KUSTOM ENTERTAINMENT, INC. Stock Compensation Disclosure
The Company recorded pre-tax compensation expense related to the grant of stock options and restricted stock issued of $ and $ for the years ended December 31, 2025 and 2024, respectively.
As of December 31, 2025, the Company has adopted various stock option and restricted stock plans which are referred to as the “Plans.” The Company registers all shares of common stock that are issuable under its Plans with the SEC. A total of shares remain available for awards under the various Plans as of December 31, 2025.
Stock option grants. The Company believes that award of stock options better align the interests of our employees with those of its stockholders. Option awards have been granted with an exercise price equal to the market price of its stock at the date of grant with such option awards which generally vest based on the completion of continuous service and have ten-year contractual terms. These option awards typically provide for accelerated vesting if there is a change in control (as defined in the Plans).
| Options | Number
of Shares | Weighted Average Exercise Price | ||||||
| Outstanding at January 1, 2025 | 9 | $ | 270,840 | |||||
| Granted | ||||||||
| Exercised | ||||||||
| Forfeited | ||||||||
| Outstanding at December 31, 2025 | 9 | $ | 270,840 | |||||
| Exercisable at December 31, 2025 | 9 | $ | 270,840 | |||||
| Options | Number
of Shares | Weighted Average Exercise Price | ||||||
| Outstanding at January 1, 2024 | 10 | $ | 273,300 | |||||
| Granted | ||||||||
| Exercised | ||||||||
| Forfeited | (1 | ) | (390,000 | ) | ||||
| Outstanding at December 31, 2024 | 9 | $ | 270,840 | |||||
| Exercisable at December 31, 2024 | 9 | $ | 270,840 | |||||
The fair value of each option award is estimated on the date of grant using a Black-Scholes option valuation model.
The Plans allow for the cashless exercise of stock options. This provision allows the option holder to surrender/cancel options with an intrinsic value equivalent to the purchase/exercise price of other options exercised. There were no shares surrendered pursuant to cashless exercises during the years ended December 31, 2025 and 2024.
No compensation expense was recognized for stock options during the years ended December 31, 2025 and 2024, as all outstanding options were fully vested in prior periods. As of December 31, 2025 and 2024, no outstanding or exercisable options had intrinsic value, as all exercise prices exceeded the market price of the Company’s common stock on those dates.
| Outstanding options | Weighted average | Exercisable options | Weighted average | |||||||||
| Exercise
price range | Number
of options | remaining contractual life | Number
of options | remaining contractual life | ||||||||
| $ to $ | 3 | years | 3 | years | ||||||||
| $ to $ | 3 | years | 3 | years | ||||||||
| $ to $ | 3 | years | 3 | years | ||||||||
| Total | 9 | years | 9 | years | ||||||||
Restricted stock grants. The Board of Directors has granted restricted stock awards under the Plans. Restricted stock awards are valued on the date of grant and have no purchase price for the recipient. Restricted stock awards typically vest over one to four years corresponding to anniversaries of the grant date. Under the Plans, unvested shares of restricted stock awards may be forfeited upon the termination of service to or employment with the Company, depending upon the circumstances of termination. Except for restrictions placed on the transferability of restricted stock, holders of unvested restricted stock have full stockholder’s rights, including voting rights and the right to receive cash dividends.
| Number
of Restricted shares | Weighted average | |||||||
| Nonvested balance, January 1, 2025 | 20 | $ | 13,916 | |||||
| Granted | ||||||||
| Vested | (10 | ) | (16,024 | ) | ||||
| Forfeited | ||||||||
| Nonvested balance, December 31, 2025 | 10 | $ | 11,807 | |||||
| Number
of Restricted shares | Weighted average | |||||||
| Nonvested balance, January 1, 2024 | 21 | $ | 67,620 | |||||
| Granted | 14 | 12,720 | ||||||
| Vested | (6 | ) | (60,360 | ) | ||||
| Forfeited | (9 | ) | (133,200 | ) | ||||
| Nonvested balance, December 31, 2024 | 20 | $ | 13,916 | |||||
The Company estimated the fair market value of these restricted stock grants based on the closing market price on the date of the grant. As of December 31, 2025, there was $ of total unrecognized compensation costs related to all remaining non-vested restricted stock grants, which will be amortized over the next twenty-five months in accordance with their respective vesting scale.
The nonvested balance of restricted stock vests as follows:
| Years ended | Number
of shares | |||
| 2027 | 5 | |||
| 2028 | 3 | |||
| 2029 | 2 | |||
| 2030 | ||||
| 2031 | ||||
About Stock Compensation Disclosures
Stock-based compensation disclosures detail the equity awards granted to employees and executives — including stock options, restricted stock units (RSUs), and performance shares — along with the valuation methods and assumptions used to expense them. This section reveals the true cost of talent retention and the alignment between management incentives and shareholder interests.
Key signals: total unrecognized compensation expense and its expected recognition period signal future earnings headwinds from already-granted awards. For stock options, examine Black-Scholes assumptions — expected volatility, risk-free rate, and expected term — as understating any of these reduces reported compensation expense. Compare stock compensation expense as a percentage of revenue against peers to assess dilution cost. Watch vesting schedules for acceleration clauses tied to change-of-control events. Performance-based awards with undemanding targets may indicate weak governance. Add back stock compensation to operating cash flow to calculate a more conservative free cash flow figure.