Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
This discussion contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. The words “believe,” “expect,” “anticipate,” “intend,” “estimate,” “may,” “should,” “could,” “will,” “plan,” “future,” “continue,” and other expressions that are predictions of or indicate future events and trends and that do not relate to historical matters identify forward-looking statements. 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.
You should read the following discussion together with our financial statements and the related notes included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements that are based on our current expectations, estimates and projections about our business and operations
Current Trends and Recent Developments for the Company
Segment Overview
Video Solutions Operating Segment – Within our Video Solutions Segment, we supply technology-based products utilizing our portable digital video and audio recording capabilities for the law enforcement and security industries and for the commercial fleet and mass transit markets. We have the ability to integrate electronic, radio, computer, mechanical, and multi-media technologies to create positive solutions to our customers’ requests. Our products include: the EVO-HD, DVM-800 and DVM-800 Lite, which are in-car digital video systems for law enforcement and commercial markets; the FirstVU body-worn camera line, consisting of the FirstVu Pro, FirstVu II, 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 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, which is our cloud-based evidence management systems.
Our Video Solutions Segment revenue encompasses sales of video recording products and related services for law enforcement and commercial customers, as well as sales of Shield™ disinfectant and personal protective products. This segment generates revenue through both product sales and subscription-based models that offer cloud storage, evidence management, and extended warranty solutions. Revenues from product sales are recognized upon delivery, while revenues associated with subscription and service plans are deferred and recognized over the respective contract term, typically 3 to 5 years. Recent trends reflect continued demand from law enforcement and commercial fleet customers for integrated body-worn and in-car video solutions, offset by a decline in disinfectant-related sales compared to prior periods. Management continues to focus on enhancing recurring revenue through subscription and cloud-based service offerings while aligning production and inventory levels with current demand trends
Entertainment Operating Segment - We continue to operate our live entertainment and ticketing services through our wholly owned subsidiary, TicketSmarter, which was established following the Company’s acquisitions of Goody Tickets, LLC and TicketSmarter, LLC on September 1, 2021. TicketSmarter provides primary and secondary ticketing, partnerships, and resale services through its online ticketing marketplace, TicketSmarter.com. The platform offers tickets to more than 125,000 live events nationwide, including concerts, sporting events, theatre productions, and performing arts. In addition to ticketing, we produce and promote live music and entertainment events in third-party venues across the United States. These services include all aspects of event logistics, such as artist booking, ticketing, staging, vendor sourcing, on-site operations, and day-of-event production management.
Our Entertainment Segment consists of entertainment services provided through TicketSmarter and its online platform, TicketSmarter.com. Revenues of this segment include ticketing service charges generally determined as a percentage of the face value of the underlying ticket and ticket sales from our ticket inventory which are recognized when the underlying tickets are sold. Entertainment direct expenses include the cost of tickets purchased for resale by the Company and held as inventory, credit card fees, ticketing platform expenses, website maintenance fees, along with other administrative costs.
Revenue Cycle Management Segment (Discontinued Operations) - The Company entered the revenue cycle management business in the second quarter of 2021 through the formation of its wholly owned subsidiary, Digital Ally Healthcare, 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 subsequently completed additional acquisitions of private medical billing companies. Through this segment, the Company provided end-to-end revenue cycle management services to medical providers throughout the United States, including claim reimbursement billing, insurance and benefits verification, medical treatment documentation and coding, and collection services.
The Revenue Cycle Management Segment consisted primarily of medical billing subsidiaries. Revenues within this segment were derived from service arrangements performed and billed monthly, generally calculated as a contractual percentage of customer collections. Revenue was recognized as services were performed, and net service fees were recorded in accordance with applicable revenue recognition guidance.
On January 8, 2026, the Company completed the sale of Nobility Healthcare. As a result, the operations of the Revenue Cycle Management Segment have been classified as discontinued operations in the Company’s consolidated financial statements.
Refer to Note 22 – Operating Segments and Note 23 – Discontinued Operations in the Notes to Consolidated Financial Statements for additional information regarding the Company’s segments and discontinued operations, including net sales, operating earnings and total assets by segment.
Comparison of the Year Ended December 31, 2025 and 2024
Summary Financial Data
Summarized financial information for the Company’s reportable business segments is provided for the years ended December 31, 2025, and 2024:
Years Ended December 31,
Net Revenues:
Video Solutions
Entertainment
Total Net Revenues
Gross Profit (loss):
Video Solutions
Entertainment
Total Gross Profit
Operating Income (loss):
Video Solutions
Entertainment
Corporate
Total Operating Income (Loss)
Depreciation and Amortization:
Video Solutions
Entertainment
Total Depreciation and Amortization
Assets (net of eliminations):
Video Solutions
Entertainment
Corporate
Total Identifiable Assets
The segments recorded noncash items affecting the gross profit and operating income (loss) through the established inventory reserves based on estimates of excess and/or obsolete current and non-current inventory. The Company recorded a reserve for excess and obsolete inventory in the Video Solutions Segment of $1,849,124 and $2,037,252 and a reserve for the Entertainment Segment of $69,817 and $132,403 as of December 31, 2025 and 2024.
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.
Total identifiable assets for 2025 and 2024 include amounts related to the discontinued Revenue Cycle Management Segment, which are included in the Corporate and Other category. See Note 23, Discontinued Operations , for additional information.
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.
We are a party to operating leases and license agreements that represent commitments for future payments (described in Note 14, Operating Lease, and Note 15, Commitments and Contingencies, to our consolidated financial statements) and we have issued purchase orders in the ordinary course of business that represent commitments to future payments for goods and services.
For the Years Ended December 31, 2025 and 2024
Results of Operations
Summarized immediately below and discussed in more detail in the subsequent sub-sections is an analysis of our operating results for the years ended December 31, 2025 and 2024, represented as a percentage of total revenues for each respective year:
Years Ended December 31,
Revenue
Cost of revenue
Gross profit
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
Change in fair value of derivative liabilities
Loss on disposal of intangible assets
Loss on litigation
Loss on extinguishment of debt
Gain on extinguishment of liabilities
Gain on sale of property, plant and equipment
Interest expense
Interest income and other income, net
Loss before income tax benefit from operations
Income tax expense (benefit)
Net loss from discontinued operations, net of tax
Net loss
Net loss attributable to common stockholders
Net loss per share information:
Basic
Diluted
Revenues
Revenues by Type and by Operating Segment
Our operating segments generate two types of revenues:
Product revenues primarily include video solutions operating segment hardware sales of in-car and body-worn cameras, along with sales of our ThermoVu TM units, disinfectants, and personal protective equipment. Additionally, product revenues also include the sale of tickets by our entertainment operating segment that have been purchased or received through our sponsorships and partnerships and held in inventory by our Entertainment Segment until their sale.
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 Segments’ 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.
The following table presents revenues by type and segment:
Year Ended December 31,
% Change
Product revenues:
Video solutions
Entertainment
Total product revenues
Service and other revenues:
Video solutions
Entertainment
Total service and other revenues
Total revenues
Our Video Solutions 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 Entertainment Segment sells our products and services to customers in the following manner:
Our Entertainment Segment generates product revenues from the sale of tickets directly to consumers for a particular event that the Entertainment Segment has previously purchased and held in inventory for ultimate resale to the end consumer. 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.
Product revenues by operating segment is as follows:
Years ended December 31,
Product Revenues:
Video Solutions
Entertainment
Total Product Revenues
Product revenues for the years ended December 31, 2025 and 2024 were $4,337,276 and $5,404,317, respectively, representing a decrease of $1,067,041 (19.7%), driven by the following factors:
The Video Solutions Segment generated product revenues of $1,184,079 for the year ended December 31, 2025, compared to $1,997,389 for the year ended December 31, 2024. The decrease in product revenues was primarily due to increased competitive pressure as competitors introduced new products with advanced features, continued price competition, and adverse market conditions related to the Company’s recent financial condition. In addition, product revenues declined as the Company experienced inventory constraints that limited its ability to fulfill existing backlog orders during the year.
Revenues generated by the Entertainment Segment began with the Company’s September 2021 acquisition of TicketSmarter. The Entertainment Segment generated $3,153,197 in product revenues for the year ended December 31, 2025, compared to $3,406,928 for the year ended December 31, 2024. These revenues primarily relate to the second 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 events and sold through various platforms to customers. The year-over-year decrease was primarily attributable to a reduction in the scope of primary ticket sales by TicketSmarter, as management focused on higher-margin events in an effort to improve gross margins.
Our Video Solutions 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 recurring monthly 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:
Years ended December 31,
Service and Other Revenues:
Video Solutions
Entertainment
Total Service and Other Revenues
Service and other revenues for the years ended December 31, 2025 and 2024 were $9,416,879 and $8,114,835, respectively, representing an increase of $1,302,044, or 16.0%, driven by the following factors:
Cloud revenues generated by the Video Solutions Segment were $2,578,179 and $2,557,400 for the years ended December 31, 2025 and 2024, respectively, representing an increase of $20,779 (0.8%).
Cloud revenues remained relatively stable year over year, reflecting continued customer adoption of the Company’s cloud-based solutions, including evidence management, data storage, and related subscription services for law enforcement customers. The slight increase was primarily attributable to a combination of contract timing, customer budget constraints, and delayed purchasing decisions by certain municipal and law enforcement agencies during 2025. While demand for cloud-based solutions remains strong as agencies continue migrating from local storage to cloud environments, the Company experienced modest pressure on renewals and new deployments as customers evaluated capital spending priorities. Management expects cloud revenues to remain a key component of the video solutions operating segment, with future growth dependent on new product introductions, customer conversion activity, and overall public-sector spending trends.
Revenues from extended warranty services generated by the Video Solutions operating segment were $1,132,491 and $822,839 for the years ended December 31, 2025 and 2024, respectively, representing an increase of $309,652 (37.6%).
The increase was primarily driven by stable hardware sales and consistent warranty attach rates across the Company’s in-car and body-worn camera product offerings. Extended warranty services continue to provide a predictable and recurring revenue stream tied to the installed base of video solutions hardware. The year-over-year growth reflects customer preference for longer-term coverage agreements to manage maintenance costs and system reliability, partially offset by competitive pricing pressure and a slower pace of new hardware deployments during the year.
The Entertainment Segment generated service revenues of $5,500,201 and $4,356,833 for the years ended December 31, 2025 and 2024, respectively, representing an increase of $1,143,368 (26.2%).
The increase in service revenues was primarily attributable to higher transaction volumes on the TicketSmarter platform, as well as increased activity related to ticket resale services and associated transaction fees. TicketSmarter earns service revenues by facilitating the buying and selling of tickets for live events, including concerts, sporting events, and other entertainment venues, through its online marketplace. Growth during 2025 reflects continued expansion of platform usage, increased consumer engagement, and improved monetization of ticketing transactions. While service revenues increased significantly year over year, management continues to focus on optimizing pricing, managing marketing spend, and improving gross margins within the entertainment operating segment, which may result in continued variability in service revenues depending on event mix, market conditions, and strategic prioritization of profitability over top-line growth.
Total revenues for the years ended December 31, 2025 and 2024 were $13,754,155 and $13,519,152, respectively, representing an increase of $235,003 (1.7%).
Cost of Product Revenue
Overall cost of product revenues for the years ended December 31, 2025 and 2024 was $6,333,622 and $5,899,130, respectively, representing an increase of $434,492 (7.4%). Overall cost of product revenues as a percentage of total product revenues for the years ended December 31, 2025 and 2024 was approximately 146% and 109%, respectively. Cost of products sold by operating segment is as follows:
Years Ended December 31,
Cost of Product Revenues:
Video Solutions
Entertainment
Total Cost of Product Revenues
The decrease in Video Solutions Segment cost of product revenues to $1,523,613 for the year ended December 31, 2025 from $1,780,284 for the year ended December 31, 2024 was primarily attributable to lower product volumes and changes in inventory reserve activity, including reduced charges related to excess and obsolete inventory compared to the prior year. Cost of product revenues as a percentage of product revenues for the video solutions segment increased to approximately 129% for the year ended December 31, 2025 from approximately 89% for the year ended December 31, 2024, reflecting the decline in product revenues during the period and the impact of fixed manufacturing and overhead costs.
The increase in Entertainment Segment cost of product revenues reflects higher absolute costs, with cost of product revenues increasing to $4,810,009 for the year ended December 31, 2025 from $4,118,846 for the year ended December 31, 2024. This represents an increase of $691,163 (16.8%), which was primarily driven by changes in ticket inventory mix and higher write-offs of ticket inventory sold below cost or unsold following event dates. Cost of product revenues as a percentage of product revenues increased to approximately 153% for the year ended December 31, 2025 compared to approximately 121% for the year ended December 31, 2024.
The Company recorded a reserve for excess and obsolete inventory in the Video Solutions Segment of $1,849,124 and $2,037,252 as of December 31, 2025 and 2024, respectively, representing a decrease of $188,128, or 9.2%. The decrease in the reserve balance was primarily attributable to the disposal and utilization of inventory that had been fully reserved in prior periods, as well as improved inventory management and lower on-hand inventory levels during 2025. The Company also recorded a reserve for excess and obsolete inventory in the entertainment operating segment of $69,817 and $132,403 as of December 31, 2025 and 2024, respectively, representing a decrease of $62,586 (47.3%). The reserve relates primarily to ticket inventory, where certain items may sell below cost or become unsellable following the related event date and therefore require write-off. The decrease in the reserve balance reflects reduced ticket inventory levels and management’s continued evaluation of inventory recoverability within the entertainment operating segment. The Company evaluates inventory reserves on a regular basis, considering factors such as historical sales activity, expected future demand, inventory aging, and realizable value. Management believes the recorded reserves for excess and obsolete inventories are appropriate based on inventory levels and operating conditions as of December 31, 2025.
Cost of Service Revenue
Overall cost of service revenues for the years ended December 31, 2025 and 2024 was $6,071,478 and $4,496,004, respectively, representing an increase of $1,575,474 (35.0%). Cost of service revenues as a percentage of total service revenues increased to approximately 64.5% for the year ended December 31, 2025 compared to approximately 55.4% for the year ended December 31, 2024. Cost of service revenues by operating segment is as follows:
Years Ended December 31,
Cost of Service Revenues:
Video Solutions
Entertainment
Total Cost of Service Revenues
The Video Solutions Segment cost of service revenues remained relatively stable, increasing slightly to $1,259,293 for the year ended December 31, 2025 from $1,252,213 for the year ended December 31, 2024, an increase of $7,080 (0.6%). Cost of service revenues as a percentage of service revenues for the Video Solutions Segment decreased to approximately 32.1% for the year ended December 31, 2025 compared to approximately 33.3% for the year ended December 31, 2024. This improvement reflects increased operating leverage, as service revenues grew at a faster rate than the associated service delivery costs, driven primarily by higher utilization of the Company’s cloud-based solutions and extended warranty services.
The increase in entertainment operating segment cost of service revenues was primarily driven by higher transaction volumes and increased service activity within the TicketSmarter platform, including payment processing, fulfillment, and other transaction-based costs. Cost of service revenues increased to $4,812,185 for the year ended December 31, 2025 from $3,243,791 for the year ended December 31, 2024, an increase of $1,568,394 (48.3%). Cost of service revenues as a percentage of service revenues for the entertainment operating segment increased to approximately 87.5% for the year ended December 31, 2025 compared to approximately 74.5% for the year ended December 31, 2024. The increase in cost as a percentage of service revenues reflects changes in transaction mix, higher variable processing costs, and continued investments to support platform scale. Management is focused on right-sizing the business and improving operational efficiency to support long-term profitability and operational stability.
Gross Profit
Overall gross profit for the years ended December 31, 2025 and 2024 was $1,349,055 and $3,124,018, respectively, representing a decrease of $1,774,963, or 56.8%. Gross profit by operating segment was as follows:
Years Ended December 31,
Gross Profit:
Video Solutions
Entertainment
Total Gross Profit
The decrease in gross profit is commensurate with the decline in overall revenues and the increase in cost of revenue across both the Video Solutions Segment and Entertainment Segment for the year ended December 31, 2025. Cost of revenue as a percentage of overall revenues increased to approximately 90% for the year ended December 31, 2025 compared to approximately 77% for the year ended December 31, 2024, resulting in a corresponding decline in gross margin. This increase was driven primarily by lower product margins within the Entertainment Segment, including ticket inventory sold below cost or written off when unsold following event dates, as well as continued pricing pressure within the video solutions operating segment. During the year ended December 31, 2025, the Company implemented several cost-containment and margin improvement initiatives, including workforce reductions, right-sizing of recent acquisitions, and a continued transition toward a service and subscription-based revenue model within the Video Solutions Segment. Management’s longer-term objective is to improve gross margins through a more favorable revenue mix, increased adoption of higher-margin service offerings, and operational efficiencies across the organization. We plan to continue initiatives focused on more management of our supply chain, including outsourcing production where appropriate, optimizing purchase quantities, and implementing more purchasing practices.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the years ended December 31, 2025 and 2024 were $12,231,476 and $14,506,944, respectively, representing a decrease of $2,275,468 (15.7%). Selling, general and administrative expenses consist primarily of research and development expenses, selling, advertising and promotional expenses, general and administrative expenses, and goodwill and intangible asset impairment charges. The significant components of selling, general and administrative expenses are as follows:
Year ended December 31,
Research and development expense
Selling, advertising and promotional expense
General and administrative expense
Goodwill and intangible asset impairment charge
Total
Research and development expense. Our research and development expenses totaled $551,447 and $1,339,673 for the years ended December 31, 2025 and 2024, respectively, representing a decrease of $788,226, or 58.8%. The Company focused on controlling expenditures related to the development of new products and enhancements to existing products during the year. Research and development activities include engineering costs, product design, testing, and related development efforts.
Selling, advertising and promotional expenses. Selling, advertising and promotional expenses totaled $721,690 and $2,120,965 for the years ended December 31, 2025 and 2024, respectively, representing a decrease of $1,399,275 (66%). The decrease in selling, advertising and promotional expenses reflects the large cut-back in selling staff and promotional and advertising activities in order to right-size our expenses in this area with our revenues. In addition, the decrease is attributable to the reduction in new sponsorships being entered into by the Company and its subsidiary TicketSmarter.
General and administrative expense . General and administrative expenses totaled $8,424,672 and $10,538,306 for the years ended December 31, 2025 and 2024, respectively, representing a decrease of $2,113,634 (20.1%). The decrease in general and administrative expenses in the year ended December 31, 2025 compared to the same period in 2024 is primarily attributable to a decrease in administrative salaries and reductions in headcount in order to right-size our expenses in this area with our revenues.
Goodwill and intangible asset impairment charge. During the third fiscal quarter of 2024, management determined that triggering events had occurred, including an additional decline in demand for services, prolonged economic uncertainty, the failure of a planned split-off transaction to occur when and as expected, and a further decrease in our stock price. As a result, we performed an interim impairment test as of September 30, 2024. Based on that interim test, we recorded a non-cash goodwill impairment charge of $307,000 related to the entertainment segment and a non-cash trademark impairment charge of $201,000 related to the entertainment segment, for total continuing operations impairment charges of $508,000 for the year ended December 31, 2024. An additional non-cash goodwill impairment charge of $4,322,000 related to the revenue cycle management segment was recorded within discontinued operations during the same period. No additional impairment was identified in the December 31, 2024 annual roll-forward assessment.
We performed our annual goodwill and intangible asset impairment test as of December 31, 2025 on a full quantitative basis. The Revenue Cycle Management Segment (Nobility Healthcare) was classified as discontinued operations prior to the measurement date and excluded from the analysis. Based on the results of the annual test, we concluded that no impairment existed with respect to the Video Solutions Segment, where the indicated fair value of equity of $2,580,000 exceeded the segment’s carrying value of approximately $595,000.
With respect to the Entertainment Segment, we concluded that the carrying amounts of certain goodwill and intangible assets exceeded their estimated fair values and recorded total non-cash impairment charges of $2,533,667 for the year ended December 31, 2025, included in goodwill and intangible asset impairment charge on our consolidated statements of operations. We recorded a goodwill impairment charge of $1,428,000, representing the amount by which the carrying value of the Entertainment Segment’s equity exceeded its estimated fair value, leaving a remaining goodwill balance of $4,377,507 as of December 31, 2025. We recorded a full impairment charge of $746,667 related to the Sponsorship Agreement Network intangible asset, which failed the ASC 360 undiscounted cash flow recoverability test, reducing its carrying value to $0. We also recorded a trademark impairment charge of $189,000 related to the TicketSmarter trade name, leaving a remaining carrying value of $210,000, and a trademark impairment charge of $170,000 related to the Country Stampede trade name, leaving a remaining carrying value of $130,000, each as of December 31, 2025. The Entertainment Segment impairment charges were primarily driven by the segment’s continued operating , the fixed cost structure of festival operations, the structural cost within certain entertainment revenue streams, and the revenue contribution of the Sponsorship Agreement Network.
Operating Loss
For the reasons previously stated, our operating loss was $10,882,421 and $11,382,926 for the years ended December 31, 2025 and 2024, respectively, representing an improvement of $500,505 (4.4%). Operating loss as a percentage of revenues was approximately 79% for the year ended December 31, 2025 compared to approximately 84% for the year ended December 31, 2024.
Interest Income
Interest income increased to $116,545 for the year ended December 31, 2025 from $69,509 in 2024, representing an increase of $47,036 (67.7%).
Interest Expense
We incurred interest expense of $1,102,352 and $3,816,317 during the years ended December 31, 2025 and 2024, respectively, representing a decrease of $2,713,965 (71.1%). Interest expense primarily consists of stated interest and the amortization of debt discounts associated with convertible debt, revolving loan arrangements, and merchant advances.
Other income (expense)
Other income (expense) increased to $346,024 for the year ended December 31, 2025 from $26,733 during the year ended December 31, 2024, representing an increase of $319,291 (1,194.4%). Other income (expense) includes items such as income related to facility subleases, gains or losses on asset disposals, and other non-operating items.
Loss on Litigation
The Company recognized a loss on litigation of $0 and $1,959,396 during the years ended December 31, 2025 and 2024, respectively. This relates to the lawsuit with Culp McAuley, Inc. and primarily the collectability of the default judgment. Based on amounts recorded in 2024 and prior years, the Company had reduced its net exposure related to this matter to zero as of December 31, 2025.
Loss on Disposal of Intangible assets
During the year ended December 31, 2025, the Company did not recognize any gain or loss on the disposal of intangible assets. During the year ended December 31, 2024, the Company’s video solutions segment disposed of its personal protection product line, which held various EPA licenses, resulting in a loss on disposal of intangible assets of $125,561. This loss was partially offset by a gain of $5,582 recognized by the Company’s entertainment segment related to the disposal of certain personal seat licenses during the same period.
Change in Fair Value of Derivative Liabilities
The change in fair value of the warrant derivative liabilities for the years ended December 31, 2025 and 2024, respectively totaled a gain of $3,331,616 during the year ended December 31, 2025 as compared to a loss of $1,240,407 during the year ended December 31, 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 Consolidated Statement of Operations.
Gain on Extinguishment of Liabilities
The Company recorded a gain on the extinguishment of liabilities for the year ended December 31, 2025 of $2,234,658, which reflects income related to the Video Solutions Segment’s and Entertainment Segment’s ability to negotiate down payables and contract liabilities during the year ended December 31, 2025.
The gain on extinguishment of liabilities was $917,935 for the year ended December 31, 2024, which reflects income related to the Video Solutions Segment’s and Entertainment Segment’s ability to negotiate down payables and contract liabilities during the year ended December 31, 2024, including a gain of $9,385 on the termination of its former headquarters lease.
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 year ended December 31, 2024. The modifications were both deemed to be extinguishments of debt resulting in a $310,505 total loss during the year ended December 31, 2024.
On November 7, 2024 the Company raised sufficient funds through a private placement which closed on November 7, 2024, to repay the short-term merchant advance for its entertainment segment in full. The Company’s full repayment of the outstanding obligations under such amended note which effectively cured all then existing defaults and resulted in a loss of $374,007 from the extinguishment of this debt during the year ended December 31, 2024.
During the year ended December 31, 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 year ended December 31, 2024.
Gain on Sale of Property, Plant and Equipment
The Company reported a gain on sale of property, plant and equipment of $— and $360,082 during the years ended December 31, 2025 and 2024, respectively.
During the year ended December 31, 2024, the Company sold its building for $5,900,000 less closing costs of $36,634. 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 $401,743 in the consolidated statement of operations during the year ended December 31, 2024. This amount was offset by a separate loss on sale of fixed assets of $41,661 for the year ended December 31, 2024, resulting in a net gain of $360,082 included in the consolidated statement of operations.
Loss from continuing operations before Income Tax Benefit
As a result of the above, we reported a net loss before income tax benefit of $5,955,930 and $17,898,105 for the years ended December 31, 2025 and 2024, respectively, representing an improvement of $11,942,175 (66.7%).
Income Tax Benefit
We recorded an income tax benefit of $0 for the years ended December 31, 2025 and 2024, respectively. The effective tax rate for both 2025 and 2024 varied from the expected statutory rate due to our continuing to provide a 100% valuation allowance on net deferred tax assets. We determined that it was appropriate to continue the full valuation allowance on net deferred tax assets as of December 31, 2025 and 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 December 31, 2025.
We had approximately $168,405,000 of federal net operating loss carryforwards and $1,685,000 of research and development tax credit carryforwards as of December 31, 2025 available to offset future net taxable income.
Net Loss from continuing operations
As a result of the above, we reported a net loss from continuing operations of $5,955,930 and $17,898,105 for the years ended December 31, 2025 and 2024, respectively, representing an improvement of $11,942,175 (66.7%).
Net Income (Loss) Attributable to Noncontrolling Interests – Discontinued Operations
The Company owned 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 statement of income (loss) as “net income (loss) attributable to noncontrolling interests of consolidated subsidiary.” We reported net income (loss) attributable to noncontrolling interests of consolidated subsidiary of $(687,516) and $(1,871,578) for the years ended December 31, 2025 and 2024, respectively. Nobility Healthcare was subsequently sold in January 2026.
Net Loss Attributable to Common Stockholders
As a result of the above, we reported a net loss attributable to common stockholders of $6,671,508 and $19,844,147 for the years ended December 31, 2025 and 2024, respectively, representing an improvement of $13,172,639 (66.4%).
Basic and Diluted Income/(Loss) per Share
The basic and diluted loss per share from continuing operations was $(15.38) and $(30,204.62) for the years ended December 31, 2025 and 2024, respectively. The basic and diluted loss per share from discontinued operations was $(1.85) and $(3,284.12) for the years ended December 31, 2025 and 2024, respectively, resulting in a net basic and diluted loss per share attributable to common stockholders of $(17.23) and $(33,488.74) for the years ended December 31, 2025 and 2024, respectively. All outstanding stock options and common stock purchase warrants were considered antidilutive and therefore excluded from the calculation of diluted loss per share for the years ended December 31, 2025 and 2024.
Liquidity and Capital Resources
Overall:
Management’s Liquidity Plan. The Company has incurred net losses and negative cash flows from operating activities since inception. Based on current operating forecasts, management expects that the Company will need to restore positive operating cash flows and/or obtain additional capital in the near term to fund operations, meet ongoing obligations, and execute its business plan over the next twelve months. Management is actively engaged in discussions to raise additional capital, which may include equity and debt financing arrangements; however, there can be no assurance that such efforts will be successful. These conditions, including recurring losses, cash used in operations, and uncertainty regarding the Company’s ability to raise additional capital, raise substantial doubt about the Company’s ability to continue as a going concern.
Cash, cash equivalents: As of December 31, 2025, we had cash and cash equivalents of $1,116,673, compared to $454,314 as of December 31, 2024, representing a net increase of $662,359. The December 31, 2024 cash balance includes $235,003 attributable to the discontinued Revenue Cycle Management Segment. The changes in cash during the year ended December 31, 2025 resulted from the following consolidated cash flow activities, which include cash flows from both continuing and discontinued operations.
Operating activities :
$8,269,956 of net cash used in operating activities for the year ended December 31, 2025, compared to $5,114,718 for the year ended December 31, 2024. Net cash used in operating activities reflects the results of both continuing and discontinued operations and was primarily impacted by the Company’s net loss, changes in operating assets and liabilities, and non-cash items including depreciation, amortization, and non-cash interest expense. The Company paid a significant amount of trade payables with proceeds from the various offerings of securities completed in 2025. Cash flows related to discontinued operations primarily reflect working capital activity associated with Nobility Healthcare prior to its classification as discontinued operations and subsequent sale in January 2026.
Investing activities :
$367,484 of net cash used in investing activities for the year ended December 31, 2025, compared to net cash provided by investing activities of $387,549 for the year ended December 31, 2024. Investing activities during 2025 primarily consisted of capital expenditures for property, plant and equipment and purchases of intangible assets, and also included cash flows associated with discontinued operations. The Company leased new facilities in 2025 which required certain tenant finish expenditures before occupation. The net cash provided by investing activities in 2024 was primarily driven by proceeds from the sale of the Company’s building and aircraft.
Financing activities :
$9,299,798 of net cash provided by financing activities for the year ended December 31, 2025, compared to $4,403,334 for the year ended December 31, 2024. Financing activities in 2025 primarily consisted of net proceeds from the February 2025 public equity offering of $14,308,300, proceeds from the issuance of senior secured convertible notes of $832,500, and proceeds from an unsecured promissory note of $600,000, partially offset by repayments of the senior secured promissory notes, merchant advances, and other debt obligations. There were no financing cash flows attributable to discontinued operations during the year ended December 31, 2025.
The net result of these activities was an increase in cash of $662,359 for the year ended December 31, 2025, reflecting consolidated cash flows from both continuing and discontinued operations.
Working Capital
As of December 31, 2025, the Company had $757,369 of cash and cash equivalents and net negative working capital of $(2,270,311) related to its continuing operations, excluding $911,753 of current assets and $138,029 of current liabilities classified as held for sale in connection with the discontinued Revenue Cycle Management Segment. Accounts receivable and other receivables represented $3,702,264 of net working capital at December 31, 2025. Management intends to collect outstanding receivables on a timely basis and reduce overall receivable balances during 2026, which is expected to provide additional cash flow to support continuing operations. Inventory represented $2,330,492 of net working capital as of December 31, 2025. The Company is actively managing inventory levels, and management’s objective is to reduce inventory during 2026 through sales activities. A reduction in inventory levels is expected to generate additional cash flow to support the Company’s continuing operations.
Lease Commitments and Other Contractual Obligations:
Total lease expense under the Company’s operating leases related to continuing operations was approximately $274,272 during the year ended December 31, 2025. The following sets forth the operating lease right-of-use assets and liabilities associated with continuing operations as of December 31, 2025:
Assets:
Operating lease right of use assets
Prepayment of rent
Total operating lease right of use asset
Liabilities:
Operating lease obligations-current portion
Operating lease obligations-less current portion
Total operating lease obligations
Following are the minimum lease payments for each year and in total.
Year ending December 31:
2030 and thereafter
Total undiscounted minimum future lease payments
Imputed interest
Total operating lease liability
During the year ended December 31, 2025, the Company incurred capital expenditures of $258,050, consisting primarily of purchases of production equipment and building improvements. The Company does not currently have any material commitments for capital expenditures beyond normal course of business activity.
In January 2026, Kustom 440, Inc. entered into a non-cancellable artist performance agreement for the 2026 Country Stampede music festival with aggregate payment obligations totaling $750,000, payable in installments of $187,500 upon execution, $187,500 due no later than May 27, 2026, and $375,000 payable following the performance. See Note 15, Commitments and Contingencies , for additional details.
Debt obligations - We have the following outstanding debt related to continuing operations as of December 31, 2025, which requires future principal payments:
December 31, 2025
Economic injury disaster loan (EIDL)
Unsecured Promissory note – Entertainment Segment
2025 Secured Notes
Commercial Extension of Credit- Entertainment Segment
Merchant Advances – Video Solutions Segment
Senior Secured Promissory Notes-Issued November 2024
Total gross principal
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 December 31, 2025:
Gross Principal
Unamortized Discount
Net Carrying Value
2030 and thereafter
Total
The table above excludes the related party note payable to a TicketSmarter officer trust with a net carrying value of $400,110 as of December 31, 2025 ($0 current, $400,110 long-term). See Note 19, Related Party Transactions , for additional details.
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 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 of any potential . We re-evaluate and update accruals as matters 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 Item 3, “Legal Proceedings,” of this Annual Report on Form 10-K for information on our litigation.
401 (k) Plan.
The Company sponsors a 401(k) retirement savings plan for the benefit of its employees. The plan, as amended, requires it to provide 100% matching contributions for employees, who elect to contribute up to 3% of their compensation to the plan and 50% matching contributions for employees’ elective deferrals on the next 2% of their contributions. The Company made matching contributions totaling $80,083 and $144,589 for the years ended December 31, 2025 and 2024, respectively. Each participant is 100% vested at all times in employee and employer matching contributions.
Critical Accounting Estimates
Our significant accounting policies are summarized in Note 1, Nature of Business and Summary of Significant Accounting Policies , to our consolidated financial statements. While the selection and application of any accounting policy may involve some level of subjective judgments and estimates, we believe the following accounting policies and estimates are the most critical to our financial statements, potentially involve the most subjective judgments in their selection and application, and are the most susceptible to uncertainties and changing conditions:
Revenue Recognition / Allowance for Doubtful Accounts;
Allowance for Excess and Obsolete Inventory;
Goodwill and other intangible assets;
Warranty Reserves;
Fair value of warrant derivative liabilities;
Stock-based Compensation Expense; and
Accounting for Income Taxes.
Discontinued Operations
Revenue Recognition / Allowances for Doubtful Accounts. Revenue is recognized for the shipment of products or delivery of service in accordance with ASC 606 by applying the following five-step model:
Identify the contract with the customer;
Identify the performance obligations in the contract;
(iii)
Determine the transaction price;
Allocate the transaction price to the performance obligations in the contract; and
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.
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 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 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 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 nonstandard shipments of product or delivery of services as a routine part of our accounting and financial reporting process to determine compliance with these requirements. Extended warranties are offered on selected products, and when a customer purchases an extended warranty, the associated proceeds are treated as contract liability and recognized over the term of the extended warranty.
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. This leads to minimal risk for uncollectible accounts, and we consider a specific reserve for bad debts based on individual customer circumstances. We continue to monitor collectability trends and assess appropriate reserve levels based on our operating history within this segment.
Allowance for Excess and Obsolete Inventory. We record valuation reserves on inventory for estimated excess or obsolete items. The amount of the reserve represents the difference between the cost of the inventory and its estimated net realizable value based on assumptions regarding future demand, inventory aging, and market conditions. Management performs a detailed review of inventory balances on a quarterly basis to identify inventory that may be excess or obsolete and uses judgment to estimate appropriate reserve levels. We also adjust the carrying value of inventory when its estimated net realizable value is below cost.
Inventories consisted of the following at December 31, 2025 and 2024:
December 31, 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
As reflected above, inventory reserves represented approximately 45% of gross inventory at December 31, 2025, compared to approximately 46% of gross inventory at December 31, 2024. Total reserves for excess and obsolete inventory were $1,918,941 and $2,169,655 at December 31, 2025 and 2024, respectively.
The decrease in inventory reserves during 2025 was primarily attributable to reductions in finished goods balances, the disposition and utilization of inventory previously reserved, and lower ticket inventory levels in the Entertainment Segment. Inventory held within the Entertainment Segment primarily consists of event tickets, which may sell below cost or become unsellable following the related event date and therefore require write-off. Management evaluates inventory recoverability on an ongoing basis and believes the recorded reserves are appropriate based on inventory levels, historical sales patterns, and current operating conditions as of December 31, 2025.
If actual future demand, sales activity, or market conditions differ from management’s estimates, or if product designs or technologies change in ways not currently anticipated, additional inventory write-downs may be required beyond the reserves recorded.
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 analyses 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 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.
During the third fiscal quarter of 2024, management determined that triggering events had occurred, including an additional decline in demand for services, prolonged economic uncertainty, the failure of a planned split-off transaction to occur when and as expected, and a further decrease in our stock price. As a result, we performed an interim impairment test as of September 30, 2024. Based on that interim test, we recorded non-cash impairment charges of $307,000 related to entertainment segment goodwill and $201,000 related to entertainment segment trademarks, for total continuing operations impairment charges of $508,000 for the year ended December 31, 2024. An additional non-cash goodwill impairment charge of $4,322,000 related to the revenue cycle management segment was recorded within discontinued operations during the same period. No additional impairment was identified in the December 31, 2024 annual roll-forward assessment.
We performed our annual goodwill and intangible asset impairment test as of December 31, 2025 on a full quantitative basis, given the prior-year impairment history and continued operating losses across certain segments. The Revenue Cycle Management Segment (Nobility Healthcare) was classified as discontinued operations prior to the measurement date and was excluded from the annual impairment analysis. The fair value of each continuing 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, requiring significant judgments including estimation of future cash flows, long-term revenue growth rates, and determination of our weighted average cost of capital risk-adjusted to reflect the specific risk profile of each reporting unit. The weighted average cost of capital used in our December 31, 2025 impairment test ranged from 18.4% to 22.7%. We also applied a market approach using revenue multiples of comparable publicly traded companies. The income and market approaches were equally weighted for all reporting units.
We consider a reporting unit’s fair value to be substantially in excess of the reporting unit’s carrying value at a 20% premium or greater. Based on our December 31, 2025 annual impairment test, the Video Solutions Segment’s fair value was substantially in excess of its carrying value, with an indicated equity fair value of $2,580,000 compared to a carrying value of approximately $595,000. The Video Solutions Segment carries no goodwill. The Entertainment Segment was determined to be impaired.
We held total goodwill of approximately $5,805,507 related to businesses within our Entertainment Segment prior to our December 31, 2025 annual impairment test, consisting of $5,579,548 attributable to TicketSmarter and $225,959 attributable to Country Stampede. As a result of our December 31, 2025 annual impairment test, we concluded that the carrying amount of the Entertainment Segment’s equity exceeded its estimated fair value and recorded a non-cash goodwill impairment charge of $1,428,000, which is included in goodwill and intangible asset impairment charge on our consolidated statements of operations for the year ended December 31, 2025. The remaining goodwill balance for the Entertainment Segment was $4,377,507 as of December 31, 2025. The goodwill impairment was primarily driven by the segment’s continued operating losses, the fixed cost structure of festival operations, and the structural cost challenges within certain Entertainment Segment revenue streams.
We held indefinite-lived trade names and trademarks of $699,000 related to businesses within our Entertainment Segment as of December 31, 2024, prior to our annual impairment test, consisting of the TicketSmarter trade name and the Country Stampede trade name. During the year ended December 31, 2025, we concluded that the carrying amounts of both trade names exceeded their estimated fair values and recorded non-cash impairment charges totaling $359,000, which are included in goodwill and intangible asset impairment charge on our consolidated statements of operations for the year ended December 31, 2025, consisting of $189,000 related to the TicketSmarter trade name and $170,000 related to the Country Stampede trade name. The remaining carrying values of the TicketSmarter and Country Stampede trade names were $210,000 and $130,000, respectively, as of December 31, 2025.
We also held a finite-lived Sponsorship Agreement Network (SAN) intangible asset within our Entertainment Segment with a net carrying value of $746,667 prior to impairment testing. Under ASC 360, we compared the SAN carrying value to the sum of undiscounted future cash flows attributable to the asset; as the undiscounted cash flows of $621,000 failed the recoverability test, we recorded a full non-cash impairment charge of $746,667, reducing the carrying value to $0 as of December 31, 2025.
The total non-cash goodwill and intangible asset impairment charges recorded for the year ended December 31, 2025 were $2,533,667, all attributable to the Entertainment Segment.
Warranty Reserves.
Historically, the Company recorded an assurance-type warranty liability related to hardware products sold. As the Company has continued its transition to a cloud-based, subscription model—where devices are typically provided as part of the service arrangement rather than sold outright—the volume of products subject to assurance-type warranties has become insignificant. For subscription deployments, the Company’s obligations primarily consist of maintenance, support, and service-level commitments, which are accounted for under ASC 606 as service obligations, with any service-level credits treated as variable consideration, rather than as assurance-type warranties. Based on historical claims experience and expected future costs, anticipated assurance-type warranty expenses are not material. Accordingly, the Company’s warranty reserve was reduced to $— as of December 31, 2025, compared to $11,615 as of December 31, 2024, reflecting the factors noted above.
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 December 31, 2025 and December 31, 2024, we have fully reserved all of our deferred tax assets. We determined that it was appropriate to maintain a full valuation allowance on our net deferred tax assets at December 31, 2025 and December 31, 2024, as the allowance was increased in each respective year to fully reserve all deferred tax assets based on our assessment of recoverability and continued operating losses. 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 December 31, 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 evidence to support our ability to utilize net operating 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.
Discontinued Operations.
Certain of the Company’s significant accounting estimates relate to businesses that have been classified as discontinued operations. Assets and liabilities of discontinued operations are measured and reported in accordance with U.S. GAAP and are presented separately from continuing operations in the consolidated financial statements. Management applies the same accounting policies and estimation methodologies to discontinued operations as those applied to continuing operations, including estimates related to revenue recognition, accounts receivable collectability, inventory valuation, impairment of long-lived assets, and contingent liabilities, where applicable. The results of discontinued operations are excluded from continuing operations and presented separately in the consolidated statements of operations.
Inflation and Seasonality
Inflation has not materially affected us during the past fiscal year. We do not believe that our Video Solutions Segment’s business is seasonal in nature, however; the Entertainment Segment experiences variability in revenues across quarters, with the Country Stampede music festival generating revenues in the second quarter and TicketSmarter platform activity driven by event scheduling throughout the year.
