KUSTOM ENTERTAINMENT, INC. Segments Disclosure

NOTE 22. OPERATING SEGMENTS

 

The Company adopted ASU 2023-07 in 2024 and applied the amendment retrospectively to all periods presented in the Company’s consolidated financial statements. Segment financial information is prepared in accordance with GAAP and its significant accounting policies described in Note 1. Resources are allocated and performance is assessed using segment operating income by its Chief Executive Officer, whom the Company have determined to be its Chief Operating Decision Maker (“CODM”). The Company’s CODM utilizes segment operating income when making decisions about allocating capital and personnel to the segments, predominantly in the annual budget and quarterly forecasting processes. In addition, the Company’s CODM uses operating income, including comparison of actual results to budget and forecast, in assessing the performance of each segment and in evaluating product pricing, distribution strategies and marketing investments. The Company’s CODM reviews balance sheet information at a consolidated level. The Company computes segment operating income based on net sales revenue, less cost of goods sold, SG&A, asset impairment charges and restructuring charges. The SG&A used to compute each segment’s operating income is directly associated with the segment. The Company does not allocate non-operating income and expense, including interest or income taxes, to operating segments.

 

As a result of the sale of its Revenue Cycle Management segment, the Company now operates in two reportable business segments. The Video Solutions Segment encompasses its law, commercial, and shield divisions. This segment includes both service and product revenues through its subscription models offering cloud and warranty solutions, and hardware sales for video and health safety solutions. The Entertainment segment includes the Company’s ticketing and live-event operations and generates both service and product revenues through its TicketSmarter platform and related entertainment brands, acting as an intermediary between ticket buyers and sellers and also purchasing ticket inventory from primary sources for resale through various channels.

 

The Company’s corporate administration activities are reported in the corporate line item. These activities primarily include expense related to certain corporate officers and support staff, certain accounting staff, expense related to the Company’s Board of Directors, stock option expense for options granted to corporate administration employees, certain consulting expenses, investor relations activities, and a portion of the Company’s legal, auditing and professional fee expenses. Identifiable assets are those assets used by each segment in its operations. Corporate identifiable assets primarily consist of cash, goodwill, property, plant and equipment, accounts receivable, inventories, and other assets not directly attributable to the Video Solutions or Entertainment operating segments.

 

Geographic Information - The Company generates revenue solely from domestic customers within the United States. All of the Company’s long-lived assets are located within the United States. Accordingly, no geographic segment information is presented.

 

Summarized financial information for the Company’s reportable business segments is provided for the years ended December 31, 2025, and 2024:

SCHEDULE OF SEGMENT REPORTING 

		Year ended December 31, 2025
		Video Solutions				Entertainment				Corporate and other				Total
Net revenues:
Product		$	1,184,079			$	3,153,197			$	—			$	4,337,276
Service			3,916,678				5,500,201				—				9,416,879
Total segment net revenues			5,100,757				8,653,398				—				13,754,155
Less significant segment expense
Cost of Revenue - Product			1,523,613				4,810,009				—				6,333,622
Cost of Revenue – Service and other			1,259,293				4,812,185				—				6,071,478
Research and development expense			551,447				—				—				551,447
Selling, advertising and promotional expense			426,048				295,642				—				721,690
Goodwill and intangible asset impairment charge			—				2,533,667				—				2,533,667
General and administrative expense			887,454				3,267,526				4,269,692				8,424,672
Total segment operating income (loss)		$	452,902			$	(7,065,631	)		$	(4,269,692	)		$	(10,882,421	)
Non-operating (expenses) income:
Interest income															116,545
Interest expense															(1,102,352	)
Change in fair value of derivative liabilities															3,331,616
Gain on the extinguishment of liabilities															2,234,658
Other non-operating income (loss)															346,024
Total non-operating income (loss)															4,926,491
Income before income tax benefit (provision)														$	(5,955,930	)
Depreciation and amortization expense		$	165,787			$	1,378,980			$	—			$	1,544,767
Total identifiable assets, net of eliminations		$	10,359,085			$	2,645,370			$	6,324,072			$	19,328,527

 

 

		Video Solutions				Entertainment				Corporate and other				Total
		Year ended December 31, 2024
		Video Solutions				Entertainment				Corporate and other				Total
Net revenues:
Product		$	1,997,389			$	3,406,928			$	—			$	5,404,317
Service			3,758,002				4,356,833				—				8,114,835
Total segment net revenues			5,755,391				7,763,761				—			$	13,519,152
Less significant segment expenses:
Cost of Revenue - Product			1,780,284				4,118,846				—				5,899,130
Cost of Revenue – Service and other			1,252,213				3,243,791				—				4,496,004
Research and development expense			1,339,673				—				—				1,339,673
Selling, advertising and promotional expense			1,124,012				996,953				—				2,120,965
Goodwill and intangible asset impairment charge			—				508,000				—				508,000
General and administrative expense			1,459,064				3,701,024				5,378,218				10,538,306
Total segment operating income (loss)		$	(1,199,855	)		$	(4,804,853	)		$	(5,378,218	)		$	(11,382,926	)
Non-operating (expenses) income:
Interest income															69,509
Interest expense															(3,816,317	)
Loss on litigation															(1,959,396	)
Change in fair value of derivative liabilities															(1,240,407	)
Other non-operating income (loss)															26,733
Gain on the extinguishment of debt															917,935
Loss on extinguishment of debt															(753,339	)
Loss on disposal of intangibles															(119,979	)
Gain on sale of property, plant and equipment															360,082
Total non-operating income (loss)															(6,515,179	)
Loss before income tax benefit (provision)														$	(17,898,105	)
Depreciation and amortization expense		$	598,895			$	1,316,541			$	—			$	1,915,436
Total identifiable assets, net of eliminations		$	12,804,820			$	5,741,117			$	9,190,636			$	27,736,573

 

 

Total identifiable assets for 2025 and 2024 include amounts related to the discontinued segment included in the “Corporate and Other” category. The segments recorded noncash items affecting the gross profit and operating income (loss) through the established inventory reserves based on estimates of excess and/or obsolete current and non-current inventory. The Company recorded a reserve for excess and obsolete inventory in the video solutions segment of $1,849,124 and $2,037,252 and a reserve for the entertainment segment of $69,817 and $132,403 as of December 31, 2025 and 2024.

 

The segment net revenues reported above represent sales to external customers. Segment gross profit represents net revenues less cost of revenues. Segment operating income, which is used in management’s evaluation of segment performance, represents net revenues, less cost of revenues, less all operating expenses.