Business Context and Reporting Period
Company: Kustom Entertainment, Inc. (formerly Digital Ally, Inc.)
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2025
Reporting Status: Non-accelerated filer; Smaller reporting company.
Corporate Actions: On January 8, 2026, the Company changed its name from Digital Ally, Inc. to Kustom Entertainment, Inc. and its ticker symbol from "DGLY" to "KUST." A 1-for-3 reverse stock split was also effected on January 8, 2026. All historical data in this summary is adjusted for the reverse split.
Operating Segments:
- Video Solutions: Legacy business providing digital video imaging, storage, and safety products for law enforcement and commercial fleets.
- Entertainment: Secondary ticketing platform (TicketSmarter) and live event production (Country Stampede).
- Discontinued Operations: The Revenue Cycle Management segment (Nobility Healthcare) was sold on January 8, 2026, and results are classified as discontinued operations.
Key Financial Metrics (Year Ended Dec 31, 2025)
| Metric | 2025 | 2024 |
|---|---|---|
| Total Net Revenues | $13,754,155 | $13,519,152 |
| Gross Profit | $1,349,055 | $3,124,018 |
| Operating Loss | $(10,882,421) | $(11,382,926) |
| Net Loss (Continuing Ops) | $(5,955,930) | $(17,898,105) |
| Net Loss (Discontinued Ops) | $(1,403,094) | $(3,817,620) |
| Total Net Loss | $(7,359,024) | $(21,715,725) |
| Net Loss Attributable to Common Stockholders | $(6,671,508) | $(19,844,147) |
| Cash and Cash Equivalents (End of Period) | $1,116,673 | $454,314 |
| Working Capital (Continuing Ops) | $(2,270,311) | Not explicitly stated |
| Total Debt Obligations (Net) | $845,367 | $5,102,526 |
Material Changes vs. Prior Period
- Revenue Growth: Total revenue increased 1.7% to $13.8 million. The Entertainment segment grew 11.5% to $8.65 million, while Video Solutions declined 11.4% to $5.1 million.
- Profitability Improvement: Operating loss narrowed by 4.4% to $10.9 million. Net loss from continuing operations improved significantly by 66.7% to $6.0 million, driven largely by a $3.3 million gain from the change in fair value of warrant derivative liabilities and a $2.2 million gain on extinguishment of liabilities.
- Impairment Charges: The Company recorded $2.53 million in goodwill and intangible asset impairment charges, entirely within the Entertainment segment (TicketSmarter and Country Stampede assets). This compares to $508,000 in 2024.
- Discontinued Operations: The Revenue Cycle Management segment was divested. In 2025, it contributed a net loss of $1.4 million, including a $1.53 million impairment loss on disposal.
- Debt Reduction: Total debt obligations decreased significantly from $5.1 million in 2024 to $845,000 in 2025, following the repayment of senior secured promissory notes and merchant advances.
Guidance, Outlook, Risks, and Unusual Items
Going Concern: The Company has incurred substantial operating losses and negative cash flows. Management states there is "substantial doubt" about the Company's ability to continue as a going concern within one year of the report date. The Company expects to need to restore positive operating cash flows or obtain additional capital to fund operations.
Recent Developments & Unusual Items:
- Divestiture: Completed the sale of Nobility Healthcare (Revenue Cycle Management) on January 8, 2026, for $1.45 million.
- Potential Divestiture: Entered a non-binding MOU on January 22, 2026, to potentially divest the Video Solutions segment to Cycurion, Inc. for $6.0–$8.5 million.
- Financing: Raised $14.3 million in a February 2025 public equity offering and $832,500 in senior secured convertible notes in late 2025. Entered a $25 million Committed Equity Financing (ELOC) facility in September 2025.
- Legal Proceedings: Holds an unsatisfied judgment of $4.0 million against Culp McAuley, Inc. et al., though collection is uncertain. Other litigation remains open.
- Internal Controls: Management concluded that disclosure controls and procedures were not effective as of December 31, 2025, citing a material weakness in the timely review and detection of accounting misstatements.
Investor Verification Checklist
- Liquidity Runway: Verify the sufficiency of the $1.1 million cash balance against the negative working capital of $(2.3) million and the "substantial doubt" going concern warning.
- Debt Structure: Review the terms of the $25 million ELOC facility and the $1.07 million Senior Secured Convertible Notes (which were converted to equity subsequent to year-end).
- Impairment Validity: Assess the assumptions used in the $2.53 million Entertainment segment impairment, particularly regarding the Country Stampede festival and TicketSmarter valuation.
- Legal Recovery: Evaluate the likelihood of recovering the $4.0 million judgment against Culp McAuley, Inc.
- Segment Strategy: Monitor the progress of the potential sale of the Video Solutions segment and the impact of the discontinued operations on future revenue streams.
- Internal Controls: Review the remediation plan for the identified material weakness in internal controls over financial reporting.