Business Context and Reporting Period
Kustom Entertainment, Inc. (KUST) filed a Current Report on Form 8-K on August 4, 2026, regarding events occurring on August 3, 2026. The Company completed the disposition of substantially all assets related to its video-solutions division to Cycurion, Inc. This division included the development, sale, licensing, and support of video hardware, camera products, platforms, and software solutions.
Key Financial Metrics and Transaction Consideration
The filing details the consideration received for the asset sale, which consists of the following components:
- Cash Payment: $1,250,000.
- Secured Promissory Note: $4,250,000 principal amount, secured by the acquired assets.
- Contingent Consideration: Up to $1,000,000 in earnout payments based on future performance.
- Equity Consideration: Cycurion Series H Convertible Preferred Stock with an aggregate stated value of $600,000 (issued in replacement of cancelled warrants).
The filing references unaudited pro forma financial statements (Exhibit 99.2) for the period ended March 31, 2026, and the year ended December 31, 2025, but does not provide specific revenue, profit, or cash flow figures within the text of this report.
Material Changes and Agreements
Key material changes and agreements executed on August 3, 2026, include:
- Asset Disposition: Transfer of all rights, title, and interest in the video-solutions business to Cycurion, Inc.
- Security Agreement: The Company granted a security interest in the acquired assets to secure the $4.25 million promissory note.
- Registration Rights: Cycurion agreed to register for resale the common stock issuable upon conversion of the Series H Preferred Stock.
- Earnout and Clawback: An agreement establishing the $1 million earnout potential and specific clawback provisions.
- Leak-Out Agreement: Restrictions on the sale of shares issued upon conversion of the Series H Preferred Stock based on daily trading volume percentages.
- Stock Purchase Amendment: Amendment to a Common Stock Purchase Agreement with an investor, modifying the definition of the ELOC Purchase Maximum Amount to align with Beneficial Ownership Limitations.
Guidance, Outlook, and Risks
The filing does not contain specific forward-looking guidance, management commentary on future financial performance, or a detailed risk factor section beyond the transaction mechanics. The contingent earnout of up to $1,000,000 introduces performance-based risk and potential upside. The filing notes that the pro forma financial information is subject to assumptions set forth in Regulation S-X.
Investor Verification Checklist
- Verify the terms and repayment schedule of the $4,250,000 Secured Promissory Note (Exhibit 10.1).
- Review the specific earnout conditions and clawback mechanisms in the Earnout and Clawback Agreement (Exhibit 10.3).
- Examine the unaudited pro forma financial statements (Exhibit 99.2) to understand the impact of the asset sale on the Company's balance sheet and operations.
- Confirm the conversion terms and trading restrictions for the Cycurion Series H Convertible Preferred Stock.
- Assess the remaining business operations of Kustom Entertainment following the divestiture of the video-solutions division.