What changed in this filing

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Item 1. Business

2026-04-13 compared with 2025-05-02 · 309 added, 431 removed, 168 unchanged (81% of the section changed)

References to “Kustom Entertainment,”

the “Company,” “we,” “us” and “our” refer to Kustom Entertainment, Inc.

were incorporated in Nevada on December 13, 2000 as Vegas Petra, Inc.

From that date until November 30, 2004, when we entered into a

Plan of Merger with Digital Ally, Inc., a Nevada corporation which was formerly known as Trophy Tech Corporation (the “Predecessor

Registrant”), we had not conducted any operations and were a closely-held company.

In conjunction with the merger, we were renamed

Digital Ally, Inc.

On January 2, 2008, we commenced trading on the Nasdaq Capital Market under

the symbol “DGLY.” We conduct our business from 6366 College Blvd., Overland Park, Kansas 66211.

Plan of Merger with Digital Ally, Inc., a Nevada corporation formerly known as Trophy Tech Corporation (the “Predecessor Registrant”),

we had not conducted any operations and were a closely held company.

In conjunction with the merger, we were renamed Digital Ally, Inc.

January 2, 2008, our common stock commenced trading on the Nasdaq Capital Market.

We conduct our business from 6366 College Blvd., Overland

Park, Kansas 66211.

Our telephone number is (913) 814-7774.

Our website address is www.digitalallyinc.com.

The contents of, or information accessible through, our website are not part

of this Annual Report on Form 10-K.

We make our filings with the SEC, including our Annual Report on Form 10-K, Quarterly Reports on Form

10-Q, Current Reports on Form 8-K and all amendments to those reports, as well as beneficial ownership filings available free of charge

on our website as soon as reasonably practicable after we file such reports with, or furnish such reports to, the SEC.

Our filings with

the SEC are available to the public through the SEC’s website at www.sec.gov.

The contents of, or information

accessible through, our website are not part of this Annual Report on Form 10-K.

We make our filings with the SEC, including our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K

and all amendments to those reports, as well as beneficial ownership filings available free of charge on our website as soon as reasonably

practicable after we file such reports with, or furnish such reports to, the SEC.

Our filings with the SEC are available to the public

through the SEC’s website at www.sec.gov.

August 23, 2022 (the “Effective Time”), the Predecessor Registrant merged with and into its wholly owned subsidiary, DGLY

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means the Predecessor Common Stock, and, as of any period at and after the Effective Time, Registrant Common Stock.

business of the Registrant, Digital Ally, Inc.

(with its wholly-owned subsidiaries, Digital Ally International, Inc., Shield

Products, LLC, Digital Ally Healthcare, LLC (“Digital Ally Healthcare”), TicketSmarter, Inc.

(“TicketSmarter”), Worldwide Reinsurance, Ltd., Digital Connect, Inc., BirdVu Jets, Inc., Kustom 440, Inc.

440”), Kustom Entertainment, Inc., (“Kustom”) ,

and its majority-owned subsidiary Nobility Healthcare, LLC, collectively, “Digital Ally,” “Digital,” and the

“Company”), is divided into three reportable operating segments:

1) the Video Solutions Segment, 2) the Revenue Cycle

Management Segment and 3) the Entertainment Segment.

The Video Solutions Segment is our legacy business that produces digital video

imaging, storage products, disinfectant and related safety products for use in law enforcement, security and commercial

applications.

This segment includes both service and product revenues through our subscription models offering cloud and warranty

solutions, and hardware sales for video and health safety solutions.

The Revenue Cycle Management Segment provides working capital

and back-office services to a variety of healthcare organizations throughout the country, charging a monthly service fee.

Entertainment Segment acts as an intermediary between ticket buyers and sellers within our secondary ticketing platform,

ticketsmarter.com, and we also acquire tickets from primary sellers to then sell through various platforms.

In addition, our

Entertainment Segment now includes live event production, including the recently acquired Country Stampede music festival and others.

The accounting guidance on Segment Reporting establishes standards for reporting information regarding operating segments in annual

financial statements and requires selected information of those segments to be presented in financial statements.

The following

table sets forth the Company’s total revenue and the revenue derived from each reportable operating segment:

January 8, 2026, the Company amended its Articles of Incorporation to change its corporate name from Digital Ally, Inc.

to Kustom Entertainment,

The Company’s common stock continues to trade on the Nasdaq Capital Market under the symbol “KUST.” This change

in corporate name did not affect the Company’s legal structure, subsidiaries, assets, liabilities, or obligations.

business of Kustom Entertainment, Inc.

(together with its wholly owned subsidiaries, including Digital Ally International, Inc.,

Shield Products, LLC, Digital Ally Healthcare, LLC, TicketSmarter, Inc., Worldwide Reinsurance, Ltd., Digital Connect, Inc., BirdVu

Jets, Inc., Kustom 440 and Kustom, collectively, the “Company”) is conducted through two reportable operating segments:

(1) the video solutions segment (the “Video Solutions Segment”) and (2) the entertainment segment (the “Entertainment Segment”).

The Video Solutions Segment represents the Company’s legacy operations and includes the development,

manufacture and sale of digital video imaging and storage products, disinfectant and related safety products for use in law

enforcement, security and commercial applications.

Revenues are derived from a combination of product sales and recurring service

revenues, including subscription-based cloud storage and extended warranty offerings.

The Entertainment Segment operates a secondary

ticketing platform through TicketSmarter.com, acting as an intermediary between ticket buyers and sellers.

The Company also acquires

tickets from primary sellers for resale through various distribution platforms.

In addition, this segment includes live event

production and promotion activities, including the Country Stampede music festival and other entertainment events.

previously reported a Revenue Cycle Management Segment, which primarily reflected the operations of Nobility Healthcare, LLC (“Nobility Healthcare”).

Following the sale of Nobility Healthcare on January 8, 2026, the results of this business have been classified as discontinued

operations, and the segment is no longer reported.

Accounting guidance on segment reporting establishes standards for reporting

information regarding operating segments in annual financial statements and requires selected financial information for those

segments to be presented.

The following table sets forth the Company’s total revenue and revenue derived from each reportable

operating segment:

Years Ended December 31,

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Video Solutions

Revenue Cycle Management

Entertainment

Total Net Revenues

information regarding each reportable operating segment is also included in Note 22 entitled Segment Data of “Notes to Consolidated

information regarding each reportable operating segment is also included in Note 22, Operating Segments of “Notes to Consolidated

Financial Statements”.

Solutions Operating Segment

our video solutions operating segment we supply technology-based products utilizing our portable digital video and audio recording

our Video Solutions Segment, we supply technology-based products utilizing our portable digital video and audio recording

capabilities for the law enforcement and security industries and for the commercial fleet and mass transit markets.

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EVO Web Portal, which is our cloud-based

evidence management system for Law enforcement and commercial market;

the EVO Fleet, FLT-250, DVM-250, and DVM-250 Plus, which are

our commercial line of digital video products that serve as “event recorders” for the commercial fleet and mass transit

and FleetVu and VuLink, which are our cloud-based evidence management systems.

We further diversified and broadened our

product offerings in 2020, by introducing two new lines of branded products:

(1) the ThermoVu® which is a line of self-contained

temperature monitoring stations that provides alerts and controls facility access when an individual’s temperature exceeds a

pre-set threshold and (2) our Shield™ disinfectants and cleansers, which are for use against viruses and bacteria.

Revenue from our video solutions operating segment encompasses video recording

products and services for our law enforcement and commercial customers and the sale of Shield TM disinfectant and personal protective

This segment generates revenues through our subscription models offering cloud and warranty solutions, and hardware sales for

video and personal protective safety products and solutions.

Revenues for product sales are recognized upon delivery of the product, and

revenues from our cloud and warranty subscription plans are deferred over the term of the subscription, typically 3 or 5 years.

Cycle Management Operating Segment

We entered the revenue cycle management business late in the second quarter

of 2021 with the formation of our wholly owned subsidiary, Digital Ally Healthcare, Inc.

and its majority-owned subsidiary Nobility Healthcare,

LLC (“Nobility Healthcare”).

Nobility Healthcare completed its first acquisition on June 30, 2021, when it acquired a private

medical billing company, and has since completed three more acquisitions of private medical billing companies, in which we assist in providing

working capital and back-office services to healthcare organizations throughout the country.

Our services consist of insurance and benefit

verification, medical treatment documentation and coding, and collections.

Through our expertise and experience in this field, we aim

to maximize our customers’ service revenues collected, leading to substantial improvements in their operating margins and cash flows.

revenue cycle management segment consists of our medical billing subsidiaries.

Revenues of this segment are recognized after we perform

the obligations of our revenue cycle management services.

Our revenue cycle management services are services, performed and charged monthly,

generally based on a contractual percentage of total customer collections, for which we recognize our net service fees.

evidence management system for the law enforcement market;

the EVO Fleet, FLT-250, DVM-250, and DVM-250 Plus, which are our commercial

line of digital video products that serve as “event recorders” for the commercial fleet and mass transit markets;

FleetVu, which is our cloud-based evidence management system for commercial fleets.

from our Video Solutions Segment is derived from the sale of video recording products and related services to law enforcement and commercial

customers, as well as from the sale of our Shield™ disinfectant and personal protective equipment products.

This segment generates

revenues through subscription models offering cloud and warranty solutions, and hardware sales for video and personal protective

safety products and solutions.

Revenues for product sales are recognized upon delivery of the product, and revenues from our cloud and

warranty subscription plans are deferred over the term of the subscription, typically 3 or 5 years.

Entertainment

Operating Segment

We also provide live entertainment and events ticketing services through

the formation of our wholly owned subsidiary, TicketSmarter and its completed acquisitions of Goody Tickets, LLC and TicketSmarter, LLC,

on September 1, 2021.

TicketSmarter provides ticket sales, partnerships, and mainly, ticket resale services through its online ticketing

marketplace for live events, TicketSmarter.com.

TicketSmarter offers tickets for over 125,000 live events through its platform, for a

wide range of events, including concerts, sporting events, theatres, and performing arts, throughout the country.

Our entertainment operating segment consists of entertainment services

provided through TicketSmarter and its online platform, TicketSmarter.com.

Revenues of this segment include ticketing service charges

generally determined as a percentage of the face value of the underlying ticket and ticket sales from our ticket inventory which are recognized

when the underlying tickets are sold.

This segment’s direct expenses include the cost of tickets purchased for resale by the Company

and held as inventory, credit card fees, ticketing platform expenses, website maintenance fees, and other administrative costs.

provide live entertainment and events ticketing services through our wholly owned subsidiary, TicketSmarter, Inc.

(“TicketSmarter”),

which was formed through the completed acquisitions of Goody Tickets, LLC and TicketSmarter, LLC on September 1, 2021.

Through its online

marketplace, TicketSmarter.com, TicketSmarter offers ticket sales, resale, and partnership services for over 125,000 live events nationwide,

spanning concerts, sporting events, theatre, and performing arts.

Entertainment Segment encompasses all services provided through TicketSmarter and TicketSmarter.com.

Entertainment Segment revenues include

ticketing service charges, generally calculated as a percentage of the face value of the underlying ticket, as well as ticket sales from

Company-held inventory, both of which are recognized upon the sale of the underlying tickets.

Direct expenses include the cost of tickets

purchased for resale and held as inventory, credit card fees, ticketing platform expenses, website maintenance, and other administrative

Cycle Management Segment (Discontinued Operations)

Company entered the revenue cycle management business (the “Revenue Cycle Management Segment”) in the second quarter of

2021 through the formation of its wholly owned subsidiary, Digital Ally Healthcare, Inc.

(“Digital Ally Healthcare”),

and its majority-owned subsidiary, Nobility Healthcare.

Through this segment, the Company

provided end-to-end revenue cycle management services to medical providers throughout the United States, focusing on claim

reimbursement billing, insurance and benefits verification, medical treatment documentation and coding, and collection

Healthcare completed its first acquisition on June 30, 2021, when it acquired a private medical billing company, and subsequently completed

additional acquisitions of private medical billing companies.

The segment served a diverse customer base across multiple medical specialties,

including radiology, oncology, orthopedics, pediatrics, internal medicine and cardiology.

Revenue Cycle Management Segment operated in a highly competitive environment.

Competition included internal revenue cycle management

departments within healthcare organizations, as certain providers elected to make internal investments to perform these services in-house.

The segment also faced competition from other revenue cycle management providers offering similar services, including software vendors,

traditional consulting firms and information technology-based service providers.

The Revenue Cycle Management Segment’s ability

to compete effectively primarily depends on trade secrets and operational know-how and did not depend heavily on proprietary technology

January 8, 2026, the Company completed the sale of Nobility Healthcare.

As a result, the operations of the Revenue Cycle Management

Segment have been classified as discontinued operations in the Company’s consolidated financial statements for all periods presented.

to Note 22 – Operating Segments and Note 23 – Discontinued Operations in the Notes to Consolidated

Financial Statements for additional information regarding the Company’s segments and discontinued operations, including net sales,

operating earnings and total assets by segment.

Digital Video Mirror System for Law Enforcement – EVO-HD, DVM-800 and DVM-800 Lite

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when paired with remote service capabilities.

An internal cell modem will allow for connectivity to EVO Web Portal, powered by

Amazon Web Services (“AWS”) and real time metadata when in the field.

An internal cell modem will allow for connectivity to EVO Web Portal, powered by Amazon

Web Services (“AWS”) and real time metadata when in the field.

Company offers the DVM-800, a continuation in the family of highly successful digital video mirrored (DVM) systems developed by the Company.

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auto-activation technology and can be paired with a FirstVu HD body-worn camera.

Company also offers the DVM-800 Lite, an entry level system with a self-contained video recorder, microphone and digital storage system

that is integrated into a rear-view mirror and is designed for law enforcement.

The system can record up to two internal HD cameras.

Company also offers the DVM-800 Lite, an entry level system that is a self-contained video recorder, microphone and digital storage

system that is integrated into a rear-view mirror and is designed for law enforcement.

The system can record up to two internal HD

Digital Video “Event Recorder” System – EVO Fleet, DVM-250 Plus and FLT-250 for Commercial Fleets

Ally provides commercial fleets and commercial fleet managers with the digital video tools that they need to increase driver safety,

track assets in real-time and minimize the company’s liability risk, all while enabling fleet managers to operate the fleet at an optimal

We market a product designed to address these commercial fleet markets with our EVO Fleet, DVM-250 Plus and FLT-250 event recorders

that provide various types of commercial fleets with features and capabilities that are fully-customizable and consistent with their

specific application and inherent risks.

The DVM-250 Plus is a part of the DVM family and is designed for commercial

fleets, featuring built-in digital audio and video recording technology and other features to provide commercial fleet managers unmatched

driver and asset management – all while aiming to deliver the return on investment that matters most:

the safety and security of

drivers and passengers.

The DVM-250 Plus is designed to capture events, such as wrecks and erratic driving or other abnormal occurrences,

for evidentiary or training purposes.

The commercial fleet markets may find our units attractive from both feature and cost perspective

compared to other providers.

Due to our marketing efforts, commercial fleets, in particular the ambulance and taxi-cab markets, are beginning

to adopt this technology.

The FLT-250 offers the same great

features of the DVM-250 Plus in a new compact, non-mirrored form factor that allows for multiple mounting options in any vehicle type

for commercial fleets.

The non-mirror-based aspect of this product allowed the FLT-250 to become more attractive for our potential customers,

as it is a much simpler plug and play option compared to mirror-based products.

In the fourth quarter of 2022,

Digital Ally released the EVO Fleet, offering a full-featured solution utilizing the latest in telematics technology, including immediate

driver-assist feedback by recognizing (i) pedestrians, (ii) distracted or drowsy driving, and (iii) lane shifting.

We believe that, due

to the new technology, including the Artificial Intelligence interface, live tracking capabilities, up to four streams of video, and video

on command, this product will become very prominent in the market and for our current and potential customers.

Digital Ally offers a suite of

data management web-based tools to assist fleet managers in the organization, archiving, and management of videos and telematics information.

Within the suite, there are powerful mapping and reporting tools that are intended to optimize efficiency, serve as training tools for

teams on safety, and, ultimately, generate a significant return on investment for the organization.

Company provides commercial fleets and commercial fleet managers with digital video tools that they need to increase driver safety,

track assets in real-time and minimize the company’s liability risk while enabling fleet managers to operate the fleet at an

optimal level.

We market a product designed to address these commercial fleet markets with our EVO Fleet, DVM-250 Plus and FLT-250

event recorders that provide various types of commercial fleets with features and capabilities that are fully customizable and

consistent with their specific application and inherent risks.

DVM-250 Plus is a part of the DVM family and is designed for commercial fleets featuring built-in digital audio and video recording technology

and other features to provide commercial fleet managers unmatched driver and asset management – all while aiming to deliver the

return on investment that matters most:

the safety and security of drivers and passengers.

The DVM-250 Plus is designed to capture events,

such as wrecks and erratic driving or other abnormal occurrences, for evidentiary or training purposes.

The commercial fleet markets

may find our units attractive from both a feature and a cost perspective compared to other providers.

Due to our marketing efforts, commercial

fleets are beginning to adopt this technology, and in particular, the ambulance and taxi-cab markets.

FLT-250 offers the same great features of the DVM-250 Plus in a new compact, non-mirrored form factor that allows for multiple mounting

options in any vehicle type for commercial fleets.

The non-mirror-based aspect of this product allowed the FLT-250 to become more attractive

for our potential customers, as it is a much simpler plug and play option compared to mirror-based products.

the fourth quarter of 2022, Digital Ally released the EVO Fleet, offering a full-featured solution utilizing the latest in telematics

technology, including immediate driver-assist feedback by recognizing pedestrians, distracted or drowsy driving, and lane shifting.

believe that, due to the new technology, including the A.I.

interface, live tracking capabilities, up to four streams of video, and video

on command, this product will become a very prominent product in the market and for our current and potential customers.

Company offers a suite of data management web-based tools to assist fleet managers in the organization, archival, and management of videos

and telematics information.

Within the suite, there are powerful mapping and reporting tools that are intended to optimize efficiency,

serve as training tools for teams on safety, and, ultimately, generate a significant return on investment for the organization.

EVO-HD has become the platform for a new family of in-car video solution products for the commercial markets.

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Digital Video System – FirstVu Pro, FirstVu II, and FirstVu HD for Law Enforcement and Private Security

Ally launched two next generation body-worn cameras and docking stations, refreshing the Company’s complete ecosystem of evidence

Company launched two next generation body-worn cameras and docking stations, refreshing the Company’s complete ecosystem of evidence

recording devices.

The latest body worn camera launched by the Company is the FirstVu Pro, the Company’s flagship product in its

family of next generation technology.

family of next generation of technology.

The light weight, one-piece unit captures full HD video and audio, while offering industry leading

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It can be used in law enforcement, private and event security and commercial segments.

Ally still carries the FirstVu HD, the two-piece body-worn camera which allows for multiple mounting options while minimizing space and

Company still carries the FirstVu HD, the two-piece body-worn camera which allows for multiple mounting options while minimizing space

It can be used in law enforcement, private and event security and commercial segments.

This system is also a derivative of our

in-car video systems, but is much smaller and lighter and more rugged and water-resistant to handle a hostile outdoor environment.

FirstVu HD can be used in many applications in addition to law enforcement and private security and is designed specifically to be clipped

to an individual’s pocket or other outer clothing.

The unit is self-contained and requires no external battery or storage devices.

Our FirstVU HD integrates with our in-car video systems through our patented VuLink system, allowing for automatic activation of both

With the newly introduced body-worn cameras, Digital Ally also introduced

two new QuickVu docking stations (QuickVu 8 and QuickVu 24), compatible with the FirstVu PRO and FirstVu II body-worn cameras.

docking stations provide a comprehensive and elegant solution for storing and charging body cameras while uploading video evidence to

QuickVu also allows for rapid reviewing of footage right from the interactive touchscreen display and is available in eight

or twenty-four individual docking bays.

For docking with the FirstVu HD body-worn cameras, Digital Ally offers a 12-bay docking station

and Mini-Docks.

The 12-bay docking station includes a 1TB local memory hard drive which can simultaneously upload 4 hours of video from

12 FirstVu HD cameras within a 15-minute shift change and push configuration updates.

The Mini-Dock is a single unit, portable smart dock

that uploads video evidence to VuVault from a FirstVu HD body camera.

This system is also a derivative of

our in-car video systems but is much smaller and lighter and more rugged and water-resistant to handle a hostile outdoor environment.

The FirstVu HD can be used in many applications in addition to law enforcement and private security and is designed specifically to be

clipped to an individual’s pocket or other outer clothing.

The unit is self-contained and requires no external battery or storage

Our FirstVu HD integrates with our in-car video systems through our patented VuLink system allowing for automatic activation

of both systems.

the newly introduced body-worn cameras, the company also introduced two new QuickVu docking stations (QuickVu 8 and QuickVu 24) compatible

with the FirstVu PRO and FirstVu II body-worn cameras.

The QuickVu docking stations provide a comprehensive and elegant solution for

storing and charging body cameras while uploading video evidence to the cloud.

QuickVu also allows for rapid reviewing of footage right

from the interactive touchscreen display and is available in eight or twenty-four individual docking bays.

For docking with the FirstVu

HD body-worn cameras, the company offers a 12-bay docking station and Mini-Docks.

The 12-bay docking station includes a 1TB local memory

hard drive which simultaneously uploads 4 hours of video from 12 FirstVu HD cameras within a 15-minute shift change and push configuration

The Mini-Dock is a single unit, portable smart dock that uploads video evidence to VuVault from a FirstVu HD body camera.

Auto-activation

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Web and FleetVu Manager

EVO Web is a web-based software, powered by and hosted on the AWS GovCloud

platform, that enables police departments and security agencies to manage digital video evidence quickly and easily.

EVO Web is capable

of playing back, reviewing, downloading and archiving video, as well as unit configuration and management, running customizable reports

and maintaining a chain of custody logs.

AWS is the most secure cloud platform on the market with features that go beyond simply storing

and reviewing video evidence.

The AWS GovCloud platform is trusted by the Department of Justice, Defense Digital Services for the US Air

Web is a web-based software, powered by and hosted on the AWS GovCloud platform, which enables police departments and security agencies

to manage digital video evidence quickly and easily.

EVO Web is capable of playing back, reviewing, downloading, archiving, unit configuration

and management, running customizable reports and maintaining a chain of custody logs.

AWS is the most secure cloud platform on the market

with features that go beyond simply storing and reviewing video evidence.

AWS GovCloud platform is trusted by the Department of Justice,

Defense Digital Services for the US Air Force, U.S.

Department of Treasury, and U.S.

Department of Homeland Security.

Our products that are compatible with EVO Web include:

Pro, FirstVu II, FirstVu HD, QuickVu, EVO-HD, DVM-800 and DVM-800 Lite.

Manager is a web-based software that provides commercial fleet managers with the tools to increase driver safety, track assets in real-time

Our products that

are compatible with EVO Web include:

FirstVu Pro, FirstVu II, FirstVu HD, QuickVu, EVO-HD, DVM-800 and DVM-800 Lite.

Manager is a web-based software that provides commercial fleet managers with tools to increase driver safety, track assets in real-time

and minimize their companies’ liability risks.

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an incident takes place, and enable commercial fleet managers to manage the entire fleet through a single, easy to use platform.

products compatible with FleetVu Manager include:

EVO Fleet, DVM-250 Plus and FLT-250.

Heath Protection Products

Company’s Shield TM brand offers a variety of products to help keep you safe, including Shield Cleansers, ThermoVu,

Shied Disinfectant, and a variety of personal protection equipment including masks, gloves and sanitizer wipes.

Cleansers is a full line of safe and effective hypochlorous acid (HOCl) based products - and is free of toxic bleach, ammonia, methanol,

ethanol, and alcohol ingredients.

Shield Disinfectant is EPA approved and has shown effectiveness against SARS-COV-2, the virus that

causes the novel COVID-19 disease.

Other products in the Shield brand include animal wellness products, wound care, and household cleaning

is a non-contact temperature-screening instrument that measures temperature through the wrist and controls entry to facilities when temperature

measurements exceed pre-determined parameters.

ThermoVu has optional features such as facial recognition to improve facility security

by restricting access based on temperature and/or facial recognition.

ThermoVu provides an instant pass/fail audible tone with

its temperature display and controls access to facilities based on such results.

Company has been distributing other personal protective equipment and supplies, since the second quarter of 2021, such as masks and gloves

to supplement its Shield TM brand of products to health care workers as well as other consumers, consisting of vinyl and nitrile

gloves, level 3 and N95 NIOSH certified face masks, and disposable wipes.

Revenue Cycle Management Operating Segment Products and Services

our revenue cycle management segment, we provide assistance in providing working capital and back-office services to healthcare organizations

throughout the country.

Our RCM operating segment services consist of insurance and benefit verification, medical treatment documentation

and coding, and collections.

Through our expertise and experience in this field, we maximize our customers’ service revenues collected,

leading to substantial improvements in their operating margins and cash flows.

We generally receive a service fee based on a percentage

of the service revenues collected by our customers.

products compatible with FleetVu Manager include EVO Fleet, DVM-250 Plus and FLT-250.

Entertainment Operating Segment Products and Services

our entertainment segment, we provide customers with access to the online live event ticketing marketplace through our online platform

- TicketSmarter.com .

Offering over 48 million tickets for sale for over 125,000 live events, TicketSmarter is a national ticket

marketplace, offering tickets for live events featuring sports, concerts and theatre.

TicketSmarter is the official ticket resale partner

of more than 35 collegiate conferences, over 300 universities, and hundreds of events and venues.

Established in late 2022, Kustom 440 is another piece of the entertainment

segment of the Company, whose mission it is to attract, manage and promote concerts, sports and private events.

Kustom 440 offers the

production and promotion of live music events in third-party venues throughout the country.

These services begin with the logistical matters

of events, including artist booking and research, ticketing, staging, on-site operations, vendor sourcing, and day of production.

events range in size from small corporate events to full stadium multi-day events.

Our entertainment operating segment primarily receives compensation for

its services, generally determined as a percentage of the face-value of the tickets being purchased.

Our entertainment operating segment

also provides customers with access to tickets which it has purchased or received in return for sponsorship or partnership from the venue,

event or owner.

our entertainment operating segment, we provide customers with access to live event tickets via our online marketplace, TicketSmarter.com.

With over 48 million tickets available across more than 125,000 live events, TicketSmarter operates as a national ticketing marketplace

offering tickets for sports, concerts, and theatre events throughout the United States.

TicketSmarter serves as the official ticket resale

partner of more than 35 collegiate conferences, over 300 universities, and hundreds of events and venues nationwide.

in late 2022, Kustom 440 further supports our entertainment segment through the production and promotion of live music, sports, and private

events at third-party venues across the country.

Kustom 440 provides end-to-end event services, including artist booking, ticketing,

staging, vendor sourcing, on-site operations, and day-of production management, for events ranging from small corporate gatherings to

large-scale, multi-day stadium productions.

within our entertainment operating segment are derived primarily from service charges calculated as a percentage of the face value of

tickets sold, as well as from the sale of tickets obtained through direct purchase or received in exchange for sponsorship and partnership

arrangements with venues, events, and rights holders.

Direct expenses include the cost of tickets purchased for resale and held as inventory,

credit card fees, ticketing platform expenses, website maintenance fees, and other associated administrative costs.

and Industry Overview – Video Solutions Operating Segment

Our video solutions segment has historically had a primary market of domestic

and international law enforcement agencies.

We have since expanded our scope by pursuing the commercial fleet vehicle and mass transit

Additionally, we have expanded into event security services, where we provide the hardware and software to supplement private

security for NASCAR races, football and other sporting events, concerts and other events where people gather.

We continue to further expand

our focus on private security, homeland security, mass transit, healthcare, general retail, education, general consumer and other commercial

In that regard, we have several installations involving private security on cruise ships and similar markets.

We believe there

are many potential private uses of our product offerings.

We continue to have sales in the commercial fleet and ambulance service provider

market, confirming that our EVO Fleet, DVM-250 Plus and FLT-250 products and FleetVu Manager can become significant revenue producers

Additionally, our body-worn cameras have applications in law enforcement, along with private and event security, as well as commercial

With the acquisitions we completed in 2021 and 2022, we hope to utilize the connections we now have to live events, stadiums,

and arenas, as well as new medical connections.

and Industry Overview – Revenue Cycle Management Operating Segment

Our revenue cycle management segment consists of end-to-end revenue cycle

management services that focus on claim reimbursement billing, verification, and providing related services to medical providers throughout

We offer agreements with customers in which we provide our services and bill the customers monthly for our services.

healthcare industry in the United States represents a strong portion of the United States’ economy, offering a robust market for

these services.

Our current market includes many diverse specialties, including radiology, oncology, orthopedics, pediatrics, internal

medicine, and cardiology.

We continue to investigate ways to expand our market reach, although can make no assurances in that regard.

Video Solutions segment has historically focused on serving domestic and international law-enforcement agencies.

Over time, we have

expanded our market presence to include the commercial fleet and mass-transit industries and have also entered the event-security

market, where we provide integrated hardware and software solutions that support private-security operations at large public

gatherings, such as NASCAR races, football games, concerts, and other live events.We continue to broaden our focus to include

private-security, homeland-security, mass-transit, healthcare, retail, education, consumer, and other commercial markets.

products have been deployed in a variety of private security settings, including cruise-ship operations, demonstrating the

versatility and adaptability of our technology.

Our EVO Fleet, DVM-250 Plus, and FLT-250 video systems, along with our FleetVu

Manager platform, continue to gain traction within the commercial-fleet and ambulance-service markets.

In addition, our body-worn

camera solutions are used across law-enforcement, private-security, and event-security applications.

Through the acquisitions

completed in 2021 and 2022, we plan to leverage our expanded relationships within live-event, stadium, arena, and medical markets to

further strengthen our presence and expand our revenue opportunities.

and Industry Overview – Entertainment Operating Segment

Our entertainment segment refers to the sale of event tickets primarily

through our online and mobile platforms.

We buy inventory of event tickets to then sell through various platforms, including our own.

Our resale services refer to the sale of tickets by a holder, who originally obtained the tickets directly from a venue or entity, through

our platform, after which we collect services fees on the transaction.

Entertainment Segment refers to the sale of event tickets primarily through our online and mobile platforms.

We will buy inventory of

event tickets to then sell tickets through various platforms, including our own.

Our resale services refer to the sale of tickets by

a holder, who originally obtained the tickets directly from a venue or entity, through our platform in which we then collect services

fees on the transaction.

This is commonly referred to as secondary ticketing.

We work directly

with consumers looking to buy or sell event tickets for particular shows, concerts, games, and other events, allowing a simple and effective

platform to move tickets.

We also offer production and promotion of live music events in third-party venues throughout the country.

services begin with the logistical matters of an event, including artist booking and research, ticketing, staging, on-site operations,

vendor sourcing, and day of production.

We work directly with consumers looking to buy or sell

event tickets for particular shows, concerts, games, and other events, allowing a simple and effective platform to move tickets.

offer production and promotion of live music events in third-party venues throughout the country.

These services begin with the logistical

matters of an event, including artist booking and research, ticketing, staging, on-site operations, vendor sourcing, and day of production.

- Video Solutions Operating Segment

Our video solutions segment, consisting of law enforcement and security

surveillance markets, is extremely competitive.

Competitive factors in these industries include ease of use, quality, portability, versatility,

reliability, accuracy and cost.

There are direct competitors with technology and products in the law enforcement and surveillance markets

for all of our products, including those that are in development.

Many of these competitors have significant advantages over us, including

greater financial, technical, marketing and manufacturing resources, more extensive distribution channels, larger customer bases and faster

response times to adapt to new or emerging technologies and changes in customer requirements.

Our primary competitors in the in-car video

systems market include L-3 Mobile-Vision, Inc., Coban Technologies, Inc., Enforcement Video, LLC d/b/a WatchGuard Video (“WatchGuard”),

Kustom Signals, Panasonic System Communications Company, International Police Technologies, Inc.

and a number of other competitors who

sell, or may in the future sell, in-car video systems to law enforcement agencies.

Our primary competitors in the body-worn camera market

include Axon Enterprises, Inc.

(“Axon”), Reveal Media, WatchGuard, and VieVU, Inc., which was acquired by Axon in 2018.

face similar and intense competitive factors for our event recorders in the commercial fleet and private security markets as we do in

the law enforcement and security surveillance markets.

There can be no assurance that we will be able to compete successfully in these

Further, there can be no assurance that new and existing companies will not enter the law enforcement and security surveillance

markets in the future.

The commercial fleet security and surveillance markets are also very competitive.

Video Solutions Segment, consisting of law enforcement and security surveillance markets, is extremely competitive.

Competitive factors

in these industries include ease of use, quality, portability, versatility, reliability, accuracy and cost.

There are direct competitors

for our FLT-250 and DVM-250 Plus “event recorders,” which may have greater financial, technical, marketing, and manufacturing

resources than we do.

Our primary competitors in the commercial fleet sector include Lytx, Inc.

(previously DriveCam, Inc.), Samsara and

SmartDrive Systems, among others.

– Revenue Cycle Management Operating Segment

revenue cycle management segment is a highly competitive market that is only intensifying as the market continues to grow.

We face competition

from a variety of sources, including internal revenue cycle management departments within healthcare organizations, as these organizations

are beginning to make internal investments in these departments to keep these services in-house.

Additionally, other revenue cycle management

providers exist and offer similar services through software vendors, traditional consultants, and information technology sources.

with technology and products in the law enforcement and surveillance markets for all of our products, including those that are in development.

Many of these competitors have significant advantages over us, including greater financial, technical, marketing and manufacturing resources,

more extensive distribution channels, larger customer bases and faster response times to adapt new or emerging technologies and changes

in customer requirements.

Our primary competitors in the in-car video systems market include L-3 Mobile-Vision, Inc., Coban Technologies,

Inc., Enforcement Video, LLC d/b/a WatchGuard Video (“WatchGuard”), Kustom Signals, Panasonic System Communications Company,

International Police Technologies, Inc.

and a number of other competitors who sell, or may in the future sell, in-car video systems to

law enforcement agencies.

Our primary competitors in the body-worn camera market include Axon Enterprises, Inc.

Reveal Media, WatchGuard, and VieVU, Inc., which was acquired by Axon in 2018.

We face similar and intense competitive factors for our

event recorders in the commercial fleet and private security markets as we do in the law enforcement and security surveillance markets.

There can be no assurance that we will be able to compete successfully in these markets.

Further, there can be no assurance that new

and existing companies will not enter the law enforcement and security surveillance markets in the future.

The commercial fleet security

and surveillance markets likewise are also very competitive.

There are direct competitors for our FLT-250 and DVM-250 Plus “event

recorders,” which may have greater financial, technical marketing, and manufacturing resources than we do.

Our primary competitors

in the commercial fleet sector include Lytx, Inc.

(previously DriveCam, Inc.), Samsara and SmartDrive Systems, among others.

– Entertainment Operating Segment

Our entertainment segment faces robust competition from several sources

throughout the industry.

As the online and mobile ticketing market continues to increase, it has allowed for more technology-based companies

to offer ticketing services and systems.

The online environment consists of numerous other websites and platforms for all markets.

the market continuing to grow, resale marketplaces and websites can reach a vastly larger audience with more convenient access to tickets

for a wide variety of events.

We continue to build our brand and recognition, through numerous partnerships and sponsorships throughout

the country, in an attempt to become a preferred platform for consumers.

The event production portion of this segment faces strong competition

ranging from small festival production companies to large concert production companies and venues.

Reinsurance Ltd.

In December 2021, the Company formed a wholly-owned subsidiary, Worldwide

Reinsurance Ltd.

(“Worldwide Re”), a Bermuda incorporated captive insurance company that was created primarily to provide

liability insurance coverage to the Company for which insurance may not be currently available or economically feasible in today’s

insurance marketplace.

Re is subject to capital and other regulatory requirements imposed by the Bermuda Monetary Authority (“BMA”).

Although these

capital requirements are generally less constraining than U.S.

capital requirements, failure to satisfy these requirements could result

in regulatory actions from the BMA or loss of or modification of Worldwide Re’s Class 1 insurer license, which could adversely

impact our ability to support our insurance needs and to grow this business into another line of business for our holding company.

date, our captive’s relatively immature claims history limits the predictive value of estimating the costs of incurred and future

Accordingly, the captive could continue to incur significant fluctuations in financial results as the captive provides insurance

coverage to Digital Ally and its affiliated businesses and seeks to expand beyond our affiliated companies to offer coverage for third

As of December 31, 2024, Worldwide Re has not begun its planned operations.

The Company has begun the termination of Worldwide Re and it is not likely that it will ever launch the operations of Worldwide Re.

Our Entertainment Segment operates in a highly competitive market across multiple service lines.

The continued growth of online

and mobile ticketing has lowered barriers to entry, enabling an increasing number of technology-based companies to offer ticketing services

and marketplace platforms.

Our ticketing operations compete with numerous established online and mobile platforms serving a broad range

of live event categories, many of which have greater name recognition, larger customer bases, and more substantial financial and marketing

resources than we currently possess.

expansion of the digital ticketing market has enabled resale marketplaces to reach significantly larger audiences while offering consumers

greater convenience and selection.

We seek to differentiate our platform through strategic partnerships and sponsorships with collegiate

conferences, universities, venues, and events throughout the United States, with the objective of establishing TicketSmarter as a preferred

destination for live event ticket purchases.

event production operations conducted through Kustom 440 face competition from a broad spectrum of producers and promoters, ranging from

independent and regional festival production companies to large-scale national concert production firms and established venue operators.

There can be no assurance that we will be able to compete successfully against current or future competitors in either of these service

Property – Video Solutions Operating Segment

video solutions operating segment’s ability to compete effectively will depend on our success in protecting our proprietary technology,

Our Video Solutions Segment’s ability to compete effectively will depend on our success in protecting our proprietary technology,

both in the United States and abroad.

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These supply and distribution agreements

contain certain confidentiality provisions that protect our proprietary technology, as well as that of the third-party manufacturers.

contain certain confidentiality provisions that protect our proprietary technology, as well as those of the third-party manufacturers.

addition to seeking patent protection, we rely on trade secrets, know-how and continuing technological advancement to seek to achieve

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secrets and know-how.

Property – Revenue Cycle Management Operating Segment

revenue cycle management’s operating segment’s ability to compete effectively primarily depends on our trade secrets and

know-how and does not depend heavily on any proprietary technology or patents.

Property – Entertainment Operating Segment

entertainment operating segment’s ability to compete effectively primarily depends on our trade secrets and know-how and does not

Our Entertainment Segment’s ability to compete effectively primarily depends on our trade secrets and know-how and does not

depend heavily on any proprietary technology or patents.

Government Approval

Government approval is not required for us to license

our video solutions technology or sell such devices or products.

However, government support for semiconductors and certain of our target

markets including law enforcement and commercial vehicles, taxi-cab and private security operations may impact the size and growth rate

of video solutions devices and these potential target markets.

In recent years, there has been a trend in both the United States and abroad

to support the adoption of electric vehicles and renewable energy due to increased concern regarding the effects of climate change.

the Trump administration, government support for law enforcement and certain of our potential target markets may or may not continue or

may continue at lower levels than seen with the prior administration.

Government support for video solutions devices especially the application

of artificial intelligence within those video products and our potential target markets could have a material and positive impact on our

A lack of government support, on the other hand, may have a material and negative impact on our business if this lack of support

results in slower adoption of products in our target markets, until such time that the cost and performance improve for these products

enough that government support is unnecessary for mass adoption.

Regardless of the administration in the U.S., the market for video solutions

and our target markets is global and we believe there continues to be strong macro-trends regarding the adoption of video solutions and

associated products.

Environmental

While the Company believes that

it has the environmental permits necessary to conduct its business and that its operations conform to current environmental regulations,

increased public attention has been focused on the environmental impact of video manufacturing operations.

The Company, in

the conduct of its manufacturing operations, has handled and does handle materials that are considered hazardous, toxic or volatile under

federal, state and local laws and, therefore, is subject to regulations related to their use, storage, discharge and disposal.

assurance can be made that the risk of accidental release of such materials can be completely eliminated.

In the event of a

violation of environmental laws, the Company could be held liable for damages and the costs of remediation.

In addition, the Company,

along with the rest of the video solutions industry, is subject to variable interpretations and governmental priorities concerning environmental

laws and regulations.

The annual cost of complying with the regulations is minimal.

Environmental statutes have been interpreted to provide for joint and several

liability and strict liability regardless of actual fault.

There can be no assurance that the Company and its subsidiaries

will not be required to incur costs to comply with, or that the operations, business or financial condition of the Company will not be

materially adversely affected by current or future environmental laws or regulations.

of December 31, 2024, Digital Ally, and its subsidiaries, had approximately 31 full-time employees spread throughout the country, representing

the core values and objectives of the Company.

of December 31, 2025, Kustom Entertainment, Inc, and its subsidiaries, had approximately 30 full-time employees spread throughout the

country, representing the core values and objectives of the Company.

These employees are spread amongst our operating segments as follows:

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Video Solutions

Revenue Cycle Management [1]

Entertainment

Total Employee Headcount

Our revenue cycle management operating segment has no direct employees.

Nobility Healthcare, our minority interest partner, provides all

human capital resources to manage and operate the Company’s revenue cycle management operating segment.

employees are our most important assets, and they set the foundation for our ability to achieve our strategic objectives.

All of our employees

contribute to Digital Ally’s success and, in particular, the employees in our manufacturing, sales, research and development, and

quality assurance departments are instrumental in driving operational execution and strong financial performance, advancing innovation

contribute to Kustom Entertainment’s success and, in particular, the employees in our manufacturing, sales, research and development,

and quality assurance departments are instrumental in driving operational execution and strong financial performance, advancing innovation

and maintaining a strong quality and compliance program.

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can help us gain a competitive advantage.

Our key programs and initiatives that are focused to attract, develop and retain our diverse

Our key programs and initiatives that are focused on attracting, developing and retaining our diverse

workforce include:

Compensation Programs and

Employee Benefits:

the main objective of Digital Ally’s compensation program is to provide a compensation package that will

attract, retain, motivate and reward superior employees who must operate in a highly competitive and technologically challenging

We seek to do this by linking annual changes in compensation to overall Company performance, as well as each individual’s

contribution to the results achieved.

The emphasis on overall Company performance is intended to align the employee’s financial

interests with the interests of shareholders.

Digital Ally also seeks fairness in total compensation, with reference to external comparisons,

internal comparisons and the relationship between management and non-management remuneration.

The structure of our compensation programs

balances incentive earnings for both short-term and long-term performance.

Programs and Employee Benefits:

the main objective of Kustom Entertainment’s compensation program is to provide a compensation

package that will attract, retain, motivate and reward superior employees who must operate in a highly competitive and technologically

challenging environment.

We seek to do this by linking annual changes in compensation to overall Company performance, as well as

each individual’s contribution to the results achieved.

The emphasis on overall Company performance is intended to align the

employee’s financial interests with the interests of shareholders.

Kustom Entertainment also seeks fairness in total compensation

with reference to external comparisons, internal comparisons and the relationship between management and non-management remuneration.

The structure of our compensation programs balances incentive earnings for both short-term and long-term performance.

Specifically:

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options that meet their needs.

SOURCES AND AVAILABILITY OF RAW MATERIAL

The Company purchases its raw

materials from multiple suppliers and has a minimum of two suppliers for most of its material requirements.

The largest supplier

in the fiscal year ended December 31, 2024 and 2023 represented less than 5% of total purchases.

of a diminishing number of sources for components and packages in particular, and the increase in the prices of semiconductor and other

components, the Company has been obliged to pay higher prices, which results in higher costs of goods sold.

Recent Developments

Business Combination - In June 2023, the Company, entered into an Agreement and Plan of Merger (the “Proposed Merger Agreement”)

with Clover Leaf Capital Corp., a Delaware corporation (Nasdaq:

CLOE) (“Clover Leaf”), CL Merger Sub, Inc., a Nevada corporation

and a wholly owned subsidiary of Clover Leaf (“Merger Sub”), Yntegra Capital Investments LLC, a Delaware limited liability

company, in the capacity as the representative from and after the Effective Time (as defined in the Proposed Merger Agreement) for the

stockholders of Clover Leaf in accordance with the terms and conditions of the Merger Agreement, and Kustom.

Pursuant to the Merger Agreement,

subject to the terms and conditions set forth therein upon the consummation of the transactions contemplated by the Proposed Merger Agreement

(the “Closing”), Merger Sub would merge with and into Kustom, with Kustom continuing as the surviving corporation in the Merger

and a wholly owned subsidiary of Clover Leaf.

Upon the Closing which was 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 is 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 Proposed 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 Proposed Merger Agreement.

Offering of Securities - On February 13, 2025, the Company entered into an underwriting agreement with Aegis Capital Corp.

sale and issuance of (i) 7,850,000 units (the “Units”) at a public offering price per Unit of $0.15 with each Unit consisting

of one share of common stock, par value $0.001 per share, one Series A warrant to purchase one share of common stock at an exercise price

of $0.1875 per share and one Series B warrant to purchase one share of common stock at an exercise price of $0.30 and (ii) 92,150,000

pre-funded units at a public offering price of $0.149 per pre-funded unit, with each pre-funded unit consisting of one pre-funded warrant

exercisable for one share of Common Stock at an exercise price of $0.001 per share, one Series A Warrant and one Series B Warrant.

Pre-Funded Warrants will be immediately exercisable and may be exercised at any time until all of the pre-funded warrants are exercised

The Series A and Series B warrants

will be exercisable only upon receipt of stockholder approval of (i) certain terms in the Series A and B warrants and the issuance of

the shares of common stock issuable upon the exercise of such Series A and Series B warrants, as may be required by the applicable rules

and regulations of The Nasdaq Stock Market LLC and (ii) if necessary, a proposal to amend the Company’s Articles of Incorporation,

to increase the authorized share capital of the Company to an amount sufficient to cover the shares of common stock issuable upon the

exercise of the Series A and Series B warrants.

The Series A warrants will be exercisable commencing upon the date of Stockholder Approval

until five years after such approval date, and the Series B Warrants will be exercisable commencing upon the date of Stockholder Approval

until two and one-half years after such date.

The offering closed on February

The net proceeds to the Company from the offering were approximately $13.48 million, after deducting underwriter’s fees

and the payment of other offering expenses associated with the offering payable by the Company.

The Company intends to use the net proceeds

from the offering for working capital and other general corporate purposes, to pay amounts owed under a short-term merchant advance and

to pay in full the aggregate face value of senior secured promissory notes that were previously issued as part of a private placement

that the Company entered into with certain institutional investors on November 6, 2024.

The Company granted the underwriter

an option to purchase additional shares of common stock and/or Series A and Series B warrants of (i) up to 15.0% of the number of shares

of Common Stock sold in the offering, (ii) up to 15.0% of the number of Series A warrants sold in the offering and (iii) up to 15.0% of

the number of Series B warrants sold in the offering.

The Underwriter may exercise this option in whole or in part at any time within

forty-five calendar days after the date of the final prospectus relating to the offering.

The Underwriter may exercise the over-allotment

option with respect to shares of common stock only, Series A and Series B warrants only, or any combination thereof.

The purchase price

to be paid per additional share of Common Stock will be equal to the public offering price of one Unit (less $0.00001 allocated to each

Series A and Series B warrant), as applicable, less the underwriting discount, and the purchase price to be paid per over-allotment Series

A and Series B warrant will be $0.00001.

On February 14, 2025, the Underwriter exercised its over-allotment option with respect to 15,000,000

Series A warrants and 15,000,000 Series B warrants.

Aegis Capital Corp.

the sole book-running manager in the offering, pursuant to the terms of the Underwriting Agreement, and received seven percent (7%) of

the aggregate purchase price paid by investors in the offering, a one percent (1%) non-accountable expense and reimbursement of the legal

fees of its counsel.

The units and pre-funded units

were offered by the Company pursuant to an effective registration statement on Form S-1, as amended, which was declared effective by the

SEC on February 12, 2025.

The final prospectus relating to the offering was filed with the SEC on February 13, 2025.

AND AVAILABILITY OF RAW MATERIAL

Company purchases its raw materials from multiple suppliers and maintains a minimum of two suppliers for most of its material requirements.

The largest supplier in the fiscal years ended December 31, 2025 and 2024 represented less than 5% of total purchases.

Due to a diminishing

number of sources for certain components and packaging materials, combined with rising prices for semiconductors and other key components,

the Company has been obligated to pay higher prices, resulting in increased costs of goods sold.

Additionally, recently enacted or proposed

tariffs on imported goods, including components and raw materials sourced from foreign suppliers, have introduced further pricing uncertainty

and may continue to exert upward pressure on the Company’s cost of goods sold.

The Company continues to monitor developments in

trade policy and evaluate opportunities to mitigate the impact of tariffs through supplier diversification, alternative sourcing arrangements,

and other cost management strategies.

There can be no assurance, however, that such measures will fully offset the financial impact of

tariff-related cost increases.

Memorandum of Understanding for Potential Divestiture - On January 22, 2026, the Company entered into a non-binding Memorandum

of Understanding (“MOU”) with Cycurion, Inc.

(“Cycurion”) regarding the contemplated divestiture of the

Company’s Video Solutions Segment.

The MOU outlines the parties’ intent to pursue a transaction pursuant to which

Cycurion acquires the Video Solutions business for consideration expected to range between approximately $6.0 million and $8.5

million, consisting of a combination of cash and preferred equity of Cycurion.

The MOU is non-binding and subject to the negotiation

and execution of definitive agreements, the completion of due diligence, receipt of any required approvals, and satisfaction of

customary closing conditions.

There can be no assurance that a definitive agreement will be entered into or that the contemplated

transaction will be completed on the terms described, or at all.

Accordingly, the potential transaction is not reflected in the

Company’s consolidated financial statements as of December 31, 2025.

of Revenue Cycle Management Business Segment - On January 8, 2026, Digital Ally Healthcare (the “Seller”) entered

into and closed a Unit Purchase Agreement with Nobility LLC, (the “Buyer”), and Nobility Healthcare,

to the Agreement, the Buyer purchased all of the Seller’s units of ownership interest in Nobility Healthcare, for Closing Funds

(as defined in the Agreement) and a promissory note, totaling $1,450,000, due upon closing.

The Note issued by the Buyer at closing is

in the principal amount of $1,140,499 to the Seller.

Nobility Healthcare has historically issued a total of one hundred thousand (100,000)

Units with Seller owning fifty-one thousand (51,000) of such Units.

The Buyer is an affiliate of the owner of the remaining forty-nine

thousand (49,000) Units.

The Closing Funds are equal to the sum of (i) $100,000 in immediately available funds to be paid to the Seller

at closing and (ii) certain credits totaling $209,501, which closing credits consist of (a) $200,000, the total of two advances made

by the Buyer to the Seller on December 18, 2024 and January 15, 2025 and (b) $9,501 due to the Buyer from Nobility Healthcare for net

working capital advances paid to the Buyer upon signing.

The effective date of the Agreement was January 1, 2026.

The Parties made customary

representations, warranties and covenants in the Agreement.

There is no material relationship between the Company or its affiliates and

any of the other Parties to the Agreement, other than in connection with Nobility Healthcare.

Risk Factors.

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-K

Item 1. Business