Digital Ally Inc.
11/12/2025 | Press release | Distributed by Public on 11/12/2025 05:33
Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)
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.
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.
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 | ||||
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.
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. |
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 | ||||
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.
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.
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.
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.
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.
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.
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.
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%).
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. |
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 | ||
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.
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 | ||||
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.
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.
Digital Ally Inc. published this content on November 12, 2025, and is solely responsible for the information contained herein. Distributed via Edgar on November 12, 2025 at 11:33 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]