Kustom Entertainment, Inc 10-Q for FY2025 Q3
Kustom Entertainment, Inc. (KUST)
About this 10-Q
Kustom Entertainment, Inc filed this 10-Q on November 12, 2025, covering the quarter ended September 30, 2025 (FY2025 Q3).
Headline figures
Quarter ended September 30, 2025, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $4.54M
- up 12.0% from $4.05M a year earlier
- Net loss
- $963.34K
- compared with a net loss of $5.47M a year earlier
- Diluted EPS
- -$0.59
- compared with -$1,817.02 a year earlier
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 exchange on which registered | ||
| The
|
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. Yes ☐
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).
Yes
☐
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 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 12, 2025 | |
| Common Stock, $ par value per share |
FORM 10-Q
DIGITAL ALLY, INC.
SEPTEMBER 30, 2025
| 2 |
PART I – FINANCIAL INFORMATION
Item 1 – Financial Statements.
DIGITAL ALLY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2025 AND DECEMBER 31, 2024
| September 30, 2025 | December 31, 2024 | |||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable-trade, less allowance for doubtful accounts of $ | ||||||||
| Subscriptions receivable, net of $ | ||||||||
| Other receivables | ||||||||
| Inventories, net | ||||||||
| Prepaid expenses | ||||||||
| Total current assets | ||||||||
| Property, plant, and equipment, net | ||||||||
| Goodwill and other intangible assets, net | ||||||||
| Operating lease right of use assets, net | ||||||||
| Subscriptions receivable – long-term | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and Equity (Deficit) | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Current portion of operating lease obligations | ||||||||
| Deferred revenue – current | ||||||||
| Notes payable – related party – current portion | ||||||||
| Debt obligations – current | ||||||||
| Warrant derivative liabilities | ||||||||
| Deposits | ||||||||
| Income taxes payable | ||||||||
| Total current liabilities | ||||||||
| Long-term liabilities: | ||||||||
| Debt obligations – long term | ||||||||
| Operating lease obligation – long term | ||||||||
| Deferred revenue – long term | ||||||||
| Notes payable – related party – long-term portion | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies [Note 9] | ||||||||
| Stockholders’ Equity (Deficit): | ||||||||
| Preferred stock, $ par value per share, shares authorized; issued or outstanding – September 30, 2025 and December 31, 2024 | ||||||||
| Common stock, $ par value; shares authorized; shares issued: – September 30, 2025 and – December 31, 2024 | ||||||||
| Additional paid in capital | ||||||||
| Noncontrolling interest in consolidated subsidiary | ( | ) | ( | ) | ||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total equity (deficit) | ( | ) | ||||||
| Total liabilities and equity (deficit) | $ | $ | ||||||
See Notes to Unaudited Condensed Consolidated Financial Statements.
| 3 |
DIGITAL ALLY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 2025 AND 2024
(Unaudited)
| 2025 | 2024 | 2025 | 2024 | |||||||||||||
For
the three months ended | For
the nine months ended | |||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||
| 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: | ||||||||||||||||
| Research and development expense | ||||||||||||||||
| Selling, advertising and promotional expense | ||||||||||||||||
| General and administrative expense | ||||||||||||||||
| Goodwill and intangible asset impairment charge | ||||||||||||||||
| Total selling, general and administrative expenses | ||||||||||||||||
| Operating loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Interest income | ||||||||||||||||
| Interest expense and debt discount amortization | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income | ||||||||||||||||
| — | ||||||||||||||||
| Loss on extinguishment of debt | ( | ) | ( | ) | ||||||||||||
| Change in fair value of warrant derivative liabilities | ||||||||||||||||
| Gain on extinguishment of liabilities | ||||||||||||||||
| Gain on sale of intangibles | ||||||||||||||||
| Gain on sale of property, plant and equipment | ||||||||||||||||
| Total other income (expense) | ||||||||||||||||
| Loss before income tax benefit | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income tax benefit | ||||||||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net (income) loss attributable to noncontrolling interests of consolidated subsidiary | ( | ) | ( | ) | ||||||||||||
| Net loss attributable to common stockholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net loss per share information: | ||||||||||||||||
| Basic | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average shares outstanding: | ||||||||||||||||
| Basic | ||||||||||||||||
| Diluted | ||||||||||||||||
See Notes to Unaudited Condensed Consolidated Financial Statements.
| 4 |
DIGITAL ALLY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (DEFICIT)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2025 AND 2024
(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, 2023 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||||||
| Issuance of common stock | ||||||||||||||||||||||||
| Issuance of common stock, shares | ||||||||||||||||||||||||
| Issuance of warrants | ||||||||||||||||||||||||
| Sale of common stock and pre-funded warrants, net of offering costs | ||||||||||||||||||||||||
| Sale of common stock and pre-funded warrants, net of offering costs, shares | ||||||||||||||||||||||||
| Issuance of common stock upon exercise of pre-funded warrants | ||||||||||||||||||||||||
| Issuance of common stock upon exercise of pre-funded warrants, shares | ||||||||||||||||||||||||
| 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 | ||||||||||||||||||||||||
| Issuance of common stock upon exercise of June 2024 Series B common stock purchase warrants, shares | ||||||||||||||||||||||||
| Transition of warrant derivative liability to equity upon exercise of Series B warrants | ||||||||||||||||||||||||
| 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 | ||||||||||||||||||||||||
| Issuance of common stock upon exercise of February 2025 Series B common stock purchase warrants, shares | ||||||||||||||||||||||||
| 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 | ||||||||||||||||||||||||
| Equity Issuances - Senior Note with detachable warrant September 2025 | ||||||||||||||||||||||||
| Restricted common stock grant | ( | ) | ||||||||||||||||||||||
| Restricted common stock forfeitures | ( | ) | ( | ) | ||||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | ( | ) | |||||||||||||||||
| Balance, March 31, 2024 | ( | ) | ||||||||||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||||||
| Issuance of common stock | ||||||||||||||||||||||||
| Issuance of warrants | — | ( | ) | ( | ) | |||||||||||||||||||
| Net Income (loss) | — | ( | ) | ( | ) | |||||||||||||||||||
| Balance, June 30, 2024 | ( | ) | ||||||||||||||||||||||
| Stock-based compensation | — | ( | ) | ( | ) | |||||||||||||||||||
| Issuance of common stock upon exercise of prefunded warrants | — | — | ) | — | — | — | ||||||||||||||||||
| Restricted common stock forfeitures | ( | ) | — | — | — | — | — | |||||||||||||||||
| Net loss | — | ( | ) | ( | ) | ( | ||||||||||||||||||
| Balance, September 30, 2024 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||
| 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 | — | |||||||||||||||||||||||
| 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 loss | — | ( | ) | ( | ) | |||||||||||||||||||
| Balance, June 30, 2025 | ( | ) | ( | ) | ) | |||||||||||||||||||
| Balance | ( | ) | ( | ) | ) | |||||||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||||||
| Equity Issuances - Senior Note with detachable warrant September 2025 | — | |||||||||||||||||||||||
| Fair value of Series B warrants issued along with sale of common stock | — | |||||||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||||||
| Net income (loss) | — | ( | ) | ( | ) | |||||||||||||||||||
| Balance, September 30, 2025 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
| Balance | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
See Notes to Unaudited Condensed Consolidated Financial Statements.
| 5 |
DIGITAL ALLY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2025 AND 2024
(Unaudited)
| 2025 | 2024 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash flows used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Provision for doubtful accounts receivable | ( | ) | ( | ) | ||||
| Provision for doubtful subscriptions receivable | ( | ) | ||||||
| Provision for inventory obsolescence | ( | ) | ( | ) | ||||
| Stock based compensation | ||||||||
| Non-cash interest expense | ||||||||
| Gain on extinguishment of liabilities | ( | ) | ( | ) | ||||
| Change in fair value of warrant derivative liability | ( | ) | ( | ) | ||||
| Goodwill and intangible asset impairment charge | ||||||||
| Loss on extinguishment of debt | ||||||||
| Loss on disposal of intangible assets | ( | ) | ||||||
| Loss on sale of property, plant and equipment | ( | ) | ||||||
| Change in operating assets and liabilities: | ||||||||
| (Increase) decrease in: | ||||||||
| Accounts receivable – trade | ( | ) | ||||||
| Subscriptions receivable | ( | ) | ||||||
| Other receivables | ||||||||
| Inventories | ||||||||
| Prepaid expenses | ||||||||
| Operating lease right of use assets | ( | ) | ||||||
| Other assets | ||||||||
| Increase (decrease) in: | ||||||||
| Accounts payable | ( | ) | ||||||
| Accrued expenses | ( | ) | ||||||
| Accrued interest - related party | ||||||||
| Income taxes payable | ( | ) | ||||||
| Operating lease obligations | ( | ) | ||||||
| Deposit | ||||||||
| Deferred revenue | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash Flows from Investing Activities: | ||||||||
| Purchases of property, plant and equipment | ( | ) | ( | ) | ||||
| Additions to intangible assets | ( | ) | ( | ) | ||||
| Proceeds from sale of intangible assets | ||||||||
| Cash paid for acquisition of Country Stampede | ( | ) | ||||||
| Proceeds from sale of land and building | ||||||||
| Proceeds from sale of property, plant and equipment | ||||||||
| Net cash provided by (used in) investing activities | ( | ) | ||||||
| Cash Flows from Financing Activities: | ||||||||
| Net proceeds of February 2025 public equity offering with detachable warrants | ||||||||
| Net proceeds of June 2024 private placement equity offering with detachable warrants | ||||||||
| Net proceeds from September 2025 issuance of senior secured convertible notes with detachable warrants | ||||||||
| Net proceeds of unsecured promissory note – entertainment segment | ||||||||
| Payments on Senior Secured Promissory Notes – Video Solutions Segment | ( | ) | ||||||
| Proceeds of related party note payable | ||||||||
| Payments of related party note payable | ( | ) | ||||||
| Principal payments on EIDL loan | ( | ) | ( | ) | ||||
| Proceeds – Commercial Extension of Credit – Entertainment Segment | ||||||||
| Payments on Commercial Extension of Credit – Entertainment Segment | ( | ) | ( | ) | ||||
| Proceeds – Merchant Advances – Video Solutions Segment | ||||||||
| Payments on Merchant Advances – Video Solutions Segment | ( | ) | ( | ) | ||||
| Proceeds from issuance of common shares upon exercise of Series B warrants | ||||||||
| Proceeds – Merchant Advances – Entertainment Segment | ||||||||
| Payments on Merchant Advances – Entertainment Segment | ( | ) | ||||||
| Principal payment on contingent consideration promissory notes | ( | ) | ||||||
| Net cash provided by financing activities | ||||||||
| Net increase in cash, cash equivalents and restricted cash | ( | ) | ||||||
| Cash, cash equivalents and restricted cash, beginning of period | ||||||||
| Cash, cash equivalents, and restricted cash, 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: | ||||||||
| Restricted common stock grant | $ | $ | ||||||
| Restricted common stock forfeitures | $ | $ | ||||||
| Commercial extension of credit repaid through accrued revenue – Entertainment segment | $ | $ | ||||||
| ROU and lease liability recorded on extension (termination) of lease | $ | $ | ||||||
| Assets acquired in business acquisitions | $ | $ | ||||||
| Goodwill acquired in business acquisitions | $ | $ | ||||||
| Liabilities assumed in business acquisitions | $ | $ | ||||||
| Adjustments of accounts payable with the sale proceeds of property, plant and equipment | $ | $ | ||||||
| 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 | $ | $ | ||||||
| Fair value of detachable warrants issued with senior secured convertible notes issuance | $ | $ | ||||||
| Issuance of common stock upon exercise of pre-funded warrants | $ | |||||||
| Reduction in proceeds from sale of building for loan, prepaid rent, and other accrued expenses | $ | |||||||
| Payments to vendors directly from proceeds of sale of common stock | $ | |||||||
See Notes to Unaudited Condensed Consolidated Financial Statements.
| 6 |
DIGITAL ALLY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business:
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. (such merged entity, the “Predecessor Registrant”).
The Company formed Digital Ally International, Inc. during August 2009 to facilitate the export sales of its products. The Company formed Nobility Healthcare, LLC (“Nobility Healthcare”) in June 2021 to facilitate the operations of its revenue cycle management solutions and back-office services for healthcare organizations. The Company formed TicketSmarter, Inc. 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 unique entertainment experiences directly for consumers.
The business of the Registrant, Digital Ally, Inc. (with its wholly-owned subsidiaries, Digital Ally International, Inc., Digital Ally Healthcare, LLC (“Digital Ally Healthcare”), TicketSmarter, Inc. (“TicketSmarter”), Kustom 440, Inc. (“Kustom 440”), Kustom Entertainment, Inc., and its majority-owned subsidiary Nobility Healthcare, LLC, collectively, “Digital Ally,” “Digital,” and the “Company”), is divided into three reportable operating segments: 1) the Video Solutions Segment, 2) the Revenue Cycle Management Segment and 3) the Entertainment Segment. The Video Solutions Segment is our legacy business that produces digital video imaging, storage products, security and commercial applications. This segment includes both service and product revenues through our subscription models offering cloud and warranty solutions, and hardware sales for video and health safety solutions. The Revenue Cycle Management Segment provides working capital and back-office services to a variety of healthcare organizations throughout the country, as a monthly service fee. Our entertainment sector generates product revenue through our production of live events and concerts including our annual Country Stampede music festival. The Entertainment Segment also acts as an intermediary between ticket buyers and sellers within our secondary ticketing platform, Ticketsmarter.com, and we also acquire tickets from primary sellers to then sell through various platforms. The accounting guidance on Segment Reporting establishes standards for reporting information regarding operating segments in annual financial statements and requires selected information of those segments to be presented in financial statements. Such required segment information is included in Note 17.
Reverse Stock Splits
On
May 6, 2025, the Company, acting pursuant to authority received at an annual meeting of its stockholders on December 17, 2024, filed
with the Secretary of State of the State of Nevada a certificate of amendment (the “Charter Amendment”) to its articles of
incorporation, as amended (the “Articles of Incorporation”), which effected a
On
May 22, 2025, the Company, acting pursuant to authority received at a special meeting of its stockholders on May 6, 2025, filed with
the Secretary of State of the State of Nevada a certificate of amendment (the “May 22, 2025 Charter Amendment”) to its articles
of incorporation, as amended, to effect a
| 7 |
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 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, 2025 are not necessarily indicative of the results that may be expected for the year ending December 31, 2025.
The balance sheet as of December 31, 2024 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.
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, 2024.
Basis of Consolidation:
The accompanying condensed consolidated financial statements include the consolidated accounts of Digital Ally, its wholly-owned subsidiaries, Digital Ally International, Inc., Digital Ally Healthcare, LLC, TicketSmarter, Inc., Kustom Entertainment, Inc., Kustom 440, Inc., and its majority-owned subsidiary Nobility Healthcare, LLC. All intercompany balances and transactions have been eliminated during consolidation.
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.
Revenue Recognition:
The Company applies the provisions of Accounting Standards Codification (ASC) 606-10, Revenue from Contracts with Customers, and all related appropriate guidance. The Company recognizes revenue under the core principle to depict the transfer of control to its customers in an amount reflecting the consideration to which it expects to be entitled. In order to achieve that core principle, the Company applies the following five-step approach: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when a performance obligation is satisfied.
The Company has two different revenue streams, product and service, represented through its three segments. The Company reports all revenues on a gross basis, other than service revenues from the Company’s entertainment and revenue cycle management segments, Revenues generated by all segments are reported net of sales taxes.
Video Solutions
The Company considers customer purchase orders, which in some cases are governed by master sales agreements, to be the contracts with the customer. In situations where sales are to a distributor, the Company has concluded its contracts are with the distributor as the Company holds a contract bearing enforceable rights and obligations only with the distributor. As part of its consideration for the contract, the Company evaluates certain factors including the customers’ ability to pay (or credit risk). For each contract, the Company considers the promise to transfer products, each of which is distinct, to be the identified performance obligations. In determining the transaction price, the Company evaluates whether the price is subject to refunds or adjustment to determine the net consideration to which it expects to be entitled. As the Company’s standard payment terms are generally less than one year for product sales (although some subscriptions for services may reach out 3-5 years), it has elected the practical expedient under ASC 606-10-32-18 to not assess whether a contract has a significant financing component. The Company allocates the transaction price to each distinct product based on its relative standalone selling price. The product price, as specified on the purchase order, is considered the stand-alone selling price as it is an observable input which depicts the price as if sold to a similar customer in similar circumstances. Revenue is recognized when control of the product is transferred to the customer (i.e. when the Company’s performance obligations is satisfied), which typically occurs at shipment. Further in determining whether control has been transferred, the Company considers if there is a present right to payment and legal title, along with risks and rewards of ownership having transferred to the customer. Customers do not have a right to return the product other than for warranty reasons for which they would only receive repair services or replacement products. The Company has also elected the practical expedient under ASC 340-40-25-4 to expense commissions for product sales when incurred as the amortization period of the commission asset the Company would have otherwise recognized is less than one year.
Service and other revenue is comprised of revenues from extended warranties, repair services, cloud revenue and software revenue. Revenue is recognized upon shipment of the product and acceptance of the service or materials by the end customer for repair services. Revenue for extended warranty, cloud service or other software-based products is over the term of the contract warranty or service period. A time-elapsed method is used to measure progress because the Company transfers control evenly over the contractual period. Accordingly, the fixed consideration related to these revenues is generally recognized on a straight-line basis over the contract term, as long as the other revenue recognition criteria have been met.
The Company’s multiple performance obligations may include future body-worn camera devices to be delivered at defined points within a multi-year contract, and in those arrangements, the Company allocates total arrangement consideration over the life of the multi-year contract to future deliverables using management’s best estimate of selling price.
| 8 |
Revenue Cycle Management
The Company reports revenue cycle management revenues on a net basis, as its primary source of revenue is its end-to-end service fees which is generally determined as a percentage of the invoice amounts collected. These service fees are reported as monthly revenue upon completion of the Company’s performance obligation to provide the agreed upon service.
Entertainment
The Company reports ticketing revenue on a gross or net basis based on management’s assessment of whether the Company is acting as a principal or agent in the transaction. The determination is based upon the evaluation of control over the underlying ticket, including the right to sell the ticket, prior to its transfer to the ticket buyer.
The Company sells tickets held in inventory, which consists of one performance obligation, being to transfer control of an event ticket to the buyer upon confirmation of the order. The Company acts as the principal in these transactions as the ticket is owned by the Company at the time of the sale, therefore controlling the ticket prior to transferring to the customer. In these transactions, revenue is recorded on a gross basis based on the value of the ticket and is recognized when an order is confirmed. Payment is typically due upon delivery of the ticket.
The Company also acts as an intermediary between buyers and sellers through online secondary marketplace. Revenues derived from this marketplace primarily consist of service fees from ticketing operations, and consists of one primary performance obligation, which is facilitating the transaction between the buyer and seller, being satisfied at the time the order has been confirmed. As the Company does not control the ticket prior to the transfer, the Company acts as an agent in these transactions. Revenue is recognized on a net basis, net of the amount due to the seller when an order is confirmed, the seller is then obligated to deliver the tickets to the buyer per the seller’s listing. Payment is due at the time of sale.
Other
Deferred
revenue includes payments received in advance of performance under the contract and are reported separately as current liabilities and
non-current liabilities in the Condensed Consolidated Balance Sheets. Such amounts consist of extended warranty contracts, prepaid cloud
services and prepaid installation services and are generally recognized as the respective performance obligations are satisfied. During
the nine months ended September 30, 2025, the Company recognized revenue of $
SCHEDULE OF DEFERRED REVENUES
| September 30, 2025 | ||||||||||||||||
December 31, 2024 | Additions/ Reclass | Recognized Revenue | September 30, 2025 | |||||||||||||
| Deferred revenue, current | $ | $ | $ | $ | ||||||||||||
| Deferred revenue, non-current | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
| December 31, 2024 | ||||||||||||||||
December 31, 2023 | Additions/ Reclass | Recognized Revenue | December 31, 2024 | |||||||||||||
| Deferred revenue, current | $ | $ | $ | $ | ||||||||||||
| Deferred revenue, non-current | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
Sales
returns and allowances aggregated $
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 condensed consolidated balance sheets and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates. Management utilizes various other estimates, including but not limited to, determining the estimated lives of long-lived assets, determining the potential impairment of long-lived assets, the fair value of warrants, options, 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 other legal claims and contingencies. The results of any changes in accounting estimates are reflected in the condensed consolidated financial statements in the period in which the changes become evident. Estimates and assumptions are reviewed periodically, and the effects of revisions are reflected in the period that they are determined to be necessary.
| 9 |
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 maintains its cash and cash equivalents in banks insured by the Federal Deposit Insurance Corporation (FDIC) in accounts that
at times may be in excess of the federally insured limit of $
Restricted Cash:
Restricted cash of $-- was included in other assets as of September 30, 2025 and 2024, respectively. Restricted cash consists of bank deposits that collateralize a debt obligation. Such debt obligation was paid off as of December 31, 2024.
The following table provides a reconciliation of cash and cash equivalents in the condensed consolidated balance sheets to cash, cash equivalents and restricted cash in the condensed consolidated statements of cash flows:
SCHEDULE OF RECONCILIATION OF CASH AND CASH EQUIVALENTS
September 30, 2025 | September 30, 2024 | |||||||
| Cash and cash equivalents | $ | $ | ||||||
| Long-term restricted cash included in other assets | ||||||||
| Total cash, cash equivalents and restricted cash in the statements of cash flows | $ | $ | ||||||
Goodwill and Other Intangibles:
Goodwill - In connection with acquisitions, the Company applies the provisions of ASC 805, Business Combinations, using the acquisition method of accounting. The excess purchase price over the fair value of net tangible assets and identifiable intangible assets acquired is recorded as goodwill. In accordance with ASC 350, Intangibles - Goodwill and Other, the Company assesses goodwill for impairment annually as of December 31st, and more frequently if events and circumstances indicate that goodwill might be impaired.
Goodwill impairment testing is performed at the reporting unit level. Goodwill is assigned to reporting units at the date the goodwill is initially recorded. Once goodwill has been assigned to reporting units, it no longer retains its association with a particular acquisition, and all of the activities within a reporting unit, whether acquired or internally generated, are available to support the value of the goodwill.
Traditionally, goodwill impairment testing is a two-step process. Step one involves comparing the fair value of the reporting units to its carrying amount. If the carrying amount of a reporting unit is greater than zero and its fair value is greater than its carrying amount, there is no impairment. If the reporting unit’s carrying amount is greater than the fair value, the second step must be completed to measure the amount of impairment, if any. Step two involves calculating an implied fair value of goodwill. The Company has adopted ASU 2017-04 which simplifies subsequent goodwill measurement by eliminating step two from the goodwill impairment test. As a result, the Company compares the fair value of a reporting unit with its respective carrying value and recognizes an impairment charge for the amount by which the carrying amount exceeded the reporting unit’s fair value.
The Company determines the fair value of its reporting units using a weighting of the income and market valuation approaches. The income approach applies a fair value methodology to each reporting unit based on discounted cash flows. This analysis requires significant judgments, including estimation of future cash flows, which is dependent on internally-developed forecasts of revenue and profitability, estimation of the long-term rate of growth for our business, estimation of the useful life over which cash flows will occur, and determination of our weighted average cost of capital, which is risk-adjusted to reflect the specific risk profile of the reporting unit being tested. Under the market approach, we estimate the fair value based on multiples of comparable public companies and precedent transactions. Significant estimates in the income and market approach include: future levels of revenue growth, gross profit margin, EBITDA as a percentage of revenue, cash-free debt-free net working capital as a percentage of revenue, capital expenditures as a percentage of revenue, discount rate, selection of guideline public companies and revenue market multiples.
Long-lived and Other Intangible Assets - The Company periodically assesses potential impairments of its long-lived assets in accordance with the provisions of ASC 360, Accounting for the Impairment or Disposal of Long-lived Assets. An impairment review is performed whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. The Company groups its assets at the lowest level for which identifiable cash flows are largely independent of the cash flows of the other assets and liabilities. The Company has determined that the lowest level for which identifiable cash flows are available is the operating segment level.
Factors considered by the Company include, but are not limited to, significant underperformance relative to historical or projected operating results; significant changes in the manner of use of the acquired assets or the strategy for the overall business; and significant negative industry or economic trends. When the carrying value of a long-lived asset may not be recoverable based upon the existence of one or more of the above indicators of impairment, the Company estimates the future undiscounted cash flows expected to result from the use of the asset and its eventual disposition. If the sum of the expected future undiscounted cash flows and eventual disposition is less than the carrying amount of the asset, the Company recognizes an impairment loss. An impairment loss is reflected as the amount by which the carrying amount of the asset exceeds the fair value of the asset, based on the fair value if available, or discounted cash flows, if fair value is not available. The Company assessed potential impairments of its long-lived assets as of an interim date of September 30, 2024 and concluded that there was an impairment which was recorded during the year ended December 31, 2024. After completing our 2023 annual impairment test, no events or changes in circumstances were noted that required an interim goodwill impairment test until the fiscal third quarter of 2024, when events occurred that we considered triggering events.
During the third fiscal quarter of 2024, management determined that triggering events had occurred resulting from the additional decline in demand for our services, prolonged economic uncertainty, the split-off transaction did not occur when and as expected and a further decrease in our stock price. Therefore, we performed an interim impairment test as of September 30, 2024. Refer to Note 4. Goodwill and Other Intangible Assets for additional details on the interim impairment test, valuation methodologies, and inputs used in the fair value measurements. The Company also assessed potential impairments of its long-lived assets as of December 31, 2024 and concluded that there was no additional impairment as compared to its September 30, 2024 interim assessment. After completing our annual impairment test as of December 31, 2024, no events or changes in circumstances were noted that triggered the requirement for an interim goodwill impairment test for the nine months ended September 30, 2025.
| 10 |
Intangible assets include deferred patent costs, license agreements, trademarks and trade names. Legal expenses incurred in preparation of patent application have been deferred and will be amortized over the useful life of granted patents. Costs incurred in preparation of applications that are not granted will be charged to expense at that time. The Company has entered into several sublicense agreements under which it has been assigned the exclusive rights to certain licensed materials used in its products. These sublicense agreements generally require upfront payments to obtain exclusive rights to such material. The Company capitalizes the upfront payments as intangible assets and amortizes such costs over their estimated useful life on a straight-line method.
Fair value of assets and liabilities acquired in business combinations:
The Company allocates the amount it pays for each acquisition to the assets acquired and liabilities assumed based on their fair values at the date of acquisition, including identifiable intangible assets which arise from a contractual or legal right or are separable from goodwill. The Company bases the fair value of identifiable intangible assets acquired in a business combination on detailed valuations that use information and assumptions provided by management to valuation specialists, which consider management’s best estimates of inputs and assumptions that a market participant would use. The Company allocates any excess purchase price that exceeds the fair value of the net tangible and identifiable intangible assets acquired to goodwill. The use of alternative valuation assumptions, including estimated growth rates, cash flows, discount rates and estimated useful lives could result in different purchase price allocations and amortization expenses in current and future periods. Transaction costs associated with these acquisitions are expensed as incurred through selling, general and administrative expenses on the condensed consolidated statement of operations. In those circumstances where an acquisition involves a contingent consideration arrangement, the Company recognizes a liability equal to the fair value of the contingent payments expected to be made as of the acquisition date. The Company re-measures this liability for each reporting period and records changes in the fair value through operating income within the condensed consolidated statements of operations.
Warrant Derivative Liabilities:
In accordance with FASB ASC 815-40, Derivatives and Hedging: Contracts in an Entities Own Equity, entities must consider whether to classify contracts that may be settled in its own stock, such as warrants to purchase shares of Common Stock, as equity of the entity or as an asset or liability. If an event that is not within the entity’s control could require net cash settlement, then the contract should be classified as an asset or a liability rather than as equity. We have determined that because the terms of the various warrants issued and remain outstanding, include a provision that entitles all the warrant holders to receive cash for their warrants in the event of a qualifying cash tender offer, while only certain of the holders of the underlying shares of Common Stock would be entitled to cash, our warrants should be classified as liability measured at fair value, with changes in fair value each period reported in earnings. Volatility in the price of our Common Stock may result in significant changes in the value of the derivatives and resulting gains and losses on our condensed consolidated statement of operations.
Segment Reporting
The accounting guidance on Segment Reporting establishes standards for reporting information regarding operating segments in annual financial statements and requires selected information of those segments to be presented in the condensed consolidated financial statements. Operating segments are identified as components of an enterprise for which separate discrete financial information is available for evaluation by the chief operating decision maker (the Company’s Chief Executive Officer or “CODM”) in making decisions on how to allocate resources and assess performance. The Company’s three operating segments are Video Solutions, Revenue Cycle Management, and Entertainment, each of which has specific personnel responsible for that business and reports to the CODM. Corporate expenses capture the Company’s corporate administrative activities, is also to be reported in the segment information. Therefore, its operations are eliminated in consolidation and is not considered a separate business segment for financial reporting purposes.
The Company adopted ASU 2023-07 in 2024 and applied the amendment retrospectively to all periods presented in the Company’s condensed consolidated financial statements. See Note 17, Operating Segments, for more information.
Non-Controlling Interests
Non-controlling
interests in the Company’s Condensed Consolidated Financial Statements represent the interest in subsidiaries held by venture partners.
The venture partners hold noncontrolling interests in the Company’s consolidated subsidiary Nobility Healthcare, LLC. Since the
Company consolidates the financial statements of all wholly-owned and majority owned subsidiaries, the noncontrolling owners’ share
of each subsidiary’s results of operations are deducted and reported as net income attributable to noncontrolling interest in the
Condensed Consolidated Statements of Operations. The Company owns a
New Accounting Standards
Recently Adopted Accounting Standard Updates. - ASU 2023-07, Improvements to Reportable Segment Disclosures, which requires companies to disclose significant segment expenses provided to the chief operating decision maker (“CODM”) and a description of other segment items. Additionally, all existing annual disclosures must be provided on an interim basis. This ASU is effective for annual periods beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. This ASU is required to be applied retrospectively to all prior periods presented in the condensed consolidated financial statements. The Company adopted ASU 2023-07 in 2024 and applied the amendment retrospectively to all periods presented in the Company’s condensed consolidated financial statements. See Note 17, Operating Segments, for more information.
Recently Issued Accounting Pronouncements. - ASU 2023-09, Improvements to Income Tax Disclosures, requires improved disclosures related to the rate reconciliation and income taxes paid. This ASU requires companies to reconcile the income tax expense attributable to continuing operations to the U.S. statutory federal income tax rate applied to pre-tax income from continuing operations. Additionally, this ASU requires companies to disclose the total amount of income taxes paid during the period. This ASU is effective for annual periods beginning after December 15, 2024, with early adoption permitted. The guidance is required to be applied on a prospective basis with the option to apply retrospectively to all prior periods presented in the consolidated financial statements. The Company has evaluated the impact and determined there was no impact to the condensed consolidated financial statements as of September 30, 2025.
| 11 |
ASU 2024-03, Disaggregation of Income Statement Expenses, requires disaggregated disclosures in the notes to the consolidated financial statements of certain categories of expenses that are included in expense line items on the Consolidated Statement of Income. This ASU is effective for annual periods beginning after December 15, 2026 and interim reporting periods beginning after December 15, 2027, with early adoption permitted. The guidance is required to be applied on a prospective basis with the option to apply retrospectively to all prior periods presented in the consolidated financial statements. The Company is currently evaluating the impact to the Company’s condensed consolidated financial statements.
ASU 2024-04, Induced Conversions of Convertible Debt Instruments, clarifies the requirement for determining whether certain settlements of convertible debt instruments should be accounted for as induced conversions or extinguishments. This ASU is effective for annual periods beginning after December 15, 2025. Early adoption is permitted and can be applied either on a prospective basis or retrospective basis. The Company is currently evaluating the impact of this ASU to the Company’s condensed consolidated financial statements, however the Company does not anticipate this guidance having a material impact to the condensed consolidated financial statements.
The other recent accounting pronouncements issued by the Financial Accounting Standards Board (“FASB”) are not expected to have a significant impact on the Company’s consolidated financial statements and related disclosures.
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 incurred substantial operating losses in
the years ended December 31, 2024 and year to date September 30, 2025 primarily due to reduced gross margins caused by a combination
of competitors’ introduction of newer products with more advanced features together with significant price cutting of their products
and the recent acquisitions with much smaller margins than the video solutions segment, historically. The Company incurred operating
losses of approximately $
In
recent years the Company has accessed the public and private capital markets to raise funding through the issuance of debt and equity.
In that regard, the Company raised approximately $
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.
During the nine months ended September 30, 2025, the Company implemented a cost-reduction program and enhanced its short- and long-term liquidity through (i) the February 2025 public equity offering, (ii) the issuance of senior secured convertible notes, and (iii) entry into a committed equity facility (the “ELOC”). Within the entertainment segment, the Company exited several large partnerships and sponsorships that did not meet expected returns; management does not expect discontinuing these arrangements to materially hinder total revenues in 2025 or thereafter. In the video segment, the Company reduced headcount and relocated to smaller, lower-cost facilities following the sale of its warehouse/office building.
The
Company has successfully recorded $
As
a result of the Company’s implementation of cost-cutting measures and liquidity generated by the recent public equity offerings,
the Company has significantly improved its financial position. During the nine months ended September 30, 2025, the working capital deficit
improved significantly to $
Based on the uncertainties described above and the corrective actions implemented by management, the Company believes its business plan including the implementation of corrective actions mitigates the existence of substantial doubt about its ability to continue as a going concern within one year from the date of the issuance of these condensed consolidated financial statements. The accompanying condensed consolidated financial statements do not include any adjustments related to the recoverability and classification of asset amounts or the classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
| 12 |
NOTE 2. INVENTORIES
Inventories consisted of the following at September 30, 2025 and December 31, 2024:
SCHEDULE OF INVENTORIES
September 30, 2025 | December 31, 2024 | |||||||
| Raw material and component parts– video solutions segment | $ | $ | ||||||
| Work-in-process– video solutions segment | ||||||||
| Finished goods – video solutions segment | ||||||||
| Finished goods – entertainment segment | ||||||||
| Subtotal | ||||||||
| Reserve for excess and obsolete inventory– video solutions segment | ( | ) | ( | ) | ||||
| Reserve for excess and obsolete inventory – entertainment segment | ( | ) | ( | ) | ||||
| Total inventories | $ | $ | ||||||
NOTE 3. PREPAID EXPENSES
Prepaid expenses were the following at September 30, 2025 and December 31, 2024:
SCHEDULE OF PREPAID EXPENSE
September 30, 2025 | December 31, 2024 | |||||||
| Prepaid inventory | $ | $ | ||||||
| Prepaid advertising | ||||||||
| Prepaid commissions | ||||||||
| Other | ||||||||
| Total prepaid expenses | $ | $ | ||||||
NOTE 4. GOODWILL AND OTHER INTANGIBLE ASSETS
Intangible assets consisted of the following as of September 30, 2025 and December 31, 2024:
SCHEDULE OF INTANGIBLE ASSETS
| September 30, 2025 | ||||||||||||||||
Gross value | Accumulated amortization | Accumulated impairment | Net carrying value | |||||||||||||
| Amortized intangible assets: | ||||||||||||||||
| Patents and trademarks (video solutions segment) | $ | $ | $ | $ | ||||||||||||
| Sponsorship agreement network (entertainment segment) | ||||||||||||||||
| SEO content (entertainment segment) | ||||||||||||||||
| Personal seat licenses (entertainment segment) | ||||||||||||||||
| Website enhancements (entertainment segment) | ||||||||||||||||
| Client agreements (revenue cycle management segments) | ||||||||||||||||
| Indefinite life intangible assets: | ||||||||||||||||
| Goodwill (Entertainment segment) | ||||||||||||||||
| Goodwill (Revenue cycle management segment) | ||||||||||||||||
| Trade name and trademarks (entertainment segment) | ||||||||||||||||
| Patents and trademarks pending (video solutions segment) | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| 13 |
| December 31, 2024 | ||||||||||||||||
Gross value | Accumulated amortization | Accumulated impairment | Net carrying value | |||||||||||||
| Amortized intangible assets: | ||||||||||||||||
| Patents and trademarks (video solutions segment) | $ | $ | $ | $ | ||||||||||||
| Sponsorship agreement network (entertainment segment) | ||||||||||||||||
| SEO content (entertainment segment) | ||||||||||||||||
| Personal seat licenses (entertainment segment) | ||||||||||||||||
| Software | ||||||||||||||||
| Website enhancements (entertainment segment) | ||||||||||||||||
| Client agreements (revenue cycle management segments) | ||||||||||||||||
| Indefinite life intangible assets: | ||||||||||||||||
| Goodwill (Entertainment segment) | ||||||||||||||||
| Goodwill (Revenue cycle management segment) | ||||||||||||||||
| Trade name and trademarks (entertainment segment) | ||||||||||||||||
| Patents and trademarks pending (video solutions segment) | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
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 consist of sponsorship agreement network, SEO content, personal seat licenses, website enhancements and client agreements. These assets are recorded at cost and amortized on a straight-line basis over their estimated useful lives.
SCHEDULE OF INTANGIBLE ASSETS USEFUL LIFE
| Intangible Asset Useful Life | ||||
| Patents and trademarks (video solutions segment) | $ | | ||
| Sponsorship agreement network (entertainment segment) | ||||
| SEO content (entertainment segment) | ||||
| Personal seat licenses (entertainment segment) | ||||
| Software | ||||
| Website enhancements (entertainment segment) | ||||
| Client agreements (revenue cycle management segments) | ||||
Amortization
for the three months ended September 30, 2025 and 2024 was $
SCHEDULE OF ESTIMATED AMORTIZATION FOR INTANGIBLE ASSETS
| Year ending December 31: | ||||
| 2025 (October 1, 2025 to December 31, 2025) | $ | |||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| 2029 | ||||
| 2030 and thereafter | ||||
| Total | $ | |||
Annual impairment test
We performed an annual impairment test as of December 31, 2024 for each of our reporting units with remaining goodwill. Subsequent to completing our annual impairment test as of December 31, 2024, no events or changes in circumstances were noted that triggered the requirement for an interim goodwill impairment test for the nine months ended September 30, 2025.
The
fair value of each reporting unit was estimated using a weighting of the income and market valuation approaches. The income approach
applied a fair value methodology to each reporting unit based on discounted cash flows. This analysis requires significant judgments,
including estimation of future cash flows, which is dependent on internally-developed forecasts of revenue and profitability, estimation
of the long-term rate of growth for our business, estimation of the useful life over which cash flows will occur, and determination of
our weighted average cost of capital, which is risk-adjusted to reflect the specific risk profile of the reporting unit being tested.
The weighted average cost of capital used in our most recent impairment test ranged from
The
combined fair values for all reporting units were then reconciled to our aggregate market value of our shares of Common Stock on the
date of valuation, while considering a reasonable control premium. We consider a reporting unit’s fair value to be substantially
in excess of the reporting unit’s carrying value at a
| 14 |
Interim impairment test at September 30, 2024
We performed an interim impairment test as of the last day of the fiscal third quarter of 2024 as management determined that a triggering event had occurred resulting from the additional decline in demand for our services, prolonged economic uncertainty, the fact that the split-off transaction did not occur when and as expected and a further decrease in our stock price. Therefore, we performed an interim impairment test as of September 30, 2024 for our reporting units with remaining goodwill.
The
fair value of each reporting unit was estimated using a weighting of the income and market valuation approaches. The income approach
applied a fair value methodology to each reporting unit based on discounted cash flows. This analysis requires significant judgments,
including estimation of future cash flows, which is dependent on internally-developed forecasts of revenue and profitability, estimation
of the long-term rate of growth for our business, estimation of the useful life over which cash flows will occur, and determination of
our weighted average cost of capital, which is risk-adjusted to reflect the specific risk profile of the reporting unit being tested.
The weighted average cost of capital used in our most recent impairment test ranged from
The
combined fair values for all reporting units were then reconciled to our aggregate market value of our shares of Common Stock on the
date of valuation, while considering a reasonable control premium. We consider a reporting unit’s fair value to be substantially
in excess of the reporting unit’s carrying value at a
We
held goodwill of $
Indefinite-lived intangible assets
We
held indefinite-lived trade names/trademarks of $
As
a result of our interim impairment test as of the last day of the fiscal third quarter of 2024 management concluded that the carrying
amount of a trade name/trademark related to the entertainment segment exceeded its estimated fair value and we recorded a non-cash impairment
charge of $
NOTE 5. DEBT OBLIGATIONS
Debt obligations are comprised of the following:
SCHEDULE OF DEBT OBLIGATIONS
September 30, 2025 | December 31, 2024 | |||||||
| Economic injury disaster loan (EIDL) | $ | $ | ||||||
| Unsecured Promissory note – Entertainment Segment | ||||||||
| Secured convertible note | ||||||||
| Commercial Extension of Credit- Entertainment Segment | ||||||||
| Merchant Advances – Video Solutions Segment | ||||||||
| Senior Secured Promissory Notes | ||||||||
| Unamortized debt issuance costs | ( | ) | ( | ) | ||||
| Debt obligations | ||||||||
| Less: current maturities of debt obligations | ||||||||
| Debt obligations, long-term | $ | $ | ||||||
Debt obligations mature on an annual basis as follows as of September 30, 2025:
SCHEDULE OF MATURITY OF DEBT OBLIGATIONS
September 30, 2025 |
||||
| 2025 (October 1, 2025 to December 31, 2025) | $ | |||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| 2029 and thereafter | ||||
| Total | $ | |||
| 15 |
2020 Small Business Administration Notes.
On
May 12, 2020, the Company received $
Under
the terms of the note issued under the EIDL program, interest accrues on the outstanding principal at the rate of
Unsecured Promissory Note
On
February 1, 2025, the Company’s Entertainment Segment entered into a $
2024 Commercial Extension of Credit
On
January 22, 2024, the Company’s Entertainment segment entered an extension of credit in the form of a loan to use in marketing
and operating its business in accordance with the Ticket Solution Agreement. The Lender, Ticket Evolution, Inc., agreed to extend, subject
to the conditions hereof, and Borrower agreed to take, an advance for a sum of $
The
advances made are recoupable from client service fees with no more than $
Merchant Cash Advances – Video Solutions Segment
In
November 2023, the Company obtained a short-term merchant advance, which totaled $
During
the year ended December 31, 2024, the Company made repayments totaling $
As
of December 31, 2024 the outstanding principal balance was $
Securities Purchase Agreement and Senior Secured Promissory Notes
On
November 6, 2024, the Company entered into a Securities Purchase Agreement (the “SPA”) with certain institutional investors
(the “Purchasers”), pursuant to which the Company agreed to issue and sell to such Purchasers, in a private placement transaction,
(i) senior secured promissory notes in aggregate principal amount of $
Pursuant to the SPA, the Company is required to file within 30 days of the Closing Date a registration statement with the SEC for a public offering and use its reasonable best efforts to pursue and consummate a follow-on financing transaction within 90 days of the Closing Date. The proceeds of the public offering shall be first used for the repayment of the principal amounts of the Notes. The Company is also required to file within 30 days of the Closing Date a registration statement on Form S-1 (or other appropriate form if the Company is not then S-1 eligible) providing for the resale by the Purchasers of the Commitment Shares issued under the SPA. The Company is required to use commercially reasonable efforts to cause such registration statement to become effective within 60 days following the filing thereof and to keep such registration statement effective at all times until no Purchaser owns any Commitment Shares.
Furthermore, pursuant to the SPA, the Company was required to complete the following: (i) the Company’s board of directors shall approve an amendment to the Company’s bylaws setting the quorum required for a special meeting of stockholders to one-third of all stockholders entitled to vote at such special meeting and (ii) the Company shall file with the SEC a preliminary proxy statement on Schedule 14A announcing a meeting of stockholders for the purpose of approving the Series A and Series B warrants issued by the Company on June 25, 2024.
| 16 |
If
the Company engages in one or more subsequent financings while the senior secured promissory notes are outstanding, the Company will
be required to use at least
The
net proceeds of the private placement on November 7, 2024 was $
| Amount | ||||
| Allocated to the following: | ||||
| Senior secured promissory notes | $ | |||
| Commitment shares | ||||
| Total | $ | |||
The Company paid the senior secured promissory notes off in full on February 13, 2025 with funds generated by the February 2025 public equity offering (See Note 12). Following is an analysis of the senior secured promissory notes balance:
SCHEDULE OF SENIOR SECURED PROMISSORY NOTES BALANCE
| Amount | ||||
| Balance, as of December 31, 2023 | $ | |||
| Issuance of senior secured promissory notes, at par | ||||
| Discount recognized at issuance date | ( | ) | ||
| Amortization of discount | ||||
| Balance, as of December 31, 2024 | ||||
| Amortization of discount | ||||
| Principal payment | ( | ) | ||
| Balance, as of September 30, 2025 | $ | |||
Senior Secured Convertible Note and Committed Equity Financing
On
September 15, 2025, the Company entered into a Securities Purchase Agreement with an institutional investor (the “Purchaser”),
pursuant to which the Company issued Senior Secured Convertible Notes (the “September 2025 Notes”)with an aggregate original
principal amount of $
The
September 2025 Notes are convertible at the investor’s option at any time at a conversion price equal to a
The September 2025 Notes are senior secured obligations, ranking senior to all existing and future indebtedness of the Company, except for specified subsidiaries that provide either a second-priority or no security interest. The Notes are secured by substantially all of the Company’s assets and guaranteed by certain subsidiaries. In connection with the transaction, the Company also entered into a Registration Rights Agreement and a Leak-Out Agreement with customary terms and conditions.
The Company allocated the proceeds between the debt and equity components of the September 2025 Notes based on their relative fair values, recorded a debt discount for the value of the warrants, conversion feature, and original issue discount, and recognized a derivative liability for the variable conversion feature. The debt discount will be amortized to interest expense over the term of the September 2025 Notes using the effective-interest method, and the derivative liability will be remeasured at each reporting date, with changes in fair value recognized in earnings.
| 17 |
The
net proceeds of the private placement on September 15, 2025 was $
SCHEDULE OF ALLOCATED NET PROCEEDS FROM PRIVATE PLACEMENT OF DETACHABLE WARRANTS
| Amount | ||||
| Allocated to the following: | ||||
| Senior secured promissory notes | $ | |||
| Detachable warrants | ||||
| Total | $ | |||
Committed Equity Financing (ELOC)
On
September 15, 2025 (the “Closing Date”), the Company entered into a Common Stock Purchase Agreement (the “ELOC Purchase
Agreement”) with an institutional investor (the “ELOC Investor”), providing a committed equity financing facility of
up to $
Concurrently with the execution of the ELOC Purchase Agreement, the Company entered into a Registration Rights Agreement (the “ELOC Registration Rights Agreement”) with the investor, pursuant to which the Company agreed to file one or more registration statements under the Securities Act of 1933, as amended, to register the resale of shares issuable under the facility. The initial registration statement must be declared effective before any sales under the facility may occur.
Upon
effectiveness of the registration statement and satisfaction of other customary conditions (the “Commencement Date”), the
Company may, from time to time and at its discretion, deliver written purchase notices (“ELOC Purchase Notices”) directing
the ELOC Investor to purchase shares of common stock. The purchase price per share will be equal to
As
consideration for the ELOC Investor’s commitment, the Company
The
ELOC Purchase Agreement includes customary restrictions on entering into other variable-rate transactions during its 36-month term and
prohibits the investor from engaging in short sales or hedging transactions involving the Company’s common stock. The facility
may be terminated upon the earlier of (i) the first day of the month following the 36-month anniversary of the Closing Date, (ii) the
aggregate purchase price of $
As of September 30, 2025, the Company has not received shareholder approval of the transactions, nor has the underlying Registration Statement been declared effective and therefore the Company has not sold any shares under the ELOC facility. The Company will record the related commitment fee and transaction costs as deferred equity issuance costs within Additional Paid-In Capital, to be amortized against proceeds from future ELOC drawdowns at such time as the Company has received shareholder approval of the transactions and the underlying Registration Statement has been declared effective. The Company intends to use any future proceeds from sales under the ELOC facility for general corporate and working capital purposes.
NOTE 6. FAIR VALUE MEASUREMENT
In accordance with ASC Topic 820 — Fair Value Measurements and Disclosures (“ASC 820”), the Company utilizes the market approach to measure fair value for its financial assets and liabilities. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets, liabilities or a group of assets or liabilities, such as a business.
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) |
| 18 |
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, 2025 and December 31, 2024:
SCHEDULE OF FINANCIAL ASSETS AND LIABILITIES MEASURED AT FAIR VALUE ON RECURRING BASIS
| September 30, 2025 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Liabilities: | ||||||||||||||||
| Warrant derivative liabilities | $ | $ | $ | $ | ||||||||||||
| $ | $ | $ | $ | |||||||||||||
| December 31, 2024 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Liabilities: | ||||||||||||||||
| Warrant derivative liabilities | $ | $ | $ | $ | ||||||||||||
| $ | $ | $ | $ | |||||||||||||
The following table represents the change in Level 3 tier value measurements for the nine months ended September 30, 2025:
SCHEDULE OF FAIR VALUE MEASUREMENTS CHANGE IN LEVEL 3 INPUTS
Warrant Derivative | ||||
| Balance, December 31, 2024 | $ | |||
| Issuance of pre-funded warrant derivative liabilities in February 2025 public equity offering | ||||
| Issuance/Activation of Series A Warrants issued in connection with the February 2025 public equity offering | ||||
| Issuance/Activation of Series B Warrants issued in connection with the February 2025 public equity offering | ||||
| Transition of warrant derivative liability to equity due to exercise of pre-funded warrant derivative liabilities in February 2025 public equity offering | ( | ) | ||
| Transition of warrant derivative liability to equity due to exercise of Series B common stock purchase warrants issued in June 2024 Private Placement | ( | ) | ||
| Transition of warrant derivative liability to equity due to exercise of Series B common stock purchase warrants issued in February 2025 Public Equity Offering | ( | ) | ||
| Transition of warrant derivative liability to equity due to elimination of net cash settlement provisions relative to the Series A common stock purchase warrants issued in February 2025 Public Equity Offering | ( | ) | ||
| Change in fair value of warrant derivative liabilities | ( | ) | ||
| Balance, September 30, 2025 | $ | |||
NOTE 7. ACCRUED EXPENSES
Accrued expenses consisted of the following at September 30, 2025 and December 31, 2024:
SCHEDULE OF ACCRUED EXPENSES
| September 30, 2025 | December 31, 2024 | |||||||
| Accrued warranty expense | $ | $ | ||||||
| Accrued payroll and related fringes | ||||||||
| Accrued sales returns and allowances | ||||||||
| Accrued sales taxes | ||||||||
| Accrued interest - related party | ||||||||
| Accrued board of directors’ fees | ||||||||
| Customer deposits | ||||||||
| Other | ||||||||
| Total accrued expenses | $ | $ | ||||||
| 19 |
NOTE 8. INCOME TAXES
The
effective tax rate for the three and nine months ended September 30, 2025, and 2024 varied from the expected statutory rate due to the
Company continuing to provide a
The Company incurred operating losses in recent years, and it continues to be in a three-year cumulative loss position at September 30, 2025. 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 fully reserve its deferred tax assets at September 30, 2025. 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, 2025, 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 2025 and 2043 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 2023 federal tax return was recently examined by the Internal Revenue Service resulting in no proposed adjustments.
NOTE 9. COMMITMENTS AND CONTINGENCIES
Litigation.
From time to time, we are notified that we may be a party to a lawsuit or that a claim is being made against us. It is our policy not to disclose the specifics of any claim or threatened lawsuit until the summons and complaint are actually served on us. After carefully assessing the claim, and assuming we determine that we are not at fault or we disagree with the damage or relief demanded, we vigorously defend any lawsuit filed against us. We record a liability when losses are deemed probable and reasonably estimable. When losses are deemed reasonably possible but not probable, we determine whether it is possible to provide an estimate of the amount of the loss or range of possible losses for the claim, if material for disclosure. In evaluating matters for accrual and disclosure purposes, we take into consideration factors such as our historical experience with matters of a similar nature, the specific facts and circumstances asserted, the likelihood of our prevailing, the availability of insurance, and the severity of any potential loss. We reevaluate and update accruals as matters progress over time.
On May 31, 2022, the Company filed a lawsuit against Culp McAuley, Inc. (“Culp McAuley”) and four individuals (Brandon Culp, Campbell McAuley, Mark Depew and Larry Roberts) (collectively the “defendants”) in the United States District Court for the District of Kansas, seeking monetary damages and injunctive relief based on certain conduct by the defendants. On July 18, 2022, Culp McAuley filed its Answer to the Company’s Verified Complaint and included Counterclaims alleging breach of contract and seeking monetary damages. On August 8, 2022, the Company filed its Reply and Affirmative Defenses to the Counterclaims by, among other things, denying the allegations and any and all liability.
On December 20, 2022, the Company filed a motion for leave to file a second amended complaint to add additional claims against the defendants to avoid fraudulent transfers, to pierce the corporate veil of Culp McAuley, and for remedies related to the claims for fraudulent transfers and piercing the corporate veil. On December 22, 2022, the Court issued an Order granting the Company’s motion for leave to file a second amended complaint, which was filed with the Court on December 27, 2022. Because Culp McAuley’s original counsel withdrew, Culp McAuley was ordered to obtain new counsel on or before December 2, 2022. On December 5, 2022, the Court ordered that Culp McAuley show cause in writing by December 21, 2022, why the Court should not direct the Clerk to enter default against it. On December 22, 2022, the Court directed the Clerk to enter default against Culp McAuley. On February 21, 2023, the Clerk entered default against Culp McAuley.
In February and March, 2023, defendants Larry Roberts and Mark Depew filed separate motions to dismiss, respectively. The Company opposed both motions. On July 7, 2023, the Court issued an Order granting Roberts’ motion to dismiss and denying Depew’s motion to dismiss. On December 7, 2023, the Company filed an application for the Clerk’s entry of default against defendant Brandon Culp. On December 13, 2023, the Clerk entered default against Brandon Culp.
| 20 |
On
January 5, 2024, the Company filed a motion for summary judgment against defendants Campbell McAuley and Mark Depew. On the same date,
the Company also filed separate motions for default judgment against Culp McAuley and Brandon Culp, respectively. On January 5, 2024,
defendant Mark Depew filed a motion for summary judgment against the Company. On May 17, 2024, the Court issued Orders which, respectively,
(i) granted defendant Mark Depew’s motion for summary judgment against the Company; (ii) denied the Company’s motion for
summary judgment against Depew; (iii) granted the Company’s motion for summary judgment against defendant Campbell McAuley; and
(iv) granted the Company’s motions for default judgment against defendants Culp McAuley and Brandon Culp. Finding that defendants
Brandon Culp and Campbell McAuley were each the alter ego of Culp McAuley, on June 4, 2024, the Court entered judgment in favor of the
Company in the amount of $
On June 14, 2024, the Company filed a Notice of Appeal to the United States Court of Appeals for the Tenth Circuit from the Court’s May 17, 2024 Order that granted summary judgment in favor of Mark Depew. On December 10, 2024, the Company and Depew filed a Stipulation of Dismissal in the Tenth Circuit that ended the appeal after the Company and Depew reached a settlement.
In March 2024, the Company filed a complaint against Larry Roberts (“defendant”) in the Superior Court of the State of California, County of Orange. The lawsuit arises from the defendant’s multiple breaches of his obligations to the Company. The Company seeks monetary damages based on certain conduct by the defendant. On May 28, 2024, the defendant filed a motion to strike portions of the complaint and a motion for demurrer. On October 4, 2024, the Court sustained in part and overruled in part defendant’s motion for demurrer. The Court further denied the defendant’s motion to strike in its entirety. A jury trial has been scheduled for October 19, 2026.
As
of September 30, 2025 and December 31, 2024, we are able to estimate a range of reasonably possible loss related to the Culp McCauley
case (when taking into account, among other things, the uncertainty of recovering the judgment amount owed to the Company by Culp McAuley,
Brandon Culp and Campbell McAuley, jointly and severally), our estimate of the aggregate reasonably possible loss could be the entire
balance of the judgment. The Company has recorded an additional loss of $
While the ultimate resolution is unknown, based on the information currently available, we do not expect that the pending lawsuit or the enforcement of the judgment will have a material adverse effect on our 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 the pending lawsuit or enforcement of the judgment 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.
Notices of Failure to Satisfy a Continued Listing Rule
Minimum Bid Price Requirement – On December 20, 2024, the Company received a written notification from The Nasdaq Stock Market LLC indicating that the Company was not in compliance with Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Price Requirement”), as the Company’s closing bid price for its Common Stock was below $ per share for the prior thirty (30) consecutive business days. The Company has been granted a 180-calendar day compliance period, or until June 18, 2025, to regain compliance with the Minimum Bid Price Requirement. If the Company is not in compliance by June 18, 2025, the Company may be afforded a second 180-calendar day compliance period. If the Company does not regain compliance within such compliance period, including any granted extensions, its Common Stock may be subject to delisting, which delisting may be appealed to a Nasdaq hearings panel.
Minimum
Stockholders’ Equity Standard - On January 2, 2025, the Company received a notice (the “Notice”) from the staff
of the Listing Qualifications department (the “Staff”) of Nasdaq, which indicated that the Company was not in compliance
with Nasdaq Listing Rule 5550(b)(1) (the “Stockholders’ Equity Requirement”), as the Company’s stockholders’
equity of ($
Under Nasdaq listing rules and as specified in the Notice, the Company has 45 calendar days from the date of the Notice to submit to the Staff a plan to regain compliance with the Stockholders’ Equity Requirement. If the Company’s plan to regain compliance is accepted, Nasdaq may grant an extension of up to 180 calendar days from the date of the Notice for the Company to evidence compliance.
The Company submitted its plan to Nasdaq to regain compliance with the Stockholders’ Equity Requirement on February 17, 2025. There can be no assurance that the Company’s plan will be accepted or that if it is, that the Company will be able to regain compliance with the Stockholders’ Equity Requirement.
If the Company does not regain compliance within the allotted compliance period(s), including any extensions that may be granted by Nasdaq, Nasdaq will provide notice that the Common Stock will be subject to delisting from the Nasdaq Capital Market. At that time, the Company may appeal any such delisting determination to a Nasdaq hearings panel.
Minimum Bid Price Requirement - On March 6, 2025, the Company received notice (the “March 6 Letter”) from the Nasdaq Staff that the Staff had determined that as of March 5, 2025, the Company’s securities had a closing bid price of $ or less for ten consecutive trading days triggering application of Listing Rule 5810(c)(3)(A)(iii) which states in part: if during any compliance period specified in Rule 5810(c)(3)(A), a company’s security has a closing bid price of $ or less for ten consecutive trading days, the Listing Qualifications Department shall issue a Staff Delisting Determination under Rule 5810 with respect to that security (the “Low Priced Stocks Rule”). As a result, the Staff determined to delist the Company’s securities from Nasdaq, unless the Company timely requests an appeal of the Staff’s determination to a Hearings Panel (the “Panel”), pursuant to the procedures set forth in the Nasdaq Listing Rule 5800 Series. The Company must request a hearing no later than 4:00 p.m. Eastern Time on March 13, 2025.
| 21 |
The Company timely requested a hearing before the Panel to appeal the March 6 Letter and to address all outstanding matters, including compliance with the Minimum Bid Price Requirement, the Low-Priced Stocks Rule and the Stockholders’ Equity Requirement, which hearing date has not been set as of the date of this Form 10-K. While the appeal process is pending, the suspension of trading of the Company’s Common Stock, will be stayed and the Common Stock will continue to trade on the Nasdaq Capital Market until the hearing process concludes, and the Panel issues a written decision. The Company held its hearing with the Panel as scheduled on April 17, 2025.
On May 1, 2025, the Panel rendered its decision which granted the Company’s request for continued listing on the Nasdaq Exchange. Such decision is subject to the following conditions:
| ● | On or before May 2, 2025, the Company shall file Form 10-K for 2024 in compliance with Listing Rule 5250(c)(1). | |
| ● | On or before May 20, 2025, the Company must file a public disclosure describing any transactions undertaken by the Company to increase its equity and provide an indication of its equity following those transactions. | |
| ● | In addition, on or before May 20, 2025, the Company must provide the Panel with an update on its fundraising plans, and updated income projections for the next 12 months, with all underlying assumptions clearly stated. | |
| ● | On or before June 6, 2025, the Company shall demonstrate compliance with the Minimum Bid Price Requirement. | |
| ● | If, prior to September 2, 2025, the Company becomes non-compliant with any Listing Rule, the Company will be delisted. |
The Company continues to work diligently to regain and maintain compliance with the Minimum Bid Price Requirement and Stockholders’ Equity Requirement as promptly as possible. In that regard, management believes that it has achieved compliance with the Stockholders’ Equity Requirement as reported in the accompanying Statement of Stockholders’ Equity (Deficit) as of September 30, 2025. Furthermore, management believes that it has achieved compliance with the Minimum Bid Price Requirement prior to June 6, 2025, as required by the Panel. Management believes that it has met all other requirements as requested by the Panel. There are no assurances however, that the Company will be able to meet and maintain all such conditions required by the Panel.
On October 17, 2025, the Company received notice from Nasdaq that notified the Company that it had regained full compliance with the Minimum Bid Price Requirement and Stockholders’ Equity Requirement. The Nasdaq has now placed the Company under a one-year Discretionary Panel Monitor. Under the Discretionary Panel Monitor, the Company will not be permitted to request additional time to regain compliance with any deficiencies that occur within the one-year period regarding noncompliance with the Periodic Filing or Bid Price Rules. Such one-year period expires on July 31, 2026 with regard to the Periodic Filing Rules and September 2, 2026 regarding the Bid Price Rules.
The Company recorded pre-tax compensation expense related to the grant of stock options and restricted stock issued of $ and $ for the nine months ended September 30, 2025 and 2024, respectively.
As of September 30, 2025, the Company had adopted ten separate stock option and restricted stock plans: (i) the 2005 Stock Option and Restricted Stock Plan (the “2005 Plan”), (ii) the 2006 Stock Option and Restricted Stock Plan (the “2006 Plan”), (iii) the 2007 Stock Option and Restricted Stock Plan (the “2007 Plan”), (iv) the 2008 Stock Option and Restricted Stock Plan (the “2008 Plan”), (v) the 2011 Stock Option and Restricted Stock Plan (the “2011 Plan”), (vi) the 2013 Stock Option and Restricted Stock Plan (the “2013 Plan”), (vii) the 2015 Stock Option and Restricted Stock Plan (the “2015 Plan”), (viii) the 2018 Stock Option and Restricted Stock Plan (the “2018 Plan”), (ix) the 2020 Stock Option and Restricted Stock Plan (the “2020 Plan”), and (x) the 2022 Stock Option and Restricted Stock Plan (the “2022 Plan”). The 2005 Plan, 2006 Plan, 2007 Plan, 2008 Plan, 2011 Plan, 2013 Plan, 2015 Plan, 2018 Plan, 2020 Plan and 2022 Plan are referred to as the “Plans.”
Stock option grants. The Company believes that such awards better align the interests of our employees with those of its stockholders. Option awards have been granted with an exercise price equal to the market price of its 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). The Company has registered all shares of Common Stock that are issuable under its Plans with the SEC. A total of shares remained available for awards under the various Plans as of September 30, 2024.
The fair value of each option award is estimated on the date of grant using a Black-Scholes option valuation model.
SCHEDULE OF STOCK OPTIONS OUTSTANDING
| Options | Number of Shares | Weighted Average | ||||||
| Outstanding at January 1, 2025 | $ | |||||||
| Granted | ||||||||
| Exercised | ||||||||
| Forfeited | ||||||||
| Outstanding at September 30, 2025 | $ | |||||||
| Exercisable at September 30, 2025 | $ | |||||||
| Options | Number of Shares | Weighted Average | ||||||
| Outstanding at January 1, 2024 | $ | |||||||
| Granted | ||||||||
| Exercised | ||||||||
| Forfeited | ( | ) | ||||||
| Outstanding at September 30, 2024 | $ | |||||||
| Exercisable at September 30, 2024 | $ | |||||||
| 22 |
The fair value of each option award is estimated on the date of grant using a Black-Scholes option valuation model
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, 2025 and 2024.
At September 30, 2025 and December 31, 2024, the aggregate intrinsic value of options outstanding was approximately $-- and $--, respectively, and the aggregate intrinsic value of options exercisable was approximately $-- and $--, respectively.
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 | ||||||||||||
| $ to $ | years | years | ||||||||||||||
| $ to $ | years | years | ||||||||||||||
| $ to $ | years | years | ||||||||||||||
| $ to $ | years | years | ||||||||||||||
| $ to $ | years | years | ||||||||||||||
| Total | years | 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 the 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 stockholder’s rights, including voting rights and the right to receive cash dividends.
SCHEDULE OF RESTRICTED STOCK ACTIVITY
| Number of Restricted shares | Weighted average | |||||||
| Nonvested balance, January 1, 2025 | $ | |||||||
| Granted | ||||||||
| Vested | ( | ) | ( | ) | ||||
| Forfeited | ||||||||
| Nonvested balance, September 30, 2025 | $ | |||||||
| Number
of Restricted shares |
Weighted average |
|||||||
| Nonvested balance, January 1, 2024 | $ | |||||||
| Granted | ||||||||
| Vested | ( |
) | ( |
) | ||||
| Forfeited | ( |
) | ( |
) | ||||
| Nonvested balance, September 30, 2024 | $ | |||||||
The Company estimated the fair market value of these restricted stock grants based on the closing market price on the date of the grant. As of September 30, 2025, there was $ representing total unrecognized compensation costs related to all remaining non-vested restricted stock grants, which will be amortized over the next thirty-one months in accordance with their respective vesting scale.
The nonvested balance of restricted stock vests as follows:
SCHEDULE OF NON-VESTED BALANCE OF RESTRICTED STOCK
| Years ended | Number of shares | |||
| 2025 (October 1, 2025 to December 31, 2025) | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| 2029 | ||||
| 23 |
NOTE 11. COMMON STOCK PURCHASE WARRANTS
The following table summarizes information about shares issuable under warrants outstanding during the nine months ended September 30, 2025 and 2024:
SCHEDULE OF WARRANT ACTIVITY
| 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 | ( | ) | ||||||
| Exercised June 2024 - Series B warrants | ( | ) | ||||||
| Exercised February 2025 – Series B Warrants | ( | ) | ||||||
| Terminated/Cancelled | ||||||||
| Balance, September 30, 2025 | $ | |||||||
| Warrants | Weighted average | |||||||
| Balance, January 1, 2024 | $ | |||||||
| Issued | ||||||||
| Exercised | ||||||||
| Terminated/Cancelled | ||||||||
| Balance, September 30, 2024 | $ | |||||||
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, 2025:
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 | ||||||||
| $ | years | |||||||||
| $ | years | |||||||||
| $ | years | |||||||||
| $ | years | |||||||||
| $ | years | |||||||||
| $ | years | |||||||||
| $ | years | |||||||||
| years | ||||||||||
September 2025 Detachable Purchase Warrants
On
September 15, 2025, the Company entered into a Securities Purchase Agreement with an institutional investor, pursuant to which the Company
issued Senior Secured Convertible Notes (the “September 2025 Notes”) with an aggregate original principal amount of $
February 2025 Purchase Warrants
On
February 13, 2025, the Company issued pre-funded units, each consisting of one-prefunded warrant (to purchase a total of
| 24 |
The
pre-funded warrants were all exercised within days of their issuance therefore their total fair value was estimated to be $
SCHEDULE OF WARRANT MODIFICATION
| Pre funded warrants issuance date – February 13, 2025 assumptions | ||||
| Volatility – range | % | |||
| Risk-free rate | % | |||
| Dividend | % | |||
| Remaining contractual term | ||||
| Exercise price | $ | |||
| Common stock issuable under the warrants | ||||
During
the nine months ended September 30, 2025, the pre-funded warrants to purchase
The
Series A warrants were issued/activated on Warrant Shareholder Approval Date of May 6, 2025 and their total fair value was estimated
to be $
| Series A warrants issuance/activation date – May 6, 2025 assumptions | ||||
| Volatility – range | % | |||
| Risk-free rate | % | |||
| Dividend | % | |||
| Remaining contractual term | ||||
| Exercise price | $ | |||
| Common stock issuable under the warrants | ||||
On
June 27, 2025, the circumstances under which the Series A warrant terms allow for settlement outside the control of the Company were
terminated and no longer applicable. Therefore, the Company determined the fair value of the warrant liability as of that date ($
| Series A warrants transition date – June 27, 2025 assumptions | ||||
| Volatility – range | % | |||
| Risk-free rate | % | |||
| Dividend | % | |||
| Remaining contractual term | ||||
| Exercise price | $ | |||
| Common stock issuable under the warrants | ||||
The
Series B warrants were issued/activated on Warrant Shareholder Approval Date of May 6, 2025 which based on the reset provisions a total
of
| Series B warrants issuance/activation date – May 6, 2025 assumptions | ||||
| Volatility – range | % | |||
| Risk-free rate | % | |||
| Dividend | % | |||
| Remaining contractual term | ||||
| Exercise price | $ | |||
| Common stock issuable under the warrants | ||||
| 25 |
Of
the
2024 Purchase Warrants
On
June 25, 2024, the Company issued Series A and prefunded warrants to purchase a total of
The
Series B warrants issued in this transaction become issuable and exercisable on the date that relevant stockholder approval is obtained,
if ever. Relevant stockholder approval was obtained on December 17, 2024 which activated the Series A and B warrants. Both the Series
A and Series B warrants also contain price and warrant reset provisions that were activated upon the date of relevant stockholder approval.
The reset provisions increased the number of common shares issuable under the Series A warrant from to shares and the
exercise price per Series A warrant was reduced from $ to $ per share effective December 17, 2024. In addition, the Series
B warrants became effective and exercisable upon relevant stockholder approval on December 17, 2024 which resulted in common
shares issuable under the Series B warrants with an exercise price of $ per share effective December 17, 2024. The Company recognized
the full Series B warrant derivative liability value of $
| Series B issuance date - December 17, 2024 assumptions | Series B - December 31, 2024 assumptions | |||||||
| Volatility – range | % | % | ||||||
| Risk-free rate | % | % | ||||||
| Dividend | % | % | ||||||
| Remaining contractual term | ||||||||
| Exercise price | $ | $ | ||||||
| Common stock issuable under the warrants | ||||||||
During
the year ended December 31, 2024, prefunded warrants to purchase shares of Common Stock were fully exercised. No pre-funded warrants
were exercised during the three months ended September 30, 2025. In conjunction with the exercise of the Series B warrants, the Company
transitioned the related warrant derivative liability totaling $
During
the nine months ended September 30, 2025, Series B warrants to purchase
The Company has utilized the following assumptions in its Black-Scholes option valuation model to calculate the estimated fair value of the derivative liability relative to the prefunded warrants and Series A warrants as of their date of issuance and as of December 31, 2024 and September 30, 2025:
| Issuance date assumptions | December 31, 2024 assumptions | September 30, 2025 assumptions | ||||||||||
| Volatility – range | % | % | % | |||||||||
| Risk-free rate | % | % | % | |||||||||
| Dividend | % | % | % | |||||||||
| Remaining contractual term | ||||||||||||
| Exercise price | $ | $ | ||||||||||
| Common stock issuable under the warrants | ||||||||||||
The
Company recognized the fair value of the Series A warrants of $
| 26 |
2023 Purchase Warrants
On
April 5, 2023, the Company issued warrants to purchase a total of
The Company has utilized the following assumptions in its Black-Scholes option valuation model to calculate the estimated fair value of the warrant derivative liabilities as of September 30, 2025 and as of December 31, 2024:
December 31, 2024 assumptions | September 30, 2025 assumptions | |||||||
| Volatility – range | % | % | ||||||
| Risk-free rate | % | % | ||||||
| Dividend | % | % | ||||||
| Remaining contractual term | ||||||||
| Exercise price | ||||||||
| Common stock issuable under the warrants | ||||||||
NOTE 12 - STOCKHOLDERS’ EQUITY
Senior Secured Convertible Note and Committed Equity Financing
On
September 15, 2025, the Company entered into a Securities Purchase Agreement with an institutional investor (the “Purchaser”),
pursuant to which the Company issued Senior Secured Convertible Notes with an aggregate original principal amount of $
The
net proceeds of the private placement on September 15, 2025 was $
SCHEDULE OF NET PROCEEDS FROM THE PRIVATE PLACEMENT
| Amount | ||||
| Allocated to the following: | ||||
| Senior secured promissory notes | $ | |||
| Detachable warrants | ||||
| Total | $ | |||
Committed Equity Financing (ELOC)
On
September 15, 2025 (the “Closing Date”), the Company entered into a Common Stock Purchase Agreement (the “ELOC Purchase
Agreement”) with an institutional investor (the “ELOC Investor”), providing a committed equity financing facility of
up to $
February 2025 Public Equity Offering
On
February 13, 2025, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with Aegis Capital Corp.
(the “Underwriter”) for the sale and issuance of (i) units at a public offering price per unit of $ with each
Unit consisting of one share of Common Stock, one Series A warrant to purchase one share of Common Stock at an exercise price of $
The Series A and Series B warrants are exercisable only upon receipt of stockholder approval of (i) certain terms in the Series A and B warrants and the issuance of the shares of Common Stock issuable upon the exercise of such Series A and Series B warrants, as may be required by the applicable rules and regulations of The Nasdaq Stock Market LLC and (ii) if necessary, a proposal to amend the Company’s Articles of Incorporation, to increase the authorized share capital of the Company to an amount sufficient to cover the shares of Common Stock issuable upon the exercise of the Series A and Series B warrants. The Series A warrants will be exercisable commencing upon the date of public notice of Stockholder Approval until five years after such date, and the Series B Warrants will be exercisable commencing upon the date of public notice of Stockholder Approval until two and one-half years after such date.
| 27 |
The
offering closed on February 14, 2025. The net proceeds to the Company from the offering were approximately $
The
Company granted the Underwriter an option to purchase additional shares of Common Stock and/or Series A and Series B warrants of (i)
up to
Aegis
Capital Corp. served as the sole book-running manager in the offering, pursuant to the terms of the Underwriting Agreement, and received
seven percent (
The units and pre-funded units were offered by the Company pursuant to an effective registration statement on Form S-1, as amended, which was declared effective by the SEC on February 12, 2025. The final prospectus relating to the offering was filed with the SEC on February 13, 2025.
The
aggregate net proceeds to the Company from the offering including the underwriters exercise of their overallotment option were approximately
$
2024 Issuance of Restricted Common Stock
In January 2024, the board of directors approved the grant of shares of Common Stock to officers of the Company. Additionally, the board of directors approved the grant of restricted common shares to certain new employees of the Company. Such shares will generally vest over a period of one to on their respective anniversary dates from January through January 2026, provided that each grantee remains an employee of the company on such dates.
2024 Private Placement Transaction
On
June 24, 2024, the Company entered into a private placement transaction (the “Private Placement”), pursuant to a Securities
Purchase Agreement (the “Securities Purchase Agreement”) with certain institutional investors (the “Purchasers”)
for aggregate gross proceeds of approximately $
As
part of the Private Placement, the Company issued an aggregate of units and pre-funded units (collectively, the “June Units”)
at a purchase price of $ per unit (less $
Securities Purchase Agreement and Senior Secured Promissory Notes
On
November 6, 2024, the Company entered into a Securities Purchase Agreement (the “SPA”) with certain institutional investors,
pursuant to which the Company agreed to issue and sell to such investors, in a private placement transaction, (i) senior secured promissory
notes in aggregate principal amount of $
The
net proceeds of the private placement on November 7, 2024 was $
| Amount | ||||
| Allocated to the following: | ||||
| Senior secured promissory notes | $ | |||
| Commitment shares | ||||
| Total | $ | |||
| 28 |
Cancellation of Restricted Stock
During the nine months ended September 30, 2025 and 2024, the Company cancelled -- and shares due to termination of employees, respectively.
Exercise of Prefunded Warrants
During
the three months ended September 30, 2025, prefunded warrants to purchase shares of Common Stock that were issued in conjunction
with the February 2025 public equity offering of Common Stock, were fully exercised at an exercise price of $
During
the three months ended September 30, 2025, Series B warrants to purchase shares of Common Stock that were issued in conjunction
with the June 2024 public equity offering of Common Stock, were fully exercised for total proceeds of $
Noncontrolling Interests
The
Company has a
NOTE 13. RELATED PARTY TRANSACTIONS
Transactions with Managing Member of Nobility Healthcare
The
Company accrued reimbursable expenses payable to Nobility, LLC totaling $
Transactions with Related Party of TicketSmarter
On
September 22, 2023, a trust, the beneficiaries of which are an officer of TicketSmarter’s and his spouse, made a loan in the amount
of $
On
August 19, 2024, the parties agreed to amend the note whereby the repayment dates were extended to begin on January 2, 2025 and continue
at $
On
March 20, 2025, the parties agreed to a second modification of the TicketSmarter Related Party Note. The modification eliminated all
accrued interest totaling $
On
June 4, 2025, the parties agreed to a third modification of the TicketSmarter Related Party Note. The modification reduced the outstanding
principal amount from $
At
the time of the June 4, 2025 modification, management considered the repetitive nature of the modifications as an indication that the
Officer was acting more in his capacity as an equity holder than as a creditor. In addition, management reconsidered the accounting treatment
for the March 20, 2025 modification and changed its estimate whereby, the officer was more likely than not acting in his capacity as
an equity holder in the Company when negotiating the March 20, 2025 debt modification, as well. As a result, the Company determined to
treat the $
| 29 |
Company Related Party Note
On
August 22, 2024, Digital Ally’s Chief Executive Officer, made a loan in the amount of $
Master Distribution Agreement
On June 11, 2025 the Company entered into an exclusive global Master Distribution Agreement with Redwood Scientific Technologies, (“Redwood”) granting the Company the rights to distribute Redwood’s nicotine cessation products, including TBX-Free and TBX Vape-Free. This strategic partnership positions Digital Ally as the commercialization partner for products aimed at helping Americans overcome addiction to cigarettes and vape devices. Redwood is preparing to validate the efficacy of these products as it prepares to submit its products for clinical trials utilizing a double-blind, randomized scientific study to support the efficacy of such products No sales or marketing of the product will occur until the clinical study concludes and the efficacy is evaluated and confirmed. There can be no assurance whether and when the clinical study will be concluded and what the ultimate results will be.
The agreement provides the Company with comprehensive rights to Redwood’s technologies, brands, trademarks, manufacturing processes, vendor relationships, and additional assets. The two key products, TBX-Free and TBX Vape-Free, are designed to address significant health concerns. TBX-Free targets traditional cigarette smokers, while TBX Vape-Free is the first-of-its-kind oral thin-film solution specifically designed for vape users, addressing a critical gap in addiction treatment options.
The
Company paid $
NOTE 14. GAIN ON EXTINGUISHMENT OF LIABILITIES
The
Company recorded gains on the extinguishment of liabilities for the three months ended September 30, 2025 and 2024 of $
The
gain on extinguishment of liabilities was $
SCHEDULE OF WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING AND LOSS PER SHARE OUTSTANDING
| 2025 | 2024 | 2025 | 2024 | |||||||||||||
Three Months Ended September 30, | Nine months ended September 30, | |||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||
| Numerator for basic and diluted loss per share – Net loss attributable to common stockholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Denominator for basic loss per share – weighted average shares outstanding | ||||||||||||||||
| Dilutive effect of shares issuable under stock options outstanding | ||||||||||||||||
| Dilutive effect of shares issuable under common stock purchase warrants | ||||||||||||||||
| Denominator for diluted loss per share – adjusted weighted average shares outstanding | ||||||||||||||||
| Net loss per share: | ||||||||||||||||
| Basic | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| 30 |
Basic loss per share is based upon the weighted average number of shares of Common Stock outstanding during the period. For the three and nine months ended September 30, 2025 and 2024, all shares issuable upon the exercise of outstanding stock options and warrants were antidilutive, and, therefore, not included in the computation of diluted loss per share.
NOTE 16. COUNTRY STAMPEDE ACQUISITION
On March 1, 2024, Kustom 440, entered into an Asset Purchase Agreement (the “Acquisition Agreement”) with JC Entertainment, LLC, a Kansas limited liability company (“JC Entertainment”). Pursuant to the Acquisition Agreement, Kustom 440 acquired certain assets associated with a music entertainment event (“Country Stampede”), including all intellectual property arising out of and relating to Country Stampede (“Country Stampede Intellectual Property”) and certain contracts in which JC Entertainment is a party to host and operate the 2024 Country Stampede (the “Assumed Contracts”, and together with the Country Stampede Intellectual Property, the “Purchased Assets”).
As
consideration for acquiring the Purchased Assets, Kustom 440 paid JC Entertainment the aggregate purchase price amount $
The Company accounts for business combinations using the acquisition method and the Company has early adopted the amendments of Regulation S-X dated May 21, 2020 and has concluded that this acquisition was not significant. Accordingly, the presentation of the assets acquired, historical financial statements under Rule 3-05 and related pro forma information under Article 11 of Regulation S-X, respectively, are not required to be presented. Under the acquisition method, the purchase price of the Country Stampede Acquisition has been allocated to the acquired tangible and identifiable intangible assets and assumed liabilities based on their estimated fair values at the time of the Country Stampede Acquisition. This allocation involves a number of assumptions, estimates, and judgments that could materially affect the timing or amounts recognized in our condensed consolidated financial statements. The Country Stampede Acquisition was structured as an asset purchase; however the parties agreed to coordinate the election to invoke IRS Section 338(h)(10) in relation to this transaction for tax purposes. Therefore, the excess purchase price over the fair value of net tangible assets acquired was recorded as goodwill, which will be amortized over 15 years for income tax filing purposes. Likewise, the other acquired assets were stepped up to fair value and is deductible for income tax purposes. The results of operations of acquired businesses are included in the condensed consolidated statement of operations from the acquisition date.
The purchase price of the Country Stampede Acquisition was allocated to tangible assets, goodwill, identifiable intangible assets, and assumed liabilities based on their preliminary estimated fair values at the time of the acquisition. The Company retained the services of an independent valuation firm to determine the fair value of these identifiable intangible assets. The Company has finalized the estimated fair value of assets acquired, and liabilities assumed in the Country Stampede Acquisition which are as follows:
SCHEDULE OF PRELIMINARY FAIR VALUE OF ASSETS ACQUIRED AND LIABILITIES ACQUISITION
As allocated (Final) | ||||
| Description | March 1, 2024 | |||
| Assets acquired (provisional): | ||||
| Tangible assets acquired | $ | |||
| Identifiable intangible assets acquired (Trademarks and trade names) | ||||
| Goodwill | ||||
| Liabilities assumed | ( | ) | ||
| Net assets acquired and liabilities assumed | $ | |||
| Consideration: | ||||
| Cash paid at Country Stampede Acquisition date | $ | |||
| Cash paid subsequent to closing | ||||
| Total Country Stampede Acquisition purchase price | $ | |||
During the measurement period (which is the period required to obtain all necessary information that existed at the acquisition date, or to conclude that such information is unavailable, not to exceed one year), additional assets or liabilities may be recognized, or there could be changes to the amounts of assets or liabilities previously recognized on a preliminary basis, if new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have resulted in the recognition of these assets or liabilities as of that date. There were no additional assets or liabilities recognized during the measurement period that ended March 1, 2025, the amounts of assets or liabilities previously recognized on a preliminary basis are now final.
| 31 |
NOTE 17. OPERATING SEGMENTS
The Company adopted ASU 2023-07 in 2024 and applied the amendment retrospectively to all periods presented in the Company’s condensed consolidated financial statements. Segment financial information is prepared in accordance with GAAP and our significant accounting policies described in Note 1. Resources are allocated and performance is assessed using segment operating income by our Chief Executive Officer, whom we have determined to be our Chief Operating Decision Maker (“CODM”). Our CODM utilizes segment operating income when making decisions about allocating capital and personnel to the segments, predominantly in the annual budget and quarterly forecasting processes. In addition, our CODM uses operating income, including comparison of actual results to budget and forecast, in assessing the performance of each segment and in evaluating product pricing, distribution strategies and marketing investments. Our CODM reviews balance sheet information at a consolidated level. We compute segment operating income based on net sales revenue, less cost of goods sold, SG&A, asset impairment charges and restructuring charges. The SG&A used to compute each segment’s operating income is directly associated with the segment. We do not allocate non-operating income and expense, including interest or income taxes, to operating segments.
We
operate in
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 option expense for options granted to corporate administration employees, certain consulting expenses, investor relations activities, and a portion of the Company’s legal, auditing and professional fee expenses. Corporate identifiable assets primarily consist of cash, invested cash (if any), refundable income taxes (if any), and deferred income taxes.
Summarized financial information for the Company’s reportable business segments is provided for the three months ended September 30, 2025, and 2024:
SCHEDULE OF SEGMENT REPORTING
| Video Solutions | Entertainment | Revenue cycle Management | Corporate and other | Total | ||||||||||||||||
| Three months ended September 30, 2025 | ||||||||||||||||||||
| Video Solutions | Entertainment | Revenue cycle Management | 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 | ||||||||||||||||||||
| Goodwill and intangible asset impairment charge | ||||||||||||||||||||
| General and administrative expense | ||||||||||||||||||||
| 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 | ||||||||||||||||||||
| Gain on extinguishment of debt – related party | ||||||||||||||||||||
| Gain on sale of property, plant and equipment | ||||||||||||||||||||
| Gain on sale of intangibles | ||||||||||||||||||||
| 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 |
| Video Solutions | Entertainment | Revenue cycle Management | Corporate and other | Total | ||||||||||||||||
| Three months ended September 30, 2024 | ||||||||||||||||||||
| Video Solutions | Entertainment | Revenue cycle Management | Corporate and other | Total | ||||||||||||||||
| Net revenues: | ||||||||||||||||||||
| Product | $ | $ | $ | $ | $ | |||||||||||||||
| Service | ||||||||||||||||||||
| Total segment net revenues | $ | |||||||||||||||||||
| Less significant segment expenses: | ||||||||||||||||||||
| Cost of Revenue - Product | ||||||||||||||||||||
| Cost of Revenue – Service and other | ||||||||||||||||||||
| Research and development expense | ||||||||||||||||||||
| Selling, advertising and promotional expense | ||||||||||||||||||||
| Goodwill and intangible asset impairment charge | ||||||||||||||||||||
| General and administrative expense | ||||||||||||||||||||
| Total segment operating income (loss) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||
| Non-operating (expenses) income: | ||||||||||||||||||||
| Interest income | ||||||||||||||||||||
| Interest expense | ( | ) | ||||||||||||||||||
| Change in fair value of derivative liabilities | ||||||||||||||||||||
| Other Other income (expense) | ||||||||||||||||||||
| Gain on the extinguishment of debt | ||||||||||||||||||||
| Loss on extinguishment of debt | ( | ) | ||||||||||||||||||
| Gain on sale of property, plant and equipment | ||||||||||||||||||||
| Total non-operating income (loss) | ||||||||||||||||||||
| Loss before income tax benefit (provision) | $ | ( | ) | |||||||||||||||||
| Depreciation and amortization expense | $ | $ | $ | $ | $ | |||||||||||||||
| Total identifiable assets, net of eliminations | $ | $ | $ | $ | $ | |||||||||||||||
| 33 |
Summarized financial information for the Company’s reportable business segments is provided for the nine months ended September 30, 2025, and 2024:
| Video Solutions | Entertainment | Revenue cycle Management | Corporate and other | Total | ||||||||||||||||
| Nine months ended September 30, 2025 | ||||||||||||||||||||
| Video Solutions | Entertainment | Revenue cycle Management | Corporate and other | Total | ||||||||||||||||
| Net revenues: | ||||||||||||||||||||
| Product | $ | $ | $ | $ | $ | |||||||||||||||
| Service | ||||||||||||||||||||
| Total segment net revenues | ||||||||||||||||||||
| Less significant segment expenses: | ||||||||||||||||||||
| Cost of Revenue - Product | ||||||||||||||||||||
| Cost of Revenue – Service and other | ||||||||||||||||||||
| Research and development expense | ||||||||||||||||||||
| Selling, advertising and promotional expense | ||||||||||||||||||||
| General and administrative expense | ||||||||||||||||||||
| 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 | ||||||||||||||||||||
| Gain 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 | $ | $ | $ | $ | $ | |||||||||||||||
| 34 |
| Video Solutions | Entertainment | Revenue cycle Management | Corporate and other | Total | ||||||||||||||||
| Nine months ended September 30, 2024 | ||||||||||||||||||||
| Video Solutions | Entertainment | Revenue cycle Management | Corporate and other | Total | ||||||||||||||||
| Net revenues: | ||||||||||||||||||||
| Product | $ | $ | $ | $ | $ | |||||||||||||||
| Service | ||||||||||||||||||||
| Total segment net revenues | ||||||||||||||||||||
| Less significant segment expenses: | ||||||||||||||||||||
| Cost of Revenue - Product | ||||||||||||||||||||
| Cost of Revenue – Service and other | ||||||||||||||||||||
| Cost of Revenue | ||||||||||||||||||||
| Research and development expense | ||||||||||||||||||||
| Selling, advertising and promotional expense | ||||||||||||||||||||
| Goodwill and intangible asset impairment charge | ||||||||||||||||||||
| General and administrative expense | ( | ) | ( | ) | ||||||||||||||||
| Total segment operating income (loss) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||
| Non-operating (expenses) income: | ||||||||||||||||||||
| Interest income | ||||||||||||||||||||
| Interest expense | ( | ) | ||||||||||||||||||
| Change in fair value of derivative liabilities | ||||||||||||||||||||
| Other Other income (expense) | ||||||||||||||||||||
| Gain on the extinguishment of liabilities | ||||||||||||||||||||
| Loss on extinguishment of debt | ( | ) | ||||||||||||||||||
| Gain on sale of intangibles | ||||||||||||||||||||
| Gain on sale of property, plant and equipment | ||||||||||||||||||||
| Total non-operating income (loss) | ||||||||||||||||||||
| Loss before income tax benefit (provision) | $ | ( | ) | |||||||||||||||||
| Depreciation and amortization expense | $ | $ | $ | $ | $ | |||||||||||||||
| Total identifiable assets, net of eliminations | $ | $ | $ | $ | $ | |||||||||||||||
The segment net revenues reported above represent sales to external customers. Segment gross profit represents net revenues less cost of revenues. Segment operating income, which is used in management’s evaluation of segment performance, represents net revenues, less cost of revenues, less all operating expenses. Identifiable assets are those assets used by each segment in its operations. Corporate assets primarily consist of cash, property, plant and equipment, accounts receivable, inventories, and other assets.
| 35 |
Note 18. SUBSEQUENT EVENTS
Nasdaq Notifications
On October 17, 2025, the Company received notice from Nasdaq that notified the Company that it had regained full compliance with the Minimum Bid Price Requirement and Stockholders’ Equity Requirement. The Nasdaq has now placed the Company under a one-year Discretionary Panel Monitor. Under the Discretionary Panel Monitor, the Company will not be permitted to request additional time to regain compliance with any deficiencies that occur within the one-year period regarding noncompliance with the Periodic Filing or Bid Price Rules. Such one-year period expires on July 31, 2026 with regard to the Periodic Filing Rules and September 2, 2026 regarding the Bid Price Rules.
Annual Meeting (scheduled)
The Company’s annual meeting of stockholders was originally scheduled to occur on November 3, 2025, however it has been postponed pending resolution of the US Government shutdown including the re-opening of the Securities and Exchange Commission. The Company’s annual meeting of stockholders will be held for the following purposes:
1. To elect four directors.
2. To ratify the appointment of Victor Mokuolu CPA PLLC as our independent registered public accounting firm;
3. To approve the transactions contemplated by the securities purchase agreement, entered into as of September 15, 2025, by and between the Company and a certain institutional investor, including, the issuance of % or more of our outstanding shares of our Common Stock, par value $ per share (“Common Stock”) upon (i) conversion of the senior secured convertible notes due September 15, 2026, and (ii) exercise of the Common Stock Purchase Warrants dated September 15, 2025.
4. To approve the transactions contemplated by the Common Stock purchase agreement, entered into as of September 15, 2025 (the “ELOC Purchase Agreement”), by and between the Company and a certain institutional investor, including, the issuance of % or more of our outstanding shares of Common Stock pursuant to the ELOC Purchase Agreement.
5. To approve the amendment to the 2022 Digital Ally, Inc. Stock Option and Restricted Stock Plan which increases the number of shares reserved for issuance under such Plan by shares of Common Stock;
6. To approve a non-binding advisory proposal to approve the compensation paid to the Company’s named executive officers;
7. To approve a non-binding advisory proposal on the frequency of the stockholder advisory vote on executive compensation;
8. To consider and act upon such other business as may properly come before the Annual Meeting or any adjournment thereof.
Issuance of restricted common stock
On November
7, 2025, the Company issued an aggregate of shares of the Company’s common stock to the ELOC Investor (see Note 5) as part
of the
Following this issuance, the Company’s total shares outstanding increased from to .
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation.
This quarterly report on Form 10-Q (the “Report”) of Digital Ally, Inc. (the “Company”, “we”, “us”, or “our”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The words “aim,” “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “feel,” “forecast,” “intend,” “may,” “outlook,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “will,” “would,” and similar expressions intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. These forward-looking statements are based largely on our expectations or forecasts of future events, can be affected by inaccurate assumptions, and are subject to various business risks and known and unknown uncertainties, a number of which are beyond our control. Therefore, actual results could differ materially from the forward-looking statements contained in this document, and readers are cautioned not to place undue reliance on such forward-looking statements.
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 2024 and 2023; (2) economic and other risks for our business from the effects of the COVID-19 pandemic, including the impacts on our law-enforcement and commercial customers, suppliers and employees and on our ability to raise capital as required; (3) our ability to increase revenues, increase our margins and return to consistent profitability in the current economic and competitive environment; (4) our operation in developing markets and uncertainty as to market acceptance of our technology and new products; (5) the availability of funding from federal, state and local governments to facilitate the budgets of law enforcement agencies, including the timing, amount and restrictions on such funding; (6) our ability to maintain or expand our share of the market for our products in the domestic and international markets in which we compete, including increasing our international revenues; (7) our ability to produce our products in a cost-effective manner; (8) competition from larger, more established companies with far greater economic and human resources; (9) our ability to attract and retain quality employees; (10) risks related to dealing with governmental entities as customers; (11) our expenditure of significant resources in anticipation of sales due to our lengthy sales cycle and the potential to receive no revenue in return; (12) characterization of our market by new products and rapid technological change; (13) our dependence on sales of our EVO-HD, DVM-800, DVM-250 and FirstVU products; (14) that stockholders may lose all or part of their investment if we are unable to compete in our markets and return to profitability; (15) defects in our products that could impair our ability to sell our products or could result in litigation and other significant costs; (16) our dependence on a few manufacturers and suppliers for components of our products and our dependence on domestic and foreign manufacturers for certain of our products; (17) our ability to protect technology through patents and to protect our proprietary technology and information, such as trade secrets, through other similar means; (18) our ability to generate more recurring cloud and service revenues; (19) risks related to our license arrangements; (20) the fluctuation of our operation results from quarter to quarter; (21) sufficient voting power by coalitions of a few of our larger stockholders, including directors and officers, to make corporate governance decisions that could have a significant effect on us and the other stockholders; (22) the issuance or sale of substantial amounts of our Common Stock, or the perception that such sales may occur in the future, which may have a depressive effect on the market price of our securities; (23) potential dilution from the issuance of Common Stock underlying outstanding options and warrants; (24) our additional securities available for issuance, which, if issued, could adversely affect the rights of the holders of our Common Stock; (25) the volatility of our stock price due to a number of factors, including, but not limited to, a relatively limited public float; (26) our ability to integrate and realize the anticipated benefits from acquisitions; (27) our ability to maintain the listing of our Common Stock on the Nasdaq Capital Market.
Current Trends and Recent Developments for the Company
Reverse Stock Split
On May 6, 2025, the Company, acting pursuant to authority received at an annual meeting of its stockholders on December 17, 2024, filed with the Secretary of State of the State of Nevada a certificate of amendment (the “Charter Amendment”) to its articles of incorporation, as amended (the “Articles of Incorporation”), which effected a one-for-twenty reverse stock split (the “Reverse Stock Split”) of all of the Company’s outstanding shares of common stock, par value $0.001 per share (the “Common Stock”). Pursuant to the Charter Amendment, the Reverse Stock Split became effective as of 5:30 p.m. Eastern Time on May 6, 2025. As a result of the Reverse Stock Split, every twenty (20) shares of Common Stock were exchanged for one (1) share of Common Stock. The Common Stock began trading on the Nasdaq Capital Market on a split-adjusted basis at the start of trading on May 7, 2025. The Reverse Stock Split did not affect the total number of shares of capital stock, including the Common Stock, that the Company is authorized to issue, which remain as set forth pursuant to the Articles of Incorporation. No fractional shares of Common Stock were issued in connection with the Reverse Stock Split. Stockholders who otherwise were entitled to receive fractional shares of Common Stock were automatically entitled to receive an additional fraction of a share of Common Stock to round up to the next whole share, at a participant level. The Reverse Stock Split also had a proportionate effect on all other options and warrants of the Company outstanding as of the effective date of the Reverse Stock Split.
On May 22, 2025, the Company, acting pursuant to authority received at a special meeting of its stockholders on May 6, 2025, filed with the Secretary of State of the State of Nevada a certificate of amendment (the “May 22, 2025 Charter Amendment”) to its articles of incorporation, as amended, to effect a one (1)-for-one hundred (100) share reverse split (the “May 22, 2025 Reverse Stock Split”) of all of the Company’s outstanding shares of Common Stock, par value $0.001 per share. Pursuant to the May 22, 2025 Charter Amendment, the Reverse Stock Split became effective at 5:30 p.m. Eastern Time on May 22, 2025. As a result of the May 22, 2025 Reverse Stock Split, every one hundred (100) shares of Common Stock were exchanged for one (1) share of Common Stock. The Common Stock will begin trading on a split-adjusted basis on Nasdaq effective with the open of the market on Friday, May 23, 2025. The May 22, 2025 Reverse Stock Split did not affect the total number of shares of capital stock, including the Common Stock, that the Company is authorized to issue, which remain as set forth pursuant to the Articles of Incorporation. No fractional shares of Common Stock were issued in connection with the May 22, 2025 Reverse Stock Split. Stockholders who otherwise were entitled to receive fractional shares of Common Stock were automatically entitled to receive an additional fraction of a share of Common Stock to round up to the next whole share, at a participant level. The May 22, 2025 Reverse Stock Split also had a proportionate effect on all other options and warrants of the Company outstanding as of the effective date of the May 22, 2025 Reverse Stock Split. All historical share and per-share amounts reflected throughout the Company’s condensed consolidated financial statements and other financial information in this Report have been adjusted to reflect the May 22, 2025 Reverse Stock Split as if the split occurred as of the earliest period presented. The par value per share of the Company’s Common Stock was not affected by the May 22, 2025 Reverse Stock Split.
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Nasdaq Notifications
As previously disclosed, on December 20, 2024, the Company received notice from the Listing Qualifications Staff (the “Staff”) of The Nasdaq Stock Market LLC (“Nasdaq”) that the bid price of its listed securities had closed at less than $1 per share over the previous 30 consecutive business days, and, as a result, did not comply with Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Price Requirement”). Therefore, in accordance with Listing Rule 5810(c)(3)(A), the Company was provided 180 calendar days, or until June 18, 2025, to regain compliance with the Minimum Bid Price Requirement.
As previously disclosed, on January 2, 2025, the Staff notified the Company that it was not in compliance with Nasdaq Listing Rule 5550(b)(1), which requires companies listed on Nasdaq to maintain a minimum of $2,500,000 in stockholders’ equity for continued listing (the “Stockholders’ Equity Requirement”). The Company reported stockholders’ equity (deficit) of ($2,448,310) in its Quarterly Report on Form 10-Q for the quarter ended September 30, 2024, and, as a result, did not satisfy the Stockholders’ Equity Requirement pursuant to Listing Rule 5550(b)(1).
As previously disclosed, on March 6, 2025, the Company received notice (the “March 6 Letter”) from the Staff that the Staff had determined that as of March 5, 2025, the Company’s securities had a closing bid price of $0.10 or less for ten consecutive trading days triggering application of Listing Rule 5810(c)(3)(A)(iii) which states in part: if during any compliance period specified in Rule 5810(c)(3)(A), a company’s security has a closing bid price of $0.10 or less for ten consecutive trading days, the Listing Qualifications Department shall issue a Staff Delisting Determination under Rule 5810 with respect to that security (the “Low Priced Stocks Rule”).
The Company timely requested a hearing before the Panel to appeal the March 6 Letter and to address all outstanding matters, including compliance with the Minimum Bid Price Requirement, the Low-Priced Stocks Rule and the Stockholders’ Equity Requirement. While the appeal process was pending, the suspension of trading of the Company’s Common Stock, was stayed and the Common Stock continued to trade on the Nasdaq Capital Market until the hearing process concludes, and the Panel issues a written decision. The Company held its hearing with the Panel as scheduled on April 17, 2025.
On May 1, 2025, the Panel rendered its decision which granted the Company’s request for continued listing on the Nasdaq Exchange. Such decision is subject to the Company meeting and maintaining the following conditions:
| ● | On or before May 2, 2025, the Company shall file Form 10-K for 2024 in compliance with Listing Rule 5250(c)(1). | |
| ● | On or before May 20, 2025, the Company must file a public disclosure describing any transactions undertaken by the Company to increase its equity and providing an indication of its equity following those transactions. | |
| ● | In addition, on or before May 20, 2025, the Company must provide the Panel with an update on its fundraising plans, and updated income projections for the next 12 months, with all underlying assumptions clearly stated. | |
| ● | On or before June 6, 2025, the Company shall demonstrate compliance with the Minimum Bid Price Requirement. | |
| ● | If, prior to September 2, 2025, the Company becomes non-compliant with any Listing Rule, the Company will be delisted. |
The Company has worked diligently to regain and maintain compliance with the Minimum Bid Price Requirement and Stockholders’ Equity Requirement as promptly as possible. In that regard, management believes that it has achieved compliance with the Stockholders’ Equity Requirement as reported in the accompanying Statement of Stockholders’ Equity (Deficit) as of September 30, 2025. Furthermore, management believes that it has achieved compliance with the Minimum Bid Price Requirement prior to June 6, 2025, as required by the Panel. Management believes that it has met all other requirements as requested by the Panel. There are no assurances however, that the Company will be able to meet and maintain all such conditions required by the Panel.
On October 17, 2025, the Company received notice from Nasdaq that it had regained full compliance with the Minimum Bid Price Requirement and Stockholders’ Equity Requirement. The Nasdaq has now placed the Company under a one-year Discretionary Panel Monitor. Under the Discretionary Panel Monitor, the Company will not be permitted to request additional time to regain compliance with any deficiencies that occur within the one-year period regarding noncompliance with the Periodic Filing or Bid Price Rules. Such one-year period expires on July 31, 2026 with regard to the Periodic Filing Rules and September 2, 2026 regarding the Bid Price Rules.
Segment Overview
Video Solutions Operating Segment – Within our video solutions operating segment we supply technology-based products utilizing our portable digital video and audio recording capabilities for the law enforcement and security industries and for the commercial fleet and mass transit markets. We can integrate electronic, radio, computer, mechanical, and multi-media technologies to create positive solutions to our customers’ requests. Our products include: the EVO-HD, DVM-800 and DVM-800 Lite, which are in-car digital video systems for law enforcement and commercial markets; the FirstVU body-worn camera line, consisting of the FirstVu Pro, FirstVu, and the FirstVU HD; our patented and revolutionary VuLink product integrates our body-worn cameras with our in-car systems by providing hands-free automatic activation for both law enforcement and commercial markets; EVO Web Portal, which is our cloud-based evidence management system for Law enforcement and commercial market; the EVO Fleet, FLT-250, DVM-250, and DVM-250 Plus, which are our commercial line of digital video products that serve as “event recorders” for the commercial fleet and mass transit markets; and FleetVu and VuLink, which are our cloud-based evidence management systems. We further diversified and broadened our product offerings in 2020, by introducing two new lines of branded products: (1) the ThermoVu™ which is a line of self-contained temperature monitoring stations that provides alerts and controls facility access when an individual’s temperature exceeds a pre-set threshold and (2) our Shield™ disinfectants and cleansers which are for use against viruses and bacteria.
Our video solutions segment revenue encompasses video recording products and services for our law enforcement and commercial customers and the sale of Shield disinfectant and personal protective products. This segment generates revenue through our subscription models offering cloud and warranty solutions, and hardware sales for video and personal protective safety products and solutions. Revenues for product sales are recognized upon delivery of the product, and revenues from our cloud and warranty subscription plans are deferred over the term of the subscription, typically 3 or 5 years.
Revenue Cycle Management Operating Segment – We entered the revenue cycle management business late in the second quarter of 2021 with the formation of our wholly owned subsidiary, Digital Ally Healthcare, Inc., and its majority-owned subsidiary Nobility Healthcare. Nobility Healthcare completed its first acquisition in June 2021, when it acquired a private medical billing company, and has since completed three additional acquisitions of private medical billing companies, in which we will assist in providing working capital and back-office services to healthcare organizations throughout the country. Our assistance consists of insurance and benefit verification, medical treatment documentation and coding, and collections. Through our expertise and experience in this field, we maximize our customers’ service revenues collected, leading to substantial improvements in their operating margins and cash flows.
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Our revenue cycle management segment consists of our medical billing subsidiaries. Revenues of this segment are recognized after we fulfil the obligations of our revenue cycle management services. Our revenue cycle management services are services, performed and charged monthly, generally based on a contractual percentage of total customer collections, for which we recognize our net service fees.
Entertainment Operating Segment - We also entered the live entertainment and events ticketing services through the formation of our wholly owned subsidiary, TicketSmarter and its completed acquisitions of Goody Tickets, LLC and TicketSmarter, LLC, on September 1, 2021. TicketSmarter provides ticket sales, partnerships, and mainly, ticket resale services through its online ticketing marketplace for live events, TicketSmarter.com. TicketSmarter offers tickets for over 125,000 live events throughout the country through its platform, including concerts, sporting events, theatres, and performing arts. We also began offering production and promotion services in relation to live music events in third-party venues throughout the country through our Kustom Entertainment, Inc. subsidiary. These services begin with the logistical matters of an event, including artist booking and research, ticketing, staging, on-site operations, vendor sourcing, and day of production.
Our entertainment operating segment consists of entertainment services provided through TicketSmarter and its online platform, TicketSmarter.com. Revenues of this segment include ticketing service charges generally determined as a percentage of the face value of the underlying ticket and ticket sales from our ticket inventory which are recognized when the underlying tickets are sold. Entertainment direct expenses include the cost of tickets purchased for resale by the Company and held as inventory, credit card fees, ticketing platform expenses, website maintenance fees, as well as other administrative costs.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet debt, nor did we have any transactions, arrangements, obligations (including contingent obligations) or other relationships with any unconsolidated entities or other persons that may have a material current or future effect on financial conditions, changes in the financial conditions, results of operations, liquidity, capital expenditures, capital resources, or significant components of revenue or expenses other than the following:
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.
Comparison of the Three Months Ended September 30, 2025 and 2024
Summary Financial Data
Summarized financial information for the Company’s reportable business segments is provided for the three months ended September 30, 2025, and 2024:
| Three Months Ended September 30, | ||||||||
| 2025 | 2024 | |||||||
| Net Revenues: | ||||||||
| Video Solutions | $ | 1,446,221 | $ | 1,196,362 | ||||
| Revenue Cycle Management | 1,361,163 | 1,601,792 | ||||||
| Entertainment | 1,729,773 | 1,253,557 | ||||||
| Total Net Revenues | $ | 4,537,157 | $ | 4,051,711 | ||||
| Gross Profit (loss): | ||||||||
| Video Solutions | $ | 670,949 | $ | 769,063 | ||||
| Revenue Cycle Management | 510,953 | 666,723 | ||||||
| Entertainment | 189,673 | 304,188 | ||||||
| Total Gross Profit | $ | 1,371,575 | $ | 1,739,974 | ||||
| Operating Income (loss): | ||||||||
| Video Solutions | $ | 180,058 | $ | (89,055 | ) | |||
| Revenue Cycle Management | 119,436 | (4,085,224 | ) | |||||
| Entertainment | (626,250 | ) | (1,516,934 | ) | ||||
| Corporate | (795,026 | ) | (1,691,086 | ) | ||||
| Total Operating Income (Loss) | $ | (1,121,782 | ) | $ | (7,382,299 | ) | ||
| Depreciation and Amortization: | ||||||||
| Video Solutions | $ | 36,334 | $ | 133,246 | ||||
| Revenue Cycle Management | 26,756 | 26,735 | ||||||
| Entertainment | 336,549 | 339,265 | ||||||
| Total Depreciation and Amortization | $ | 399,639 | $ | 499,246 | ||||
| Assets (net of eliminations): | ||||||||
| Video Solutions | $ | 11,113,519 | $ | 16,876,673 | ||||
| Revenue Cycle Management | 4,538,676 | 1,969,225 | ||||||
| Entertainment | 4,712,364 | 6,037,666 | ||||||
| Corporate | 4,711,482 | 7,379,605 | ||||||
| Total Identifiable Assets | $ | 25,076,041 | $ | 32,263,169 | ||||
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The segment net revenues reported above represent sales to external customers. Segment gross profit represents net revenues less cost of revenues. Segment operating income, which is used in management’s evaluation of segment performance, represents net revenues, less cost of revenues, less all operating expenses. Identifiable assets are those assets used by each segment in its operations. Corporate assets primarily consist of cash, property, plant and equipment, accounts receivable, inventories, and other assets.
Results of Operations
Revenues
Revenues by Type and by Operating Segment
Our operating segments generate two types of revenue:
Product revenues primarily include video solutions operating segment hardware sales of in-car and body-worn cameras. Additionally, product revenues also include the sale of tickets by our entertainment operating segment that have been purchased or received through our sponsorships and partnerships and held in inventory by our entertainment segment until their sale. Our entertainment sector also generates product revenue through our production of live events and concerts including our annual Country Stampede music festival.
Service and other revenues consist of cloud and warranty services revenues from our subscription plan and storage offerings of our video solutions segment. Our entertainment operating segment’s secondary ticketing marketplace revenues are included in service revenue. We recognize service revenue from sales generated through its secondary ticketing marketplace as we collect net services fees on secondary ticketing marketplace transactions. Lastly, our revenue cycle management segment revenues are included in the service revenues for services provided to medical providers throughout the country.
The following table presents revenues by type and segment:
| Three Months Ended September 30, | ||||||||||||
| 2025 | 2024 | % Change | ||||||||||
| Product revenues: | ||||||||||||
| Video solutions | $ | 229,629 | $ | 306,245 | (25.0 | )% | ||||||
| Entertainment | 434,793 | 497,700 | (12.6 | )% | ||||||||
| Total product revenues | 664,422 | 803,945 | (17.4 | )% | ||||||||
| Service and other revenues: | ||||||||||||
| Video solutions | 1,216,592 | 890,117 | 36.7 | % | ||||||||
| Entertainment | 1,294,980 | 755,857 | 71.3 | % | ||||||||
| Revenue cycle management | 1,361,163 | 1,601,792 | (15.0 | )% | ||||||||
| Total service and other revenues | 3,872,735 | 3,247,766 | 19.2 | % | ||||||||
| Total revenues | $ | 4,537,157 | $ | 4,051,711 | 12.0 | % | ||||||
Our video solutions operating segment sells our products and services to customers in the following manner:
| ● | Sales to domestic customers are made directly to the end customer (typically a law enforcement agency or a commercial customer) through our sales force, comprised of our employees. Revenue is recorded when the product is shipped to the end customer. | |
| ● | Sales to international customers are made through independent distributors who purchase products from us at a wholesale price and sell to the end user (typically law enforcement agencies or a commercial customer) at a retail price. The distributor retains the margin as compensation for its role in the transaction. The distributor generally maintains product inventory, customer receivables and all related risks and rewards of ownership. Revenue is recorded when the product is shipped to the distributor consistent with the terms of the distribution agreement. | |
| ● | Repair parts and services for domestic and international customers are generally handled by our inside customer service employees. Revenue is recognized upon shipment of the repair parts and acceptance of the service or materials by the end customer. |
Our revenue cycle management operating segment sells its services to customers in the following manner:
| ● | Our revenue cycle management operating segment generates service revenues through relationships with medium to large healthcare organizations, in which the underlying service revenue is recognized upon execution of services. Service revenues are generally determined as a percentage of the dollar amount of medical billings collected by the customer. |
Our entertainment operating segment sells our products and services to customers in the following manner:
| ● | Our entertainment operating segment generates product revenues from the sale of tickets directly to consumers for a particular event that the entertainment operating segment has previously purchased and held in inventory for ultimate resale to the end consumer. Our entertainment segment also generates product revenues from the sale of tickets, merchandise, parking and concessions at live events that it sponsors such as the annual Country Stampede music festival. Service sales through TicketSmarter are driven largely in part to the usage of the TicketSmarter.com marketplace by buyers and sellers, in which the Company collects service fees for each transaction completed through this platform |
We may discount our prices on specific orders based upon the size of the order, the specific customer and the competitive landscape.
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Product revenues by operating segment are as follows:
| Three Months Ended September 30, | ||||||||
| 2025 | 2024 | |||||||
| Product Revenues: | ||||||||
| Video Solutions | $ | 229,629 | $ | 306,245 | ||||
| Revenue Cycle Management | — | — | ||||||
| Entertainment | 434,793 | 497,700 | ||||||
| Total Product Revenues | $ | 664,422 | $ | 803,945 | ||||
Product revenues for the three months ended September 30, 2025 and 2024 were $664,422 and $803,945, respectively, a decrease of $139,523 (17.4%), due to the following factors:
| ● | Entertainment segment revenue was $434,793 for the three months ended September 30, 2025, compared to $497,700 for the three months ended September 30, 2024, a decrease of $62,907 (12.6%). Segment revenue includes amounts related to the 2026 Country Stampede music festival (held annually in late June) and the resale of tickets purchased for live events, sporting events, concerts, and theatre, which are sold through various platforms to customers. The decrease primarily reflects a lower volume of primary ticket sales as TicketSmarter focused on higher-margin events to improve gross margins. |
| ● | Video solutions segment revenue was $229,629 for the three months ended September 30, 2025, compared to $306,245 for the three months ended September 30, 2024, a decrease of $76,616 (25.0%). The year-over-year decline reflects continued pressure on product revenue as our in-car and body-worn systems face increased competition from newer products with advanced features. In addition, law-enforcement revenue decreased due to limited on-hand inventory to fulfill backlog orders, price competition and other competitive actions, and adverse marketplace effects related to our recent financial condition. During the first and second quarters of 2025, we restarted our product supply chain using proceeds from the February 2025 public equity offering, which we expect will support improved product availability and sales during the remainder of 2025. |
| ● | Our video solutions operating segment management continues to migrate commercial customers from upfront hardware sales to a recurring service-fee model. Accordingly, we expect lower commercial hardware unit sales (principally DVM-250, FLT-250, and portions of our body-worn camera line) as customers transition to arrangements in which hardware is provided as part of a monthly subscription. In the second quarter of 2020, we launched a subscription plan for body-worn cameras and related equipment that enables law enforcement agencies to pay a monthly fee without a significant upfront capital outlay. The program has gained traction, contributing to a mix shift from product to service revenue, and we expect this trend to continue, generating recurring revenues over a three- to five-year horizon. |
Service and other revenues by operating segment is as follows:
Three months ended September 30, | ||||||||
| 2025 | 2024 | |||||||
| Service and Other Revenues: | ||||||||
| Video Solutions | $ | 1,216,592 | $ | 890,117 | ||||
| Revenue Cycle Management | 1,361,163 | 1,601,792 | ||||||
| Entertainment | 1,294,980 | 755,857 | ||||||
| Total Service and Other Revenues | $ | 3,872,735 | $ | 3,247,766 | ||||
Service and other revenues for the three months ended September 30, 2025 and 2024 were $3,872,735 and $3,247,766, respectively, an increase of $624,969 (19.2%), due to the following factors:
| ● | Cloud revenue within the video solutions segment was $668,999 for the three months ended September 30, 2025, compared to $710,580 for the three months ended September 30, 2024, a decrease of $41,581 (5.9%). Despite this slight decline, we continue to see increased adoption of our cloud solutions by law enforcement customers, driven by deployments of our cloud-based EVO-HD in-car system and next-generation body-worn camera products. We expect this adoption to continue through 2025 as customers migrate from local to cloud storage. | |
| ● | Extended warranty services revenue was $491,297 for the three months ended September 30, 2025, compared to $141,716 for the three months ended September 30, 2024, an increase of $349,581 (246.7%). The increase was primarily driven by a non-recurring catch-up from a single customer that settled past-due extended warranty fees related to services provided in fourth quarter of 2024, resulting in higher revenue recognized in the current period. |
| ● | Our entertainment operating segment generated service revenues totaling $1,294,980 and $755,857 for the three months ended September 30, 2025 and 2024, respectively, an increase of $539,123 (71.3%). TicketSmarter earns fees on transactions processed through the TicketSmarter.com platform for the purchase and resale of tickets to live events nationwide. Period results may vary as we continue to right-size the segment and prioritize profitability. In the quarter, we reduced ticketing volume for events that did not meet gross-margin thresholds while increasing emphasis on higher-margin events and expanding digital marketing activities, which together drove higher service revenue year over year. | |
| ● | Our revenue cycle management operating segment generated service revenues totaling $1,361,163 and $1,601,792 for the three months ended September 30, 2025 and 2024, respectively, a decrease of $240,630 (15.0%). Our revenue cycle management operating segment provides revenue cycle management solutions and back-office services to healthcare organizations throughout the country. The decrease in revenue is due to refinement within one of the recent acquisitions, as they strive to maximize profitability rather than focus on top-line revenue. |
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Total revenues for the three months ended September 30, 2025, and 2024 were $4,537,157 and $4,051,711, respectively, an increase of $485,446 (12.0%) due to the reasons noted above.
Cost of Product Revenue
Overall cost of product revenue sold for the three months ended September 30, 2025, and 2024 was $905,190 and $547,562, respectively, an increase of $482,610 (19.9%). Overall cost of goods sold for products as a percentage of product revenues for the three months ended September 30, 2025, and 2024 were 179% and 155%, respectively. Cost of products sold by operating segment is as follows:
| Three Months Ended September 30, | ||||||||
| 2025 | 2024 | |||||||
| Cost of Product Revenues: | ||||||||
| Video Solutions | $ | 476,667 | $ | 157,336 | ||||
| Revenue Cycle Management | — | — | ||||||
| Entertainment | 428,523 | 390,226 | ||||||
| Total Cost of Product Revenues | $ | 905,190 | $ | 547,562 | ||||
The increase in cost of goods sold for our video solutions segment was primarily attributable to a higher component and expedite freight costs, increased repair and refurbishment costs for returned units, and increased scrap – receiving associated with incoming inspection failures as compared to the same period in the prior year. Cost of product sold as a percentage of product revenues for the video solutions segment increased to 207.6% for the three months ended September 30, 2025 as compared to 51% for the three months ended September 30, 2024.
Cost of products sold within the entertainment segment increased slightly period over period, principally due to higher variable costs (ticket acquisition, event settlement, and payment processing). The increase was partially offset by a continued focus on higher-margin events, which limited cost growth as a percentage of revenue. Cost of product sold as a percentage of product revenues for the entertainment segment increased to 98.6% for the three months ended September 30, 2025 as compared to 78.40% for the three months ended September 30, 2024.
Cost of Service Revenue
Overall cost of service revenue sold for the three months ended September 30, 2025, and 2024 was $2,260,392 and $1,764,175, respectively, an increase of $496,217 (28.1%). Overall cost of goods sold for services as a percentage of service revenues for the three months ended September 30, 2025, and 2024 were 58% and 54%, respectively. Cost of service revenues by operating segment is as follows:
Three months ended September 30, | ||||||||
| 2025 | 2024 | |||||||
| Cost of Service Revenues: | ||||||||
| Video Solutions | $ | 298,605 | $ | 269,962 | ||||
| Revenue Cycle Management | 850,210 | 935,070 | ||||||
| Entertainment | 1,111,577 | 559,143 | ||||||
| Total Cost of Service Revenues | $ | 2,260,392 | $ | 1,764,175 | ||||
The increase in cost of service revenues for our video solutions segment demonstrates the leverage we are enjoying as we increase our service revenues during the three months ended September 30, 2025 compared to the three months ended September 30, 2024. Cost of service revenues as a percentage of service revenues for the video solutions segment decreased to 24.5% for the three months ended September 30, 2025 as compared to 30.3% for the three months ended September 30, 2024.
Cost of service revenues as a percentage of service revenues for the revenue cycle management operating segment remained consistent at 62.5% for the three months ended September 30, 2025 as compared to 58.4% for the three months ended September 30, 2024.
The increase in entertainment operating segment cost of service revenues is due to management right sizing the business working towards profitability. The entertainment segment terminated several unprofitable sponsorships which required termination payments during the three months ended September 30, 2025, that is expected to lead to improvements in costs of service revenues during the remainder of 2025. The entertainment segment cost of service revenue was $1,111,577 for the three months ended September 30, 2025, compared to $559,143 for the three months ended September 30, 2024. Cost of service revenues as a percentage of service revenues for the entertainment segment increased to 85.8% for the three months ended September 30, 2025 as compared to 74.0% for the three months ended September 30, 2024.
Gross Profit
Overall gross profit for the three months ended September 30, 2025 and 2024 was $1,371,575 and $1,739,974, respectively, a decrease of $368,399 (21.2%). Gross profit by operating segment was as follows:
Three months ended September 30, | ||||||||
| 2025 | 2024 | |||||||
| Gross Profit: | ||||||||
| Video Solutions | $ | 670,949 | $ | 769,063 | ||||
| Revenue Cycle Management | 510,953 | 666,723 | ||||||
| Entertainment | 189,673 | 304,188 | ||||||
| Total Gross Profit | $ | 1,371,575 | $ | 1,739,974 | ||||
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The decrease in gross profits is primarily due to lower revenue and a higher cost of sales as a percentage of revenue, particularly within the entertainment segment’s service revenues. Cost of sales as a percentage of total revenues increased to 69.8% for the three months ended September 30, 2025, from 57% in the prior-year period, resulting in margin compression. We are pursuing a multi-pronged margin-improvement plan for the Entertainment business—focused on right-sizing, pricing discipline, and mix optimization.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $2,493,357 and $9,122,273 for the three months ended September 30, 2025 and 2024, respectively, a decrease of $6,628,916 (72.7%). The decrease was primarily driven by fewer new advertising sponsorships and reductions in headcount within selling, general and administrative functions as the Company right-sized operations across all segments. Additionally, the prior-year period included a goodwill and intangible asset impairment charge that did not recur, further contributing to the year-over-year decrease. Our selling, general and administrative expenses as a percentage of sales decreased to 55% for the three months ended September 30, 2025 compared to 225% in the same period in 2024. The significant components of selling, general and administrative expenses are as follows:
| For the three months ended | ||||||||
| September 30, | ||||||||
| 2025 | 2024 | |||||||
| Research and development expense | $ | 137,755 | $ | 210,818 | ||||
| Selling, advertising and promotional expense | 110,006 | 414,727 | ||||||
| General and administrative expense | 2,245,596 | 3,666,728 | ||||||
| Goodwill and intangible asset impairment charge | — | 4,830,000 | ||||||
| Total | $ | 2,493,357 | $ | 9,122,273 | ||||
Research and development expense. Our research and development expenses totaled $137,755 and $210,818 for the three months ended September 30, 2025 and 2024, respectively which represents a decrease of $73,063 (34.7%). The decrease in research and development expense reflects a narrower project portfolio and a reallocation of resources toward sustaining engineering and targeted enhancements, including reductions in engineering headcount and third-party development spend.
Selling, advertising and promotional expenses. Selling, advertising and promotional expense totaled $110,006 and $414,727 for the three months ended September 30, 2025 and 2024, respectively, a decrease of $304,721 (73.5%). Selling, advertising, and promotional expenses decreased due to significant reductions in sales staffing and in promotional and advertising activities, undertaken to right-size these expenses to current revenue levels. Additionally, the decline reflects fewer new sponsorship agreements at the Company and its subsidiary, TicketSmarter.
General and administrative expense. General and administrative expenses totaled $2,245,596 and $3,666,728 for the three months ended September 30, 2025 and 2024, respectively which represents a decrease of $1,421,132 (38.8%). The decrease in general and administrative expenses in the three months ended September 30, 2025 compared to the same period in 2024 is primarily attributable to a substantial decrease in legal and professional expenses for the three months ended September 30, 2025 compared to the same period in 2024 due to the failed merger with CloverLeaf in the 2024 period and various capital raises we have undertaken in 2024. We also implemented decreases in administrative salaries and reductions in headcount during the 2025 period in order to right-size our expenses across all operating segments with our revenues.
Operating Loss
For the reasons previously stated, our operating loss was $1,121,782 and $7,382,299 for the three months ended September 30, 2025 and 2024, respectively, an improvement in our operating loss of $6,260,517 (84.8%). Operating loss as a percentage of revenues improved to 24.7% in 2025 as compared to 182% in 2024.
Interest Income
Interest income increased to $17,887 for the three months ended September 30, 2025, from $13,775 in 2024, which reflects our overall increase in our cash and cash equivalent levels in 2025 compared to 2024 due to funds generated in the February 2025 public equity offering and the net proceeds from our September 2025 senior convertible note issuance.
Interest Expense
We incurred interest expenses of $90,697 and $771,846 during the three months ended September 30, 2025 and 2024, respectively. The large decrease is attributable to the Company paying off most of its interest-bearing debt in late 2024 and early 2025 including the $3.6 million of senior secured promissory notes that were paid off with proceeds from the February 2025 public equity offering.
Other income (expense)
Other income (expense) increased to $217,136 for the three months ended September 30, 2025 from $8,920 for the comparable 2024 period, primarily due to weather insurance proceeds that we received related to the 2025 Country Stampede music festival.
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Loss on Extinguishment of debt
On March 1, 2024, the Company obtained a short-term merchant advance, which totaled $1,000,000, from a single lender to fund operations. The Company modified/amended the underlying loan agreement twice during the three months ended September 30, 2024. The modifications were both deemed to be extinguishments of debt resulting in a $310,505 total loss during the three months ended September 30, 2024.
Change in Fair Value of Derivative Liabilities
The change in fair value of the warrant derivative liabilities for the three months ended September 30, 2025 and 2024, respectively totaled a gain of $839 during the three months ended September 30, 2025 as compared to a gain of $2,530,675 during the three months ended September 30, 2024. The Company has issued various detachable warrants in connection with capital raises during 2024 and 2025 that were required to be treated as warrant derivative liabilities. Warrant derivative liabilities are required to be marked-to-market at each balance sheet date with the change in fair value recorded as a gain or loss in the Condensed Statement of Operations. The gain recorded in the three months ended September 30, 2025 reflects relatively minor fair value changes resulting from reduced stock price volatility and fewer warrants outstanding during the period.
Gain on Extinguishment of Liabilities
The Company recorded a gain on the extinguishment of liabilities for the three months ended September 30, 2025 and 2024 of $13,275, and $9,385, respectively. The gains reflect income related to the entertainment segment’s ability to negotiate down payables and other contract obligations during the three months ended September 30, 2025 utilizing funds generated by the closing of the February 2025 public equity offering on February 13, 2025.
Gain on Sale of Property, Plant and Equipment
During the three months ended September 30, 2024, the Company sold its building for $5,900,000 less closing costs of $7,194. The carrying amount of the building on the date of sale was $5,461,623. As a result of the sale the Company recorded a gain of $431,183 in the Consolidated Statement of Operation during the three months ended September 30, 2024.
Loss before Income Tax Benefit
As a result of the above, we reported a net loss before income tax benefit of $(963,342) and $(5,470,712) for the three months ended September 30, 2025 and 2024, respectively, an improvement of $4,507,370 (82.4%).
Income Tax Benefit
We recorded an income tax benefit of $-0- for the three months ended September 30, 2025 and 2024, respectively. The effective tax rate for both 2025 and 2024 varied from the expected statutory rate due to our continuing to provide a 100% valuation allowance on net deferred tax assets. We determined that it was appropriate to continue the full valuation allowance on net deferred tax assets as of September 30, 2025 and December 31, 2024 primarily because of the recurring operating losses.
We have further determined to continue providing a full valuation reserve on our net deferred tax assets as of September 30, 2025.
We had approximately $159,965,000 of federal net operating loss carryforwards and $1,796,111 of research and development tax credit carryforwards as of September 30, 2025 and December 31, 2024 available to offset future net taxable income.
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Net Income (Loss)
As a result of the above, we reported net income (loss) of $(963,342) and $(5,470,712) for the three months ended September 30, 2025 and 2024, respectively, an improvement of $4,507,370 (82.4%).
Net Income Attributable to Noncontrolling Interests of Consolidated Subsidiary
The Company has a 51% equity interest in its consolidated subsidiary, Nobility Healthcare. As a result, the noncontrolling shareholders or minority interest is allocated 49% of the income/loss of Nobility Healthcare which is reflected in the condensed consolidated statement of income (loss) as “net income (loss) attributable to noncontrolling interests of consolidated subsidiary”. We reported net income attributable to noncontrolling interests of consolidated subsidiary of $58,525 and a net loss of $2,000,206 for the three months ended September 30, 2025 and 2024, respectively.
Net Loss Attributable to Common Stockholders
As a result of the above, we reported a net income (loss) of $(1,021,867) and $(3,470,506) for the three months ended September 30, 2025 and 2024, respectively, an improvement of $2,448,639 (70.6%).
Basic and Diluted Loss per Share
The basic and diluted loss per share was $0.59 and $1,817.02 for the three months ended September 30, 2025 and 2024, respectively. Basic loss per share is based upon the weighted average number of common shares outstanding during the period. For the three months ended September 30, 2025 and 2024, all shares issuable upon conversion of convertible debt and the exercise of outstanding stock options and warrants were antidilutive, and, therefore, not included in the computation of diluted loss per share.
Comparison of the Nine months Ended September 30, 2025 and 2024
Summary Financial Data
Summarized financial information for the Company’s reportable business segments is provided for the nine months ended September 30, 2025, and 2024:
| Nine months Ended September 30, | ||||||||
| 2025 | 2024 | |||||||
| Net Revenues: | ||||||||
| Video Solutions | $ | 3,709,174 | $ | 4,500,325 | ||||
| Revenue Cycle Management | 4,144,008 | 4,600,745 | ||||||
| Entertainment | 6,791,278 | 6,096,227 | ||||||
| Total Net Revenues | $ | 14,644,460 | $ | 15,197,297 | ||||
| Gross Profit (loss): | ||||||||
| Video Solutions | $ | 1,597,487 | $ | 1,622,557 | ||||
| Revenue Cycle Management | 1,527,679 | 1,731,860 | ||||||
| Entertainment | (784,717 | ) | 149,387 | |||||
| Total Gross Profit | $ | 2,340,449 | $ | 3,503,804 | ||||
| Operating Income (loss): | ||||||||
| Video Solutions | $ | 174,690 | $ | (1,909,246 | ) | |||
| Revenue Cycle Management | 241,088 | (3,955,761 | ) | |||||
| Entertainment | (3,498,713 | ) | (3,987,415 | ) | ||||
| Corporate | (3,108,600 | ) | (5,083,070 | ) | ||||
| Total Operating Income (Loss) | $ | (6,191,535 | ) | $ | (14,935,492 | ) | ||
| Depreciation and Amortization: | ||||||||
| Video Solutions | $ | 134,617 | $ | 520,970 | ||||
| Revenue Cycle Management | 77,117 | 80,164 | ||||||
| Entertainment | 1,064,726 | 977,112 | ||||||
| Total Depreciation and Amortization | $ | 1,276,460 | $ | 1,578,246 | ||||
| Assets (net of eliminations): | ||||||||
| Video Solutions | $ | 11,113,519 | $ | 16,876,673 | ||||
| Revenue Cycle Management | 4,712,364 | 1,969,225 | ||||||
| Entertainment | 4,538,676 | 6,037,666 | ||||||
| Corporate | 4,711,482 | 7,379,605 | ||||||
| Total Identifiable Assets | $ | 25,076,041 | $ | 32,263,169 | ||||
The segment net revenues reported above represent sales to external customers. Segment gross profit represents net revenues less cost of revenues. Segment operating income, which is used in management’s evaluation of segment performance, represents net revenues, less cost of revenues, less all operating expenses. Identifiable assets are those assets used by each segment in its operations. Corporate assets primarily consist of cash, property, plant and equipment, accounts receivable, inventories, and other assets.
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Results of Operations
Revenues
Revenues by Type and by Operating Segment
Our operating segments generate two types of revenue:
Product revenues primarily include video solutions operating segment hardware sales of in-car and body-worn cameras. Additionally, product revenues also include the sale of tickets by our entertainment operating segment that have been purchased or received through our sponsorships and partnerships and held in inventory by our entertainment segment until their sale. Our entertainment sector also generates product revenue through our production of live events and concerts including our annual Country Stampede music festival.
Service and other revenues consist of cloud and warranty services revenues from our subscription plan and storage offerings of our video solutions segment. Our entertainment operating segment’s secondary ticketing marketplace revenues are included in service revenue. We recognize service revenue from sales generated through its secondary ticketing marketplace as we collect net services fees on secondary ticketing marketplace transactions. Lastly, our revenue cycle management segment revenues are included in the service revenues for services provided to medical providers throughout the country.
The following table presents revenues by type and segment:
| Nine months Ended September 30, | ||||||||||||
| 2025 | 2024 | % Change | ||||||||||
| Product revenues: | ||||||||||||
| Video solutions | $ | 721,992 | $ | 1,648,373 | (56.2 | )% | ||||||
| Entertainment | 2,880,210 | 2,929,019 | (1.7 | )% | ||||||||
| Total product revenues | 3,602,202 | 4,577,392 | (21.3 | )% | ||||||||
| Service and other revenues: | ||||||||||||
| Video solutions | 2,987,182 | 2,851,952 | 4.7 | % | ||||||||
| Entertainment | 3,911,068 | 3,167,208 | 23.5 | % | ||||||||
| Revenue cycle management | 4,144,008 | 4,600,745 | (9.9 | )% | ||||||||
| Total service and other revenues | 11,042,258 | 10,619,905 | 4.0 | % | ||||||||
| Total revenues | $ | 14,644,460 | $ | 15,197,297 | (3.6 | )% | ||||||
Our video solutions operating segment sells our products and services to customers in the following manner:
| ● | Sales to domestic customers are made directly to the end customer (typically a law enforcement agency or a commercial customer) through our sales force, comprised of our employees. Revenue is recorded when the product is shipped to the end customer. | |
| ● | Sales to international customers are made through independent distributors who purchase products from us at a wholesale price and sell to the end user (typically law enforcement agencies or a commercial customer) at a retail price. The distributor retains the margin as compensation for its role in the transaction. The distributor generally maintains product inventory, customer receivables and all related risks and rewards of ownership. Revenue is recorded when the product is shipped to the distributor consistent with the terms of the distribution agreement. | |
| ● | Repair parts and services for domestic and international customers are generally handled by our inside customer service employees. Revenue is recognized upon shipment of the repair parts and acceptance of the service or materials by the end customer. |
Our revenue cycle management operating segment sells its services to customers in the following manner:
| ● | Our revenue cycle management operating segment generates service revenues through relationships with medium to large healthcare organizations, in which the underlying service revenue is recognized upon execution of services. Service revenues are generally determined as a percentage of the dollar amount of medical billings collected by the customer. |
Our entertainment operating segment sells our products and services to customers in the following manner:
| ● | Our entertainment operating segment generates product revenues from the sale of tickets directly to consumers for a particular event that the entertainment operating segment has previously purchased and held in inventory for ultimate resale to the end consumer. Our entertainment segment also generates product revenues from the sale of tickets, merchandise, parking and concessions at live events that it sponsors such as the annual Country Stampede music festival. Service sales through TicketSmarter are driven largely in part to the usage of the TicketSmarter.com marketplace by buyers and sellers, in which the Company collects service fees for each transaction completed through this platform |
We may discount our prices on specific orders based upon the size of the order, the specific customer and the competitive landscape.
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Product revenues by operating segment are as follows:
| Nine months Ended September 30, | ||||||||
| 2025 | 2024 | |||||||
| Product Revenues: | ||||||||
| Video Solutions | $ | 721,992 | $ | 1,648,373 | ||||
| Revenue Cycle Management | — | — | ||||||
| Entertainment | 2,880,210 | 2,929,019 | ||||||
| Total Product Revenues | $ | 3,602,202 | $ | 4,577,392 | ||||
Product revenues for the nine months ended September 30, 2025 and 2024 were $3,602,202 and $4,577,392, respectively, a decrease of $975,190 (21.3%), due to the following factors:
| ● | Revenues generated by the entertainment operating segment began with the Company’s September 2021 acquisition of TicketSmarter and the 2024 acquisition of the Country Stampede Music Festival. The entertainment operating segment generated $2,880,210 in product revenues for the nine months ended September 30, 2025, compared to $2,929,019 for the nine months ended September 30, 2024. This product revenue relates to the 2025 Country Stampede music festival held by Kustom during 2025, as well as the resale of tickets purchased for live events, sporting events, concerts, and theatre, then sold through various platforms to customers. The decrease in revenues is attributable to a reduction in scope of primary ticket sales by Ticketsmarter as it focuses on higher margin events to improve its gross margins. |
| ● | The Company’s video segment operating segment generated revenues totaling $721,992 during the nine months ended September 30, 2025 compared to $1,648,373 for the nine months ended September 30, 2024. In general, our video solutions operating segment has experienced pressure on its product revenues as our in-car and body-worn systems are facing increased competition because our competitors have released new products with advanced features. Additionally, our law enforcement revenues declined compared to the same period in 2024 due to the Company not having inventory in–stock to fulfill existing backlog orders, price-cutting and competitive actions by our competitors and adverse marketplace effects related to our recent financial condition. During the first three quarters of 2025, we restarted our product supply chain using proceeds from the February 2025 public equity offering. We expect improved product availability to support higher video solutions product sales in the fourth quarter of 2025. |
| ● | Our video solutions operating segment management has continued to focus on migrating commercial customers, from a hardware sale to a service fee model. Therefore, we expect a reduction in commercial hardware sales (principally DVM-250’s, FLT-250’s, and a portion of our body-worn camera line) as we convert these customers to a service model under which we provide the hardware as part of a monthly recurring service fee. In that respect, we introduced a monthly subscription agreement plan for our body worn cameras and related equipment during the second quarter of 2020 that allowed law enforcement agencies to pay a monthly service fee to obtain body worn cameras without incurring a significant upfront capital outlay. This program has gained some traction, resulting in decreased product revenues and increasing our service revenues. We expect this program to continue to hold traction, resulting in recurring revenues over a span of three to five years. |
Service and other revenues by operating segment is as follows:
Nine months ended September 30, | ||||||||
| 2025 | 2024 | |||||||
| Service and Other Revenues: | ||||||||
| Video Solutions | $ | 2,987,182 | $ | 2,851,952 | ||||
| Revenue Cycle Management | 4,144,008 | 4,600,745 | ||||||
| Entertainment | 3,911,068 | 3,167,208 | ||||||
| Total Service and Other Revenues | $ | 11,042,258 | $ | 10,619,905 | ||||
Service and other revenues for the nine months ended September 30, 2025 and 2024 were $11,042,258 and $10,619,905, respectively, an increase of $422,353 (3.8%), due to the following factors:
| ● | Cloud revenues generated by the video solutions operating segment were $1,903,807 and $1,964,038 for the nine months ended September 30, 2025 and 2024, respectively, a slight decrease of $60,231 (3.1%). We continue to experience increased interest in our cloud solutions for law enforcement primarily due to the deployment of our cloud-based EVO-HD in-car system and our next generation body-worn camera products, which contributed to our cloud revenues in the nine months ended September 30, 2025. We expect this trend to continue for 2025 as the migration from local storage to cloud storage continues in our customer base. | |
| ● | Video solutions operating segment revenues from extended warranty services were $959,715 and $575,308 for the nine months ended September 30, 2025 and 2024, respectively, an increase of $384,407 (40%). The increase was primarily driven by a non-recurring catch-up from a single customer that settled past-due extended warranty fees related to services provided in fourth quarter of 2024, resulting in higher revenue recognized in the current period. | |
| ● | Our entertainment operating segment generated service revenues totaling $3,911,068 and $3,167,208 for the nine months ended September 30, 2025 and 2024, respectively, an increase of $743,860 (23.5%). TicketSmarter collects fees on transactions administered through the TicketSmarter.com platform for the buying and selling of tickets for live events throughout the country. We expect our entertainment operating segment to continue to fluctuate as we look to right-size this segment and work towards profitability. Our entertainment segment has focused on cost cutting and overall improvements in gross margin rather than top line revenues, which has resulted in a reduction in revenues for ticketing events that did not meet its gross margin goals. The entertainment operating segment has increased its use of Google, Facebook and other social media to generate increased ticketing revenues in the third quarter of 2025 compared to 2024. | |
| ● | Our revenue cycle management operating segment generated service revenues totaling $4,144,008 and $4,600,745 for the nine months ended September 30, 2025 and 2024, respectively, a decrease of $456,738 (9.9%). Our revenue cycle management operating segment provides revenue cycle management solutions and back-office services to healthcare organizations throughout the country. The decrease in revenue is due to refinement within one of the recent acquisitions, as they strive to maximize profitability rather than focus on top-line revenue. |
Total revenues for the nine months ended September 30, 2025, and 2024 were $14,644,460 and $15,197,297, respectively, a slight decrease of $552,837 (3.6%), due to the reasons noted above.
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Cost of Product Revenue
Overall cost of product revenue sold for the nine months ended September 30, 2025, and 2024 was $5,482,693 and $5,534,209, respectively, a slight decrease of $51,516 (1%). Overall cost of goods sold for products as a percentage of product revenues for the nine months ended September 30, 2025, and 2024 were 152% and 121%, respectively. Cost of products sold by operating segment is as follows:
Nine months Ended September 30, | ||||||||
| 2025 | 2024 | |||||||
| Cost of Product Revenues: | ||||||||
| Video Solutions | $ | 1,125,676 | $ | 1,913,356 | ||||
| Revenue Cycle Management | — | — | ||||||
| Entertainment | 4,357,017 | 3,620,853 | ||||||
| Total Cost of Product Revenues | $ | 5,482,693 | $ | 5,534,209 | ||||
The decrease in cost of goods sold for our video solutions segment products is due to decrease in product sales experienced during the nine months ended September 30, 2025 compared to 2024. We were not able to fulfil open orders due to low inventory levels. We have utilized funds from the February 2025 public equity offering to ramp the supply chain which we believe will lead to improved product sales during the remainder of 2025. Cost of product sold as a percentage of product revenues for the video solutions segment increased to 156% for the nine months ended September 30, 2025 as compared to 116% for the nine months ended September 30, 2024.
The increase in entertainment operating segment cost of product sold directly correlates to the increased revenues and costs associated with our annual Country Stampede Music Festival. Cost of product sold related to the 2025 Country Stampede Music Festival totaled $2,992,052 as compared to $1,848,167 for the 2024 Festival. Total cost of product revenues for the entertainment operating segment was $4,357,017 and $3,620,853 for the nine months ended September 30, 2025 and 2024, an increase of $736,164 (20.3%). Cost of product sold as a percentage of product revenues for the entertainment segment increased to 151% for the nine months ended September 30, 2025 as compared to 124% for the nine months ended September 30, 2024.
Cost of Service Revenue
Overall cost of service revenue sold for the nine months ended September 30, 2025, and 2024 was $6,821,318 and $6,159,284, respectively, an increase of $662,035 (10.7%). Overall cost of goods sold for services as a percentage of service revenues for the nine months ended September 30, 2025, and 2024 were 62% and 58%, respectively. Cost of service revenues by operating segment is as follows:
Nine months ended September 30, | ||||||||
| 2025 | 2024 | |||||||
| Cost of Service Revenues: | ||||||||
| Video Solutions | $ | 986,011 | $ | 964,412 | ||||
| Revenue Cycle Management | 2,616,329 | 2,868,885 | ||||||
| Entertainment | 3,218,978 | 2,325,987 | ||||||
| Total Cost of Service Revenues | $ | 6,821,318 | $ | 6,159,284 | ||||
Cost of service revenues for the video solutions segment increased slightly, reflecting higher service revenues for the nine months ended September 30, 2025 compared to the same period in 2024. Cost of service revenues as a percentage of service revenues for the video solutions segment increased to 33% for the nine months ended September 30, 2025 as compared to 34% for the nine months ended September 30, 2024.
The decrease in revenue cycle management operating segment cost of service revenue is commensurate with the decline in revenues due to certain loss generating services being eliminated during the year. Cost of service revenues as a percentage of product revenues for the revenue cycle management operating segment remained stable at 63% for the nine months ended September 30, 2025 as compared to 62% for the nine months ended September 30, 2024.
The increase in entertainment operating segment cost of service revenues is due to management right sizing the business working towards profitability. The entertainment segment terminated several unprofitable sponsorships which required termination payments during the nine months ended September 30, 2025, that is expected to lead to improvements in costs of service revenues during the remainder of 2025. The entertainment segment cost of service revenue was $3,218,978 for the nine months ended September 30, 2025, compared to $2,325,987 for the nine months ended September 30, 2024. Cost of service revenues as a percentage of service revenues for the entertainment segment increased to 82% for the nine months ended September 30, 2025 as compared to 73% for the nine months ended September 30, 2024.
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Gross Profit
Overall gross profit for the nine months ended September 30, 2025 and 2024 was $2,340,449 and $3,503,804, respectively, a decrease of $1,163,355 (33.2%). Gross profit by operating segment was as follows:
Nine months ended September 30, | ||||||||
| 2025 | 2024 | |||||||
| Gross Profit: | ||||||||
| Video Solutions | $ | 1,597,487 | $ | 1,622,557 | ||||
| Revenue Cycle Management | 1,527,679 | 1,731,860 | ||||||
| Entertainment | (784,717 | ) | 149,387 | |||||
| Total Gross Profit | $ | 2,340,449 | $ | 3,503,804 | ||||
The decrease in gross profits is primarily due to a deterioration in our cost of sales as a percentage of sales particularly in our entertainment segment service product and service revenues. The primary reason is the larger negative margins generated by our 2025 Country Stampede Music Festival as compared to the 2024 Festival. There was an overall increase in the cost of sales as a percentage of overall revenues to 84% for the nine months ended September 30, 2025 from 77% for the nine months ended September 30, 2024.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $8,531,984 and $18,439,296 for the nine months ended September 30, 2025 and 2024, respectively, a decrease of $9,907,312 (53.7%). The decrease was primarily attributable to the reduction in new advertising sponsorships being entered into by the Company and large reductions in selling, general and administrative head count as the Company right-sized its operations across all operating segments. Our selling, general and administrative expenses as a percentage of sales increased to 58% for the nine months ended September 30, 2025 compared to 121% in the same period in 2024. The significant components of selling, general and administrative expenses are as follows:
| Nine months ended September 30, | ||||||||
| 2025 | 2024 | |||||||
| Research and development expense | $ | 405,983 | $ | 1,244,060 | ||||
| Selling, advertising and promotional expense | 501,184 | 1,902,489 | ||||||
| General and administrative expense | 7,624,817 | 10,462,747 | ||||||
| Goodwill and intangible asset impairment charge | — | 4,830,000 | ||||||
| Total | $ | 8,531,984 | $ | 18,439,296 | ||||
Research and development expense. Our research and development expenses totaled $405,983 and $1,244,060 for the nine months ended September 30, 2025 and 2024, respectively which represents a decrease of $838,077 (67.4%). The decrease in research and development expense reflects a narrower project portfolio and a reallocation of resources toward sustaining engineering and targeted enhancements, including reductions in engineering headcount and third-party development spend.
Selling, advertising and promotional expenses. Selling, advertising and promotional expense totaled $501,184 and $1,902,489 for the nine months ended September 30, 2025 and 2024, respectively, a decrease of $1,401,305 (73.7%). The decrease in selling, advertising and promotional expenses is due to significant reductions in sales staffing and in promotional and advertising activities, undertaken to right-size these expenses to current revenue levels. Additionally, the decline reflects fewer new sponsorship agreements at the Company and its subsidiary, TicketSmarter.
General and administrative expense. General and administrative expenses totaled $7,624,817 and $10,462,747 for the nine months ended September 30, 2025 and 2024, respectively which represents a decrease of $2,837,930 (27.1%). The decrease in general and administrative expenses in the nine months ended September 30, 2025 compared to the same period in 2024 is primarily attributable to a decrease in administrative salaries and reductions in headcount in order to right-size our expenses in this area with our revenues. The decrease in general and administrative expenses was also attributable to a substantial decrease in legal and professional expenses for the nine months ended September 30, 2025 compared to the same period in 2024 due to the failed merger with CloverLeaf and various capital raises we have undertaken in the 2024 period.
Operating Loss
For the reasons previously stated, our operating loss was $6,191,535 and $14,935,492 for the nine months ended September 30, 2025 and 2024, respectively, an improvement of $8,743,957 (58.5%). Operating loss as a percentage of revenues improved to 42% in 2025 as compared to 98% in 2024.
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Interest Income
Interest income increased to $95,808 for the nine months ended September 30, 2025, from $63,064 in 2024, which reflects our overall increase in our cash and cash equivalent levels in 2025 compared to 2024 due to funds generated in the February 2025 public equity offering and the net proceeds from our September 2025 senior convertible note issuance.
Interest Expense
We incurred interest expenses of $960,250 and $2,505,536 during the nine months ended September 30, 2025 and 2024, respectively. The large decrease is attributable to the Company paying off most of its interest-bearing debt in late 2024 and early 2025 including the $3.6 million senior secured promissory notes that were paid off with proceeds from the February 2025 public equity offering.
Other income (expense)
Other income (expense) increased to $252,603 for the nine months ended September 30, 2025, from $66,966 during the nine months ended September 30, 2024, which reflects weather insurance proceeds that we received in 2025 related to the 2025 Country Stampede.
Loss on Extinguishment of debt
On March 1, 2024, the Company obtained a short-term merchant advance for its entertainment segment, which totaled $1,000,000, from a single lender to fund operations. The Company modified/amended the underlying loan agreement twice during the nine months ended September 30, 2024. The modifications were both deemed to be extinguishments of debt resulting in a $310,505 total loss during the nine months ended September 30, 2024.
During the nine months ended September 30, 2024, the Company refinanced its merchant advance loan for its video segment and determined the refinancing of the debt should be treated as a debt extinguishment. As a result, the Company recorded a loss of $68,827 on the extinguishment during the nine months ended September 30, 2024.
Change in Fair Value of Derivative Liabilities
The change in fair value of the warrant derivative liabilities for the nine months ended September 30, 2025 and 2024, respectively totaled a gain of $3,373,919 during the nine months ended September 30, 2025 as compared to a gain of $2,178,965 during the nine months ended September 30, 2024. The Company has issued various detachable warrants in connection with capital raises during 2024 and 2025 that were required to be treated as warrant derivative liabilities. Warrant derivative liabilities are required to be marked-to-market at each balance sheet date with the change in fair value recorded as a gain or loss in the Condensed Statement of Operations. The gain recorded in the nine months ended September 30, 2025 reflects the large decline in the closing market value of our common stock at September 30, 2025 when compared to December 31, 2024 closing market values.
Gain on Extinguishment of Liabilities
The Company recorded a gain on the extinguishment of liabilities for the nine months ended September 30, 2025 and 2024 of $2,243,991, and $691,730, respectively. The gains reflect income related to the video solutions and entertainment segment’s ability to negotiate down payables and other contract obligations during the nine months ended September 30, 2025 utilizing funds generated by the closing of the February 2025 public equity offering on February 13, 2025.
The gain on extinguishment of liabilities was $691,730 for the nine months ended September 30, 2024, which reflects income related to the entertainment segment’s ability to negotiate down payables and other contract obligations during the period. The Company utilized funds from the related party note payable to resolve numerous outstanding payables at a discounted rate, the discount received was recognized as a gain on extinguishment of liabilities in the condensed consolidated statement of operations for the nine months ended September 30, 2024.
Gain on disposal of intangibles
Gain on disposal of intangibles decreased to $-0- for the nine months ended September 30, 2025, from $5,582 during the nine months ended September 30, 2024.
Gain on Sale of Property, Plant and Equipment
The Company reported a gain on sale of property, plant and equipment of $-0- and $389,522 during the nine months ended September 30, 2025, and 2024, respectively.
During the nine months ended September 30, 2024, the Company sold its building for $5,900,000 less closing costs of $7,194. The carrying amount of the building on the date of sale was $5,461,623. As a result of the sale the Company recorded a gain of $431,183 in the Consolidated Statement of Operation during the nine months ended September 30, 2024. This amount was offset by a separate loss on sale of fixed assets of $41,661 for the nine months ended September 30, 2024
Loss before Income Tax Benefit
As a result of the above, we reported net loss before income tax benefit of $(1,185,464) and $(14,424,531) for the nine months ended September 30, 2025 and 2024, respectively, an improvement of $13,239,067 (91.8%).
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Income Tax Benefit
We recorded an income tax benefit of $-0- for the nine months ended September 30, 2025 and 2024, respectively. The effective tax rate for both 2025 and 2024 varied from the expected statutory rate due to our continuing to provide a 100% valuation allowance on net deferred tax assets. We determined that it was appropriate to continue the full valuation allowance on net deferred tax assets as of September 30, 2025 and December 31, 2024 primarily because of the recurring operating losses.
We have further determined to continue providing a full valuation reserve on our net deferred tax assets as of September 30, 2025.
We had approximately $159,965,000 of federal net operating loss carryforwards and $1,796,111 of research and development tax credit carryforwards as of September 30, 2025 and December 31, 2024 available to offset future net taxable income.
Net Loss
As a result of the above, we reported net income (loss) of $(1,185,464) and $(14,424,531) for the nine months ended September 30, 2025 and 2024, respectively, an improvement of $13,239,067 (91.8%).
Net Income Attributable to Noncontrolling Interests of Consolidated Subsidiary
The Company has a 51% equity interest in its consolidated subsidiary, Nobility Healthcare. As a result, the noncontrolling shareholders or minority interest is allocated 49% of the income/loss of Nobility Healthcare which is reflected in the condensed consolidated statement of income (loss) as “net income (loss) attributable to noncontrolling interests of consolidated subsidiary”. We reported net income attributable to noncontrolling interests of consolidated subsidiary of $118,133 and a net loss of $1,939,143 for the nine months ended September 30, 2025 and 2024, respectively.
Net Loss Attributable to Common Stockholders
As a result of the above, we reported a net loss of $(1,303,597) and $(12,485,388) for the nine months ended September 30, 2025 and 2024, respectively, an improvement of $11,181,791 (89.6%).
Basic and Diluted Loss per Share
The basic and diluted loss per share was $1.40 and $7,793.63 for the nine months ended September 30, 2025 and 2024, respectively, for reasons previously noted. All outstanding stock options and Common Stock purchase warrants were considered antidilutive and therefore excluded from the calculation of diluted income (loss) per share for the nine months ended September 30, 2025 and 2024. Such potentially dilutive securities were excluded from the computation because of their exercise price being higher than the market value of our Common Stock and the net loss reported for 2025 and 2024.
Liquidity and Capital Resources
Overall:
Management’s Liquidity Plan. We have experienced net losses and cash outflows from operating activities since inception. Based upon our current operating forecast, we anticipate that we will need to restore positive operating cash flows and/or raise additional capital in the short-term to fund operations, meet our customary payment obligations and otherwise execute our business plan over the next 12 months. We are continuously in discussions to raise additional capital, which may include a variety of equity and debt instruments; however, there can be no assurance that our capital raising initiatives will be successful. Our recurring losses and level of cash used in operations, along with uncertainties concerning our ability to raise additional capital, raise substantial doubt about our ability to continue as a going concern.
Cash, cash equivalents: As of September 30, 2025, we had cash and cash equivalents with an aggregate balance of $793,360, an increase from a balance of $454,314 at December 31, 2024. Summarized immediately below and discussed in more detail in the subsequent subsections are the main elements of the $339,046 net increase in cash during the nine months ended September 30, 2025:
| ● | Operating activities: | Net cash used in operating activities was $8,996,431 and $4,086,023 for the nine months ended September 30, 2025 and 2024, respectively, a deterioration of $4,910,410. The decline in operating cash flows primarily reflects the repayment of accounts payable (funded by proceeds from our February 2025 public equity offering), higher noncash gains from changes in the fair value of warrant derivative liabilities and from liability and debt extinguishments, which reduced noncash add-backs to operating cash flow, and unfavorable changes in operating assets and liabilities period over period. | |
| ● | Investing activities: | Net cash provided by (used in) investing activities was $(349,319) and $392,523 for the nine months ended September 30, 2025 and 2024, respectively. During the nine months ended September 30, 2025, we made expenditures for the purchase of property plant and equipment and also for patents. During the nine months ended September 30, 2024, we sold our building and collected $550,644 in net proceeds. |
| ● | Financing activities: | Net cash provided by financing activities was $9,684,796 and $3,330,482 for the nine months ended September 30, 2025 and 2024, respectively. During 2025, we completed several financing transactions: (i) a February 2025 public equity offering of common stock with detachable warrants generating $14,308,300 in net cash proceeds, (ii) issuance of an unsecured promissory note providing $600,000 in net cash proceeds, and (iii) issuance of a senior secured convertible note with detachable warrants providing $610,000 in net cash proceeds. These were partially offset by repayments on outstanding borrowings, including senior secured promissory notes and merchant cash advances. |
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The net result of these activities was an increase in cash of $339,046 to $793,360 for the nine months ended September 30, 2025.
Commitments:
We have $793,360 of cash and cash equivalents and net negative working capital of $115,393 as of September 30, 2025. Accounts receivable and other receivables balances represented $4,796,447 of our net working capital at September 30, 2025. We intend to collect our outstanding receivables on a timely basis and reduce the overall level during 2025, which would help to provide positive cash flow to support our operations during 2025 and beyond. Inventory represents $2,622,542 of our net working capital at September 30, 2025. We are actively managing the level of inventory, and our goal is to reduce such level during 2025 by our sales activities, the decrease of which should provide additional cash flow to help support our operations during 2025 and beyond.
Capital Expenditures:
We had the following material commitments for capital expenditures at September 30, 2025:
Lease commitments. Total lease expense under the Company’s operating leases was approximately $546,797 during the nine months ended September 30, 2025.
The following sets forth the operating lease right of use assets and liabilities as of September 30, 2025:
| Assets: | ||||
| Operating lease right of use assets, net | $ | 1,496,418 | ||
| Prepayment of rent | 138,843 | |||
| Total operating lease right of use asset | $ | 1,635,261 | ||
| Liabilities: | ||||
| Operating lease obligations-current portion | 248,012 | |||
| Operating lease obligations-less current portion | 1,248,406 | |||
| Total operating lease obligations | $ | 1,496,418 |
Following are the minimum lease payments for each year and in total.
| Year ending December 31: | ||||
| 2025 (October 1, 2025 through December 31, 2025) | $ | 52,738 | ||
| 2026 | 381,251 | |||
| 2027 | 448,051 | |||
| 2028 | 364,652 | |||
| 2029 and thereafter | 489,231 | |||
| Total undiscounted minimum future lease payments | 1,735,923 | |||
| Imputed interest | (239,505 | ) | ||
| Total operating lease liability | $ | 1,496,418 |
Debt obligations - We have the following outstanding debt as of September 30, 2025 which require future principal payments:
| September 30, 2025 | ||||
| Economic injury disaster loan (EIDL) | $ | 141,948 | ||
| Unsecured Promissory note – Entertainment Segment | 550,000 | |||
| Senior Secured Promissory Notes | 806,451 | |||
| Unamortized debt issuance costs | (494,668 | ) | ||
| Debt obligations | 1,003,731 | |||
| Less: current maturities of debt obligations | (865,292 | ) | ||
| Debt obligations, long-term | $ | 138,439 | ||
Debt obligations mature on an annual basis as follows as of September 30, 2025:
| September 30, 2025 | ||||
| 2025 (July 1, 2025 to December 31, 2025) | $ | 628,811 | ||
| 2026 | 237,379 | |||
| 2027 | 3,677 | |||
| 2028 | 3,817 | |||
| 2029 and thereafter | 130,047 | |||
| Total | $ | 1,003,731 | ||
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Litigation.
From time to time, we are notified that we may be a party to a lawsuit or that a claim is being made against us. It is our policy to not disclose the specifics of any claim or threatened lawsuit until the summons and complaint are actually served on us. After carefully assessing the claim, and assuming we determine that we are not at fault or we disagree with the damages or relief demanded, we vigorously defend any lawsuit filed against us. We record a liability when losses are deemed probable and reasonably estimable. When losses are deemed reasonably possible but not probable, we determine whether it is possible to provide an estimate of the amount of the loss or range of possible losses for the claim, if material for disclosure. In evaluating matters for accrual and disclosure purposes, we take into consideration factors such as our historical experience with matters of a similar nature, the specific facts and circumstances asserted, the likelihood of our prevailing, the availability of insurance, and the severity of any potential loss. We re-evaluate and update accruals as matters progress over time.
While the ultimate resolution is unknown, we do not expect that these lawsuits will individually, or in the aggregate, have a material adverse effect to our results of operations, financial condition or cash flows. However, the outcome of any litigation is inherently uncertain and there can be no assurance that any expense, liability or damages that may ultimately result from the resolution of these matters will be covered by our insurance or will not be in excess of amounts recognized or provided by insurance coverage and will not have a material adverse effect on our operating results, financial condition or cash flows. See Note 9, “Commitments and Contingencies,” to the condensed consolidated financial statements of this Quarterly Report on Form 10-Q for information on our litigation.
Critical Accounting Estimates
Our significant accounting policies are summarized in Note 1, “Nature of Business and Summary of Significant Accounting Policies,” to our condensed consolidated financial statements. While the selection and application of any accounting policy may involve some level of subjective judgments and estimates, we believe the following accounting policies and estimates are the most critical to our financial statements, potentially involve the most subjective judgments in their selection and application, and are the most susceptible to uncertainties and changing conditions:
| ● | Revenue Recognition / Allowance for Doubtful Accounts; | |
| ● | Allowance for Excess and Obsolete Inventory; | |
| ● | Goodwill and other intangible assets; | |
| ● | Warranty Reserves; | |
| ● | Fair value of assets and liabilities acquired in business combinations; | |
| ● | Fair value of warrant derivative liabilities; | |
| ● | Stock-based Compensation Expense; and | |
| ● | Accounting for Income Taxes. |
Revenue Recognition / Allowances for Doubtful Accounts. Revenue is recognized for the shipment of products or delivery of service when all five of the following conditions are met:
| (i) | Identify the contract with the customer; | |
| (ii) | Identify the performance obligations in the contract; | |
| (iii) | Determine the transaction price; | |
| (iv) | Allocate the transaction price to the performance obligations in the contract; and | |
| (v) | Recognize revenue when a performance obligation is satisfied. |
We consider the terms and conditions of the contract and our customary business practices in identifying our contracts under ASC 606. We determine we have a contract when the customer order is approved, we can identify each party’s rights regarding the services to be transferred, we can identify the payment terms for the services, we have determined the customer has the ability and intent to pay and the contract has commercial substance. At contract inception we evaluate whether the contract includes more than one performance obligation. We apply judgment in determining the customer’s ability and intent to pay, which is based on a variety of factors, including the customer’s historical payment experience or, in the case of a new customer, credit and financial information pertaining to the customer.
Performance obligations promised in a contract are identified based on the services and the products that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the service either on its own or together with other resources that are readily available from third parties or from us, and are distinct in the context of the contract, whereby the transfer of the services and the products is separately identifiable from other promises in the contract. Our performance obligations consist of (i) products, (ii) professional services, and (iii) extended warranties.
The transaction price is determined based on the consideration to which we expect to be entitled in exchange for transferring services to the customer. Variable consideration is included in the transaction price if, in our judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur. None of our contracts contain a significant financing component.
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If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on the relative standalone selling price (“SSP”).
Revenue for our video solutions segment is recognized at the time the related performance obligation is satisfied by transferring the control of the promised service to a customer. Revenue is recognized when control of the service is transferred to the customer, in an amount that reflects the consideration that we expect to receive in exchange for our services. We generate all our revenue from contracts with customers.
Revenue for our revenue cycle management segment is recorded on a net basis, as its primary source of revenue is its end-to-end service fees. These service fees are reported as revenue monthly, upon completion of our performance obligation to provide the agreed upon services.
Revenue for our entertainment segment is recorded on a gross or net basis based on management’s assessment of whether we are acting as a principal or agent in the transaction. The determination is based upon the evaluation of control over the event ticket, including the right to sell the ticket, prior to its transfer to the ticket buyer.
We sell our tickets held in inventory, which consists of one performance obligation, being to transfer control of an event ticket to the buyer upon confirmation of the order. We act as the principal in these transactions as we own the ticket at the time of sale, therefore we control the ticket prior to transferring to the customer. In these transactions, revenue is recorded on a gross basis based on the value of the ticket and is recognized when an order is confirmed. Payment is typically due upon delivery of the ticket.
We also act as an intermediary between buyers and sellers through the online secondary marketplace. Revenues derived from this marketplace primarily consist of service fees from entertainment operations, and consist of one primary performance obligation, which is facilitating the transaction between the buyer and seller, being satisfied at the time the order has been confirmed. As we do not control the ticket prior to the transfer, we act as an agent in these transactions. Revenue is recognized on a net basis, net of the amount due to the seller when an order is confirmed, the seller is then obligated to deliver the tickets to the buyer per the seller’s listing. Payment is due at the time of sale.
We review all significant, unusual, or non-standard shipments of product or delivery of services as a routine part of our accounting and financial reporting process to determine compliance with these requirements. Extended warranties are offered on selected products, and when a customer purchases an extended warranty, the associated proceeds are treated as deferred revenue and recognized over the term of the extended warranty.
For our video solutions segment, our principal customers are state, local, and federal law enforcement agencies, which historically have been low risks for uncollectible accounts. However, we have commercial customers and international distributors that present a greater risk for uncollectible accounts than such law enforcement customers and we consider a specific reserve for bad debts based on their individual circumstances. Our historical bad debts have been negligible since we commenced deliveries during 2006.
For our entertainment segment, our customers are mainly online visitors that pay at the time of the transaction, and we collect the service fees charged with the transaction. Thus, leading to minimal risk for uncollectible accounts, to which we then consider a specific reserve for bad debts based on their individual circumstances. As we continue to learn more about the collectability related to this recent acquisition, we will track historical bad debts and continue to assess appropriate reserves.
For our revenue cycle management segment, our customers are mainly medium to large healthcare organizations that are charged monthly upon the execution of our services. Being these customers are healthcare organizations with minimal risk for uncollectible accounts; we consider a specific reserve for bad debts based on their individual circumstances. As we continue to learn more about the collectability related to this recently added segment, we will track historical bad debts and continue to assess appropriate reserves.
Allowance for Excess and Obsolete Inventory. We record valuation reserves on our inventory for estimated excess or obsolete inventory items. The amount of the reserve is equal to the difference between the cost of the inventory and the estimated market value based upon assumptions about future demand and market conditions. On a quarterly basis, management performs an analysis of the underlying inventory to identify reserves needed for excess and obsolescence. Management uses its best judgment to estimate appropriate reserves based on this analysis. In addition, we adjust the carrying value of inventory if the current market value of that inventory is below its cost.
Inventories consisted of the following at September 30, 2025 and December 31, 2024:
September 30, 2025 | December 31, 2024 | |||||||
| Raw material and component parts– video solutions segment | $ | 2,833,268 | $ | 2,589,804 | ||||
| Work-in-process– video solutions segment | 49,400 | 4,906 | ||||||
| Finished goods – video solutions segment | 1,071,682 | 1,655,317 | ||||||
| Finished goods – entertainment segment | 435,077 | 505,694 | ||||||
| Subtotal | 4,389,427 | 4,755,721 | ||||||
| Reserve for excess and obsolete inventory– video solutions segment | (1,659,289 | ) | (2,037,252 | ) | ||||
| Reserve for excess and obsolete inventory – entertainment segment | (107,596 | ) | (132,403 | ) | ||||
| Total inventories | $ | 2,622,542 | $ | 2,586,066 | ||||
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We balance the need to maintain strategic inventory levels to ensure competitive delivery performance to our customers against the risk of inventory obsolescence due to changing technology and customer requirements. As reflected above, our inventory reserves represented 40% of the gross inventory balance at September 30, 2025, compared to 46% of the gross inventory balance at December 31, 2024. We had $1,766,885 and $2,169,655 in reserves for obsolete and excess inventories at September 30, 2025 and December 31, 2024, respectively. The decrease in the inventory reserve is primarily due to the reduction in finished goods and movement of excess inventory. Additionally, the Company determined a reasonable reserve for inventory held at the ticket operating segment, in which some inventory items sell below cost or go unsold, thus having to be fully written-off following the event date. We believe the reserves are appropriate given our inventory levels as of September 30, 2025.
If actual future demand or market conditions are less favorable than those projected by management or significant engineering changes to our products that are not anticipated and appropriately managed, additional inventory write-downs may be required in excess of the inventory reserves already established.
Goodwill and other intangible assets. When we acquire a business, we determine the fair value of the assets acquired and liabilities assumed on the date of acquisition, which may include a significant amount of intangible assets such as customer relationships, software and content, as well as goodwill. When determining the fair values of the acquired intangible assets, we consider, among other factors, analyses of historical financial performance and an estimate of the future performance of the acquired business. The fair values of the acquired intangible assets are primarily calculated using an income approach that relies on discounted cash flows. This method starts with a forecast of the expected future net cash flows for the asset and then adjusts the forecast to present value by applying a discount rate that reflects the risk factors associated with the cash flow streams. We consider this approach to be the most appropriate valuation technique because the inherent value of an acquired intangible asset is its ability to generate future income. In a typical acquisition, we engage a third-party valuation expert to assist us with the fair value analysis for acquired intangible assets.
Determining the fair values of acquired intangible assets requires us to exercise significant judgment. We select reasonable estimates and assumptions based on evaluating a number of factors, including, but not limited to, marketplace participants, consumer awareness and brand history. Additionally, there are significant judgments inherent in discounted cash flows such as estimating the amount and timing of projected future cash flows, the selection of discount rates, hypothetical royalty rates and contributory asset capital charges. Specifically, the selected discount rates are intended to reflect the risk inherent in the projected future cash flows generated by the underlying acquired intangible assets.
Determining an acquired intangible asset’s useful life also requires significant judgment and is based on evaluating a number of factors, including, but not limited to, the expected use of the asset, historical client retention rates, consumer awareness and trade name history, as well as any contractual provisions that could limit or extend an asset’s useful life.
The Company’s goodwill is evaluated in accordance with FASB ASC Topic 350, which requires goodwill to be assessed for impairment at least annually and whenever events or changes in circumstances indicate that the carrying value of goodwill may not be recoverable. In addition, an impairment evaluation of our amortizable intangible assets may also be performed if events or circumstances indicate potential impairment. Among the factors that could trigger an impairment review are current operating results that do not align with our annual plan or historical performance; changes in our strategic plans or the use of our assets; restructuring changes or other changes in our business segments; competitive pressures and changes in the general economy or in the markets in which we operate; and a significant decline in our stock price and our market capitalization relative to our net book value.
When performing our annual assessment of the recoverability of goodwill, we initially perform a qualitative analysis evaluating whether any events or circumstances occurred or exist that provide evidence that it is more likely than not that the fair value of any of our reporting units is less than the related carrying amount. If we do not believe that it is more likely than not that the fair value of any of our reporting units is less than the related carrying amount, then no quantitative impairment test is performed. However, if the results of our qualitative assessment indicate that it is more likely than not that the fair value of a reporting unit is less than its respective carrying amount, then we perform a two-step quantitative impairment test.
Evaluating the recoverability of goodwill requires judgments and assumptions regarding future trends and events. As a result, both the precision and reliability of our estimates are subject to uncertainty. Among the factors that we consider in our qualitative assessment are general economic conditions and the competitive environment; actual and projected reporting unit financial performance; forward-looking business measurements; and external market assessments. To determine the fair values of our reporting units for a quantitative analysis, we typically utilize detailed financial projections, which include significant variables, such as projected rates of revenue growth, profitability and cash flows, as well as assumptions regarding discount rates, the Company’s weighted average cost of capital and other data.
We performed an impairment test as of the last day of the fiscal third quarter of 2024 as management determined that a triggering event had occurred resulting from the additional decline in demand for our services, prolonged economic uncertainty, the fact that the split-off transaction did not occur when and as expected and a further decrease in our stock price. Therefore, we performed an impairment test for our reporting units with remaining goodwill.
The fair value of each reporting unit was estimated using a weighting of the income and market valuation approaches. The income approach applied a fair value methodology to each reporting unit based on discounted cash flows. This analysis requires significant judgments, including estimation of future cash flows, which is dependent on internally-developed forecasts of revenue and profitability, estimation of the long-term rate of growth for our business, estimation of the useful life over which cash flows will occur, and determination of our weighted average cost of capital, which is risk-adjusted to reflect the specific risk profile of the reporting unit being tested. The weighted average cost of capital used in our most recent impairment test ranged from 20.9% to 32.5%. We also applied a market approach, which develops a value correlation based on the market capitalization of similar publicly traded companies, referred to as a multiple, to apply to the operating results of the reporting units. The primary market multiples used are revenue and earnings before interest, taxes, depreciation, and amortization. The income and market approaches were equally weighted in our most recent annual impairment test, for all of the reporting units.
The combined fair values for all reporting units were then reconciled to our aggregate market value of our shares of Common Stock on the date of valuation, while considering a reasonable control premium. We consider a reporting unit’s fair value to be substantially in excess of the reporting unit’s carrying value at a 25% premium or greater. Based on our most recent impairment test, the video solutions reporting unit’s fair value was substantially in excess of its carrying value, while the revenue cycle management and entertainment segments were determined to be impaired.
We held goodwill of $5,480,966 as of September 30, 2024, related to businesses within our revenue cycle management segment. We held goodwill of $6,112,507 as of September 30, 2024, respectively, related to businesses within our entertainment segment. As a result of our September 30, 2024 interim impairment test, we concluded that the carrying amount of the revenue cycle management and the entertainment reporting units exceeded its estimated fair values. Thus, we recorded a non-cash goodwill impairment charge of $4,322,000, related to the goodwill carrying balance for the revenue cycle management segment, and a non-cash goodwill impairment charge of $307,000, related to the goodwill carrying balance for the entertainment segment, both of which was included in goodwill and intangible asset impairment charge on our Condensed Consolidated Statements of Operations for the three months ended September 30, 2024. The goodwill impairment was primarily driven by recent performance of the revenue cycle management and entertainment reporting units since our annual impairment testing date, as well as a delay in the projected timing of recovery. The remaining balance for the goodwill carrying balance related to businesses within our revenue cycle management segment and entertainment segment was $1,158,966 and $5,805,507, respectively as of September 30, 2025 and December 31, 2024.
Warranty Reserves. Historically, we recorded an assurance-type warranty liability related to hardware sold. As we have transitioned to a cloud-based, subscription model in which devices are typically provided as part of the service rather than sold, the volume of products subject to an assurance-type warranty has become insignificant. For subscription deployments, our obligations consist of maintenance/support and service-level commitments, which are accounted for under ASC 606 as services (and any service-level credits as variable consideration), not as assurance-type warranties. Based on claims history and expected costs, anticipated assurance-type warranty costs are immaterial.
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Warrant derivative liabilities.
The Company accounts for their derivative financial instruments in accordance with ASC 815 “Derivatives and Hedging” therefore any embedded conversion options and warrants accounted for as derivatives are to be recorded at their fair values as of the inception date of the agreement and at fair value as of each subsequent balance sheet date. Any change in fair value is recorded as non-operating, non-cash income or expense for each reporting period at each balance sheet date. The Company reassesses the classification of its derivative instruments at each balance sheet date. If the classification changes as a result of events during the period, the contract is reclassified as of the date of the event that caused the reclassification.
The Black-Scholes option valuation model was used to estimate the fair value of the embedded conversion options and warrants. The model includes subjective input assumptions that can materially affect the fair value estimates.
Accounting for Income Taxes. Accounting for income taxes requires significant estimates and judgments on the part of management. Such estimates and judgments include, but are not limited to, the effective tax rate anticipated to apply to tax differences that are expected to reverse in the future, the sufficiency of taxable income in future periods to realize the benefits of net deferred tax assets and net operating losses currently recorded and the likelihood that tax positions taken in tax returns will be sustained on audit.
As required by authoritative guidance, we record deferred tax assets or liabilities based on differences between financial reporting and tax bases of assets and liabilities using currently enacted rates that will be in effect when the differences are expected to reverse. Authoritative guidance also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that all or some portion of the deferred tax asset will not be realized. As of September 30, 2025 and December 31, 2024, we have fully reserved all of our deferred tax assets. Based on a review of our deferred tax assets and recent operating performance, we determined that our valuation allowance should be increased to fully reserve our deferred tax assets at September 30, 2025 and December 31, 2024. We determined that it was appropriate to continue to provide a full valuation reserve on our net deferred tax assets as of September 30, 2025 and December 31, 2024, because of the overall net operating loss carryforwards available. We expect to continue to maintain a full valuation allowance until we determine that we can sustain a level of profitability that demonstrates our ability to realize these assets. To the extent we determine that the realization of some or all of these benefits is more likely than not based upon expected future taxable income, a portion or all of the valuation allowance will be reversed. Such a reversal would be recorded as an income tax benefit and, for some portion related to deductions for stock option exercises, an increase in shareholders’ equity.
As required by authoritative guidance, we have performed a comprehensive review of our portfolio of uncertain tax positions in accordance with recognition standards established by the FASB, an uncertain tax position represents our expected treatment of a tax position taken in a filed tax return or planned to be taken in a future tax return, that has not been reflected in measuring income tax expense for financial reporting purposes. We have no recorded liability as of September 30, 2025 and December 31, 2024 representing uncertain tax positions.
We have generated substantial deferred income tax assets related to our operations primarily from the charge to compensation expense taken for stock options, certain tax credit carryforwards and net operating loss carryforwards. For us to realize the income tax benefit of these assets, we must generate sufficient taxable income in future periods when such deductions are allowed for income tax purposes. In some cases where deferred taxes were the result of compensation expense recognized on stock options, our ability to realize the income tax benefit of these assets is also dependent on our share price increasing to a point where these options have intrinsic value at least equal to the grant date fair value and are exercised. In assessing whether a valuation allowance is needed in connection with our deferred income tax assets, we have evaluated our ability to generate sufficient taxable income in future periods to utilize the benefit of the deferred income tax assets. We continue to evaluate our ability to use recorded deferred income tax asset balances. If we fail to generate taxable income for financial reporting in future years, no additional tax benefit would be recognized for those losses, since we will not have accumulated enough positive evidence to support our ability to utilize net operating loss carryforwards in the future. Therefore, we may be required to increase our valuation allowance in future periods should our assumptions regarding the generation of future taxable income not be realized.
Inflation and Seasonality
Inflation has not materially affected us during the past fiscal year. We do not believe that our Video Solutions and Revenue Cycle Management segments business is seasonal in nature, however; the Entertainment Segment is expected to generate higher revenue during the second half of the calendar year than in the first half.
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, 2025 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 9 – 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 and nine months ended September 30, 2025 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 and nine months ended September 30, 2025 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.
| 57 |
Item 6. Exhibits.
| (a) | Exhibits: |
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 12, 2025
| DIGITAL ALLY, 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) | |
| 59 |
Exhibit 31.1
DIGITAL ALLY, INC.
CERTIFICATIONS
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Stanton E. Ross, Chief Executive Officer of Digital Ally, Inc., certify that:
| 1. | I have reviewed this report on Form 10-Q for the three and nine months ended September 30, 2025 of Digital Ally, Inc. | |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report. | |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report. | |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting. |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting. |
Date: November 12, 2025
| /s/ Stanton E. Ross | |
| Stanton E. Ross | |
| Chief Executive Officer | |
| (Principal Executive Officer) |
Exhibit 31.2
DIGITAL ALLY, INC.
CERTIFICATIONS
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Thomas J. Heckman, Chief Financial Officer of Digital Ally, Inc., certify that:
| 1. | I have reviewed this report on Form 10-Q for the three and nine months ended September 30, 2025 of Digital Ally, Inc. | |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report. | |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report. | |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting. |
Date: November 12, 2025
| /s/ Thomas J. Heckman | |
| THOMAS J. HECKMAN | |
| Chief Financial Officer | |
| (Principal Financial Officer) |
Exhibit 32.1
DIGITAL ALLY, INC.
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Digital Ally, Inc. (the “Company”) on Form 10-Q for the three and nine months ended September 30, 2025 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Stanton E. Ross, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| /s/ Stanton E. Ross | |
| Stanton E. Ross | |
| Chief Executive Officer | |
| (Principal Executive Officer) | |
| November 12, 2025 |
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Digital Ally, Inc. and will be retained by Digital Ally, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32.2
DIGITAL ALLY, INC.
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Digital Ally, Inc. (the “Company”) on Form 10-Q for the three and nine months ended September 30, 2025 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Thomas J. Heckman, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| /s/ Thomas J. Heckman | |
| THOMAS J. HECKMAN | |
| Chief Financial Officer | |
| (Principal Financial Officer) | |
| November 12, 2025 |
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Digital Ally, Inc. and will be retained by Digital Ally, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.