Kustom Entertainment: continuing-operations loss $7.71M
Substantial doubt remains despite $4,979,698 in equity-facility proceeds and completed sales of two businesses.
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.
Kustom Entertainment, Inc. (KUST) reported nine-month revenue of $11,298,457, versus $6,791,278 in 2025, while its continuing-operations loss widened to $7,710,186 from $783,452. Continuing operations used $4,833,195 of cash; cash and equivalents were $1,715,820 at September 30, 2026. Management said accumulated losses, operating cash outflows and a $1,290,000 working-capital deficit raise substantial doubt about the company’s ability to continue as a going concern within one year after the statements are issued.
The company now reports one operating segment, Entertainment, after selling Nobility Healthcare and completing the August 3, 2026 sale of Video Solutions. The Video Solutions sale brought $1.25 million cash, a $4.25 million secured promissory note and buyer preferred stock. Kustom agreed to acquire TFL, LLC, a live-event ticketing technology and ticket inventory distribution business, for $89.6 million cash, subject to customary adjustments, plus $22.4 million in restricted common stock; $11.2 million of the shares will be issued only upon achievement of a specified EBITDA target for the period from closing through December 31, 2027. The agreement also requires repayment of up to $35.0 million of TFL debt at closing. Stockholder approval was obtained on October 5, 2026, but the acquisition had not closed and financing for the cash portion was incomplete at the report date; the outside date was extended to December 18, 2026.
How this balance works
Rhea-AI gives every point it takes from this document a weight. Minor counts 1, Moderate 3 and Major 9, so one Major point outweighs several Minor ones. The bar adds up the weights on each side, and when neither side holds more than 65% of the total the balance reads Mixed.
It reads the document as published, with the same rules for every company, and it does not look at what the market expected or at how the stock traded, so a point can be objectively good on a day the stock falls.
Rhea-AI Sentiment measures something else, the tone of the wording.
Positive
- Moderate pointNine-month revenue rose to $11,298,457 from $6,791,278.
Negative
- Major pointContinuing-operations loss widened to $7,710,186 from $783,452.
- Major pointGoing-concern disclosure cites a $1,290,000 working-capital deficit.
Filing Explained
About $19.4 million remained available under a conditional equity line at September 30, after $4,979,698 had been raised through common-stock issuance.
The November 6 amendment to the still-unclosed TFL purchase agreement adds conditional seller-cost obligations: if the purchase has not closed by
Separately, during the nine months ended
Further equity-line funding would involve issuing common shares; additional issuance increases the share count and reduces existing holders’ percentage ownership, absent offsetting changes.
Key Figures
Key Terms
substantial doubt financial
committed equity facility financial
earn-out financial
secured promissory note financial
FAQ
AI-generated questions and answers. How Rhea-AI works. Not financial advice.
How much revenue did KUST report for the first nine months of 2026?
What are the terms of KUST’s proposed TFL acquisition?
Why did KUST report substantial doubt about its ability to continue as a going concern?
How much remained available under KUST’s committed equity facility?
AI-generated analysis. How Rhea-AI works. Not financial advice.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For
the quarterly period ended | |
or
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the transition period from ___________ to __________. | |
| Commission
File Number: | |
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
(Address of principal executive offices) (Zip Code)
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| (Title of each class) | (Trading Symbol(s) | (Name of each exchange on which registered) |
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ |
| Smaller
reporting company | |
| 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. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
☐ No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
| Class | Outstanding at November 10, 2026 | |
| Common
Stock, $ |
FORM 10-Q
KUSTOM ENTERTAINMENT, INC.
SEPTEMBER 30, 2026
| TABLE OF CONTENTS | Page(s) | |
| PART I – FINANCIAL INFORMATION | ||
| Item 1. Financial Statements. | ||
| Condensed Consolidated Balance Sheets – September 30, 2026 (Unaudited) and December 31, 2025 | 3 | |
| Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2026 and 2025 (Unaudited) | 4 | |
| Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended September 30, 2026 and 2025 (Unaudited) | 5 | |
| Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2026 and 2025 (Unaudited) | 6 | |
| Notes to the Condensed Consolidated Financial Statements (Unaudited) | 7-39 | |
| Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. | 40-49 | |
| Item 3. Quantitative and Qualitative Disclosures About Market Risk. | 50 | |
| Item 4. Controls and Procedures. | 50 | |
| PART II - OTHER INFORMATION | ||
| Item 1. Legal Proceedings. | 51 | |
| Item 1A. Risk Factors. | 51 | |
| Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. | 51 | |
| Item 3. Defaults Upon Senior Securities. | 51 | |
| Item 4. Mine Safety Disclosures. | 51 | |
| Item 5. Other Information. | 51 | |
| Item 6. Exhibits. | 51 | |
| SIGNATURES | 52 |
| 2 |
PART I – FINANCIAL INFORMATION
Item 1 – Financial Statements.
KUSTOM ENTERTAINMENT, INC.
(formerly Digital Ally, Inc.)
CONDENSED CONSOLIDATED BALANCE SHEETS
| September 30, 2026 | December 31, 2025 | |||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable – trade | ||||||||
| Other receivables | ||||||||
| Notes receivable | — | |||||||
| Inventories, net | ||||||||
| Prepaid expenses | ||||||||
| Assets of discontinued operations – revenue-cycle management business | — | |||||||
| Assets of discontinued operations – video solutions business | — | |||||||
| Total current assets | ||||||||
| Property, plant, and equipment, net | ||||||||
| Goodwill and other intangible assets, net | ||||||||
| Operating lease right of use assets, net | ||||||||
| Notes receivable - long term | — | |||||||
| Other assets | ||||||||
| Assets of discontinued operations – revenue-cycle management business | — | |||||||
| Assets of discontinued operations – video solutions business | — | |||||||
| Total assets | $ | $ | ||||||
| Liabilities and Equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Current portion of operating lease obligations | ||||||||
| Deferred revenue – current | ||||||||
| Debt obligations – current | ||||||||
| Warrant derivative liabilities | ||||||||
| Income taxes payable | — | |||||||
| Liabilities of discontinued operations – revenue-cycle management business | — | |||||||
| Liabilities of discontinued operations – video solutions business | — | |||||||
| Total current liabilities | ||||||||
| Long-term liabilities: | ||||||||
| Debt obligations – long term | ||||||||
| Operating lease obligation – long term | ||||||||
| Notes payable – related party – long term | ||||||||
| Liabilities of discontinued operations – revenue-cycle management business | — | |||||||
| Liabilities of discontinued operations – video solutions business | — | |||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 13) | - | - | ||||||
| Stockholders’ Equity: | ||||||||
| Preferred stock, $ | — | — | ||||||
| Common stock, $ | ||||||||
| Additional paid in capital | ||||||||
| Noncontrolling interest in consolidated subsidiary | — | ( | ) | |||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total equity | ||||||||
| Total liabilities and equity | $ | $ | ||||||
| * |
The accompanying notes are an integral part of these financial statements.
| 3 |
KUSTOM ENTERTAINMENT, INC.
(formerly Digital Ally, Inc.)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| Revenue: | ||||||||||||||||
| Product | $ | $ | $ | $ | ||||||||||||
| Service and other | ||||||||||||||||
| Total revenue | ||||||||||||||||
| Cost of revenue: | ||||||||||||||||
| Product | ||||||||||||||||
| Service and other | ||||||||||||||||
| Total cost of revenue | ||||||||||||||||
| Gross profit (loss) | ( | ) | ( | ) | ||||||||||||
| Selling, general and administrative expenses: | ||||||||||||||||
| Selling, advertising and promotional expense | ||||||||||||||||
| General and administrative expense | ||||||||||||||||
| Total selling, general and administrative expenses | ||||||||||||||||
| Operating loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Interest income | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income | ||||||||||||||||
| Change in fair value of investment in equity securities | ( | ) | — | ( | ) | — | ||||||||||
| Change in fair value of derivative liabilities | ( | ) | ||||||||||||||
| Litigation settlement | — | — | ( | ) | — | |||||||||||
| Gain on extinguishment of liabilities | — | |||||||||||||||
| Total other income (expense) from continuing operations | ( | ) | ( | ) | ||||||||||||
| Loss before income tax benefit (provision) from continuing operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income tax expense benefit (provision) | — | — | — | — | ||||||||||||
| Loss from continuing operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Discontinued operations: | ||||||||||||||||
| Income (loss) from discontinued operations – Video Solutions | ( | ) | ( | ) | ||||||||||||
| Income (loss) from discontinued operations – Revenue Cycle Management | ( | ) | ||||||||||||||
| Total income (loss) from discontinued operations | ( | ) | ( | ) | ||||||||||||
| Income tax expense benefit (provision) | — | — | — | — | ||||||||||||
| Net income (loss) from discontinued operations | ( | ) | ( | ) | ||||||||||||
| Net income (loss) | ( | ) | ( | ) | ( | ) | ||||||||||
| Net income attributable to noncontrolling interests | — | — | ||||||||||||||
| Net income (loss) attributable to common stockholders | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Net income (loss) per share attributable to common stockholders* | ||||||||||||||||
| Basic: | ||||||||||||||||
| Continuing operations* | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Discontinued operations* | ( | ) | ( | ) | ( | ) | ||||||||||
| Net income (loss) attributable to common stockholders per share – basic* | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Diluted: | ||||||||||||||||
| Continuing operations* | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Discontinued operations* | ( | ) | ( | ) | ( | ) | ||||||||||
| Net income (loss) attributable to common stockholders per share – diluted* | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Weighted average shares outstanding*: | ||||||||||||||||
| Basic* | ||||||||||||||||
| Diluted* | ||||||||||||||||
| * |
The accompanying notes are an integral part of these financial statements.
| 4 |
KUSTOM ENTERTAINMENT, INC.
(formerly Digital Ally, Inc.)
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2026 AND 2025
(Unaudited)
| Shares | Amount | Capital | Subsidiary | Deficit | Total | |||||||||||||||||||
| Noncontrolling | ||||||||||||||||||||||||
| Additional | Interest in | |||||||||||||||||||||||
| Common Stock | Paid In | Consolidated | Accumulated | |||||||||||||||||||||
| Shares* | Amount | Capital | Subsidiary | Deficit | Total | |||||||||||||||||||
| Balance, December 31, 2024 | $ | — | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||
| Stock-based compensation | ||||||||||||||||||||||||
| Sale of common stock and pre-funded warrants, net of offering costs | — | |||||||||||||||||||||||
| Issuance of common stock upon exercise of pre-funded warrants | — | — | — | |||||||||||||||||||||
| Fair value of pre-funded warrants issued along with sale of common stock | — | — | ( | ) | ( | ) | ||||||||||||||||||
| Transition of warrant derivative liability to equity upon exercise of pre-funded warrants | — | — | ||||||||||||||||||||||
| Issuance of common stock upon exercise of June 2024 Series B common stock purchase warrants | — | |||||||||||||||||||||||
| Transition of warrant derivative liability to equity upon exercise of Series B warrants | — | — | — | — | ||||||||||||||||||||
| Issuance of common stock pursuant to equity line of credit, net | ||||||||||||||||||||||||
| Issuance of common stock pursuant to equity line of credit, net, shares | ||||||||||||||||||||||||
| Issuance of common stock upon conversion of convertible notes | ||||||||||||||||||||||||
| Issuance of common stock upon conversion of convertible notes, shares | ||||||||||||||||||||||||
| Transition to additional paid-in capital upon conversion of convertible notes | ||||||||||||||||||||||||
| Round up of fractional shares resulting from the reverse stock splits | ||||||||||||||||||||||||
| Round up of fractional shares resulting from the reverse stock splits, shares | ||||||||||||||||||||||||
| Disposition of Nobility Healthcare | ||||||||||||||||||||||||
| Litigation settlement | ||||||||||||||||||||||||
| Net income | — | — | — | |||||||||||||||||||||
| Balance, March 31, 2025 | — | ( | ) | ( | ) | |||||||||||||||||||
| Stock-based compensation | — | — | — | — | ||||||||||||||||||||
| Fair value of Series A warrants issued along with sale of common stock | — | — | ( | ) | — | — | ( | ) | ||||||||||||||||
| Fair value of Series B warrants issued along with sale of common stock | — | — | ( | ) | — | — | ( | ) | ||||||||||||||||
| Issuance of common stock upon exercise of February 2025 Series B common stock purchase warrants | ( | ) | — | — | — | |||||||||||||||||||
| Transition of warrant derivative liability to equity upon exercise of Series B warrants issued along with February 2025 sale of common stock | — | — | — | — | ||||||||||||||||||||
| Transition of warrant derivative liability to equity of Series A warrants issued along with February 2025 sale of common stock | — | — | — | — | ||||||||||||||||||||
| Deemed capital contribution related to modification of notes payable - related party | — | — | — | — | ||||||||||||||||||||
| Net income (loss) | — | — | — | ( | ) | ( | ) | |||||||||||||||||
| Balance, June 30, 2025 | ( | ) | ( | ) | ||||||||||||||||||||
| Stock-based compensation | — | — | — | — | ||||||||||||||||||||
| Equity Issuances - Senior Note with detachable warrant September 2025 | — | — | — | — | ||||||||||||||||||||
| Net income (loss) | — | — | — | ( | ) | ( | ) | |||||||||||||||||
| Balance, September 30, 2025 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
| Balance, December 31, 2025 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
| Stock-based compensation | — | — | — | — | ||||||||||||||||||||
| Issuance of common stock pursuant to equity line of credit, net | — | — | ||||||||||||||||||||||
| Issuance of common stock upon conversion of convertible notes | — | — | ||||||||||||||||||||||
| Transition to additional paid-in capital upon conversion of convertible notes | — | — | — | — | ||||||||||||||||||||
| Round up of fractional shares resulting from the reverse stock splits | — | — | — | — | — | |||||||||||||||||||
| Disposition of Nobility Healthcare | — | — | — | |||||||||||||||||||||
| Net loss | — | — | — | — | ( | ) | ( | ) | ||||||||||||||||
| Balance, March 31, 2026 | $ | — | ( | ) | $ | |||||||||||||||||||
| Stock-based compensation | — | — | — | — | ||||||||||||||||||||
| Issuance of common stock pursuant to equity line of credit, net | — | — | ||||||||||||||||||||||
| Litigation settlement | — | — | — | — | ||||||||||||||||||||
| Net loss | — | — | — | — | ( | ) | ( | ) | ||||||||||||||||
| Balance, June 30, 2026 | $ | — | ( | ) | $ | |||||||||||||||||||
| Balance | $ | — | ( | ) | $ | |||||||||||||||||||
| Stock-based compensation | — | — | — | — | ||||||||||||||||||||
| Issuance of common stock pursuant to equity line of credit, net | — | — | ||||||||||||||||||||||
| Issuance of common stock for services and other related transactions | — | — | ||||||||||||||||||||||
| Litigation settlement | ( | ) | — | — | — | |||||||||||||||||||
| Round up of fractional shares resulting from the reverse stock splits | — | — | — | — | — | |||||||||||||||||||
| Net income | — | — | — | — | ||||||||||||||||||||
| Net income (loss) | — | — | — | — | ||||||||||||||||||||
| Balance, September 30, 2026 | $ | $ | $ | — | $ | ( | ) | $ | ||||||||||||||||
| Balance | $ | $ | $ | — | $ | ( | ) | $ | ||||||||||||||||
| * |
The accompanying notes are an integral part of these financial statements.
| 5 |
KUSTOM ENTERTAINMENT, INC.
(formerly Digital Ally, Inc.)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED
(Unaudited)
| September 30, 2026 | September 30, 2025 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Less: net income (loss) from discontinued operation, net of tax | ( | ) | ( | ) | ||||
| Net income (loss) from continuing operation | ( | ) | ( | ) | ||||
| Adjustments to reconcile net loss to net cash flows used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Stock based compensation | ||||||||
| Non-cash interest expense (amortization of debt discount) | ||||||||
| Non-cash interest income (amortization of discount on notes receivable) | ( | ) | — | |||||
| Gain on extinguishment of liabilities | ( | ) | ( | ) | ||||
| Non-cash litigation settlement | — | |||||||
| Change in operating lease right-of-use assets | ( | ) | ||||||
| Change in fair value of warrant derivative liability | ( | ) | ||||||
| Change in fair value of investment in equity securities | — | |||||||
| Stock issued for services | — | |||||||
| Change in operating assets and liabilities: | ||||||||
| (Increase) decrease in: | ||||||||
| Accounts receivable – trade | ( | ) | ||||||
| Other receivables | ( | ) | ||||||
| Inventories | ( | ) | ||||||
| Prepaid expenses | ( | ) | ||||||
| Other assets | ||||||||
| Increase (decrease) in: | ||||||||
| Accounts payable | ( | ) | ||||||
| Accrued expenses | ( | ) | ||||||
| Accrued interest - related party | — | |||||||
| Income taxes payable | ( | ) | ||||||
| Operating lease obligations | ( | ) | ||||||
| Deferred revenues | ( | ) | ||||||
| Net cash used in operating activities – continuing operation | ( | ) | ( | ) | ||||
| Net cash used in operating activities – discontinued operation | ( | ) | ( | ) | ||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash Flows from Investing Activities: | ||||||||
| Purchases of property, plant and equipment | ( | ) | ( | ) | ||||
| Purchases of intangible assets | ( | ) | ( | ) | ||||
| Proceeds from collection of note receivable | — | |||||||
| Proceeds from sale of Video Solutions | — | |||||||
| Proceeds from sale of Nobility Healthcare | — | |||||||
| Net cash provided by (used in) investing activities – continuing operation | ( | ) | ||||||
| Net cash used in investing activities – discontinued operation | ( | ) | ( | ) | ||||
| Net cash provided by (used in) investing activities | ( | ) | ||||||
| Cash Flows from Financing Activities: | ||||||||
| Net proceeds from issuance of common stock under equity line of credit | — | |||||||
| Payment of equity issuance costs | ( | ) | — | |||||
| Net proceeds of February 2025 public equity offering with detachable warrants | — | |||||||
| Net proceeds of September 2025 senior secured convertible notes with detachable warrants – Corporate | — | |||||||
| Proceeds of unsecured promissory note – Entertainment | ||||||||
| Payments of related party note payable | — | ( | ) | |||||
| Payments on Commercial Extension of Credit – Entertainment | — | ( | ) | |||||
| Payments on Senior Secured Promissory Notes – Corporate | — | ( | ) | |||||
| Payments on Merchant Advances – Corporate | — | ( | ) | |||||
| Payments on unsecured promissory note – Entertainment | ( | ) | ( | ) | ||||
| Principal payment on EIDL loan | ( | ) | ( | ) | ||||
| Proceeds from issuance of common shares upon exercise of Series B warrants | — | |||||||
| Net cash provided by financing activities – continuing operation | ||||||||
| Net cash provided by financing activities – discontinued operation | — | — | ||||||
| Net cash provided by financing activities | ||||||||
| Net increase (decrease) in cash and cash equivalents | ||||||||
| Cash and cash equivalents, beginning of period | ||||||||
| Cash and cash equivalents, end of period | $ | $ | ||||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash payments for interest | $ | $ | ||||||
| Cash payments for income taxes | $ | $ | ||||||
| Supplemental disclosures of non-cash investing and financing activities: | ||||||||
| Note receivable received in connection with sale of discontinued operation - Nobility Healthcare, at initial fair value. | $ | $ | — | |||||
| Note receivable received in connection with sale of discontinued operation – Video Solutions, at initial fair value. | $ | $ | — | |||||
| Series H preferred stock of Cycurion received in connection with sale of Video Solutions, at initial fair value | $ | $ | — | |||||
| Transition to additional paid-in capital upon conversion of convertible notes | $ | $ | — | |||||
| Common stock issued for non-cash consideration | $ | $ | — | |||||
| Issuance of common stock upon conversion of convertible notes payable | $ | $ | — | |||||
| Deemed capital contribution related to modification of notes payable - related party | $ | — | $ | |||||
| Fair value of warrants issued with sale of shares | $ | — | $ | |||||
| Transition of warrant derivative liability to equity upon exercise of warrants | $ | — | $ | |||||
| Issuance costs withheld from ELOC proceeds | $ | $ | — | |||||
| Issuance of common stock upon exercise of pre-funded warrants | $ | — | $ | |||||
The accompanying notes are an integral part of these financial statements.
| 6 |
KUSTOM ENTERTAINMENT, INC.
(formerly Digital Ally, Inc.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Kustom Entertainment, Inc. (formerly Digital Ally, Inc.) was originally incorporated in Nevada on December 13, 2000 as Vegas Petra, Inc. and had no operations until 2004. On November 30, 2004, Vegas Petra, Inc. entered into a Plan of Merger with Digital Ally, Inc., at which time the merged entity was renamed Digital Ally, Inc.
On January 8, 2026, the Company changed its legal name from Digital Ally, Inc. to Kustom Entertainment, Inc. pursuant to a Certificate of Amendment to its Articles of Incorporation filed with the Secretary of State of the State of Nevada. The name change became effective on January 8, 2026, and the Company began trading on the Nasdaq Capital Market (“Nasdaq”) under its new name at the start of trading on January 8, 2026. In connection with the name change, the Company also changed its Nasdaq trading symbol from “DGLY” to “KUST.” The name change and symbol change did not affect the Company’s assets, liabilities, operations, or capital structure, and stockholders were not required to take any action with respect to their stock certificates. The Company’s board of directors (the “Board of Directors”) also approved a conforming amendment to the Company’s Amended and Restated Bylaws solely to reflect the new corporate name. Unless the context otherwise requires, references in these condensed consolidated financial statements to the “Company,” “Digital Ally,” “Digital,” “Kustom” or similar terms refer to Kustom Entertainment, Inc. and its consolidated subsidiaries.
The Company formed Digital Ally International, Inc. in August 2009 to facilitate the export sales of its digital video imaging and storage products. The Company formed TicketSmarter, Inc. on September 1, 2021, upon its acquisition of Goody Tickets, LLC and TicketSmarter, LLC, to facilitate its global ticketing operations. The Company formed Kustom Entertainment, Inc. and Kustom 440, Inc. in 2022 to create and produce live entertainment experiences directly for consumers.
The business of the Registrant, Kustom Entertainment, Inc. (formerly Digital Ally, Inc.), together with its wholly owned subsidiaries Digital Ally International, Inc., Digital Ally Healthcare, LLC, TicketSmarter, Inc., and Kustom 440, Inc., collectively referred to as the “Company,” is conducted through one reportable operating segment: entertainment (“Entertainment”). The Entertainment segment generates revenue through the production of live events and concerts, including the Company’s annual Country Stampede music festival. This segment also acts as an intermediary between ticket buyers and sellers through the Company’s secondary ticketing platform, TicketSmarter.com, and includes the acquisition of tickets from primary sellers for resale through various platforms.
The Company previously operated two other reportable segments, the Revenue Cycle Management and the Video Solutions segments. The Revenue Cycle Management (“Revenue Cycle Management”) segment reflected the operations of Nobility Healthcare, LLC (“Nobility Healthcare”); following the sale of the Company’s 51% interest in Nobility Healthcare on January 8, 2026, effective January 1, 2026, the results of the revenue cycle management business have been classified as discontinued operations for all periods presented and it is no longer reported as a separate segment; its assets and liabilities were presented as held for sale as of December 31, 2025 only and were derecognized upon completion of the sale. The Video Solutions (“Video Solutions”) segment was the Company’s legacy business that produced digital video imaging, storage products, and related security and commercial applications, including both service and product revenues through subscription models offering cloud-based services and warranty solutions, as well as hardware sales for video and safety solutions. On June 24, 2026, the Company entered into an Asset Purchase Agreement to sell the Video Solutions business to Cycurion, Inc. (“Cycurion”), and the business was classified as held for sale and as a discontinued operation as of June 30, 2026. The sale was completed on August 3, 2026. The results of the Video Solutions business have been classified as discontinued operations for all periods presented and it is no longer reported as a separate segment; its assets and liabilities are presented as held for sale in the condensed consolidated balance sheet as of December 31, 2025 and were derecognized upon completion of the sale. See Note 22, Discontinued Operations.
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Going Concern Matters and Management’s Plans
The accompanying
condensed consolidated financial statements have been prepared on a going-concern basis, which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of business. The Company has incurred net losses and negative cash
flows from operating activities since inception. The Company incurred a net loss of $
During
the nine months ended September 30, 2026, the Company generated net proceeds of $
The
Company completed two divestitures intended to eliminate operating losses and working capital requirements associated with its non-core
businesses. Effective January 1, 2026, the Company sold its 51% membership interest in Nobility Healthcare, exiting the revenue cycle
management business. On August 3, 2026, the Company completed the sale of its Video Solutions business to Cycurion, Inc., receiving cash
consideration of $
The Company will have to restore positive operating cash flows and profitability over the next year and/or raise additional capital to fund its operational plans, meet its customary payment obligations, and otherwise execute its business plan. There can be no assurance that it will be successful in restoring positive cash flows and profitability, or that it can raise additional financing when needed and obtain it on terms acceptable or favorable to the Company. Management’s plans are not entirely within the Company’s control. Notwithstanding the measures described above, substantial doubt about the Company’s ability to continue as a going concern has not been alleviated as of the date these condensed consolidated financial statements are issued.
The following is a summary of the Company’s Significant Accounting Policies
Basis of Presentation
The unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States for interim financial information in accordance with ASC 270-10-50, Interim Reporting, and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three- and nine-month periods ended September 30, 2026 are not necessarily indicative of the results that may be expected for the year ending December 31, 2026.
The balance sheet as of December 31, 2025 has been derived from the audited financial statements at that date but does not include all the information and footnotes required by generally accepted accounting principles in the United States for complete financial statements. The December 31, 2025 balance sheet has been recast to present the assets and liabilities of the Video Solutions business as held for sale, as described above. The condensed consolidated statements of operations for the three and nine months ended September 30, 2025 and the condensed consolidated statement of cash flows for the nine months ended September 30, 2025 have been recast to present the results and cash flows of the Video Solutions and revenue cycle management businesses as discontinued operations, consistent with the current-period presentation. See Note 22, Discontinued Operations.
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For further information, refer to the audited consolidated financial statements and footnotes included in the Company’s annual report on Form 10-K for the year ended December 31, 2025. Unless otherwise indicated, the information in these notes relates to the Company’s continuing operations.
Basis of Consolidation
The accompanying condensed consolidated financial statements are presented in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”). The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, including Digital Ally International, Inc., Digital Ally Healthcare, LLC, TicketSmarter, Inc., and Kustom 440, Inc. Nobility Healthcare, LLC, in which the Company held a 51% interest, was consolidated through December 31, 2025, with the 49% interest held by others presented as noncontrolling interest. The Company sold its interest in Nobility Healthcare effective January 1, 2026, at which time the noncontrolling interest was removed from equity, and the Company has no noncontrolling interests as of September 30, 2026. The Video Solutions business, which was operated within the parent company, was sold on August 3, 2026. The results of Nobility Healthcare and of the Video Solutions business are included in discontinued operations for all periods presented. All intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of the condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include the estimated lives of long-lived assets, the potential impairment of long-lived assets, the fair value of warrants and options, the fair value of notes receivable and other consideration received in connection with dispositions, the recognition of revenue, inventory valuation reserve, allowances for doubtful accounts and other receivables, incremental borrowing rate on leases, the valuation allowance for deferred tax assets, and legal claims and contingencies.
Fair Value of Financial Instruments
The carrying amounts of financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and subordinated notes payable approximate fair value because of the short-term nature of these items. The Company’s investment in the Series H preferred stock of Cycurion, Inc. is measured at fair value with changes in fair value recognized in other income (expense); see Note 8, Other Assets, and Note 10, Fair Value Measurement.
Revenue Recognition
The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers, as described in Note 1 to the consolidated financial statements included in the Company’s annual report on Form 10-K for the year ended December 31, 2025. Revenue from continuing operations is generated by the Entertainment business, which generates revenue from both product and service offerings. Revenue from the Video Solutions business, for periods through June 30, 2026, and from the Revenue Cycle Management business, for periods prior to its sale effective January 1, 2026, is reported within income (loss) from discontinued operations for all periods presented. The Company reports all revenues on a gross basis, except for certain service revenues within the Entertainment business, and all revenues are reported net of sales taxes.
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Entertainment
The Company reports ticketing revenue on a gross or net basis based on whether it acts as principal or agent, determined by whether it controls the ticket prior to its transfer to the buyer. For tickets held in inventory, the Company controls the ticket, acts as principal, and records revenue on a gross basis when the order is confirmed. For sales through its online secondary marketplace, the Company does not control the ticket, acts as agent, and records service-fee revenue on a net basis when the order is confirmed. Each arrangement contains a single performance obligation satisfied at order confirmation, and payment is due at the time of sale or upon delivery of the ticket.
Video Solutions (Discontinued Operations)
Revenue of the Video Solutions business, which was sold on August 3, 2026, and is reported within income (loss) from discontinued operations for all periods presented, consisted of product and service revenue. Product revenue was recognized when control of the product was transferred to the customer, typically at shipment. Service and other revenue from extended warranties, cloud services and software was recognized on a straight-line basis over the contract or service period, and repair services revenue was recognized upon customer acceptance.
Revenue Cycle Management (Discontinued Operations)
The Revenue Cycle Management business, which was sold effective January 1, 2026, is reported within income (loss) from discontinued operations for all periods presented. Its service fees, generally a percentage of invoice amounts collected, were reported on a net basis as monthly revenue upon completion of the agreed-upon service.
Deferred Revenue
Deferred revenue consists of payments received in advance of the Company’s satisfaction of the related performance obligations, principally advance ticket, camping, and sponsorship sales for the Company’s annual Country Stampede music festival, and is recognized as revenue upon completion of the related event. Deferred revenue of continuing operations is presented within current liabilities, as the related events are expected to occur within one year. See Note 21, Deferred Revenue, for the composition and activity of deferred revenue balances.
Cash and cash equivalents
Cash
and cash equivalents include funds on hand, in bank and short-term investments with original maturities of ninety (90) days or less. The Company had
The
Company maintains its cash and cash equivalents in banks insured by the Federal Deposit Insurance Corporation (FDIC). At times, account
balances may exceed the federally insured limit of $
Accounts Receivable
Accounts receivable are carried at original invoice amount less an allowance for doubtful accounts estimated in accordance with ASC 326, Financial Instruments — Credit Losses, as described in the Company’s annual report on Form 10-K for the year ended December 31, 2025.
Goodwill and Other Intangibles
Goodwill, long-lived assets and other intangible assets are accounted for as described in Note 1 to the consolidated financial statements included in the Company’s annual report on Form 10-K for the year ended December 31, 2025. Goodwill and indefinite-lived intangible assets are assessed for impairment annually as of December 31 and more frequently if events or changes in circumstances indicate that the carrying value may not be recoverable. When required, the Company determines the fair value of its reporting unit using a weighting of the income and market approaches, which requires significant judgments regarding future cash flows, growth rates, discount rates and market multiples. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable, based on undiscounted cash flows at the asset group level. See Note 7, Goodwill and Other Intangible Assets.
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Inventories
Inventories of continuing operations consist of tickets to live events held by the Entertainment business, which are carried at the lower of cost or net realizable value. Any unsold tickets remaining in inventory after the event are fully written off. Management establishes an inventory reserve for estimated losses on ticket inventory held at the balance sheet date. See Note 5, Inventories.
Inventories of the Video Solutions business, included within assets held for sale as of December 31, 2025, were carried at the lower of cost or net realizable value.
Prepaid inventory represents advance payments made to suppliers for event tickets not yet received, and is evaluated for recoverability with an allowance recorded when amounts are not expected to be fully realized.
Property, plant and equipment
Property, plant and equipment is stated at cost net of accumulated depreciation, which is recorded by the straight-line method over estimated useful lives of three to ten years.
Leases
Operating lease right-of-use assets and lease liabilities are recognized at the present value of future lease payments over the lease term, discounted at the Company’s incremental borrowing rate when the lease does not provide an implicit rate, and lease expense is recognized on a straight-line basis over the lease term. The Company had operating leases for copiers, offices, and warehouse space at September 30, 2026 and December 31, 2025, and no finance leases.
Income Taxes
Income
taxes are accounted for as described in Note 1 to the consolidated financial statements included in the Company’s annual
report on Form 10-K for the year ended December 31, 2025. For the three and nine months ended September 30, 2026 and 2025, the
Company recorded no income tax expense or benefit. The Company maintains a full valuation allowance against its net deferred tax
assets as it is more likely than not that such assets will not be realized. Accordingly, no tax benefit has been recognized on the
Company’s pretax losses from continuing operations, and no tax expense has been recognized on income from discontinued
operations, including the gain on the sale of the Video Solutions business, which is offset by the utilization of net operating loss
carryforwards subject to the valuation allowance, for the three and nine months period ended September 30, 2026 and 2025. There was
Research and Development Expenses
The Company expenses all research and development costs as incurred. Research and development costs were historically incurred by the Video Solutions business, and such costs are reported within income (loss) from discontinued operations for all periods presented. No research and development costs were incurred by continuing operations during the three and nine months ended September 30, 2026 and 2025.
Warrant Derivative Liabilities and Bifurcated Embedded Derivatives
Warrants that may require net cash settlement in events outside the Company’s control, and conversion features of convertible notes that are not clearly and closely related to the host debt, are classified as derivative liabilities and measured at fair value, with changes in fair value reported in earnings each period, as described in Note 1 to the consolidated financial statements included in the Company’s annual report on Form 10-K for the year ended December 31, 2025. See Note 10, Fair Value Measurement, and Note 15, Common Stock Purchase Warrants.
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Stock-Based Compensation
Stock-based compensation to employees, directors and third-party contractors is measured at grant-date fair value and recognized on a straight-line basis over the requisite service period, with forfeitures accounted for as they occur, as described in Note 1 to the consolidated financial statements included in the Company’s annual report on Form 10-K for the year ended December 31, 2025. See Note 14, Stock-Based Compensation.
Segment Reporting
Operating
segments are components of the Company for which discrete financial information is available and regularly evaluated by the chief
operating decision maker, the Company’s Chief Executive Officer, in allocating resources and assessing performance. Following
the sale of the Revenue Cycle Management and the Video Solutions businesses, which are classified as discontinued operations for all
periods presented, the Company’s continuing operations consist of
Notes Receivable
Notes receivable represent amounts owed to the Company under promissory notes, including notes received as consideration in connection with the disposition of businesses. Notes receivable are initially recorded at their estimated fair value on the date of origination, with any resulting discount amortized to interest income over the term of the note using the effective-interest method. The Company evaluates notes receivable for collectibility based on the borrower’s financial condition, payment history, collateral and current economic conditions, and records an allowance for expected credit losses in accordance with ASC 326, Financial Instruments - Credit Losses, when amounts are not expected to be fully collected.
Contingent consideration arrangements on the disposition of a business are accounted for according to their form. Where an earn-out is embedded in a note receivable and adjusts the principal amount of the note based on the post-closing performance of the divested business, each adjustment is recorded as a change in the carrying amount of the note, measured as the present value of the revised contractual cash flows discounted at the note’s original effective interest rate, with the resulting gain or loss recorded within income (loss) from discontinued operations in the period the adjustment is determined. Where an earn-out or clawback is a separate arrangement that does not affect the note, an earn-out is a gain contingency recognized when resolved and a clawback is a loss contingency accrued when a loss is probable and reasonably estimable. The note received on the sale of Nobility Healthcare contains an embedded earn-out, and the sale of the Video Solutions business includes a separate earn-out and clawback arrangement. See Note 3, Notes Receivable, and Note 22, Discontinued Operations.
As of September 30, 2026, notes receivable consisted of notes received as partial consideration in connection with the sales of Nobility Healthcare on January 8, 2026 and the Video Solutions business on August 3, 2026. See Note 3, Notes Receivable, and Note 22, Discontinued Operations.
Reverse Stock Split
The Company retroactively adjusts all historical share and per-share amounts reflected throughout the condensed consolidated financial statements and other financial information to reflect reverse stock splits as if they had occurred as of the earliest period presented. The par value per share of the Company’s common stock is not affected by reverse stock splits. See Note 16, Stockholders’ Equity, for details regarding each reverse stock split effectuated during and subsequent to the periods presented.
Discontinued Operations
A component of the Company is reported as a discontinued operation when it is disposed of, or classified as held for sale, and represents a strategic shift having a major effect on the Company’s operations and financial results. A component is classified as held for sale when management commits to a plan to sell, the component is available for immediate sale in its present condition, an active program to locate a buyer has been initiated, and the sale is probable within one year at a price reasonable in relation to its fair value. Held-for-sale assets are measured at the lower of carrying amount or fair value less costs to sell, depreciation and amortization cease upon classification, results of the disposal group are reported as discontinued operations, net of tax, for all periods presented, and its assets and liabilities are presented separately as held for sale. The Company’s Revenue Cycle Management and Video Solutions businesses are reported as discontinued operations. See Note 22, Discontinued Operations.
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Collaborative Arrangements
The Company evaluates arrangements under which it and another party are both active participants in a joint operating activity and are exposed to significant risks and rewards that depend on the activity’s commercial success in accordance with ASC 808, Collaborative Arrangements. Amounts receivable from or payable to a collaboration partner that is not a customer are presented based on the nature of the arrangement and are not reported as revenue from contracts with customers. Advances made to a collaboration partner that are recoverable from the Company’s share of the net revenue of the collaboration are recorded in other assets and evaluated for recoverability at each reporting date. The Company’s share of the results of the collaboration is recognized as the related events occur. See Note 8, Other Assets.
Going Concern
The Company evaluates whether conditions or events, considered in the aggregate, raise substantial doubt about its ability to continue as a going concern within one year after the date the condensed consolidated financial statements are issued, and whether its plans, when implemented, will alleviate that doubt. The condensed consolidated financial statements have been prepared on a going-concern basis and do not include any adjustments that might result from the outcome of this uncertainty. See Going Concern Matters and Management’s Plans above.
New Accounting Standards
The Company adopted ASU 2024-04, Debt – Debt with Conversion and Other Options (Subtopic 470-20): Induced Conversions of Convertible Debt Instruments, effective January 1, 2026; the adoption did not have a material impact on its condensed consolidated financial statements. No other new accounting standards adopted during the nine months ended September 30, 2026 had a material impact.
Recently Issued Accounting Pronouncements
The FASB has issued ASU 2024-03, Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40), effective for annual periods beginning after December 15, 2026 and interim periods beginning after December 15, 2027; ASU 2025-11, Interim Reporting (Topic 270): Narrow-Scope Improvements, effective for interim periods within annual periods beginning after December 15, 2027; and ASU 2025-12, Codification Improvements, effective for annual and interim periods beginning after December 15, 2026, which includes clarifications related to diluted earnings per share when a loss from continuing operations exists. Early adoption of each is permitted. The Company does not expect the adoption of these or other recently issued accounting pronouncements to have a material impact on its condensed consolidated financial statements.
NOTE 2. ACCOUNTS RECEIVABLE
SCHEDULE OF ACCOUNTS RECEIVABLE
September 30, 2026 | December 31, 2025 | |||||||
| Accounts receivable – trade, gross | $ | $ | ||||||
| Less: allowance for doubtful accounts | — | — | ||||||
| Accounts receivable – trade, net | $ | $ | ||||||
As of September 30, 2026 and December 31, 2025, the Company’s accounts receivable – trade relate entirely to its continuing operations, with no allowance for doubtful accounts considered necessary at either date.
NOTE 3. NOTES RECEIVABLE
Notes receivable were as follows at September 30, 2026 and December 31, 2025:
SCHEDULE OF NOTES RECEIVABLE AND OTHER RECEIVABLES
September 30, 2026 | December 31, 2025 | |||||||
| Nobility, LLC note receivable | $ | $ | — | |||||
| Cycurion, Inc. note receivable | — | |||||||
| Total notes receivable | — | |||||||
| Less: Notes receivable - current | ( | ) | — | |||||
| Notes receivable – long-term | $ | $ | — | |||||
Notes receivable consist of the following:
(i)
A promissory note received from Nobility, LLC as partial consideration for the sale of Nobility Healthcare on January 8, 2026, recorded
at an estimated fair value of $
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(ii)
A $
NOTE 4. OTHER RECEIVABLES
Other receivables were comprised of the following at September 30, 2026 and December 31, 2025:
SCHEDULE OF OTHER RECEIVABLES
September 30, 2026 | December 31, 2025 | |||||||
| Litigation receivables | $ | $ | ||||||
| Allowance for loss on litigation receivables | ( | ) | ( | ) | ||||
| Other | ||||||||
| Total other receivables | $ | $ | ||||||
Litigation
Receivables - As of September 30, 2026, the Company held litigation receivables of $
NOTE 5. INVENTORIES
Inventories consisted of the following at September 30, 2026 and December 31, 2025:
SCHEDULE OF INVENTORIES
September 30, 2026 | December 31, 2025 | |||||||
| Tickets and merchandise held for resale | $ | $ | ||||||
| Inventory reserve | ( | ) | ( | ) | ||||
| Total inventories | $ | $ | ||||||
As of September 30, 2026 and December 31, 2025, the Company’s inventories relate entirely to its continuing operations and consist of tickets to live events held for resale by the Entertainment business and live-event merchandise.
During
the three months ended June 30, 2026, the Company changed its method of estimating the inventory valuation reserve for ticket inventory
from the prior-year ratio of reserve to inventory to the Company’s actual realized loss rate on ticket inventory over the trailing
four fiscal quarters, accounted for prospectively as a change in accounting estimate. The change increased cost of product revenue and
loss from continuing operations, and decreased net income attributable to common stockholders, by $
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NOTE 6. PREPAID EXPENSES
Prepaid expenses were the following at September 30, 2026 and December 31, 2025:
SCHEDULE OF PREPAID EXPENSE
September 30, 2026 | December 31, 2025 | |||||||
| Prepaid inventory | $ | $ | ||||||
| Prepaid advertising | ||||||||
| Prepaid offering costs | ||||||||
| Prepaid consulting | — | |||||||
| Other | ||||||||
| Total prepaid expenses | $ | $ | ||||||
As of September 30, 2026 and December 31, 2025, the Company’s prepaid expenses relate to its continuing operations. Prepaid inventory consists of deposits and advance payments to ticket suppliers, sponsors, and partners for event tickets to be received and held for resale, which are transferred to ticket inventory upon receipt of the tickets. Prepaid offering costs consist primarily of issuance costs associated with the Company’s equity line of credit, which are withheld from the proceeds of draws and charged to additional paid-in capital as shares are issued. Prepaid consulting consists of the fair value of common stock issued to consultants for services to be rendered, which is amortized to general and administrative expense on a straight-line basis over the service period of the related agreements.
NOTE 7. GOODWILL AND OTHER INTANGIBLE ASSETS
Intangible assets consisted of the following as of September 30, 2026 and December 31, 2025:
SCHEDULE OF INTANGIBLE ASSETS
| September 30, 2026 | ||||||||||||||||
Gross value | Accumulated amortization | Accumulated impairment | Net carrying value | |||||||||||||
| Amortized intangible assets: | ||||||||||||||||
| Sponsorship agreement network | ||||||||||||||||
| Search engine optimization (SEO) content | — | — | ||||||||||||||
| Personal seat licenses | — | |||||||||||||||
| Website enhancements | — | |||||||||||||||
| Exclusive production rights | — | |||||||||||||||
| Indefinite life intangible assets: | ||||||||||||||||
| Goodwill | — | |||||||||||||||
| Trade name and trademarks | — | |||||||||||||||
| Patents and trademarks pending | — | — | ||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
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| December 31, 2025 | ||||||||||||||||
Gross value | Accumulated amortization | Accumulated impairment | Net carrying value | |||||||||||||
| Amortized intangible assets: | ||||||||||||||||
| Sponsorship agreement network | ||||||||||||||||
| Search engine optimization (SEO) content | — | — | ||||||||||||||
| Personal seat licenses | — | |||||||||||||||
| Website enhancements | — | |||||||||||||||
| Indefinite life intangible assets: | ||||||||||||||||
| Goodwill | — | |||||||||||||||
| Trade name and trademarks | — | |||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
All goodwill and the intangible assets presented above relate to the Entertainment business.
Patents and trademarks pending will be amortized beginning at the time they are issued by the appropriate authorities. If issuance of the final patent or trademark is denied, then the amount deferred will be immediately charged to expense.
Other intangible assets are recorded at cost and amortized on a straight-line basis over the following estimated useful lives or contractual terms:
SCHEDULE OF INTANGIBLE ASSETS USEFUL LIFE
| Intangible Asset Useful Life | |||
| Sponsorship agreement network | |||
| Search engine optimization (SEO) content | |||
| Personal seat licenses | |||
| Website enhancements | |||
| Exclusive production rights |
Amortization
expense was $
SCHEDULE OF ESTIMATED AMORTIZATION FOR INTANGIBLE ASSETS
| Year ending December 31: | ||||
| 2026 | $ | |||
| 2027 | ||||
| 2028 | ||||
| 2029 | ||||
| 2030 | ||||
| 2031 and thereafter | ||||
| Total | $ | |||
Annual impairment test
The
Company’s annual goodwill and intangible asset impairment test as of December 31, 2025 resulted in a $
Indefinite-lived intangible assets
The
Company held indefinite-lived trade names and trademarks with an aggregate carrying value of $
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NOTE 8. OTHER ASSETS
Other assets were as follows at September 30, 2026 and December 31, 2025:
SCHEDULE OF OTHER ASSETS
September 30, 2026 | December 31, 2025 | |||||||
| Deposits | $ | $ | ||||||
| Investment in Cycurion Series H preferred stock | — | |||||||
| Advance payments | — | |||||||
| Other | ||||||||
| Total other assets | $ | $ | ||||||
Deposits
consist of security deposits under the Company’s operating leases. The investment in Cycurion Series H preferred stock, which
has an aggregate stated value of $
NOTE 9. DEBT OBLIGATIONS
Debt obligations were as follows at September 30, 2026 and December 31, 2025:
SCHEDULE OF DEBT OBLIGATIONS
September 30, 2026 | December 31, 2025 | |||||||
| Economic injury disaster loan (EIDL) | $ | $ | ||||||
| Unsecured promissory note - 2025 | ||||||||
| Unsecured promissory note - 2026 | — | |||||||
| 2025 Secured Notes | — | |||||||
| Total gross principal | ||||||||
| Unamortized debt discount | ( | ) | ( | ) | ||||
| Debt obligations | ||||||||
| Less: current maturities of debt obligations | ||||||||
| Debt obligations, long-term | $ | $ | ||||||
Future principal payments on debt obligations as of September 30, 2026 are as follows:
SCHEDULE OF FUTURE PRINCIPAL PAYMENTS ON DEBT OBLIGATIONS
| Gross Principal | Unamortized Discount | Net Carrying Value | ||||||||||
| 2026 (October 1, 2026 to December 31, 2026) | $ | $ | — | $ | ||||||||
| 2027 | ( | ) | ||||||||||
| 2028 | — | |||||||||||
| 2029 | — | |||||||||||
| 2030 and thereafter | — | |||||||||||
| Total | $ | $ | ( | ) | $ | |||||||
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Current
maturities of debt obligations of $
2020 Small Business Administration Notes.
The
Company’s Economic Injury Disaster Loan (“EIDL”) from the U.S. Small Business Administration, in the original principal
amount of $
Unsecured Promissory Notes
2025
Note - On February 1, 2025, the Company entered into a $
2026
Note - On August 7, 2026, the Company issued a $
2025 Senior Secured Convertible Note and Committed Equity Financing
During
September and December 2025, the Company issued senior secured convertible notes (the “2025 Secured Notes”) with an aggregate
principal amount of $
NOTE 10. FAIR VALUE MEASUREMENT
In accordance with ASC Topic 820, Fair Value Measurements and Disclosures (“ASC 820”), the Company measures certain financial assets and liabilities at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company applies the income approach to measure the fair value of its derivative liabilities, using option pricing models that incorporate observable market data and management’s estimates of significant unobservable inputs.
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ASC 820 utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:
| ● | Level 1 — Quoted prices in active markets for identical assets and liabilities |
| ● | Level 2 — Other significant observable inputs (including quoted prices in active markets for similar assets or liabilities) |
| ● | Level 3 — Significant unobservable inputs (including the Company’s own assumptions in determining the fair value) |
The following table represents the Company’s hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2026 and December 31, 2025:
SCHEDULE OF FINANCIAL ASSETS AND LIABILITIES MEASURED AT FAIR VALUE ON RECURRING BASIS
| September 30, 2026 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Assets: | ||||||||||||||||
| Investment in Cycurion Series H preferred stock | $ | — | $ | $ | — | $ | ||||||||||
| $ | — | $ | $ | — | $ | |||||||||||
| Liabilities: | ||||||||||||||||
| Warrant derivative liabilities | $ | — | $ | — | $ | $ | ||||||||||
| $ | — | $ | — | $ | $ | |||||||||||
| December 31, 2025 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Liabilities: | ||||||||||||||||
| Warrant derivative liabilities | $ | — | $ | — | $ | $ | ||||||||||
| $ | — | $ | — | $ | $ | |||||||||||
The fair value of the investment in Cycurion Series H preferred stock is determined using a market approach based on the quoted market price of Cycurion common stock multiplied by the number of common shares into which the preferred stock is convertible, and is classified within Level 2 because the preferred stock itself is not traded in an active market. See Note 8, Other Assets.
Level 3 Rollforward
The
Company’s Level 3 liabilities consist of (i) the bifurcated conversion feature associated with the 2025 Secured Note, which
was fully extinguished upon conversion during the nine months ended September 30, 2026, and (ii)
SCHEDULE OF FAIR VALUE MEASUREMENTS CHANGE IN LEVEL 3 INPUTS
| Bifurcated conversion feature | Warrant Derivative Liabilities | Total | ||||||||||
| Balance, December 31, 2025 | $ | $ | $ | |||||||||
| Change in fair value recognized in earnings | ( | ) | ||||||||||
| Reclassification to additional paid-in capital upon conversion of 2025 Secured Notes | ( | ) | — | ( | ) | |||||||
| Balance, September 30, 2026 | $ | — | $ | $ | ||||||||
| 19 |
The
$
There were no transfers between Level 1, Level 2, or Level 3 of the fair value hierarchy during the nine months ended September 30, 2026.
Non-Recurring Fair Value Measurements
In
connection with the disposition of Nobility Healthcare in January 2026, the Company received a note receivable initially recorded at
its estimated fair value of $
NOTE 11. ACCRUED EXPENSES
Accrued expenses consisted of the following at September 30, 2026 and December 31, 2025:
SCHEDULE OF ACCRUED EXPENSES
| September 30, 2026 | December 31, 2025 | |||||||
| Accrued payroll and related fringes | $ | $ | ||||||
| Accrued taxes | ||||||||
| Accrued interest | ||||||||
| Accrued board of directors’ fees | ||||||||
| Accrued litigation settlement | — | |||||||
| General accrued expense | ||||||||
| Total accrued expenses | $ | $ | ||||||
Accrued taxes consist of sales taxes collected on ticket and festival sales that are payable to state taxing authorities. Accrued litigation settlement represents the unpaid cash portion of a litigation settlement entered in August 2026 with a former consultant of Kustom 440, Inc. in the Kustom 440 — Former Consultant matter; see Note 13, Commitments and Contingencies. General accrued expense consists of professional fees, festival production and other vendor accruals, and other operating accruals.
NOTE 12. INCOME TAXES
The
effective tax rate for the nine months ended September 30, 2026, and 2025 varied from the expected statutory rate due to the Company
continuing to provide a
| 20 |
The Company incurred operating losses in recent years and it continues to be in a three-year cumulative loss position at September 30, 2026. Accordingly, the Company determined there was not sufficient positive evidence regarding its potential for future profits to outweigh the negative evidence of our three-year cumulative loss position under the guidance provided in ASC 740. Therefore, it determined to record a full valuation allowance against its deferred tax assets at September 30, 2026. The Company expects to continue to maintain a full valuation allowance until it determines that it can sustain a level of profitability that demonstrates its ability to realize these assets. To the extent the Company determines 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.
As of September 30, 2026 and December 31, 2025, based on its 2025 tax returns as filed, the Company had the following estimated Federal net operating loss carry-forwards available to offset future taxable income:
SCHEDULE OF FEDERAL NET OPERATING LOSS CARRY FORWARDS
| Amount | ||||
| Tax years generated: | ||||
| 2017 and before | $ | |||
| 2018 and after | ||||
| Federal net operating loss carry-forwards available | $ | |||
Such
tax net operating loss carry-forwards expire between 2026 and 2037 relative to Federal net operating loss carry-forwards generated in
tax years 2017 and prior. Federal net operating loss carry-forwards generated in tax years 2018 and after cannot be carried back to prior
years and have an indefinite life since the enactment of the Tax Cuts and Jobs Act of 2017. The Tax Cuts and Jobs Act of 2017 further
provides for an annual limitation on usage equivalent to 80% of taxable income. In addition, the Company had research and development
tax credit carry-forwards totaling $
The Company’s 2022 federal tax return was examined by the Internal Revenue Service resulting in no proposed adjustments.
NOTE 13. COMMITMENTS AND CONTINGENCIES
Lease Commitments
Total
lease expense under the Company’s operating leases related to continuing operations was $
SCHEDULE OF OPERATING LEASES RIGHT OF USE ASSETS AND LIABILITIES
| Assets: | ||||
| Operating lease right of use assets | $ | |||
| Liabilities: | ||||
| Operating lease obligations-current portion | ||||
| Operating lease obligations-less current portion | ||||
| Total operating lease obligations | $ |
Following are the minimum lease payments for each year and in total.
SCHEDULE OF FUTURE MINIMUM LEASE PAYMENTS
| Year ending December 31: | ||||
| 2026 (October 1, 2026 through December 31, 2026) | $ | |||
| 2027 | ||||
| 2028 | ||||
| 2029 | ||||
| 2030 and thereafter | ||||
| Total undiscounted minimum future lease payments | ||||
| Imputed interest | ( | ) | ||
| Total operating lease liability | $ | |||
| 21 |
During
the nine months ended September 30, 2026, the Company incurred capital expenditures of $
Proposed Acquisition of TFL, LLC
On August 31,
2026, the Company entered into a Unit Purchase Agreement (the “Purchase Agreement”) with TFL, LLC, a Kansas limited
liability company (“TFL”), and the holders of all of the outstanding equity
interests of TFL (the “Sellers”), pursuant to which the Company agreed to acquire all of the outstanding equity
interests of TFL, a live event ticketing technology and ticket inventory distribution business headquartered in Overland Park,
Kansas. The aggregate consideration consists of (i) $
Litigation
From time to time, the Company is a party to lawsuits and claims arising in the ordinary course of business. The Company records a liability when a loss is probable and reasonably estimable and discloses matters for which a loss is reasonably possible, and reevaluates its accruals as matters progress. The Company’s legal proceedings as of September 30, 2026 are described below.
Culp McAuley, Inc. et al.
As
of September 30, 2026, the Company holds an unsatisfied judgment of $
Larry Roberts
As previously disclosed, in March 2024 the Company filed a complaint against Larry Roberts in the Superior Court of the State of California, County of Orange, Case No. 30-2024-01385012-CU-FR-CJC, arising from the defendant’s alleged theft and misapplication of funds intended for the purchase of goods on behalf of the Company. Discovery is ongoing, and a jury trial has been scheduled for June 7, 2027. The Company is not able to provide an estimate of the likelihood of success at this time. The matter remains open.
Pharmaxx Medical, Inc.
The
Company filed a complaint against Pharmaxx Medical, Inc. in the Superior Court of the State of California, County of Riverside, Case
No. CVSW2300198, alleging breach of contract arising from the failure to deliver pharmaceutical gloves. On July 7, 2026, the court entered
a default judgment in favor of the Company in the aggregate amount of $
| 22 |
First Insurance Funding Corp. — Johnson County Collection Case
The
Company is a defendant in a collection case filed in the District Court of Johnson County, Kansas, limited actions department,
claiming the Company owed money for insurance premium funding on a cancelled policy totaling $
Kustom 440 — Former Consultant
A
former consultant filed a claim against Kustom 440, Inc., a wholly owned subsidiary of the Company, seeking payment under a consulting
agreement. On August 6, 2026, the parties entered into a settlement agreement resolving the matter. The Company recorded a charge of
$
Aegis Capital Corp.
As
of September 30, 2026, the Company is subject to a contingent obligation to pay 4% of future gross proceeds raised under its equity line
of credit through February 14, 2028, pursuant to a settlement agreement entered into with Aegis Capital Corp. in January 2026, which
resolved a lawsuit filed by Aegis in the U.S. District Court for the Southern District of New York alleging breach of a right of first
refusal; the lawsuit was subsequently dismissed without prejudice. The Company made aggregate payments of $
Noota Music, LLC v. Kustom 440, Inc.
On
July 19, 2026, Noota Music, LLC filed a complaint against Kustom 440, Inc. and the Company in the United States District Court for the
District of Kansas arising from an artist engagement agreement for a cancelled live event, alleging breach of contract, fraud and misrepresentation,
fraudulent inducement, tortious interference and unjust enrichment, and seeking approximately $
NOTE 14. STOCK-BASED COMPENSATION
The
Company recorded pre-tax compensation expense related to the grant of stock options and restricted stock issued totaling $
As of September 30, 2026, the Company has adopted various stock option and restricted stock plans which are referred to as the “Plans.” During September 2026, the Company’s Board of Directors approved the cancellation of all remaining shares available for award under the Company’s existing stock option plans. Therefore, there are no shares remaining available for awards under the various Plans as of September 30, 2026. On October 5, 2026, the Company’s stockholders approved the 2026 Kustom Entertainment, Inc. Stock Option and Restricted Stock Plan; no awards had been granted under that plan as of the date of this Quarterly Report on Form 10-Q. See Note 23, Subsequent Events.
| 23 |
Stock option grants. Option awards have been granted with an exercise price equal to the market price of the Company’s common stock at the date of grant with such option awards generally vesting based on the completion of continuous service and having ten-year contractual terms. These option awards typically provide for accelerated vesting if there is a change in control (as defined in the Plans). Activity in the various Plans during the nine months ended September 30, 2026 and 2025 is reflected in the following table:
SCHEDULE OF STOCK OPTIONS OUTSTANDING
| Options | Number of Shares | Weighted Average Exercise Price | ||||||
| Outstanding at January 1, 2026 | $ | |||||||
| Granted | ||||||||
| Exercised | — | — | ||||||
| Forfeited | ( | ) | ( | ) | ||||
| Outstanding at September 30, 2026 | $ | |||||||
| Exercisable at September 30, 2026 | — | $ | — | |||||
| Options | Number of Shares | Weighted Average Exercise Price | ||||||
| Outstanding at January 1, 2025 | $ | |||||||
| Granted | — | — | ||||||
| Exercised | — | — | ||||||
| Forfeited | — | — | ||||||
| Outstanding at September 30, 2025 | $ | |||||||
| Exercisable at September 30, 2025 | $ | |||||||
The
fair value of each option award is estimated on the date of grant using a Black-Scholes option valuation model. The total estimated grant
date fair value of stock options issued during the nine months ended September 30, 2026 was $
SCHEDULE OF STOCK BASED COMPENSATION VALUATION ASSUMPTIONS
| Volatility – range | % | |||
| Risk-free rate | % | |||
| Dividend | — | % | ||
| Contractual term | ||||
| Exercise price | $ | |||
| Common stock issuable under the options |
The Plans allow for the cashless exercise of stock options. This provision allows the option holder to surrender/cancel options with an intrinsic value equivalent to the purchase/exercise price of other options exercised. There were no shares surrendered pursuant to cashless exercises during the nine months ended September 30, 2026 and 2025.
Compensation
expense totaled $
| 24 |
The following table summarizes the range of exercise prices and weighted average remaining contractual life for outstanding and exercisable options under the Company’s option plans as of September 30, 2026:
SCHEDULE OF SHARES AUTHORIZED UNDER STOCK OPTION PLANS BY EXERCISE PRICE RANGE
| Outstanding options | Weighted average | Exercisable options | Weighted average | |||||||||||
| Exercise price range | Number of options | remaining contractual life | Number of options | remaining contractual life | ||||||||||
| $ | — | — years | ||||||||||||
| Total | — | — years | ||||||||||||
Restricted stock grants. The Board of Directors has granted restricted stock awards under the Plans. Restricted stock awards are valued on the date of grant and have no purchase price for the recipient. Restricted stock awards typically vest over one to four years corresponding to anniversaries of the grant date. Under the Plans, unvested shares of restricted stock awards may be forfeited upon the termination of service to or employment with the Company, depending upon the circumstances of termination. Except for restrictions placed on the transferability of restricted stock, holders of unvested restricted stock have full stockholders’ rights, including voting rights and the right to receive cash dividends.
A summary of all restricted stock activity under the equity compensation plans for the nine months ended September 30, 2026 and 2025 is as follows:
SCHEDULE OF RESTRICTED STOCK ACTIVITY
| Number of Restricted shares | Weighted average grant date fair value | |||||||
| Nonvested balance, January 1, 2026 | $ | |||||||
| Granted | — | — | ||||||
| Vested | ( | ) | ( | ) | ||||
| Forfeited | — | — | ||||||
| Nonvested balance, September 30, 2026 | $ | |||||||
| Number of Restricted shares | Weighted average grant date fair value | |||||||
| Nonvested balance, January 1, 2025 | $ | |||||||
| Granted | — | — | ||||||
| Vested | ( | ) | ( | ) | ||||
| Forfeited | — | — | ||||||
| Nonvested balance, September 30, 2025 | $ | |||||||
Compensation
expense related to restricted stock totaled $
The nonvested balance of restricted stock vests as follows:
SCHEDULE OF NON-VESTED BALANCE OF RESTRICTED STOCK
| Years ended | Number of shares | |||
| 2026 (October 1, 2026 to December 31, 2026) | — | |||
| 2027 | ||||
| 2028 | ||||
| 2029 | — | |||
| 2030 | — | |||
| 25 |
NOTE 15. COMMON STOCK PURCHASE WARRANTS
The following table summarizes information about shares issuable under warrants outstanding during the nine months ended September 30, 2026 and 2025:
SCHEDULE OF WARRANT ACTIVITY
| Warrants | Weighted average | |||||||
| Balance, January 1, 2026 | $ | |||||||
| Issuances | — | — | ||||||
| Exercises | — | — | ||||||
| Terminated/Cancelled | — | — | ||||||
| Balance, September 30, 2026 | $ | |||||||
| Warrants | Weighted average | |||||||
| Balance, January 1, 2025 | $ | |||||||
| Issuance February 2025 – Prefunded Warrants | ||||||||
| Issuance/activation of February 2025 – Series A Warrants | ||||||||
| Issuance of September 2025 – Detachable Warrants | ||||||||
| Issuance/activation of February 2025 – Series B Warrants | — | |||||||
| Exercise February 2025 – Prefunded Warrants | ( | ) | ( | ) | ||||
| Exercise June 2024 - Series B warrants | ( | ) | ( | ) | ||||
| Exercise February 2025 – Series B Warrants | ( | ) | — | |||||
| Terminated/Cancelled | — | — | ||||||
| Balance, September 30, 2025 | $ | |||||||
The
total intrinsic value of all outstanding warrants aggregated $
The following table summarizes the range of exercise prices and weighted average remaining contractual life for outstanding and exercisable warrants to purchase shares of common stock as of September 30, 2026:
SCHEDULE OF RANGE OF EXERCISE PRICES AND WEIGHTED AVERAGE REMAINING CONTRACTUAL LIFE OF WARRANTS
| Outstanding and exercisable warrants | ||||||||
| Exercise price | Number of warrants | Weighted average remaining contractual life | ||||||
| $ | — | |||||||
| $ | ||||||||
| $ | ||||||||
| $ | ||||||||
| $ | ||||||||
| $ | ||||||||
| $ | ||||||||
| 26 |
September and December 2025 Detachable Purchase Warrants
In
connection with the issuance of the 2025 Secured Notes during September and December 2025, as described in Note 9, Debt Obligations,
the Company issued an aggregate of
February 2025 Purchase Warrants
The
Company has
2024 Purchase Warrants
The
Company has
2023 Purchase Warrants
The
Company has
NOTE 16. STOCKHOLDERS’ EQUITY
Reverse Stock Splits
On
January 8, 2026, the Company effected a
No
fractional shares were issued in connection with any reverse stock split; stockholders otherwise entitled to a fractional share were
entitled to receive one whole share in lieu thereof, at the participant level. Each reverse stock split had a proportionate effect
on all outstanding options and warrants. All share and per-share amounts throughout these condensed consolidated financial
statements, including authorized shares, have been retroactively adjusted to reflect all three reverse stock splits, including the
October 2026 Split, which was effected subsequent to September 30, 2026, but prior to the issuance of these condensed consolidated
financial statements, as if they had occurred as of the earliest period presented. Accordingly, the
| 27 |
Committed Equity Financing (ELOC)
The
Company’s committed equity financing facility of up to $
During
the three and nine months ended September 30, 2026, the Company issued
2025 Senior Secured Convertible Notes Conversion
During
the three months ended March 31, 2026, the holders of the 2025 Secured Notes converted the entire $
August 2026 Share Issuances
During
August 2026, the Company issued an aggregate of
Nobility Healthcare Disposition
In
connection with the disposition of Nobility Healthcare effective January 1, 2026, the Company recorded aggregate adjustments of $
Nasdaq Notifications
As
previously disclosed, on October 17, 2025, the Company regained compliance with the Nasdaq minimum bid price requirement (the “Minimum
Bid Price Requirement”) and the minimum stockholders’ equity requirement under Nasdaq Listing Rule 5550(b)(1), which requires
stockholders’ equity of at least $
| 28 |
As
of June 30, 2026, the Company’s stockholders’ equity was $
NOTE 17. RELATED PARTY TRANSACTIONS
Transactions with Related Party of TicketSmarter
Note payable – related party is comprised of the following:
SCHEDULE OF NOTE PAYABLE RELATED PARTY
September 30, 2026 | December 31, 2025 | |||||||
| Note payable – related party | $ | $ | ||||||
| Unamortized discount | ( | ) | ( | ) | ||||
| Debt obligations | ||||||||
| Less: current maturities of note payable-related party | — | — | ||||||
| Note payable -related party, long-term | $ | $ | ||||||
Accrued
interest – related party was $
Future principal payments on the note payable – related party as of September 30, 2026 are as follows:
SCHEDULE OF MATURITY DEBT OBLIGATIONS
| Gross Principal | Unamortized Discount | Net Carrying Value | ||||||||||
| 2026 (October 1, 2026 to December 31, 2026) | $ | — | $ | — | $ | — | ||||||
| 2027 | — | — | — | |||||||||
| 2028 | — | — | — | |||||||||
| 2029 | — | — | — | |||||||||
| 2030 and thereafter | ( | ) | ||||||||||
| Total | $ | ( | ) | |||||||||
Goodman Trust Note
The
note payable to the Goodman Trust (the “Goodman Trust”), the beneficiaries of which are the Chief Executive Officer of TicketSmarter,
Inc. and his spouse, has an outstanding principal balance of $
The
debt discount of $
| 29 |
NOTE 18. GAIN ON EXTINGUISHMENT OF LIABILITIES
The
Company recorded gains on the extinguishment of liabilities of $-0- and $
The gain recognized during the nine months ended September 30, 2026 reflects discounts received in connection with the negotiated settlement of outstanding payables during the three months ended March 31, 2026. The gain recognized during the nine months ended September 30, 2025 principally reflects discounts received in connection with the negotiated settlement of outstanding payables and contract liabilities during the three months ended March 31, 2025.
NOTE 19. NET INCOME (LOSS) PER SHARE
The calculation of the weighted average number of shares outstanding and income (loss) per share for the three and nine months ended September 30, 2026 and 2025 is as follows:
SCHEDULE OF WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING AND LOSS PER SHARE OUTSTANDING
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| Numerator for basic and diluted income (loss) per share – Net income (loss) attributable to common stockholders – continuing operations | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Income (loss) from discontinued operations | ( | ) | ( | ) | ||||||||||||
| Less: net income attributable to noncontrolling interests | — | ( | ) | — | ( | ) | ||||||||||
| Numerator for basic and diluted income (loss) per share – Net income (loss) attributable to common stockholders – discontinued operations | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Denominator for basic income (loss) per share – weighted average shares outstanding | ||||||||||||||||
| Dilutive effect of shares issuable upon conversion of convertible debt and the exercise of stock options and warrants outstanding | — | — | — | — | ||||||||||||
| Denominator for diluted income (loss) per share – adjusted weighted average shares outstanding | ||||||||||||||||
| Net income (loss) per share: | ||||||||||||||||
| Basic: | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Continuing operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Discontinued operations | ( | ) | ( | ) | ( | ) | ||||||||||
| Diluted: | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Continuing operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Discontinued operations | ( | ) | ( | ) | ( | ) | ||||||||||
| 30 |
For the three and nine months ended September 30, 2026 and 2025, all shares issuable upon the conversion of convertible debt and the exercise of outstanding stock options and warrants were antidilutive and, therefore, were not included in the computation of diluted income (loss) per share.
NOTE 20. OPERATING SEGMENTS
The
Company has
The Company’s corporate administration activities are reported in the corporate line item. These activities primarily include expense related to certain corporate officers and support staff, certain accounting staff, expense related to the Company’s Board of Directors, stock-based compensation expense for awards granted to corporate administration employees, certain consulting expenses, investor relations activities, and a portion of the Company’s legal, auditing and professional fee expenses.
Geographic Information - The Company generates revenue solely from domestic customers within the United States. All of the Company’s long-lived assets are located within the United States. Accordingly, no geographic segment information is presented.
Summarized financial information for the Company’s reportable segment for the three and nine months ended September 30, 2026 and 2025 is presented below. The historical results of the Video Solutions business and the Revenue Cycle Management business (Nobility Healthcare), which were previously reported as separate operating segments, have been classified as discontinued operations and are excluded from the segment information below for all periods presented.
SCHEDULE OF SEGMENT REPORTING
| Entertainment | Corporate and other | Total | ||||||||||
| Three months ended September 30, 2026 | ||||||||||||
| Entertainment | Corporate and other | Total | ||||||||||
| Net revenues: | ||||||||||||
| Product | $ | $ | — | $ | ||||||||
| Service | — | |||||||||||
| Total segment net revenues | — | |||||||||||
| Less significant segment expense | ||||||||||||
| Cost of Revenue - Product | — | |||||||||||
| Cost of Revenue – Service and other | — | |||||||||||
| Research and development expense | — | — | — | |||||||||
| Selling, advertising and promotional expense | — | |||||||||||
| General and administrative expense | ||||||||||||
Total significant segment expenses | ||||||||||||
| Total segment operating income (loss) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Non-operating (expenses) income: | ||||||||||||
| Interest income | ||||||||||||
| Interest expense | ( | ) | ||||||||||
| Change in fair value of derivative liabilities | ||||||||||||
| Gain on the extinguishment of liabilities | — | |||||||||||
| Change in fair value of investment in equity securities | ( | ) | ||||||||||
| Litigation settlement | — | |||||||||||
| Other non-operating income (loss) | ||||||||||||
| Total non-operating income (loss) | ( | ) | ||||||||||
| Income before income tax benefit (provision) | $ | ( | ) | |||||||||
| Depreciation and amortization expense | $ | $ | $ | |||||||||
| Total identifiable assets, net of eliminations | $ | $ | $ | |||||||||
| 31 |
| Entertainment | Corporate and other | Total | ||||||||||
| Three months ended September 30, 2025 | ||||||||||||
| Entertainment | Corporate and other | Total | ||||||||||
| Net revenues: | ||||||||||||
| Product | $ | $ | — | $ | ||||||||
| Service | — | |||||||||||
| Total segment net revenues | — | |||||||||||
| Less significant segment expense | ||||||||||||
| Cost of Revenue - Product | — | |||||||||||
| Cost of Revenue – Service and other | — | |||||||||||
| Research and development expense | — | — | — | |||||||||
| Selling, advertising and promotional expense | — | |||||||||||
| General and administrative expense | ||||||||||||
| Total significant segment expenses | ||||||||||||
| Total segment operating income (loss) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Non-operating (expenses) income: | ||||||||||||
| Interest income | ||||||||||||
| Interest expense | ( | ) | ||||||||||
| Change in fair value of derivative liabilities | ||||||||||||
| Gain on the extinguishment of liabilities | ||||||||||||
| Loss on extinguishment of debt – related party | — | |||||||||||
| Other non-operating income (loss) | ||||||||||||
| Total non-operating income (loss) | ||||||||||||
| Income before income tax benefit (provision) | $ | ( | ) | |||||||||
| Depreciation and amortization expense | $ | $ | $ | |||||||||
| Total identifiable assets, net of eliminations | $ | $ | $ | |||||||||
| Entertainment | Corporate and other | Total | ||||||||||
| Nine months ended September 30, 2026 | ||||||||||||
| Entertainment | Corporate and other | Total | ||||||||||
| Net revenues: | ||||||||||||
| Product | $ | $ | — | $ | ||||||||
| Service | — | |||||||||||
| Total segment net revenues | — | |||||||||||
| Less significant segment expense | ||||||||||||
| Cost of Revenue - Product | — | |||||||||||
| Cost of Revenue – Service and other | — | |||||||||||
| Research and development expense | — | — | — | |||||||||
| Selling, advertising and promotional expense | — | |||||||||||
| General and administrative expense | ||||||||||||
| Total significant segment expenses | ||||||||||||
| Total segment operating income (loss) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Non-operating (expenses) income: | ||||||||||||
| Interest income | ||||||||||||
| Interest expense | ( | ) | ||||||||||
| Change in fair value of derivative liabilities | ( | ) | ||||||||||
| Gain on the extinguishment of liabilities | ||||||||||||
| Change in fair value of investment in equity securities | ( | ) | ||||||||||
| Litigation settlement | ( | ) | ||||||||||
| Other non-operating income (loss) | ||||||||||||
| Total non-operating income (loss) | ( | ) | ||||||||||
| Income before income tax benefit (provision) | $ | ( | ) | |||||||||
| Depreciation and amortization expense | $ | $ | $ | |||||||||
| Total identifiable assets, net of eliminations | $ | $ | $ | |||||||||
| 32 |
| Entertainment | Corporate and other | Total | ||||||||||
| Nine months ended September 30, 2025 | ||||||||||||
| Entertainment | Corporate and other | Total | ||||||||||
| Net revenues: | ||||||||||||
| Product | $ | $ | — | $ | ||||||||
| Service | — | |||||||||||
| Total segment net revenues | — | |||||||||||
| Less significant segment expense | ||||||||||||
| Cost of Revenue - Product | — | |||||||||||
| Cost of Revenue – Service and other | — | |||||||||||
| Cost of Revenue | — | |||||||||||
| Research and development expense | — | — | — | |||||||||
| Selling, advertising and promotional expense | — | |||||||||||
| General and administrative expense | ||||||||||||
| Total significant segment expenses | ||||||||||||
| Total segment operating income (loss) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Non-operating (expenses) income: | ||||||||||||
| Interest income | ||||||||||||
| Interest expense | ( | ) | ||||||||||
| Change in fair value of derivative liabilities | ||||||||||||
| Gain on the extinguishment of liabilities | ||||||||||||
| Loss on extinguishment of debt – related party | — | |||||||||||
| Other non-operating income (loss) | ||||||||||||
| Total non-operating income (loss) | ||||||||||||
| Income before income tax benefit (provision) | $ | ( | ) | |||||||||
| Depreciation and amortization expense | $ | $ | $ | |||||||||
| Total identifiable assets, net of eliminations | $ | $ | $ | |||||||||
Total identifiable assets as of September 30, 2025 included amounts related to the discontinued Video Solutions and Revenue Cycle Management operations, which were included in the “Corporate and other” category; no assets of discontinued operations are included in identifiable assets as of September 30, 2026. See Note 22, Discontinued Operations.
The
Company recorded a reserve for excess and obsolete inventory in the Entertainment segment of $
The segment net revenues reported above represent sales to external customers. Segment gross profit (loss) 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.
NOTE 21. DEFERRED REVENUE
Deferred
revenue of the Company’s continuing operations consists of advance ticket, camping, and related sales for the annual Country Stampede
music festival. The balance as of September 30, 2026 of $
| 33 |
Deferred revenue activity was as follows:
SCHEDULE OF DEFERRED REVENUE
| September 30, 2026 | ||||||||||||||||
December 31, 2025 | Additions/ Reclass | Recognized Revenue | September 30, 2026 | |||||||||||||
| Deferred revenue, current | $ | $ | $ | $ | ||||||||||||
| Deferred revenue, non-current | — | — | — | — | ||||||||||||
| $ | $ | $ | $ | |||||||||||||
| December 31, 2025 | ||||||||||||||||
December 31, 2024 | Additions/ Reclass | Recognized Revenue | December 31, 2025 | |||||||||||||
| Deferred revenue, current | $ | $ | $ | $ | ||||||||||||
| Deferred revenue, non-current | — | — | — | — | ||||||||||||
| $ | $ | $ | $ | |||||||||||||
Revenue recognized during the year ended December 31, 2025 consisted of $
NOTE 22. DISCONTINUED OPERATIONS
During the periods presented, the Company disposed of two businesses, each presented as a discontinued operation in accordance with ASC 205-20 for all periods presented: the Revenue-Cycle Management business (Nobility Healthcare), sold effective January 1, 2026, and the Video Solutions business, sold on August 3, 2026.
Revenue-Cycle Management Business
On
January 8, 2026, Digital Ally Healthcare, Inc., a wholly-owned subsidiary of the Company, completed the sale of its
During
the three months ended March 31, 2026, the Company recognized a loss on the disposition of $
The
promissory note is subject to a quarterly earn-out mechanism during the twelve-month measurement period following issuance, under which
the outstanding principal is reduced or increased by 50% of the difference between the annualized cash-basis revenue of Nobility Healthcare
and baseline 2025 revenue of $
| 34 |
Activity in the note receivable for the nine months ended September 30, 2026 was as follows:
SCHEDULE OF NOTE RECEIVABLE
| Amount | ||||
| Initial fair value at origination (January 8, 2026) | $ | |||
| Amortization of discount and interest accrued | ||||
| Provisional earn-out reduction to principal | ( | ) | ||
| Principal collected | ( | ) | ||
| Interest collected | ( | ) | ||
| Net carrying value at September 30, 2026 | $ | |||
The
net carrying value of $
The following table summarizes the major classes of assets and liabilities of Nobility Healthcare that were classified as held for sale as of December 31, 2025; following the disposition, no assets or liabilities of Nobility Healthcare remain classified as held for sale as of September 30, 2026:
SCHEDULE OF ASSETS AND LIABILITIES AS DISCONTINUED OPERATIONS
September 30, 2026 | December 31, 2025 | |||||||
| Assets: | ||||||||
| Cash and cash equivalents | $ | — | $ | |||||
| Accounts receivable, net | — | |||||||
| Subscriptions receivables, net – short term | ||||||||
| Inventories, net | ||||||||
| Prepaid expenses | — | |||||||
| Current assets of revenue-cycle management business held-for-sale | — | |||||||
| Property, plant, and equipment, net | — | |||||||
| Goodwill and other intangible assets, net | — | — | ||||||
| Subscriptions receivables, net – long term | ||||||||
| Operating lease right of use assets, net | — | |||||||
| Other Assets | ||||||||
| Non-current assets of revenue-cycle management business held-for-sale | — | |||||||
| Total assets held-for-sale | $ | — | $ | |||||
| Liabilities: | ||||||||
| Accounts payable | $ | — | $ | |||||
| Accrued expenses | — | |||||||
| Deferred revenue, current | ||||||||
| Operating lease obligation – short term | — | |||||||
| Current liabilities of revenue-cycle management business held-for-sale | — | |||||||
| Deferred revenue - long term | ||||||||
| Operating lease obligation – long term | — | |||||||
| Long-term liabilities of revenue-cycle management business held-for-sale | — | |||||||
| Total liabilities held-for-sale | $ | — | $ | |||||
| 35 |
The following table presents the results of Nobility Healthcare included in loss from discontinued operations, net of tax, for the three and nine months ended September 30, 2026 and 2025. No operating results of Nobility Healthcare are included in any 2026 period; the 2026 amounts consist of the loss on disposition and the provisional earn-out adjustments described above.
SCHEDULE OF INCOME LOSS FROM DISCONTINUED OPERATIONS, NET OF TAX
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
For the Three Months Ended September 30, | For the Nine months Ended September 30, | |||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| Revenue: | $ | — | $ | $ | — | $ | ||||||||||
| Cost of revenue: | — | — | ||||||||||||||
| Gross profit | — | — | ||||||||||||||
| Operating expenses | — | — | ||||||||||||||
| Research and development expense | ||||||||||||||||
| Selling, advertising and promotional expense | ||||||||||||||||
| General and administrative expense | ||||||||||||||||
| Income from operations | — | — | ||||||||||||||
| Loss on disposal of Nobility Healthcare | — | — | ( | ) | — | |||||||||||
| Provisional earn-out adjustment | — | ( | ) | — | ||||||||||||
| Other income (expense) | ||||||||||||||||
| Income tax expense (benefit) | — | — | — | — | ||||||||||||
| Net income (loss) from discontinued operations | $ | $ | $ | ( | ) | $ | ||||||||||
The following table summarizes the cash flows of Nobility Healthcare included in the condensed consolidated statements of cash flows within discontinued operations for the nine months ended September 30, 2026 and 2025. No cash flows of Nobility Healthcare are included in the 2026 period, as the disposition was effective January 1, 2026, and the related loss consisted of non-cash items.
SCHEDULE OF CASH FLOW CLASSIFIED AS DISCONTINUES OPERATIONS
September 30, 2026 | September 30, 2025 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net income (loss) | $ | ( | ) | $ | ||||
| Adjustments to reconcile net loss to net cash flows used in operating activities: | ||||||||
| Depreciation and amortization | — | |||||||
| Loss on disposal of Nobility Healthcare | — | |||||||
| Provisional earn-out adjustment to carrying value | — | |||||||
| Provision for doubtful accounts receivable | — | ( | ) | |||||
| Change in operating assets and liabilities: | ||||||||
| (Increase) decrease in: | ||||||||
| Accounts receivable – trade | — | ( | ) | |||||
| Prepaid expenses | — | |||||||
| Operating lease right of use assets | — | |||||||
| Increase (decrease) in: | ||||||||
| Accounts payable | — | ( | ) | |||||
| Accrued expenses | — | ( | ) | |||||
| Operating lease obligations | — | ( | ) | |||||
| Net cash used in operating activities – discontinued operation | — | ( | ) | |||||
| Cash Flows from Investing Activities: | ||||||||
| Purchases of leasehold improvements | — | ( | ) | |||||
| Proceeds from improvement allowance | — | — | ||||||
| Net cash used in investing activities – discontinued operation | — | ( | ) | |||||
| Cash Flows from Financing Activities: | ||||||||
| Payments of contingent consideration promissory notes | — | — | ||||||
| Net cash used in financing activities – discontinued operation | — | — | ||||||
| Net decrease in cash and cash equivalents | — | ( | ) | |||||
| Cash and cash equivalents, beginning of period | — | |||||||
| Cash and cash equivalents, end of period | $ | — | $ | |||||
| 36 |
Video Solutions Business
On
June 24, 2026, the Company entered into an Asset Purchase Agreement (the “APA”) with Cycurion, pursuant to which the Company agreed to sell the assets and transfer certain specified liabilities of its Video Solutions business, which
developed, sold and serviced video hardware, camera products, software and related solutions for law enforcement, public safety and commercial
customers. On July 23, 2026, the Company and Cycurion amended the APA to extend the closing date to September 15, 2026 and to replace
the
The Company
recognized a net gain on the sale totaling $
SCHEDULE OF GAIN FROM DISPOSAL OF DISCONTINUED OPERATION
| Amount | ||||
| Cash | $ | |||
| Secured promissory note, at fair value | ||||
| Series H Preferred Stock, at fair value | ||||
| Total consideration | ||||
| Less: carrying amount of net assets sold | ( | ) | ||
| Less: closing adjustments | ( | ) | ||
| Less: costs to sell | ( | ) | ||
| Gain on sale of Video Solutions business | $ | |||
No
amount has been recognized for the contingent earn-out, which will be recorded when the related contingencies are resolved.
The following table summarizes the major classes of assets and liabilities of the Video Solutions business classified as held for sale:
SCHEDULE OF ASSETS AND LIABILITIES AS DISCONTINUED OPERATIONS
September 30, 2026 | December 31, 2025 | |||||||
| Assets: | ||||||||
| Accounts receivable, net | $ | — | $ | |||||
| Subscriptions receivables, net – short term | — | |||||||
| Inventories, net | — | |||||||
| Prepaid expenses | — | |||||||
| Current assets of video solutions business held-for-sale | — | |||||||
| Current assets of business held-for-sale | — | |||||||
| Property, plant, and equipment, net | — | |||||||
| Intangible assets, net | — | |||||||
| Subscriptions receivables, net – long term | — | |||||||
| Operating lease right of use assets, net | — | |||||||
| Other Assets | — | |||||||
| Non-current assets of video solutions business held-for-sale | — | |||||||
| Non-current assets of business held-for-sale | — | |||||||
| Total assets held-for-sale | $ | — | $ | |||||
| Liabilities: | ||||||||
| Accounts payable | $ | — | $ | |||||
| Accrued expenses | — | |||||||
| Deferred revenue, current | — | |||||||
| Operating lease obligation – short term | — | |||||||
| Customer deposits | — | |||||||
| Current liabilities of video solutions business held-for-sale | — | |||||||
| Current liabilities business held-for-sale | — | |||||||
| Deferred revenue - long term | — | |||||||
| Operating lease obligation – long term | — | |||||||
| Long-term liabilities of video solutions business held-for-sale | — | |||||||
| Long-term liabilities business held-for-sale | — | |||||||
| Total liabilities held-for-sale | $ | — | $ | |||||
| 37 |
The
results of the Video Solutions business are included in discontinued operations through June 30, 2026. The three months ended September
30, 2026 include the gain on sale and $
SCHEDULE OF INCOME LOSS FROM DISCONTINUED OPERATIONS, NET OF TAX
| 2026 | 2025 | |||||||
| Three months ended September 30, | ||||||||
| 2026 | 2025 | |||||||
| Net revenues: | ||||||||
| Product | $ | — | $ | |||||
| Service | — | |||||||
| Total net revenues | — | |||||||
| Less significant expenses: | ||||||||
| Cost of Revenue - Product | — | |||||||
| Cost of Revenue – Service and other | — | |||||||
| Research and development expense | — | |||||||
| Selling, advertising and promotional expense | — | |||||||
| General and administrative expense | ||||||||
| Loss from discontinued operations - Video Solutions | ( | ) | ( | ) | ||||
| Gain on sale of Video Solutions business | — | |||||||
| Income tax expense (benefit) | — | — | ||||||
| Net income (loss) from discontinued operations - Video Solutions | $ | $ | ( | ) | ||||
| 2026 | 2025 | |||||||
| Nine months ended September 30, | ||||||||
| 2026 | 2025 | |||||||
| Net revenues: | ||||||||
| Product | $ | $ | ||||||
| Service | ||||||||
| Total net revenues | ||||||||
| Less significant expenses: | ||||||||
| Cost of Revenue - Product | ||||||||
| Cost of Revenue – Service and other | ||||||||
| Cost of Revenue | ||||||||
| Research and development expense | ||||||||
| Selling, advertising and promotional expense | ||||||||
| General and administrative expense | ||||||||
| Loss from discontinued operations - Video Solutions | ( | ) | ( | ) | ||||
| Loss from discontinued operations | ( | ) | ( | ) | ||||
| Gain on sale of Video Solutions business | — | |||||||
| Income tax expense (benefit) | — | — | ||||||
| Net income (loss) from discontinued operations - Video Solutions | $ | $ | ( | ) | ||||
| Net income (loss) from discontinued operations | $ | $ | ( | ) | ||||
The Video Solutions business operated as an integrated segment of the Company rather than as a separate legal entity, and its cash receipts and disbursements were administered through the Company’s centralized cash management function. The operating and investing cash flows directly attributable to the Video Solutions business, included within the condensed consolidated statements of cash flows, are summarized below.
SCHEDULE OF CASH FLOW CLASSIFIED AS DISCONTINUES OPERATIONS
| 2026 | 2025 | |||||||
| Nine months ended September 30, | ||||||||
| 2026 | 2025 | |||||||
| Net cash provided by (used in) operating activities — discontinued operation - Video Solutions | $ | ( | ) | $ | ( | ) | ||
| Net cash provided by (used in) operating activities — discontinued operation | $ | ( | ) | $ | ( | ) | ||
| Net cash provided by (used in) investing activities — discontinued operation - Video Solutions | ( | ) | ( | ) | ||||
| Net cash provided by (used in) investing activities — discontinued operation | ( | ) | ( | ) | ||||
| Net cash provided by (used in) financing activities — discontinued operation - Video Solutions | — | — | ||||||
| Net cash provided by (used in) financing activities — discontinued operation | — | — | ||||||
| 38 |
NOTE 23. SUBSEQUENT EVENTS
The Company has evaluated subsequent events through the date of issuance of these condensed consolidated financial statements.
Reverse Stock Split
On
October 1, 2026, the Company effected a
Annual Meeting of Stockholders
At the Company’s annual meeting of stockholders held on October 5, 2026, stockholders approved all of the following proposals:
| (i) | approved the election of four Directors of the Company; | |
| (ii) | approved the ratification of the appointment of Victor Mokuolu CPA PLLC as the Company’s independent registered public accounting firm for the year ending December 31, 2026; | |
| (iii) | approved
an amendment to the Company’s articles of incorporation increasing the number of authorized
shares of capital stock to | |
| (iv) | approved for purposes of Nasdaq Listing Rules 5635(g) the potential issuance of shares of common stock pursuant to the Unit Purchase Agreement in connection with the proposed acquisition of TFL, LLC; | |
| (v) | approved for purposes of Nasdaq Listing Rules 5635(b), the potential issuance of shares of common stock in connection with the proposed acquisition of TFL, LLC, which could result in a “change in control” of the Company; | |
| (vi) | approved for purposes of Nasdaq Listing Rules 5635(d) the potential issuance of shares of common stock pursuant to the Unit Purchase Agreement in connection with the proposed acquisition of TFL, LLC; | |
| (vii) | approved for purposes of Nasdaq Listing Rules 5635(b) and (d) the potential issuance of shares of common stock pursuant to the Unit Purchase Agreement in connection with payment of the cash portion of the proposed acquisition of TFL, LLC; | |
| (viii) | approved authority for the Board of Directors to effect one or more reverse stock splits of the common stock at a ratio of between one-for-two and one-for-one hundred within twelve months of the meeting. | |
| (ix) | approved the 2026 Kustom Entertainment, Inc. Stock Option and Restricted Stock Plan; | |
| (x) | approved the non-binding advisory vote on the compensation of our named executive officers: | |
| (xi) | approved the frequency of the advisory (non-binding) vote on executive compensation to be every three years. |
Charter Amendment
On
November 3, 2026, the Company filed a Certificate of Amendment to its Articles of Incorporation with the Secretary of State of the
State of Nevada, approved by stockholders at the annual meeting, to increase the number of authorized shares of its capital stock to
Proposed Acquisition of TFL, LLC
On
November 6, 2026, the Company, TFL, and the Sellers’ Representative entered into an amendment to the Purchase Agreement
extending the outside date to December 18, 2026. The amendment also requires the Company to pay the Sellers’ transaction expenses incurred after October 15,
2026 if the acquisition has not closed by the outside date, and to reimburse up to $
***********************
| 39 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
This quarterly report on Form 10-Q (the “Report”) of Kustom Entertainment, Inc. (the “Company”, “we”, “us”, or “our”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The words “aim,” “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “feel,” “forecast,” “intend,” “may,” “outlook,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “will,” “would,” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. These forward-looking statements are based largely on our expectations or forecasts of future events, can be affected by inaccurate assumptions, and are subject to various business risks and known and unknown uncertainties, a number of which are beyond our control. Therefore, actual results could differ materially from the forward-looking statements contained in this document, and readers are cautioned not to place undue reliance on such forward-looking statements.
We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. A wide variety of factors could cause or contribute to such differences and could adversely impact revenues, profitability, cash flows and capital needs. There can be no assurance that the forward-looking statements contained in this document will, in fact, transpire or prove to be accurate.
Factors that could cause or contribute to our actual results differing materially from those discussed herein or for our stock price to be adversely affected include, but are not limited to: (1) our losses in recent years, including fiscal years 2025 and 2024, and our ability to achieve profitability as an entertainment company; (2) substantial doubt about our ability to continue as a going concern; (3) our ability to fund our operations, including through our committed equity financing facility, which depends in part on the market price and trading volume of our common stock; (4) our ability to maintain the listing of our common stock on Nasdaq; (5) dilution from sales of common stock under our committed equity facility and from the issuance of common stock underlying outstanding options and warrants; (6) the seasonality and concentration of our live-events business, including the dependence of our results on the annual Country Stampede music festival; (7) weather, artist availability and performance, public-safety incidents, and other events or conditions that could disrupt or reduce attendance at live events; (8) competition in the ticketing and live-entertainment industries from larger, more established companies with far greater economic and human resources; (9) our ability to acquire ticket inventory on favorable terms and the risk that ticket inventory sells below cost or becomes unsellable following the related event date; (10) our ability to collect the promissory notes received in connection with the dispositions of Nobility Healthcare and the Video Solutions business, including the effects of related earn-out adjustments; (11) risks related to the separation of the Video Solutions business following its sale, including transition matters; (12) our ability to complete the proposed acquisition of TFL, LLC, including obtaining the financing required to fund the cash portion of the purchase price, and, if completed, to integrate TFL’s operations and realize the expected benefits of the acquisition; (13) our ability to attract and retain quality employees; (14) the fluctuation of our operating results from quarter to quarter, including as a result of event timing; (15) the issuance or sale of substantial amounts of our common stock, or the perception that such sales may occur in the future, which may have a depressive effect on the market price of our securities; (16) the volatility of our stock price due to a number of factors, including a relatively limited public float; and (17) sufficient voting power by coalitions of a few of our larger stockholders, including directors and officers, to make corporate governance decisions that could have a significant effect on us and the other stockholders.
Current Trends and Recent Developments for the Company
Name change
Effective January 8, 2026, the Company changed its name from Digital Ally, Inc. to Kustom Entertainment, Inc. and its Nasdaq trading symbol from “DGLY” to “KUST,” reflecting the strategic shift to live entertainment as the Company’s primary line of business.
Reverse stock splits
Effective January 8, 2026, the Company effected a one-for-three reverse stock split of its common stock. Effective April 22, 2026, the Company effected a one-for-five reverse stock split. Effective October 1, 2026, the Company effected a one-for-ten reverse stock split. Each of the reverse stock splits was effected to comply with the Nasdaq Minimum Bid Price Requirement. All share and per-share amounts presented in this Report have been retroactively adjusted to reflect all three reverse stock splits.
Disposition of Nobility Healthcare
On January 8, 2026, effective January 1, 2026, the Company completed the sale of its 51% membership interest in Nobility Healthcare, exiting the revenue-cycle management business entirely, for total consideration of $1,450,000, including a promissory note recorded at an estimated fair value of $1,117,303. The Company recognized a loss on the disposition of $4,013,669 during the three months ended March 31, 2026 and net earn-out adjustments reducing the carrying value of the note by $416,201 during the nine months ended September 30, 2026, including an increase of $22,852 during the three months ended September 30, 2026. In July 2026, the Company received the first scheduled installment of $141,098, and the carrying value of the note was $616,724 as of September 30, 2026. See Note 22, Discontinued Operations.
| 40 |
Sale of Video Solutions business
On June 24, 2026, the Company entered into an APA with Cycurion providing for the sale of its legacy Video Solutions business. On July 23, 2026, the parties amended the agreement 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, completing the Company’s transformation into a pure entertainment company. Total consideration consisted of $1,250,000 in cash, a $4,250,000 secured promissory note recorded at its estimated fair value of $3,558,970, Series H Preferred Stock with an aggregate stated value of $600,000, recorded at its estimated fair value of $378,621, and a revenue-based earn-out and clawback arrangement. The Company recognized a gain on the sale of $5,065,766, net of costs to sell, within discontinued operations during the three months ended September 30, 2026. The Series H Preferred Stock is carried at fair value, and a loss of $237,320 on its remeasurement to $141,301 as of September 30, 2026 is included in other income (expense) in continuing operations. The Video Solutions business is presented as a discontinued operation for all periods presented, and no assets or liabilities of the business remain on the balance sheet as of September 30, 2026. See Note 22, Discontinued Operations.
Proposed Acquisition of TFL, LLC
On August 31, 2026, the Company entered into the Purchase Agreement with TFL and the Sellers, pursuant to which the Company agreed to acquire all of the outstanding equity interests of TFL, a live event ticketing technology and ticket inventory distribution business headquartered in Overland Park, Kansas. The aggregate consideration consists of (i) $89.6 million in cash, subject to customary adjustments for TFL’s closing net debt and transaction expenses, and (ii) $22.4 million of restricted common stock, with the number of shares determined by reference to the volume-weighted average trading price of the Company’s common stock over the ten trading days preceding the closing, of which the Holdback Shares will be issued only upon achievement of a specified target EBITDA for the period from the closing date through December 31, 2027. The Company also agreed to repay up to $35.0 million of TFL’s indebtedness at closing, and $1.5 million of the purchase price will be placed in escrow to secure purchase price adjustments and the Sellers’ indemnification obligations. The closing is subject to customary conditions, including required third-party consents, approval by the Company’s stockholders, which was obtained on October 5, 2026, and the Company obtaining sufficient financing. The Purchase Agreement provided that either party could terminate if the closing had not occurred by October 15, 2026, the outside date specified in the Purchase Agreement, subject to extension as provided therein. On November 6, 2026, the Company, TFL, and the Sellers’ Representative entered into an amendment to the Purchase Agreement extending the outside date to December 18, 2026. The amendment also requires the Company to pay the Sellers’ transaction expenses incurred after October 15, 2026 if the acquisition has not closed by the outside date, and to reimburse up to $200,000 of the Sellers’ audit costs if the Purchase Agreement is terminated. As the outside date has not yet been reached and the Purchase Agreement has not been terminated as of the date these condensed consolidated financial statements were issued, no contingent amount was accrued as of September 30, 2026. As of the date of this Quarterly Report on Form 10-Q, the acquisition has not closed and the Company has not completed the financing for the cash portion of the purchase price. The Company can provide no assurance that it will be able to complete the acquisition or the related financing, or as to the terms of the financing if completed. See Note 13, Commitments and Contingencies, and Note 23, Subsequent Events.
Annual Meeting of Stockholders
At the Company’s annual meeting of stockholders held on October 5, 2026, stockholders approved all of the following proposals:
| (i) | approved the election of four Directors of the Company; | |
| (ii) | approved the ratification of the appointment of Victor Mokuolu CPA PLLC as the Company’s independent registered public accounting firm for the year ending December 31, 2026: | |
| (iii) | approved an amendment to the Company’s articles of incorporation increasing the number of authorized shares of capital stock to 1,200,000,000, consisting of 1,000,000,000 shares of common stock and 200,000,000 shares of preferred stock; | |
| (iv) | approved for purposes of Nasdaq Listing Rules 5635(g) the potential issuance of shares of common stock pursuant to the Unit Purchase Agreement in connection with the proposed acquisition of TFL, LLC; | |
| (v) | approved for purposes of Nasdaq Listing Rules 5635(b), the potential issuance of shares of common stock in connection with the proposed acquisition of TFL, LLC, which could result in a “change in control” of the Company; | |
| (vi) | approved for purposes of Nasdaq Listing Rules 5635(d) the potential issuance of shares of common stock pursuant to the Unit Purchase Agreement in connection with the proposed acquisition of TFL, LLC; | |
| (vii) | approved for purposes of Nasdaq Listing Rules 5635(b) and (d) the potential issuance of shares of common stock pursuant to the Unit Purchase Agreement in connection with payment of the cash portion of the proposed acquisition of TFL, LLC; | |
| (viii) | approved authority for the Board of Directors to effect one or more reverse stock splits of the common stock at a ratio of between one-for-two and one-for-one hundred within twelve months of the meeting. | |
| (ix) | approved the 2026 Kustom Entertainment, Inc. Stock Option and Restricted Stock Plan; | |
| (x) | approved the non-binding advisory vote on the compensation of our named executive officers: | |
| (xi) | approved the frequency of the advisory (non-binding) vote on executive compensation to be every three years. |
On November 3, 2026, the Company filed a Certificate of Amendment to its Articles of Incorporation with the Secretary of State of the State of Nevada to effect the increase in authorized shares, effective November 4, 2026, which is not reflected in the condensed consolidated balance sheet as of September 30, 2026.
Country Stampede music festival
The Company held its annual Country Stampede music festival on June 26–28, 2026, its first full festival cycle as an entertainment-focused company. Upon completion of the festival, the Company recognized $1,844,798 of previously deferred advance ticket and camping sales, together with the related production costs, including a $750,000 headline-artist performance guarantee. Advance sales for the 2027 festival totaled $598,456 as of September 30, 2026 and are included in deferred revenue.
Extinguishment of senior secured convertible notes
During January 2026, the holders of the 2025 Secured Notes converted the entire $1,070,000 outstanding principal balance into 11,161 shares of common stock, fully extinguishing the notes. See Note 9, Debt Obligations. As of September 30, 2026, the Company has no outstanding convertible debt.
Committed equity financing
During the nine months ended September 30, 2026, the Company issued 363,200 shares of common stock under its committed equity facility for aggregate gross proceeds of $5,642,981, of which $4,979,698 was received in cash. Approximately $19.4 million remained available under the facility as of September 30, 2026, subject to the terms and conditions of the facility. See Note 16, Stockholders’ Equity.
Business Overview
Following the dispositions described above, the Company’s continuing operations consist of one reportable segment: Entertainment. Through TicketSmarter, Inc. and its online marketplace, TicketSmarter.com, the Company offers ticket sales, resale, and partnership services for live events nationwide, spanning concerts, sporting events, theatre, and performing arts. Entertainment revenues include ticketing service charges, generally calculated as a percentage of the face value of the underlying ticket, as well as sales of tickets held in Company inventory, both recognized upon the sale of the underlying tickets. Through Kustom 440, Inc., the Company creates and produces live entertainment experiences, including the annual Country Stampede music festival, generating ticket, camping, sponsorship, and related revenues, which are deferred until the related event is held. Direct expenses include the cost of tickets purchased for resale and held in inventory, artist and production costs for Company-produced events, credit card fees, ticketing platform expenses, and website maintenance.
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Off-Balance Sheet Arrangements
We do not have any off-balance sheet debt, nor do we have any transactions, arrangements, obligations (including contingent obligations) or other relationships with any unconsolidated entities or other persons that may have a material current or future effect on our financial condition, changes in financial condition, results of operations, liquidity, capital expenditures, capital resources, or significant components of revenue or expenses, other than the following:
We are a party to operating leases and license agreements that represent commitments for future payments, and we have issued purchase orders in the ordinary course of business that represent commitments to future payments for goods and services. In addition, we are obligated to pay 4% of future gross proceeds raised under our committed equity facility through February 2028 pursuant to a settlement agreement with Aegis Capital Corp.; these amounts become payable only if and as we elect to draw on the facility. We are also party to the Unit Purchase Agreement for the acquisition of TFL, LLC, under which, if the transaction closes, we would pay $89.6 million in cash, subject to adjustment, repay up to $35.0 million of TFL’s indebtedness, and issue $22.4 million of common stock, the closing of which is conditioned on our obtaining sufficient financing. See Note 13, Commitments and Contingencies.
Comparison of the Three and Nine Months Ended September 30, 2026 and 2025
Summary Financial Data
Following the classification of the Video Solutions business and the Revenue Cycle Management business as discontinued operations, the Company’s continuing operations consist of a single reportable segment: Entertainment.
The following summarizes the Company’s consolidated results for the three and nine months ended September 30, 2026 and 2025:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| Net Revenues: | ||||||||||||||||
| Entertainment | $ | 2,711,390 | $ | 1,729,773 | $ | 11,298,457 | $ | 6,791,278 | ||||||||
| Gross profit (loss): | ||||||||||||||||
| Entertainment | 208,949 | 189,673 | (749,248 | ) | (784,717 | ) | ||||||||||
| Operating loss: | ||||||||||||||||
| Entertainment | (896,042 | ) | (626,250 | ) | (3,401,121 | ) | (3,498,713 | ) | ||||||||
| Corporate | (1,613,251 | ) | (526,951 | ) | (2,994,049 | ) | (2,290,810 | ) | ||||||||
| Total operating loss | (2,509,293 | ) | (1,153,201 | ) | (6,395,170 | ) | (5,789,523 | ) | ||||||||
| Depreciation and amortization: | ||||||||||||||||
| Entertainment | 49,966 | 336,549 | 131,498 | 1,064,726 | ||||||||||||
| Corporate | 30,250 | 160 | 30,250 | 1,371 | ||||||||||||
As of September 30, 2026 | As of September 30, 2025 | |||||||
| Assets (net of eliminations): | ||||||||
| Entertainment | $ | 2,622,302 | $ | 4,538,676 | ||||
| Corporate | 12,936,777 | 20,537,365 | ||||||
| Total identifiable assets | $ | 15,559,079 | $ | 25,076,041 | ||||
Total identifiable assets as of September 30, 2025 included amounts related to the discontinued Video Solutions and Revenue Cycle Management businesses, which were included in the Corporate category; no assets of either business remain as of September 30, 2026. The Company recorded a reserve for excess and obsolete ticket inventory of $66,933 and $69,817 as of September 30, 2026 and December 31, 2025, respectively; during the three months ended June 30, 2026, the Company changed the method used to estimate the reserve. See Note 5, Inventories, Note 20, Operating Segments, and Note 22, Discontinued Operations.
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Results of Operations
Revenues
Revenues by Type
Our continuing operations generate two types of revenues:
Product revenues consist of the sale of tickets that have been purchased, or received through our sponsorships and partnerships, and held in inventory until their sale to the end consumer, together with revenues from live events and festivals produced by the Company, including the annual Country Stampede music festival and related ticket, camping, sponsorship, merchandise, and other festival revenues, which are deferred and recognized upon completion of the related event.
Service and other revenues consist of service fees collected on transactions completed through our ticketing platform, TicketSmarter.com, recorded net of amounts due to sellers.
The following table presents revenues by type:
| Three Months Ended September 30, | ||||||||||||||||
| 2026 | 2025 | $ Change | % Change | |||||||||||||
| Product revenues | $ | 575,067 | $ | 434,793 | $ | 140,274 | 32.3 | % | ||||||||
| Service and other revenues | 2,136,323 | 1,294,980 | 841,343 | 65.0 | % | |||||||||||
| Total revenues | $ | 2,711,390 | $ | 1,729,773 | $ | 981,617 | 56.7 | % | ||||||||
| Nine Months Ended September 30, | ||||||||||||||||
| 2026 | 2025 | $ Change | % Change | |||||||||||||
| Product revenues | $ | 3,555,702 | $ | 2,880,210 | $ | 675,492 | 23.5 | % | ||||||||
| Service and other revenues | 7,742,755 | 3,911,068 | 3,831,687 | 98.0 | % | |||||||||||
| Total revenues | $ | 11,298,457 | $ | 6,791,278 | $ | 4,507,179 | 66.4 | % | ||||||||
Product revenues for the three months ended September 30, 2026 and 2025 were $575,067 and $434,793, respectively, an increase of $140,274 (32.3%), and $3,555,702 and $2,880,210 for the nine months ended September 30, 2026 and 2025, respectively, an increase of $675,492 (23.5%). The nine-month increase reflects the recognition of $1,844,798 upon completion of the 2026 Country Stampede music festival, compared to $1,380,616 upon completion of the 2025 festival, an increase of $464,182, together with increased ticket inventory sales volume and improved sell-through of inventory acquired through sponsorships and partnerships. The third-quarter increase reflects ticket inventory sales, as the festival is held and recognized in the second quarter of each year.
Service and other revenues for the three months ended September 30, 2026 and 2025 were $2,136,323 and $1,294,980, respectively, an increase of $841,343 (65.0%), and $7,742,755 and $3,911,068 for the nine months ended September 30, 2026 and 2025, respectively, an increase of $3,831,687 (98.0%). The increases reflect higher transaction volumes on the TicketSmarter platform, increased consumer engagement, and improved monetization of ticketing transactions, supported by increased customer acquisition and marketing investment. Management continues to focus on optimizing pricing, managing marketing spend, and improving gross margins, which may result in continued variability in service revenues depending on event mix, market conditions, and the strategic prioritization of profitability over top-line growth.
Total revenues for the three months ended September 30, 2026 and 2025 were $2,711,390 and $1,729,773, respectively, an increase of $981,617 (56.7%), and $11,298,457 and $6,791,278 for the nine months ended September 30, 2026 and 2025, respectively, an increase of $4,507,179 (66.4%), due to the reasons noted above.
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Cost of Revenue
Cost of product revenue consists of the cost of tickets purchased and held in inventory for resale, including write-offs of ticket inventory sold below cost or unsold following the related event date, together with the direct costs of live events and festivals produced by the Company, including artist guarantees and fees, staging, security, site and other production costs, event merchandise, and ticket refunds for Company-produced events.
Cost of service revenue consists of customer acquisition and marketing costs supporting the Company’s online ticketing platform, including paid search and social media advertising and affiliate and partner fees, together with payment processing, fulfillment, and other transaction-based costs, including refunds.
The following table presents cost of revenue by type:
| Three Months Ended September 30, | ||||||||||||||||
| 2026 | 2025 | $ Change | % Change | |||||||||||||
| Cost of product revenue | $ | 575,084 | $ | 428,523 | $ | 146,561 | 34.2 | % | ||||||||
| Cost of service revenue | 1,927,357 | 1,111,577 | 815,780 | 73.4 | % | |||||||||||
| Total cost of revenue | $ | 2,502,441 | $ | 1,540,100 | $ | 962,341 | 62.5 | % | ||||||||
| Nine Months Ended September 30, | ||||||||||||||||
| 2026 | 2025 | $ Change | % Change | |||||||||||||
| Cost of product revenue | $ | 4,943,729 | $ | 4,357,017 | $ | 586,712 | 13.5 | % | ||||||||
| Cost of service revenue | 7,103,976 | 3,218,978 | 3,884,998 | 120.7 | % | |||||||||||
| Total cost of revenue | $ | 12,047,705 | $ | 7,575,995 | $ | 4,471,710 | 59.0 | % | ||||||||
Cost of product revenue for the three months ended September 30, 2026 and 2025 was $575,084 and $428,523, respectively, an increase of $146,561 (34.2%), and $4,943,729 and $4,357,017 for the nine months ended September 30, 2026 and 2025, respectively, an increase of $586,712 (13.5%). The third-quarter increase reflects higher ticket inventory sales volume. The nine-month increase primarily reflects the production costs of the 2026 Country Stampede music festival, including a $750,000 headline-artist performance guarantee together with staging, security, site, and other festival production costs, which were higher than the comparable 2025 festival costs, and higher ticket inventory sales volume. Cost of product revenue as a percentage of product revenues was approximately 100.0% for the three months ended September 30, 2026 compared to approximately 98.6% for the three months ended September 30, 2025, and improved to approximately 139.0% from approximately 151.3% for the nine-month periods, reflecting improved sell-through and pricing on ticket inventory and product revenue growth outpacing festival cost growth. Cost of product revenue exceeded product revenues in the nine-month periods, driven by the festival’s production cost structure and by write-offs of ticket inventory sold below cost or unsold following event dates.
Cost of service revenue for the three months ended September 30, 2026 and 2025 was $1,927,357 and $1,111,577, respectively, an increase of $815,780 (73.4%), and $7,103,976 and $3,218,978 for the nine months ended September 30, 2026 and 2025, respectively, an increase of $3,884,998 (120.7%). The increases were primarily attributable to increased customer acquisition and marketing investment, principally paid search advertising, supporting the growth in platform transaction volume, together with higher affiliate and partner fees and payment processing and other transaction-based costs that scale with platform activity. Cost of service revenue as a percentage of service revenues was approximately 90.2% and 85.8% for the three months ended September 30, 2026 and 2025, respectively, and approximately 91.7% and 82.3% for the nine-month periods; the increases in the cost ratio reflect the acceleration of customer acquisition spending during the current-year period, while management monitors return on marketing investment and remains focused on improving platform margins.
Total cost of revenue for the three months ended September 30, 2026 and 2025 was $2,502,441 and $1,540,100, respectively, an increase of $962,341 (62.5%), and $12,047,705 and $7,575,995 for the nine months ended September 30, 2026 and 2025, respectively, an increase of $4,471,710 (59.0%), due to the reasons noted above.
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Gross Profit (Loss)
The following table presents gross profit (loss):
| Three Months Ended September 30, | ||||||||||||||||
| 2026 | 2025 | $ Change | % Change | |||||||||||||
| Gross profit | $ | 208,949 | $ | 189,673 | $ | 19,276 | 10.2 | % | ||||||||
| Nine Months Ended September 30, | ||||||||||||||||
| 2026 | 2025 | $ Change | % Change | |||||||||||||
| Gross loss | $ | (749,248 | ) | $ | (784,717 | ) | $ | 35,469 | 4.5 | % | ||||||
Gross profit for the three months ended September 30, 2026 and 2025 was $208,949 and $189,673, respectively, an improvement of $19,276 (10.2%), and gross loss was $(749,248) and $(784,717) for the nine months ended September 30, 2026 and 2025, respectively, an improvement of $35,469 (4.5%).
The improvement in the three-month period reflects higher ticket inventory sales and platform transaction volume, partially offset by the decline in service margin resulting from accelerated customer acquisition and marketing investment described under Cost of Revenue above. The improvement in the nine-month period reflects the contribution of the 2026 Country Stampede music festival and the change in the method of estimating the inventory valuation reserve described in Note 5, Inventories, partially offset by the festival’s production cost structure, including the $750,000 headline-artist performance guarantee, continued write-offs of ticket inventory sold below cost or unsold following event dates, and the decline in service margin.
Cost of revenue as a percentage of total revenues was approximately 92.3% for the three months ended September 30, 2026 compared to approximately 89.0% for the three months ended September 30, 2025, and improved to approximately 106.6% from approximately 111.6% for the nine-month periods; cost of revenue continued to exceed total revenues in the nine-month periods. Management’s objective is to reach positive gross margins through festival sponsorship growth, ticket inventory management, pricing discipline on marketplace transactions, and continued cost-containment initiatives.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the three months ended September 30, 2026 and 2025 were $2,718,242 and $1,342,874, respectively, representing an increase of $1,375,368 (102.4%), and $5,645,922 and $5,004,806 for the nine months ended September 30, 2026 and 2025, respectively, representing an increase of $641,116 (12.8%). The significant components of selling, general and administrative expenses are as follows:
For the Three Months Ended September 30, | For the Nine months Ended September 30, | |||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| Research and development expense | — | — | — | — | ||||||||||||
| Selling, advertising and promotional expense | 356,207 | 34,557 | 869,752 | 206,049 | ||||||||||||
| General and administrative expense | 2,362,035 | 1,308,317 | 4,776,170 | 4,798,757 | ||||||||||||
| Total | $ | 2,718,242 | $ | 1,342,874 | $ | 5,645,922 | $ | 5,004,806 | ||||||||
Research and development expenses. Continuing operations have no research and development expenses in any period presented; research and development activities historically related to the Video Solutions business, whose results are reported within discontinued operations.
Selling, advertising and promotional expenses. Selling, advertising and promotional expenses totaled $356,207 and $34,557 for the three months ended September 30, 2026 and 2025, respectively, representing an increase of $321,650 (930.8%), and $869,752 and $206,049 for the nine months ended September 30, 2026 and 2025, respectively, representing an increase of $663,703 (322.1%). The increases reflect higher marketing and promotional activity, primarily related to the 2026 Country Stampede music festival held in June 2026, together with marketing for the TicketSmarter platform.
General and administrative expense. General and administrative expenses totaled $2,362,035 and $1,308,317 for the three months ended September 30, 2026 and 2025, respectively, representing an increase of $1,053,718 (80.5%), and $4,776,170 and $4,798,757 for the nine months ended September 30, 2026 and 2025, respectively, representing a decrease of $22,587 (0.5%). The third-quarter increase is primarily attributable to $624,583 of non-cash expense for common stock issued for consulting services, acquisition-related costs and a collaborative arrangement, together with professional fees associated with the proposed acquisition of TFL, LLC. For the nine-month period, these costs were more than offset by a decrease in administrative salaries and continued reductions in headcount, together with lower professional fees, as the Company continues to right-size its expenses relative to its revenues following the dispositions described above.
Operating Loss
For the reasons previously stated, our operating loss was $(2,509,293) and $(1,153,201) for the three months ended September 30, 2026 and 2025, respectively, representing an increase in operating loss of $1,356,092 (117.6%), and $(6,395,170) and $(5,789,523) for the nine months ended September 30, 2026 and 2025, respectively, representing an increase of $605,647 (10.5%). Operating loss as a percentage of revenues was 92.5% for the three months ended September 30, 2026 as compared to 66.7% for the three months ended September 30, 2025, and improved to 56.6% from 85.2% for the nine-month periods.
Interest Income
Interest income increased to $105,184 for the three months ended September 30, 2026, from $17,887 for the three months ended September 30, 2025, and to $237,471 for the nine months ended September 30, 2026, from $95,808 for the nine months ended September 30, 2025, primarily reflecting interest on the promissory notes received as partial consideration in connection with the January 2026 sale of Nobility Healthcare and the August 2026 sale of the Video Solutions business, including amortization of the related discounts.
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Interest Expense
We incurred interest expense of $50,894 and $90,697 during the three months ended September 30, 2026 and 2025, respectively, representing a decrease of $39,803 (43.9%), and $146,992 and $960,250 for the nine months ended September 30, 2026 and 2025, respectively, representing a decrease of $813,258 (84.7%). The decrease is primarily attributable to the 2025 repayment of the senior secured promissory notes and merchant advances, which carried significant debt discount amortization, together with the conversion of the 2025 Secured Notes to common stock during the three months ended March 31, 2026, which eliminated future interest expense on those instruments. Interest expense in 2026 consists primarily of non-cash amortization of the discount on the note payable – related party and interest and discount amortization on the EIDL loan and the unsecured promissory notes.
Other Income
The Company recognized other income of $21,425 and $217,136 for the three months ended September 30, 2026 and 2025, respectively, and $41,917 and $252,603 for the nine months ended September 30, 2026 and 2025, respectively.
Change in Fair Value of Investment in Equity Securities
The Company recorded a loss of $237,320 for the three and nine months ended September 30, 2026 on the remeasurement to fair value of the preferred stock received as partial consideration in the sale of the Video Solutions business. There was no comparable item in the prior-year periods. See Note 8, Other Assets, and Note 10, Fair Value Measurement.
Loss on Litigation Settlement
During the three months ended June 30, 2026, the Company recorded a charge of $984,000 in respect of the settlement of litigation with a former consultant of Kustom 440, Inc., comprising $600,000 payable in cash and $384,000 representing the fair value of 30,000 shares of the Company’s common stock issuable to the plaintiff, which were issued on August 7, 2026. There was no comparable charge in the prior-year periods. See Note 13, Commitments and Contingencies.
Gain on Extinguishment of Liabilities
The Company recorded gains on the extinguishment of liabilities of $-0- and $13,275 for the three months ended September 30, 2026 and 2025, respectively, and $63,259 and $2,243,991 for the nine months ended September 30, 2026 and 2025, respectively. The 2026 gain was recognized during the three months ended March 31, 2026 and reflects discounts received in connection with the negotiated settlement of outstanding payables. The 2025 gains principally reflect discounts received in connection with the negotiated settlement of outstanding payables and contract liabilities during the three months ended March 31, 2025.
Change in Fair Value of Derivative Liabilities
The change in fair value of derivative liabilities was a gain of $10 and a gain of $839 for the three months ended September 30, 2026 and 2025, respectively, and a loss of $(289,351) and a gain of $3,373,919 for the nine months ended September 30, 2026 and 2025, respectively. The 2026 nine-month loss relates primarily to the increase in the fair value of the bifurcated conversion feature of the 2025 Secured Notes through the dates of conversion during the three months ended March 31, 2026, at which point the aggregate fair value of $1,142,191 was reclassified to additional paid-in capital; the remaining warrant derivative liability of $4 at September 30, 2026 consists of a Series B warrant measured at the closing market price of the common stock. The 2025 gains related primarily to declines in the fair value of the warrant derivative liabilities associated with the February 2025 public equity offering and the June 2024 offering. See Note 10, Fair Value Measurement, and Note 15, Common Stock Purchase Warrants.
Income (loss) before Income Tax Benefit
As a result of the above, we reported a loss before income taxes from continuing operations of $(2,670,888) for the three months ended September 30, 2026, compared to $(994,761) for the three months ended September 30, 2025, and a loss of $(7,710,186) for the nine months ended September 30, 2026, compared to a loss of $(783,452) for the nine months ended September 30, 2025.
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Income Tax Benefit
We recorded no income tax expense or benefit for any period presented. The effective tax rate varied from the expected statutory rate due to our continuing to provide a 100% valuation allowance on net deferred tax assets, which we have determined to maintain as of September 30, 2026 because of recurring operating losses. We had approximately $159,790,000 of federal net operating loss carryforwards and $1,685,000 of research and development tax credit carryforwards as of September 30, 2026 available to offset future net taxable income. See Note 12, Income Taxes.
Net Loss From Continuing Operations
As a result of the above, we reported a net loss from continuing operations of $(2,670,888) for the three months ended September 30, 2026, compared to $(994,761) for the three months ended September 30, 2025, an increase of $1,676,127, and a net loss from continuing operations of $(7,710,186) for the nine months ended September 30, 2026, compared to $(783,452) for the nine months ended September 30, 2025, an increase of $6,926,734. The nine-month 2025 period included significant non-recurring gains, including a $3,373,919 gain on the change in fair value of derivative liabilities and a $2,243,991 gain on extinguishment of liabilities.
Net Income (Loss) From Discontinued Operations
The Company recognized income from discontinued operations of $5,017,203 for the three months ended September 30, 2026, compared to $31,419 for the three months ended September 30, 2025, and a loss from discontinued operations of $(375,582) for the nine months ended September 30, 2026, compared to a loss of $(402,012) for the nine months ended September 30, 2025. The loss for the nine months ended September 30, 2026 consists of the following components: (i) the $(4,013,669) first-quarter loss on the disposition of Nobility Healthcare; (ii) $(416,201) of cumulative provisional earn-out adjustments to the note receivable, including a gain of $22,852 recognized during the three months ended September 30, 2026; (iii) $(1,011,478) of operating losses of the Video Solutions business, of which $(71,415) was recorded during the three months ended September 30, 2026; and (iv) the $5,065,766 gain on the sale of the Video Solutions business, net of costs to sell, recognized during the three months ended September 30, 2026. The 2025 amounts represent the operating results of both businesses prior to their dispositions. See Note 22, Discontinued Operations.
Net Income (Loss) Attributable to Noncontrolling Interests – Discontinued Operations
Net income attributable to noncontrolling interests, representing the 49% interest in Nobility Healthcare held by third parties, was $58,525 and $118,133 for the three and nine months ended September 30, 2025, respectively, and is included within discontinued operations. The Company has no noncontrolling interests as of September 30, 2026.
Net Loss Attributable to Common Stockholders
As a result of the above, we reported net income attributable to common stockholders of $2,346,315 for the three months ended September 30, 2026, compared to a net loss of $(1,021,867) for the three months ended September 30, 2025, an improvement of $3,368,182, reflecting primarily the gain on the sale of the Video Solutions business, and a net loss of $(8,085,768) for the nine months ended September 30, 2026, compared to $(1,303,597) for the nine months ended September 30, 2025, an increase in net loss of $6,782,171, reflecting primarily the loss on the disposition of Nobility Healthcare and the non-recurrence of the 2025 gains described above, partially offset by the gain on the sale of the Video Solutions business.
Basic and Diluted Income/(Loss) per Share
The basic and diluted loss per share from continuing operations was $(5.13) for the three months ended September 30, 2026, compared to $(86.38) for the three months ended September 30, 2025, and $(35.44) for the nine months ended September 30, 2026, compared to $(126.31) for the nine months ended September 30, 2025. The basic and diluted income (loss) per share from discontinued operations was $9.64 and $(2.35) for the three months ended September 30, 2026 and 2025, respectively, and $(1.73) and $(83.86) for the nine months ended September 30, 2026 and 2025, respectively, resulting in net basic and diluted income per share attributable to common stockholders of $4.51 and a net loss per share of $(88.73) for the three months ended September 30, 2026 and 2025, respectively, and a net loss per share of $(37.16) and $(210.17) for the nine months ended September 30, 2026 and 2025, respectively. All outstanding stock options, common stock purchase warrants, and other potentially dilutive securities were considered antidilutive and therefore excluded from the calculation of diluted income (loss) per share for all periods presented. See Note 16, Stockholders’ Equity, regarding the reverse stock splits.
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Liquidity and Capital Resources
Overall:
Management’s Liquidity Plan: The Company has incurred net losses and negative cash flows from operating activities since inception. The Company incurred a net loss of $8,085,768 for the nine months ended September 30, 2026, including a loss from continuing operations of $7,710,186, used $4,833,195 of cash in operating activities of continuing operations, and had an accumulated deficit of $149,812,789 as of September 30, 2026. These conditions raise substantial doubt about the Company’s ability to continue as a going concern within one year from the date of issuance of these condensed consolidated financial statements. In response, management has implemented and continues to implement plans intended to mitigate these conditions, including (i) continued access to the Company’s ELOC providing up to $25,000,000 over a 36-month term, under which approximately $19.4 million remained available as of September 30, 2026, subject to the terms and conditions of the facility and applicable Nasdaq rules, (ii) the sale of the Video Solutions business, completed on August 3, 2026, under which the Company received cash consideration of $1,250,000 together with a $4,250,000 secured promissory note and preferred stock of the buyer, (iii) the January 2026 divestiture of Nobility Healthcare, which eliminated the operating losses and working capital requirements of the Revenue Cycle Management business, and (iv) ongoing cost-reduction initiatives. Management’s plans are not entirely within the Company’s control, including the availability of the ELOC, which depends in part on the market price and trading volume of the Company’s common stock and continued listing on Nasdaq, and there can be no assurance that the Company will be successful in restoring positive cash flows and profitability, or that it will be able to raise additional financing on terms acceptable to the Company. Notwithstanding these measures, substantial doubt about the Company’s ability to continue as a going concern has not been alleviated as of the date of issuance of these condensed consolidated financial statements.
Cash, cash equivalents: As of September 30, 2026, we had cash and cash equivalents of $1,715,820, compared to $757,369 as of December 31, 2025, representing a net increase of $958,451. The changes in cash during the nine months ended September 30, 2026 resulted from the following cash flow activities:
| Nine months ended September 30, | ||||||||
| 2026 | 2025 | |||||||
| Net cash used in operating activities – continuing operations | $ | (4,833,195 | ) | $ | (7,728,061 | ) | ||
| Net cash used in operating activities – discontinued operations | (150,571 | ) | (1,268,370 | ) | ||||
| Net cash provided by (used in) investing activities – continuing operations | 1,132,584 | (284,750 | ) | |||||
| Net cash used in investing activities – discontinued operations | (12,074 | ) | (64,569 | ) | ||||
| Net cash provided by financing activities – continuing operations | 4,821,707 | 9,684,796 | ||||||
| Net increase in cash and cash equivalents | $ | 958,451 | $ | 339,046 | ||||
| ● | Operating activities: | $4,833,195 of net cash used in operating activities from continuing operations for the nine months ended September 30, 2026, compared to $7,728,061 for the nine months ended September 30, 2025. Net cash used in operating activities in 2026 reflects the net loss from continuing operations, adjusted for non-cash items including common stock issued for services and in settlement of litigation, the change in fair value of derivative liabilities and of the investment in equity securities, stock-based compensation and non-cash interest, and changes in operating assets and liabilities. The prior-period comparative reflected significant non-cash adjustments, including a $(3,373,919) gain on change in fair value of derivative liabilities, a $(2,243,991) gain on extinguishment of liabilities, and $751,570 of non-cash interest expense, together with significant reductions in accounts payable funded by proceeds from the February 2025 public equity offering. Net cash used in operating activities of discontinued operations was $150,571 for the nine months ended September 30, 2026, compared to $1,268,370 for the nine months ended September 30, 2025. | |
| ● | Investing activities: | $1,132,584 of net cash provided by investing activities from continuing operations for the nine months ended September 30, 2026, compared to $284,750 of net cash used in investing activities from continuing operations for the nine months ended September 30, 2025. Investing activities during the nine months ended September 30, 2026 consisted of $1,250,000 of proceeds from the sale of the Video Solutions business, $100,000 of proceeds received in connection with the Nobility Healthcare disposition and $118,436 of principal collected on the Nobility Healthcare promissory note, partially offset by $287,120 of capital expenditures for property, plant and equipment and $48,732 of purchases of intangible assets. Net cash used in investing activities of discontinued operations was $12,074 for the nine months ended September 30, 2026, compared to $64,569 for the nine months ended September 30, 2025. |
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| ● | Financing activities: | $4,821,707 of net cash provided by financing activities for the nine months ended September 30, 2026, compared to $9,684,796 for the nine months ended September 30, 2025. Financing activities during the nine months ended September 30, 2026 consisted of $4,979,698 of net proceeds from issuances of common stock under the ELOC and $250,000 of proceeds from an unsecured promissory note, partially offset by $360,347 of payments of equity issuance costs, $45,000 of principal payments on the unsecured promissory notes and $2,644 of payments on the EIDL loan. The prior-year period consisted primarily of $14,308,300 of net proceeds from the February 2025 public equity offering and $610,000 of net proceeds from the September 2025 senior secured convertible notes, partially offset by $3,600,000 of repayments of senior secured promissory notes and $1,922,750 of repayments of merchant advances. |
The net result of these activities was an increase in cash of $958,451 for the nine months ended September 30, 2026.
Working Capital
As of September 30, 2026, the Company had $1,715,820 of cash and cash equivalents and a net negative working capital position of $(1,290,000), compared to a net negative working capital position of $(1,496,587) as of December 31, 2025. Excluding amounts classified as held for sale, the Company’s working capital position as of December 31, 2025 was $(4,487,145), representing an improvement of $3,197,145 as of September 30, 2026. The improvement in working capital was primarily driven by proceeds from issuances of common stock under the ELOC, the cash and the current portion of the promissory notes received in the sales of the Video Solutions business and Nobility Healthcare, and the conversion of the 2025 Secured Notes into common stock, including the extinguishment of the associated derivative liabilities upon conversion, partially offset by the accrued litigation settlement.
Accounts receivable, other receivables, and the current portion of notes receivable represented $1,327,147 of working capital at September 30, 2026. Management intends to collect outstanding receivables on a timely basis, which is expected to provide additional cash flow to support continuing operations. Inventories, consisting of ticket inventory, represented $206,547 of working capital as of September 30, 2026. The Company actively manages ticket inventory levels against event dates, as unsold ticket inventory is written off following the related event date.
Lease Commitments and Other Contractual Obligations:
Total lease expense under the Company’s operating leases related to continuing operations was $64,957 and $195,681 during the three and nine months ended September 30, 2026, respectively. As of September 30, 2026, operating lease obligations totaled $819,655, of which $200,240 is current, with undiscounted minimum future lease payments of $946,842, including $64,142 payable during the remainder of 2026. See Note 13, Commitments and Contingencies.
During the nine months ended September 30, 2026, the Company incurred capital expenditures of $287,120, consisting primarily of purchases of property, plant and equipment. The Company does not currently have any material commitments for capital expenditures beyond normal course of business activity.
The Company has agreed to pay 4% of future gross proceeds raised under its equity line of credit through February 14, 2028, pursuant to a settlement agreement entered into with Aegis Capital Corp. in January 2026. During the nine months ended September 30, 2026, the Company paid $245,347 under this arrangement. The Company’s estimate with respect to the maximum reasonably possible future obligation under this arrangement is approximately $774,000, based upon the remaining undrawn commitment of the facility as of September 30, 2026. This obligation is strictly contingent upon the Company’s discretionary future use of the facility. See Note 13, Commitments and Contingencies, for additional details.
The Company is also party to a Unit Purchase Agreement for the acquisition of TFL, LLC under which, if the transaction closes, the Company would pay $89.6 million in cash, subject to adjustment, repay up to $35.0 million of TFL’s indebtedness and issue $22.4 million of common stock; closing is conditioned on, among other things, the Company obtaining sufficient financing. See Note 13, Commitments and Contingencies, and Note 23, Subsequent Events.
Debt obligations - As of September 30, 2026, debt obligations related to continuing operations totaled $735,852, net of unamortized discount of $132,587, of which $601,055 is current, consisting of the EIDL loan of $138,439 and unsecured promissory notes of $730,000. Principal payments of $480,898 are due during the remainder of 2026 and $253,677 during 2027. See Note 9, Debt Obligations. The foregoing excludes the related party note payable to a trust affiliated with a TicketSmarter officer with a net carrying value of $439,011 as of September 30, 2026 ($0 current, $439,011 long-term). See Note 17, Related Party Transactions, for additional details.
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Litigation
We are party to various lawsuits and claims arising in the ordinary course of business. While the ultimate resolution is unknown, we do not expect that these lawsuits will individually, or in the aggregate, have a material adverse effect on our results of operations, financial condition or cash flows. However, the outcome of any litigation is inherently uncertain and there can be no assurance that any expense, liability or damages that may ultimately result from the resolution of these matters will be covered by our insurance or will not be in excess of amounts recognized or provided by insurance coverage and will not have a material adverse effect on our operating results, financial condition or cash flows. During 2026, we settled the Kustom 440 former-consultant matter, recording a charge of $984,000 in the second quarter, and obtained a default judgment of $1,120,004 against Pharmaxx Medical, Inc. in the third quarter, for which no gain has been recognized; we are a defendant in the Noota Music matter, which seeks approximately $350,000, and the First Insurance Funding collection case, which claims $165,890, and have recorded no liability for either. See Note 13, Commitments and Contingencies, to the condensed consolidated financial statements and Part II, Item 1, “Legal Proceedings,” of this Quarterly Report on Form 10-Q for information on our litigation.
Critical Accounting Estimates
Our critical accounting estimates are described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Estimates” in our Annual Report on Form 10-K for the year ended December 31, 2025. During the nine months ended September 30, 2026, we changed the method used to estimate the inventory valuation reserve for ticket inventory, as described in Note 5, Inventories, and began applying estimates of the fair value of notes receivable and other consideration received in connection with the dispositions of Nobility Healthcare and the Video Solutions business, including the earn-out adjustments to the Nobility Healthcare note, as described in Note 3, Notes Receivable, Note 10, Fair Value Measurement, and Note 22, Discontinued Operations. There have been no other material changes to our critical accounting estimates.
Inflation and Seasonality
Inflation has not materially affected us during the past fiscal year. Our business is seasonal: the Country Stampede music festival generates revenues in the second quarter, and TicketSmarter platform activity is driven by event scheduling throughout the year.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Not Applicable.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures, as such terms are defined in Rules 13a-15(e) under the Exchange Act. The Company, under the supervision and with the participation of its management, including its Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of such disclosure controls and procedures for this Report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were not effective as of September 30, 2026 to provide reasonable assurance that material information required to be disclosed by the Company in this Report was recorded, processed, summarized and communicated to the Company’s management as appropriate and within the time periods specified in SEC rules and forms.
As part of our plan to remediate our controls which were not effective, we are performing a full review of our internal control procedures. We have implemented, and plan to continue to implement, new controls and new processes. We have hired and plan to continue to hire additional qualified personnel and establish more robust processes to support our internal control over financial reporting, including clearly defined roles and responsibilities. The Company anticipates time being required to complete the implementation and to assess and ensure the sustainability of these controls. The effectiveness will not be considered remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.
Changes in Internal Control over Financial Reporting
There have not been any changes in the Company’s internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during the Company’s last fiscal quarter that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.
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PART II – OTHER INFORMATION
Item 1. Legal Proceedings.
The information regarding certain legal proceedings in which we are involved as set forth in Note 13 – Commitments and Contingencies of the Notes to the Condensed Consolidated Financial Statements (Part I, Item 1 of this Quarterly Report on Form 10-Q) is incorporated by reference into this Item 1.
In addition to such legal proceedings, we are faced with or involved in various other claims and legal proceedings arising in the normal course of our businesses. At this time, we do not believe any material losses under such other claims and proceedings to be probable. While the ultimate outcome of such claims or legal proceedings cannot be predicted with certainty, it is in the opinion of management, after consultation with legal counsel, that the final outcome in such proceedings, in the aggregate, would not have a material adverse effect on our consolidated financial condition, results of operations or cash flows.
Item 1A. Risk Factors.
As a smaller reporting company, we are not required to provide the information required by this Item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
There were no unregistered sales of equity securities during the three months ended September 30, 2026 that were not disclosed by the Company on a Current Report on Form 8-K.
Item 3. Defaults upon Senior Securities.
There were no defaults upon senior securities during the three months ended September 30, 2026 that were not disclosed by the Company on a Current Report on Form 8-K.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
Not applicable.
Item 6. Exhibits.
| (a) | Exhibits: |
Exhibit Number |
Description of Exhibit | |
| 3.1 | Certificate of Change to the Articles of Incorporation of Digital Ally, Inc., effective on January 8, 2026 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K with the SEC on January 8, 2026). | |
| 3.2 | Certificate of Amendment to the Articles of Incorporation of Kustom Entertainment, Inc., effective on January 8, 2026 (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K with the SEC on January 8, 2026). | |
| 3.3 | Amendment to the Amended and Restated Bylaws of Kustom Entertainment, Inc., effective on January 8, 2026 (incorporated by reference to Exhibit 3.3 to the Company’s Current Report on Form 8-K with the SEC on January 8, 2026). | |
| 3.4 | Certificate of Change to the Articles of Incorporation of Kustom Entertainment, Inc., effective on April 22, 2026 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K with the SEC on April 22, 2026). | |
| 3.5 | Certificate of Change to the Articles of Incorporation of Kustom Entertainment, Inc., effective October 1, 2026 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on October 5, 2026). | |
| 3.6* | Certificate of Amendment to Kustom Entertainment, Inc.’s Articles of Incorporation, effective November 4, 2026. | |
| 10.1 | Amendment No. 1 and Forbearance / Extension Agreement to Asset Purchase Agreement, dated July 23, 2026, by and between Kustom Entertainment, Inc. and Cycurion, Inc. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on July 27, 2026). | |
| 10.2 | Secured Promissory Note, dated August 3, 2026, issued by Cycurion, Inc. to Kustom Entertainment, Inc. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on August 4, 2026). | |
10.3
|
Security Agreement, dated August 3, 2026, by and between Cycurion, Inc. and Kustom Entertainment, Inc. (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on August 4, 2026). | |
| 10.4 | Registration Rights Agreement, dated August 3, 2026, by and between Cycurion, Inc. and Kustom Entertainment, Inc. (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the SEC on August 4, 2026). | |
| 10.5 | Second Amendment to Common Stock Purchase Agreement, dated August 3, 2026, by and between Kustom Entertainment, Inc. and Yield Point NY LLC (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed with the SEC on August 4, 2026). | |
| 10.6 | Unit Purchase Agreement, dated August 31, 2026, by and among Kustom Entertainment, Inc., TFL, LLC, the sellers party thereto and the sellers’ representative (incorporated by reference to Exhibit 1.1 to the Company’s Current Report on Form 8-K filed with the SEC on September 1, 2026). | |
| 31.1 | Certificate of Stanton E. Ross pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended. | |
| 31.2 | Certificate of Thomas J. Heckman pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended. | |
| 32.1 | Certificate of Stanton E. Ross pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended. | |
| 32.2 | Certificate of Thomas J. Heckman pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended. |
| 101.INS | Inline XBRL Instance Document | |
| 101.SCH | Inline XBRL Schema Document | |
| 101.CAL | Inline XBRL Calculation Linkbase Document | |
| 101.DEF | Inline XBRL Definition Linkbase Document | |
| 101.LAB | Inline XBRL Label Linkbase Document | |
| 101.PRE | Inline XBRL Presentation Linkbase Document | |
| 104 | Cover Page Interactive Data File (Embedded within the Inline XBRL document and included in Exhibit) |
*Filed herein.
In accordance with SEC Release 33-8238, Exhibits 32.1 and 32.2 are being furnished and not filed.
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: November 10, 2026
| KUSTOM ENTERTAINMENT, INC. | ||
| By: | /s/ Stanton E. Ross | |
| Name: | Stanton E. Ross | |
| Title: | Chief Executive Officer | |
| By: | /s/ Thomas J. Heckman | |
| Name: | Thomas J. Heckman | |
| Title: | Chief Financial Officer, Secretary and Treasurer (Principal Financial and Accounting Officer) | |
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