What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2024-12-30 compared with 2024-08-16 · 728 added, 521 removed, 1118 unchanged (53% of the section changed)

1 unchanged sentence

CONSOLIDATED BALANCE SHEETS

June 30, 2024

30, 2024 AND DECEMBER 31, 2023

September 30, 2024

December 31, 2023

1 unchanged sentence

Cash and cash equivalents

Accounts receivable – trade, net of $ 239,391 allowance – June 30, 2024 and $ 200,668 – December 31, 2023

Other receivables, net of $ 25,000 allowance – June 30, 2024 and $ 5,000 – December 31, 2023

Accounts receivable – trade, net of $ 176,227 allowance – September 30, 2024 and $ 200,668 – December 31, 2023

Other receivables, net of $ 25,000 allowance – September 30, 2024 and $ 5,000 – December 31, 2023

Inventories, net

4 unchanged sentences

Operating lease right of use assets, net

Liabilities and Stockholders’ Equity

Liabilities and Stockholders’ Equity (Deficit)

Current liabilities:

15 unchanged sentences

Commitments and contingencies

Stockholders’ Equity:

Stockholders’ Equity (Deficit):

Preferred stock, $ 0.001 par value per share;

10,000,000 shares authorized;

none issued or outstanding at September 30, 2024 and December 31, 2023

Common stock, $ 0.001 par value per share;

1 unchanged sentence

shares issued:

3,502,037 shares issued – June 30, 2024 and 2,800,754 shares issued – December 31, 2023

4,025,092 shares issued – September 30, 2024 and 2,800,752 shares issued – December 31, 2023

Additional paid in capital

Noncontrolling interest in consolidated subsidiary

( 1,265,852 )

Accumulated deficit

1 unchanged sentence

( 117,668,781 )

Total stockholders’ equity

Total liabilities and stockholders’ equity

Total stockholders’ equity (deficit)

( 2,448,310 )

Total liabilities and stockholders’ equity (deficit)

Notes to the Unaudited Condensed Consolidated Financial Statements.

CONSOLIDATED STATEMENTS OF OPERATIONS

three months ended June 30,

six months ended June 30,

THE THREE AND NINE MONTHS ENDED

30, 2024 AND 2023

For the three

months ended September 30,

Service and other

7 unchanged sentences

General and administrative expense

Goodwill and intangible asset impairment charge

Total selling, general and administrative expenses

9 unchanged sentences

( 2,480,947 )

( 1,733,690 )

( 1,521,049 )

Other income (expense)

Loss on accrual for legal settlement

( 1,792,308 )

Loss on conversion of convertible note

4 unchanged sentences

Gain on sale of intangibles

Loss on sale of property, plant and equipment

Gain on sale of property, plant and equipment

Total other income (expense)

( 1,717,617 )

( 3,379,845 )

( 1,400,626 )

( 3,186,617 )

Loss before income tax benefit

Income (loss) before income tax benefit

( 5,470,712 )

7 unchanged sentences

( 17,979,171 )

Net (income) attributable to noncontrolling interests of consolidated subsidiary

Net (income) loss attributable to noncontrolling interests of consolidated

Net loss attributable to common stockholders

6 unchanged sentences

Notes to the Unaudited Condensed Consolidated Financial Statements.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023

Noncontrolling

3 unchanged sentences

Stock-based compensation

Restricted common stock forfeitures

Restricted common stock grant

Issuance due to rounding from reverse stock split

Net income (loss)

( 6,105,818 )

2 unchanged sentences

( 98,086,052 )

$ ( 98,086,052 )

Stock-based compensation

2 unchanged sentences

Conversion of convertible note into common stock

Net income (loss)

( 8,393,304 )

2 unchanged sentences

( 106,479,356 )

Stock-based compensation

( 3,708,673 )

( 3,679,043 )

Balance, September 30, 2023

$ 128,367,929

$ ( 110,188,029 )

Balance, December 31, 2023

8 unchanged sentences

( 121,599,801 )

$ ( 121,599,801 )

$ 128,481,699

$ ( 121,599,801 )

Stock-based compensation

3 unchanged sentences

( 2,075,300 )

Net Income (loss)

( 5,083,861 )

3 unchanged sentences

( 126,683,662 )

Stock-based compensation

Issuance of common stock upon exercise of prefunded warrants

Restricted common stock forfeitures

( 3,470,506 )

( 5,470,712 )

Balance, September 30, 2024

$ 128,967,685

$ ( 1,265,852 )

$ ( 130,154,168 )

$ ( 2,448,310 )

$ 128,967,685

$ ( 1,265,852 )

$ ( 130,154,168 )

$ ( 2,448,310 )

Notes to the Unaudited Condensed Consolidated Financial Statements.

CONSOLIDATED STATEMENTS OF CASH FLOWS

THE SIX MONTHS ENDED JUNE 30, 2024 AND 2023

For the six months ended June 30,

THE NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023

For the nine months ended September 30,

Cash Flows From Operating Activities:

3 unchanged sentences

Depreciation and amortization

Loss on accrual for legal settlement

Loss on sale of property, plant and equipment

Gain on sale of property, plant and equipment

Gain on sale on intangible

Goodwill and intangible asset impairment charge

Stock-based compensation

Non-cash interest expense

Amortization of debt issuance costs

2 unchanged sentences

Change in fair value of warrant derivative liabilities

( 2,178,965 )

( 1,803,560 )

Convertible debt discount amortization

24 unchanged sentences

Purchases of property, plant and equipment

Additions to intangible assets

Purchase of intangible assets

Cash paid for acquisition of Country Stampede

Proceeds from sale of intangible asset

Proceeds from sale of land and building

Proceeds from sale of property, plant and equipment

7 unchanged sentences

Payments on Commercial Extension of Credit – Entertainment Segment

( 1,156,441 )

Payments on Merchant Advances – Video Solutions Segment

( 1,382,500 )

Net proceeds of related party note payable

Payments on Merchant Advances – Entertainment Segment

3 unchanged sentences

Net decrease in cash, cash equivalents, and restricted cash

Cash, cash equivalents and restricted cash, beginning of period

Cash, cash equivalents and restricted cash, end of period

( 1,324,368 )

Cash, cash equivalents, beginning of period

Cash, cash equivalents, end of period

Supplemental disclosures of cash flow information:

10 unchanged sentences

Adjustments of accounts payable with the sale proceeds of property, plant and equipment

Reduction in proceeds from sale of building for loan, prepaid rent, and

other accrued expenses

Payments to vendors directly from proceeds of sale of common stock

Issuance of common stock upon exercise of re-funded warrants

Restricted common stock grant

51 unchanged sentences

Such required segment information is included in Note 14.

February 6, 2023, the Company filed a Certificate of Amendment to its Articles of Incorporation, as amended, with the Secretary of State

of the State of Nevada to effect a 1-for-20 reverse stock split (the “Reverse Stock Split”) of the shares of its common stock.

The Reverse Stock Split was effective as of time of filing.

No fractional shares were issued in connection with the Reverse Stock Split.

Any fractional shares of our Common Stock that would have otherwise resulted from the Reverse Stock Split were rounded up to the nearest

whole number.

In connection with the Reverse Stock Split, the board of directors of the Company approved appropriate and proportional

adjustments to all outstanding securities or other rights convertible or exercisable into shares of the Company’s common stock,

including, without limitation, all preferred stock, warrants, options, and other equity compensation rights.

All historical share and

per-share amounts reflected throughout the Company’s consolidated financial statements and other financial information in this

Report have been adjusted to reflect the 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 Reverse Stock Split.

June 2023, the Company, entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Clover Leaf Capital Corp.,

8 unchanged sentences

upon the consummation of the transactions contemplated by the Merger Agreement (the “Closing”), Merger Sub will merge with

and into Kustom (the “Merger”), with Kustom continuing as the surviving corporation in the Merger and a wholly owned subsidiary

of Clover Leaf.

In the Merger, all of the issued and outstanding capital stock of Kustom immediately prior to the Closing shall no longer

be outstanding and shall automatically be cancelled and shall cease to exist, in exchange for the right for the Company to receive the

Merger Consideration (as defined below).

total consideration to be received by Company and its financial advisor at the Closing in connection with the Merger (the “Merger

Consideration”) will be a number of newly issued shares of Class A Common Stock, par value $ 0.0001 per share, of Clover Leaf (the

“Combined Company Common Stock”) with an aggregate value equal to $ 125,000,000 , subject to adjustments for Kustom’s

closing debt (net of cash) and based on a deemed value of $ 11.14 per share of Combined Company Common Stock.

Company will also distribute to its stockholders and certain of its warrant holders 30 % of the Combined Company Common Stock received

as Merger Consideration immediately following the Closing, and will distribute the balance of such shares immediately following the lock-up period,

which will expire six months after the Closing.

Closing is subject to the approval of Clover Leaf’s shareholders and the satisfaction or waiver of certain other customary closing

and into Kustom, with Kustom continuing as the surviving corporation in the Merger and a wholly owned subsidiary of Clover Leaf.

the Closing which is subject to the approval of Clover Leaf’s shareholders and the satisfaction or waiver of certain other customary

closing conditions, the common stock of the combined company was expected to be listed on the Nasdaq under a mutually agreed new ticker

symbol that reflects the name “Kustom Entertainment”.

November 8, 2024, Clover Leaf and Kustom mutually agreed to terminate their previously announced Merger Agreement and Plan of Merger

effective as of November 7, 2024 by entering into a mutual termination and release agreement among the parties.

The parties released

each other of all obligations related to the Merger Agreement.

of Presentation :

5 unchanged sentences

a fair presentation have been included.

Operating results for the three- and six-month period ended June 30, 2024 are not necessarily

Operating results for the three and nine-month period ended September 30, 2024 are not necessarily

indicative of the results that may be expected for the year ending December 31, 2024.

balance sheet at December 31, 2023 has been derived from the audited financial statements at that date, but does not include all the

balance sheet as of December 31, 2023 has been derived from the audited financial statements at that date, but does not include all the

information and footnotes required by generally accepted accounting principles in the United States for complete financial statements.

further information, refer to the audited financial statements and footnotes included in the Company’s annual report on Form 10-K

for the year ended December 31, 2023.

further information, refer to the audited consolidated financial statements and footnotes included in the Company’s annual

report on Form 10-K for the year ended December 31, 2023.

and Going Concern

10 unchanged sentences

ability to continue as a going concern, management considered the conditions and events that could raise substantial doubt about the

Company’s ability to continue as a going concern within 12 months after the Company’s financial statements were issued (August

Company’s ability to continue as a going concern within 12 months after the Company’s financial statements were issued (December

Management considered the Company’s current financial condition and liquidity sources, including current funds available,

forecasted future cash flows and the Company’s obligations due before August 15, 2024.

forecasted future cash flows and the Company’s obligations due before December 30 , 2025.

Company has experienced net losses and cash outflows from operating activities since inception.

For the six months ended June 30, 2024,

the Company had a net loss attributable to common stockholders of $ 8,953,819 , net cash used in operating activities of $ 3,408,757 , $ 36,504

provided by investing activities and $ 3,208,817 provided by financing activities.

The Company will have to restore positive operating

cash flows and profitability over the next year and/or raise additional capital to fund its operational plans, meet its customary payment

obligations and otherwise execute its business plan.

There can be no assurance that it will be successful in restoring positive cash

flows and profitability, or that it can raise additional financing when needed, and obtain it on terms acceptable or favorable to the

Company has implemented an enhanced quality control program to detect and correct product issues before they result in significant rework

expenditures affecting its gross margins and has seen progress in that regard.

The Company has also implemented a marketing and advertisement

reduction plan for its entertainment segment, which will focus on reducing and alleviating current obligations from its media marketing

agreements and place a hold on entering into any new agreements.

The Company believes that its quality control, cost-cutting initiatives,

and new product introduction will eventually restore positive operating cash flows and profitability, although it can offer no assurances

in this regard.

For the nine months ended September 30,

2024, the Company had a net loss attributable to common stockholders of $ 12,485,388 ,

net cash used in operating

activities of $ 4,086,023 ,

$ 392,523 provided

by investing activities and $ 3,330,482

provided by financing activities.

The Company will have to restore positive operating cash flows and profitability over

the next year and/or raise additional capital to fund its operational plans, meet its customary payment obligations and otherwise execute

its business plan.

There can be no assurance that it will be successful in restoring positive cash flows and profitability, or that it

can raise additional financing when needed, and obtain it on terms acceptable or favorable to the Company.

Company is pursuing a significant capital raise to provide funding for its short and long-term liquidity needs.

The Company has implemented

an enhanced quality control program to detect and correct product issues before they result in significant rework expenditures affecting

its gross margins and has seen progress in that regard.

The Company has also implemented a marketing and advertisement reduction plan

for its entertainment segment, which will focus on reducing and alleviating current obligations from its media marketing agreements and

place a hold on entering into any new agreements.

The Company believes that its quality control, cost-cutting initiatives, and new product

introduction will eventually restore positive operating cash flows and profitability, although it can offer no assurances in this regard.

has evaluated the significance of the conditions described above in relation to the Company’s ability to meet its obligations and

1 unchanged sentence

date the unaudited condensed consolidated financial statements were issued.

Such factors raise substantial doubt about the Company’s ability

to sustain operations for at least one year from the issuance of these financial statements.

The accompanying unaudited condensed consolidated

financial statements do not include any adjustments related to the recoverability and classification of asset amounts or the classification

of liabilities that might be necessary should the Company be unable to continue as a going concern.

of Consolidation :

17 unchanged sentences

The Company formed Kustom 440, Inc.

in 2022 to create unique entertainment experiences directly for consumers, and Kustom

Entertainment, Inc.

in 2023 to serve as the participant in the Business Combination.

in 2022 to create unique entertainment experiences directly for consumers.

Value of Financial Instruments :

carrying amounts of financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and

carrying amounts of financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and subordinated

notes payable approximate fair value because of the short-term nature of these items.

16 unchanged sentences

holds a contract bearing enforceable rights and obligations only with the distributor.

As part of part of its consideration for the contract,

As part of its consideration for the contract,

the Company evaluates certain factors including the customers’ ability to pay (or credit risk).

62 unchanged sentences

prepaid cloud services and prepaid installation services and are generally recognized as the respective performance obligations are satisfied.

During the six months ended June 30, 2024, the Company recognized revenue of $ 1.4 million related to its contract liabilities.

liabilities consist of deferred revenue and include payments received in advance of performance under the contract and are reported separately

as current liabilities and non-current liabilities in the Consolidated Balance Sheets.

Such amounts consist of extended warranty contracts,

prepaid cloud services and prepaid installation services and are generally recognized as the respective performance obligations are satisfied.

During the nine months ended September 30, 2024, the Company recognized revenue of $ 2.0 million related to its contract liabilities.

Contract liabilities consist of deferred revenue and include payments received in advance of performance under the contract and are reported

separately as current liabilities and non-current liabilities in the Consolidated Balance Sheets.

Such amounts consist of extended warranty

contracts, prepaid cloud services and prepaid installation services and are generally recognized as the respective performance obligations

are satisfied.

Total contract liabilities consist of the following:

SCHEDULE OF CONTRACT LIABILITIES

June 30, 2024

September 30, 2024

September 30,

Contract liabilities, current

2 unchanged sentences

( 1,476,186 )

June 30, 2023

$ ( 2,033,814 )

September 30, 2023

September 30,

Contract liabilities, current

2 unchanged sentences

$ ( 2,163,708 )

returns and allowances aggregated $ 93,170 and $ 117,713 for the six months ended June 30, 2024 and December 31, 2023, respectively.

for estimated sales returns and allowances are recognized at the time of sales on an accrual basis.

The accrual is determined based upon

historical return rates adjusted for known changes in key variables affecting these return rates.

returns and allowances aggregated $ 86,370 and $ 117,713 for the nine months ended September 30, 2024 and September 30, 2023, respectively.

Obligations for estimated sales returns and allowances are recognized at the time of sales on an accrual basis.

The accrual is determined

based upon historical return rates adjusted for known changes in key variables affecting these return rates.

of Estimates :

15 unchanged sentences

and cash equivalents include funds on hand, in bank and short-term investments with original maturities of ninety (90) days or less.

SCHEDULE OF SHORT TERM INVESTMENTS

investments with original maturities of 90 days or less (Level 1):

Company maintains its cash and cash equivalents in banks insured by the Federal Deposit Insurance Corporation (FDIC) in accounts that

2 unchanged sentences

with major financial institutions.

At June 30, 2024 and December 31, 2023, the uninsured balance amounted to $ 136,717 and $ 29,700 , respectively.

cash of $ 97,600 and $ 97,600 was included in other assets as of June 30, 2024 and December 31, 2023, respectively.

Restricted cash consists

of bank deposits that collateralize our debt obligations.

following table provides a reconciliation of cash and cash equivalents in the consolidated balance sheets to cash, cash equivalents and

restricted cash in the consolidated statements of cash flows:

SCHEDULE OF RECONCILIATION OF CASH AND CASH EQUIVALENTS

June 30, 2024

December 31, 2023

Cash and cash equivalents

Long-term restricted cash included in other assets

Total cash, cash equivalents and restricted cash in the statements of cash flows

At September 30, 2024 and December 31, 2023, the uninsured balance amounted to $ 0 and $ 29,700 , respectively.

cash of $- 0 - and $ 97,600 was included in other assets as of September 30, 2024 and December 31, 2023, respectively.

Restricted cash

consists of bank deposits that collateralize a debt obligation.

Such debt obligation was paid off as of September 30, 2024.

receivable are carried at original invoice amount less an estimate made for doubtful receivables based on a review of all outstanding

13 unchanged sentences

In accordance with ASC 350, Intangibles - Goodwill and Other , the Company assesses goodwill for impairment

annually as of December 31, and more frequently if events and circumstances indicate that goodwill might be impaired.

annually as of December 31st, and more frequently if events and circumstances indicate that goodwill might be impaired.

impairment testing is performed at the reporting unit level.

15 unchanged sentences

by which the carrying amount exceeded the reporting unit’s fair value.

Company determines the fair value of its reporting units using the market approach.

Company determines the fair value of its reporting units using a weighting of the income and market valuation approaches.

The income approach applies 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.

Under the market approach, we estimate the fair value

22 unchanged sentences

if fair value is not available.

The Company last assessed potential impairments of its long-lived assets as of December 31, 2023 and

The Company assessed potential impairments of its long-lived assets as of December 31, 2023 and

concluded that there was no impairment.

Subsequent to completing our 2023 annual impairment test, no events or changes in circumstances

were noted that required an interim goodwill impairment test.

were noted that required an interim goodwill impairment test until the three months ended September 30, 2024, when events occurred that we considered triggering events.

During the third

fiscal quarter of 2024, management determined that triggering events had occurred resulting from the additional decline in demand for

our services, prolonged economic uncertainty, the split-off transaction did not occur when and as expected and a further decrease in

our stock price.

Therefore, we performed an interim impairment test as of September 30, 2024.

Refer to NOTE 8.

AND OTHER INTANGIBLE ASSETS for additional details on the interim impairment test, valuation methodologies, and inputs used in the

fair value measurements.

assets include deferred patent costs, license agreements, trademarks and trade names.

63 unchanged sentences

financial statements and related disclosures.

consisted of the following at June 30, 2024 and December 31, 2023:

consisted of the following at September 30, 2024 and December 31, 2023:

SCHEDULE OF INVENTORIES

September 30,

Raw material and component parts– video solutions segment

7 unchanged sentences

Total inventories

goods inventory includes units held by potential customers and sales agents for test and evaluation purposes.

The cost of such units

totaled $ 43,274 and $ 42,797 as of June 30, 2024 and December 31, 2023, respectively.

DEBT OBLIGATIONS

1 unchanged sentence

SCHEDULE OF DEBT OBLIGATIONS

June 30, 2024

December 31, 2023

September 30, 2024

Economic injury disaster loan (EIDL)

9 unchanged sentences

Debt obligations, long-term

obligations mature as follows as of June 30, 2024:

obligations mature on an annual basis as follows as of September 30, 2024:

SCHEDULE OF MATURITY OF DEBT OBLIGATIONS

June 30, 2024

2024 (July 1, 2024 to December 31, 2024)

September 30, 2024

2024 (October 1, 2024 to December 31, 2024)

2028 and thereafter

11 unchanged sentences

any and all collateral, including but not limited to tangible and intangible personal property.

Company made principal payments of $ 1,628 during the six months ended June 30, 2024 and recorded interest expense of $ 1,383 and $ 2,758

for the three and six months ended June 30, 2024.

Company made principal payments of $ 2,453 during the nine months ended September 30, 2024 and recorded interest expense of $ 1,368 and

$ 4,126 for the three and nine months ended September 30, 2024.

Consideration Promissory Notes

4 unchanged sentences

Quarterly principal and

interest payments are deferred for six months and is due in equal quarterly installments on the seventh business day of each quarter.

interest payments are deferred for nine months and is due in equal quarterly installments on the seventh business day of each quarter.

The principal amount of the June Contingent Note is subject to an earn-out adjustment, being the difference between $ 975,000 (the “June

17 unchanged sentences

Management recorded the contingent

consideration promissory note at its estimated fair value of $ 350,000

at the acquisition date.

Total principal payments,

since inception, on this contingent consideration promissory note totaled $ 290,952 .

The estimated fair value of the June Contingent

Note at June 30, 2024 is $- 0 -,

representing a reduction in its estimated fair value of $ 58,819

as compared to its estimated fair value as of

December 31, 2023.

This reduction only relates to the principal payments made for the six months ended June 30, 2024.

Therefore, the

Company recorded no gain or loss in the Consolidated Statements of Operations for the six months ended June 30, 2024.

consideration promissory note at its estimated fair value of $ 350,000 at the acquisition date.

Total principal payments, since inception,

on this contingent consideration promissory note totalled $ 290,073 .

The estimated fair value of the June Contingent Note at September

30, 2024 is $- 0 -, representing a reduction in its estimated fair value of $ 58,819 as compared to its estimated fair value as of December

This reduction only relates to the principal payments made for the nine months ended September 30, 2024.

Therefore, the Company

recorded no gain or loss in the Consolidated Statements of Operations for the nine months ended September 30, 2024.

August 31, 2021, Nobility Healthcare, issued another contingent consideration promissory note (the “August Contingent Payment Note”)

2 unchanged sentences

Quarterly principal

and interest payments are deferred for six months and is due in equal quarterly installments on the seventh business day of each quarter.

and interest payments are deferred for nine months and is due in equal quarterly installments on the seventh business day of each quarter.

The principal amount of the August Contingent Payment Note is subject to an earn-out adjustment, being the difference between the $ 3,000,000

15 unchanged sentences

Management has recorded the contingent consideration promissory note at its estimated fair value of $ 650,000 at the acquisition date.

Principal payments, since its inception, on this contingent consideration promissory note totaled $ 681,907 .

Principal payments, since its inception, on this contingent consideration promissory note totalled $ 681,907 .

The estimated fair value

of the August Contingent Note at June 30, 2024 is $- 0 -, representing a decrease in its estimated fair value of $ 129,651 as compared to

is estimated fair value as of December 31, 2023.

This reduction only relates to the principal payments made for the six months ended

June 30, 2024.

Therefore, the Company recorded no gain or loss in the Consolidated Statements of Operations for the six months ended

June 30, 2024.

of the August Contingent Note at September 30, 2024 is $- 0 -, representing a decrease in its estimated fair value of $ 129,651 as compared

to is estimated fair value as of December 31, 2023.

This reduction only relates to the principal payments made for the nine months ended

September 30, 2024.

Therefore, the Company recorded no gain or loss in the Consolidated Statements of Operations for the nine months

ended September 30, 2024.

Commercial Extension of Credit

3 unchanged sentences

to extend, subject to the conditions hereof, and Borrower agreed to take, a Loan for Principal Sum of $ 1,000,000 .

shall retain 25 % of each remittance owed to Borrower under the terms of the Private Label Agreement.

Such remittances shall include regular

Lender retains 25 % of each remittance owed to Borrower under the terms of the Private Label Agreement.

Such remittances includes regular

weekly remittances and any additional incentive payments to which the Borrower may be entitled.

The 25% withholding of the Borrower’s

applicable remittance shall be deemed a “Payment” under the terms of this Note, and Payments shall continue until the earlier

of (i) repayment of the Principal Sum, accrued Interest, and a fee of $35,000 or (ii) expiration of the Private Label Agreement on December

the six months ended June 30, 2024, the Entertainment segment Company’s Entertainment segment repaid the outstanding principal

applicable remittance is deemed a “Payment” under the terms of this Note, and Payments shall continue until the earlier of

(i) repayment of the Principal Sum, accrued Interest, and a fee of $35,000 or (ii) expiration of the Private Label Agreement on December

the nine months ended September 30, 2024, the Entertainment segment Company’s Entertainment segment repaid the outstanding principal

of $ 87,928 and did not renew this agreement.

3 unchanged sentences

The Lender, Ticket Evolution, Inc., agreed to extend, subject

to the conditions hereof, and Borrower agreed to take, a Loan for Principal Sum of $ 75,000 with monthly advances of $ 100,000 .

to the conditions hereof, and Borrower agreed to take, an advance for a sum of $ 75,000 with monthly advances of $ 100,000 .

advances made are recoupable from client service fees with no more than $ 25,000 being recouped in any one week.

The total advances received

for the six months ended June 30, 2024 were $ 575,000 and payments made totaled $ 562,500 .

The outstanding balance as of June 30, 2024 was

for the nine months ended September 30, 2024 were $ 975,000 and payments made totalled $ 900,000 .

The outstanding balance as of September

30, 2024 was $ 75,000 .

August 7, 2024 and as amended on September 25, 2024, the Company’s Entertainment segment entered into an extension of credit

(the “Agreement”) with Vegas Tickets in the form of a prepayment for the rights to acquire certain Major League Baseball

and National Football League playoff and season tickets.

Vegas Tickets agreed to advance, subject to the conditions of the

Agreement, and the Company’s Entertainment segment agreed to take, an advance for a sum of $ 200,000 .

Under the Agreement, the Company’s Entertainment segment has the right to reacquire the tickets for a cash amount of $ 220,000

by November 1, 2024.

The repurchase date was extended to December 1, 2024 by an amendment dated October 31, 2024.

Company’s Entertainment segment intends to repurchase the tickets and has recorded the cash repurchase obligation amount of

as the outstanding extension of credit balance as of September 30, 2024, with $ 20,000

of such amount recorded as interest expense during the three and nine months ended September 30, 2024.

April 5, 2023, the Company entered into and consummated the initial closing (the “First Closing”) of the transactions contemplated

50 unchanged sentences

SCHEDULE OF WARRANT TO PURCHASE COMMON STOCK GRANTED

Terms at April 5, 2023 (issuance date)

April 5, 2023

(issuance date)

Volatility – range

47 unchanged sentences

The Mortgage contains customary covenants, representations and warranties by the Company.

In addition, the

Company recorded debt issuance costs of $ 188,255 .

During the three and six months ended June 30, 2024, the Company amortized $ 23,435

and $ 46,871 of debt discount under interest expense.

August 12, 2024, the Company sold the Mortgaged Property and paid off the $ 4,880,000

outstanding principal balance together with all

accrued and unpaid interest.

In addition, upon origination of the Revolving Loan, the Company recorded debt issuance costs of $ 188,255

which was fully amortized as of the date the

Mortgage was paid in full.

The remaining unamortized discount was $- 0 - and $ 171,258 as September 30, 2024 and December 31, 2023, respectively.

Cash Advances – Video Solutions Segment

November 2023, the Company obtained a short-term merchant advance, which totaled $ 1,050,000 , from a single lender to fund operations.

These advances included origination fees totaling $ 50,000 for net proceeds of $ 1,000,000 .

November 2023, the Company obtained a short-term merchant advance, which totalled $ 1,050,000 , from a single lender to fund operations.

These advances included origination fees totalling $ 50,000 for net proceeds of $ 1,000,000 .

The advance is, for the most part, secured

3 unchanged sentences

The loan bears interest at 2.9 % per week.

During the six months ended June 30, 2024, the Company made repayments

totaling $ 1,215,000 and received additional proceeds of $ 1,144,000 .

The Company refinanced this loan in April 2024 resulting in the additional

The refinancing was deemed to be an extinguishment of debt and a loss on extinguishment of debt was recorded during the three

months ended June 30, 2024 of $ 68,827 .

of June 30, 2024 the outstanding balance was $ 2,259,000 which is expected to be repaid in 2024.

the six months ended June 30, 2024 the Company amortized $ 820,429 of debt discount under interest expense.

the nine months ended September 30, 2024, the Company made repayments totalling $ 1,382,500

and received additional proceeds of $ 1,144,000 .

The Company refinanced this loan in April 2024 resulting in the additional proceeds received during the nine months ended September 30, 2024.

The refinancing was deemed to be an

extinguishment of debt and a loss on extinguishment of debt was recorded during the nine months ended September 30, 2024 of $ 68,827 .

of September 30, 2024 the outstanding principal balance was $ 2,091,500

which is expected to be repaid in 2024 and early 2025.

As of September 30, 2024 the remaining discount balance was $ 52,538 .

The remaining unamortized discount was $ 52,538 and $ 369,171 as September 30, 2024 and December 31, 2023, respectively.

Cash Advances – Entertainment Segment

March 2024, the Company obtained a short-term merchant advance, which totaled $ 1,000,000 , from a single lender to fund operations.

advances included origination and issuance fees totaling $ 85,000 for net proceeds of $ 915,000 .

The advance is, for the most part, is

secured by expected future sales transactions of the Company with expected payments on a weekly basis.

The Company will repay an aggregate

of $ 1,425,000 to the lender.

The loan bears interest at 5.19 % per month.

During the six months ended June 30, 2024, the Company made

repayments totaling $ 51,899 .

As of June 30, 2024 the outstanding balance was $ 1,373,101 which is expected to be repaid in 2024.

the three and six months ended June 30, 2024 the Company amortized $ 139,118 and $ 202,868 of debt discount and issuance costs under interest

March 1, 2024, the Company obtained a short-term merchant advance, which totalled $ 1,000,000 ,

from a single lender to fund operations.

These advances included origination and issuance fees totalling $ 85,000

for net proceeds of $ 915,000 .

The advance is, for the most part, is secured by expected future sales transactions of the Company with expected payments on a weekly

The Company will repay an aggregate of $ 1,425,000

to the lender.

The loan bears interest at an

40.4523 % annual effective rate based on latest debt modification.

During the three and nine months ended September 30, 2024, the Company

made repayments totalling $ 803,850

and $ 855,749 ,

respectively.

Company modified/amended the underlying loan agreement twice during the three months ended September 30, 2024, resulting in

additional proceeds totalling $ 393,836 .

The modifications were both deemed to be extinguishments of debt resulting in a $ 310,505 total loss on the extinguishment of debt

during the three and nine months ended September 30, 2024.

As of September 30, 2024 the outstanding balance was $ 1,101,569 which

is expected to be repaid in 2024.

SUBSEQUENT EVENTS for an update to this matter.

The remaining unamortized discount was $ 263,417 and $- 0 - as September 30, 2024 and December 31, 2023, respectively.

Company entered into the original agreement on March 1, 2024.

On July 13, 2024, the Company entered into a letter agreement with the

Purchaser, amending the terms of the note agreement, and on September 12, 2024, the Company entered into a second letter agreement

further amending the terms of the note agreement

July 13, 2024, the Company entered into a Letter Agreement with the note holder, which modified the note payable by increasing the principal

amount of the note payable from $ 1,425,000 to $ 1,725,000 ;

provided, however, that if the Borrowers repay the Note in full on or before

August 15, 2024, then the principal amount of the Note shall be reduced automatically by $ 100,000 .

Pursuant to the Letter Agreement,

the Borrowers’ failure to adhere to certain repayment requirements of the underlying note purchase agreement did not constitute

an event of default, as defined in the note purchase agreement.

Pursuant to the modified/amended note, the Company agreed to make a cash

payment to the note holder in the amount of $ 150,000 on or before July 26, 2024.

The Company also agreed to sell or enter into a firm

commitment to sell the office building owned by the Company and pay to the Purchaser:

(i) $ 325,000 , if the Company sells or enters into

a firm commitment to sell the building on or before August 7, 2024;

or (ii) $ 400,000 , if the Company sells or enters into a firm commitment

to sell the building after August 7, 2024.

Pursuant to the modified/amended note, the Company’s failure to sell or enter into a

firm commitment to sell the building prior to September 1, 2024 shall constitute an event of default, as defined in the note purchase

The Company also agreed to pay to the note holder $ 100,000 per month until the modified/amended note is repaid in full, with

the first such payment occurring on August 12, 2024, and each subsequent payment occurring on the 12th calendar day of each month thereafter.

September 25, 2024, the Company and the note holder agreed to an amended and restated senior secured promissory note with a new principal amount of up to $ 2,000,000 .

The amended note evidences the new principal amount and amends and restates in its entirety,

the terms and provisions of the Note.

Pursuant to the amended note the Company promised to pay to the note holder the new principal amount,

together with accrued interest or the amount outstanding under the amended note from time to time, to be computed from the date of the

amended note at the rates and in the amounts set forth in the amended note.

The amount of the unpaid balance, including such interest,

that shall be due and payable under the Amended Note may increase and decrease as advances and payments are made thereunder.

Note bears interest at a rate of 1.58 % per month.

Company can request advances in writing to the note holder and upon approval by the note holder to be determined in its sole

discretion, (but which shall not be unreasonably withheld), the note holder can either make payment directly to specified vendor(s)

or other creditors on behalf of the Company or deposit the advance into the Company’s account.

amended note, requires the Company to repay the amended note, in full, on the earlier of (i)

November 1, 2024, and (ii) the consummation of the merger between Kustom Entertainment and CL Merger Sub, Inc.

Sub”) pursuant to the merger agreement among the Company, Kustom Entertainment, Clover Leaf Capital Corp.

the Company is also

required to pay in arrears in cash an amount equal to 50% of revenues from all ticket sales generated by Kustom Entertainment, up to

nine thousand tickets sold, and thereafter equal to 10% of all revenues from all ticket sales until the earlier of the date on which

the amended note is repaid in full or the November 1, 2024 maturity date.

The Company has the right, but not the obligation, under the amended

note to prepay the amended note, upon written notice to the Company, by payment in full of the entire outstanding principal

balance plus interest.

pursuant to the amended note, the parties agreed to extend the repayment date of $ 100,000 , by the Company to the note holder, from September

26, 2024, to October 10, 2024.

As further described in NOTE

SUBSEQUENT EVENTS this payment was not made on a timely basis , however, the Note was paid in full

on November 7, 2024 .

FAIR VALUE MEASUREMENT

9 unchanged sentences

following table represents the Company’s hierarchy for its financial assets and liabilities measured at fair value on a recurring

basis as of June 30, 2024 and December 31, 2023:

basis as of September 30, 2024 and December 31, 2023:

SCHEDULE OF FINANCIAL ASSETS AND LIABILITIES MEASURED AT FAIR VALUE ON RECURRING BASIS

June 30, 2024

September 30, 2024

Warrant derivative liabilities

3 unchanged sentences

Contingent consideration promissory notes and contingent consideration earn-out agreement

following table represents the change in Level 3 tier value measurements for the three months ended June 30, 2024:

following table represents the change in Level 3 tier value measurements for the three months ended September 30, 2024:

SCHEDULE OF FAIR VALUE MEASUREMENTS CHANGE IN LEVEL 3 INPUTS

Consideration

Promissory Notes and Earn-Out Agreement

Contingent Consideration

Promissory Notes

Warrant Derivative

2 unchanged sentences

Change in fair value of warrant derivative liabilities

( 2,178,965 )

Principal payments on contingent consideration promissory notes – Revenue Cycle Management Acquisitions

Change in fair value of contingent consideration promissory notes - Revenue Cycle Management Acquisitions

Balance, June 30, 2024

Balance, September 30, 2024

ACCRUED EXPENSES

expenses consisted of the following at June 30, 2024 and December 31, 2023:

expenses consisted of the following at September 30, 2024 and December 31, 2023:

SCHEDULE OF ACCRUED EXPENSES

June 30, 2024

September 30, 2024

December 31, 2023

1 unchanged sentence

Accrued litigation costs

Accrued sales commissions

Accrued payroll and related fringes

3 unchanged sentences

Customer deposits

Total accrued

warranty expense was comprised of the following for the six months ended June 30, 2024:

Total accrued expenses

warranty expense was comprised of the following for the nine months ended September 30, 2024:

SCHEDULE OF ACCRUED WARRANTY EXPENSE

3 unchanged sentences

Ending balance

effective tax rate for the three and six months ended June 30, 2024 and 2023 varied from the expected statutory rate due to the Company

continuing to provide a 100 % valuation allowance on net deferred tax assets.

The Company determined that it was appropriate to continue

the full valuation allowance on net deferred tax assets as of June 30, 2024, primarily because of the Company’s history of operating

Company has incurred operating losses in recent years, and it continues to be in a three-year cumulative loss position at June 30, 2024.

effective tax rate for the three and nine months ended September 30, 2024 and 2023 varied from the expected statutory rate due to the

Company continuing to provide a 100 % valuation allowance on net deferred tax assets.

The Company determined that it was appropriate to

continue the full valuation allowance on net deferred tax assets as of September 30, 2024, primarily because of the Company’s history

of operating losses.

Company has incurred operating losses in recent years, and it continues to be in a three-year cumulative loss position at September 30,

Accordingly, the Company determined there was not sufficient positive evidence regarding its potential for future profits to outweigh

7 unchanged sentences

The Company has available to it approximately $ 140.9

million (based on its December 31, 2023 tax return) in net operating loss carryforwards to offset future taxable income as of June 30,

PREPAID EXPENSES

expenses were the following at June 30, 2024 and December 31, 2023:

SCHEDULE OF PREPAID EXPENSE

June 30, 2024

December 31, 2023

Prepaid inventory

Prepaid advertising

Total prepaid expenses

million (based on its December 31, 2023 tax return) in net operating loss carryforwards to offset future taxable income as of September

PROPERTY, PLANT AND EQUIPMENT

plant and equipment consisted of the following at June 30, 2024 and December 31, 2023:

plant and equipment consisted of the following at September 30, 2024 and December 31, 2023:

SCHEDULE OF PROPERTY, PLANT AND EQUIPMENT

June 30, 2024

September 30, 2024

December 31, 2023

5 unchanged sentences

( 1,503,857 )

Net property, plant and equipment

expense for the three months ended June 30, 2024 and June 30, 2023 was $ 181,121 and $ 174,261 , respectively, and is included in general

and administrative expenses.

Depreciation expense for the six months ended June 30, 2024 and June 30, 2023 was $ 343,833 and $ 345,892 ,

expense for the three months ended September 30, 2024 and September 30, 2023 was $ 127,474 and

respectively, and is included in general and administrative expenses.

the six months ended June 30, 2024 the Company engaged a broker and sold its aircraft for $ 1,100,000 less closing costs of $ 1,500 .

carrying amount of the aircraft on the date of sale was $ 1,141,661 .

As a result of the sale the Company recorded a loss of $ 41,661 in

the Consolidated Statement of Operations.

OPERATING LEASE

Company entered into an operating lease with a third party in October 2023 for copiers used for office and warehouse purposes.

of the lease include 48 monthly payments of $ 1,786 with a maturity date of October 2027.

The Company has the option to purchase such

equipment at maturity for its estimated fair market value at that point in time.

The remaining lease term for the Company’s copier

operating lease as of June 30, 2024 was forty months .

May 13, 2020, the Company entered into an operating lease for new warehouse and office space, which served as its new principal executive

office and primary business location.

The original lease agreement was amended on August 28, 2020 to correct the footage under lease

and monthly payment amounts resulting from such correction.

The lease terms, as amended include no base rent for the first nine months

and monthly payments ranging from $ 12,398 to $ 14,741 thereafter, with a termination date of December 2026.

The Company is responsible

for property taxes, utilities, insurance and its proportionate share of common area costs related to its new location.

The Company took

possession of the leased facilities on June 15, 2020.

The remaining lease term for the Company’s office and warehouse operating

lease as of June 30, 2024 was thirty months .

June 30, 2021, the Company completed the acquisition of its first medical billing company, through Nobility Healthcare.

completion of this acquisition, Nobility Healthcare became responsible for the operating lease for the seller’s office space.

The lease terms include monthly payments ranging from $ 2,648

thereafter, with a termination

date in July 2024 .

The Company is responsible for property taxes, utilities, insurance and its proportionate share of common

area costs related to this location.

The remaining lease term for the Company’s office operating lease as of June 30, 2024 was one

The lease was not renewed by the Company.

August 31, 2021, the Company completed the acquisition of its second acquired medical billing company, through Nobility Healthcare.

completion of this acquisition, Nobility Healthcare became responsible for the operating lease for the seller’s office space.

lease was renewed in April 2023 with favorable terms and payments ranging from $ 7,436 to $ 8,877 thereafter, with a termination date in

The Company is responsible for property taxes, utilities, insurance and its proportionate share of common area costs related

to this location.

The remaining term for the Company’s office operating lease was sixty-nine months as of June 30, 2024.

September 1, 2021, the Company completed the acquisition of Goody Tickets, LLC and TicketSmarter, LLC through TicketSmarter.

Upon completion

of this acquisition, the Company became responsible for the operating lease for TicketSmarter’s office space.

The lease terms include

monthly payments ranging from $ 7,211 to $ 7,364 thereafter, with a termination date of December 2022 .

The Company is responsible for property

taxes, utilities, insurance and its proportionate share of common area costs related to this location.

The Company took possession of

the leased facilities on September 1, 2021.

The Company currently rents this space on a month-to-month basis with intentions to relocate

upon the identification of suitable space.

January 1, 2022, the Company completed the acquisition of a private medical billing company, through its revenue cycle management segment.

Upon completion of this acquisition, the Company became responsible for the operating lease for the seller’s office space.

lease terms include monthly payments ranging from $ 4,233 to $ 4,626 , with a termination date of June 2025 .

The Company is responsible

for property taxes, utilities, insurance and its proportionate share of common area costs related to this location.

The Company took

possession of the leased facilities on January 1, 2022.

The Company terminated this lease in January 2024 and reversed the right of use

asset and lease liability by $ 73,894 .

expense related to the office space and copier operating leases were recorded on a straight-line basis over their respective lease terms.

Total lease expense under the operating leases was approximately $ 117,810 and $ 226,695 during the three and six months ended June 30,

weighted-average remaining lease term related to the Company’s lease liabilities as of June 30, 2023 was 4.3 years.

discount rate implicit within the Company’s operating leases was not generally determinable and therefore the Company determined

the discount rate based on its incremental borrowing rate on the information available at commencement date.

As of commencement date,

the operating lease liabilities reflect a weighted average discount rate of 8 %.

following sets forth the operating lease right of use assets and liabilities as of June 30, 2024:

SCHEDULE OF OPERATING LEASES RIGHT OF USE ASSETS AND LIABILITIES

Operating lease right of use assets

Operating lease obligations-current portion

Operating lease obligations-less current portion

Total operating lease obligations

components of lease expense were as follows for the six months ended June 30, 2024:

SCHEDULE OF LEASE EXPENSE

Selling, general and administrative expenses

are the minimum lease payments for each year and in total:

SCHEDULE OF FUTURE MINIMUM LEASE PAYMENTS

Year ending December 31:

2024 (July 1, to December 31, 2024)

Total undiscounted minimum future lease payments

Imputed interest

Total operating lease liability

Depreciation expense for the nine months ended September 30,

2024 and September 30, 2023 was $ 471,307 and

respectively, and is included in general and administrative expenses.

the nine months ended September 30, 2024 the Company engaged a broker and sold its aircraft for $ 1,100,000 less closing costs of $ 1,500 .

The carrying amount of the aircraft on the date of sale was $ 1,141,661 .

As a result of the sale the Company recorded a loss of $ 41,661

in the Consolidated Statement of Operations.

the three and nine months ended September 30, 2024 the Company engaged a broker and sold its building for $ 5,900,000 less closing costs

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 and nine months ended September 30, 2024.

GOODWILL AND OTHER INTANGIBLE ASSETS

assets consisted of the following at June 30, 2024 and December 31, 2023:

assets consisted of the following as of September 30, 2024 and December 31, 2023:

SCHEDULE OF INTANGIBLE ASSETS

June 30, 2024

September 30, 2024

December 31, 2023

Accumulated Impairment

Amortized intangible assets:

3 unchanged sentences

SEO content (entertainment segment)

Personal seat licenses (entertainment

Personal seat licenses (entertainment segment)

Website enhancements (entertainment segment)

1 unchanged sentence

Indefinite life intangible assets:

Goodwill (entertainment and revenue cycle management segments)

Trade name (entertainment segment)

Patents and trademarks pending

(video solutions segment)

Goodwill (Entertainment segment)

Goodwill (Revenue cycle management segment)

Trade name and trademarks (entertainment segment)

Patents and trademarks pending (video solutions segment)

and trademarks pending will be amortized beginning at the time they are issued by the appropriate authorities.

1 unchanged sentence

patent or trademark is denied, then the amount deferred will be immediately charged to expense.

expense for the three months ended June 30, 2024 and 2023 was $ 346,889 and $ 374,714 , respectively and $ 735,167 and $ 745,150 for the six

months ended June 30, 2024 and 2023, respectively.

Estimated amortization for intangible assets with definite lives for the next five

years ending December 31 and thereafter is as follows:

expense for the three months ended September 30, 2024 and 2023 was $ 371,772 and $ 377,485 , respectively and $ 1,106,939 and $ 1,122,635

for the nine months ended September 30, 2024 and 2023, respectively.

Estimated amortization for intangible assets with definite lives

for the next five years ending December 31 and thereafter is as follows:

SCHEDULE OF ESTIMATED AMORTIZATION FOR INTANGIBLE ASSETS

Year ending December 31:

2024 (July 1, to December 31, 2024)

2024 (October 1, 2024 to December 31, 2024)

2028 and thereafter

assets were the following at June 30, 2024 and December 31, 2023:

SCHEDULE OF OTHER ASSETS

June 30, 2024

December 31, 2023

Lease receivable

Restricted Cash

Total other assets

Interim impairment test

We performed an interim 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 interim

impairment test as of the September 30, 2024 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 21 % to 32.5 %.

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.

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 20 %

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 and December 31, 2023, related to businesses within our revenue cycle management segment.

We held goodwill

of $ 6,112,507 and $ 5,886,548 as of September 30, 2024 and December 31, 2023, 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 and nine 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.

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, 2024.

Indefinite-lived

intangible assets

We held indefinite-lived trade names/trademarks of $ 900,000 and $ 600,000 as of September 30, 2024 and December 31, 2023, respectively,

related to businesses within our entertainment segment.

During the three

months ended September 30, 2024, we concluded that the carrying amount of a trade name/trademark related to the entertainment

segment exceeded its estimated fair value and we recorded a non-cash impairment charge of $ 201,000 ,

which was included in goodwill and intangible asset impairment charge on our Condensed Consolidated Statements of Operations for the

three and nine months ended September 30, 2024.

The charge was primarily driven by the split-off transaction not being completed

when and as expected and our recent revenue and operating performance of the related business given a decline in demand and overall

economic uncertainty.

The remaining balance for this trade name/trademark was $ 699,000

as of September 30, 2024.

COMMITMENTS AND CONTINGENCIES

15 unchanged sentences

May 31, 2022, the Company filed a lawsuit against Culp McAuley, Inc.

(“defendant”) in the United States District Court for

the District of Kansas.

The lawsuit arises from the defendant’s multiple breaches of its obligations to the Company.

seeks monetary damages and injunctive relief based on certain conduct by the defendant.

On July 18, 2022, the defendant filed its Answer

to the Company’s Verified Complaint and included Counterclaims alleging breach of contract and seeking monetary damages.

8, 2022, the Company filed its Reply and Affirmative Defenses to the Counterclaims by, among other things, denying the allegations and

any and all liability.

of June 30, 2023, we are able to estimate a range of reasonably possible loss related to the Culp McCauley case, our estimate of the

aggregate reasonably possible loss (in excess of any accrued amounts) was approximately $ 1.8 million.

Our estimate with respect to the

aggregate reasonably possible loss is based upon currently available information and is subject to significant judgment and a variety

of assumptions and known and unknown uncertainties, which may change quickly and significantly from time to time, particularly if and

as we engage with applicable governmental agencies or plaintiffs in connection with a proceeding.

Also, the matters underlying the reasonably

possible loss will change from time to time.

As a result, actual results may vary significantly from the current estimate.

the ultimate resolution is unknown, based on the information currently available, 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.

(“Culp McAuley”) and four individuals (Brandon Culp,

Campbell McAuley, Mark Depew and Larry Roberts) (collectively the “defendants”) in the United States District Court for the

District of Kansas, seeking monetary damages and injunctive relief based on certain conduct by the defendants.

On July 18, 2022, Culp

McAuley filed its Answer to the Company’s Verified Complaint and included Counterclaims alleging breach of contract and seeking

monetary damages.

On August 8, 2022, the Company filed its Reply and Affirmative Defenses to the Counterclaims by, among other things,

denying the allegations and any and all liability.

December 20, 2022, the Company filed a motion for leave to file a second amended complaint to add additional claims against the defendants

to avoid fraudulent transfers, to pierce the corporate veil of Culp McAuley, and for remedies related to the claims for fraudulent transfers

and piercing the corporate veil.

On December 22, 2022, the Court issued an Order granting the Company’s motion for leave to file

a second amended complaint, which was filed with the Court on December 27, 2022.

Because Culp McAuley’s original counsel withdrew,

Culp McAuley was ordered to obtain new counsel on or before December 2, 2022.

On December 5, 2022, the Court ordered that Culp McAuley

show cause in writing by December 21, 2022, why the Court should not direct the Clerk to enter default against it.

On December 22, 2022,

the Court directed the Clerk to enter default against Culp McAuley.

On February 21, 2023, the Clerk entered default against Culp McAuley.

February and March, 2023, defendants Larry Roberts and Mark Depew filed separate motions to dismiss, respectively.

The Company opposed

both motions.

On July 7, 2023, the Court issued an Order granting Roberts’ motion to dismiss and denying Depew’s motion to

On December 7, 2023, the Company filed an application for the Clerk’s entry of default against defendant Brandon Culp.

On December 13, 2023, the Clerk entered default against Brandon Culp.

January 5, 2024, the Company filed a motion for summary judgment against defendants Campbell McAuley and Mark Depew.

On the same date,

the Company also filed separate motions for default judgment against Culp McAuley and Brandon Culp, respectively.

On January 5, 2024,

defendant Mark Depew filed a motion for summary judgment against the Company.

On May 17, 2024, the Court issued Orders which, respectively,

(i) granted defendant Mark Depew’s motion for summary judgment against the Company;

(ii) denied the Company’s motion for

summary judgment against Depew;

(iii) granted the Company’s motion for summary judgment against defendant Campbell McAuley;

(iv) granted the Company’s motions for default judgment against defendants Culp McAuley and Brandon Culp.

Finding that defendants

Brandon Culp and Campbell McAuley were each the alter ego of Culp McAuley, on June 4, 2024, the Court entered judgment in favor of the

Company in the amount of $ 3,999,984 against Culp McAuley, Brandon Culp, and Campbell McAuley, jointly and severally (the “judgment”).

The Company is currently uncertain as to what amount, if any, of the judgment amount it will ultimately be able to recover.

June 14, 2024, the Company filed a Notice of Appeal to the United States Court of Appeals for the Tenth Circuit from the Court’s

May 17, 2024 Order that granted summary judgment in favor of Mark Depew.

On December 10, 2024, the Company and Depew filed a Stipulation

of Dismissal in the Tenth Circuit that ended the appeal after the Company and Depew reached a settlement.

March 2024, the Company filed a complaint against Larry Roberts (“defendant”) in the Superior Court of the State of California,

County of Orange.

The lawsuit arises from the defendant’s multiple breaches of his obligations to the Company.

The Company seeks

monetary damages based on certain conduct by the defendant.

On May 28, 2024, the defendant filed a motion to strike portions of the complaint

and a motion for demurrer.

On October 4, 2024, the Court sustained in part and overruled in part defendant’s motion for demurrer.

The Court further denied the defendant’s motion to strike in its entirety.

The case is pending.

of September 30, 2024, we are able to estimate a range of reasonably possible loss related to the Culp McCauley case (when taking into account, among other things, the uncertainty of recovering the judgment amount owed to the Company

by Culp McAuley, Brandon Culp and Campbell McAuley, jointly and severally), our estimate

of the aggregate reasonably possible loss (in excess of any accrued amounts) was approximately $ 1.8

Our estimate with respect to the aggregate reasonably possible loss is based upon currently available information and is

subject to significant judgment and a variety of assumptions and known and unknown uncertainties, which may change quickly and

significantly from time to time, particularly if and as we engage with applicable governmental agencies or plaintiffs in connection

with a proceeding.

Also, the matters underlying the reasonably possible loss will change from time to time.

As a result, actual

results may vary significantly from the current estimate.

While the ultimate resolution is unknown, based on the information currently

available, we do not expect that the pending lawsuit or the enforcement of the judgment will have a material adverse effect on our 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 the pending lawsuit or enforcement of the judgment 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.

of Failure to Satisfy a Continued Listing Rule

12 unchanged sentences

determination to a Hearings Panel.

management of the Company has resolved to take commercially reasonable steps to fill the vacancy on the Board with a new director who

qualifies as independent under the Nasdaq Listing Rules as soon as is practical and anticipates regaining compliance during the Cure

However, there can be no assurance that the Company will be able to satisfy Nasdaq Listing Rule 5605 or will otherwise be in

compliance with other Nasdaq listing criteria.

of the Company has resolved to take commercially reasonable steps to fill the vacancy on the Board with a new director who qualifies

as independent under the Nasdaq Listing Rules as soon as is practical and anticipates regaining compliance during the Cure Period.

there can be no assurance that the Company will be able to satisfy Nasdaq Listing Rule 5605 or will otherwise be in compliance with other

Nasdaq listing criteria.

SUBSEQUENT EVENTS for additional information pertaining to this matter.

STOCK-BASED COMPENSATION

Company recorded pre-tax compensation expense related to the grant of stock options and restricted stock issued of $ 60,772 and $ 179,482

for the three months ended June 30, 2024 and 2023, and $ 101,467 and $ 321,779 for the six months ended June 30, 2024 and 2023, respectively.

of June 30, 2024, the Company had adopted ten separate stock option and restricted stock plans:

Company recorded pre-tax compensation expense related to the grant of stock options and restricted stock issued of $ ( 27,789 ) and $ 84,586 for

the three months ended September 30, 2024 and 2023, and $ 73,678 and $ 378,917 for the nine months ended September 30, 2024 and

2023, respectively.

of September 30, 2024, the Company had adopted ten separate stock option and restricted stock plans:

(i) the 2005 Stock Option and Restricted

7 unchanged sentences

2006 Plan, 2007 Plan, 2008 Plan, 2011 Plan, 2013 Plan, 2015 Plan, 2018 Plan, 2020 Plan and 2022 Plan are referred to as the “Plans.”

Plans permit the grant of stock options or restricted stock to its employees, non-employee directors and others for up to a total of

333,750 shares of common stock.

The 2005 Plan terminated during 2015 with 1,078 shares not awarded or underlying options, which shares

are now unavailable for issuance.

Stock options granted under the 2005 Plan that remain unexercised and outstanding as of June 30, 2024

The 2006 Plan terminated during 2016 with 2,739 shares not awarded or underlying options, which shares are now unavailable

for issuance.

Stock options granted under the 2006 Plan that remain unexercised and outstanding as of June 30, 2024 total 531 .

Plan terminated during 2017 with 4,733 shares not awarded or underlying options, which shares are now unavailable for issuance.

are no stock options granted under the 2007 Plan that remain unexercised and outstanding as of June 30, 2024.

The 2008 Plan terminated

during 2018 with 2,025 shares not awarded or underlying options, which shares are now unavailable for issuance.

There are no stock options

granted under the 2008 Plan that remain unexercised and outstanding as of June 30, 2024.

option grants.

7 unchanged sentences

A total of 137,042 shares remained available for awards under the various Plans

as of June 30, 2024.

as of September 30, 2024.

fair value of each option award is estimated on the date of grant using a Black-Scholes option valuation model.

summary of all stock option activity under the Plans for the three months ended June 30, 2024 is as follows:

summary of all stock option activity under the Plans for the nine months ended September 30, 2024 is as follows:

OF STOCK OPTIONS OUTSTANDING

1 unchanged sentence

Outstanding at December 31, 2023

Outstanding at June 30, 2024

Exercisable at June 30, 2024

Forfeited/expired

Outstanding at September 30, 2024

Exercisable at September 30, 2024

Plans allow for the cashless exercise of stock options.

2 unchanged sentences

There were no shares surrendered pursuant to cashless exercises

during the six months ended June 30, 2024 and 2023.

aggregate intrinsic value of options outstanding was $- 0 - and $- 0 -, at June 30, 2024 and December 31, 2023, respectively.

during the nine months ended September 30, 2024 and 2023.

aggregate intrinsic value of options outstanding was $- 0 - and $- 0 -, at September 30, 2024 and December 31, 2023, respectively.

The aggregate

intrinsic value of options exercisable was $- 0 - and $- 0 -, at June 30, 2024 and December 31, 2023, respectively.

of June 30, 2024, the unrecognized portion of stock compensation expense on all existing stock options was $- 0 -.

intrinsic value of options exercisable was $- 0 - and $- 0 -, at September 30, 2024 and December 31, 2023, respectively.

of September 30, 2024, the unrecognized portion of stock compensation expense on all existing stock options was $- 0 -.

following table summarizes the range of exercise prices and weighted average remaining contractual life for outstanding and exercisable

options under the Company’s option plans as of June 30, 2024:

options under the Company’s option plans as of September 30, 2024:

OF SHARES AUTHORIZED UNDER STOCK OPTION PLANS BY EXERCISE PRICE RANGE

20 unchanged sentences

and the right to receive cash dividends.

summary of all restricted stock activity under the Plans for the three months ended June 30, 2024 is as follows:

summary of all restricted stock activity under the Plans for the three months ended September 30, 2024 is as follows:

OF RESTRICTED STOCK ACTIVITY

Nonvested balance, December 31, 2023

Nonvested balance, June 30, 2024

Nonvested balance, September 30, 2024

Company estimated the fair market value of these restricted stock grants based on the closing market price on the date of grant.

June 30, 2024, there were $ 184,461 of total unrecognized compensation costs related to all remaining non-vested restricted stock grants,

which will be amortized over the next forty-five months in accordance with their respective vesting scale.

September 30, 2024, there were $ 88,399 of total unrecognized compensation costs related to all remaining non-vested restricted stock

grants, which will be amortized over the next forty-two months in accordance with their respective vesting scale.

nonvested balance of restricted stock vests as follows:

OF NON-VESTED BALANCE OF RESTRICTED STOCK

2024 (July 1, 2024 through December 31, 2024)

2024 (October 1, 2024 through December 31, 2024)

COMMON STOCK PURCHASE WARRANTS

9 unchanged sentences

Company has utilized the following assumptions in its Black-Scholes option valuation model to calculate the estimated fair value of the

warrant derivative liabilities as of their date of issuance and as of June 30, 2024:

warrant derivative liability relative to the 2023 Purchase Warrants as of their date of issuance and as of September 30, 2024:

OF WARRANT MODIFICATION

date assumptions

June 30, 2024

September 30, 2024

Volatility – range

2 unchanged sentences

Exercise price

$ 5.50 – 7.50

Common stock issuable under the warrants

Purchase Warrants

June 25, 2024, the Company issued Series A and pre-funded warrants to purchase a total of 1,768,227

shares of Common Stock along with the sale of common stock.

June 25, 2024, the Company issued Series A and prefunded warrants to purchase a total of 1,768,227

shares of Common Stock along with the sale of

common stock.

The Company also issued Series B Warrants that will be exercisable at any time or times on or after the date Stockholder

Approval is obtained.

The warrant terms provide for net cash settlement outside the control of the Company under certain

circumstances.

As such, the Company is required to treat these warrants as derivative liabilities which are valued at their

estimated fair value at their issuance date and at each reporting date with any subsequent changes reported in the consolidated

statements of operations as the change in fair value of warrant derivative liabilities.

Furthermore, the Company re-values the fair

value of warrant derivative liability as of the date the warrant is exercised with the resulting warrant derivative liability

transitioned to change in fair value of warrant derivative liabilities through the consolidated statement of operations.

Both the Series A and Series B warrants have reset provisions that are activated upon the date Stockholder Approval

SUBSEQUENT EVENTS for further information on such reset provisions.

The warrant terms provide for net

cash settlement outside the control of the Company under certain circumstances.

As such, the Company is required to treat these warrants

as derivative liabilities which are valued at their estimated fair value at their issuance date and at each reporting date with any subsequent

changes reported in the consolidated statements of operations as the change in fair value of warrant derivative liabilities.

the Company re-values the fair value of warrant derivative liability as of the date the warrant is exercised with the resulting warrant

derivative liability transitioned to change in fair value of warrant derivative liabilities through the consolidated statement of operations.

the three and nine months ended September 30, 2024, the prefunded warrants to purchase 573,008 shares of common stock were fully exercised.

Company has utilized the following assumptions in its Black-Scholes option valuation model to calculate the estimated fair value of the

warrant derivative liabilities as of their date of issuance and as of June 30, 2024:

derivative liability relative to the 2024 Purchase Warrants as of their date of issuance and as of September 30, 2024:

date assumptions

June 30, 2024

September 30, 2024

Volatility – range

72.1 - 101.1 %

Risk-free rate

1 unchanged sentence

Remaining contractual term

0.1 - 5.0 years

Exercise price

Common stock issuable under the warrants

following table summarizes information about shares issuable under warrants outstanding during the six months ended June 30, 2024:

following table summarizes information about shares issuable under all warrants outstanding during the nine months ended September 30,

OF WARRANT ACTIVITY

2 unchanged sentences

Forfeited/cancelled

Vested Balance, June 30, 2024

total intrinsic value of all outstanding warrants aggregated $- 0 - as of June 30, 2024 and 2023, and the weighted average remaining term

was 42.6 months as of June 30, 2024, respectively.

following table summarizes the range of exercise prices and weighted average remaining contractual life for outstanding and exercisable

warrants to purchase shares of common stock as of June 30, 2024:

Vested Balance, September 30, 2024

total intrinsic value of all outstanding warrants aggregated $- 0 - as of September 30, 2024.

The following table summarizes the range

of exercise prices and weighted average remaining contractual life for outstanding and exercisable warrants to purchase shares of common

stock as of September 30, 2024:

OF RANGE OF EXERCISE PRICES AND WEIGHTED AVERAGE REMAINING CONTRACTUAL LIFE OF WARRANTS

23 unchanged sentences

Private Placement Transaction

June 24, 2024, the Company entered into a private placement transaction (the “Private Placement”), pursuant to a

Securities Purchase Agreement (the “Securities Purchase Agreement”) with certain institutional investors (the

“Purchasers”) for aggregate gross proceeds of approximately $ 2.9

million, before deducting fees of $ 0.8 million to the placement agent and other expenses payable by the Company in connection with

the Private Placement.

June 24, 2024, the Company entered into a private placement transaction (the “Private Placement”), pursuant to a Securities

Purchase Agreement (the “Securities Purchase Agreement”) with certain institutional investors (the “Purchasers”)

for aggregate gross proceeds of approximately $ 2.9 million, before deducting fees to the placement agent and other expenses payable by

the Company in connection with the Private Placement.

part of the Private Placement, the Company issued an aggregate of 1,195,219 units and pre-funded units (collectively, the “Units”)

5 unchanged sentences

of Restricted Stock

the six months ended June 30, 2024, the Company cancelled 1,125 shares due to termination of employees.

February 6, 2023, we filed a Certificate of Amendment to the Articles of Incorporation, as amended, with the Secretary of State of the

State of Nevada to effect a 1-for-20 reverse stock split (the “Reverse Stock Split”) of the shares of our common stock.

Reverse Stock Split was effective as of time of filing.

the nine months ended September 30, 2024 and 2023, the Company cancelled 51,072

and 3,625 shares due to termination of employees, respectively.

Exercise of Prefunded Warrants

the nine months ended September 30, 2024, the prefunded warrants to purchase 573,008 shares of common stock were fully exercised.

February 6, 2023, we filed a Certificate of Amendment to the Articles of Incorporation, as amended, with the Secretary of State of

the State of Nevada to effect a 1-for-20

reverse stock split (the “Reverse Stock Split”) of the shares of our common stock.

The Reverse Stock Split was

effective as of time of filing.

No fractional shares were issued in connection with the Reverse Stock Split.

Any fractional shares of our Common Stock that would have otherwise resulted from the Reverse Stock Split were rounded up to the nearest

whole number.

In connection with the Reverse Stock Split, our board approved appropriate and proportional adjustments to all outstanding

securities or other rights convertible or exercisable into shares of our Common Stock, including, without limitation, all preferred stock,

Any fractional shares

of our Common Stock that would have otherwise resulted from the Reverse Stock Split were rounded up to the nearest whole number.

connection with the Reverse Stock Split, our board approved appropriate and proportional adjustments to all outstanding securities

or other rights convertible or exercisable into shares of our Common Stock, including, without limitation, all preferred stock,

warrants, options, and other equity compensation rights.

All historical share and per-share amounts reflected throughout our consolidated

financial statements and other financial information in this Report have been adjusted to reflect the Reverse Stock Split as if the split

occurred as of the earliest period presented.

The par value per share of our common stock was not affected by the Reverse Stock Split.

All historical share and per-share amounts reflected throughout our

condensed consolidated financial statements and other financial information in this Report have been adjusted to reflect the Reverse

Stock Split as if the split occurred as of the earliest period presented.

The par value per share of our common stock was not

affected by the Reverse Stock Split.

Noncontrolling

Company owns 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 statement of (income) loss

as “net (income) loss attributable to noncontrolling interests of consolidated subsidiary”.

reported net income attributable to noncontrolling interests of consolidated subsidiary of $ 73,310 and $ 72,754 for the three months ended

June 30, 2024 and 2023, and $ 61,062 and $ 198,993 for the six months ended June 30, 2024 and 2023, respectively.

NET EARNINGS (LOSS) PER SHARE

calculation of the weighted average number of shares outstanding and loss per share outstanding for the three and six months ended June

30, 2024 and 2023 are as follows:

OF WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING AND LOSS PER SHARE OUTSTANDING

For the three months ended

For the six months ended

Numerator for basic and diluted income per share – Net loss attributable to common stockholders

$ ( 5,083,861 )

$ ( 8,393,304 )

$ ( 9,014,882 )

$ ( 14,499,122 )

Denominator for basic loss per share – weighted average shares outstanding

Dilutive effect of shares issuable under stock options and warrants outstanding

Denominator for diluted loss per share – adjusted weighted average shares outstanding

Net loss per share:

income (loss) per share is based upon the weighted average number of common shares outstanding during the period.

For the three and six

months ended June 30, 2024 and 2023, 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 income (loss) per share.

Company owns 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 statement of (income) loss as “net (income) loss

attributable to noncontrolling interests of consolidated subsidiary”.

We reported net

loss (income) attributable to noncontrolling interests of consolidated subsidiary of $ 2,000,206 and

$( 29,360 ) for

the three months ended September 30, 2024 and 2023, and $ 1,939,143 and

$( 228,624 ) for

the nine months ended September 30, 2024 and 2023, respectively.

COUNTRY STAMPEDE ACQUISITION

6 unchanged sentences

Intellectual Property, the “Purchased Assets”).

consideration for acquiring the Purchased Assets, Kustom 440 paid JC Entertainment the aggregate purchase price amount $ 542,959 .

Kustom 440 shall receive a credit for all non-refunded festival ticket sales for the 2024 Country Stampede to be calculated immediately

prior to Closing, and JC Entertainment shall be entitled to keep all ticket sale proceeds made and/or received prior to Closing.

440 shall be obligated, to the extent a refund is sought after Closing, to provide such refund, if appropriate, to the customer requesting

a refund, and shall indemnify and hold harmless JC Entertainment from any and all claims, liabilities, costs, suits, or the like relating

to such refund request.

consideration for acquiring the Purchased Assets, Kustom 440 paid JC Entertainment the aggregate purchase price amount $ 542,959 , with

the sum of $ 400,000 paid at the time of closing (“Closing”), and the remainder to be paid on or before thirty days from the

time of Closing.

Kustom 440 shall receive a credit for all non-refunded festival ticket sales for the 2024 Country Stampede to be calculated

immediately prior to Closing, and JC Entertainment shall be entitled to keep all ticket sale proceeds made and/or received prior to Closing.

Kustom 440 shall be obligated, to the extent a refund is sought after Closing, to provide such refund, if appropriate, to the customer

requesting a refund, and shall indemnify and hold harmless JC Entertainment from any and all claims, liabilities, costs, suits, or the

like relating to such refund request.

Company accounts for business combinations using the acquisition method and that the Company has early adopted the amendments of Regulation

69 unchanged sentences

cash, invested cash (if any), refundable income taxes (if any), and deferred income taxes.

financial information for the Company’s reportable business segments is provided for the indicated periods and as of June 30, 2024,

and June 30, 2023:

financial information for the Company’s reportable business segments is provided for the indicated periods and as of September

30, 2024, and 2023:

SCHEDULE OF SEGMENT REPORTING

For the three months ended

For the six months ended

For the three months ended September 30,

For the nine months ended September 30,

Net Revenues:

13 unchanged sentences

$ ( 4,639,316 )

$ ( 3,328,173 )

Revenue Cycle Management

( 4,085,224 )

( 3,955,761 )

Entertainment

5 unchanged sentences

( 2,623,421 )

( 5,083,070 )

( 9,102,631 )

Total Operating Income (Loss)

16 unchanged sentences

The Company recorded a reserve for excess and obsolete inventory

in the video solutions segment of $ 4,008,278 and a reserve for the entertainment segment of $ 126,723 as of June 30, 2024.

in the video solutions segment of $ 4,144,749 and a reserve for the entertainment segment of $ 78,241 as of September 30, 2024.

segment net revenues reported above represent sales to external customers.

6 unchanged sentences

with Managing Member of Nobility Healthcare

Company accrued reimbursable expenses payable to Nobility, LLC totaling $ 398,379 and $ 265,241 for the six months ended June 30, 2024

and 2023 and management fees in accordance with the operating agreement of $ 10,024 and $ 32,181 for the three months ended June 30, 2024

The company recorded management fees of $ 22,403 and $ 67,106 for the six months ended June 30, 2024 and 2023.

Company accrued reimbursable expenses payable to Nobility, LLC totalling $ 294,715 and

of September 30, 2024 and $ 265,241 as of December 31, 2023 and management fees in accordance with the operating agreement of $ 6,877 as

of September 30, 2024 and $ 36,502 as of December 31, 2023.

The Company recorded management fees of $ 29,280 and

the nine months ended September 30, 2024 and 2023.

with Related Party of TicketSmarter

5 unchanged sentences

The TicketSmarter Related Party Note bears interest of 13.25 % per annum with repayment beginning January 2, 2024.

As of June 30, 2024,

As of September 30,

2024, the entire TicketSmarter Related Party note is $ 2,700,000 , is classified as current, with an accrued interest balance of $ 384,545 .

use of proceeds of the TicketSmarter Related Party Note was to resolve numerous outstanding payables at a discounted rate, the discount

received is recognized as a gain on extinguishment of liabilities on the statement of operations.

Additionally, these negotiations relieved

TicketSmarter of numerous future obligations following fiscal year 2023.

The use of proceeds of the TicketSmarter Related Party Note was to resolve numerous outstanding payables at a discounted rate, the discount

received to resolve such outstanding payables is recognized as a gain on extinguishment of liabilities on the statement of operations.

Additionally, these negotiations relieved TicketSmarter of numerous future obligations following fiscal year 2023.

Company Related Party

On August 22, 2024, Digital Ally’s Chief Executive Officer, made a loan in the amount of $100,000 to the Company to support its

The transaction was recorded as a related party note payable (the “Company Related Party Note”).

The Company Related

Party Note bears interest at the prime Rate (8.00% as of September 30, 2024) per annum with repayment due on demand.

As of September 30,

2024, the entire Company Related Party note of $100,000, is classified as current, with an accrued interest balance of $854.

SUBSEQUENT EVENTS

previously disclosed, on March 1, 2024, the Company entered into a Note Purchase Agreement (the “Agreement”), by and between

the Company, Kustom Entertainment (together with the Company, the “Borrowers”), and Mosh Man, LLC, a New Jersey limited liability

company (the “Purchaser”), pursuant to which the Borrowers issued to the Purchaser a Senior Secured Promissory Note (the

“Note”) with a principal amount of $ 1,425,000 .

July 13, 2024, the Company entered into a Letter Agreement (the “ Letter Agreement ”), by and between the Company, Kustom

Entertainment and the Purchaser, increasing automatically the principal amount of the Note from $ 1,425,000

to $ 1,725,000 ;

provided, however, that if the Borrowers repay the Note in full on or before August 15, 2024, then the principal amount of the Note shall

be reduced automatically by $ 100,000 .

Pursuant to the Letter Agreement, the Borrowers’ failure to adhere to Sections 3.2(d)(iii) (the “Section 3.2(d)(iii) Failure”)

and Section 3.3(a) (the “Section 3.3(a) Failure”) of the Purchase Agreement shall not constitute Events of Default, as defined

in the Purchase Agreement;

provided, however, that if the Borrowers shall be in breach or default under the Letter Agreement or otherwise

fail to satisfy their obligations thereunder, the Section 3.2(d)(iii) Failure and Section 3.3(a) Failure shall each automatically constitute

an Event of Default under the Purchase Agreement.

Pursuant to the Letter Agreement, the Company agreed to make a cash payment to the

Purchaser in the amount of $ 150,000 on or before July 26, 2024.

The Company also agreed to sell or enter into a firm commitment to sell

the office building owned by the Company and located at 14001 Marshall Drive, Lenexa, Kansas 66215 (the “Company Office Building”)

and pay to the Purchaser:

(i) $325,000, if the Company sells or enters into a firm commitment to sell the Company Office Building on

or before August 7, 2024;

or (ii) $400,000, if the Company sells or enters into a firm commitment to sell the Company Office Building

after August 7, 2024.

Pursuant to the Letter Agreement, the Company’s failure to sell or enter into a firm commitment to sell the

Company Office Building prior to September 1, 2024 shall constitute an Event of Default, as defined in the Purchase Agreement, under

the Purchase Agreement.

The Company shall pay to the Purchaser $ 100,000 per month until the Note is repaid in full, with the first such

payment occurring on August 12, 2024, and each subsequent payment occurring on the 12th calendar day of each month thereafter.

to the Letter Agreement, the Purchaser shall be a party to any and every flow of funds when there is an extraordinary receipt of capital

by the Company.

The Company shall pay to the Purchaser a penalty payment of $ 200,000 within five Business Days, as defined in the Purchase

Agreement, if the Company fails to make the Purchaser a party to any flow of funds in respect of an extraordinary receipt of capital

by the Company.

as stated above, the Letter Agreement does not result in any other substantive changes to the Agreement.

and Sale Agreement

August 2, 2024, the Company entered into a purchase and sale agreement (the “Purchase Agreement”) with Serenity Now, LLC,

a Kansas limited liability company (the “Buyer”) to sell a commercial office building and associated property located at

14001 Marshall Drive, Lenexa, KS (the “Office Building”).

The Buyer has no prior material relationship with the Company beyond

the Agreement.

to the Agreement, the Buyer has agreed to acquire the Property (as defined in the Agreement) for five million nine hundred thousand and

00/100 dollars ($ 5,900,000 ), exclusive of closing costs.

Purchase Agreement includes customary representations and warranties, covenants and closing conditions, including, without

limitation, assignment and assumption of existing leases and performance of all the covenants.

Pursuant to the terms of the

Agreement, during the Inspection Period (as defined in the Purchase Agreement), the Buyer is entitled to conduct inspections and

review title and survey matters.

The Company will lease its premises in the Office Building from the Buyer for six months after the

closing of the Agreement for $ 240,000 .

On August 12, 2024, pursuant

to the Agreement, the Company and the Buyer completed the sale of the Property.

The Buyer has no prior material relationship with the

Company beyond the Agreement.

and Reservation Letter

March 1, 2024, the Company entered into a Note Purchase Agreement (the “Agreement”), by and between the Company and its wholly-owned

subsidiary of the Company (the “Borrowers”), and Mosh Man, LLC, (the “Purchaser”), pursuant to which the Borrowers

issued to the Purchaser a Senior Secured Promissory Note (the “Original Note”), as modified pursuant to a Letter Agreement

dated July 13, 2024, as further modified by a Letter Agreement dated September 12, 2024, and as further modified pursuant to an Amended

and Restated Promissory Note, dated September 25, 2024 (the “Amended Note”, and together with the Original Note, the “Note”).

In connection with the Agreement, the Borrowers entered into a security agreement by and between the Borrowers, as grantor, and the Purchaser,

October 22, 2024, the Company received a Default and Reservation Letter (the “Default Notice”) from counsel for the administrative

agent for the Note, (i) notifying the Company that it is in default under the Note for, among other reasons, failing to make a $ 100,000

payment that was due on October 10, 2024, (ii) accelerating all principal and interest payments due under the Note, and (iii) demanding

the Borrowers enter into a lockbox control agreement within ten (10) business days of the date of the Default Notice.

As of the date

of the Default Notice, the outstanding obligation of the Company under the Note was approximately $ 1,600,000 .

October 24, 2024, the Company received a Notice of UCC Article 9 Public Sale (the “Sale Notice”) from counsel to the administrative

agent for the Note notifying the Company that it intended to conduct a public sale of the collateral securing the Company’s obligations

under the Note and Security Agreement on November 5, 2024.

further described below, the Company raised sufficient funds through a private placement which closed on November 7, 2024, to repay the

Note in full.

The Company’s full repayment of the outstanding obligations under such promissory note effectively cured all defaults

under the Agreement and terminated the public sale process of the collateral securing the Borrowers’ obligations thereunder.

Purchase Agreement

November 6, 2024, the Company entered into a Securities Purchase Agreement (the “SPA”) with certain institutional investors

(the “Purchasers”), pursuant to which the Company agreed to issue and sell to such Purchasers, in a private placement transaction,

(i) senior secured promissory notes in aggregate principal amount of $ 3,600,000 (the “Notes”), and (ii) 808,377 shares (the

“Commitment Shares”) of the Company’s common stock, for aggregate gross proceeds of approximately $ 3.0 million, before

deducting placement agent fees and other offering expenses payable by the Company.

This private placement closed on November 7, 2024

(the “Closing Date”).

to the SPA, the Company was required to use approximately $ 2,015,623 of the net proceeds from the private placement to pay, in full,

all liabilities, obligations and indebtedness owing by the Company and its subsidiary, Kustom Entertainment, Inc., to Mosh Man, LLC (the

Company’s full repayment of the outstanding obligations under such promissory note effectively cured all defaults under the promissory

note and terminated the public sale process of the collateral securing the Borrowers’ obligations thereunder.

Company anticipates that the remaining net proceeds from the Private Placement after repayment of the Mosh Man promissory note, and after

deducting placement agent fees and other offering expenses, will meet the Company’s capital needs for approximately three months,

subsequent to which the Company anticipates that it will need to raise additional funds to implement its business plan and to service

its ongoing operations.

The Company also anticipates pursuing the sale of its video solutions business in the short term.

to the SPA, the Company is required to file within 30 days of the Closing Date a registration statement with the SEC for a public offering

and use its reasonable best efforts to pursue and consummate a follow-on financing transaction within 90 days of the Closing Date.

proceeds of the public offering shall be first used for the repayment of the principal amounts of the Notes.

The Company is also required

to file within 30 days of the Closing Date a registration statement on Form S-1 (or other appropriate form if the Company is not then

S-1 eligible) providing for the resale by the Purchasers of the Commitment Shares issued under the SPA.

The Company is required to use

commercially reasonable efforts to cause such registration statement to become effective within 60 days following the filing thereof

and to keep such registration statement effective at all times until no Purchaser owns any Commitment Shares.

pursuant to the SPA, the Company was required to complete the following:

(i) the Company’s board of directors shall approve an

amendment to the Company’s bylaws setting the quorum required for a special meeting of stockholders to one-third of all stockholders

entitled to vote at such special meeting and (ii) the Company shall file with the SEC a preliminary proxy statement on Schedule 14A announcing

a meeting of stockholders for the purpose of approving the Series A and Series B warrants issued by the Company on June 25, 2024.

Secured Promissory Notes

Notes mature ninety (90) days following their issuance date (the “Maturity Date”) and shall accrue no interest unless and

until an Event of Default (as defined in the Notes) has occurred, in which case interest shall accrue at a rate of 14% per annum during

the pendency of such Event of Default.

In addition, upon customary Events of Default, the Purchasers may require the Company to redeem

all or any portion of the Notes in cash with a 125% redemption premium.

The Purchasers may also require the Company to redeem all or

any portion of the Notes in cash upon a Change of Control, as defined in the Notes, at the prices set forth therein.

Upon a Bankruptcy

Event of Default (as defined in the Notes), the Company shall immediately pay to the Purchasers an amount in cash representing 100% of

all outstanding principal, accrued and unpaid interest, if any, in addition to any and all other amounts due under the Notes, without

the requirement for any notice or demand or other action by the Purchaser or any other person.

the Company engages in one or more subsequent financings while the Notes are outstanding, the Company will be required to use at

least 100 % of the gross proceeds of such financing to redeem all or any portion of the Notes outstanding.

The Company may also

prepay the Notes in whole or in part at any time or from time to time.

The Notes also contain customary representations and

warranties and covenants of each of the parties.

Subject to certain exceptions, the Notes are secured by a first lien and continuing

security interest in and to the Collateral (as defined in the Notes).

of Failure to Satisfy a Continued Listing Rule

November 25, 2024, the Company received a notice (the “Notice”) from the Nasdaq Stock Market LLC, which indicated that, as

a result of the Company’s delay in filing its Quarterly Report on Form 10-Q for the period ended September 30, 2024, the Company

was not in compliance with Nasdaq Listing Rule 5250(c)(1), which requires Nasdaq-listed companies to timely file all required periodic

financial reports with the U.S.

Securities and Exchange Commission.

Notice states that the Company has until January 24, 2025, to submit to Nasdaq an update to its plan to regain compliance with the Rule.

The Notice also indicates that any additional exception to allow the Company to regain compliance with all delinquent filings will be

limited to up to 180 calendar days from the due date of the Initial Delinquent Filing, or until May 19, 2025.

The Notice has no immediate

effect on the listing of the Company’s securities on Nasdaq.

Company continues to work diligently to complete its Quarterly Report and plans to file its Quarterly Report as promptly as possible

to regain compliance with the Rule.

December 20, 2024, the Company

received a written notification from The Nasdaq Stock Market LLC indicating that the Company was not in compliance with Nasdaq Listing Rule

5550(a)(2) (the “Minimum Bid Price Requirement”), as the Company’s closing bid price for its common stock was below

$ 1.00 per share for the prior thirty (30) consecutive business days.

The Company has been granted a 180-calendar day compliance period,

or until June 18, 2025, to regain compliance with the Minimum Bid Price Requirement.

If the Company is not

in compliance by June 18, 2025, the Company may be afforded a second 180-calendar day compliance period.

If the Company does not regain

compliance within such compliance period, including any granted extensions, its common stock may be subject to delisting, which

delisting may be appealed to a Nasdaq hearings panel.

Common Stock Warrant Reset

On June 24, 2024, the Company entered into a private placement transaction as previously described in NOTE 12.

STOCKHOLDERS’ EQUITY (the “June 2024 Private Placement”).

As part of the June 2024 Private Placement, the Company

issued an aggregate of 1,195,219 units and pre-funded units at a purchase price of $ 2.51 per unit (less $ 0.00001 per pre-funded unit).

Each Unit consisted of (i) one share of common stock, par value $ 0.001 per share, of the Company (the “Common Stock”) (or

one pre-funded warrant to purchase one share of Common Stock), (ii) one Series A warrant to purchase one share of Common Stock (the “Series

A Warrant”) and (iii) one Series B warrant to purchase such number of shares of Common Stock as will be determined on the Reset

Date (as defined below) and in accordance with the terms therein.

The Pre-Funded Warrants were immediately exercisable at an exercise

price of $ 0.0001 per share of Common Stock and were fully exercised in August 2024.

The Series A Warrants became issued and exercisable

on and after the date Stockholder Approval was obtained, has an initial exercise price of $ 2.51 per share of Common Stock and a term of

5 years after the date that the Company obtains Stockholder Approval.

Such Stockholder Approval was obtained at the annual meeting of

shareholders held on December 17, 2024 as described below.

The Series A and B Warrants are now issued and exercisable at any time after

the date Stockholder Approval was obtained (December 17, 2024).

Both the Series A and B warrants are subject to price and quantity resets

based on the lowest daily weighted average trading price of the shares of Common Stock during a period of 20 trading days, subject to

a pricing reset floor of $ 0.502 per share of Common Stock.

Based on the Stockholder Approval date of December 17, 2024 and the weighted

average trading price experienced, the Series A and B warrants both reset to the floor price of $ 0.502 per share and the number of shares

underlying the Series A Warrants and Series B Warrants were reset to approximately 5,976,095 shares and 4,780,877 shares, respectively.

Both the Series A and B warrants are now fully issued and exercisable subsequent to December 17, 2024 .

Common Stock Issuance

The Company issued 353,123 shares of

common stock subsequent to June 30, 2024.

Effectiveness of Registration Statement

Clover Leaf Capital Corp.’s (“Clover Leaf”)

registration statement on Form S-4 was declared effective by the U.S.

Securities and Exchange Commission (the “SEC”) as of Tuesday,

July 30, 2024, relating to the previously announced proposed business combination by and among Clover Leaf, Kustom Entertainment, Inc.

and CL Merger Sub, Inc.

On August 1, the board of directors of the Company (the “Board”)

set the record date for the dividend distribution to August 12, 2024 for determining stockholders entitled to receive the dividend distribution

(the “Record Date”).

issued 698,000 shares

of common stock subsequent to September 30, 2024, upon the exercise of common stock purchase Series B warrants.

On November 6, 2024, the Company entered into a SPA with certain institutional

investors, pursuant to which the Company issued to such institutional investors, in a private placement transaction, (i) senior secured

promissory notes in aggregate principal amount of $ 3,600,000 , and (ii) 808,377 shares of the Company’s common stock, for aggregate

gross proceeds of approximately $ 3.0 million.

of Material Definitive Agreement.

June 1, 2023, the Company and its wholly owned subsidiary Kustom Entertainment, Inc.

(“Kustom”) entered into an Agreement

and Plan of Merger (the “Merger Agreement”) with Clover Leaf Capital Corp., (“Clover Leaf”), and their subsidiary

whereby Kustom and Clover Leaf would merge.

November 7, 2024, pursuant to provisions of the Merger Agreement, the Company, Clover Leaf, and related entities the parties entered

into a Mutual Termination and Release Agreement (the “Termination Agreement”) to terminate the Merger Agreement.

of the Termination Agreement, the Merger Agreement was fully terminated and is of no further force and effect.

to Company Bylaws

November 6, 2024, the Company adopted Amendment No.

1 to its Corporate Bylaws with the approval of the Company’s board of directors.

The Bylaws were amended to reduce the quorum requirement at any meeting of the Company’s stockholders to thirty-three and one-third

percent (33 1/3%) of the stock issued and outstanding and entitled to vote at such meeting.

Company held its annual meeting of stockholders (the “Annual Meeting”) on December 17, 2024 for the following purpose:

elect four directors;

ratify the appointment of RBSM LLP as our independent registered public accounting firm;

approve the transactions contemplated by the securities purchase agreement, entered into as of June 24, 2024, by and between the

Company and investors, including, the issuance of 20 % or more of our outstanding shares of common stock, par value $ 0.001 per share

(the “Common Stock”) upon (i) exercise of Series A Common Stock Purchase Warrant;

and (ii) exercise of Series B Common

Stock Purchase Warrant, each dated June 25, 2024 ;

To approve a proposal to authorize the board of directors of the Company, in its sole and absolute discretion, and without further action of the stockholders, to file an amendment to our articles of incorporation, to effect a reverse stock split of our issued and outstanding Common Stock at a ratio to be determined by the Board, ranging from one-for-five (1:5) to one-for-twenty (1:20) , with such reverse stock split to be effected at such time and date, if at all, as determined by the Board in its sole discretion, but no later than December 16, 2025, when the authority granted in this proposal to implement the reverse stock split would terminate.

above matters were approved by the stockholders at the Annual Meeting on December 17, 2024.

As a result, the Notice of

Failure to Satisfy a Continued Listing Rule described in NOTE 9.

COMMITMENTS AND CONTINGENCIES has been cured with the

election of four members to serve on our Board of Directors at the Annual Meeting on December 17, 2024.

*************************************

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements