of the assets, which range from two to seven years; leasehold improvements are depreciated over the shorter of their estimated useful lives or the remaining lease term. The cost and accumulated depreciation of assets sold or retired are removed from the accounts, and any resulting gain or loss is recognized in the statements of revenues and direct expenses. Depreciation ceased upon classification of the Business as held for sale during the three months ended June 30, 2026.
Intangible Assets:
Intangible assets consist principally of patents, trademarks and trade names, and license agreements. Legal expenses incurred in preparation of patent applications are deferred and amortized over the useful lives of granted patents; costs of applications not granted are charged to expense at that time. The Business has entered into sublicense agreements under which it has been assigned exclusive rights to certain licensed materials used in its products; upfront payments under such agreements are capitalized and amortized on a straight-line basis over their estimated useful lives. Long-lived assets, including property, plant and equipment, operating lease right-of-use assets, and intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Amortization of intangible assets ceased upon classification of the Business as held for sale during the three months ended June 30, 2026.
Leases:
The Business determines whether an arrangement is, or contains, a lease at inception. Operating lease right-of-use assets and operating lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. As the rate implicit in the lease is not readily determinable, the Company’s incremental borrowing rate at the commencement date is used to determine the present value of lease payments. Lease expense is recognized on a straight-line basis over the lease term and is included in general and administrative expense. Leases with an initial term of twelve months or less are not recorded on the statements of assets acquired and liabilities assumed, and the related lease expense is recognized on a straight-line basis over the lease term. The Business’s lease relates to office space; the Business has no finance leases.
Revenue Recognition:
The Business recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers. Product revenue is recognized when control of the product is transferred to the customer, which typically occurs at shipment; customers do not have a right to return products other than for warranty reasons. Service and other revenue is comprised of revenues from extended warranties, repair services, cloud revenue, and software revenue; revenue for extended warranty, cloud services, and other software-based products is recognized on a straight-line basis over the contract or service period, and repair services revenue is recognized upon customer acceptance. In arrangements with multiple performance obligations, the transaction price is allocated to each performance obligation based on its relative standalone selling price. Amounts invoiced or received in advance of the satisfaction of performance obligations are recorded as deferred revenue. The Business reports revenues on a gross basis, net of sales taxes.
Warranty:
Products of the Business carry explicit product warranties that extend up to two years from the date of shipment. A provision for estimated warranty costs is recorded based upon historical warranty loss experience and is periodically adjusted to reflect actual experience; accrued warranty costs are included within accrued expenses. As the Business has continued its transition to subscription-based arrangements in which devices are provided as part of the service arrangement, the volume of products subject to assurance-type warranties has declined and anticipated assurance-type warranty costs are not significant. Accrued warranty costs included within accrued expenses were $0, $0, and $11,615 at June 30, 2026, December 31, 2025, and December 31, 2024, respectively. When a customer purchases an extended warranty, the associated proceeds are treated as deferred revenue and recognized over the term of the extended warranty.
| 7 |
Customer Deposits:
Customer deposits consist of amounts received from customers in advance of shipment of products, together with customer overpayments and other unapplied customer credits. Advance payments are recognized as revenue when the related performance obligations are satisfied; overpayments and unapplied credits are applied against amounts due from customers or refunded.
NOTE 3. INVENTORIES
Inventories consisted of the following:
| June 30, 2026 | December 31, 2025 | December 31, 2024 | ||||||||||
| (Unaudited) | ||||||||||||
| Raw material and component parts | $ | 2,633,275 | $ | 2,829,039 | $ | 2,589,804 | ||||||
| Work-in-process | 43,581 | - | 4,906 | |||||||||
| Finished goods | 994,320 | 1,149,538 | 1,655,316 | |||||||||
| Reserve for excess and obsolete inventory | (2,172,575 | ) | (1,849,124 | ) | (2,037,252 | ) | ||||||
| Total inventories, net | $ | 1,498,601 | $ | 2,129,453 | $ | 2,212,774 | ||||||
During
the year ended December 31, 2025, the Business changed the method used to estimate the reserve for excess and obsolete inventory from
specific identification of slow-moving product lines and items to a method that also applies reserve percentages by product line based
on the number of years in which the items have had no sales or usage activity. The change has been accounted for prospectively as a change
in accounting estimate, and the reserve as of December 31,
NOTE 4. SUBSCRIPTION RECEIVABLES
The Business offers subscription and lease-style purchasing programs under which customers, principally law enforcement agencies, acquire hardware and related cloud, warranty, and service offerings for a periodic fee over a multi-year term. Amounts contractually due from customers under these arrangements are recorded as subscription receivables, with $2,690,503, $3,219,647, and $3,988,994 classified as current and $2,178,923, $2,976,758, and $4,889,289 classified as long-term as of June 30, 2026, December 31, 2025, and December 31, 2024, respectively, net of allowances described in Note 2. These arrangements are accounted for as revenue contracts with customers under ASC 606, with unbilled contractual amounts recorded as subscription receivables and amounts billed in advance recorded as deferred revenue.
NOTE 5. DEFERRED REVENUE
Deferred revenue consists of amounts invoiced or received in advance of the satisfaction of performance obligations, principally under multi-year extended warranty, cloud subscription and evidence management, and prepaid installation arrangements. Deferred revenue expected to be recognized within one year is classified as current. Deferred revenue totaled $6,623,040, $7,978,696, and $9,527,868 as of June 30, 2026, December 31, 2025, and December 31, 2024, respectively, of which $3,009,194, $3,239,340, and $3,210,396 was classified as current. As of December 31, 2025, deferred revenue consisted of extended warranty contracts of $2,461,161, cloud subscription and evidence management services of $5,510,365, and prepaid installation services of $7,170. Deferred revenue is recognized as the related performance obligations are satisfied, generally on a straight-line basis over contract terms extending up to five years.
Deferred
revenue activity for the year ended December 31,
| December 31, 2024 | ||||||||||||||||
December 31, 2023 | Additions/ Reclass | Recognized Revenue | December 31, 2024 | |||||||||||||
| Deferred revenue, current | $ | 2,926,468 | $ | 3,728,331 | $ | 3,444,403 | $ | 3,210,396 | ||||||||
| Deferred revenue, non-current | 7,340,459 | (1,022,987 | ) | — | 6,317,472 | |||||||||||
| $ | 10,266,927 | $ | 2,705,344 | $ | 3,444,403 | $ | 9,527,868 | |||||||||
| 8 |
Deferred
revenue activity for the year ended December 31,
| December 31, 2025 | ||||||||||||||||
December 31,
2024 | Additions/
Reclass | Recognized
Revenue | December 31,
2025 | |||||||||||||
| Deferred revenue, current | $ | 3,210,396 | $ | 3,598,270 | $ | 3,569,326 | $ | 3,239,340 | ||||||||
| Deferred revenue, non-current | 6,317,472 | (1,578,116 | ) | — | 4,739,356 | |||||||||||
| $ | 9,527,868 | $ | 2,020,154 | $ | 3,569,326 | $ | 7,978,696 | |||||||||
Deferred
revenue activity for the six months ended June 30,
| June 30, 2026 | ||||||||||||||||
December 31,
2025 | Additions/
Reclass | Recognized
Revenue | June 30,
2026 | |||||||||||||
| Deferred revenue, current | $ | 3,239,340 | $ | 1,519,111 | $ | 1,749,257 | $ | 3,009,194 | ||||||||
| Deferred revenue, non-current | 4,739,356 | (1,125,510 | ) | — | 3,613,846 | |||||||||||
| $ | 7,978,696 | $ | 393,601 | $ | 1,749,257 | $ | 6,623,040 | |||||||||
Additions/Reclass reflects amounts invoiced during the period, net of cancellations, and the reclassification of deferred revenue from non-current to current as performance obligations become due within one year.
NOTE 6. REVENUES
The Business operates as a single product line comprising video hardware and related software and services. Disaggregation of net revenues between product and service revenue is presented on the face of the statements of revenues and direct expenses. Revenues are derived solely from customers located in the United States, and all of the Business’s long-lived assets are located within the United States. Product revenue and repair services revenue are recognized at a point in time. Extended warranty, cloud and other software-based service revenue is recognized over time.
NOTE 7. LEASES
The
Business leases office space at 6366 College Boulevard, Overland Park, Kansas under an operating lease expiring October 31, 2027, measured
using the Company’s incremental borrowing rate of 8%. Operating lease right-of-use assets and lease liabilities were $109,711,
$147,937, and $219,966 as of June 30, 2026, December 31, 2025, and December 31, 2024, respectively, of which $81,180, $78,007, and $72,029
of the liabilities were current. Operating lease cost, included in general and administrative expense, was $43,512, $43,512, $87,023,
and $14,504 for the six months
NOTE 8. RELATED PARTY TRANSACTIONS AND CORPORATE SUPPORT SERVICES
The Business was operated as part of the Company during the periods presented; accordingly, the Company is a related party of the Business. The Company provided the Business with treasury and cash management, payroll processing, benefits administration, insurance, legal, information technology, and other corporate support services. As described in Note 1, the costs of corporate functions that remain with the Company and are not directly associated with the revenue-producing activities of the Business are excluded from the statements of revenues and direct expenses, while the costs of personnel and obligations that transferred with the Business, including such costs recorded in corporate or shared departmental accounts, are included. Intercompany balances between the Business and the Company or its other businesses are excluded from the statements of assets acquired and liabilities assumed. There were no significant sales or purchases between the Business and the Company’s other businesses during the periods presented.
NOTE 9. COMMITMENTS AND CONTINGENCIES
The Business is subject to various claims and legal proceedings arising in the ordinary course of business. Litigation reserves and related obligations of the Company were retained by the Company and are not reflected in the statements of assets acquired and liabilities assumed, which include only the liabilities specifically assumed by Cycurion pursuant to the APA. Product warranty obligations are described in Note 2.
NOTE 10. SUBSEQUENT EVENTS
Management has evaluated subsequent events through October 8, 2026, the date the abbreviated financial statements were available to be issued. On August 3, 2026, the Company completed the sale of the Business to Cycurion as described in Note 1. No other events were identified requiring recognition or disclosure in the abbreviated financial statements.
| 9 |
Exhibit 99.2
CYCURION, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
On August 3, 2026, Cycurion, Inc. (“Cycurion” or the “Company”) completed its acquisition of substantially all of the assets, and assumed certain specified liabilities, of the video solutions business (the “Video Solutions Business”) of Kustom Entertainment, Inc. (formerly Digital Ally, Inc.) (“Kustom”) pursuant to an Asset Purchase Agreement dated June 24, 2026, as amended on July 23, 2026 (the “Video Solutions Acquisition”). Previously, on June 3, 2026, the Company completed its acquisition of Secuvant, LLC (“Secuvant”) pursuant to an Agreement and Plan of Merger dated May 21, 2026 (the “Secuvant Acquisition” and, together with the Video Solutions Acquisition, the “Acquisitions”).
The
following unaudited pro forma condensed combined balance sheet as of June 30,
The unaudited pro forma condensed combined financial information is derived from, and should be read together with, the following:
| ● | the Company’s audited consolidated financial statements for the year ended December 31, 2025, included in its Annual Report on Form 10-K; |
| ● | the Company’s unaudited condensed consolidated financial statements as of and for the six months ended June 30, 2026, included in its Quarterly Report on Form 10-Q; |
| ● | the
audited financial statements of Secuvant for the year ended December 31, |
| ● | the
audited abbreviated financial statements of the Video Solutions Business as of and for the
years ended December 31, 2025 and 2024 and the unaudited abbreviated financial statements
as of June 30, |
The unaudited pro forma condensed combined financial information is presented for illustrative purposes only and does not necessarily indicate the financial position or results of operations that would have been achieved had the Acquisitions occurred on the dates indicated, or the future financial position or results of operations of the combined company. The Video Solutions Business was not operated as a separate entity, and its abbreviated financial statements exclude corporate overhead, interest expense, other income and expense, and income taxes (Note 2). The purchase price allocation for the Video Solutions Acquisition is preliminary, and the final allocation may differ materially, including through the recognition of identifiable intangible assets and related amortization.
CYCURION, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
As of June 30, 2026
Cycurion, Inc. (Historical) | Video Solutions Business (Historical, as reclassified) (Note 4) | Transaction Accounting Adjustments | Note 5 | Pro Forma Combined | ||||||||||||||
| ASSETS | ||||||||||||||||||
| Current assets: | ||||||||||||||||||
| Cash and cash equivalents | $ | 1,873,287 | $ | — | $ | (1,250,000 | ) | (a) | $ | 623,287 | ||||||||
| Accounts receivable, net | 3,721,520 | 86,812 | — | 3,808,332 | ||||||||||||||
| Subscription receivables, current | — | 2,690,503 | — | 2,690,503 | ||||||||||||||
| Inventories, net | — | 1,498,601 | — | 1,498,601 | ||||||||||||||
| Prepaid expenses and other current assets | 222,886 | 261,995 | — | 484,881 | ||||||||||||||
| Other receivables | 133,058 | — | — | 133,058 | ||||||||||||||
| Total current assets | 5,950,751 | 4,537,911 | (1,250,000 | ) | 9,238,662 | |||||||||||||
| Software development costs, net | 4,798,981 | — | — | 4,798,981 | ||||||||||||||
| Goodwill and intangibles | 27,617,398 | 168,024 | 5,309,136 | (b) | 33,094,558 | |||||||||||||
| Property and equipment, net | — | 63,834 | — | 63,834 | ||||||||||||||
| Operating lease right-of-use assets | — | 109,711 | — | 109,711 | ||||||||||||||
| Subscription receivables, non-current | — | 2,178,923 | — | 2,178,923 | ||||||||||||||
| Other assets | — | 82,216 | — | 82,216 | ||||||||||||||
| Total non-current assets | 32,416,379 | 2,602,708 | 5,309,136 | 40,328,223 | ||||||||||||||
| Total assets | $ | 38,367,130 | $ | 7,140,619 | $ | 4,059,136 | $ | 49,566,885 | ||||||||||
| LIABILITIES | ||||||||||||||||||
| Current liabilities: | ||||||||||||||||||
| Bank loan-revolving credit line | $ | 2,421,305 | $ | — | $ | — | $ | 2,421,305 | ||||||||||
| Loans payable - current portion | 269,068 | — | — | 269,068 | ||||||||||||||
| Factoring liability | 1,300,470 | — | — | 1,300,470 | ||||||||||||||
| Convertible notes | 2,686,748 | — | — | 2,686,748 | ||||||||||||||
| Promissory notes | 1,161,960 | — | 657,850 | (c) | 1,819,810 | |||||||||||||
| Loans payable - related parties | 123,650 | — | — | 123,650 | ||||||||||||||
| Accounts payable | 1,290,801 | 193,935 | — | 1,484,736 | ||||||||||||||
| Accrued liabilities | 7,613,943 | 199,878 | 112,816 | (d) | 7,926,637 | |||||||||||||
| Accrued compensation and benefits | 1,063,856 | — | — | 1,063,856 | ||||||||||||||
| Accrued interest payable | 432,748 | — | — | 432,748 | ||||||||||||||
| Excise tax payable | 1,167,173 | — | — | 1,167,173 | ||||||||||||||
| Deferred revenue, current | — | 3,009,194 | — | 3,009,194 | ||||||||||||||
| Operating lease liabilities, current | — | 81,180 | — | 81,180 | ||||||||||||||
| Total current liabilities | 19,531,722 | 3,484,187 | 770,666 | 23,786,575 | ||||||||||||||
| Loans payable - non-current portion | 627,010 | — | — | 627,010 | ||||||||||||||
| Promissory note - seller, net of current portion | — | — | 2,900,417 | (c) | 2,900,417 | |||||||||||||
| Deferred revenue, non-current | — | 3,613,846 | — | 3,613,846 | ||||||||||||||
| Operating lease liabilities, non-current | — | 28,531 | — | 28,531 | ||||||||||||||
| Contingent consideration | — | — | — | (e) | — | |||||||||||||
| Total non-current liabilities | 627,010 | 3,642,377 | 2,900,417 | 7,169,804 | ||||||||||||||
| Total liabilities | 20,158,732 | 7,126,564 | 3,671,083 | 30,956,379 | ||||||||||||||
| STOCKHOLDERS’ EQUITY | ||||||||||||||||||
| Preferred stock (Series B, C, D, E, G, H and I) | 104 | — | — | 104 | ||||||||||||||
| Common stock | 1,189 | — | — | 1,189 | ||||||||||||||
| Additional paid in capital | 55,545,133 | — | 514,924 | (f) | 56,060,057 | |||||||||||||
| Accumulated deficit | (32,763,317 | ) | — | (112,816 | ) | (d) | (32,876,133 | ) | ||||||||||
| Net assets of Video Solutions Business | — | 14,055 | (14,055 | ) | (g) | — | ||||||||||||
| Total stockholders’ equity attributable to Cycurion | 22,783,109 | 14,055 | 388,053 | 23,185,217 | ||||||||||||||
| Deficit attributable to noncontrolling interests | (4,574,711 | ) | — | — | (4,574,711 | ) | ||||||||||||
| Total stockholders’ equity | 18,208,398 | 14,055 | 388,053 | 18,610,506 | ||||||||||||||
| Total liabilities and stockholders’ equity | $ | 38,367,130 | $ | 7,140,619 | $ | 4,059,136 | $ | 49,566,885 | ||||||||||
See accompanying notes to the unaudited pro forma condensed combined financial information.
CYCURION, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
For the Year Ended December 31, 2025
Cycurion, Inc. (Historical) | Secuvant, LLC (Historical, as reclassified) (Note 4) | Secuvant Transaction Accounting Adjustments | Video Solutions Business (Historical, as reclassified) (Note 4) | Video Solutions Transaction Accounting Adjustments | Note 5 | Pro Forma Combined | ||||||||||||||||||||
| Revenue | $ | 15,133,647 | $ | 2,336,556 | $ | — | $ | 5,100,757 | $ | — | $ | 22,570,960 | ||||||||||||||
| Cost of revenue | 13,521,329 | 736,942 | — | 2,782,906 | — | 17,041,177 | ||||||||||||||||||||
| Gross profit | 1,612,318 | 1,599,614 | — | 2,317,851 | — | 5,529,783 | ||||||||||||||||||||
| Operating expenses: | ||||||||||||||||||||||||||
| Selling, general and administrative | 9,258,199 | 919,171 | — | 2,967,681 | — | (i) | 13,145,051 | |||||||||||||||||||
| Stock compensation | 3,898,867 | — | — | — | — | 3,898,867 | ||||||||||||||||||||
| Business combination expenses | 11,870,114 | — | 116,531 | — | 112,816 | (k) (j) | 12,099,461 | |||||||||||||||||||
| Total operating expenses | 25,027,180 | 919,171 | 116,531 | 2,967,681 | 112,816 | 29,143,379 | ||||||||||||||||||||
| Operating (loss) income | (23,414,862 | ) | 680,443 | (116,531 | ) | (649,830 | ) | (112,816 | ) | (23,613,596 | ) | |||||||||||||||
| Other income (expense): | ||||||||||||||||||||||||||
| Interest income | 27,538 | — | — | — | — | 27,538 | ||||||||||||||||||||
| Interest expense | (1,763,831 | ) | (14,871 | ) | — | — | (629,440 | ) | (h) | (2,408,142 | ) | |||||||||||||||
| Gain (loss) on debt settlement, net | 1,221,635 | — | — | — | — | 1,221,635 | ||||||||||||||||||||
| Other (expense) income, net | (129,564 | ) | 121,353 | — | — | — | (8,211 | ) | ||||||||||||||||||
| Total other income (expense), net | (644,222 | ) | 106,482 | — | — | (629,440 | ) | (1,167,180 | ) | |||||||||||||||||
| (Loss) income before income taxes | (24,059,084 | ) | 786,925 | (116,531 | ) | (649,830 | ) | (742,256 | ) | (24,780,776 | ) | |||||||||||||||
| Provision for income tax | — | — | — | — | — | — | ||||||||||||||||||||
| Net (loss) income | (24,059,084 | ) | 786,925 | (116,531 | ) | (649,830 | ) | (742,256 | ) | (24,780,776 | ) | |||||||||||||||
| Less: net loss attributable to non-controlling interest | 393,376 | — | — | — | — | 393,376 | ||||||||||||||||||||
| Net (loss) income attributable to Cycurion, Inc. | (23,665,708 | ) | 786,925 | (116,531 | ) | (649,830 | ) | (742,256 | ) | (24,387,400 | ) | |||||||||||||||
| Less: Series H preferred stock dividends | — | — | — | — | 72,000 | (l) | 72,000 | |||||||||||||||||||
| Net (loss) income attributable to common stockholders | $ | (23,665,708 | ) | $ | 786,925 | $ | (116,531 | ) | $ | (649,830 | ) | $ | (814,256 | ) | $ | (24,459,400 | ) | |||||||||
| Net loss per share: | ||||||||||||||||||||||||||
| Basic | $ | (107.52 | ) | $ | (111.16 | ) | ||||||||||||||||||||
| Diluted | $ | (107.12 | ) | $ | (111.16 | ) | ||||||||||||||||||||
| Weighted average shares outstanding: | ||||||||||||||||||||||||||
| Basic | 220,039 | 220,039 | ||||||||||||||||||||||||
| Diluted | 220,455 | 220,039 | ||||||||||||||||||||||||
See accompanying notes to the unaudited pro forma condensed combined financial information.
CYCURION, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 2026
| Cycurion, Inc. (Historical) | Secuvant, LLC (Historical, as reclassified) (Note 4) | Secuvant Transaction Accounting Adjustments | Video Solutions Business (Historical, as reclassified) (Note 4) | Video Solutions Transaction Accounting Adjustments | Note 5 | Pro Forma Combined | ||||||||||||||||||||
| Revenue | $ | 7,025,696 | $ | 885,409 | $ | — | $ | 2,250,619 | $ | — | $ | 10,161,724 | ||||||||||||||
| Cost of revenue | 5,244,001 | 216,594 | — | 1,803,316 | — | 7,263,911 | ||||||||||||||||||||
| Gross profit | 1,781,695 | 668,814 | — | 447,303 | — | 2,897,812 | ||||||||||||||||||||
| Operating expenses: | ||||||||||||||||||||||||||
| Selling, general and administrative | 5,385,015 | 470,675 | — | 1,458,783 | — | (i) | 7,314,473 | |||||||||||||||||||
| Stock compensation | 652,555 | — | — | — | — | 652,555 | ||||||||||||||||||||
| Business combination expenses | — | 116,531 | (116,531 | ) | — | — | (k) | — | ||||||||||||||||||
| Total operating expenses | 6,037,570 | 587,206 | (116,531 | ) | 1,458,783 | — | 7,967,028 | |||||||||||||||||||
| Operating (loss) income | (4,255,875 | ) | 81,608 | 116,531 | (1,011,480 | ) | — | (5,069,216 | ) | |||||||||||||||||
| Other income (expense): | ||||||||||||||||||||||||||
| Interest income | 17,742 | — | — | — | — | 17,742 | ||||||||||||||||||||
| Interest expense | (432,793 | ) | (5,374 | ) | — | — | (250,887 | ) | (h) | (689,054 | ) | |||||||||||||||
| Gain (loss) on debt settlement, net | (1,930,427 | ) | — | — | — | — | (1,930,427 | ) | ||||||||||||||||||
| Other (expense) income, net | — | 67,804 | — | — | — | 67,804 | ||||||||||||||||||||
| Total other income (expense), net | (2,345,478 | ) | 62,430 | — | — | (250,887 | ) | (2,533,935 | ) | |||||||||||||||||
| (Loss) income before income taxes | (6,601,353 | ) | 144,038 | 116,531 | (1,011,480 | ) | (250,887 | ) | (7,603,151 | ) | ||||||||||||||||
| Provision for income tax | — | — | — | — | — | — | ||||||||||||||||||||
| Net (loss) income | (6,601,353 | ) | 144,038 | 116,531 | (1,011,480 | ) | (250,887 | ) | (7,603,151 | ) | ||||||||||||||||
| Less: net loss attributable to non-controlling interest | 717,117 | — | — | — | — | 717,117 | ||||||||||||||||||||
| Net (loss) income attributable to Cycurion, Inc. | (5,884,236 | ) | 144,038 | 116,531 | (1,011,480 | ) | (250,887 | ) | (6,886,034 | ) | ||||||||||||||||
| Less: Series H preferred stock dividends | — | — | — | — | 36,000 | (l) | 36,000 | |||||||||||||||||||
| Net (loss) income attributable to common stockholders | $ | (5,884,236 | ) | $ | 144,038 | $ | 116,531 | $ | (1,011,480 | ) | $ | (286,887 | ) | $ | (6,922,034 | ) | ||||||||||
| Net loss per share: | ||||||||||||||||||||||||||
| Basic | $ | (6.88 | ) | $ | (8.11 | ) | ||||||||||||||||||||
| Diluted | $ | (6.88 | ) | $ | (8.11 | ) | ||||||||||||||||||||
| Weighted average shares outstanding: | ||||||||||||||||||||||||||
| Basic | 853,283 | 853,283 | ||||||||||||||||||||||||
| Diluted | 853,283 | 853,283 | ||||||||||||||||||||||||
See accompanying notes to the unaudited pro forma condensed combined financial information.
CYCURION, INC.
NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
Note 1. Description of the Acquisitions
Video Solutions Acquisition. On August 3, 2026, the Company acquired substantially all of the assets, and assumed certain specified liabilities, of the Video Solutions Business, which develops, sells and services in-car video systems, body-worn cameras and cloud-based digital evidence management and related solutions for law enforcement, public safety and commercial customers under the Digital Ally brand. The consideration consisted of $1,250,000 in cash (including a $250,000 non-refundable extension payment made on July 23, 2026 and credited against the cash consideration at closing); a secured promissory note in the principal amount of $4,250,000 bearing interest at 7% per annum, payable interest-only for six months and thereafter in 30 monthly installments of $154,836, secured by the acquired assets; shares of the Company’s Series H Preferred Stock with an aggregate stated value of $600,000, which accrue dividends at 12% per annum and are convertible into common stock at $11.60 per share (as adjusted for the 1-for-8 reverse stock split of the Company’s common stock effective August 28, 2026); and a revenue-based earnout and clawback arrangement based on the Video Solutions Business’s revenue for 2026 and 2027, under which the Company may pay, or the seller may refund, up to $500,000 per year and $1,000,000 in the aggregate.
Secuvant
Acquisition. On June 3, 2026, the Company acquired 100% of the membership interests of Secuvant, a provider of managed cybersecurity
services. The Secuvant Acquisition, its consideration and the related pro forma adjustments are described in the unaudited pro forma
condensed combined financial information included in the Company’s Current Report on Form 8-K/A relating to the Secuvant Acquisition.
Because Secuvant is included in the Company’s historical balance sheet as of June 30,
Note 2. Basis of Presentation
The unaudited pro forma condensed combined financial information has been prepared in accordance with Article 11 of Regulation S-X and presents transaction accounting adjustments only; no autonomous entity adjustments or management’s adjustments are presented. The Acquisitions are accounted for as business combinations under ASC Topic 805, Business Combinations, with the Company as the accounting acquirer. Under the acquisition method, the assets acquired and liabilities assumed are recognized at their acquisition-date fair values, and contract liabilities are measured in accordance with ASC Topic 606 under ASU 2021-08.
The historical financial information of the Video Solutions Business is derived from its abbreviated financial statements, which present only the assets acquired and liabilities assumed and the revenues and direct expenses of the Video Solutions Business. The statements of revenues and direct expenses exclude the costs of corporate functions retained by Kustom, interest expense, other income and expense, and income taxes, and include depreciation and amortization only through the date the Video Solutions Business was classified as held for sale during the three months ended June 30, 2026. Accordingly, the pro forma statements of operations may not reflect all of the costs the Video Solutions Business will incur as part of the Company.
The
historical results of the Video Solutions Business for the six months ended June 30,
The Company records no provision for income taxes because it maintains a full valuation allowance against its net deferred tax assets; accordingly, no income tax effect has been recognized for the pro forma adjustments. Secuvant was a pass-through entity for income tax purposes during the periods presented.
Note 3. Preliminary Purchase Consideration and Allocation – Video Solutions Business
| Purchase consideration | Amount | |||
| Cash | $ | 1,250,000 | ||
| Secured promissory note | 3,558,267 | |||
| Series H Preferred Stock | 514,924 | |||
| Earnout and clawback, net (contingent consideration) | — | |||
| Total preliminary purchase consideration | $ | 5,323,191 | ||
| Preliminary allocation | Amount | |||
| Net assets acquired at historical carrying amounts, June 30, 2026 | $ | 14,055 | ||
| Identifiable intangible assets | — | |||
| Goodwill | 5,309,136 | |||
| Total | $ | 5,323,191 | ||
The
purchase price allocation is preliminary and is based on the historical carrying amounts of the assets acquired and liabilities assumed
as of June 30, 2026, which management believes approximate their fair values pending completion of a valuation. The secured promissory
note is reflected at its preliminary estimated fair value of $3,558,267, determined by discounting its contractual payments at an estimated
market interest rate of 18% for a comparable secured obligation of the Company. The Series H Preferred Stock is reflected at its preliminary
estimated fair value of $514,924, determined as the value of the common stock into which it is convertible plus the present value of
the dividends expected to be paid in common stock over an estimated three-year term, based on the closing price of the Company’s
common stock on August 3, 2026 of $7.32 per share, as adjusted for the reverse stock split. The earnout and clawback arrangement is reflected
at an estimated fair value of zero. Based on revenue
Note 4. Reclassifications
Certain historical amounts of the Video Solutions Business have been reclassified to conform to the Company’s presentation: cost of revenue for products and for services and other are combined in cost of revenue; research and development, selling, advertising and promotional, and general and administrative expenses are combined in selling, general and administrative expenses; customer deposits are included in accrued liabilities; and intangible assets are included in goodwill and intangibles. Subscription receivables, inventories, property and equipment, operating lease right-of-use assets and liabilities, other assets and deferred revenue are presented as separate line items. Secuvant’s historical amounts are presented as reclassified in the Company’s Current Report on Form 8-K/A relating to the Secuvant Acquisition. The Company may identify further differences in accounting policies or classification upon completion of its integration.
Note 5. Transaction Accounting Adjustments
(a) Reflects the cash consideration of $1,250,000 for the Video Solutions Acquisition, including the $250,000 extension payment made on July 23, 2026.
(b) Reflects preliminary goodwill of $5,309,136 (Note 3). No identifiable intangible assets have yet been recognized pending completion of the valuation; the historical intangible assets of the Video Solutions Business of $168,024 are included at their carrying amount.
(c) Reflects the secured promissory note issued to Kustom, with a principal amount of $4,250,000, at its preliminary estimated fair value of $3,558,267 (Note 3). The principal portion of the installments due from February through June 2027, $657,850, is classified as current, and the remainder, net of the unamortized discount of $691,733, as non-current.
(d) Reflects estimated transaction costs of the Video Solutions Acquisition of $112,816, consisting of legal, accounting and other professional fees incurred after June 30, 2026, which are accrued in the pro forma balance sheet and charged to accumulated deficit. The amount is based on management’s estimate, and actual costs may differ.
(e) Reflects the earnout and clawback arrangement at its preliminary estimated fair value of zero (Note 3).
(f) Reflects the issuance of Series H Preferred Stock with an aggregate stated value of $600,000 as consideration, at its preliminary estimated fair value of $514,924 (Note 3). The amount is reflected in additional paid-in capital because the par value of the shares issued is nominal.
(g) Eliminates the historical net assets of the Video Solutions Business.
(h) Reflects interest expense on the secured promissory note under the effective interest method at an effective rate of approximately 17.7% per annum, as if the note had been issued on January 1, 2025, comprising contractual interest at 7% per annum (six months of interest-only payments followed by monthly installments) and accretion of the discount recognized in the purchase price allocation: $629,440 for the year ended December 31, 2025, including accretion of $343,407, and $250,887 for the six months ended June 30, 2026, including accretion of $141,722.
(i) Reflects amortization of identifiable intangible assets of the Video Solutions Business, which is nil pending completion of the valuation. Each $1,000,000 of identifiable intangible assets with an estimated useful life of five years would increase annual amortization expense by $200,000.
(j) Reflects the estimated transaction costs of the Video Solutions Acquisition of $112,816 (see (d)) in the year ended December 31, 2025, as if the acquisition had occurred on January 1, 2025. These costs are nonrecurring and are not expected to affect the combined company’s results beyond twelve months after the acquisition.
(k)
Reflects the transaction accounting adjustments for the Secuvant Acquisition, as presented in the Company’s Current Report on Form
8-K/A relating to that acquisition: Secuvant’s acquisition costs of $116,531 recognized in the period from January 1 through June
2,
(l)
Reflects dividends on the Series H Preferred Stock issued as consideration at 12% per annum on the $600,000 stated value: $72,000 for
the year ended December 31,
Note 6. Net Loss per Share
Pro forma basic and diluted net loss per share are calculated by dividing pro forma net loss attributable to common stockholders by the Company’s historical weighted average shares outstanding, because no shares of common stock were issued as consideration in the Acquisitions. Historical and pro forma share and per share amounts have been retroactively adjusted to reflect the 1-for-8 reverse stock split of the Company’s common stock effective August 28, 2026. The Series H Preferred Stock issued in the Video Solutions Acquisition, which is convertible into approximately 51,724 shares of common stock at $11.60 per share, the Series I Preferred Stock issued in the Secuvant Acquisition, and other potentially dilutive securities are excluded from diluted net loss per share because their effect would be anti-dilutive. Accordingly, pro forma diluted weighted average shares outstanding equal pro forma basic weighted average shares outstanding, and pro forma diluted net loss per share equals pro forma basic net loss per share. The Company’s historical basic and diluted amounts are presented as reported in its Annual Report on Form 10-K and Quarterly Report on Form 10-Q, as adjusted for the reverse stock split.